CEA Industries Inc. Reports Third Quarter 2023 Results

Louisville, Colorado, Nov. 14, 2023 (GLOBE NEWSWIRE) -- CEA Industries Inc. (NASDAQ: CEAD, CEADW) (“CEA Industries” or the “Company”), is reporting results for the three months ended September 30, 2023.

Third Quarter 2023 Financial Summary (in $ thousands, excl. margin items):

 Q3 2023Q2 2023Q3 2022
Revenue$914 $1,064 $5,063 
Gross Profit (Loss)$(104)$79 $597 
Gross Margin (11.4%) 7.4% 11.8%
Operating Expenses$703 $783 $1,656 
Net Income/(Loss)$(799)$(694)$(1,042)

“Given the state of our operations, our current corporate assets, and our service position in the cannabis and controlled agricultural sectors, our focus is to work through our backlog and take action to mitigate operating expenses and preserve cash,” said Tony McDonald, Chairman and CEO of CEA Industries.

“As previously announced on August 14, 2023, the Board of Directors continues to review strategic alternatives, including a sale, merger or other potential strategic or financial transaction. We will provide updates on any material developments that may result from this process.

Third Quarter 2023 Financial Results

Revenue in the third quarter of 2023 was $0.9 million compared to $5.1 million for the same period in 2022. The decrease was primarily attributed to lower bookings over the last twelve months.

Net bookings in the third quarter of 2023 were $0.4 million compared to $2.2 million in the year-ago period. The Company’s quarter-end backlog was $0.5 million compared to $6.8 million for the same period in 2022. The decrease in the Company’s net bookings and backlog for the third quarter of 2023 was primarily driven by fewer capital expenditures by cannabis operators in the markets we serve, in addition to a reduced sales effort.

Gross profit in the third quarter of 2023 was $(0.1) million compared to $0.6 million for the same period in 2022. Gross margin was (11.4%) compared to 11.8% in the prior year period. The decrease in gross margin was primarily driven by lower revenue and fixed costs becoming a larger percentage of revenue. Fixed costs include the cost of services, engineering, manufacturing, and project management.

Operating expenses in the third quarter of 2023 decreased 58% to $0.7 million compared to $1.7 million for the same period in 2022. The decrease was primarily driven by reduced personnel and marketing costs and lower product development expenses.

Net loss in the third quarter of 2023 improved to $0.8 million or $(0.10) per share, compared to a net loss of $1.0 million or $(0.13) per share for the same period in 2022.

Cash and cash equivalents were $13.3 million on September 30, 2023, compared to $18.6 million on December 31, 2022, while working capital decreased by $1.6 million during this period. At September 30, 2023, the Company remained debt free.

CEA Industries has decided not to host its regular quarterly conference call for this quarter.

About CEA Industries Inc.

CEA Industries Inc. (www.ceaindustries.com) provides a suite of complementary and adjacent offerings to the controlled environment agriculture industry. The Company’s comprehensive solutions, when aligned with industry operators’ product and sales initiatives, support the development of the global ecosystem for indoor cultivation.

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.

Investor Contact:

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

CEA Industries Inc.
Condensed Consolidated Balance Sheets
(in US Dollars except share numbers)

  September 30,  December 31, 
  2023  2022 
Current Assets        
Cash and cash equivalents $13,342,805  $18,637,114 
Accounts receivable, net  272,547   2,649 
Inventory, net  315,096   348,411 
Prepaid expenses and other  323,751   1,489,921 
Total Current Assets  14,254,199   20,478,095 
Noncurrent Assets        
Property and equipment, net  45,737   68,513 
Intangible assets, net  1,830   1,830 
Deposits  14,747   14,747 
Operating lease right-of-use asset  383,169   462,874 
Total Noncurrent Assets  445,483   547,964 
TOTAL ASSETS $14,699,682  $21,026,059 
Current Liabilities        
Accounts payable and accrued liabilities $571,885  $1,207,258 
Deferred revenue  474,888   4,338,570 
Accrued equity compensation  -   89,970 
Current portion of operating lease liability  124,319   118,235 
Total Current Liabilities  1,171,092   5,754,033 
Noncurrent Liabilities        
Operating lease liability, net of current portion  290,051   376,851 
Total Noncurrent Liabilities  290,051   376,851 
TOTAL LIABILITIES  1,461,143   6,130,884 
Commitments and Contingencies (Note 6)  -   - 
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; 0 shares issued and outstanding  -   - 
Common stock, $0.00001 par value; 200,000,000 authorized; 8,076,372 and 7,953,974 shares issued and outstanding, respectively  81   80 
Additional paid in capital  49,441,231   49,173,836 
Accumulated deficit  (36,202,773)  (34,278,741)
Total Shareholders’ Equity  13,238,539   14,895,175 

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

  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 
  2023  2022  2023  2022 
Revenue, net $913,571  $5,063,079  $6,659,858  $9,822,391 
Cost of revenue  1,017,634   4,465,888   5,831,953   8,828,453 
Gross profit (loss)  (104,063)  597,191   827,905   993,938 
Operating expenses:                
Advertising and marketing expenses  21,551   304,600   256,965   865,305 
Product development costs  -   58,978   76,487   254,473 
Selling, general and administrative expenses  681,448   1,292,746   2,452,305   3,684,617 
Goodwill impairment charges  -   -   -   631,064 
Total operating expenses  702,999   1,656,324   2,785,757   5,435,459 
Operating loss  (807,062)  (1,059,133)  (1,957,852)  (4,441,521)
Other income (expense):                
Other income (expense), net  -   6,358   7,778   191,358 
Interest income (expense), net  8,043   10,725   26,042   24,585 
Total other income (expense)  8,043   17,083   33,820   215,943 
Loss before provision for income taxes  (799,019)  (1,042,050)  (1,924,032)  (4,225,578)
Income taxes  -   -   -   - 
Net loss $(799,019) $(1,042,050) $(1,924,032) $(4,225,578)
Convertible preferred series B stock dividends  -   -   -   (35,984)
Deemed dividend on convertible preferred series B stock on down round  -   -   -   (439,999)
Net loss available to common shareholders $(799,019) $(1,042,050) $(1,924,032) $(4,701,561)
Loss per common share – basic and diluted $(0.10) $(0.13) $(0.24) $(0.69)
Weighted average number of common shares outstanding, basic and diluted  8,076,372   7,953,974   8,074,842   6,804,741 

CEA Industries Inc.
Condensed Consolidated Statements of Cash Flows
(in US Dollars except share numbers)

  For the Nine Months Ended
September 30,
  2023  2022 
Cash Flows From Operating Activities:        
Net loss $(1,924,032) $(4,225,578)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Depreciation and intangible asset amortization expense  22,476   24,731 
Share-based compensation  177,427   280,739 
Provision for doubtful accounts  (2,056)  93,500 
Provision for excess and obsolete inventory  111,123   (5,332)
Loss on disposal of assets  100   4,489 
Amortization of operating lease ROU asset  79,705   76,917 
Goodwill impairment charges  -   631,064 
Changes in operating assets and liabilities:        
Accounts receivable  (267,842)  8,801 
Inventory  (77,808)  (230,966)
Prepaid expenses and other  1,166,170   171,582 
Accounts payable and accrued liabilities  (635,373)  910,523 
Deferred revenue  (3,863,683)  1,595,644 
Operating lease liability, net  (80,716)  (65,157)
Accrued equity compensation  -   (14,065)
Net cash provided by (used in) operating activities  (5,294,509)  (743,108)
Cash Flows From Investing Activities        
Purchases of property and equipment  -   (30,348)
Proceeds from the sale of property and equipment  200   2,250 
Net cash provided by (used in) investing activities  200   (28,098)
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 
Net cash provided by financing activities  -   19,695,147 
Net change in cash and cash equivalents  (5,294,309)  18,923,941 
Cash and cash equivalents, beginning of period  18,637,114   2,159,608 
Cash and cash equivalents, end of period $13,342,805  $21,083,549 
Supplemental cash flow information:        
Interest paid $-  $- 
Income taxes paid $-  $- 
Non-cash investing and financing activities:        
Conversion of series B preferred stock  -  $1,980,000 
Deemed dividend on series B preferred stock arising on down round  -  $439,999 
Cashless exercise of prefunded warrants     $2 
Options issued for accrued equity compensation liability $89,970  $78,938