Celsius Holdings Inc (CELH) 2008 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to today's Celsius Holdings Inc. fiscal 2008 investor conference call. (Operator Instructions). As a reminder, this conference is being recorded.

Joining me on today's call is Steve Haley, the Company's Chief Executive Financial (sic - see press release) Officer, and Jan Norelid, Chief Financial Officer.

During the course of this conference call we will make forward-looking statements regarding future events and the future performance of the Company. We caution you that such statements reflect our best judgment based on factors currently known to us, and that actual events or results could differ materially.

Please refer to the documents we file from time to time with the Securities and Exchange Commission. These documents contain and identify important factors that may cause the actual results to differ from those contained in our forward-looking statements. We assume no obligation to update any forward-looking statements that we make.

In adherence to Regulation Fair Disclosure, the Company has provided information in its fiscal 2008 financial results press release and its publicly announced financial results conference call. We will not provide any further guidance or updates on our performance during the quarter, unless we do so in a public forum.

It is now my pleasure to introduce your host, Mr. Steve Haley.

Thank you for joining us for our fiscal 2008 investor conference call. Financial results for our fiscal 2008 were released to the public on February 18 through our press release distributed on that Wednesday afternoon. You can view a copy of this document on our website at www.Celsius.com in the Investor and News section.

I will begin with some prepared comments regarding highlights of our fourth quarter results and operations, and then turn it over to Jan, our Chief Financial Officer, for more details on the specific numbers.

As I have done in the past, other than the actual operating results that we will be reviewing, my comments will be more of a state of the Company report up to this point, instead of focusing only on last quarter or the year. We had made progress on several fronts, and drawing a hard distinction between quarters doesn't provide as clear a picture. The successes we're announcing now were really won a quarter or so ago.

We did have net revenue north of $620,000 for the quarter, which led to a total of $2.6 million for the year. This is not the growth we planned on, but was a pretty good finish, as our reorders continue to be strong. Of the 80% -- over 80% of the revenue was from reorders from our existing customers.

We did add and were able to shift to some new distributors, but the real wins were the new retailers that agreed to bring in Celsius for this year. These are being shipped in this quarter and don't show up in last quarter's numbers.

If you remember, we added Polar Beverage as a key distribution partner right at the end of Q3. Having a respected and reliable distributor for the area up there in the Northeast, really helped us bring on significant retailers such as Tedeschi's, Big Y, and Shaw. These new retailers on board, combined with existing chains like Hannaford's and Walgreens, makes it much easier to add surrounding distributors that are part of the overall Polar network. So we're now better prepared to expand our distribution footprint.

As they grow the overall coverage area, then we are able to show other large retailers that we can cover all of their stores, and it becomes easier for them to commit. It takes a while for a new brand to get these pieces into place. And it is great to see that we're now getting there.

Jan will discuss our margins in a minute, but I did want to mention our evolution from bottles to cans. While there are some consumers that still prefer glass, we have plenty of evidence to show that when given a choice, the majority do chose cans.

In addition to the much wider array of venues that accept cans and will not allow glass, and distributors that all seem to prefer cans, we're almost totally cans now. This has a positive impact on our gross margins.

Our Green Teas are now going full speed. Any new retailer coming on board is including them. And most of our established retailers have now put them into their new planograms. The planning cycles for some of the larger retailers can be longer than six months, so even though we launched the teas in the third quarter of this last year, this quarter is the third first one that some of the retailers have had to put them in.

Kroger's will be putting in the teas, Vitamin Shoppe only this quarter have taken their initial deliveries of the teas. HEB and Meijer's will be putting them in. The teas are quickly climbing into the top four in regard to flavors in each region of the country, and have opened up additional markets for us.

I want to use a recent win for the Company to highlight the point that a success you see today is probably the result of work done months before. We're excited that the large nutrition chain, GNC, is bringing on Celsius. We shipped their first shipments to their own warehousing and logistics centers last month. We have been in discussions with them for a couple of years. They have been watching us, and now believe that we're ready to launch through their extensive chain. Polar Beverages, which is a critical distribution partner for us now, also watched us for a few years.

As much as established and respected companies like these want and need innovative new products, they also have a high threshold to meet to warrant taking a bet on a new product. For Celsius to get on a store shelf we have to take the place of something else. The category manager or buyer or main decision-maker has to know that we will outsell whatever it is that we're replacing.

Celsius is now getting the traction to be able to show we deserve to be on the shelf, not because it seems like a good value proposition, which it is, and not because it has good taste, which it does, but more importantly because we are able to show sustainable sales in some key and respected retailers.

I will talk a bit about future guidance after Jan reviews the financial results. But I will mention now that we still have another quarter or two building the foundation. The pieces are coming together more quickly now, but there are still some retailers that are watching. I believe, however, that we are about to the tipping point where the question is not whether a retailer of put Celsius in, but instead the quality of the shelf space and how much we get. The battle continues, but it changes to quality of shelf, instead of just on or off the shelves.

We enhanced our marketing in a few ways over the last few months. By using the Burn Baby Burn lyrics, our radio ads have more punch, and retention and awareness rates are higher. We have always received good feedback on our packaging and point-of-sale signage, but the latest additions are having a positive impact on sales.

A great retailer throughout the Midwest is Kum & Go. They are an innovative company and well-respected in the many communities they serve. They have really gotten behind the brand and sales continue to climb.

Other than Des Moines, Iowa, the marketing we're doing for these stores is primarily point of sales signage and some couponing. This gives us a good benchmark to compare with markets where we are running radio, or soon TV.

I will turn it over now to Jan to run through some of the financial details. And then I will be back with more of a focus on where we are heading. And then leave time for your questions.

Good afternoon, and thank you for joining us today. Our revenue for the quarter was $621,000 as compared to $519,000 for the same quarter a year ago. The increase of 19.6% was mainly due to new distributors in the Midwest and reorders from the same entity, as well as a large distributor in the Northeast. We can also see an increase in sales in Florida as compared to last year. Northeast and Florida are some of our target areas.

We believe the slowdown in the economy had some effect on our revenues to existing customers, which is counter-affecting our marketing and sales efforts.

Our sales of bottles have diminished substantially. Most of our distributors had switched to cans even before the fourth quarter, and by now they are virtually all buying cans.

We had some remaining finished goods inventories that we were not able to liquidate during the fourth quarter. And we had to take the write-down of approximately $130,000 in the quarter. Without this expense, our gross profit what has been 49% instead of 28.1% being reported for the quarter.

For the year we increased our sales from $1.6 million to $2.6 million, or 57.5%. Our gross profit in 2008 was 29.2% as compared to 37.1% in 2007. The write-down in disposable bottle inventory and materials decreased this year's gross profit from 39.4% to 29.2%. Even our close to 40% gross profit for the year 2008, we are today operating at higher margins, having switched to only cans and improved freight costs.

Our freight costs increased rapidly during the gasoline price hikes in 2008, and they have slowly come down again. Our operating expenses are an increase compared to the same quarter last year. Our sales and marketing expense was $1.0 million this year as compared to $802,000 for the same quarter last year.

The main reason for the increase is our costs with our direct distribution in Florida and through events and local promotions that we have done in the quarter.

Our general and administrative expenses decreased from $465,000 last year to $418,000 in 2008 in the fourth quarter. Our expense for product development and administrative employees decreased, offset to a lesser extent by an increase in professional fees. On an annual basis our G&A increased from $1.6 million in 2007 to $1.7 million in 2008, a small increase.

Our net interest expense increased for the year from $181,000 in 2007 to $342,000 in 2008, due to increased debt, partially offset by lower interest rate on related part of the debt.

Our net loss increased from $3.7 million in 2007 to $5.3 million in 2008, or $0.04 per share, same as last year, both basic and diluted.

The cash position at the end of the year was $1 million. We have an unutilized line of credit for another $1 million.

We restructured our short-term related party debt during 2008, and the first balloon payment is due in 2010. During the fourth quarter we converted $199,000 of a larger convertible debenture for 7.7 million shares, and [paid down] $25,000 in cash. Today we still have $701,000 outstanding on this convertible debenture.

In December we issued 2,000 shares of convertible preferred stock and received $2 million in cash. This investor can invest in up to an additional 3,000 convertible preferred stock for cash payment of up to $3 million.

The outstanding preferred stock is convertible into maximum 65 million shares of common stock, depending on when the conversion is done. The preferred shares that the investor has the right to purchase can be converted into a maximum of 52.5 million shares.

We show at the end of December small stockholders equity of $11,000.

Our cash flow from operating activities was a negative $4.8 million dollars for the 2008 as compared to $2.6 million for the previous year. We received financing during the year in the form of loans and equity totaling $7.0 million, and repaid loans of $1.2 million. We expect to file our Form 10-K in the second week of March.

Now I turn the word back to Steve.

As we now move the discussion to current and future plans, I will focus on three main areas, distribution, marketing and new products. I do this with a backdrop of not being prepared yet to provide specific guidance on our revenue growth for the next quarter or so.

I believe they're all waiting for our breakout quarter. We keep getting positive feedback on Celsius. We are adding distribution points with stronger distributors and retailers. So when will the growth kick in is a common question.

As we discuss distribution, marketing and new products, I believe we are in the final few months of building the foundation. We will have growth this quarter, but not at the rate of growth we were hoping for. I don't say this because of the economy or other macrolevel dynamics, but more because it takes having all the elements in place. And we are close.

On the distribution front we are working very hard to fill in the open white spaces in the Northeast. There is still some retailers that with apparent network we cannot cover all of their locations. I hope to have the Northeast covered by the end of this quarter.

Also towards the end of this quarter we will start up the all other market focus in Polar's area. All other market is a label for the large number of independent retailers. These may be individual stores and delis and the like, ir a small group of stores that have a common owner.

Up until now we have been more focused on adding some of the larger chains in this important area. We wanted to have a number of locations that we can tag or call out in our marketing first. The radio and soon-to-be television up there will then make it easier to bring on the individual accounts as they see and hear more support for the brand in their neighborhood. We are also following this path of growing distribution in parts of Florida.

On the international front we're shipping to a small number of countries like Chili and Bermuda, but are waiting for several governmental registrations. We're close to some more in the Middle East, and we have some activity in South America. Until the approvals come in there is not much to record.

We have a ton of interest coming from Europe, but with so much on our plate right now, we will not be too aggressive there for a few more months. We are taking about the same stance for Canada.

We announced today our new partnership with Market America. And I'm excited about the potential for Celsius with this tremendous sales and marketing partner.

We have been in discussions with a few multilevel marketing companies for some time. Towards the middle of last year I became familiar with Market America, and spent some time learning more about them and their vision. They are so much more than an MLM. Some of the technologies they're building are already helping them create their own sub-economy or ecosystem. They have their own products. They are of very high quality and help with many aspects of health and beauty. And their portal offers living millions of other products with an enjoyable and advanced customer buying experience.

Celsius is a premier partner product with Market America, and is available to their universal shopping cart. They have over 180,000 customer managers that help match their customers to the right products. They all learn important points in their revolutionary marketing plan when they sell Celsius. Since consumers need to be educated a bit on the benefits of Celsius and the science behind it, this one-on-one sales and marketing is a good fit for a new brand like ours.

I have been to two of their large conventions over the last seven months. Each time there are well over 20,000 very passionate entrepreneurs who are working to build their own financial independence, keeping a high degree of faith in their products, along with a good feeling of really helping their customers.

Market America is a winner. I am grateful that we can be associated with them. I'm hopeful that we will grow this relationship in many ways. Their dedication to true science and quality aligns so well with our values.

As I mentioned, we plan on airing our first television ads in the Boston area in a week or so. The production is complete other than a couple of minor tweaks. We will be comparing the impact of television with radio and with areas where we're not doing much in the way of air cover. Areas like the Midwest, I mentioned, where we depend on our point of sale signage and packaging to sell the brand on its own.

With this comparative data we will be able to better plan which areas we will get -- which areas will get which forms of marketing. We will continue to do grass-roots marketing through various events and sponsorships as well. We are working on some celebrity initiatives, but I can't see any more about that at this time.

Our overall objective for marketing is that in areas where we have the distribution we want to dramatically increase the awareness and trial. We have proven that when this is done, not only do sales increase short-term, but it holds up and grows.

Moving to new products. We feel that over the last five months we have been able to get the teas established in part of our core portfolio, and we are now ready to increase our offerings. In a few weeks we will be announcing two new products, each will be part of the Celsius brand and each will be based on the complete [MetaPlus] formula.

If you remember, the teas were the first new line extensions we created using the active ingredients of the Celsius formula. As we launched them, we trademarked our proprietary blend of ingredients as MetaPlus.

The importance of keeping the complete MetaPlus formula impact in a serving in any new product is that we continue to benefit from our four clinical studies. As we further link Celsius to calorie burning these two new Celsius brand products will still focus on raising metabolism and calorie burning, but we will utilize different delivery systems.

The first product that we will announce will be Celsius in a packet form. This raspberry flavored powder will come in a small packet that you can carry in a pocket or purse, and then just pour into bottled water. It is noncarbonated. It really tastes great. You can imagine the markets that this will open up, as it plays on the convenience factor, and is a whole different economic structure in regards to shipping and freight.

The second product is a Celsius calorie burning energy shot. This is in a 2 ounce bottle, like some of the other energy shots on the market, but with the added benefit of a complete serving of our MetaPlus formula. I'm not ready to discuss the launch and channel plan yet on these two exciting new products, but did want to use this forum to let our shareholders become aware that they are right around the corner.

One of the goals of our Company is not only to deliver exciting new healthier refreshments through science and innovation, but also to become a trusted company in regards to openness and transparency. To help reach this goal, we have been new relationship with Investment Nation. You can see more about this at investmentnation.com.

We plan on participating in an interview each month where shareholders can ask us questions, much like we will be doing here in a minute. Hopefully in the first one, I will be able to shed more light on the rollout of these two new products that we will be launching.

So in summary, we're excited about our future. We have made some significant progress over the last few months and a lot is coming together right now.

As I mentioned, this current quarter we will have some growth, but I believe it will be the second quarter of this year that will give a better picture of what we're expecting for Celsius.

Throughout the rest of this quarter and into the next we will continue to increase the number of retailers and distributors carrying Celsius. We will be analyzing the impact of our new commercials, and then airing them in additional selected markets.

We are excited about the new Market America partnership. And over the next 90 days we will be working to get this huge salesforce educated and excited about Celsius. And we will launch the two new products. We do have a lot on our plate, but as I said, it is all coming together quite nicely.

I will now open it up for your questions.

(Operator Instructions).

In the meantime we can take the first question from the Internet, the webcast. In terms of international growth, do you plan on going to Europe soon? That was covered in the speech that we were waiting a few months for that.

Then the question continues. I have noticed that Celsius.dk is an European site under construction, is that you guys?

That is a Danish site. Celsius is a common name in Scandinavia, and so it doesn't surprise me that it exists there. No, is not our site. I can take the next question here.

I noticed that the Jorge Hane link was deleted from the Celsius website on the home page, and I was wondering if he were still involved with Celsius?

Jorge is still in involved, and we're working on -- when I mentioned some of the activity in South America, he's involved with some of that. Some of his network, which is more Electronic Retailer Association are working through the home shopping networks around the world.

It hasn't proved to be as conducive for Celsius in its current form, because of the weight issues of shipping it around the globe. As you can imagine as we move out to more other delivery systems like packets, then these types of distributors might become more advantageous to us.

But right now as far as moving him from the website, some of this was just space. As some of you all have heard on prior calls, we do plan a rewrite of our website or to design it a little bit differently, as we're running out of room with so much of the new news coming on board.

Why don't you take the first question on the line?

Billy Lewis, IMS Securities.

Congrats on your progress in regard to opening new accounts. However, how do you plan to finance all this product? GNC will require large amounts of capital just to service them alone. Are you in a financial position to service all this business you're taking on?

We have a strong financial partner with CDS, and it is Carl DeSantis. And we have a line of credit established, as Jan mentioned, that they have helped set up, as well as the most recent investment. And the ability for them to invest more that Jan outlined.

We are expecting later in the year higher growth. And if that happens, we could need to go back to them for some more investment. I think when you're going back for investment to help build inventory for real orders, such as you're describing, it is a lot easier than when we were trying to find capital last year.

So I'm not that worried right now on the growth capital like we're just a different company now than a year ago. Does that help, Billy?

Yes, it did. I was concerned about how you were going to finance that 4,400 stores.

It is not just them, it is exciting with GNC. We've got several others coming on. But as I mentioned, access to better financing gets a lot easier when it is real orders for product that is really moving through the warehouses.

Thank you very much.

I will take the next question from email here is -- I know it takes months and sometimes years, but are talks still going on with gyms in New York City? And how is the awareness with pro sports?

Good questions, both for New York City as well as the gym or health and fitness channel around the country. Some of you that have followed us for a year now know that we started focusing more heavily in that channel, in the health and fitness world. And in that case we sometimes include the GNC's and Vitamin Shoppe's and [High Hilt's] in that same world.

That is where earlier adopters for a product like Celsius do hang out. It is a lot easier to get trial in a gym. They still may go and buy it in large quantities at their local grocery store, but gyms are very important to us.

We are focusing in on the health and fitness in certain areas. We want to do it all over, and we have added some technology to the website to help gyms that are in areas that don't have local distributors nearby where they can even order from us at a wholesale price around the country.

As far as New York City, we have a small distributor that is focused up there, but I wouldn't say we have moved into focusing in on the city yet. So much of our Northeast focus is going into right above that into the New England area, Connecticut, Rhode Island, Massachusetts. All of the Maine, New Hampshire, Vermont and upstate New York is what we're trying to round out very aggressively, as I mentioned, trying to wrap that up this quarter, both in normal distributors that would service grocery stores, convenience and drug, as well as focused distributors for the gyms.

So we're probably I would go another maybe two to three months before a heavier push for the gym channel right there in the city. But hat we do care a lot about that channel across the country, because it is so -- helps us really bring on new customers. Hopefully that helped to answer that question.

Will you take the next one?

[Shawn Tratit], private investor.

As you already know, I moderate on Investors Hub, Investment Nation and all other boards. My question is, are we going to be able to see these commercials on YouTube?

We will have them published in ways that we can. We hope to have it on the website -- in methods that we are allowed to do as soon as we start publishing -- getting them online in a week or two and up in Boston.

So we can't expect to see them on YouTube?

The first commercial is a 30 second commercial. I don't know if we are going to put it on YouTube per se. I will have to ask Irena on the plans there. We will be having not only the 60 second but also -- our 30 second, but a 60 second commercial. And then a whole webisode that we will be able to show on our website.

Cool. I would love to put the -- if you do, I would love to put it on Investment Nation, and on Investors -- what is it, Investment Nation and, you know, all the boards I go to.

My next was about Investment Nation actually. When do you plan to do the CEO interviews?

Our COO Jeff Perlman today, I think, just signed that up for somewhere the week of the 16th. Maybe it is March 16. But we will announce that well ahead of time. And you being part of Investment Nation as a moderator, you will hear about it right away.

I love the product. As a matter of fact, I am drinking it right now all the time. That will be all my questions for today. And I am proud of the work that you have already done. I'm also -- are you looking for an IRP, Investment Relations Professional?

We will start to focus on that in the near future. We have -- some of the investors that have called in, and I have spoken to, know that I wanted to not spend a lot of money with IR firms until we started getting really good traction and a good story for people to then help discuss. I think we're getting close to that. We may still be another month or so away.

But you want to have a good solid story, know that your revenue is going, that you are coming from a position of strength, or else it is just out there in that kind of pumping world and we want to be on solid footing, which we feel we're getting to now.

Yes, sir, there is no doubt that there are a lot of -- there is a lot of corruption there. And it is always nice to see those PRs, but it has got to be a better way to get that word out to more and more investors in a rational, honest way.

We will move towards helping to do a little more promotion of the stock to the larger investment community as we go through this next part of the year.

The next one. Can you please discuss some of the bigger retailers that are either coming on board or reordering? And there is another question about Publix, what is the plans on Publix?

I can talk about some of them that have committed to us. We have chosen to -- a little bit back to what Shawn was just saying, as far as how we promote the Company. We don't -- you won't see us do a press release because we have a meeting or someone said they might bring it on. We usually -- we are press releasing when we are shipping to a large retailer.

So I don't want to speak too much of the ones that may be coming on board. We are talking to many, as you can imagine. As I mentioned earlier, what you see now is from the work that the team did even up to six months or so ago.

Kroger's is a large retailer of ours. They're adding new flavors. They have taken in Orange now. They are now committed to the tea. So we're growing our footprint within those stores.

I mentioned Tedeschi's, Big Y, Shaw's up in the Northeast, along with Walgreens and Hannaford's. We have given a lot of attention up in that area. So that both with the drug channel, the convenience channel and the grocery channel consumers will have an easy access to go get Celsius as we now begin the awareness generating campaigns up there in a much more aggressive fashion.

Publix, what is kind of the home run down in the Florida/Georgia area. It is the major grocer down here. We have been talking with Publix for a long time. They are aware of us. The challenge is having a distribution footprint that covers all their stores.

Any of these retailers in any part of the country, they don't want the hassle of only you being in a small subset. So you need a distribution plan that can cover all of the stores that they are planning for. They don't want -- any large chain usually will be planning centrally. And the guy doing that central planning doesn't want to have a different plan and set of shelves for five stores and another set for another 10 stores, and another set for another 20. You can imagine that when that grows into, in Publix' case, in the hundreds and hundreds of stores.

So you need a good, strong distributor, much like the one we have up now in the Northeast with Polar and their network, to be able to go to these larger retailers and be able to show how you can give a high degree of service, not have stockouts, and have good shelf presence in all of their stores.

We're are still a little ways away from Publix because we need that distributor that will be able to cover a huge footprint. They go from Georgia on down. It is certainly something we care a lot about, and I would like to have done this year.

Maybe you can take the next one.

[Rusty Burl], private investor.

I've got several questions. The first one, you made mention to MetaPlus versus MetaBoost. Is there any difference?

We did originally trademark our ingredient as MetaBoost. You're correct. There is another company that has a supplement product called MetaBoost from another country. And we felt there was confusion there, as we learned more about it, and just decided to jump over to MetaPlus. So any of the cans, any of our marketing now you will see as [MetaPlus].

Was there any legal costs or ramifications as a result of using MetaBoost?

No. We found it out ahead of time, and there were some legal advice saying we could continue with it. And if there is ever a legal problem we could possibly win. It is just we're so busy and focused on growing the Company, we didn't want to worry about that down the road or have to deal with it. We would rather get going, and we felt MetaPlus could be just as good as MetaBoost, without any of the confusion.

On the powder packet, how many ounces will that make?

It will -- when you pour it as designed it will be the same 12 ounce that -- our science suggests that you want to be in the 10 to 14 ounces to get the impact that we show in all of our clinical studies, so we will always shoot for that. Someone may put a little extra water, a little more water, depending on their taste, but that is our guidelines. We want to shoot for that 12 ounce -- the same 12 ounces that you find in the normal Celsius.

On your coupon strategy, I have got a question there. How effective do you feel that has been? And where I am going with this is not everybody, that being the general public, is aware that the coupons are out there on the Internet. Some stores have them available. But wouldn't you be better off in terms of overall -- in terms of the public to just have maybe a slightly lower shelf price would at least give more widespread appeal than a coupon that you may or may not know about?

We're wrestling with that now of what the proper price point should be for Celsius. There is conflicting objectives throughout the supply chain, meaning the distributors and the retailers, on their desire for certain margin levels. And couponing can be a way to help with a special from time to time to build awareness.

The flip side of that is being possibly at a lower price point this day and age with the things going on might be a big plus for us. So it is something that is getting a lot of attention and discussion. And I don't know that we have the defined answer for that yet.

My view obviously would be that as a shareholder that I would much rather see a lower shelf price versus the coupon, because I just think that would draw attention to those that maybe don't know anything about Celsius that would be willing to try it versus people like myself that know a lot about Celsius, if the coupon is out there, I'm going to take advantage of it.

I think what you want as a shareholder, as you started that, is you want to see a company, a real strong company that grows, which means both revenue and profits and the share price. So you look back and say, boy, I sure am glad I invested in Celsius way back when. That is what you want, I believe.

How we get there is picking the right strategies in regards to is couponing the best? If you are sending out -- and we are starting this now -- a lot of viral marketing, a lot of things through the Internet, getting a coupon in the mail that says, here's a little special something for you, that may draw more attention than just saying it is $0.25 less.

I'm not saying that is the way to go. I am just saying it is a complex issue and there isn't just a quick knee-jerk to say this is how we build the best company.

A couple of others and then I will get off. R&D expense, quarter over quarter and year-over-year is that increasing in terms of absolute dollars versus percent of revenue?

The R&D expense have gone in lumps. Because a lot of the R&D has been our clinical studies. So we're planning a new clinical study in the probably second or third quarter. So right now what we're doing is very minor cost items, so it really moves up and down. Fourth quarter was a very low quarter for this type of expense.

The R&D, because we do group the studies in there, it is not just the normal R&D you would think about Irena and the labs figuring out these packets, for example. It is -- the real swings come from the studies that we do.

Our studies are getting larger. They are getting longer, and plus they are getting more costly. But that is really the differentiator of this Company is, as this category that we created of calorie burners grows, and more people are coming into it, we're still the only one that has multiple clinical studies done here in the country that really proves what we're claiming.

That should be comforting to shareholders, both to know we have them and that we're committed to continuing to base our products and our growth on the science. But it does cause some swings in any quarter that we do some of these larger studies.

Then do you plan to -- with your current R&D staff, in-house staff, do you plan to supplement that as you move forward to complement your current productline as well as extend it beyond the current categories that you have?

I'm not sure I understand. Will we add and move into some additional productlines that are outside the Celsius calorie burning brand? Yes, we may.

But I guess in terms of is it in your strategy going forward, given your current R&D base that you have, do you plan to increase that R&D base in terms of adding additional expertise, personnel to further offer or to further support new products?

I don't know that we would be adding staff as much, in that our method of growing all of our products has been more of a philosophy of bringing together the best experts in the world we can find to work on that project for that piece of time. And I think we have been pretty successful doing that. So I don't know that we would be beefing up an R&D staff so much, like getting into a Bell Labs type of environment.

We will though as we bring out new products, as I said, work with whether it is scientists or flavor houses, the experts that can help us bring out a product.

Maybe we can move on to the next question.

Is that okay, Rusty?

Yes, I think so. I guess the way then I understand your strategy is then you have in a sense a core group which maybe is one individual or two, and then as you decide to go into other areas or expand, you'll contract other to expertise outside?

Correct. And that is a philosophy -- and I will get Jan get some of these other questions -- the philosophy of the Company on several fronts. We're not building up plants and equipment, for example. We outsource our production. Even the planning and logistics we outsource. So we work with people that I think are the caliber of them much higher than we could afford to just bring on as employees. And we can move them around and work with them as the demand goes up and down.

So it is a philosophy of the Company as much as just, as you are mentioning, in the R&D area.

The next question is why hasn't there been any insider trading by any employees and/or officers of the Company since February of last year?

It is kind of a good question. We have talked about it in here a good bit. We think the stock price is a great buy. The tough part is we're also believing the stock is going to go in a positive direction, and we have a lot going on and it could get -- the little bit of windows we could buy even leads us open until we bought ahead, and then all of a sudden the stock is up.

We're really kind of tentative on the legal side of us buying and selling our stock. If you notice, you mentioned that we haven't bought since the management team bought last year. We also -- nobody has ever sold any stock. We are all very bullish in the Company.

Next question is how we will find Celsius in GNC's, and will be true nationwide or only in certain areas?

It is a grade question in regards to -- GNC has two types of stores, their corporate stores as well as their franchise stores. The corporate stores are planned centrally, and we will have a place in those. And that will be moving out, and already is starting to happen. As I mentioned, we have already shipped to their logistics centers. So that will happen to the corporate stores fairly quickly.

We may run into the same thing we did with Vitamin Shoppe, as a store in a new area gets it, they may sell faster than they were planning, and we can have some lumpy supply and demand for a little bit while that gets worked out. But we still should be in those stores.

Franchise stores is another animal. The people that own those stores do not have to listen to their corporate office. It is kind of interesting. They can't take something in that isn't approved by the corporate office, but they are not forced to take it.

So in certain areas this will probably grow much faster; in others it could grow slower. We will be participating in the GNC large conference later next quarter, where all of their franchisees come in to learn about the new products. And I suspect it will be around that time and afterwards that you will see our growth in those franchise stores takeoff. Our goal, of course, is to be in every one of them.

Can you take the next one?

[Brad Beck], private investor.

You guys are doing a fantastic job. A couple of questions real quick. We are in the Ohio area, Northeastern Ohio, and we are investors. But we like the product, and we're having a hard time finding the product. There is a Vitamin Shoppe, and there was a Walgreens, but it is hard for them to get the product.

But in the area we have a large retailer -- this kind of falls back on your Publix question, which probably is going to be about the same answer. We have Giant Eagle, and they are out of Pittsburgh. And they cover a large area here. I'm just curious if that is a possibility or something you might want to look into there?

We started speaking to them a long time ago, and they are just like the Publix scenario that we need to go to them, showing them we can cover their footprint of all their store locations.

That area of the country will get more focus as soon as we wrap up the Northeast. As I mentioned, I want to have all the white space out of the Northeast so we can cover everything up there. And then we will move down to the Pennsylvania, parts of Kentucky, Ohio area in a more aggressive way than we're doing right now. Right now it is a little bit more opportunistic.

Do you have maybe a time schedule on that, just a guesstimate or --?

The we will probably start working on finding the big key distributor, as we have done in the Northeast with Polar. We will probably start doing that in the May/June timeframe. And just so everyone understands, we want them all. We want them all right away, but things do take time. Some of these retailers then have their cycles we need to plan and fit into. So even though we may be going in an area, it could be six months later before we're really on the shelves of some of the stores.

It is different when it is direct. You mentioned Vitamin Shoppe. We don't go through local distributors, so we can get to every Vitamin Shoppe now, we can get to every GNC now, because we go through their own system.

The negative, however, then is you are dependent on their local employees at that store, or their cash registers telling them they sold something to help plan how much comes from the corporate warehouse. If someone buys more than planned there could be stockouts. You don't have a good local distributor coming in there every few days that can deliver it right away.

So it is trade-offs. Do you go direct which -- and we by the way will do what the customer wants. But if you go direct, you have maybe not as good a service level. If you're going to go through more what is called DSD, direct store distributors, you've got to have them all to cover a large store like Giant Eagle. Giant Eagle is one that we definitely want to be in up in that area.

They are a real good line of --.

Yes. You said you had two, is that it?

Yes, that was --.

I got a lot more coming up to you, but I want to try to give everybody a little chance here.

Thank you. I appreciate it.

Next one is an email here. Upon googling Market America, I have read numerous negative reviews. What are you doing to improve this? Why are you spending so much energy going out of the country when Celsius cannot be purchased in so much of this country?

Two questions there. Market America, there had been, I think if you read their question and answers on their website, you will see how they have addressed a few of their past, whether they are employees or people that have written certain things there.

And I feel very comfortable on how Market America is as a company, both being a partner of ours. I am very excited, as I mentioned, about Market America.

As far as going outside the country, I think you're talking about what I mentioned. We have so much on our plate right now, we're not spending a lot of time focusing internationally. We have been opportunistic on it, where some countries where it was easy to get into. Where a local distributor wanted to bring in the product, and it was easy from a registration standpoint, then we have taken a few of those on.

But we're not aggressively spending our time and resources going outside the country yet. That being said, we do have a great master distributor in the Middle East. If you remember, of that $2.6 million, there was a sizable portion there in Q2 that came from our Middle East distributor. And he is working on some more registration, so that instead of just Lebanon we can be in other countries, like Saudi Arabia and Kuwait, Qatar, and several of the others around there.

We have partners that are on the grounds that are doing the work. And we're excited as they add new countries, they are able to buy more product, and I think that helps all of us.

We're getting the input and interest from Europe, especially the UK, Germany, France. Croatia is another big one. That we're getting an email about and every 10 to 15 minutes from people that are interested. So the interest is quite high, but we're not putting a lot of resources into that yet. We will, as we get more going here. I agree with your point, let's get going here, but there is interest in these other countries.

The next one is what types of celebrities are you looking for, TV, music, sports? And then there was another one, anything like Biggest Loser type of appearance being looked at?

I really don't want to say right now. I know that goes counter to how open we're trying to be. We're trying to communicate as much or more than any other public company out there. But for several reasons on this -- the celebrity and endorsement front -- we would be very remiss in announcing anything before it was set up. I apologize for not being able to say more.

Will the packet be just one flavor or be expanded as times those on?

We will launch with raspberry. I could see us adding more. We need to get it out and get the channel plan and launch plan going. But I would think we would add some more, just as we have done with both our sparkling line and teas.

Will we be seeing a website makeover anytime soon?

We hope so. Jeff Perlman and Irena are working on that now. We want to broaden our capabilities on the website. There is many things underneath the covers of our website that some of the casual viewer doesn't understand that we did. We put a lot of technology behind it. We want to carry that forward, but put a nice -- a better face on it and a more flexible design, so that we can be more responsive as we do have more of these things coming on board.

Any other retailers in Texas going to bring on Celsius, anything in Mexico?

Mexico or New Mexico?

No, Mexico.

We're not focused on Mexico right now. So, no, for there. Texas, there could be. It is not a high focus for us right now. We have some good retailers that are there like HEB in central markets and Kroger. But for the rest of this quarter, most of the aggressiveness is more in the Northeast, Florida areas.

We will get to Texas. Of course Texas will be getting a lot of new deliveries with the GNC over there.

Can you discuss what size of that shipment was to GNC from a dollar standpoint?

Not really. That will show up in our numbers as we do ship to them. But I wouldn't want to say the shipment to them or a Vitamin Shoppe or to anyone down at that level. Remember, these are competitors in the marketplace, and for us to talk too deep at that wouldn't be fair to them.

Can you check if there's anybody else online?

There are no further questions in queue at this time.

Any other email?

There is no other e-mails either. So I think we covered them all.

Well, I appreciate everyone calling in and listening here. Hopefully you see that we have been having some -- a lot of this is coming together. Some good success. A lot of work has gone into this from the team all over the country.

We look forward to speaking with you either on Investment Nation or our next conference call after Q2, or after this Q1. Thank you everybody.

Goodbye.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.