Item 1A. Risk Factors 8
Item1B. Unresolved Staff Comments 15
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Mine Safety Disclosures 15
Item 6. Selected Financial Data. 16
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 19
Item 8. Financial Statements and Supplementary Data 19
Item 9A. Controls and Procedures 20
Item 9B. Other Information 21
Part III 22
Item 10. Directors, Executive Officers and Corporate Governance 22
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management 30
Item 13. Certain Relationships and Related Transactions 32
Item 14. Principal Accountant Fees and Services 33
Part IV
Item 15. Financial Statements and Exhibits 33
Signatures 35
i
When
used in this Annual Report on Form 10-K (this “Report”), unless otherwise indicated, the terms “the Company,”
“Celsius,” “we,” “us” and “our” refers to Celsius Holdings, Inc. and its subsidiaries.
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This
Report contains or refers to certain statements that are not historical facts and are “forward-looking” statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward looking
statements may be identified by words such as that. “anticipate,” “assume,” “believe,”
“estimate,” “expect,” “will,” “intend,” “may,”
“plan,” “project,” “should,” “could,” “seek,”
“designed,” “potential,” “forecast,” “target,” “objective,”
“goal,” or the negatives of such terms or other similar expressions.
These
statements are subject to various risks and uncertainties, many of which are outside our control, including, among others, strength
of the economy, potential effects of the COVID-19 pandemic, changes in the overall level of consumer spending, the performance
of the Company’s products within the prevailing retail environment, implementation of our strategy, trade restrictions,
availability of suitable store locations at appropriate terms, the availability of raw materials, compliance with regulations,
certifications and best practices with respect to the development, manufacture, sales and marketing of the Company’s products,
management changes, maintaining appropriate levels of inventory, changes in tax regulations, e-commerce relationships, disruptions
of manufacturing, warehouse or distribution facilities or information systems, political environment and other specific factors
described in “Item 1A. Risk Factors,” “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and elsewhere in this Report.
We
believe that all forward-looking statements are based on reasonable assumptions when made; however, we caution that it is impossible
to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes
with certainty and that, accordingly, one should not place undue reliance on these statements. Forward-looking statements speak
only as of the date when made and we undertake no obligation to update these statements in light of subsequent events or developments.
Actual results may differ materially from anticipated results or outcomes discussed in any forward-looking statement.
ii
PART
I
Item
1. Business
Overview
We
are engaged in the development, marketing, sale and distribution of functional calorie-burning fitness and lifestyle beverages
under the Celsius® brand name. According to multiple clinical studies we funded, a single serving of Celsius® burns 100
to 140 calories by increasing a consumer’s resting metabolism an average of 12% and providing sustained energy for up to
a nine-hour period. Our exercise focused studies show Celsius delivers additional benefits when consumed prior to exercise. The
studies show benefits such as increase in fat burn, increase in lean muscle mass and increased endurance.
We
seek to combine nutritional science with mainstream beverages by using our proprietary thermogenic (calorie-burning) MetaPlus®
formulation, while fostering the goal of healthier everyday refreshment by being as natural as possible without the artificial
preservatives often found in many energy drinks and sodas. Celsius® has no artificial preservatives, aspartame or high fructose
corn syrup and is very low in sodium. Celsius® uses good-for-you ingredients and supplements such as green tea (EGCG), ginger,
calcium, chromium, B vitamins and vitamin C. The main Celsius line of products are sweetened with sucralose, a sugar-derived sweetener
that is found in Splenda®, which makes our beverages low-calorie and suitable for consumers whose sugar intake is restricted.
We
currently offer five beverage lines, CELSIUS® Originals, CELSIUS HEATTM, CELSIUS® BCAA+ENERGY, CELSIUS® On-the-Go
and CELSIUS® Sweetened with Stevia.
Celsius
has undertaken significant marketing efforts aimed at building brand awareness, including a wide variety of marketing vehicles
such as television, radio, digital, social media, sponsorships, and magazine advertising. We also undertake various promotions
at the retail level such as coupons and other discounts in addition to in-store sampling. During the first quarter of 2021, Celsius
launched a branded cooler program, with a first phase target of locating up to 1,000 coolers in various retail outlets.
We
distribute our In the United States and elsewhere in North America, Celsius® is sold across many retail segments.
They include supermarkets, convenience stores, drug stores, nutritional stores, and mass merchants. We also sell to health clubs,
spas, gyms, the military and e-commerce websites.
We
distribute our products domestically through a hybrid of direct-store delivery (DSD) distributors and as well as sales direct
to retailers (DTR). We are continuing to emphasize DSD distribution as we believe it has been a key element in opening additional
domestic markets and retail segments and increasing sales.
Our
products are distributed in various foreign regions, primarily Europe and Asia, through regional and country-specific distribution
partners. In October 2019, we acquired Func Food, our Nordic distribution partner, who markets both our products as well as other
products under its own brands. Celsius intends to use Func Food as a platform to expand product distribution elsewhere in Europe.
The
Company does not directly manufacture its beverages and powder packets, but instead outsource the manufacturing process to established
third-party co-packers. We do, however, provide our co-packers with flavors, ingredient blends, cans and other raw materials for
our beverages purchased by us from various suppliers.
Recent
Developments
On
October 30, 2020, the Company fully repaid the outstanding bonds payable, which were reinstated as part of the acquisition of
Func Food on October 25, 2019, in accordance with the original terms of the bonds. The total amount repaid was approximately $9.9
million, which included principal of $9.6 million and accrued interest of $0.3 million.
Potential
Effects of the COVID-19 Pandemic on the Company’s Business
Our
business and results of operations may be adversely affected by changes in the global macro-economic environment which may also
reflect the negative impacts caused by pandemic and public health crises related to the COVID-19 pandemic. These macro-economic
aspects may also impact inflation, currency exchange rates, interest rates, availability of capital markets, consumer demand,
distribution and raw material costs.
Volatility
in the financial markets and deterioration of global economic conditions could impact our business and operations in several ways,
including the following:
Our
ability to commercialize our products is critical to our success. Damage or disruption to our supply chain, including third-party
manufacturing or transportation and distribution capabilities, due to the COVID-19 pandemic and related aspects or other reasons
beyond our control or the control of our suppliers and business partners, could impair our operations.
We
are closely monitoring the COVID-19 pandemic and its potential impact on our supply chain, distribution and our consolidated results
of operations. While the beverage industry has experienced some shortages of cans as a result of the COVID-19 pandemic, Celsius
has been able to secure adequate supply and has not experienced significant adverse effects on its business, operations and financial
condition from such shortage or otherwise from the COVID-19 pandemic. Nonetheless, we are unable to accurately predict the impact
that COVID-19 will have due to the uncertainties which include the ultimate geographic spread of the virus, the intensity of the
virus, the duration of the outbreak, and/or actions that may be taken by governmental agencies.
Corporate
History
We
were incorporated in Nevada on April 26, 2005 under the name “Vector Ventures, Inc.” and originally engaged in mineral
exploration. Such business was unsuccessful. On January 26, 2007, we acquired the Celsius® beverage business of
Elite FX, Inc., a Florida corporation engaged in the development of “functional” beverages since 2004 in a reverse
merger, and subsequently changed our name to Celsius Holdings, Inc.
Our
Products
Celsius®
calorie-burning beverages were first introduced to the marketplace in 2005.
According
to multiple clinical studies we funded, a single serving (12 ounce can) of Celsius® burns 100 to 140 calories by
increasing a consumer’s metabolism an average of 12% for up to a three-hour period. In addition, these studies have indicated
that drinking a single serving of Celsius® prior to exercising may improve cardiovascular health and fitness
and enhance the loss of fat and gain of muscle from exercise.
We
seek to combine nutritional science with mainstream beverages by using our proprietary thermogenic (calorie-burning) MetaPlus®
formulation, while fostering the goal of healthier everyday refreshment by being as natural as possible without the artificial
preservatives often found in many energy drinks or sodas. Celsius® has no chemical preservatives, aspartame or
high fructose corn syrup and is very low in sodium. Celsius® uses good-for-you ingredients and supplements such
as green tea (EGCG), ginger, calcium, chromium, B vitamins and vitamin C. Celsius is sweetened with sucralose, a sugar-derived
sweetener that is found in Splenda®, which makes our beverages low-calorie and suitable for consumers whose sugar
intake is restricted. Each 12 ounce can of Celsius® contains 200 milligrams of caffeine which is comparable to
one 12-ounce cup of coffee from the leading coffeehouse.
We
currently five beverage lines:
Celsius®
ready-to drink products are packaged in a distinctive 12 ounce sleek can that uses vivid colors in abstract patterns to create
a strong on-shelf impact. The cans are sold as singles or in four-packs. We have recently redesigned our packaging to provide
a cleaner, crisper and more modern look. In addition to being sugar free, our original ready-to -drink products line is non-GMO,
kosher and vegan certified and soy and gluten free.
As
a result of completion of the acquisition of Func Food in October 2019, we acquired the beverages, protein bars, supplements and
superfoods marketed and distributed in Finland, Sweden, and Norway. These products are distributed under the FAST, FitFarm and
CocoVi brands and which are owned by Func Food. FAST products is a market leader in Finland and has begun distribution into the
Swedish market. FitFarm and CocoVi are well-established brands of superfoods and other supplements in the Nordic countries.
Clinical
Studies
It
is our belief that clinical studies substantiating product claims will become more important as more and more beverages are marketed
with health claims. Celsius® was one of the first functional beverages to be launched along with a clinical study.
Celsius® is also one of very few functional beverages that has clinical research on the actual product itself.
Some beverage companies that do mention studies backing their claims are 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.
We
have funded seven U.S. based clinical studies for Celsius®. Each was conducted by a research organization and each
studied the total Celsius® formula. The first study was conducted by the Ohio Research Group of Exercise Science
& Sports Nutrition. The remaining studies were conducted by the Applied Biochemistry & Molecular Physiology Laboratory
of the University of Oklahoma. We funded all of the studies and provided Celsius® beverage for the studies. However, none
of our directors, executive officers or principal shareholders is in any way affiliated with either of the two research organizations
which conducted the studies.
The
first study was conducted in 2005 by the Ohio Research Group of Exercise Science & Sports Nutrition www.ohioresearchgroup.com.
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. 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 12 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, this was done to make sure that the order that subjects were served does not impact the results and analysis.
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 ten minutes at the end of each hour for three hours post-ingestion.
The results showed an average increase of metabolism of twelve percent over the three-hour period, compared to a 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 in 2007.
This blinded, placebo-controlled study was conducted on a total of 60 men and women of normal weight. An equal number of participants
were separated into two groups to compare one serving (a single 12 ounce can) 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 65% more calories than those consuming the placebo beverage and burned an average of
more than 100 to 140 calories compared to the placebo. These results were statistically significant.
The
third study, conducted by the Applied Biochemistry & Molecular Physiology Laboratory of University of Oklahoma in 2007, extended
our second study with the same group of 60 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, although 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, conducted by the Applied Biochemistry & Molecular Physiology Laboratory of University of Oklahoma in 2009, combined
Celsius® use with exercise. This ten-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 ten 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, cardio-respiratory 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 cardio-respiratory fitness and the ability to delay the onset of fatigue when exercising to exhaustion.
Our
fifth study was conducted by the Applied Biochemistry & Molecular Physiology Laboratory of University of Oklahoma in 2009.
This ten-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 groups that consumed identically tasting treatment beverages
with exercise or without exercise. All participants consumed one drink, either placebo or Celsius®, per day for
10 weeks. The exercise groups participated in ten 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 cardio-respiratory 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.
Our
sixth study was conducted by the Applied Biochemistry & Molecular Physiology Laboratory of University of Oklahoma in 2009.
This ten-week placebo-controlled, randomized and blinded study was conducted on a total of 37 previously sedentary male subjects.
Participants were randomly assigned into groups that consumed identically tasting treatment beverages with exercise or without
exercise. All participants consumed one drink, either placebo or Celsius®, per day for 10 weeks. The exercise groups
participated in ten 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. Significantly greater decreases in fat mass and percentage body fat and increases in VO2
were observed in the subjects that consumed Celsius® before exercise versus those that consumed the placebo
before exercise. Mood was not affected. Clinical markers for hepatic, renal, cardiovascular and immune function, as determined
by pre-and post-blood work revealed no adverse effects.
Our
seventh study was conducted by Miami Research Institute in 2010 and demonstrated the efficacy and safety of the powders and the
shots. This study allows the Company to make the same structure/function claims as the ready to drink beverages.
Manufacture
and Supply of Our Products
Our
beverages are produced by established third party beverage co-packers. A co-packer is a manufacturing plant that provides the
service of filling bottles or cans for the brand owner. We believe one benefit of using co-packers is that we do not have to invest
in the production facility and can focus our resources on brand development, sales and marketing. It also allows us produce in
multiple locations strategically placed throughout the country. We purchase most of the ingredients and all packaging materials.
The co-pack facility assembles our products and charges us a fee by the case. The shelf life of Celsius® products
is specified as 15 to 18 months.
Substantially
all of the raw materials used in the preparation, bottling and packaging of our products are purchased by us or by our co-packers
in accordance with our specifications. Generally, we obtain the ingredients used in our products from domestic suppliers and some
ingredients have several reliable suppliers. The ingredients in Celsius® include green tea (EGCG), ginger (from
the root), caffeine, B vitamins, vitamin C, taurine, guarana, chromium, calcium, glucuronolactone, sucralose, natural flavors
and natural colorings. Celsius® is labeled with a supplements facts panel. We have no major supply contracts with
any of our suppliers. We single-source all our ingredients for purchasing efficiency; however, we have identified a second source
for our critical ingredients and there are many suppliers of flavors, colorings and sucralose. In case of a supply restriction
or interruption from any of the flavor and coloring suppliers, we would have to test and qualify other suppliers that may disrupt
our production schedules.
Packaging
materials, except for our distinctive sleek aluminum cans, are easily available from multiple sources in the United States; however,
due to efficiencies we utilize single source vendor relationships. While the beverage industry has experienced some shortages
of cans as a result of the COVID-19 pandemic, Celsius has been able to secure adequate supply and has not experienced significant
adverse effects from such shortages.
We
believe that our co-packing arrangement and supply sources are adequate for our present needs.
Func
Food similarly has its FAST and other products manufactured by independent third parties in the Nordic countries.
Distribution
Domestic
In
the United States and elsewhere in North America, Celsius® is sold across many retail segments. They include supermarkets,
convenience stores, drug stores, nutritional stores, and mass merchants. We also sell to health clubs, spas, gyms, the military,
and e-commerce websites.
We
distribute our products domestically through a hybrid of direct-store delivery (DSD) distributors and as well as sales direct
to retailers (DTR).
We
are continuing to emphasize the expansion of our DSD distribution network as we believe it has been a key element in opening additional
domestic markets and retail segments and increasing sales.
We
also sell our products online through our own and other e-commerce platforms such as Amazon. As a result of the shift to online
purchasing by consumers, including additional growth arising from the effects of the COVID-19 pandemic as a result of the shutdown
of various retail outlets, particularly gyms and health clubs in the fitness channel, e-commerce sales have accounted for a growing
percentage of our domestic revenue. We expect this trend to continue at least through most of 2021.
International
We
distribute our products in various foreign regions through regional and country-specific distribution partners. In October 2019,
we acquired Func Food, our Nordic distribution partner, who markets both our products as well as other products under its own
brands. Celsius intends to use Func Food as a platform to expand product distribution elsewhere in Europe.
We
market our products in the Asian market, which is one of the most dynamic and fastest-growing, through a partnership with A.S.
Watson industries in Hong Kong and a license agreement with our partner in China, Qifeng Food Technology (Beijing) Co., Ltd. (“Qifeng”).
While we initially began both local production and preliminary distribution of the Celsius® brand in 2018 through our partnership
in Qifeng, effective January 1, 2019, we restructured our China distribution efforts by entering into two separate agreements
as it relates to the commercialization of our Celsius products (i.e., license agreement) and a repayment of investment agreement
with Qifeng. Under the license agreement, Qifeng was granted the exclusive license rights to manufacture, market and commercialize
Celsius® brand products in China. Qifeng will pay a minimum royalty fee of $6.9 million for the five years of the term of
the agreement, transitioning to a volume-based royalty fee, thereafter. Under a separate economic agreement, Qifeng Food will
repay the marketing investments made by Celsius into the China market through 2018, over the same five-year period. The repayment,
which was formalized via a note receivable from Qifeng, will need to be serviced even if the licensing agreement is cancelled
or terminated.
Significant
Customer
As
a result of the growth of our business and the increase in online sales in 2020 related in part to the COVID-19 pandemic, one
customer, Amazon, accounted for approximately 15% and 12.0% of our revenues during the years ended December 31, 2020 and December
31, 2019, respectively. Notwithstanding the foregoing, we do not believe that we are dependent on our sales to Amazon for our
continued growth and profitability.
Seasonality
of Sales
As
is typical in the beverage industry, sales of our beverages are seasonal, with the highest sales volumes generally occurring in
the second and third fiscal quarters, which correspond to the warmer months of the year in our major markets.
Competition
We
believe that our Celsius® brand products are one of the few calorie-burning fitness beverages whose effectiveness is supported
by clinical studies, which gives us a unique position in the beverage market. However, our products do compete broadly with all
categories of consumer beverages. The beverage market is highly competitive, and includes international, national, regional and
local producers and distributors, most of whom have greater financial, management and other resources than us. Our direct competitors
in the functional beverage market include, but are not limited to The Coca-Cola Company, Dr. Pepper Snapple Group, PepsiCo, Inc.,
Nestlé, Waters North America, Inc., Hansen Natural Corp., Vital Pharmaceuticals, Inc, Monster Energy, and Red Bull.
Proprietary
Rights
We
have registered the Celsius® and MetaPlus® trademarks with the United States Patent and Trademark
Office, as well as a number of additional trademarks.
We
have and will continue to take appropriate measures, such as entering into confidentiality agreements with our contract packers
and ingredient suppliers, to maintain the secrecy and proprietary nature of our MetaPlus® formulation and product
formulas.
We
maintain our MetaPlus® formulation and product formulas as trade secrets. We believe that trade secrecy is a preferable
method of protection for our formulas as patenting them might require their disclosure. Other than a company that is our outsourced
production manager, no single member of the raw material supply chain or our co-packers has access to the complete formula.
We
consider our trademarks and trade secrets to be of considerable value and importance to our business. No successful challenges
to our registered trademarks have arisen and we have no reason to believe that any such challenges will arise in the future.
As
a result of the acquisition of Func Food in October 2019, we have acquired additional brands and tradenames.
Government
Regulation
The
production, distribution and sale of our products in the United States is subject to the Federal Food, Drug and Cosmetic Act,
the Dietary Supplement Health and Education Act of 1994, the Occupational Safety and Health Act, various environmental
statutes and various other federal, state and local statutes and regulations applicable to the production, transportation, sale,
safety, advertising, labeling and ingredients of such products. California law requires that a specific warning appear on any
product that contains a component listed by California as having been found to cause cancer or birth defects. The law exposes
all food and beverage producers to the possibility of having to provide warnings on their products because the law recognizes
no generally applicable quantitative thresholds below which a warning is not required. Consequently, even trace amounts of listed
components can expose affected products to the prospect of warning labels. Products containing listed substances that occur naturally
in the product or that are contributed to the product solely by a municipal water supply are generally exempt from the warning
requirement. While none of our products are required to display warnings under this law, we cannot predict whether an important
component of any of our products might be added to the California list in the future. We also are unable to predict whether or
to what extent a warning under this law would have an impact on costs or sales of our products.
Measures
have been enacted in various localities and states that require that a deposit be charged for certain non-refillable beverage
containers. The precise requirements imposed by these measures vary. Other deposit, recycling or product stewardship proposals
have been introduced in certain states and localities and in Congress, and we anticipate that similar legislation or regulations
may be proposed in the future at the local, state and federal levels, both in the United States and elsewhere.
Our
facilities in the United States are subject to federal, state and local environmental laws and regulations. Compliance with these
provisions has not had, and we do not expect such compliance to have, any material adverse effect upon our business, financial
condition and results of operations.
The
marketing and sale of our products internationally is similarly subject to compliance with applicable laws, rules and regulations
in those foreign countries where our products are sold.
Employees
As
of the date of this Report, the Company employs 154 people, including its executive officers.
Item
1A. Risk Factors
Our
business faces certain risks. The risks described below may not be the only risks we face. Additional risks that we do not yet
know of, or that we currently think as immaterial, may also impair our business. If any of the events anticipated by the risks
described below or elsewhere in this report occur, our results of operations and financial conditions could be adversely affected.
Risk
Factors Relating to Our Business
Our
business and results of operations may be adversely affected by the COVID-19 pandemic
Our
business and results of operations may be adversely affected by changes in the global macro-economic environment which may also
reflect the negative impacts caused by pandemic and public health crises related to the COVID-19 pandemic. These macro-economic
aspects may also impact inflation, currency exchange rates, interest rates, availability of capital markets, consumer demand,
distribution and raw material costs.
Volatility
in the financial markets and deterioration of global economic conditions could impact our business and operations in several ways,
including the following:
Our
ability to commercialize our products is critical to our success. Damage or disruption to our supply chain, including third-party
manufacturing or transportation and distribution capabilities, due to the COVID-19 pandemic and related aspects or other reasons
beyond our control or the control of our suppliers and business partners, could impair our operations.
We
are closely monitoring the COVID-19 pandemic and its potential impact on our supply chain, distribution and our consolidated results
of operations. While the beverage industry has experienced some shortages of cans as a result of the COVID-19 pandemic, Celsius
has been able to secure adequate supply and has not experienced significant adverse effects on its business, operations and financial
condition from such shortage or otherwise from the COVID-19 pandemic. Nonetheless, we are unable to accurately predict the impact
that COVID-19 will have due to the uncertainties which include the ultimate geographic spread of the virus, the intensity of the
virus, the duration of the outbreak, and/or actions that may be taken by governmental agencies.
We
rely on third party co-packers to manufacture our products. If we are unable to maintain good relationships with our co-packers
and/or their ability to manufacture our products becomes constrained or unavailable to us, our business could suffer.
We
do not directly manufacture our products, but instead outsource such manufacturing to established third party co-packers. These
third-party co-packers may not be able to fulfill our demand as it arises, could begin to charge rates that make using their services
cost inefficient or may simply not be able to or willing to provide their services to us on a timely basis or at all. In the event
of any disruption or delay, whether caused by a rift in our relationship or the inability of our co-packers to manufacture our
products as required, we would need to secure the services of alternative co-packers. We may be unable to procure alternative
packing facilities at commercially reasonable rates and/or within a reasonably short time period and any such transition could
be costly. In such case, our business, financial condition and results of operations would be adversely affected.
We
rely on distributors to distribute our products in the DSD sales channel and in international markets. If we are unable to secure
such distributors and/or we are unable to maintain good relationships with our existing distributors, our business could suffer.
We
distribute Celsius® in the DSD sales channel by entering into agreements with direct-to-store delivery distributors
having established sales, marketing and distribution organizations. We similarly are seeking to expand our international distribution,
particularly in the Far East and elsewhere in Asia by entering into agreements with large established distributors who service
those markets. Many of our distributors are affiliated with and manufacture and/or distribute other beverage products. In many
cases, such products compete directly with our products. The marketing efforts of our distributors are important for our success.
If Celsius® proves to be less attractive to our distributors and/or if we fail to attract distributors, and/or
our distributors do not market and promote our products with greater focus in preference to the products of our competitors, our
business, financial condition and results of operations could be adversely affected.
Our
customers are material to our success. If we are unable to maintain good relationships with our existing customers, our business
could suffer.
Unilateral
decisions could be taken by our distributors, grocery chains, convenience chains, drug stores, nutrition stores, mass merchants,
club warehouses and other customers to discontinue carrying all or any of our products that they are carrying at any time, which
could cause our business to suffer.
Additionally,
as a result of the growth of our business and the increase in online sales in 2020 related in part to the COVID-19 pandemic, one
customer, Amazon, accounted for approximately 15% and 12.0% of our revenues during the years ended December 31, 2020 and December
31, 2019, respectively. Notwithstanding the foregoing, we do not believe that we are dependent on our sales to Amazon for our
continued growth and profitability.
Increases
in cost or shortages of raw materials or increases in costs of co-packing could harm our business.
The
principal raw materials used by us are flavors and ingredient blends as well as aluminum cans, the prices of which are subject
to fluctuations. We are uncertain whether the prices of any of the above or any other raw materials or ingredients we utilize
will rise in the future and whether we will be able to pass any of such increases on to our customers. We do not use hedging agreements
or alternative instruments to manage the risks associated with securing sufficient ingredients or raw materials. In addition,
some of these raw materials, such as our distinctive sleek 12 ounce can, are available from a single or a limited number of suppliers.
As alternative sources of supply may not be available, any interruption in the supply of such raw materials might materially harm
us.
While
the beverage industry has experienced some shortages of cans as a result of the COVID-19 pandemic, Celsius has been able to secure
adequate supply and has not experienced significant adverse effects on its business, operations and financial condition from such
shortage. However, there can be no assurance that if such shortages continue, its business, operations and financial condition
will not be harmed.
Our
failure to accurately estimate demand for our products could adversely affect our business and financial results.
We
may not correctly estimate demand for our products. If we materially underestimate demand for our products and are unable to secure
sufficient ingredients or raw materials, we might not be able to satisfy demand on a short-term basis, in which case our business,
financial condition and results of operations could be adversely affected.
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.
Our
products are manufactured using our proprietary blends of ingredients. These blends are created by third-party suppliers to our
specifications and then supplied to our co-packers. Although all of the third parties in our supply and manufacture chain execute
confidentiality agreements, there can be no assurance that our trade secrets, including our proprietary ingredient blends will
not become known to competitors.
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 or reverse engineer our processes, brands, flavors, or our 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. Any such loss of confidentiality could diminish or eliminate any competitive advantage provided by our proprietary
information.
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 amount of the insurance we carry is limited, and that insurance is subject to certain exclusions and may or may not be adequate.
We
rely on our management team and other key personnel.
We
depend on the skills, experience, relationships, and continued services of key personnel, including our experienced management
team. In addition, our ability to achieve our operating goals also depends on our ability to recruit, train, and retain qualified
individuals. We compete with other companies both within and outside of our industry for talented personnel, and we may lose key
personnel or fail to attract and retain additional talented personnel. Any such loss or failure could adversely affect our product
sales, financial condition, and operating results.
In
particular, our continued success will depend in part, on our ability to retain the talents and dedication of key employees. If
key employees finalize their employment, become ill as a result of the COVID-19 pandemic, or if an insufficient number of employees
is retained to maintain effective operations, our business may be adversely affected and our management team may be distracted.
Furthermore, we may not be able to locate suitable replacements for any of our key employees who leave or be able to offer employment
to potential replacements on reasonable terms, all of which could adversely affect our procurement & distribution processes,
sales & marketing activities, financial processes & condition and results of operations.
The
FDA has not passed on the efficacy of our products or the accuracy of any claim we make related to our products.
Although
six independent clinical studies have been conducted relating to the calorie-burning and related effects of our products, the
results of these studies have not been submitted to or reviewed by the FDA. Further, the FDA has not passed on the efficacy of
any of our products nor has it reviewed or passed on any claims we make related to our products, including the claim that our
products aid consumers in burning calories or enhancing their metabolism.
Risk
Factors Relating to Our Industry
We
are subject to significant competition in the beverage industry.
The
beverage industry is highly competitive. The principal areas of competition are pricing, packaging, distribution channel penetration,
development of new products and flavors and marketing campaigns. Our products compete with a wide range of drinks produced by
a relatively large number of manufacturers, most of which have substantially greater financial, marketing and distribution resources
and name recognition than we do.
Important
factors affecting our ability to compete successfully include the taste and flavor of our products, trade and consumer promotions,
rapid and effective development of new, unique cutting-edge products, attractive and different packaging, branded product advertising
and pricing. Our products compete with all liquid refreshments and with products of much larger and substantially better financed
competitors, including the products of numerous nationally and internationally known producers, such as The Coca Cola Company,
Dr. Pepper Snapple Group, PepsiCo, Inc., Nestle, Waters North America, Inc., Hansen Natural Corp. and Red Bull. We also compete
with companies that are smaller or primarily local in operation. Our products also compete with private label brands such as those
carried by supermarket chains, convenience store chains, drug store chains, mass merchants and club warehouses.
There
can be no assurance that we will compete successfully in the functional beverage industry. The failure to do so would materially
adversely affect our business, financial condition and results of operations.
We
compete in an industry that is brand-conscious, so brand name recognition and acceptance of our products are critical to our success
and significant marketing and advertising could be needed to achieve and sustain brand recognition.
Our
business is substantially dependent upon awareness and market acceptance of our products and brands by our targeted consumers.
Our business depends on acceptance by our independent distributors of our brand as one that has the potential to provide incremental
sales growth rather than reduce distributors’ existing beverage sales. The development of brand awareness and market acceptance
is likely to require significant marketing and advertising expenditures. There can be no assurance that Celsius®
will achieve and maintain satisfactory levels of acceptance by independent distributors and retail consumers. Any failure of the
Celsius® brand to maintain or increase acceptance or market penetration would likely have a material adverse effect
on business, financial condition and results of operations.
Our
sales are affected by seasonality.
As
is typical in the beverage industry, our sales are seasonal. Our highest sales volumes generally occur in the second and third
quarters, which correspond to the warmer months of the year in our major markets. Consumer demand for our products is also affected
by weather conditions. Cool, wet spring or summer weather could result in decreased sales of our beverages and could have an adverse
effect on our results of operations.
Our
business is subject to many regulations and noncompliance is costly.
The
production, marketing and sale of our beverage products are subject to the rules and regulations of various federal, state and
local health agencies. The marketing and sale of our products internationally is similarly subject to compliance with applicable
laws, rules and regulations in those foreign countries where our products are sold. If a regulatory authority finds that a current
or future product or production run is not in compliance with any of these regulations, we may be fined, or production may be
stopped, thus adversely affecting our business, financial condition and results of operations. Similarly, any adverse publicity
associated with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore,
the rules and regulations are subject to change from time to time and while we closely monitor developments in this area, we have
no way of anticipating whether changes in these rules and regulations will impact our business adversely. Additional or revised
regulatory requirements, whether labeling, environmental, tax or otherwise, could have an adverse effect on our business, financial
condition and results of operations.
Risk
Factors Relating to our Status as a Fully Reporting Public Company
We
are subject to the periodic reporting requirements of the Exchange Act that require us to incur audit fees and legal fees in connection
with the preparation of such reports. These additional costs could reduce or eliminate our ability to earn a profit.
We
are subject to the periodic reporting requirements of the Exchange Act and as a result, we are now required to file periodic reports
with the Securities and Exchange Commission (the “SEC”) pursuant to the Exchange Act and the rules and regulations
promulgated thereunder. In order to comply with these requirements, our independent registered public accounting firm has to review
our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel
has to review and assist in the preparation of such reports. The costs charged by these professionals for such services cannot
be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity
of our reports cannot be determined at this time and will have a major effect on the amount of time to be spent by our auditors
and attorneys. However, the incurrence of such costs will obviously be an expense to our operations and thus have a negative effect
on our ability to meet our overhead requirements and earn a profit. If we cannot provide reliable financial reports or prevent
fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information,
and the trading price of our common stock, if a market ever develops, could drop significantly.
If
we do not maintain an effective internal control environment as well as adequate control procedures over our financial reporting,
investor confidence may be adversely affected thereby affecting the value of our stock price
We
are required to maintain proper internal control over our financial reporting and adequate controls related to our disclosures.
As defined in Rule 13a-15(f) under the Exchange Act, internal control over financial reporting is a process designed by, or under
the supervision of, the principal executive and principal financial officers and effected by the board of directors, management
and other personnel, 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. If we fail to maintain adequate
controls, our business, the results of operations, financial condition and/or the value of our stock may be adversely impacted.
Risk
Factors Related to our Common Stock
We
cannot guarantee the continued existence of an active established public trading market for our common stock.
Our
common stock currently is listed for trading on the Nasdaq Capital Market. Trading in stock quoted on the Nasdaq Capital Market
may often experience wide fluctuations in trading prices, due to many factors that may have little to do with our operations or
business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance.
Market