10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________

FORM 10-Q

___________________________

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

For the quarterly period ended September 30, 2009

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

CELSIUS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

NEVADA	333-129847	20-2745790
(State or other jurisdiction of  incorporation)	(Commission File Number)	(IRS Employer Identification No.)

140 NE 4th Avenue, Suite C

Delray Beach, FL 33483

(Address of principal executive offices) (Zip Code)

(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 x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer    ¨	Smaller reporting company  x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  ¨    No  x

Number of shares of common stock outstanding as of October 22, 2009 was 152,865,325.

CELSIUS HOLDINGS, INC.

Table of contents

		Page Number
PART  I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Balance Sheets at September 30, 2009 (unaudited) and December 31, 2008	3
	Condensed Consolidated Statements of Operations for three and nine months ended September 30, 2009 and 2008 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for nine months ended September 30, 2009 and 2008 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6- 21
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22-38
Item 3.	Controls and Procedures	39
PART  II.	OTHER INFORMATION
Item 1.	Legal proceedings	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults upon Senior Securities	40
Item 4.	Submission of Matters to a Vote of Security Holders	40
Item 5.	Other Information	40
Item 6.	Exhibits	40
Signatures		41

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Celsius Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
	September 30				December 311
		2009				2008
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	647,598			$	1,040,633
Accounts receivable, net			627,450				192,779
Inventories, net			1,526,880				505,009
Other current assets			240,088				12,155
Total current assets			3,042,016				1,750,576
Property, fixtures and equipment, net			190,819				183,353
Note receivable			-				250,000
Other long-term assets			18,840				18,840
Total Assets		$	3,251,675			$	2,202,769
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	1,354,993			$	612,044
Loans payable			15,000				95,000
Short term portion of other liabilities			22,413				26,493
Due to related parties, short-term portion			1,580,000				120,000
Total current liabilities			2,972,406				853,537
Convertible note payable, net of debt discount			242,539				562,570
Convertible note payable, net of debt
discount, related parties			2,172,742				-
Due to related parties, long-term			125,349				700,413
Other liabilities			60,148				75,022
Total Liabilities			5,573,184				2,191,542
Stockholders’ (Deficit) Equity:
Preferred stock, $0.001 par value; 50,000,000 shares
authorized, 6,092 shares and 4,000 shares issued and outstanding, respectively			6				4
Common stock, $0.001 par value: 1,000,000,000 shares
authorized, 153 million and 149 million shares issued and outstanding, respectively			152,615				148,789
Additional paid-in capital			14,244,067				11,244,802
Accumulated deficit			(16,718,197	)			(11,382,368	)
Total Stockholders’ (Deficit) Equity			(2,321,509	)			11,227
Total Liabilities and Stockholders’ (Deficit) Equity		$	3,251,675			$	2,202,769
1Derived from audited financial statements. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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Celsius Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2009			2008			2009			2008
Net revenue	$	1,343,002		$	435,484		$	3,480,475		$	1,968,975
Cost of revenue		766,553			456,293			1,987,389			1,386,509
Gross profit		576,449			(20,809	)		1,493,086			582,466
Selling and marketing expenses		2,620,103			1,356,642			5,295,383			2,909,993
General and administrative expenses		624,007			434,182			1,427,747			1,322,579
Loss from operations		(2,667,661	)		(1,811,633	)		(5,230,044	)		(3,650,106	)
Other expense:
Interest expense, related party		31,383			5,085			44,864			6,923
Other interest expense, net		18,861			27,507			60,921			285,459
Total other expense		50,244			32,592			105,785			292,382
Net loss	$	(2,717,905	)	$	(1,844,225	)	$	(5,335,829	)	$	(3,942,488	)
Basic and diluted:
Weighted average shares outstanding		150,842,575			136,388,430			149,774,074			122,626,170
Loss per share	$	(0.02	)	$	(0.01	)	$	(0.04	)	$	(0.03	)

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

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Celsius Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
	For the Nine Months			For the Nine Months
	Ended September 30,			Ended September 30,
	2009			2008
Cash flows from operating activities:
Net loss	$	(5,335,829	)	$	(3,942,488	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation		40,035			20,000
Loss on disposal of assets		-			804
Adjustment to allowance for doubtful accounts		(31,800	)		41,721
Adjustment to reserve for inventory obsolescence		(158,297	)		140,456
Issuance of stock options		346,826			165,140
Amortization of debt discount		42,523			199,581
Issuance of shares as compensation		30,125			125,450
Changes in operating assets and liabilities:
Accounts receivable		(402,871	)		(2,864	)
Inventories		(863,574	)		(303,474	)
Prepaid expenses and other current assets		(227,933	)		3,993
Deposit from customer		-			(400,000	)
Accounts payable and accrued expenses		742,949			133,231
Net cash used in operating activities		(5,817,846	)		(3,818,450	)
Cash flows from investing activities:
Purchases of property, fixtures and equipment		(47,501	)		(135,165	)
Net cash used in investing activities		(47,501	)		(135,165	)
Cash flows from financing activities:
Proceeds from sale of common stock
and exercise of stock options		74,142			799,312
Proceeds from sale of preferred stock		2,000,000			1,500,000
Proceeds from convertible notes		2,000,000			990,900
Proceeds from note payable, related party		1,550,000			1,000,000
Proceeds from loans payable		-			80,162
Repayment of loans payable		(98,954	)		(325,870	)
Repayment of debt to related parties		(52,876	)		(54,004	)
Net cash provided by financing activities		5,472,312			3,990,500
Decrease in cash		(393,035	)		36,885
Cash, beginning of period		1,040,633			257,482
Cash, end of period	$	647,598		$	294,367
Supplemental disclosures of cash flow information:
Cash paid during the year for interest	$	79,600		$	154,846
Cash paid during the year for taxes	$	-		$	-
Non-Cash Investing and Financing Activities:
Issuance of shares for note payable	$	105,000		$	1,696,555
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

1.    ORGANIZATION AND DESCRIPTION OF BUSINESS

Celsius Holdings, Inc. (f/k/a Vector Ventures Corp.) (the “Company”) was incorporated under the laws of the State of Nevada on April 26, 2005. The Company was formed to engage in the acquisition, exploration and development of natural resource properties. On December 26, 2006 the Company amended its Articles of Incorporation to change its name from Vector Ventures Corp. to Celsius Holdings, Inc., as well as to increase the authorized shares to 350 million, $0.001 par value common shares and 50 million, $0.001 par value preferred shares. At the annual shareholders’ meeting in June 2009, the number of authorized common shares was increased to 1 billion shares.

Celsius Holdings, Inc. operates in United States through its wholly-owned subsidiaries, Celsius Inc., which acquired the operating business of Elite FX, Inc. (“Elite”) through a reverse merger on January 26, 2007, and Celsius Netshipments, Inc. Celsius, Inc. was incorporated in Nevada on January 18, 2007, and merged with Elite FX, Inc. (“Elite”) on January 26, 2007 (the “Merger”), which was incorporated in Florida on April 22, 2004. Celsius, Inc. is in the business of developing and marketing healthier beverages in the functional beverage category of the beverage industry. Celsius was Elite’s first commercially available product. Celsius is a beverage that burns calories. Celsius is currently available in five sparkling flavors: cola, ginger ale, lemon/lime, orange and wild berry, and two non-carbonated green teas: peach/mango and raspberry/acai. Celsius is also available in its On-the-go packets. Celsius Netshipments, Inc., incorporated in Florida on March 29, 2007, distributes the Celsius beverage via the internet.

Prior to January 26, 2007, the Company was in the exploration stage with its activities limited to capital formation, organization, development of its business plan and acquisition of mining claims. On January 24, 2007, the Company entered into a merger agreement and plan of reorganization with Celsius, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (“Sub”), Elite FX, Inc., a Florida corporation (“Elite”), and Steve Haley, the “Indemnifying Officer” and “Securityholder Agent” of Elite, (the “Merger Agreement”). Under the terms of the Merger Agreement Elite was merged into Sub and became a wholly-owned subsidiary of the Company on January 26, 2007 (the “Merger”).

Under the terms of the Merger Agreement, the Company issued

·   70,912,246 shares of its common stock to the stockholders of Elite, including 1,337,246 shares of common stock issued as compensation, as full consideration for the shares of Elite;

·   warrants to Investa Capital Partners Inc. to purchase 3,557,812 shares of common stock of the Company for $500,000, the warrants were exercised in February 2007;

·   1,391,500 shares of its common stock as partial consideration of termination of a consulting agreement and assignment of certain trademark rights to the name “Celsius”;

·   options to purchase 10,647,025 shares of common stock of the Company in substitution for the options currently outstanding in Elite;

·   1,300,000 shares of its common stock concurrent with the Merger in a private placement to non-US resident investors for aggregate consideration of US$650,000 which included the conversion of a $250,000 loan to the Company.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Celsius Holdings, Inc’s majority stockholder, Mr. Kristian Kostovski, cancelled 7,200,000 shares of common stock of the Company held by him shortly after the close of the Merger Agreement.

For financial accounting purposes, the Merger was treated as a recapitalization of Celsius Holdings, Inc with the former stockholders of Celsius Holdings, Inc retaining approximately 24.6% of the outstanding stock. This transaction has been accounted for as a reverse acquisition and accordingly the transaction has been treated as a recapitalization of Elite, with Elite as the accounting acquirer. The historical financial statements are a continuation of the financial statements of the accounting acquirer, and any difference of the capital structure of the merged entity as compared to the accounting acquirer’s historical capital structure is due to the recapitalization of the acquired entity.

After the merger with Elite FX the Company changed its business to become a manufacturer of beverages. The calorie burning beverage Celsius® is the first brand of the Company.

2.    BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The unaudited condensed consolidated financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the statement of the results for the interim periods presented.

 In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 105, FASB Accounting Standards Codification (“ASC 105”). The statement confirmed that the FASB Accounting Standards Codification (the “Codification”) is the single official source of authoritative GAAP (other than guidance issued by the SEC), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force, and related literature. The Codification does not change GAAP. Instead, it introduces a new structure that is organized in an easily accessible, user-friendly online research.

Going Concern — The accompanying unaudited consolidated financial statements are presented on a going concern basis. The Company has suffered losses from operations that raise substantial doubt about its ability to continue as a going concern. Management is currently seeking new capital or debt financing to provide funds needed to increase liquidity, fund growth, and implement its business plan. However, no assurances can be given that the Company will be able to raise any additional funds. If not successful in obtaining financing, the Company will have to substantially diminish or cease its operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Significant Estimates — The preparation of condensed 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, and such differences could affect the results of operations reported in future periods.

Concentrations of Risk — Substantially all of the Company’s revenue is derived from the sale of the Celsius beverage.

The Company uses single supplier relationships for its raw materials purchases, 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. 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.

Cash and Cash Equivalents — The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents. At September 30, 2009 and December 31, 2008, the Company did not have any investments with maturities greater than three months.

Accounts Receivable — Accounts receivable are reported at net realizable value. The Company has established 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 uncollectable. At September 30, 2009 and December 31, 2008, there was an allowance for doubtful accounts of $21,301 and $53,101, respectively. During the nine months ended September 30, 2009, the Company recognized a reduction to allowance for doubtful accounts of $31,800.

Inventories — Inventories include only the purchase cost and are stated at the lower of cost or market. Cost is determined using the FIFO method. Inventories consist of raw materials and finished products. The Company writes down inventory during the period in which such materials and products are no longer usable or marketable. At September 30, 2009 and December 31, 2008, there was an allowance for obsolescence of $48,748 and $207,045, respectively. During the nine months ended September 30, 2009, the Company wrote down inventory by $158,297.

Property, Fixtures, and Equipment — Furniture, fixtures and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of furniture, fixtures, and equipment is calculated using the straight-line method over the estimated useful life of the asset generally ranging from three to seven years. Depreciation expense recognized in the first nine months of 2009 was $40,035.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Impairment of Long-Lived Assets — Asset impairments are recorded when the carrying values of assets are not recoverable.

The Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, or at least annually. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, the Company recognizes an impairment loss. Impairment losses are measured as the amount by which the carrying amount of assets exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset.

The Company did not recognize an impairment charge during the first nine months of 2009 or 2008, respectively.

Intangible Assets — Intangible assets consist of the web domain name Celsius.com and other trademarks and trade names, and are subject to annual impairment tests. Based upon impairment analyses performed in fiscal years 2009 and 2008, impairment was recorded of nil and $41,500, respectively. The impairment recorded was for expenses for trademarks.

Revenue Recognition — Revenue is recognized when the products are delivered, invoiced at a fixed price and the collectability is reasonably assured. Any discounts, sales incentives or similar arrangement with the customer is estimated at time of sale and deducted from revenue.

Advertising Costs — Advertising costs are expensed as incurred. The Company uses mainly radio, local sampling events and printed advertising. The Company incurred expenses of $2.2 million and $1.2 million, during the first nine months of 2009 and 2008, respectively.

Research and Development — Research and development costs are charged to operations as incurred and consist primarily of consulting fees, raw material usage and test productions of new products. The Company incurred expenses of $46,000 and $245,000, during the first nine months of 2009 and 2008, respectively.

Fair Value of Financial Instruments — The carrying value of cash, accounts receivable, and accounts payable approximates fair value. The carrying value of debt approximates the estimated fair value due to floating interest rates on the debt.

Income Taxes — Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than changes in the tax law or rates. A valuation allowance is recorded when it is deemed more likely than not that a deferred tax asset will be not realized.

Earnings per Share — Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options, convertible notes and warrants (calculated using the reverse treasury stock method). As of September 30, 2009 there were options outstanding to purchase 19.3 million shares, which exercise price averaged $0.22. The dilutive common shares equivalents, including convertible notes, preferred stock and warrants, of 140.6 million shares were not included in the computation of diluted earnings per share, because the inclusion would be anti-dilutive.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Dilutive common shares equivalent table	shares		USD		Dilutive shares
Series A preferred stock		2,081				26,012,500
Series B preferred stock		4,011				80,220,000
Convertible debt
CDS Ventures of South Florida, LLC			$	2,000,000		5,000,000
Lucille Santini			$	615,000		1,537,500
Golden Gate Investors, Inc.			$	346,000		1,153,718
Warrants (in the money)		19,500,000				15,487,395
Stock options (in the money)		13,072,085				11,180,221
Total dilutive common shares						140,591,334

If all dilutive instruments were exercised using the reverse treasury stock method, then the total number of shares outstanding would be 293.2 million shares.

Reclassifications— Certain amounts have been reclassified to conform to the current period presentation, such reclassifications had no effect on the reported net loss.

Recent Accounting Pronouncements

In September 2006, the FASB issued guidance in the Fair Value Measurements and Disclosures Topic of the Codification. This guidance defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. In February 2008, the FASB deferred the effective date of this guidance for one year for all nonfinancial assets and nonfinancial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The Company adopted the guidance effective January 1, 2008 for all financial assets and liabilities.  As of January 1, 2009, the Company adopted the guidance for all non-financial assets and all non-financial liabilities.  There is no impact on the Company’s financial statements as of September 30, 2009.

In December 2007, the FASB issued guidance in the Business Combinations Topic of the Codification. This guidance requires the acquiring entity in a business combination to record all assets acquired and liabilities assumed at their respective acquisition-date fair values including contingent consideration. In addition, this guidance changes the recognition of assets acquired and liabilities assumed arising from pre-acquisition contingencies and requires the expensing of acquisition-related costs as incurred. The guidance applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The Company adopted this guidance effective January 1, 2009. Any impact would be on future acquisitions.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

In December 2007, the FASB issued guidance in the Consolidation Topic of the Codification on the accounting for non-controlling interests in consolidated financial statements. This guidance clarifies the classification of non-controlling interests in consolidated statements of financial position and the accounting for and reporting of transactions between the reporting entity and holders of such non-controlling interests. This guidance is effective as of the beginning of an entity’s first fiscal year that begins on or after December 15, 2008 and is required to be adopted prospectively, except for the reclassification of non-controlling interests to equity and the recasting of net income (loss) attributable to both the controlling and non-controlling interests, which are required to be adopted retrospectively. The Company adopted this guidance effective January 1, 2009. There is no impact on the Company’s financial statements as of September 30, 2009.

In April 2008, the FASB issued guidance in the Intangibles-Goodwill and Other Topic of the Codification on the determination of the useful life of an intangible asset. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company adopted this guidance effective January 1, 2009. There is no impact on the Company’s financial statements as of September 30, 2009.

In June 2008, FASB issued guidance in the Earnings Per Share Topic of the Codification on determining whether instruments granted in share-based payment transactions are participating securities. The guidance clarified that all unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and provides guidance on how to compute basic EPS under the two-class method. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company adopted this guidance effective January 1, 2009 and it had no impact on its financial statements.

In April 2009, the FASB issued guidance in the Fair Value Measurements and Disclosures Topic of the Codification on determining fair value when the volume and level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly. The guidance emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants. The guidance provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability in relation to normal market activity. In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value. The guidance is effective for interim or annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted this guidance effective for the quarter ending June 30, 2009. There is no impact of the adoption on the Company’s financial statements as of September 30, 2009.

In April 2009, FASB issued guidance in the Financial Instruments Topic of the Codification on interim disclosures about fair value of financial instruments. The guidance requires disclosures about the fair value of financial instruments for both interim reporting periods, as well as annual reporting periods. The guidance is effective for all interim and annual reporting periods ending after June 15, 2009 and shall be applied prospectively. The adoption of this guidance had no impact on our financial statements as of September 30, 2009, other than the additional disclosure.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

The FASB issued guidance in the Subsequent Events Topic of the Codification in May 2009. The guidance is intended to establish general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The guidance is effective for interim or annual financial periods ending after June 15, 2009 and is required to be adopted prospectively. The Company adopted this guidance effective for the quarter ending June 30, 2009. The adoption of this guidance had no impact on its financial statements as of September 30, 2009, other than the additional disclosure.

In June 2009, the FASB issued guidance which will amend the Consolidation Topic of the Codification. The guidance addresses the effects of eliminating the qualifying special-purpose entity (QSPE) concept and responds to concerns over the transparency of enterprises’ involvement with variable interest entities (VIEs). The guidance is effective beginning on January 1, 2010. The Company does not expect the adoption of this guidance to have an impact on its financial statements.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring Liabilities at Fair Value” (ASU 2009-05). ASU 2009-05 amends the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification by providing additional guidance clarifying the measurement of liabilities at fair value. ASU 2009-05 is effective for us for the reporting period ending December 31, 2009. The Company does not expect the adoption of ASU 2009-05 to have an impact on its financial statements.

3.    INVENTORIES

Inventories consist of the following at:

	September 30,  2009			December 31, 2008
Finished goods	$	1,466,381		$	581,970
Raw Materials		109,247			130,084
Less: inventory valuation allowance		(48,748	)		(207,045	)
Inventories, net	$	1,526,880		$	505,009

4.    OTHER CURRENT ASSETS

Other current assets at September 30, 2009 and December 31, 2008 consist of prepaid slotting fees, deposits on purchases, prepaid insurance, other accounts receivable and accrued interest receivable.

5.    PROPERTY, FIXTURES, AND EQUIPMENT

Property, fixtures and equipment consist of the following at:

	September 30,  2009			December 31, 2008
Furniture, fixtures and equipment	$	275,883		$	228,332
Less: accumulated depreciation		(85,064	)		(44,979	)
Total	$	190,819		$	183,353

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Depreciation expense amounted to $40,035 and $20,000 during the first nine months of 2009 and 2008, respectively

6.    OTHER LONG-TERM ASSETS

Other long-term assets consist of the following at:

	September 30,  2009			December 31, 2008
Long term deposit on office lease	$	18,840		$	18,840
Intangible assets		41,500			41,500
Less: Impairment of intangible assets		(41,500	)		(41,500	)
Total	$	18,840		$	18,840

7.    NOTE RECEIVABLE

Note receivable from Golden Gate Investors, Inc. (“GGI”) was as of September 30, 2009 and December 31, 2008, nil and $250,000, respectively. On September 8, 2009, the Company and GGI agreed to amend the underlying securities purchase agreement by which the note receivable was netted against the convertible debenture. The Company has an outstanding debenture to the same company in the amount of $346,000. Also see Note 12  -  Long term debenture.

8.    ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following at:

	September 30,  2009		December 31, 2008
Accounts payable	$	708,754	$	411,185
Accrued expenses		551,835		200,859
Accrued expenses		94,404		-
Total	$	1,354,993	$	612,044

9.    DUE TO RELATED PARTIES

Due to related parties consists of the following:

Notes payable	September 30,		December 31,
	2009		2008
The Company entered into a loan and security agreement in December 2008 with CD Financial, LLC, pledging all our assets as security. The line of credit is for $1.0 million, with interest at LIBOR plus 3 percentage points. The line expires in December 2009 and is renewable.	$	550,000	$	-
The Company received advances from one of its shareholders at various instances during 2004 and 2005, $76,000 and $424,000, respectively. The note was refinanced in September 2009 for a convertible note, see below and Note 13.		-		643,916

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

	September 30,			December 31,
	2009			2008
The Company issued a note to CDS Ventures of Florida, LLC in August 2009. The note was refinanced in September 2009 and carries with interest at six percent per annum. The note is due on February 28, 2010.		1,000,000			-
The Company’s CEO loaned the Company $50,000 in February 2006. Moreover, the Company accrued salary for the CEO from March of 2006 through May 2007 for a total of $171,000. In August 2008, the total debt was refinanced, has no collateral and accrues interest at 3%; monthly payments of $5,000 are due with a balloon payment of $64,000 in January 2011.		155,349			176,497
	$	1,735,349		$	820,413
Less: Short-term portion	$	(1,580,000	)	$	(120,000	)
Long-term portion	$	155,349		$	700,413

Convertible note payable	September 30,		December 31,
	2009		2008
Convertible note payable, related party see Note 13		1,741,296		-
Convertible note payable, related party see Note 13		431,446		-
Convertible note payable, long term	$	2,172,742	$	-

Also, see Note 13 – Convertible Note payable, related parties, and Note 14 – Related party transactions.

10.  LOANS PAYABLE

Loans payable consist of the following as of:

	September 30,		December 31,
	2009		2008
The Company terminated a consulting agreement and received in assignment the rights to the trademark “Celsius” from one of its former directors. Payment was issued in the form of an interest-free note payable for $250,000 and 1,391,500 shares of common stock. The note called for monthly amortization of $15,000 beginning March 30, 2007 with final payment of the remaining outstanding balance on November 30, 2007. The Company has not fulfilled its obligation and is paying the debt off at a slower pace.	$	15,000	$	95,000

11.  OTHER LIABILITIES

During 2006 and 2008, the Company acquired a copier and 8 delivery vans, all of them financed. The outstanding balance on the aggregate loans as of September 30, 2009 and December 31, 2008 was $82,561 and $101,515, respectively, of which $22,413 and $26,493, is due during the next 12 months, respectively. The loans carry interest ranging from 5.4% to 9.1%. The total monthly principal payment is $2,099. The assets that were purchased are collateral for the loans.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

12.  CONVERTIBLE NOTE PAYABLE, OTHER

On December 19, 2007, we entered into a securities purchase agreement with Golden Gate Investors, Inc (“GGI”). The agreement included four tranches of $1,500,000 each. The first tranche consisted of a 7.75% convertible debenture (the “Debenture”) issued by the Company, in exchange for $250,000 in cash and a promissory note for $1,250,000 issued by GGI which was to mature on February 1, 2012. The promissory note contained a prepayment provision which required GGI to make prepayments of interest and principal of $250,000 monthly upon satisfaction of certain conditions. One of the conditions to prepayment was that GGI may immediately sell all of the Common Stock Issued at Conversion (as defined in the Debenture) pursuant to Rule 144 of the Securities Act of 1933. The Company was under no contractual obligation to ensure that GGI may immediately sell all of the Common Stock Issued at Conversion pursuant to Rule 144. In the event that GGI could not immediately sell all of the Common Stock Issued at Conversion pursuant to Rule 144, GGI would be under no obligation to prepay the promissory note and likewise under no obligation to exercise its conversion rights under the Debenture. If GGI did not fully convert the Debenture by its maturity on December 19, 2011, the balance of the Debenture was to be offset by any balance due to the Company under the promissory note. The balance of the Debenture can be converted at any time with a conversion price as the lower of (i) $1.00, or (ii) 80% of the average of the three lowest daily volume weighted average price during the 20 trading days prior to GGI’s election to convert. The Company was not obligated to convert the amount requested to be converted into Company common stock, if the conversion price was less than $0.20 per share. GGI’s ownership in the company could not exceed 4.99% of the outstanding common stock. Under certain circumstances the Company could have been forced to pre-pay the debenture with a fifty percent penalty of the pre-paid amount.

GGI did not make its note payment due on October 21, 2008.  On September 8, 2009, the Company entered into an addendum to the agreement with GGI. The balance of the note receivable, $250,000 was netted against the balance of the Debenture. The outstanding balance of the debenture as of September 30, 2009 was $346,000. All future tranches were cancelled and terminated without penalty to either party.

The Company recorded a debt discount of $186,619 with a credit to additional paid in capital for the intrinsic value of the beneficial conversion feature of the conversion option at the time of issuance. The debt discount is being amortized over the term of the debenture. The Company recorded $34,969 as interest expense amortizing the debt discount during the first nine months of 2009 and 2008, respectively. The Company considered requirements by the Derivatives and Hedging Topic of the FASB Accounting Standards Codification (“ASC”) and other guidance and concluded that the conversion option should not be bifurcated from the host contract and the conversion option is recorded as equity and not a liability.

During 2008, the Company received $1,000,000 in payment on the note receivable. From June 2008 to June 2009, the Company converted $879,000 of the debenture to approximately 18.0 million shares of Common Stock and the Company paid $25,000 of the debenture in cash. The outstanding liability, net of debt discount, as of September 30, 2009 and December 31, 2008 was $242,538 and $562,570, respectively. Subsequent to the end of the period, GGI has converted additional $210,000 of the debenture for 700,233 shares of Common Stock.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

13.  CONVERTIBLE NOTE PAYABLE, RELATED PARTIES

The Company entered into a loan agreement for up to $6.5 million in September, 2009 and issued a convertible note to one of its shareholders. The Company had drawn $2.0 million as of September 20, 2009. The note carries interest of one month LIBOR plus 3%, payable the first time on the anniversary of the agreement, thereafter quarterly. The loan matures on September 9, 2012. The outstanding balance can be immediately converted into the Company’s common stock at a conversion price from September 8, 2009 through and including December 31, 2011, equal to the lesser of (i) $0.40 per share, or (ii) the average of the ten daily VWAPs for the 10 Trading Days immediately preceding the date on which a conversion notice is received (defined in the note as the “Market Price”); or (B) after December 31, 2011 the greater of  (i) $0.40 per share, or (ii) the Market Price; provided that, the conversion price shall never be less than $0.10 (ten cents) regardless of the Market Price on the conversion date. The Company recorded a debt discount totaling $262,500 with a credit to additional paid in capital for the intrinsic value of the beneficial conversion feature of the conversion option at the time of each draw on the loan. The debt discount is being amortized over the remaining term of the debenture. The Company recorded $3,796 as interest expense amortizing the debt discount in September 2009. The Company considered requirements by the Derivatives and Hedging Topic of the ASC and other guidance and concluded that the conversion option should not be bifurcated from the host contract and the conversion option is recorded as equity and not a liability.

The Company entered into a refinance agreement for $615,000 in September, 2009 and issued a convertible note to one of its shareholders. The Company restructured an already existing note issued to the shareholder. The outstanding balance can be immediately converted in the Company common stock at a conversion price from September 8, 2009 through and including December 31, 2011, equal to the lesser of (i) $0.40 per share, or (ii) the average of the ten daily VWAPs for the 10 Trading Days immediately preceding the date on which a conversion notice is received (defined in the note as the “Market Price”); or (B) after December 31, 2011 the greater of  (i) $0.40 per share, or (ii) the Market Price; provided that, the conversion price shall never be less than $0.10 (ten cents) regardless of the Market Price on the conversion date. The Company recorded a debt discount totaling $184,500 with a credit to additional paid in capital for the intrinsic value of the beneficial conversion feature of the conversion option at the time of issuance. The debt discount is being amortized over the term of the debenture. The Company recorded $3,758 as interest expense amortizing the debt discount in September 2009. The Company considered requirements by the Derivatives and Hedging Topic of the ASC and other guidance and concluded that the conversion option should not be bifurcated from the host contract and the conversion option is recorded as equity and not a liability.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

14.  PREFERRED STOCK

On August 8, 2008, the Company entered into a securities purchase agreement (“SPA1”) with CDS Ventures of South Florida, LLC (“CDS”), an affiliate of CD Financial, LLC (“CD”). Pursuant to SPA1, the Company issued 2,000 Series A preferred shares (“Preferred A Shares”), as well as a warrant to purchase an additional 1,000 Preferred A Shares, for a cash payment of $1.5 million and the cancellation of two notes in aggregate amount of $500,000 issued to CD. The Preferred A Shares can be converted into Company common stock at any time. SPA1 was amended on December 12, 2008 to provide that until December 31, 2010 the conversion price is $0.08, after which the conversion price is the greater of $0.08 or 90% of the volume weighted average price of the Common Stock for the prior 10 trading days. Pursuant to SPA1, the Company also entered into a registration rights agreement, pursuant to which the Company filed a registration statement for the common stock issuable upon conversion of Preferred A Shares. The registration statement filed in connection with the Preferred A Shares was declared effective on May 14, 2009. The Preferred A Shares accrue a ten percent annual cumulative dividend, payable in additional Preferred A Shares. In March 2009, the Company issued 81 Preferred A Shares in dividends. The Preferred A Shares mature on February 1, 2013 and are redeemable only in Company Common Stock.

On December 12, 2008, the Company entered into a second securities purchase agreement (“SPA2”) with CDS. Pursuant to SPA2 the Company issued 2,000 Series B preferred shares (“Preferred B Shares”), as well as a warrant to purchase additional 2,000 Preferred B Shares, for a cash payment of $2.0 million. The Preferred B Shares can be converted into Company common stock at any time. Until December 31, 2010, the conversion price is $0.05, after which the conversion price is the greater of $0.05 or 90% of the volume weighted average price of the common stock for the prior 10 trading days. Pursuant to SPA2, the Company also entered into a registration rights agreement, pursuant to which the Company filed on October 9, 2009, a registration statement for the common stock issuable upon conversion of Preferred B Shares. The Preferred B Shares accrue a ten percent annual cumulative dividend, payable in additional Preferred B Shares. In March 2009, the Company issued 11 Preferred B Shares in dividends. The Preferred B Shares mature on December 31, 2013 and are redeemable only in Company Common Stock.

On March 31, 2009, CDS exercised its right to purchase additional 2,000 Preferred B Shares and executed a subscription agreement for $2.0 million. The monies for the subscription were paid on April 7 and May 1, 2009.

Certain covenants of both Series A and B preferred shares restrict the Company from entering into additional debt arrangements or permitting liens to be filed against the Company’s assets, without approval from the holder of the preferred shares. There is a mandatory redemption in cash, if the Company breaches certain covenants of the agreements. The holders have liquidation preference in case of company liquidation. The Company has the right to redeem the preferred shares early by the payment in cash of 104% of the liquidation preference value. The Company may redeem Series A at any time on or after July 1, 2010 and Series B at any time on or after January 1, 2011.

The following table sets forth the conversion of Preferred Stock into common stocks:

Convertible Stock	Number shares		Value/share		Convertible into number of common Stock
Preferred A		2,081	$	1,000.00		26,012,500
Preferred B		4,011	$	1,000.00		80,220,000
Total						106,232,500

The number of shares converted into is based on the current conversion price.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

15.  RELATED PARTY TRANSACTIONS

The CEO has guaranteed the Company’s obligations under the factoring agreement with Bibby Financial Services, Inc. The agreement was terminated in December 2008 and no balance is outstanding. The CEO has also guaranteed the financing for the Company’s offices and purchases of vehicles. The CEO has not received any compensation for the guarantees.

The Company entered into a 6-month lease starting October 1, 2009, for office premises with CDR Atlantic Plaza, Ltd (“CDR”), a company controlled by Carl DeSantis, an affiliate to the company. The total lease payments in the agreement total $24,000.

Also, see Note 9 – Due to related parties, 13 – Preferred Stock and 14 – Convertible note payable, related parties.

16.  STOCKHOLDERS’ DEFICIT

Issuance of common stock pursuant to conversion of note

In January 2008, the Company restructured the then outstanding balance of a note and issued 1 million unregistered shares for an equivalent value of $121,555, and a new non-interest bearing note for $105,000. Thenote calls for 7 monthly principal payments beginning March 1, 2008. The Company paid off the outstanding balance as of December 31, 2008.

In June 2008, the Company issued 11,184,016 unregistered shares as conversion of notes for $750,000 that were originally issued in December 2007 and April 2008.

In June through September, 2008, the Company issued 9,107,042 as a partial conversion of a debenture for $575,000 originally issued in December 2007. In October through December, 2008, the Company issued 7,739,603 shares as a partial conversion of the same debenture for $199,000. The Company issued 1,168,817 shares as a partial conversion of the same debenture for $105,000 in May 2009.

Issuance of common stock pursuant to services performed

In March 2008, the Company issued a total of 750,000 unregistered shares as compensation to an international distributor at a fair value of $120,000.

In September through December, 2008, the Company issued a total of 183,135 unregistered shares as compensation to a consultant and a distributor at a fair value of $11,450.

During the nine months ended September 30, 2009, the Company issued a total of 278,506 unregistered shares as compensation to a consultant and a distributor at a fair value of $30,125.

Issuance of common stock pursuant to exercise of warrant and stock options

On February 15, 2008, the Company issued 16,671 shares of unregistered common stock in accordance to its 2006 Stock Incentive Plan to an employee exercising vested options.

On January 13, 2009, the Company issued 16,671 shares of common stock in accordance to its 2006 Stock Incentive Plan to an employee exercising vested options.

In August and September, 2009, the Company issued 2,361,894 shares of common stock in accordance to its 2006 Stock Incentive Plan to four employees exercising vested options.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Issuance of common stock pursuant to private placements

In February 2008 the Company issued a total of 3,198,529 unregistered shares of common stock in private placements for an aggregate consideration of $298,900, net of commissions.

In March 2008 the Company issued a total of ten million unregistered shares of common stock in a private placement, for an aggregate consideration of $500,100. In addition, the investor received a warrant to purchase seven million unregistered shares of common stock during a 3-year period, at an exercise price of $0.13 per share. Of the total consideration, $100,000 was paid in March and $400,100 was paid on April 7, 2008.

Issuance of preferred stock pursuant to private placement

In August 2008, the Company issued 2,000 unregistered Preferred A Shares, as well as a warrant to purchase additional 1,000 Preferred A Shares, for a cash payment of $1.5 million and the cancellation of two notes in aggregate amount of $500,000.

In December 2008, the Company issued 2,000 unregistered Preferred B Shares, as well as a warrant to purchase additional 2,000 Preferred B Shares, for a cash payment of $2.0 million.

On March 31, 2009, CDS exercised its right to purchase additional 2,000 Preferred B Shares and executed a subscription agreement for $2 million payment. CDS made payments of $1 million each on April 7 and May 1, 2009.

Also, see Note 13 – Preferred Stock.

17.  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. Until 2017, options to acquire up to 16.0 million 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.

At September 30, 2009, the Company has issued approximately 15.9 million options to purchase shares at an average price of $0.07 with a fair value of $725,000. For the nine months ended September 30, 2009 and 2008, respectively, the Company recognized $346,826 and $165,140 of non-cash compensation expense, respectively, (included in General and Administrative expenses in the accompanying Consolidated Statement of Operations). As of September 30, 2009 and December 31, 2008, the Company had approximately $2.8 million and $192,000, respectively, of unrecognized pre-tax non-cash compensation expense which the Company expects to recognize, based on a weighted-average period of 1.5 and 0.9 years, respectively. The Company used the Black-Scholes option-pricing model and 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 5.8 million shares that have vested, and 2. shares were exercised as of September 30, 2009. The following is a summary of the assumptions used:

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Risk-free interest rate	1.6% - 4.9%
Expected dividend yield	—
Expected term	3 – 5  years
Expected annual volatility	73% - 167%

In March, 2008, the Company issued a total of 750,000 unregistered shares as compensation to an international distributor at a fair value of $120,000.

In September through December, 2008, the Company issued a total of 183,135 unregistered shares as compensation to a consultant and a distributor at a fair value of $11,450. During the nine months ended September 30, 2009, the Company issued a total of 278,506 unregistered shares as compensation to a consultant and a distributor at a fair value of $30,125.The consultant will receive additional shares with fair value of $2,000 monthly as long as the consultancy agreement continues.

18.  WARRANTS

An investment banking firm received, as placement agent for financing received from Fusion Capital Fund II, LLC (“Fusion Capital”), a warrant to purchase 75,000 shares at a price of $1.31 per share. If unexercised, the warrant expires on June 22, 2012.

In March, 2008 the Company issued a total of 10,000,000 unregistered shares of common stock in a private placement, for an aggregate consideration of $500,100. In addition, the investor received a warrant to purchase seven million unregistered shares of common stock at an exercise price of $0.13 per share. If unexercised, the warrant expires on March 28, 2011.

On August 8, 2008, the Company entered into a securities purchase agreement with CDS, as further described in Note 13 – Preferred Stock. In connection with the security purchase, CDS received a warrant to purchase an additional 1,000 Preferred A Shares, at a price of $1,000 per share. If unexercised, the warrant expires on July 10, 2010. The Preferred A Shares can be converted into our common stock at any time. Until the December 31, 2010, the conversion price is $0.08, after which the conversion price is the greater of $0.08 or 90% of the volume weighted average price of the common stock for the prior 10 trading days. The Preferred A Shares accrue ten percent annual cumulative dividend, payable in additional Preferred A Shares.

On December 12, 2008, the Company entered into a second securities purchase agreement with CDS, as further described in Note 13 – Preferred Stock. In connection with the security purchase, CDS received a warrant to purchase an additional 2,000 Preferred B Shares, at a price of $1,000 per share, which was exercised in full on March 31, 2009. The Preferred B Shares can be converted into our common stock at any time. Until December 31, 2010, the conversion price is $0.05, after which the conversion price is the greater of $0.05 or 90% of the volume weighted average price of the common stock for the prior 10 trading days. The Preferred B Shares accrue a ten percent annual cumulative dividend, payable in additional Preferred B Shares. On March 31, 2009, CDS exercised its warrant. See also Note 13 – Preferred Stock.

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Celsius Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

	Period Ended September 30, 2009					Year Ended December 31, 2008
	Thousands of Warrants			Weighted Average Exercise Price		Thousands of Warrants		Weighted Average Exercise Price
Balance at the beginning of period		59,575		$	0.07		75	$	1.31
Granted		—			—		59,500	$	0.07
Exercised		(40,000	)	$	0.05		—		—
Expired		—			—		—		—
Balance at the end of period		19,575		$	0.10		59,575	$	0.07
Warrants exercisable at end of period		19,575		$	0.10		59,575	$	0.07
Weighted average fair value of the
warrants granted during the year					—			$	0.03

The weighted average remaining contractual life and weighted average exercise price of warrants outstanding and exercisable at September 30, 2009, for selected exercise price ranges, is as follows:

Range of  Exercise Price	Number Outstanding at September 30, 2009 (000s)	Weighted Average Remaining Life	Weighted Average Exercise Price
$0.08	12,500	1.0	$0.08
$0.13	7,000	1.7	$0.13
$1.31	75	3.0	$1.31
	19,575	1.5	$0.10

19.   COMMITMENTS AND CONTINGENCIES

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. In one such distribution agreement, the liquidated damages are payable in common stock rather than cash. If such agreement is terminated without cause, the potential liability is to have to issue shares to the distributor at a purchase price of $0.06. The quantity of shares depends on this distributor’s purchases from the Company as compared to the Company’s total revenue. It is managements’ belief that no liability for liquidated damages exists as of today’s date.

20.   BUSINESS AND CREDIT CONCENTRATION

Substantially all of the Company’s revenue is derived from the sale of the Celsius beverage.

The Company uses single supplier relationships for its raw materials purchases, 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. No vendor accounted for more than 10% of total payments in 2009.

From April to June, 2008, the Company sold in one order to one international customer 15.9% of the Company’s total revenue for the year 2008. There is no assurance that this customer will order again. There were three customers in the nine months ended September 30, 2009, that each accounts for more than 10% of the Company’s net revenue for the period.

21.   SUBSEQUENT EVENTS

After quarter end GGI converted additional $210,000 of the convertible debenture to 700,233 shares of Common Stock.

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ITEM 2.       MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements, as well as the financial statements and related notes included in our September 30, 2009 Form 10-Q. Dollar amounts of $1.0 million or more are rounded to the nearest one tenth of a million; all other dollar amounts are rounded to the nearest one thousand dollars and all percentages are stated to the nearest one tenth of one percent.

Current Business of our Company

We operate in the United States through our wholly-owned subsidiaries, Celsius Inc., which acquired the operating business of Elite FX, Inc. (“Elite”) through a reverse merger on January 26, 2007, and Celsius Netshipments, Inc. Celsius, Inc. is in the business of developing and marketing healthier functional beverages in the functional beverage category of the beverage industry. Celsius was Elite’s first commercially available product. Celsius is a calorie burning beverage. Celsius is currently available in five sparkling flavors: cola, ginger ale, lemon/lime, orange and wild berry, and in two non-carbonated green teas with flavors of peach/mango and raspberry/acai. Celsius is also available in its On-the-go packets. Celsius Netshipments, Inc., incorporated in Florida on March 29, 2007, distributes the Celsius beverage via the internet. Our focus is on increasing sales of our existing products.

A major objective for the Celsius brand is to create a new beverage category, calorie burners, we utilize a multi-channel route-to-market strategy. This includes distributing through direct-store-delivery distributors and wholesalers to some channels of trade (convenience, grocery, health clubs, etc) as well as shipping direct-to-retailer for others (drug, mass, etc.).

We have currently signed up distributors in many of the larger markets in the US (Atlanta, Florida, Michigan, New England, Ohio, Texas, etc).

Our principal executive offices are located at 140 NE 4th Avenue, Delray Beach, FL 33483. Our telephone number is (561) 276-2239 and our website is http://www.celsius.com. The information contained on our web sites do not constitute part of, nor is it incorporated by reference into this Report on Form 10-Q.

Industry Overview

The functional beverage market includes a wide variety of beverages with one or more added ingredients to satisfy a physical or functional need, which often carries a unique and sophisticated imagery and a premium price tag. The five fastest-growing segments of the functional beverage market include: herb-enhanced fruit drinks, ready-to-drink (RTD) teas, sports drinks, energy drinks, and single-serve (SS) fresh juice.

Our Products

In 2005, Elite introduced Celsius to the beverage marketplace and it is our first product. Multiple clinical studies have shown that a single 12 ounce serving raises metabolism over a 3 to 4 hour period. Quantitatively, the energy expenditure was on average over 100 calories from a single serving.

It is our belief that clinical studies proving product claims will become more important as more and more beverages are marketed with functional claims. Celsius was one of the first beverages to be launched along with a clinical study. Celsius is also one of very few that has clinical research on the actual product. Some beverage companies that do mention studies backing their claims are actually referencing independent studies conducted on one or more of the ingredients in the product. We believe that it is important and will become more important to have studies on the actual product.

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Two different research organizations have statistically proven the Celsius calorie burning capability in four clinical studies. This product line, which is referred to as our “core brand”, competes in the “functional beverage” segment of the beverage marketplace with distinctive flavors and packaging. This segment includes herb-enhanced fruit drinks, ready-to-drink (RTD) teas, sports drinks, energy drinks, and single-serve (SS) fresh juice. By raising metabolism for the extended period of three to four hours, Celsius provides a negative calorie effect (burn more than you consume) as well as energy.

We currently offer Celsius in five sparkling flavors: cola, ginger ale, lemon/lime, orange and wild berry, and in two non-carbonated green teas flavors: peach/mango and raspberry/acai. We have developed and own the formula for this product including the flavoring. The formulation and flavors for these products are produced under contract by concentrate suppliers. We have also started to market a Celsius On-the-go packet, that contains the active ingredients of the Celsius beverage and it is mixed with water to make a beverage.

Celsius is currently packaged in distinctive twelve ounce sleek cans that are in vivid colors in abstract patterns to create a strong on-shelf impact. The cans are sold in single units or in packages of four. The graphics and clinically tested product are important elements to Celsius and help justify the premium pricing of $1.79 to $2.19 per can.

Clinical Studies

We have funded five U.S. based clinical studies for Celsius. Each conducted by research organizations and each studied the total Celsius formula. The first study was conducted by the Ohio Research Group of Exercise Science and Sports Nutrition. The second, third and fourth studies were conducted by the Applied Biochemistry & Molecular Physiology Laboratory of the University of Oklahoma. We entered into a contract with the University of Oklahoma to pay for part of the cost of the clinical study. In addition, we provided Celsius beverage for the studies and paid for the placebo beverage used in the studies. None of our officers or directors are in any way affiliated with either of the two research organizations.

The first study was conducted by the Ohio Research Group of Exercise Science and Sports Nutrition. The Ohio Research Group of Exercise Science & Sports Nutrition is a multidisciplinary clinical research team dedicated to exploring the relationship between exercise, nutrition, dietary supplements and health, www.ohioresearchgroup.com. This placebo-controlled, double-blind cross-over study compared the effects of Celsius and the placebo on metabolic rate. Twenty-two participants were randomly assigned to ingest a twelve ounce serving of Celsius and on a separate day a serving of twelve ounces of Diet Coke®. All subjects completed both trials using a randomized, counterbalanced design. Randomized means that subjects were selected for each group randomly to ensure that the different treatments were statistically equivalent. Counterbalancing means that individuals in one group drank the placebo on the first day and drank Celsius on the second day. The other group did the opposite. Counterbalancing is a design method that is used to control ‘order effects’. In other words, to make sure the order that subjects were served, does not impact the results and analysis.

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Metabolic rate (via indirect calorimetry, measurements taken from breaths into and out of calorimeter) and substrate oxidation (via respiratory exchange ratios) were measured at baseline (pre-ingestion) and for 10 minutes at the end of each hour for 3 hours post-ingestion. The results showed an average increase of metabolism of twelve percent over the three hour period, compared to statistically insignificant change for the control group. Metabolic rate, or metabolism, is the rate at which the body expends energy. This is also referred to as the “caloric burn rate”. Indirect calorimetry calculates heat that living organisms produce from their production of carbon dioxide. It is called “indirect” because the caloric burn rate is calculated from a measurement of oxygen uptake. Direct calorimetry would involve the subject being placed inside the calorimeter for the measurement to determine the heat being produced. Respiratory Exchange Ratio is the ratio oxygen taken in a breath compared to the carbon dioxide breathed out in one breath or exchange. Measuring this ratio can be used for estimating which substrate (fuel such as carbohydrate or fat) is being metabolized or ‘oxidized’ to supply the body with energy.

The second study was conducted by the Applied Biochemistry & Molecular Physiology Laboratory of University of Oklahoma. This blinded, placebo-controlled study was conducted on a total of sixty men and women of normal weight. An equal number of participants were separated into two groups to compare one serving (12oz) of Celsius to a placebo of the same amount. According to the study, those subjects consuming Celsius burned significantly more calories versus those consuming the placebo, over a three hour period. The study confirmed that over the three hour period, subjects consuming a single serving of Celsius burned sixty-five percent more calories than those consuming the placebo beverage and burned an average of more than one hundred calories compared to placebo. These results were statistically significant.

The third study, also conducted by the Applied Biochemistry & Molecular Physiology Laboratory of University of Oklahoma, extended our second study with the same group of sixty individuals and protocol for 28 days and showed the same statistical significance of increased calorie burn (minimal attenuation). While the University of Oklahoma study did extend for 28 days, more testing would be needed for long term analysis of the Celsius calorie burning effects. Also, these studies were on relatively small numbers of subjects, they have statistically significant results. Additional studies on a larger number and wider range of body compositions can be considered to further the analysis.

Our fourth study, also conducted by the Applied Biochemistry & Molecular Physiology Laboratory of University of Oklahoma, combined Celsius with exercise. This 10-week placebo-controlled, randomized and blinded study was conducted on a total of 37 subjects. Participants were randomly assigned into one of two groups: Group 1 consumed one serving of Celsius per day, and Group 2 consumed one serving of an identically flavored and labeled placebo beverage. Both groups participated in 10 weeks of combined aerobic and weight training, following the American College of Sports Medicine guidelines of training for previously sedentary adults. The results showed that consuming a single serving of Celsius prior to exercising may enhance the positive adaptations of exercise on body composition, cardiorespiratory fitness and endurance performance. According to the preliminary findings, subjects consuming a single serving of Celsius lost significantly more fat mass and gained significantly more muscle mass than those subjects consuming the placebo - a 93.75% greater loss in fat and 50% greater gain in muscle mass, respectively. The study also confirmed that subjects consuming Celsius significantly improved measures of cardiorespiratory fitness and the ability to delay the onset of fatigue when exercising to exhaustion.

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Our fifth study, also conducted by the Applied Biochemistry & Molecular Physiology Laboratory of University of Oklahoma, combined Celsius with exercise. This 10-week placebo-controlled, randomized and blinded study was conducted on a total of 27 previously sedentary overweight and obese female subjects. Participants were randomly assigned into one of two groups: Group 1 consumed one serving of Celsius per day, and Group 2 consumed one serving of an identically flavored and labeled placebo beverage. Both groups participated in 10 weeks of combined aerobic and weight training, following the American College of Sports Medicine guidelines of training for previously sedentary adults. No changes were made to their diet. The results showed that consuming a single serving of Celsius prior to exercising may improve cardiovascular health and fitness and enhance the positive adaptations of exercise on body composition. According to the preliminary findings, subjects consuming a single serving of Celsius lost significantly more fat mass and gained significantly more muscle mass when compared to exercise alone - a 46% greater loss in fat, 27% greater gain in muscle mass, respectively. The study also confirmed that subjects consuming Celsius significantly improved measures of cardiorespiratory fitness - 35% greater endurance performance with significant improvements to lipid profiles – total cholesterol decreases of 5 to 13% and bad LDL cholesterol 12 to 18%. Exercise alone had no effect on blood lipid levels.

All studies on Celsius have been funded by Celsius Holdings, Inc.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by us or on our behalf. We and our representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in our filings with the Securities and Exchange Commission (“SEC”) and in our reports to stockholders. Generally, the inclusion of the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and that are intended to come within the safe harbor protection provided by those sections. All statements addressing operating performance, events, or developments that we expect or anticipate will occur in the future, including statements relating to sales growth, earnings or earnings per share growth, and market share, as well as statements expressing optimism or pessimism about future operating results, are forward-looking statements within the meaning of the Reform Act.

The forward-looking statements are and will be based upon our management’s then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements or those currently being experienced by our Company for a number of reasons and the following:

We have a limited operating history with significant losses and expect losses to continue for the foreseeable future.

The Company was incorporated in the State of Nevada on April 26, 2005 under the name “Vector Ventures Corp.” The Company changed its name to “Celsius Holdings, Inc.” on December 26, 2006. We are a holding company and carry on no operating business except through our direct wholly-owned subsidiaries, Celsius, Inc. and Celsius Netshipments, Inc. Celsius, Inc. was incorporated in Nevada on January 18, 2007, and merged with Elite on January 26, 2007, which was incorporated in Florida on April 22, 2004. Celsius Netshipments, Inc. was incorporated in Florida on March 29, 2007.

It is difficult to evaluate our business future and prospects as we are a young company with a limited operating history. At this stage of our business operations, even with our good faith efforts, potential investors have a high probability of losing their investment. Our future operating results will depend on many factors, including the ability to generate sustained and increased demand and acceptance of our products, the level of our competition, and our ability to attract and maintain key management and employees.

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We have yet to establish any history of profitable operations. We have continuously incurred operating losses after we started the business. We have incurred an operating loss during the first nine months ending September 30, 2009 of $5.2 million. As a result, at September 30, 2009 we had an accumulated deficit of $16.7 million. Our revenues have not been sufficient to sustain our operations. We expect that our revenues will not be sufficient to sustain our operations for the foreseeable future. Our profitability will require the successful commercialization of our current product Celsius® and any future products we develop. No assurances can be given when this will occur or that we will ever be profitable.

We will require additional financing to sustain our operations and without it we may not be able to continue operations.

At September 30, 2009, we had working capital of $70,000. The independent auditor’s report for the year ended December 31, 2008, includes an explanatory paragraph to their audit opinion stating that our recurring losses from operations and working capital deficiency raise substantial doubt about our ability to continue as a going concern. We do not currently have sufficient financial resources to fund our operations or those of our subsidiaries. Therefore, we need additional funds to continue these operations.

The sale of our Common Stock to Golden Gate Investors, LLC, CD Financial, LLC, CDS Ventures of South Florida, LLC and Lucille Santini may cause dilution and the sale of the shares of Common Stock acquired by Golden Gate Investors, LLC, CD Financial, LLC, CDS Ventures of South Florida, LLC or Lucille Santini could cause the price of our Common Stock to decline.

In connection with issuing a convertible debenture to Golden Gate Investors, LLC (“GGI”), we have issued 18.0 million shares to GGI between June 16, 2008 and May 21, 2009, as partial conversion of the debenture. If requested by GGI, we may have to issue approximately one million shares to GGI based on the current conversion price and outstanding amount of the debenture. We are not obligated to convert the debenture, if the price of our shares is below $0.20.

On June 10, 2008, the total amount of $750,000 in notes payable to CD Financial, LLC (“CDF”) was converted to 11,184,016 shares of Common Stock.

We have sold a total of 6,000 Preferred A and B shares to CDS Ventures of South Florida, LLC (“CDS”), and they have received a total of 92 shares in dividends. CDS can convert its Preferred A and B shares into a maximum of 106 million shares of Common Stock. CDS has the right to purchase an additional 1,000 Series A Preferred Shares, which may be converted into a maximum of 12.5 million shares of Common Stock.

On September 8, 2009, we entered into a convertible loan agreement (the “Loan Agreement”) with CDS.  In connection with such Loan Agreement, CDS can convert the note in to a maximum of 65,000,000 shares of Common Stock.

On September 8, 2009, we entered into a convertible loan agreement (the “Refinance Agreement”) with Lucille Santini.  In connection with such Refinance Agreement, Ms. Santini can convert the note into a maximum of 6,150,000 shares of Common Stock.

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We have not achieved profitability on an annual basis and expect to continue to incur net losses in future quarters, which could force us to discontinue operations.

We recorded net losses every quarter of operation. We had an accumulated deficit of $16.7 million as of September 30, 2009. We could incur net losses for the foreseeable future as we expand our business. We will need to generate additional revenue from the sales of our products or take steps to reduce operating costs to achieve and maintain profitability. Even if we are able to increase revenue, we may experience price competition that will lower our gross margins and our profitability. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis and we could be forced to discontinue our operations.

We depend upon our trademarks and proprietary rights, and any failure to protect our intellectual property rights or any claims that we are infringing upon the rights of others may adversely affect our competitive position.

 Our success depends, in large part, on our ability to protect our current and future brands and products and to defend our intellectual property rights. We cannot be sure that trademarks will be issued with respect to any future trademark applications or that our competitors will not challenge, invalidate or circumvent any existing or future trademarks issued to, or licensed by, us. We believe that our competitors, many of whom are more established, and have greater financial and personnel resources than we do, may be able to replicate our processes, brands, flavors, or unique market segment products in a manner that could circumvent our protective safeguards. Therefore, we cannot give you any assurance that our confidential business information will remain proprietary.

We rely to some extent on wholesale distributors for the success of our business, the loss or poor performance of which may materially and adversely affect our business.

We sell a portion of our products to wholesalers for resale to retail outlets including grocery stores, convenience stores, nutritional and drug stores. The replacement or poor performance of the Company's major wholesalers and or the Company's inability to collect accounts receivable from the Company's major wholesalers could materially and adversely affect the Company's results of operations and financial condition. Distribution channels for beverage products have been characterized in recent years by rapid change, including consolidations of certain wholesalers. In addition, wholesalers and retailers of the Company's products offer products which compete directly with the Company's products for retail shelf space and consumer purchases. Accordingly, there is a risk that these wholesalers or retailers may give higher priority to products of the Company's competitors. In the future, the Company's wholesalers and retailers may not continue to purchase the Company's products or provide the Company's products with adequate levels of promotional support.

We rely to a majority on sale directly to larger retailers for the success of our business, the loss or poor performance of which may materially and adversely affect our business.

We sell the majority portion of our products directly to larger retailers including grocery stores, convenience stores, nutritional and drug stores. Poor sales performance of our product in these stores may make the retailer remove our product from its planogram. Industry standard is that in such situation the retailer will either return the product for credit or discount the product in their stores and bill the Company back for the discount given. This could materially and adversely affect the Company's results of operations and financial condition.

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We may incur material losses as a result of product recall and product liability.

We may be liable if the consumption of any of our products causes injury, illness or death. We also may be required to recall some of our products if they become contaminated or are damaged or mislabeled. A significant product liability judgment against us, or a widespread product recall, could have a material adverse effect on our business, financial condition and results of operations. The government may adopt regulations that could increase our costs or our liabilities. The amount of the insurance we carry is limited, and that insurance is subject to certain exclusions and may or may not be adequate.

We depend on our suppliers.

We have in some cases single supplier for ingredients or packaging materials used in the manufacturing process. We have developed alternate suppliers for some but not all of the ingredients or packaging materials. For instance, there is only one company in the United States that supplies the twelve ounce sleek can, which is the can we use for our product. The need to replace or poor performance of the Company's suppliers and or the risk of the company’s suppliers going out of business could adversely affect the Company's results of operations and financial condition.

We may not be able to develop successful new products, which could impede our growth and cause us to sustain future losses

Part of our strategy is to increase our sales through the development of new products. We cannot assure you that we will be able to develop, market, and distribute future products that will enjoy market acceptance. The failure to develop new products that gain market acceptance could have an adverse impact on our growth and materially adversely affect our financial condition.

Our lack of product diversification and inability to timely introduce new or alternative products could cause us to cease operations.

Our business is centered on healthier functional beverages. The risks associated with focusing on a limited product line are substantial. If consumers do not accept our products or if there is a general decline in market demand for, or any significant decrease in, the consumption of nutritional beverages, we are not financially or operationally capable of introducing alternative products within a short time frame. As a result, such lack of acceptance or market demand decline could cause us to cease operations.

Our directors and executive officers beneficially own a substantial amount of our Common Stock, and therefore other stockholders will not be able to direct our Company.

The majority of our shares and the voting control of the Company is held by a relatively small group of stockholders, who are also our directors and executive officers. Accordingly, these persons, as a group, will be able to exert significant influence over the direction of our affairs and business, including any determination with respect to our acquisition or disposition of assets, future issuances of Common Stock or other securities, and the election or removal of directors. Such a concentration of ownership may also have the effect of delaying, deferring, or preventing a change in control of the Company or cause the market price of our stock to decline. Notwithstanding the exercise of the fiduciary duties of these directors and executive officers and any duties that such other stockholder may have to us or our other stockholders in general, these persons may have interests different than yours.

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We are dependent on our key executives, the loss of which may have a material adverse effect on our Company.

Our future success will depend substantially upon the abilities of, and personal relationships developed by, Stephen C. Haley, our Chief Executive Officer, President, Chairman of the Board and majority stockholder, Jan Norelid our Chief Financial Officer, and Mrs. Irina Lorenzi, our Innovations VP. The loss of Messrs. Haley, Norelid or Mrs. Lorenzi’s services could materially adversely affect our business and our prospects for the future. We do not have key person insurance on the lives of such individuals. Our future success also depends on our continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for such personnel in the functional beverage industry is intense and we may not be able to retain our key managerial and technical employees or that it will be able to attract and retain additional highly qualified technical and managerial personnel in the future. The inability to attract and retain the necessary technical and managerial personnel could have a material and adverse affect upon our business, results of operations and financial condition

Our Common Stock is deemed a low-priced "Penny" stock, therefore an investment in our Common Stock should be considered high risk and subject to marketability restrictions.

Since our Common Stock is a penny stock, as defined in Rule 3a51-1 under the Exchange Act, it will be more difficult for investors to liquidate their investment. Until the trading price of the Common Stock rises above $5.00 per share, if ever, trading in our Common Stock is subject to the penny stock rules of the Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

·   Deliver to the customer, and obtain a written receipt for, a disclosure document;

·   Disclose certain price information about the stock;

·   Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;

·   Send monthly statements to customers with market and price information about the penny stock; and,

·   In some circumstances, approve the purchaser's account under certain standards and deliver written statements to the customer with information specified in the rules

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell our Common Stock and may affect the ability of holders to sell their Common Stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

The foregoing list is not exhaustive. There can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business or that the publicly available and other information with respect to these matters is complete and correct. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact us. Should any risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations. For these reasons, the reader is cautioned not to place undue reliance on our forward-looking statements.

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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our unaudited consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including, among others, those affecting revenues, the allowance for doubtful accounts, the salability of inventory and the useful lives of tangible and intangible assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates. Many of our estimates or judgments are based on anticipated future events or performance, and as such are forward-looking in nature, and are subject to many risks and uncertainties, including those discussed below and elsewhere in this report. We do not undertake any obligation to update or revise this discussion to reflect any future events or circumstances.

Although our significant accounting policies are described in Note 2 of the notes to our unaudited consolidated financial statements, the following discussion is intended to describe those accounting policies and estimates most critical to the preparation of our consolidated financial statements. For a detailed discussion on the application of these and our other accounting policies, see Note 1 contained in Part II, Item 7 to the Consolidated Financial Statements for the year ended December 31, 2008, included in Form 10-K.

Accounts Receivable – We evaluate the collectability of our trade accounts receivable based on a number of factors. In circumstances where we become aware of a specific customer’s inability to meet its financial obligations, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable outstanding.

Revenue Recognition – Our products are sold to distributors, wholesalers and retailers for cash or on credit terms. Our credit terms, which are established in accordance with local and industry practices, typically require payment within 30 days of delivery. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured.Any discounts, sales incentives or similar arrangement with the customer is estimated at time of sale and deducted from revenue. All sales to distributors and retailers are final sales and we have a “no return” policy; however, in limited instances, due to credit issues or distributor changes, we may take back product. We believe that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.

Inventory – We hold raw materials and finished goods inventories, which are manufactured and procured based on our sales forecasts. We value inventory at the lower of cost or market and include adjustments for estimated obsolescence, principally on a first in-first out basis. These valuations are subject to customer acceptance and demand for the particular products, and our estimates of future realizable values are based on these forecasted demands. We regularly review inventory detail to determine whether a write-down is necessary. We consider various factors in making this determination, including recent sales history and predicted trends, industry market conditions and general economic conditions. Differences could result in the amount and timing of write-downs for any period if we make different judgments or use different estimates.

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Stock-Based Compensation –We use the Black-Scholes-Merton option pricing formula to estimate the fair value of stock options at the date of grant. The Black-Scholes-Merton option pricing formula was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Company’s employee stock options, however, have characteristics significantly different from those of traded options. For example, employee stock options are generally subject to vesting restrictions and are generally not transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility, the expected life of an option and the number of awards ultimately expected to vest. Changes in subjective input assumptions can materially affect the fair value estimates of an option. Furthermore, the estimated fair value of an option does not necessarily represent the value that will ultimately be realized by an employee. The Company uses historical data of comparable companies to estimate the expected price volatility, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. If actual results are not consistent with the Company’s assumptions and judgments used in estimating the key assumptions, the Company may be required to increase or decrease compensation expense or income tax expense, which could be material to its results of operations.

Recent Accounting Pronouncements

In December 2007, the FASB issued guidance in the Business Combinations Topic of the Codification.  This guidance requires the acquiring entity in a business combination to record all assets acquired and liabilities assumed at their respective acquisition-date fair values including contingent consideration.  In addition, this guidance changes the recognition of assets acquired and liabilities assumed arising from preacquisition contingencies and requires the expensing of acquisition-related costs as incurred.  The guidance applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009.  We adopted this guidance effective January 1, 2009.  Any impact would be on future acquisitions.

In April 2008, the FASB issued guidance in the Intangibles-Goodwill and Other Topic of the Codification on the determination of the useful life of an intangible asset.  This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset.  This statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  We adopted this guidance effective January 1, 2009.  There is no impact on our financial statements as of September 30, 2009.

In April 2009, the FASB issued guidance in the Fair Value Measurements and Disclosures Topic of the Codification on determining fair value when the volume and level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly.  The guidance emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same.  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants.  The guidance provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability in relation to normal market activity.  In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value.  The guidance is effective for interim or annual reporting periods ending after June 15, 2009, and shall be applied prospectively.  We adopted this guidance effective for the quarter ending June 30, 2009.  There is no impact of the adoption on our financial statements as of September 30, 2009.

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In April 2009, FASB issued guidance in the Financial Instruments Topic of the Codification on interim disclosures about fair value of financial instruments. The guidance requires disclosures about the fair value of financial instruments for both interim reporting periods, as well as annual reporting periods. The guidance is effective for all interim and annual reporting periods ending after June 15, 2009 and shall be applied prospectively. The adoption of this guidance had no impact on our financial statements as of September 30, 2009, other than the additional disclosure.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring Liabilities at Fair Value” (ASU 2009-05). ASU 2009-05 amends the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification by providing additional guidance clarifying the measurement of liabilities at fair value. ASU 2009-05 is effective for us for the reporting period ending December 31, 2009. We do not expect the adoption of ASU 2009-05 to have an impact on our financial statements.

All new accounting pronouncements issued but not yet effective have been deemed to not be applicable; hence the adoption of these new standards is not expected to have a material impact on the Company’s results of operations, cash flows or financial position.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2008

Revenue

Sales for the three months ended September 30, 2009 and 2008 were $1.3 million and $435,000, respectively. The increase of 208.4 percent was mainly due to increased revenue in all sales channels and many new customers, both in DSD and DTR. The larger new customers for the quarter were a convenience chain, a health store chain and a grocery chain. We had also a new large DSD distributor and increased revenue from another health store chain.

Gross profit

Gross Profit was 42.9 percent in the third quarter 2009 as compared to negative 4.8 percent for the same period in 2008. The increase in gross profit was mainly due to in 2008 we wrote off expired inventory, recorded a reserve for obsolescence of bottle packaging material and excess bottle inventory. Our remnant inventory of bottles was sold in the quarter and therefore we have reduced the obsolescence reserve for slow moving inventories. Without this write-down our gross profit for the three month period of 2008 would have been a more normal 41.8 percent.

Operating Expenses

Sales and marketing expenses have increased substantially from one year to the next, $2.6 million for the third quarter of 2009 as compared to $1.4 million for the same three-month period in 2008, or an increase of $1.2 million. This was mainly due to increased radio, TV and print advertising by $940,000, sales and marketing employee cost by $292,000, offset to a lesser extent by reduced local events and local marketing of $149,000. The general and administrative expenses increased from $434,000 for the three-month period in 2008 to $624,000 for the same period in 2009, an increase of $190,000. This was mainly due to increased option expense for all employees by $210,000 and increased employee cost of $73,000, offset to a lesser extent by reduction of allowance for bad debts of $42,000 and reduced research and development expense of $90,000. We are concentrating our efforts to increase marketing and sales activities, which can be seen in our newly launched national marketing campaign.

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Other expense

The net interest expense increased from $33,000 for the three-month period in 2008 to $50,000, during the third quarter in 2009, or an increase of $18,000, mainly related to increased debt.

NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2008

Revenue

Sales for the nine months ended September 30, 2009 and 2008 were $3.5 million and $2.0 million, respectively. The increase of 76.8 percent was due to increased sales both in DSD and DTR. The largest increase in the first nine months of 2009 comes from two DSD distributors that had almost no sales in the same period in 2008. We also sold to new retail chains and had strong increase in sales from some of our existing customers. Last year we had one large international order, and this year for the nine month period our total international orders diminished by $311,000 as compared to the same period last year.

Gross profit

Gross profit was 42.9 percent in nine months ended September 30, 2009 as compared to 29.6 percent for the same period in 2008. The increase in gross profit was mainly due to write-off of bottle inventory as described earlier and lower margins on our export sales during the 9 months in 2008.

Operating Expenses

Sales and marketing expenses have increased substantially from one year to the next, $5.3 million for the first nine months of 2009 as compared to $2.9 million for the same nine-month period in 2008, or an increase of $2.4 million. This was mainly due to increased radio, TV and print advertising by $1.3 million, sales and marketing employee cost by $760,000, offset to a lesser extent by reduced local events and local marketing of $89,000. The general and administrative expenses increased from $1.3 million for the nine-month period in 2008 to $1.4 for the same period in 2009, an increase of $105,000. This was mainly due to increased option expense by $87,000 and increased employee cost of $212,000, offset to a lesser extent by reduction of allowance for bad debts of $71,000 and reduced research and development expense of $198,000.

Other expense

The net interest expense decreased from $292,000 for the first nine months of 2008 to $106,000, during the same period in 2009, or a decrease of $187,000. This decrease was mainly due to reduction of amortization of debt discount of $157,000, incurred when issuing convertible notes, and reduction of interest paid to third parties, offset to a lesser extent by reduced interest income on note receivable of $49,000.

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LIQUIDITY AND CAPITAL RESOURCES

We have yet to establish any history of profitable operations. As a result, at September 30, 2009, we had an accumulated deficit of $16.7 million. At September 30, 2009, we had working capital of $70,000. The independent auditor’s report for the year ended December 31, 2008, includes an explanatory paragraph to their audit opinion stating that our recurring losses from operations and working capital deficiency raise substantial doubt about our ability to continue as a going concern. We have had operating cash flow deficits all quarters of operations. Our revenue has not been sufficient to sustain our operations. We expect that our revenue will not be sufficient to sustain our operations for the foreseeable future. Our profitability will require the successful commercialization of our current product Celsius® and any future products we develop. No assurances can be given when this will occur or that we will ever be profitable.

We fund part of our working capital from a line of credit with a related party, CD Financial, LLC. The line of credit was started in December 2008 and is for $1 million. The interest rate is LIBOR rate plus three percent on the outstanding balance. The line expires in December 2009 and is renewable. In connection with the revolving line of credit we have entered into a loan and security agreement under which we have pledged all our assets as security for the line of credit. The outstanding balance as of September 30, 2009 was $550,000.

We borrowed in 2004 and 2005 a total of $500,000 from one of our stockholders with interest of a rate variable with the prime rate. In July 2008, we restructured the agreement and decreased the interest rate to prime rate flat, monthly payments of $5,000 until a balloon payment of approximately $606,000 in January 2010. This debt was restructured in September, 2009, to a convertible note of $615,000 with maturity in September 2012. Interest is set at 3% over the one-month LIBOR rate. The first interest payment is due in September 2010 and quarterly thereafter. The note can be converted to shares of our common stock. The outstanding balance, net of debt discount, was $431,000 as of September 30, 2009.

We borrowed $50,000 from the CEO of the Company in February 2006. We also owed the CEO $171,000 for accrued salaries from 2006 and 2007. The two debts were restructured in to one note accruing 3% interest, monthly payments of $5,000 and with a balloon payment of $64,000 in January 2011. The outstanding balance as of September 30, 2009 was $155,000.

We terminated a consulting agreement with a company controlled by one of our former directors. As partial consideration we issued a note payable for $250,000. The outstanding balance as of September 30, 2009 was $15,000.

We issued in December 2007 a convertible note for $1.5 million and received $250,000 in cash and a note receivable for $1.3 million; see further discussion below on our purchase agreement with Golden Gate Investors.

In August of 2008, we entered into a security purchase agreement (“SPA1”) with CDS Ventures of South Florida, LLC (“CDS”), an affiliate of CD Financial, LLC (“CD”), pursuant to which we received $1.5 million in cash, cancelled two convertible notes issued to CD for $500,000. In exchange, the Company issued to CDS, 2,000 Series A Preferred Shares, and a warrant to purchase additional 1,000 Series A Preferred Shares. See further discussion below on SPA1 with CDS.

In December of 2008, we entered into a second security purchase agreement (“SPA2”) with CDS pursuant to which we received $2.0 million in cash and issued 2,000 Series B Preferred Shares, and a warrant to purchase additional 2,000 Series B Preferred Shares. In March, 2009, CDS exercised its warrant and subscribed to an additional 2,000 Series B Preferred Shares. During April and May, 2009, we received the corresponding $2 million in cash. See further discussion below on SPA2 with CDS.

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In September 2009, we entered into a $6.5 million loan agreement with CDS. The loan can be disbursed at $2 million per month for the months of September, October and November and $500,000 in December. The loan is due in September 2012. Interest is set at 3% over the one-month LIBOR rate. The first interest payment is due in September 2010 and quarterly thereafter. The note can be converted to shares of our common stock. The outstanding balance, net of debt discount, was $1,741,000 as of September 30, 2009.

We entered into a stock purchase agreement with Fusion Capital in June 2007. During 2007, we received $1.4 million in proceeds from sales of shares to Fusion Capital. We can sell shares for a consideration of up to $14.6 million to Fusion Capital until October 2009, when and if the selling price of the shares to Fusion Capital exceeds $0.45. We do not expect to be able to sell any shares to Fusion Capital before the agreement’s termination.

We will require additional financing to sustain our operations. Management estimates that we need to raise an additional $5.0 to $15.0 million in order to implement our revised business plan over the next 12 months. We are able to implement an alternative business plan with less financing. We do not currently have sufficient financial resources to fund our operations or those of our subsidiaries. Therefore, we need additional funds to continue these operations. No assurances can be given that the Company will be able to raise sufficient financing.

OUR PURCHASE AGREEMENT WITH GOLDEN GATE INVESTORS, INC

On December 19, 2007, we entered into a securities purchase agreement with Golden Gate Investors, Inc (“GGI”). The agreement included four tranches of $1,500,000 each. The first tranche consisted of a 7.75% convertible debenture (the “Debenture”) issued by the Company, in exchange for $250,000 in cash and a promissory note for $1,250,000 issued by GGI which was to mature on February 1, 2012. The promissory note contained a prepayment provision which required GGI to make prepayments of interest and principal of $250,000 monthly upon satisfaction of certain conditions. One of the conditions to prepayment was that GGI may immediately sell all of the Common Stock Issued at Conversion (as defined in the Debenture) pursuant to Rule 144 of the Securities Act of 1933. The Company was under no contractual obligation to ensure that GGI may immediately sell all of the Common Stock Issued at Conversion pursuant to Rule 144. In the event that GGI could not immediately sell all of the Common Stock Issued at Conversion pursuant to Rule 144, GGI would be under no obligation to prepay the promissory note and likewise under no obligation to exercise its conversion rights under the Debenture. If GGI did not fully convert the Debenture by its maturity on December 19, 2011, the balance of the Debenture was to be offset by any balance due to the Company under the promissory note. The balance of the Debenture can be converted at any time with a conversion price as the lower of (i) $1.00, or (ii) 80% of the average of the three lowest daily volume weighted average price during the 20 trading days prior to GGI’s election to convert. The Company was not required to issue the shares unless a corresponding payment has been made on the promissory note. GGI converted $879,000 of its convertible debenture through June 2009 receiving 18.0 million shares of Common Stock.

GGI did not make its note payment due on October 21, 2008.  On September 8, 2009, the Company entered into an addendum to the agreement with GGI. The balance of the note receivable, $250,000 was netted against the balance of the Debenture. The outstanding balance of the debenture as of September 30, 2009, was $346,000. All future tranches were cancelled and terminated without penalty to either party.

The foregoing description is qualified in its entirety by reference to the full text of the promissory note, purchase agreement, and Debenture, a copy of each of which was filed as Exhibit 10.2, 10.3, and 10.4, respectively to our Current Report on Form 8-K/A as filed with the SEC on January 9, 2008 and each of which is incorporated herein in its entirety by reference.

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OUR SECURITY PURCHASE AGREEMENT WITH CDS VENTURES OF SOUTH FLORIDA, LLC

On August 8, 2008, we entered into a securities purchase agreement (“SPA1”) with CDS, an affiliate of CD Financial, LLC (“CD”). Pursuant to SPA1, we issued 2,000 Series A preferred shares (“Preferred A Shares”), as well as a warrant to purchase additional 1,000 Preferred A Shares, for a cash payment of $1.5 million and the cancellation of two notes in aggregate amount of $500,000 issued to CD. The Preferred A Shares can be converted into our common stock at any time. SPA1 was amended on December 12, 2008 to provide that until December 31, 2010, the conversion price is $0.08, after which the conversion price is the greater of $0.08 or 90% of the volume weighted average price of the common stock for the prior 10 trading days. Pursuant to SPA1, we also entered into a registration rights agreement, pursuant to which we filed a registration statement for the common stock issuable upon conversion of Preferred Shares. The registration statement filed in connection with the Preferred A Shares was declared effective on May 14, 2009. The Preferred A Shares accrue ten percent annual cumulative dividend, payable in additional Preferred A Shares. We issued 81 Preferred A Shares in dividends during the first quarter of 2009. The Preferred A Shares mature on February 1, 2013 and are only redeemable in Company Common Stock. The full agreement can be reviewed in the Company’s Form 8-K filed with the SEC on August 12, 2008.

On December 12, 2008, we entered into a second securities purchase agreement (“SPA2”) with CDS. Pursuant to SPA2 we issued 2,000 Series B preferred shares (“Preferred B Shares”), as well as a warrant to purchase additional 2,000 Preferred B Shares, for a cash payment of $2.0 million. The Preferred B Shares can be converted into our common stock at any time. Until December 31, 2010, the conversion price is $0.05, after which the conversion price is the greater of $0.05 or 90% of the volume weighted average price of the common stock for the prior 10 trading days. Pursuant to SPA2, we also entered into a registration rights agreement, pursuant to which we filed a registration statement for the common stock issuable upon conversion of Preferred Shares in October 2009. The Preferred B Shares accrue a ten percent annual cumulative dividend, payable in additional Preferred B Shares. We issued 11 Preferred B Shares in dividends during the first quarter of 2009. The Preferred B Shares mature on December 31, 2013 and are only redeemable in Company Common Stock. The full agreement can be reviewed in the Company’s Form 8-K filed with the SEC on December 17, 2008.

On March 31, 2009, CDS exercised its right to purchase additional 2,000 Preferred B Shares and executed a subscription agreement for $2.0 million. The monies for the subscription were paid on April 7 and May 1, 2009.

Certain covenants of both Series A and B preferred shares restrict the Company from entering into additional debt arrangements or permitting liens to be filed against the Company’s assets, without approval from the holder of the preferred shares. There is a mandatory redemption in cash, if the Company breaches certain covenants of the agreements. The holders have liquidation preference in case of company liquidation. The Company has the right to redeem the preferred shares early by the payment in cash of 104% of the liquidation preference value. The Company may redeem the Series A shares at any time on or after July 1, 2010 and the Series B shares at any time on or after January 1, 2011.

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OUR CONVERTIBLE LOAN AGREEMENT WITH CDS VENTURES OF SOUTH FLORIDA, LLC

On September 8, 2009, we entered into a convertible loan agreement (the “Loan Agreement”) with CDS.  Under the Loan Agreement CDS will lend the Company up to $6,500,000 (six million five hundred thousand dollars), with disbursements to the Company limited as follows: (i) Two Million Dollars ($2,000,000) during the month of September 2009; (ii) Two Million Dollars ($2,000,000) during October 2009; Two Million Dollars ($2,000,000) during November 2009; and (iii) Five Hundred Thousand ($500,000) in December 2009. Provided, however, that no disbursement shall be made in an amount less than Five Hundred Thousand Dollars ($500,000). Any amounts not requested for disbursement in one calendar month can be carried over to a subsequent month and disbursed in addition to the maximum of such subsequent month.  The loan is due on September 8, 2012 and carries a variable interest rate equal to three hundred (300) basis points over the one (1) month LIBOR (the “Note Rate”). Commencing on September 8, 2010 and continuing each three (3)-month period hereafter, we will make payments of all accrued but unpaid interest only on the unpaid principal amount at the Note Rate. The loan can at any time be converted to shares of our Common Stock at the Conversion Price. The “Conversion Price” shall be: (A) from September 8, 2009 through and including December 31, 2011, equal to the lesser of (i) $0.40 per share, or (ii) the average of the ten daily VWAPs for the 10 Trading Days immediately preceding the date on which a conversion notice is received (defined in the note as the “Market Price”); or (B) after December 31, 2011 the greater of  (i) $0.40 per share, or (ii) the Market Price, as appropriately adjusted for in either case stock splits, stock dividends and similar events; provided that, the conversion price shall never be less than $0.10 (ten cents) regardless of the Market Price on the conversion date. Maximum number of shares of Common Stock to be issued based on the lowest Conversion Price possible is 65,000,000. As of September 30, 2009, the outstanding balance of the loan was $1.7 million, net of unamortized debt discount of $259,000.

In connection with the Loan Agreement, we entered into a registration rights agreement with CDS pursuant to which we were obligated to file a registration statement with the SEC covering the maximum amount of shares of Common stock issuable under the Loan Agreement, 65,000,000. In addition, we are obligated to use our best efforts to have the registration statement or amendment declared effective by the SEC at the earliest possible date and reasonable best efforts to keep the registration statement effective until the all such shares held by CDS are freely saleable pursuant to Rule 144(k) of the Securities Act of 1933, as amended. On October 12, 2009, we filed a registration statement pursuant to registration rights agreement executed in connection with the Loan Agreement.

OUR REFINANCE AGREEMENT WITH LUCILLE SANTINI

On September 8, 2009, we entered into a convertible loan agreement (the “Refinance Agreement”) with Lucille Santini.  We received advances from Santini at various instances during 2004 and 2005, $76,000 and $424,000, respectively. The advances carried interest at a rate variable with the prime rate.  In July, 2008, the debt was refinanced, with interest at prime rate flat and monthly amortization of $5,000. A balloon payment of approximately $606,000 was due in January 2010. In July, 2009, the debt was refinanced again, with interest at prime rate flat and monthly amortization of $11,500. A balloon payment of approximately $451,600 was due in January 2011. This note together with a cash payment of $3,699 was exchanged for a new note due on September 8, 2012. This note carries a variable interest rate equal to three hundred (300) basis points over the one (1) month LIBOR (the “Note Rate”). Commencing on September 8, 2010 and continuing each three (3)-month period hereafter, we will make payments of all accrued but unpaid interest only on the unpaid principal amount at the Note Rate. The loan can at any time be converted to shares of our Common Stock at the Conversion Price. The “Conversion Price” shall be: (A) from September 8, 2009 through and including December 31, 2011, equal to the lesser of (i) $0.40 per share, or (ii) the average of the ten daily VWAPs for the 10 Trading Days immediately preceding the date on which a conversion notice is received (defined in the note as the “Market Price”); or (B) after December 31, 2011 the greater of  (i) $0.40 per share, or (ii) the Market Price, as appropriately adjusted for in either case stock splits, stock dividends and similar events; provided that, the conversion price shall never be less than $0.10 (ten cents) regardless of the Market Price on the conversion date. Maximum number of shares of Common Stock to be issued based on the lowest Conversion Price possible is 6,150,000. As of September 30, 2009, the outstanding balance of the loan was $431,000, net of unamortized debt discount of $181,000.

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In connection with the Refinance Agreement, we entered into a registration rights agreement with Santini pursuant to which we were obligated to file a registration statement with the SEC covering the shares of Common Stock underlying the Refinance Agreement. In addition, we are obligated to use our best efforts to have the registration statement or amendment declared effective by the SEC at the earliest possible date and reasonable best efforts to keep the registration statement effective until the all such shares held by Santini are freely saleable pursuant to Rule 144(k) of the Securities Act of 1933, as amended. On October 12, 2009, we filed a registration statement pursuant to registration rights agreement executed in connection with the Refinance Agreement.

RELATED PARTY TRANSACTIONS

We have accrued $171,000 for the CEO’s salary from March 2006 through May 30, 2007. The CEO also lent us $50,000 in February 2006. The two debts were restructured in to one note accruing 3% interest, monthly payments of $5,000 and with a balloon payment of $64,000 in January 2011. The outstanding balance as of September 30, 2009 was $155,000.

The Company entered into a 6-month lease starting October 1, 2009, for office premises with CDR Atlantic Plaza, Ltd (“CDR”), a company controlled by Carl DeSantis, an affiliate to the company. The total lease payments in the agreement total $24,000.

CD, CDR and CDS are considered a related parties due to their ownership of preferred shares and common stock, see further discussions under Liquidity and Capital Resources, Our Security Purchase Agreement with CDS Ventures of South Florida, LLC and Our Loan Agreement with CDS Ventures of South Florida, LLC, above.

Lucille Santini is considered a related party due to her ownership of common stock and convertible loan, see further discussions under Liquidity and Capital Resources, and Our Refinance Agreement with Lucille Santini, above.

Related party transactions are contracted on terms comparable to the terms of similar transactions with unaffiliated parties.

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ITEM 3.    CONTROLS AND PROCEEDURES 

Evaluation of disclosure controls and procedures

Our Chief Executive Officer and Chief Financial Officer (collectively the “Certifying Officers”) maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management timely. The Certifying Officers have concluded that the disclosure controls and procedures are effective at the “reasonable assurance” level. Under the supervision and with the participation of management, as of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Furthermore, the Certifying Officers concluded that our disclosure controls and procedures in place are designed to ensure that information required to be disclosed by us, including our consolidated subsidiaries, in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported on a timely basis in accordance with applicable Commission rules and regulations; and (ii) accumulated and communicated to our management, including our Certifying Officers and other persons that perform similar functions, if any, to allow us to make timely decisions regarding required disclosure in our periodic filings.

Changes in internal controls

We have made no changes to our internal controls during the third quarter of 2009 that have materially affected, or are reasonable likely to materially affect our internal control over financial reporting. Our management does not expect that our disclosure or internal controls will prevent all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

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PART II — OTHER INFORMATION

Item 1.       Legal Proceedings.

There are no material legal proceedings pending against us.

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

During the nine months ended September 30, 2009, the Company issued a total of 278,506 shares as compensation to a consultant and a distributor at a fair value of $30,125.

No commission was issued in the transactions above.

Item 3.       Defaults upon Senior Securities.

Not applicable.

Item 4.       Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 5.       Other Information.

Not applicable.

Item 6.       Exhibits

  31.1    Section 302 Certification of Chief Executive Officer

  31.2    Section 302 Certification of Chief Financial Officer

  32.1    Section 906 Certification of Chief Executive Officer

  32.2    Section 906 Certification of Chief Financial Officer

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SIGNATURES

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

	CELSIUS HOLDINGS, INC.
November 6, 2009	By:	/s/: Jan Norelid
		Jan Norelid, Chief Financial Officer and Chief Accounting Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

I, Stephen C. Haley, certify that:

1. I have reviewed this Form 10-Q of Celsius Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financing reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant 's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: November 6, 2009

/s/ Stephen C. Haley                                     

Stephen C. Haley

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

I, Jan A. Norelid, certify that:

1. I have reviewed this Form 10-Q of Celsius Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods present in this report;

4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the small business issuer and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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 principals;

c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the small business issuer's internal control over financing reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and

5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the small business issuer's internal control over financial reporting.  

Dated:  November 6, 2009

/s/    Jan A. Norelid

Jan A. Norelid

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Celsius Holdings, Inc. (the "Company") on Form 10-Q for the nine-month period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen C. Haley, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

By:	/s/   Stephen C. Haley
	Stephen C. Haley Chief Executive Officer

Dated:  November 6, 2009

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Celsius Holdings, Inc.(the "Company") on Form 10-Q for the nine-month period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jan Norelid, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

By: /s/ Jan A. Norelid                    Jan A. Norelid Chief Financial Officer

Dated: November 6, 2009