CEADW CEA Industries Inc

CEA Industries Inc. (NASDAQ: CEAD, CEADW) (“CEA Industries” or the “Company”), is reporting results for the three months ended March 31, 2023.

“Q1 results reflect the completion of some previously delayed projects as well as the successful implementation of our cost cutting initiatives,” said Tony McDonald, Chairman and CEO of CEA Industries. “We experienced double-digit growth in revenue and material operating expense savings. Although these results are a step in the right direction, we recognize the market continues to combat pricing and inflationary pressures affecting both consumers and operators.

“Moving forward, our primary focus will remain on running a lean operation while securing new contract wins both within the cannabis and traditional agriculture verticals. Given the challenged environment over the past year, our net bookings have been limited in recent quarters, which will have an adverse effect on future revenue. However, with our strong liquidity position and prudent approach to capital allocation, we believe we are well-equipped to navigate the current environment and deliver value to both our customers and shareholders.”

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

	Q1 2023			Q4 2022			Q1 2022			% QoQ		% YoY
Revenue	$	4,683		$	1,461		$	1,744		221	%	169	%
Gross Profit	$	853		$	151		$	91		465	%	837	%
Gross Margin		18.2	%		10.3	%		5.2	%	790bps		1300bps
Operating Expenses	$	1,299		$	1,434		$	1,702		-9	%	-24	%
Net Income/(Loss)	$	(431	)	$	(1,272	)	$	(1,423	)	NA		NA

First Quarter 2023 Financial Results

Revenue in the first quarter of 2023 increased more than 2x to $4.7 million compared to $1.7 million for the same period in 2022. The increase was primarily attributed to improvements in the Company’s supply chain and deployment of project work as the Company worked through delayed projects from prior periods.

Net bookings in the first quarter of 2023 were $0.8 million compared to $2.1 million in the year-ago period. The Company’s quarter-end backlog was $1.9 million compared to $11.2 million for the same period in 2022. The decrease in the Company’s net bookings and backlog for the first quarter of 2023 was primarily driven by fewer capital projects and expenditures by cannabis operators.

Gross profit in the first quarter of 2023 increased to $0.9 million compared to $0.1 million for the same period in 2022. Gross margin increased significantly to 18.2% compared to 5.2% in the year-ago period. The increase in gross margin was primarily driven by higher revenue and a decrease in fixed costs as a percentage of revenue, which include the cost of services, engineering, manufacturing and project management.

Operating expenses in the first quarter of 2023 decreased 24% to $1.3 million compared to $1.7 million for the same period in 2022. The decrease was primarily driven by lower product development expenses, as well as decreased personnel and marketing costs.

Net loss in the first quarter of 2023 improved to $0.4 million or $(0.05) per share, compared to a net loss of $1.4 million or $(0.41) per share for the same period in 2022.

Cash and cash equivalents were $15.9 million on March 31, 2023, compared to $18.6 million on December 31, 2022, while working capital decreased by $0.2 million during this period. At March 31, 2023, 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: Monday, May 15, 2023Time: 4:15 p.m. ETDial: 1-973-528-0008Access Code: 704185Webcast URL: https://www.webcaster4.com/Webcast/Page/2893/48284

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 May 15, 2023, at 5:15 p.m. ET.

About CEA Industries Inc.

CEA Industries Inc. (www.ceaindustries.com) is home to industry leaders that provide 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.

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.

Investor Contact:

Sean Mansouri, CFAElevate IRinfo@ceaindustries.com(720) 330-2829

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

	March 31,				December 31,
		2023				2022
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	15,948,077			$	18,637,114
Accounts receivable, net		61,774				2,649
Inventory, net		441,133				348,411
Prepaid expenses and other		471,137				1,489,921
Total Current Assets		16,922,121				20,478,095
Noncurrent Assets
Property and equipment, net		60,713				68,513
Intangible assets, net		1,830				1,830
Deposits		14,747				14,747
Operating lease right-of-use asset		436,549				462,874
Total Noncurrent Assets		513,839				547,964
TOTAL ASSETS	$	17,435,960			$	21,026,059
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities	$	1,164,134			$	1,207,258
Deferred revenue		1,102,601				4,338,570
Accrued equity compensation		-				89,970
Current portion of operating lease liability		120,245				118,235
Total Current Liabilities		2,386,980				5,754,033
Noncurrent Liabilities
Operating lease liability, net of current portion		348,179				376,851
Total Noncurrent Liabilities		348,179				376,851
TOTAL LIABILITIES		2,735,159				6,130,884
Commitments and Contingencies (Note 6)		-				-
SHAREHOLDERS’ EQUITY
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		49,410,899				49,173,836
Accumulated deficit		(34,710,179	)			(34,278,741	)
Total Shareholders’ Equity		14,700,801				14,895,175
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	17,435,960			$	21,026,059

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

	For the Three Months Ended March 31,
		2023				2022
Revenue, net	$	4,682,573			$	1,744,427
Cost of revenue		3,829,297				1,653,919
Gross profit		853,276				90,508
Operating expenses:
Advertising and marketing expenses		202,323				251,015
Product development costs		76,413				138,918
Selling, general and administrative expenses		1,020,702				1,311,777
Total operating expenses		1,299,438				1,701,710
Operating loss		(446,162	)			(1,611,202	)
Other income (expense):
Other income (expense), net		5,704				185,000
Interest income (expense), net		9,020				3,260
Total other income (expense)		14,724				188,260
Loss before provision for income taxes		(431,438	)			(1,422,942	)
Income taxes		-				-
Net loss	$	(431,438	)		$	(1,422,942	)
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	$	(431,438	)		$	(1,898,925	)
Loss per common share – basic and diluted	$	(0.05	)		$	(0.41	)
Weighted average number of common shares outstanding, basic and diluted		8,071,731				4,622,427

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

	For the Three Months Ended March 31,
		2023				2022
Cash Flows From Operating Activities:
Net loss	$	(431,438	)		$	(1,422,942	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and intangible asset amortization expense		7,500				8,556
Share-based compensation		147,094				92,517
Provision for doubtful accounts		(1,705	)			(22,168	)
Provision for excess and obsolete inventory		33,638				3,676
Loss on disposal of assets		100				5,499
Amortization of operating lease ROU asset		26,325				25,433
Changes in operating assets and liabilities:
Accounts receivable		(57,420	)			10,610
Inventory		(126,360	)			(631,269	)
Prepaid expenses and other		1,018,785				(551,261	)
Accounts payable and accrued liabilities		(43,124	)			43,438
Deferred revenue		(3,235,970	)			2,645,579
Operating lease liability, net		(26,662	)			(14,811	)
Net cash provided by (used in) operating activities		(2,689,237	)			192,857
Cash Flows From Investing Activities
Purchases of property and equipment		-				(13,948	)
Proceeds from the sale of property and equipment		200				-
Net cash provided by (used in) investing activities		200				(13,948	)
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		(2,689,037	)			19,874,056
Cash and cash equivalents, beginning of period		18,637,114				2,159,608
Cash and cash equivalents, end of period	$	15,948,077			$	22,033,664
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
Options issued for accrued equity compensation liability	$	89,970			$	-