June 23, 2022
Calgary, Alberta, Canada – June 23, 2022 - CE Brands Inc. (TSXV: CEBI; CEBI.WT) (“CE Brands”, “we”, “our”, or the “Company”), a data-driven consumer-electronics company, today announced its financial results for the three-month (“Q4 2022”) and twelve-month periods (“Fiscal 2022”) ended March 31, 2022. The related audited financial statements and accompanying notes and Management’s Discussion and Analysis (“MD&A”) for Q4 and Fiscal 2022 are available on SEDAR at www.sedar.com and on CE Brands’ website at www.cebrands.ca. In addition, the Company is announcing that it has entered into a binding financing agreement with Vesta Global Stability Fund (“Vesta Fund”), pursuant to which Vesta Fund has agreed to advance a senior secured loan facility (the “Vesta Facility”) in the maximum amount of US$2,000,000 to the Company to fund working capital and for other general corporate purposes, including the purchase of inventory and shipping and duty expenses. The Company is also announcing that the Company has entered into a letter of intent with Beijing KangShuo Information Technology Co., Ltd. (“Kang-Shuo”) regarding a proposed Wearables Development and Sales Agreement (the “Definitive Kang-Shuo Agreement”) between eBuyNow eCommerce Ltd. (“EBN”), a wholly-owned subsidiary of CE Brands, and Kang-Shuo with respect to smartwatch and wearables engineering, design and manufacturing.
Except as otherwise indicated, all amounts in the press release are expressed in Canadian dollars.
Q4 2022 and Fiscal 2022 Highlights
● Total revenue in Q4 2022 was approximately $2.9 million, representing the largest single quarter revenue figure reported in the Company’s history and the fourth consecutive quarter of increasing revenue (compared with Q3 2022 revenue of approximately $1.5 million, Q2 2022 revenue of approximately $1.4 million, and Q1 2022 of approximately $1.1 million).
● Total revenue of approximately $2.9 million in Q4 2022 compared with approximately $1.3 million in Q4 2021, representing an increase of approximately 121%. Total revenue of approximately $6.9 million in Fiscal 2022 compared with approximately $9.3 million in the twelve-month period ended March 31, 2021 (“Fiscal 2021”), representing a decrease of approximately 26%. The increase in total revenue for the three-month period was primarily a result of the launch of the moto watch 100 late in the third quarter. Further contributing to the increase in total revenue was increased sales in smart home products, driven primarily by increased sales of air purifiers as well as sales of the KODAK Infinio F882 Outdoor Security Camera which was launched in January 2022. The decrease in total revenue in Fiscal 2022 compared to Fiscal 2021 was primarily attributable to constrained working capital within Q1 2022, prior to the Qualifying Transaction, which resulted in the inability to procure inventory for sale, combined with the supply chain constraints which resulted in delays in the procurement of inventory for sale, as well as a reduction in Moto360 sales as the Company focused procurement efforts for the moto watch 100 launch. The decrease in total revenue year over year was offset by moto watch 100 sales and increased sales of air purifiers and security cameras.
● Gross profit of approximately $0.7 million in Q4 2022 from a gross loss of approximately $0.3 million in Q4 2021, representing an increase of approximately 305%. Gross profit of approximately $1.5 million in Fiscal 2022 from approximately $1.2 million in Fiscal 2021, representing an increase of approximately 19%. The increase in gross profit in the three-month period was due to an increase in total sales with the incremental sales primarily coming from the moto watch 100 product line and increased sales of air purifiers and security cameras. Further contributing to the period over period increase was a recognition of a provision within cost of products and services in Q4 2021 which decreased the comparative period gross profit. The increase in gross profit in Fiscal 2022 was due to a higher proportion of total sales coming from the moto watch 100 and Kodak smart home products than the previous period where the majority of sales were from the Moto360 product line which had lower gross margins. The shift in sales to higher margin products as well as the recognition of a provision within cost of products and services in Fiscal 2021, more than offset the reduction in gross profit attributable to decreased total revenue.
● Net loss of approximately $2.9 million in Q4 2022 from approximately $3.5 million in Q4 2021, representing a decrease of approximately 15%. Net loss of approximately $10.3 million in Fiscal 2022 from approximately $14 million in Fiscal 2021, representing a decrease of approximately 26%. The decrease in net loss in the three-month period was primarily due to the aforementioned increase in gross profit and a decrease in finance costs associated with lower corporate debt levels, offset primarily by increased marketing, selling and distribution and wages and contractor expenses in Q4 2022 associated with the launch of the moto watch 100 and the KODAK Infinio F882 Outdoor Security Camera. The decrease in net loss in Fiscal 2022 was primarily due to the aforementioned increase in gross profit, reduced marketing, selling and distribution, professional fees and finance costs and a fair value gain on financial instruments, offset in part by increased wages and contractor expenses, royalties, technology and related expenses and the listing expense on the reverse acquisition.
“Our fiscal 2022 have been impacted by global macro events and sourcing of product material causing delays in manufacturing and significantly reduced sales figures. Despite these challenges, we are pleased that we have been able to bring three new products to market over the year and deliver four consecutive quarters of revenue growth including a record quarterly revenue amount of approximately $3 million in Q4 2022,” said Craig Smith, Chief Executive Officer of CE Brands. “We are looking forward to this next year as we have several new products to be launched, highlighted by three new smartwatches scheduled for launch. We are seeing the supply chain constraints and logistical issues related to COVID 19, that were experienced throughout the past year, begin to lessen,” continued Mr. Smith.
Post-Q4 2022 Updates / Highlights.
● On May 24, 2022, the Company entered into an agreement with Choco-Up (“Choco”) for the sale of US$2,475,000 ($3,174,435) of future receivables for net proceeds of up to US$2,250,000 ($2,885,850) (the “Choco Facility”). The funds committed under the Choco Facility may be drawn—subject to further due diligence and certain conditions and repayment terms being met—in three tranches with an initial tranche of US$1,250,000 of proceeds having already been drawn in respect of future receivables of US$1,375,000. This first tranche is to be repaid over eight months with a retrieval percentage of 15.6%, subject to maximum payments of US$154,688 per month for the first four months and US$252,083 per month for the remaining four months. The second tranche in the amount of US$500,00 is expected to be available on or before August 31, 2022, subject to further due diligence and the Company meeting certain conditions. The second tranche is to be repaid over eight months with a retrieval percentage of 6.3% and maximum payments of US$61,875 per month for the first four months and US$100,833 per month for the remaining four months. The third tranche in the amount of US$500,000 is expected to be available on or before October 31, 2022, subject to further due diligence and the Company meeting certain conditions. The third tranche is to be repaid over eight months with a retrieval percentage of 6.3% and maximum payments of US$61,875 per month for the first four months and US$100,833 per month for the remaining four months. The foregoing description of the Choco Facility is qualified in its entirety by the full text of the Choco Facility, which is available under the Company’s corporate profile on SEDAR at www.sedar.com. There can be no assurance that the Company will be able to access funding under the Choco Facility on the terms contemplated, in a timely manner or at all. See “Forward-Looking Information” below. See also the “Forward-Looking Information”, “Going Concern” and “Other Risk Factors” sections of the MD&A.
● On May 26, 2022, the Company closed a private placement of convertible notes (the “May 2022 Convertible Notes”) in the aggregate principal amount of $1,000,000 (the “May 2022 Debt Financing”). The May 2022 Convertible Notes bear interest at a rate of 15.0% per annum on outstanding principal amounts, payable on the first and second anniversary of the issue date, unless earlier redeemed or converted. The May 2022 Convertible Notes are senior secured obligations of the Company and mature on the second anniversary of the issue date. Prior to maturity, the May 2022 Convertible Notes are convertible into common shares of the Company, at the option of the holders, at a conversion price per share of $1.50. The May 2022 Convertible Notes are not redeemable by the Company prior to the first anniversary of the issue date. Refer to the “Subsequent Events” section in the MD&A for additional details on the May 2022 Debt Financing. In addition, 500,000 common share purchase warrants (“May 2022 Warrants”) were issued to the holders of the May 2022 Convertible Notes, with each May 2022 Warrant having an exercise price of $1.00 per share and being exercisable on or before the second anniversary of the issue date.
● On June 20, 2022, the Company entered into a binding financing agreement with Vesta Fund for a facility for up to a maximum of US$2,000,000. See “Vesta Facility” and “Forward-Looking Information” below and the “Subsequent Events”, “Forward-Looking Information”, “Going Concern” and “Other Risk Factors” sections of the MD&A.
● On June 20, 2022, the Company entered into a letter of intent with Kang-Shuo regarding the proposed Definitive Kang-Shuo Agreement between EBN and Kang-Shuo with respect to smartwatch and wearables engineering, design and manufacturing. There can be no assurance that the Definitive Kang-Shuo Agreement (as defined herein) will be entered into on the terms contemplated, in a timely manner or at all. See “Kang-Shuo Partnership” and “Forward-Looking Information” below and the “Subsequent Events” and “Forward-Looking Information” section in the MD&A for additional details on the Definitive Kang-Shuo Agreement.
Outlook
Following the launch of moto watch 100, which was announced in mid-November 2021, and the KODAK Infinio F882 Outdoor Security Camera (announced on January 20, 2022), the Company anticipates launching an additional three new smart watch products in 2022.
The Company continues to take steps to mitigate the impacts of the ongoing supply constraints on semiconductor chip manufacturing and global supply chain disruptions through supply-chain improvements, reductions in SG&A and strategically prioritizing the Company’s product portfolio to conserve cash and improve near-term profitability. The Company continues to believe it is in the early stages of improved sales momentum through increased product deliveries and sales. In order to continue to meet customer demand and fulfill growing order backlog, the Company anticipates pursuing additional financing for working capital and general corporate purposes, principally to ensure the Company has sufficient financing on hand for the purchase of inventory.
Due to the working capital and liquidity constraints that the Company has faced and a slower than anticipated return to full operations in our partner factories, the Company has determined to withdraw all previously disclosed financial guidance due to the uncertainty in forecasting operating results, including the previously stated revenue guidance of $30-40 million for calendar 2022. We are confident that we will continue to achieve revenue growth in fiscal 2023 as we execute on our stated new product launches and commercial partnerships.
The Company anticipates that it will require additional financing to address the Company’s working capital and other financing needs and support the Company’s product launches and sales. See the “Forward-Looking Information”, “Going Concern” and “Other Risk Factors” sections of the MD&A.
Selected Financial Information
Three months ended Year ended
March 31, March 31,
2022 2021 2022 2021 2020
Total revenue 2,892,645 1,309,586 6,898,924 9,270,470 7,299,077
Gross profit 658,890 (320,996) 1,486,003 1,247,803 1,843,501
Operating loss (2,502,220) (2,358,689) (9,089,030) (9,727,317) (9,262,735)
Net loss (2,930,663) (3,119,339) (10,335,863) (14,048,843) (10,458,337)
Total comprehensive loss (2,938,435) (3,136,502) (10,317,419) (14,922,534) (9,849,127)
Total assets 13,901,561 13,139,765 13,901,561 13,139,765 18,915,238
Total liabilities 9,168,228 17,072,413 9,168,228 17,072,413 14,672,718
Basic and Diluted Loss
per share (0.12) (0.18) (0.46) (0.85) (0.72)
References in this press release to the “Company” refer to EBN and its direct or indirect subsidiaries for information provided in respect of any period prior to June 18, 2021, which is the date on which the Company’s Qualifying Transaction (as defined in the policies of the TSX Venture Exchange) was completed pursuant to which the business of EBN became the business of CE Brands. Subsequent to June 18, 2021, the “Company” refers to the consolidated operations of CE Brands Inc. and its direct or indirect subsidiaries and the historical operations of EBN and its direct or indirect subsidiaries.
For more information, please see CE Brands’ corporate presentation, which is available on CE Brands’ website at www.cebrands.ca/investors.
Shareholder Call Information
CE Brands will hold a virtual-only annual and special meeting of shareholders (the “Meeting”) on Thursday June 23, 2022, at 9:00 a.m. Calgary time. The Meeting will be followed by a shareholder update call and will be facilitated by Craig Smith, Chief Executive Officer and Kalvie Legat, Chief Financial Officer, who will review the Company’s Q4 2022 and Fiscal 2022 results and related financial performance.
The Company will answer pre-submitted questions at the conclusion of prepared remarks. Investors are invited to submit their questions in advance to ir@cebrands.ca.
You may attend the Meeting and the shareholder update call at www.agmconnect.com/ceb2022. Please note that only registered shareholders and duly appointed proxyholders who have registered with AGM Connect prior to the voting cut-off date will be able to submit questions and vote at the Meeting. Any shareholder or appointed proxyholder who has not registered with AGM Connect prior to the voting cut-off date will be able to attend the Meeting as guests, but guests will not be able to vote or ask questions.
A recording of the shareholder update call will be made available on the Company’s website at www.cebrands.ca/investors.
Vesta Facility
The Company has entered into a binding financing arrangement with Vesta Fund, pursuant to which Vesta Fund has agreed to advance a senior secured loan facility in the maximum amount of US$2,000,000 to the Company to fund working capital and for other general corporate purposes, including the purchase of inventory and shipping and duty expenses. The Vesta Facility contemplates that funding will be available at any time after June 30, 2022 and before July 1, 2023 (the “Funding Period”), subject to receipt of regulatory and exchange approvals, if any. The Vesta Facility will be a senior secured obligation of the Company, and Vesta Fund shall be provided with security ranking pari passu with the holders of the November 2021 Convertible Notes and the holders of the May 2022 Convertible Notes.
Subject to the satisfaction of certain conditions, the Company will be permitted under the Vesta Facility to periodically draw funds up to the aggregate total amount of US$2,000,000, to be drawn in three tranches, with the first tranche amount of US$500,000 being available on July 1, 2022, the second tranche amount of US$500,000 being available on August 1, 2022, and the third tranche amount of US$1,000,000 being available on October 1, 2022. The availability of funding under the Vesta Facility is subject to there being no material changes in the business or operations of CE Brands during the Funding Period. Pursuant to the term sheet, CE Brands must inform Vesta Fund within five business days in writing of any material changes which may result in the termination of the Vesta Facility and the Company’s ability to access any undrawn amounts under the Vesta Facility. Termination of the Vesta Facility will result in CE Brands being required to fully repay within 30 days of termination any drawn amounts plus accrued interest.
The Vesta Facility will have a maturity date of 12 months following the commencement of the Funding Period (the “Maturity Date”). The Vesta Facility is callable at any time by Vesta Fund with 30 days’ written notice at Vesta Fund’s full discretion. If Vesta Fund calls the Vesta Facility, the Company will have 30 days to repay any drawn amounts plus accrued interest.
The Vesta Facility will have an effective annual interest rate of 18% (the “Interest Rate”). The principal amount outstanding will accrue interest at the Interest Rate, which interest will be paid on the last day of each month in arrears based on the total drawn amount of the Vesta Facility and shall be calculated on a daily basis on the principal amount outstanding in such period based on the actual number of days elapsed in the period for which such interest is payable. There will be no standby fee or interest due on undrawn amounts.
The Vesta Facility includes customary events of default, including with respect to the bankruptcy or insolvency of CE Brands. If an event of default occurs, Vesta Fund may accelerate the entire principal amount outstanding under the Vesta Facility, and interest, by written notice to the Company, and the entire principal amount and interest will become immediately due and payable in immediately available Canadian funds upon receipt by the Company of such notice.
There can be no assurance that the Company will be able to access funding under the Vesta Facility on the terms contemplated, in a timely manner or at all. The foregoing description of the Vesta Facility is qualified in its entirety by the full text of the Vesta Facility, which is available under the Company’s corporate profile on SEDAR at www.sedar.com. See “Forward-Looking Information” below. See also the “Forward-Looking Information”, “Going Concern” and “Other Risk Factors” sections of the MD&A.
Required Disclosure under MI 61-101
The board of directors of CE Brands (the “Board”) has determined that the entering into of the Vesta Facility will constitute a “related party transaction” for the purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”), as it will involve the Company borrowing money from an entity, Vesta Fund, over which Vesta Wealth Partners Ltd., a “related party” of the Company pursuant to MI 61-101, exercises certain discretionary control. The Board has determined that the entering into of the Vesta Facility will be exempt from both the formal valuation requirements and minority approval requirements of MI 61-101 for related party transactions by virtue of Sections 5.5(g) and 5.7(e) of MI 61-101. A further discussion and description of the review and approval process adopted by the independent and disinterested members of the Board (the “Independent Directors”) and other information required by MI 61-101 in connection with the entering into of the Vesta Facility will be set forth in the Company’s material change report to be filed under the Company’s SEDAR profile at www.sedar.com. In the context of the Company’s liquidity and working capital constraints, it is necessary for the Company to enter into the Vesta Facility on an expedited basis to improve the Company’s financial position and as such, it is not possible to delay the entering into of the Vesta Facility until after the filing of the material change report.
Kang-Shuo Partnership
The Company has entered into the letter of intent with Kang-Shuo regarding a proposed Wearables Development and Sales Agreement between EBN and Kang-Shuo with respect to smartwatch and wearables engineering, design and manufacturing. The letter of intent with Kang-Shuo contemplates that, among other things, pursuant to the Definitive Kang-Shuo Agreement, EBN will nominate Kang-Shuo as its exclusive sourcing and manufacturing agent to cooperate in the development and production of the full existing and future wearables ranges to EBN under certain wearables licences for Motorola and LifeQ. Under the proposed Definitive Kang-Shuo Agreement, EBN Would grant Kang-Shuo exclusive selling rights for certain regions for the Motorola and LifeQ product sales. In addition, EBN would grant Kang-Shuo and its affiliates the exclusive first right of refusal for all current and future models of wearables products under certain EBN Motorola and LifeQ brand licence agreements.
There can be no assurance that the Definitive Kang-Shuo Agreement will be entered into on the terms contemplated, in a timely manner or at all. See “Forward-Looking Information” below.
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.
Numerical Amounts
The reporting and the functional currency of the Company is the Canadian dollar.
Forward-Looking Information
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 intention to pursue additional financing opportunities, including the expected timing and successful completion thereof, the Company’s ability to access funding under the Choco Facility and/or the Vesta Facility, the Company’s expectations with respect to the entering into of a Definitive Kang-Shuo Agreement, the Company’s production targets and related expectations around product launches, the Company’s ability to meet its revenue forecasts and anticipated product sales and the Company’s ability to manage manufacturing, supply chain and inventory constraints and continue to operate its business in the ordinary course.
The forward-looking information is based on certain key expectations and assumptions, including the continuance of manufacturing operations at the Company’s partner factories in Asia, the timing of product launches, 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 financing in 2022.
There can be no assurance that the Company will be able to secure additional financing in the future and/or access funding under the Choco Facility and/or the Vesta Facility on the terms contemplated, in a timely manner or at all. If the Company fails to secure additional financing and/or access funding under the Choco Facility and/or the Vesta Facility, 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 it 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, without limitation: the risks described in the “Other Risk Factors” section of the MD&A; 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 funding under the Choco Facility and/or the Vesta Facility, which may not be available in a timely manner or at all; the inability of the Company to enter into a Definitive Kang-Shuo Agreement; 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, if available at all; the inability to implement the Company’s objectives and priorities for 2022 and beyond, which could result in financial strain on the Company and continued pressure on the Company’s business; the Company’s expectations with respect to anticipated revenue growth in fiscal 2023; anticipated product launches and commercial partnerships; 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 other continuous disclosure documents available on SEDAR at 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 law.
Further Information
For further information about CE Brands or its principal operating subsidiary, eBuyNow eCommerce Ltd., please contact:
Kalvie Legat Rob Knowles
Chief Financial Officer Manager, Investor Relations
778-771-0901 1-855-770-2324
ir@cebrands.ca