CEA Industries Inc. Reports Fourth Quarter and Full Year 2022 Results

Boulder, Colorado, UNITED STATES

Louisville, Colorado, March 28, 2023 (GLOBE NEWSWIRE) -- CEA Industries Inc. (NASDAQ: CEAD, CEADW) (“CEA Industries” or the “Company”), is reporting results for the three and twelve months ended December 31, 2022.

“The market environment for cannabis has continued to face headwinds as operators contend with pricing pressure and inflationary impacts on consumer wallets, ” said Tony McDonald, Chairman and CEO of CEA Industries Inc. “As a result, capital expenditures in the sector have slowed significantly, leading to project and buildout delays which are negatively impacting our business. In response to the challenged environment, we have focused on diversifying our customer base beyond cannabis and have proactively implemented a series of cost saving initiatives to mitigate the pressures. Early signs have already begun to show a positive trend, as reflected by our double-digit sequential reduction in operating expenses in the fourth quarter of 2022.

“Although the economic environment has impacted our business, we remain focused on providing the high-quality products and services our customers expect. Looking ahead, we will continue to evaluate our cost structure to maximize working capital and overall liquidity. We believe our fortified balance sheet and prudent cost management will enable us to withstand the challenged environment and deliver shareholder value.”

Fourth Quarter 2022 Financial Summary (in $ thousands, excl. margin items):

  Q4 2022  Q3 2022  Q4 2021  % QoQ  % YoY 
Revenue $1,461  $5,063  $3,056   -71%  -52%
Gross Profit $151  $597  $552   -75%  -73%
Gross Margin  10.3%  11.8%  18.1%  -150bps  -780bps
Operating Expenses $1,434  $1,656  $1,518   -13%  -6%
Net Income/(Loss) $(1,272) $(1,042) $(402)  NA   NA 

Full Year 2022 Financial Summary (in $ thousands, excl. margin items):

  FY 2022  FY 2021  % YoY 
Revenue $11,283  $13,639   -17%
Gross Profit $1,145  $2,926   -61%
Gross Margin  10.1%  21.5%  -1,140bps
Operating Expenses $6,869  $4,905   40%
Net Income/(Loss) $(5,497) $(1,338)  NA 

Fourth Quarter 2022 Financial Results

Revenue in the fourth quarter of 2022 was $1.5 million compared to $3.1 million for the same period in 2021. The decrease was primarily attributed to supply chain and project delays as well as a reduction in the size and number of signed contracts during 2022.

Net bookings in the fourth quarter of 2022 were $206,000 compared to $4.0 million in the year-ago period. The Company’s quarter-end backlog was $5.6 million compared to $10.8 million for the same period in 2021. The decrease in the Company’s net bookings and backlog for the fourth quarter of 2022 was primarily driven by fewer capital projects and expenditures by cannabis growers.

Gross profit in the fourth quarter of 2022 was $0.2 million compared to $0.6 million for the same period in 2021. Gross margin was 10.3% compared to 18.1% in the year ago period. The decrease in gross margin was primarily driven by lower revenue and an increase in variable costs, which include the cost of equipment, external engineering costs, shipping and handling, and travel and warranty costs.

Operating expenses in the fourth quarter of 2022 decreased 6% to $1.4 million compared to $1.5 million for the same period in 2021. The decrease was primarily driven by lower product development expenses.

Net loss in the fourth quarter of 2022 was $1.3 million or $(0.18) per share, compared to a net loss of $0.4 million or $(0.25) per share for the same period in 2021. Net loss per share for the fourth quarter of 2022 was lower than the net loss per share in the year-ago quarter due to higher issued and outstanding shares as of the fourth quarter of 2022.

Cash and cash equivalents were $18.6 million on December 31, 2022, compared to $2.2 million on December 31, 2021, while working capital increased by $15.1 million during this period. The increase was primarily driven by net proceeds from the Company’s sale of common stock and warrants of approximately $22 million in February 2022. At December 31, 2022, the company remained debt free.

Conference Call

CEA management will host a conference call today to discuss its financial and operating results, followed by a question-and-answer session.

Date: Tuesday, March 28, 2023
Time: 4:30 p.m. ET
Dial: 1-973-528-0008
Access Code: 901537
Webcast URL: https://www.webcaster4.com/Webcast/Page/2893/47830

Interested parties may submit questions to the Company prior to the call by emailing info@ceaindustries.com. For those unable to participate in the conference call at that time, a replay will be available for two weeks in the Investors section of the Company’s website at www.ceaindustries.com beginning on March 28, 2023 at 4:30 p.m. ET.

About CEA Industries Inc.

CEA Industries Inc. (www.ceaindustries.com), is home to industry leaders in supplying the controlled environment agriculture, with complementary and adjacent companies added to its portfolio when aligned with the company’s product and sales initiatives. As the global environment for indoor cultivation continues to develop, CEA Industries was formed to embrace companies that support these ecosystems.

Headquartered in Louisville, Colorado, CEA Industries knows that growth is a team sport. Through future partnerships and mergers and acquisitions, both financial and strategic, CEA Industries will continue its pursuit of companies and products that bring accretive value to its customers.

Forward Looking Statements

This press release may contain statements of a forward-looking nature relating to future events. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect our current beliefs, and a number of important factors could cause actual results to differ materially from those expressed in this press release, including the factors set forth in “Risk Factors” set forth in our annual and quarterly reports filed with the Securities and Exchange Commission (“SEC”), and subsequent filings with the SEC. Please refer to our SEC filings for a more detailed discussion of the risks and uncertainties associated with our business, including but not limited to the risks and uncertainties associated with our business prospects and the prospects of our existing and prospective customers; the inherent uncertainty of product development; regulatory, legislative and judicial developments, especially those related to changes in, and the enforcement of, cannabis laws; increasing competitive pressures in our industry; and relationships with our customers and suppliers. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. The reference to CEA’s website has been provided as a convenience, and the information contained on such website is not incorporated by reference into this press release.

Non-GAAP Financial Measures

To supplement our financial results on U.S. generally accepted accounting principles (“GAAP”) basis, we use non-GAAP measures including net bookings and backlog, as well as other significant non-cash expenses such as stock-based compensation and depreciation expenses. We believe these non-GAAP measures are helpful in understanding our past performance and are intended to aid in evaluating our potential future results. The presentation of these non-GAAP measures should be considered in addition to our GAAP results and are not intended to be considered in isolation or as a substitute for financial information prepared or presented in accordance with GAAP. We believe these non-GAAP financial measures reflect an additional way to view aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business.

Media Contact:        

Courtney Gwynn
Marketing Manager
(720) 531-0311

Investor Contact:

Sean Mansouri, CFA
Elevate IR
(720) 330-2829

CEA Industries Inc.
Consolidated Balance Sheets

  December 31,  December 31, 
  2022  2021 
Current Assets        
Cash and cash equivalents $18,637,114  $2,159,608 
Accounts receivable, net  2,649   179,444 
Inventory, net  348,411   378,326 
Prepaid expenses and other  1,489,921   1,273,720 
Total Current Assets  20,478,095   3,991,098 
Noncurrent Assets        
Property and equipment, net  68,513   77,346 
Goodwill  -   631,064 
Intangible assets, net  1,830   1,830 
Deposits  14,747   14,747 
Operating lease right-of-use asset  462,874   565,877 
Total Noncurrent Assets  547,964   1,290,864 
TOTAL ASSETS $21,026,059  $5,281,962 
Current Liabilities        
Accounts payable and accrued liabilities $1,207,258  $1,345,589 
Deferred revenue  4,338,570   2,839,838 
Accrued equity compensation  89,970   83,625 
Other liabilities  -   37,078 
Current portion of operating lease liability  118,235   100,139 
Total Current Liabilities  5,754,033   4,406,269 
Noncurrent Liabilities        
Operating lease liability, net of current portion  376,851   486,226 
Total Noncurrent Liabilities  376,851   486,226 
TOTAL LIABILITIES  6,130,884   4,892,495 
Commitments and Contingencies (Note 11)  -   - 
Series B Redeemable Convertible Preferred Stock, $0.00001 par value; 0 and 3,300 issued and outstanding, respectively  -   3,960,000 
Total Temporary Equity  -   3,960,000 
Preferred stock, $.00001 par value; 25,000,000 and 150,000,000 shares authorized, respectively; 0 shares issued and outstanding  -   - 
Common stock, $0.00001 par value; 200,000,000 and 850,000,000 shares authorized, respectively; 7,953,974 and 1,600,835 shares issued and outstanding, respectively  80   16 
Additional paid in capital  49,173,836   25,211,017 
Accumulated deficit  (34,278,741)  (28,781,566)
Total Shareholders’ Equity (Deficit)  14,895,175   (3,570,533)

CEA Industries Inc.
Consolidated Statements of Operations
(in US Dollars except share numbers)

  For the Twelve Months Ended December 31, 
  2022  2021 
Revenue, net $11,283,189  $13,638,558 
Cost of revenue  10,138,249   10,712,563 
Gross profit  1,144,940   2,925,995 
Operating expenses:        
Advertising and marketing expenses  1,157,871   772,139 
Product development costs  319,987   469,703 
Selling, general and administrative expenses  4,759,865   3,662,668 
Goodwill impairment charges  631,064   - 
Total operating expenses  6,868,787   4,904,510 
Operating loss  (5,723,847)  (1,978,515)
Other income (expense):        
Other income (expense), net  191,358   627,592 
Interest income (expense), net  35,314   (2,832)
Gain on lease termination  -   15,832 
Total other income (expense)  226,672   640,592 
Loss before provision for income taxes  (5,497,175)  (1,337,923)
Income taxes  -   - 
Net loss $(5,497,175) $(1,337,923)
Convertible preferred series B stock redemption value adjustment $-  $(2,262,847)
Convertible preferred series B stock dividends  (35,984)  (67,447)
Dividend on redemption of series A preferred stock  -   (20,595)
Deemed dividend on convertible preferred series B stock on down round  (439,999)  - 
Net loss available to common shareholders $(5,973,158) $(3,688,812)
Loss per common share – basic and diluted $(0.84) $(2.33)
Weighted average number of common shares outstanding, basic and diluted  7,094,410   1,582,869 

CEA Industries Inc.
Consolidated Statements of Cash Flows

  For the Twelve Months Ended         December 31, 
  2022  2021 
Cash Flows From Operating Activities:        
Net loss $(5,497,175) $(1,337,923)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Depreciation and intangible asset amortization expense  32,442   65,372 
Gain on forgiveness of note payable  -   (517,032)
Share-based compensation  307,736   369,214 
Common stock issued for other expense  -   67,000 
Provision for doubtful accounts  (54,708)  16,844 
Provision for excess and obsolete inventory  (20,472)  (1,666)
Gain on lease termination  -   (15,832)
Loss on disposal of assets  4,489   67,567 
Amortization of operating lease ROU asset  103,003   204,521 
Goodwill impairment charges  631,064   - 
Changes in operating assets and liabilities:        
Accounts receivable  231,504   (162,808)
Inventory  50,387   (49,551)
Prepaid expenses and other  (216,202)  (235,897)
Accounts payable and accrued liabilities  (175,409)  (476,450)
Deferred revenue  1,498,732   (884,350)
Accrued interest  -   2,832 
Deposits  -   (14,747)
Operating lease liability, net  (91,279)  (259,475)
Accrued equity compensation  6,345   (44,809)
Net cash used in operating activities  (3,189,543)  (3,207,190)
Cash Flows From Investing Activities        
Purchases of property and equipment  (30,348)  (68,657)
Proceeds from the sale of property and equipment  2,250   11,500 
Net cash used in investing activities  (28,098)  (57,157)
Cash Flows From Financing Activities        
Payment of dividends on series B preferred stock  (35,984)  - 
Redemption of series B preferred stock  (1,980,000)  - 
Net cash proceeds on sale of common stock and warrants, net of expenses  21,711,131   - 
Cash proceeds from sale of preferred stock and warrants, net of issuance costs  -   2,624,874 
Proceeds from issuance of note payable  -   514,200 
Net cash provided by financing activities  19,695,147   3,139,074 
Net change in cash and cash equivalents  16,477,506   (125,273)
Cash and cash equivalents, beginning of period  2,159,608   2,284,881 
Cash and  cash equivalents, end of period $18,637,114  $2,159,608 
Supplemental cash flow information:        
Interest paid $-  $- 
Income taxes paid $-  $- 
Non-cash investing and financing activities:        
Adjustment of carrying value of series B preferred stock  to redemption value $-  $2,262,847 
Conversion of series B preferred stock $1,980,000  $- 
Accrued series B interest payable settled in shares of common stock $-  $67,447 
Series A preferred stock converted into shares of common stock $-  $420 
Deemed dividend on series B preferred stock arising on down round $439,999  $- 
Dividend on redemption of series A preferred stock settled in shares of common stock $-  $20,595 
Right of Use asset arising on new office lease $-  $582,838 
Cashless exercise of prefunded warrants $2  $-