CE Brands Provides Operational and Financial Update

CALGARY, Alberta, Oct. 21, 2021 (GLOBE NEWSWIRE) -- CE Brands Inc. (TSXV: CEBI; CEBI.WT) ("CE Brands", "we", "our", or the "Company"), a data-driven consumer-electronics company, is providing an operational and financial update, including initiatives being taken to address global supply chain challenges, preliminary revenue results for the recent quarter ended September 30, 2021, revised outlook and recent growth milestones achieved.

"It is widely known that the consumer electronics industry is experiencing worse than expected production, logistical and supply chain challenges. While this has hampered the timing of our anticipated sales growth and led us to reassess our near-term financial and operational priorities, we remain encouraged by the operational momentum we have recently experienced, and are confident in the growth potential of our business." said Craig Smith, CEO of CE Brands.

"In response to the logistical challenges, we have launched a series of initiatives to stabilize our business, including supply-chain improvements, reductions in SG&A and strategically prioritizing our product portfolio to conserve cash and improve near-term profitability. I believe we are in the early stages of recapturing momentum with our product deliveries and sales. The recent additions to our senior operations team in Hong Kong and China have already resulted in improvements to our supply chain management and positioned us to deliver on our upcoming product launches."

Mr. Smith continued, "Despite the significant challenges facing our business, I am encouraged by numerous positive developments since our June 2021 public listing, including a recent long-term commitment from Kodak to continue to develop quality products with us under the Kodak brand. We have had very good success with our initial Kodak branded products. We are also very excited to be on the verge of launching our next wearables product under the Motorola brand with the Moto Watch 100, which we are confident will further establish the Motorola brand in the expanding smart watch segment."

Operations Update

The COVID-19 pandemic has had far-reaching impacts on the manufacturing and production of consumer electronics in Asia.  For CE Brands, this has resulted in lower volumes of inventory being available for sale and associated delays in new product launches. Recently, the Company has also experienced increases in production, labor and shipping costs. The Company has implemented a number of proactive initiatives to address these issues, as further described below.

Despite these challenges related to the COVID-19 pandemic, the Company anticipates achieving its target of eight unique products in four different product categories in the market by the end of March 2022. 

• The Company currently has the following products in the market: Kodak Baby Monitors and Air Purifiers and Motorola entry-level Smart Watches.
• The following products are expected to launch by the end of December 2021: Kodak Battery-powered Outdoor Security Cameras
• In addition, the following products are expected to launch by the end March 2022: Kodak Air Purifiers (new model), Motorola mid-level Smart Watches (two new models).
  

As part of refocusing the Company's product portfolio, the Company has determined to delay the launch of the following products: Kodak Premium Tier Baby Monitor (new product) and Air Conditioners/Dehumidifiers and new Smart Lighting products.

Once the Company's business stabilizes and the headwinds dissipate, the Company anticipates resuming new product development and launches with a continued focus on products with the ability to generate average revenues of approximately $1.0-1.5 million per month per product during the product's life cycle. When appropriate, the Company will provide an update on timing for additional product development and launches. 

The Company is proactively working with its manufacturing partners to improve production and minimize further disruptions. The recently announced hiring of Gilbert Au as Head of Operations and Angus Lou as Head of Supply Chain Operations, both of whom are based in Asia, reflects the Company's increased focus on manufacturing and supply chain operations in Asia.  As part of our new profitability improvement program and to mitigate the headwinds that may persist into 2022, CE Brands will focus on conserving cash and improving near-term profitability through streamlining its current product lines, lowering unit costs and better positioning the Company to meet delivery schedules for its current products.

The Company has implemented a 50% reduction in corporate salaries for the board of directors and executive management team and a 28% reduction for the non-executive employees. In addition, the Company has implemented headcount reductions, including the departure of Ernest Levenson, President of eBuyNow eCommerce Ltd.   The Company is also announcing that Kalvie Legat, CFO of CE Brands will assume the role of Corporate Secretary following Mr. Adam Rock's resignation.  The Board of Directors would like to thank Mr. Levenson and Mr. Rock for their contributions and wish them both all the best in future endeavors.

The following are examples of the supply chain challenges currently being faced by the Company:

• Due to COVID-19 restrictions recently imposed by the Vietnamese government, limitations have been instituted for many companies regarding workforce numbers and shipping and logistics related matters. Consequently, the manufacturing of several products in Vietnamese factories was moved back to China, which has directly impacted manufacturing lead times.
• Silicon chip manufacturing has also fallen behind current demand resulting in a global shortage of semiconductors. This has filtered down through global supply chains in many industries, but has been especially impactful on consumer electronic components. Wherever possible, the Company is focusing on products that are least impacted by semiconductor production issues.
• China is experiencing severe energy shortages and rolling power disruptions resulting in down time for factories.
• Shipping delays due to COVID-19 restrictions at shipping ports have impacted products leaving China and arriving in North America and increased the costs of all types of cargo freight.

Financial Update and Revised Outlook

On a preliminary basis, the Company expects revenue for the three-month period ended September 30, 2021 to be between $1.35-$1.45 million, which is approximately 17%-25% higher than the $1.15 million in revenue reported in the previous quarter, primarily driven by the growth of the Kodak Baby product category. Subject to raising additional working capital financing in the amount of approximately US$5 million (see below), the Company expects to generate approximately $8-9 million in revenues for the three-month period ending March 31, 2022, primarily driven by the initial sales of our next two planned product launches, the Kodak Infinio F882 Outdoor Security Monitor and the Motorola Moto Watch 100. With the additional products planned to launch in early 2022, the Company expects to generate revenue for calendar 2022 in the $50-60 million range. See "Presentation of Financial Information" and "Forward-Looking Statements".

As at September 30, 2021, the Company has:

• Cash on hand of approximately $1.0 million.
• Finished goods on order valued at approximately $4.6 million. Sale of finished goods on order goods are expected to generate revenue in the range of 2-2.5 times the inventory value.
• Current outstanding debt of approximately $3.1 million, comprised of:
  
  
  • Founder loans in aggregate of $1.6 million bearing a 4.5% interest rate with staggered maturities occurring before March 2023; and
  • US$1.25 million drawn on the facility with Choco Up with a maturity in May 2022.
    

As global supply chain issues have increasingly constrained the Company's working capital, recent share price declines also resulted in the Company having to repay outstanding convertible notes in cash (rather than issuing shares on maturity) and in warrants expiring out of the money (with no proceeds being paid to the Company). As of the date hereof, the Company has 22,713,055 common shares issued and outstanding and 30,548,648 common shares outstanding on a fully diluted basis.

The Company is currently evaluating a number of potential financing alternatives that are intended to address the Company's working capital and other financing needs and support the Company's product launches and sales. See "Forward-Looking Statements".

Long Term Growth Strategy

Since the completion of its public listing in June 2021 and in furtherance of its growth strategies, the Company has made the following progress:

• Executed a 6-year contract extension with Kodak to continue to build out the Kodak Smart Home line of products. This agreement outlines the future development plans for new products to be developed by CE Brands which will be sold globally under the Kodak Smart Home brand.
  
  
  • Our best-selling product, the Kodak Cherish C525 smart baby monitor has been enhanced with additional features and is back in stock in our best-selling region(s) just this week.
  • Our next new product, the Kodak Infinio F882, a new, battery powered Smart Home outdoor security camera is scheduled to begin production in November 2021.
• Signed 1 year contract extension with Motorola, currently expires December 2025.
  
  
  • Our newest smartwatch, the Moto Watch 100, which is designed for an entry level price point, is scheduled to begin mass production in November 2021.  With several major retailers in line for initial orders to test the product, we believe the Motorola brand coupled with an affordable premium feeling smartwatch has the potential to be a truly disruptive product. 
• Signed term sheet agreement with LifeQ, Inc. for Bio Age services, LifeQ brand including revenue sharing for premium services for LifeQ connected devices.
• Executed a master supply agreement with Shenzhen Aoni Electronic Co., Ltd ("Aoni"). Based in Shenzhen, China, Aoni is one of the world's leading manufacturers of wireless cameras and operates its own state-of-the-art factory including sophisticated facilities such as Cloud Service Lab, SMT machines and professional manufacturing workshops. The Shenzhen factory will initially be utilized to advance production of the additional Smart Home video security product lines.
  

For more information, please visit www.cebrands.ca. 

To be added to the CE Brands' distribution list please register at https://www.cebrands.ca/investors 

About CE Brands

CE Brands Inc. develops products with leading manufacturers and iconic brand? licensors by utilizing proprietary data that identifies key market opportunities?. With sales today ?in? over 70 countries, our innovative, ?highly ?repeatable process, which we call the "CE Method?",? has created ?an ?optimal growth ?path for CE Brands to be the premier global licensed brand manufacturer.

Neither the TSX Venture Exchange nor its regulation services provider (as defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.

Presentation of Financial Information

All figures indicated above with respect to the three-month period ended September 30, 2021 are preliminary, have not been reviewed by the Company's auditors and are subject to change as the Company's financial results are finalized. The preliminary results provided in this press release constitute forward-looking information within the meaning of applicable securities laws, are based on a number of assumptions, and are subject to a number of risks and uncertainties. Please see the section below entitled "Forward-Looking Information."  The Company will announce at a later date when it intends to issue a press release with respect to the finalized financial results for the three-month period ended September 30, 2021. At such time, the Company will also file its unaudited consolidated financial statements, together with the notes thereto and management's discussion and analysis of financial condition and results of operations of the Company for the three and six months ended September 30, 2021.

Forward-Looking Information

This press release contains forward-looking information within the meaning of applicable securities laws. In general, forward-looking information refers to disclosure about future conditions, courses of action, and events. The use of any of the words "anticipates", "believes", "expects", "intends", "plans", "will", "would", and similar expressions are intended to identify forward-looking information. More particularly and without limitation, this press release includes forward-looking information with respect to the Company's ability to manage manufacturing, supply chain and inventory constraints and continue to operate its business in the ordinary course; the Company's intention to raise additional working capital financing in the amount of approximately US$5 million, including the expected timing and successful completion thereof and obtaining any necessary approvals; the successful implementation of the Company's profitability improvement program; the Company's production targets and related expectations around product launches; the Company's ability to refocus its product lines to achieve near-term profitability; and the Company's ability to meet its revenue forecasts and anticipated product sales.

Additionally, this press release includes forward-looking statements within the meaning of applicable securities laws, including with respect to, among other things, the Company's expectation that (i) revenues for the three-month period ended September 30, 2021 will be approximately $1.35-1.45 million, (ii) revenues for the three-month period ending March 31, 2022 will be approximately $8-$9 million, and (iii) revenues for the 12 month period ending December 31, 2022 will be approximately $50 -$60 million.

The forward-looking information is based on certain key expectations and assumptions, including the timing of the resumption of manufacturing operations at the Company's partner factories in Asia, the Company's ability to raise additional working capital financing in the amount of approximately US$5 million, the Company's ability to meet its financial commitments as they become due, the timing of product shipments and deliveries, forecast sales price and sales volume of the Company's products and the ability of the Company to secure additional sources of inventory debt funding in 2022.

There can be no assurance that the Company will be able to successfully complete any financing on reasonable terms, in a timely manner or at all. If the Company fails to secure additional financing, then the Company may have insufficient liquidity and capital resources to operate its business resulting in material uncertainty regarding the Company's ability to meet its financial obligations as they become due and continue as a going concern.

Although CE Brands believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because CE Brands cannot give any assurance that they will prove to be accurate. By its nature, forward-looking information is subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially from the anticipated results or expectations expressed in this press release. Such risks and uncertainties include, among others, the impact of the evolving COVID-19 pandemic on the Company's business, operations and sales; reliance on third party manufacturers and suppliers; the Company's ability to stabilize its business and secure sufficient capital, including the contemplated financing, which may not be completed in a timely manner or at all; the Company's available liquidity being insufficient to operate its business and meet its financial commitments, which could result in the Company having to refinance or restructure its debt, sell assets or seek to raise additional capital, which may be on unfavorable terms; the inability to implement the Company's objective and priorities for 2021 and beyond, which could result in financial strain on the Company and continued pressure on the Company's business; risks associated with developing and launching new products; increased indebtedness and leverage; the fact that historical and projected financial information may not be representative of the Company's future results; the inability to position the Company for long-term growth; risks associated with issuing new equity including the possible dilution of the Company's outstanding common shares; the value of existing equity following the completion of any financing transaction; the Company defaulting on its obligations, which could result in the Company having to file for bankruptcy or undertake a restructuring proceeding; the Company being put into a bankruptcy or restructuring proceeding; and the risk factors included in CE Brand's continuous disclosure documents available on www.sedar.com. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date of this press release, and to not use such forward-looking information other than for its intended purpose. CE Brands undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events, or otherwise, except as required by applicable securities legislation.