美国
证券交易委员会
华盛顿，特区。20549
表格
截至季度结束的季度报告
或者
委员会
文件编号：
（公司章程中指定的准确公司名称）
（住所的州或其他司法辖区 文件号码） |
（国税局雇主 (主要 执行人员之地址) |
| (主要 执行人员之地址) | (邮政编码) |
根据交易所法规（17 CFR 240.14a-12）第14a-12规定的招股材料
根据证券交易法第12(b)条注册的证券:
| 每一类别的名称 | 交易符号 | 在每个交易所注册的名称 | ||
普通股，每股面值$0.001，B级优先参与优先股购股权
无
通过复选标记表明，发行人（1）在过去的12个月内已根据《交易法》第13或15（d）节的规定提交了所有要提交的报告（或者对于发行人需要提交此类报告的较短期间），以及（2）在过去的90天内已受到这些提交要求的约束。 ☒ 否 ☐
请在勾选框内勾选，以指示注册人在过去的12个月内(或注册人需要提交这些文件的时间更短)是否已经电子提交了每一份互动数据文件，该提交是根据证券法规定第405条规则和本章第232.405条规则规定。 ☒ 否 ☐
请通过勾选标记注册者是否为大型加速报告人、加速报告人、非加速报告人、较小的报告公司或新兴成长公司。请参见《交易所法》第120亿.2条中对“大型加速报告人”、“加速报告人”、“非加速报告人”、“较小的报告公司”和“新兴成长公司”的定义。
| 大型加速申报人 | ☐ | 加速申报人 | ☐ |
| ☒ | 小型报告公司 | ||
| 新兴成长公司 |
如果是新兴成长型企业，请打勾，以表明注册人已选择不使用遵守《证券交易法》第13(a)条所规定的任何新的或修订后的财务会计准则的延长过渡期。 ☐
请在核对标记处注明注册人是否为空壳公司（如交易所法案12b-2条所定义）。是 ☐ 否
截至2024年11月14日，申报人的普通股流通股数为 .
CEA 工业公司
每季度 表格 10-Q 报告
截至2024年9月30日季度结束
目录
| i |
在本季度报告表格10-Q中，除非另有说明，“公司”、“我们”、“我们”或“我们的” 均指CEA Industries Inc.及其全资子公司（如适用）。
警示性声明
本季度10-Q表格，包括“管理层对财务状况和经营业绩的讨论与分析”中的第2项，包含涉及重大风险和不确定性的前瞻性声明。这些前瞻性声明并非历史事实，而是基于目前管理层的期望，涉及重大风险、不确定性和其他因素，其中一些超出我们的控制范围且难以预测，可能导致实际结果与这些前瞻性声明中表达的结果大相径庭或暗示的结果有所不同。前瞻性声明涉及未来事件或我们未来的财务表现。我们通常通过术语如“可能”、“将”、“应当”、“预计”、“计划”、“预期”、“可能”、“打算”、“目标”、“计划”、“考虑”、“认为”、“估计”、“预测”、“潜在”或“持续”或这些术语的否定形式或其他类似词语来识别前瞻性声明。除历史事实的声明外，所有陈述均可被视为前瞻性声明，包括但不限于任何营业收入、毛利润、盈利或损失、税项、现金流或其他财务项目的任何预测；管理层对未来业务运营的计划、战略或目标的任何声明；任何关于当前或未来宏观经济或特定行业趋势或事件及这些趋势和事件对我们或我们的财务表现的影响的任何声明；关于悬而未决的调查、法律诉讼或税务争议的任何声明；对期望或信念的任何声明；以及作为上述任何声明基础的任何假设的任何声明。
这些前瞻性声明受已知和未知的风险、不确定性、假设及其他因素的影响，可能导致我们的经营业务实际结果、财务状况、流动性、业绩、前景、机会、成就或行业成果，以及我们服务或拟服务的市场与这些前瞻性声明中所表达或暗示的结果存在实质性差异。这些前瞻性声明基于对我们当前和未来业务策略以及我们运营环境的假设。可能导致这些差异的重要因素包括但不限于：
| ● | 我们的 业务前景以及我们现有和潜在客户的前景，包括新客户合同的减少； | |
| ● | 我们的 整体财务控件，包括收入下降、高利率和通货膨胀的影响、由于COVID-19疫情、乌克兰战争、以色列冲突以及我们依赖的供应链造成的业务中断：
| |
| ● | 我们 的重组和成本控制措施对业务的影响，这些措施在2023年第一季度采取并持续进行；
| |
| ● | 产品开发和产品选择以满足客户需求的固有不确定性，满足客户期望，是否会有或将会有保修索赔； | |
| ● | 监管、立法和司法进展，特别是与大麻股法律的变更及其执行有关的进展； | |
| ● | 在CEA（受控环境农业）行业的竞争压力以及我们在CEA行业中的工程服务和产品供应地位，特别是在大麻股种植行业； | |
| ● | 有效运营我们的业务，包括为现有客户提供服务和获取新业务的能力； | |
| ● | 我们与客户和供应商的关系，以及对有限数量的客户和供应商的依赖； | |
| ● | 与我们的客户和供应商的正常支付条款和控件的持续性，包括我们从客户那里获得预付款的能力； |
| ii |
| ● | 一般经济状况、我们客户的运营和获取资本的能力，以及包括恶劣天气、自然灾害、健康危害、恐怖活动、金融危机、政治危机或其他重大事件在内的市场和业务中断，或这些事件的前景，对我们在所经营市场提供的产品和服务的需求产生不利影响; | |
| ● | 在CEA行业中发生的业务中断，包括破产和市场需求的变化，对我们工程服务和施工解决方案的需求产生不利影响，从而影响我们的收入;
| |
| ● | 我们供应商的产品供给，以及我们完成合同的能力，其中一些合同依赖于其他参与者以便全面完成项目; | |
| ● | 我们业务策略和发展计划的变化，以及我们寻求战略选择的计划; | |
| ● | 我们 吸引和留住合格人员的能力； | |
| ● | 我们 在必要时筹集股本和债务资本的能力，以资助我们的运营和业务策略，包括可能的 策略选择和收购； |
| ● | 我们 识别、完成和整合潜在战略选择和收购的能力； | |
| ● | 未来 营业收入可能低于预期； | |
| ● | 我们 待处理订单的数量和当前规模的重大变化，以及我们能否及时或根本将待处理订单转化为营业收入； | |
| ● | 我们 不打算支付常规分红派息：以及
| |
| ● | 我们 能够保持我们在纳斯达克上市的普通股和普通股认购Warrants的能力，以及我们证券在公开市场的价格波动和有限的交易量。 |
这些 因素不应被视为详尽无遗，应该与本报告中的其他警示性声明一起阅读。
尽管我们相信我们对这些前瞻性声明采用了合理的假设，但这些假设中的任何一个都可能被证明是不准确的， 因此，基于这些假设的前瞻性声明也可能不准确。鉴于这些和其他不确定性， 在本季度报告的10-Q表格中包含预测或前瞻性声明不应被视为我们对实现计划和目标的承诺。这些风险和不确定性包括在截至2023年12月31日的年度报告的「项目1A - 风险因素」中描述或识别的内容， 并不时在公司向美国证券交易委员会（「SEC」）的提交文件中更新。您不应过度依赖这些前瞻性声明， 它们仅适用于本季度报告10-Q表格的日期。除非按照联邦证券法的要求，我们不承担修订或更新任何前瞻性声明的义务，无论是由于新信息、 未来事件或其他原因，以反映在本季度报告10-Q表格的日期之后发生的事件或情况。本季度报告10-Q表格中包含的前瞻性声明和预测旨在符合1933年证券法第27A条修正案（「证券法」）中对「前瞻性声明」的定义。
| iii |
部分 第一部分 — 财务信息
项目 1. 基本报表
CEA 工业公司。
合并 合并资产负债表
（以美元计，除股数外）
| 9月30日 | 2023年12月31日, | |||||||
| 2024 | 2023 | |||||||
| （未经审计） | ||||||||
| 资产 | ||||||||
| 流动资产 | ||||||||
| 现金及现金等价物 | $ | $ | ||||||
| 应收账款，净额 | ||||||||
| 合同资产，净额 | ||||||||
| 存货，净值 | ||||||||
| 预付费用及其他 | ||||||||
| 所有流动资产总额 | ||||||||
| 非流动资产 | ||||||||
| 物业和设备，净值 | ||||||||
| 无形资产，净值 | ||||||||
| 存款 | ||||||||
| 经营租赁使用权资产 | ||||||||
| 总非流动资产 | ||||||||
| 总资产 | $ | $ | ||||||
| 负债和股东权益 | ||||||||
| 责任 | ||||||||
| 流动负债 | ||||||||
| 应付账款及应计负债 | $ | $ | ||||||
| 透过收入 | ||||||||
| 经营租赁负债的流动部分 | ||||||||
| 总流动负债 | ||||||||
| 非流动负债 | ||||||||
| 经营租赁负债，扣除流动部分 | ||||||||
| 总非流动负债 | ||||||||
| 总负债 | ||||||||
| 承诺和或有事项（备注6） | ||||||||
| 股东权益 | ||||||||
| 优先股，$ 面值； 授权股份; 已发行和流通的股份 | ||||||||
| 普通股，$ 面值； 授权； 和 已发行和流通的分享数，分别为 | ||||||||
| 额外实收资本 | ||||||||
| 累计负债 | ( | ) | ( | ) | ||||
| 总股东权益 | ||||||||
| 总负债和股东权益 | $ | $ | ||||||
附带的说明是这些简明合并基本报表不可或缺的一部分。
| 2 |
CEA 工业公司。
浓缩 综合运营报表
（以美元计，除股数外）
（未经审计）
| 截至三个月的 9月30日， | 截至九个月 9月30日， | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 营业收入 | $ | $ | $ | $ | ||||||||||||
| 成本收入 | ||||||||||||||||
| 毛（损失）利润 | ( | ) | ( | ) | ( | ) | ||||||||||
| 营业费用： | ||||||||||||||||
| 广告和营销费用 | ||||||||||||||||
| 产品开发成本 | ||||||||||||||||
| 销售、一般及行政费用 | ||||||||||||||||
| 营业费用总额 | ||||||||||||||||
| 营业亏损 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 其他收益（支出）： | ||||||||||||||||
| 其他收入（费用），净额 | ||||||||||||||||
| 利息收入（支出），净额 | ||||||||||||||||
| 其他收入(支出)总计 | ||||||||||||||||
| 税前损失 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 所得税 | ||||||||||||||||
| 净亏损 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 每股普通股损失 - 基本与摊薄 | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| 基本与摊薄的普通股加权平均在外流通股份数 | ||||||||||||||||
附带的说明是这些简明合并基本报表不可或缺的一部分。
| 3 |
CEA 工业公司。
合并 股东权益变动表
截至2024年9月30日和2023年9月30日的三个月和九个月
（以美元计，除股数外）
（未经审计）
| 普通股 | ||||||||||||||||||||
数量 Shares | 金额 | 其他 已支付 资本 | 累计 Deficit | 股东的 Equity | ||||||||||||||||
| 截至2024年6月30日的余额 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| 净亏损 | - | ( | ) | ( | ) | |||||||||||||||
| 截至2024年9月30日的余额 | $ | | $ | $ | ( | ) | $ | |||||||||||||
| 普通股 | ||||||||||||||||||||
数量 Shares | 金额 | 其他 已支付 资本 | 累计 Deficit | 股东的 Equity | ||||||||||||||||
| 截至2023年12月31日的余额 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| 授予员工的已归属股票期权的公允价值，扣除未归属股票期权的 forfeitures。 | - | ( | ) | ( | ) | |||||||||||||||
| 以普通股结算授予董事的限制性股票单位。 | ||||||||||||||||||||
| 授予董事的限制性股票单位的公允价值。 | - | |||||||||||||||||||
| 在反向拆分后发行普通股，以补齐部分股份。 | ( | ) | ||||||||||||||||||
| 净亏损 | - | ( | ) | ( | ) | |||||||||||||||
| 截至2024年9月30日的余额 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| 普通股 | ||||||||||||||||||||
数量 Shares | 金额 | 其他 已支付 资本 | 累计 Deficit | 股东的 Equity | ||||||||||||||||
| 截至2023年6月30日的余额 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| 授予员工的已归属期权的公允价值 | - | |||||||||||||||||||
| 净亏损 | - | ( | ) | ( | ) | |||||||||||||||
| 截至2023年9月30日的余额 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| 普通股 | ||||||||||||||||||||
数量 Shares | 金额 | 其他 已支付 资本 | 累计 Deficit | 股东的 Equity | ||||||||||||||||
| 截至2022年12月31日的余额 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| 授予员工的已归属期权的公允价值 | - | |||||||||||||||||||
| 以普通股结算的授予给董事的受限股票单位 | ||||||||||||||||||||
| 授予给董事的受限股票单位的公允价值 | - | |||||||||||||||||||
| 净亏损 | - | ( | ) | ( | ) | |||||||||||||||
| 截至2023年9月30日的余额 | $ | $ | $ | ( | ) | $ | ||||||||||||||
附带的说明是这些简明合并基本报表不可或缺的一部分。
| 4 |
CEA 工业公司。
合并 合并现金流量表
（以美元计，除股数外）
（未经审计）
| 截至9月30日的九个月 | ||||||||
| 2024 | 2023 | |||||||
| 经营活动产生的现金流: | ||||||||
| 净亏损 | $ | ( | ) | $ | ( | ) | ||
| 调整净损失以对账经营活动中使用的现金: | ||||||||
| 折旧和无形资产摊销费用 | ||||||||
| 基于股份的报酬 | ||||||||
| 坏账准备（坏账回收） | ( | ) | ( | ) | ||||
| 库存过剩及过时储备的准备 | ||||||||
| 资产处置损失 | ||||||||
| 经营租赁费用 | ||||||||
| 经营资产与负债的变动： | ||||||||
| 应收账款 | ( | ) | ( | ) | ||||
| 库存 | ( | ) | ||||||
| 预付费用及其他 | ( | ) | ||||||
| 应付账款及应计负债 | ( | ) | ( | ) | ||||
| 透过收入 | ( | ) | ( | ) | ||||
| 经营租赁负债，净额 | ( | ) | ( | ) | ||||
| 用于经营活动的净现金 | ( | ) | ( | ) | ||||
| 投资活动产生的现金流 | ||||||||
| 物业和设备销售收入 | ||||||||
| 投资活动提供的净现金 | ||||||||
| 融资活动产生的现金流 | ||||||||
| 融资活动提供的净现金 | ||||||||
| 现金及现金等价物净变动 | ( | ) | ( | ) | ||||
| 期初的现金及现金等价物 | ||||||||
| 期末的现金及现金等价物 | $ | $ | ||||||
| 补充现金流信息: | ||||||||
| 支付的利息 | $ | $ | ||||||
| 缴纳的所得税 | $ | $ | ||||||
| 非现金投资和融资活动： | ||||||||
| 为累计权益补偿负债发行的期权 | $ | $ | ||||||
附带的说明是这些简明合并基本报表不可或缺的一部分。
| 5 |
CEA 工业公司。
附注 于简化合并基本报表
2024年9月30日
(以 美元为单位，除股份数量外)
（未经审计）
注意 1 - 运营性质和重要会计政策
企业简介
CEA 行业板块公司，原名Surna Inc.（「公司」），于2009年10月15日在内华达州注册成立。我们设计、工程 并卖出环保控制和其他技术，以服务于受控环境农业（「CEA」）行业。CEA 行业板块是美国经济中增长最快的领域之一。从绿叶蔬菜（羽衣甘蓝、瑞士甜菜、芥菜、油菜） 到微型蔬菜（在第一片真叶阶段收割的绿叶蔬菜）、民族蔬菜、观赏植物、小水果（如草莓、黑莓和覆盆子），再到甜椒、黄瓜、番茄及大麻股和工业大麻，越来越多的生产者考虑或采取在室内种植作物，以响应市场动态或作为其首选的养殖业实践。为了服务于CEA行业板块，我们 为CEA设施提供（i）空气处理设备和系统，(ii) 空气净化产品，(iii) LED照明，和 (iv) 室内种植的工作台和货架解决方案。我们总部设在科罗拉多州路易斯维尔，利用我们在这一领域的经验，为客户提供增值的气候控制解决方案，帮助提高其整体作物质量和产量，优化能源和水资源效率，并满足不断变化的州和地方法规、许可和监管要求。尽管我们的大多数客户确实这样做， 但我们既不生产也不卖出大麻或其相关产品。
我们 正在评估并购机会及其他未来选择。作为这一评估过程的一部分，我们 也在考虑解散自己的法律程序和实际步骤，这包括在考虑和满足债权人及其他公司义务后分配现金资产。对于任何解散计划，管理层和 董事会将需要制定并通过一项解散计划。某些交易机会，取决于其结构， 以及任何解散计划将需要通过代理征集程序获得股东批准。
COVID-19疫情对我们业务的影响
疫情期间，政府及业务经济应对措施对我们大多数市场的需求产生了影响，并干扰了项目的工作流程和完工进度。我们认为，仍然在我们的销售、项目实施、供应链制造行业、运营利润、成本和营运资本上看到不利影响。
由于这种不确定性，我们继续监控成本，并继续采取措施降低成本，以尽量减轻COVID-19大流行的长期影响。然而，这些措施在长期内可能不足以避免销售减少、损失增加和我们业务的运营现金流减少。在截至2023年12月31日的年度和截至2024年9月30日的九个月期间，因供应链的干扰和延迟，公司经历了设备收货的延迟，这些设备是为了满足客户订单而订购的。因此，我们对部分客户销售的营业收入确认被延迟到未来时期，当时订单的发货可以完成。
战争冲突的影响
我们 相信乌克兰和以色列的冲突对我们的运营、财务控件或财务 报告没有任何直接影响。我们认为这些冲突只会以一般性的方式影响我们的运营，类似于它们对所有仅限于北美运营的企业产生的一般影响，因国际制裁和禁运法规、可能的商品短缺以及可能来自冲突国家的零部件供应、供应链挑战，以及因冲突和与冲突相关的政府支出导致的国际和美国国内通货膨胀。 由于我们的运营仅与北美受控的农产品行业相关，主要涉及大麻股领域，我们不认为会特别成为与冲突相关的网络攻击目标。我们在直接参与冲突的国家没有运营，也不受到与这些冲突相关的任何制裁和禁运的具体影响，因为我们主要在美国和加拿大运营。我们不认为冲突会对我们对财务报告的内部控件产生任何影响。除了普遍的证券市场趋势外，我们没有理由相信投资者会认为我们公司面临与冲突相关的特殊风险或风险。
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CEA 工业公司。
附注 于简化合并基本报表
2024年9月30日
(以 美元为单位，除股份数量外)
（未经审计）
通货膨胀
我们的 运营受到更大经济和与建筑翻新、改造 及新建CEA设施相关行业的通货膨胀的影响。我们相信，我们将继续面临产品 和运营成本的通货膨胀上涨，这将对我们的利润和财务结果产生不利影响，以及我们的服务和产品供应合同的定价。 通货膨胀体现在更高的工资、设备定价的增加、运输和交付成本，以及一般的运营费用上。 在未来的工作中，我们计划持续监控我们的各种合同条款，并可能决定添加允许我们在通货膨胀和价格上涨压力对我们履行合同和维持利润产生影响时调整定价的条款。
财务 报表呈现
根据美国公认会计原则（「GAAP」），编制合并基本报表需要管理层做出影响报告金额和相关披露的估计和假设。
临时 基本报表
公司随附的未经审计的简要合并基本报表已按照美国公认会计原则（「GAAP」）为中期财务信息和与表格10-Q及规则10-01的S-X条例的指示进行了编制。根据这些规则和规定，某些信息和注释披露，通常包括在根据GAAP编制的基本报表中，已被简化或省略。管理层认为，为公平呈现所需的所有调整（包括正常的经常性项目）已被包括在内。截止2024年9月30日的九个月的经营结果不一定能代表截至2024年12月31日的财政年度可能预期的结果。截止2023年12月31日的资产负债表信息来源于当日的审计基本报表，但不包括GAAP所要求的完整基本报表所需的所有信息和脚注。有关更多信息，请参阅2023年12月31日截止年度的年度报告中的合并基本报表及相关注释。
流动性
附带的合并基本报表是基于持续经营的基础编制的，考虑了在合并基本报表可发布日期后一年内实现资产和满足负债的正常业务过程。自成立以来，公司持续经历重复亏损。因此，为了继续作为一个持续经营体，公司依赖于获得额外融资来源以资助增长。2022年2月15日，公司从完成股票发行中获得了大约$
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CEA 工业公司。
附注 于简化合并基本报表
2024年9月30日
(以 美元为单位，除股份数量外)
（未经审计）
不过， 我们仍在继续评估并购机会和其他未来选择。作为这一评估过程的一部分，并且如2024年4月10日提交的8-K表格所披露，我们还在考虑解散我们的法律程序和实际步骤，这将包括在债权人和其他公司义务得到处理和满足后分配现金资产。对于任何解散计划，管理层和董事会需要制定和通过解散计划。某些交易机会，根据其结构，任何解散计划都需要通过代理征集程序获得股东批准。
如果决定实施解散计划，我们将不再作为持续经营的单位。 至少12个月 自该基本报表发行之日起。因此，届时，管理层将认为公司在继续作为持续经营的单位方面将面临重大怀疑。 至少12个月 自该基本报表发行之日起。
合并原则
合并的基本报表包括公司及其控制的全资子公司Hydro Innovations, LLC（「Hydro」）和Surna Cultivation Technologies LLC（「SCT」）的账目。公司间的交易、利润和余额在合并时被消除。
反向股票拆分
在
2024年5月7日，公司的董事会批准按比例进行反向股票拆分，拆分比例为
由于反向股票拆分，所有未到期的期权、限制性股票单位和普通股购买Warrants的数量和行使价格均按照比例进行了调整。
使用估计
管理层 做出估计和假设，影响基本报表上资产和负债的报告金额，以及在财务报表日期对或有资产和负债的披露，并影响报告期间营业收入和费用的报告金额。公司根据历史经验和其他各种在具体情况下被认为合理的假设来制定其估计，而这些结果构成了对资产和负债账面价值进行判断的基础，这些账面价值并不是其他来源明显可知的。实际结果可能与这些估计不同。关键估计包括：将交易价格分配给与客户的合同下的绩效义务、单独销售价格、预计在与客户的合同下的剩余绩效义务上的营收确认时间、无形资产的估值在减值分析中的应用、基于权益的补偿的估值、递延税资产和负债的估值、质量保证准备、库存折让和法律或有事项。
现金， 现金等价物和受限制现金
所有
在购买时原始到期不超过三个月的高度流动投资都被视为现金等价物。
公司在金融机构的存款超过联邦保险额度$
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CEA 工业公司。
附注 于简化合并基本报表
2024年9月30日
(以 美元为单位，除股份数量外)
（未经审计）
应收账款 应收账款准备.
账户 应收账款按开票金额或基于尚未开票的项目的营业收入进行记录，通常不计利息。 根据修订后的ASU第2016-13号， 金融工具的信用损失计量， 公司自2023年1月1日起以前瞻性方式采用 对公司应收账款按预期信用损失模型计提坏账准备。 每个期间，管理层评估坏账准备水平的适当性，考虑截至期末应收账款内在的信用风险。 公司在债务人未在合同规定的付款到期日前支付时，认为应收款项逾期。 如果收款努力未能成功且应收款项余额被认定为不可收回（债务人违约），则账户余额会从坏账准备中注销， 基于债务人的信用评级以及款项逾期的时间等因素。如果公司的客户财务状况恶化，导致其支付能力受损， 可能需要额外计提坏账准备。
截至2024年9月30日和2023年12月31日，坏账准备为$
普通股基本每股收益（亏损）是通过将归属于普通股股东的净利润（亏损）除以在此期间流通的加权平均普通股股份数来计算的，而不考虑普通股等价物。摊薄净利润（亏损）每股计算为将净利润（亏损）除以流通的加权平均普通股股份数以及潜在的可摊薄普通股等价物，包括期权、Warrants和限制性股票单位及其他基于权益的奖励，除非普通股等价物的影响会造成摊薄效应。潜在普通股等价物包括因行使期权和Warrants以及限制性股票单位的归属而可发行的普通股，使用库藏股法进行计算。
截至2024年和2023年9月30日，分别有 and 与认股权证和期权有关的潜在稀释性权益工具尚未发行，这些工具可以转换为公司普通股的股份。 和 截至2024年和2023年9月30日，与尚未发行的认股权证相关，分别是与我们出售系列B优先股和普通股相关的。 和 截至2024年和2023年9月30日，剩余的潜在稀释性权益工具与可转换为公司普通股的期权相关，这些期权是作为补偿发放给我们的董事和员工的。
营业收入 确认
2018年1月1日，公司采纳了会计准则更新（"ASU"）2014-09（主题606）， 与客户合同的营业收入 以及所有相关修订（"ASC 606"或"收入标准"）适用于所有合同，并选择 修改后追溯法。
营业收入 认可会计政策摘要
公司根据ASC 606进行营业收入的确认。根据收入标准，履约义务是在与客户的合同中向客户转让一项独特商品或服务的承诺。大多数公司的合同包含多个履约义务，包括工程和技术服务，以及各种气候控制系统设备和元件的交付，这些合同可能跨越客户项目生命周期的多个阶段，从设施设计和施工到设备交付和系统安装及开始控件。公司不提供施工服务或系统安装服务。部分公司的客户合同包含单一履约义务，通常是仅限工程服务的合同。
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CEA 工业公司。
附注 于简化合并基本报表
2024年9月30日
(以 美元为单位，除股份数量外)
（未经审计）
一个 合同的交易价格被分配给每个独特的履约义务，并在履约义务完成时确认营业收入。当合同中包含多个履约义务时，公司根据独立销售价格将交易价格分配给每个履约义务。在估算销售价格时，公司使用各种可观察的输入。最好的可观察输入是公司对同一商品或服务的实际销售价格，但通常对于包含多个履约义务的公司的合同，这种输入是不可用的。对于工程服务，公司通过参考项目的某些物理特征来估算独立销售价格，例如设施的大小和涉及的机械系统，这些特征表明将提供的机械工程服务的范围和复杂性。对于设备销售，独立销售价格是通过预测设备和元件的预期成本，然后加上管理层设定的一定区间的适当利润率来确定的。根据履约义务的性质，如果某些履约义务具有高度变动或不确定的独立销售价格，公司可能会使用不同方法和可观察输入的组合。一旦确定了销售价格，公司将在总合同报酬中应用相对价值，并估算每个承诺履行时应确认的交易价格金额。
一般来说， 当承诺的商品的控制权转移给客户，或者服务提供或完成以换取公司期望获得的相应金额时，便会发生满意度。公司在商品出售时确认营业收入，当控制权转移给客户时，主要发生在发货时。公司选择在交易价格的测量中排除所有税费（例如，销售税、使用税、增值税及某些消费税），这些税费由政府当局在特定的获利交易中征收，并由公司向客户收取。因此，公司确认的营业收入是扣除销售税后的。运费和运输成本在商品销售的控制权转移给公司的客户时记录。
公司还承担某些工程服务的履约义务，这些义务是在一段时间内满足的。营业收入在服务提供过程中根据达到特定里程碑的完成百分比进行确认。
该公司为其产品以及其他制造商生产的符合客户合同定义规格的产品提供担保类型的保修，并且与这些保修相关的没有任何重要的独立履行义务。公司根据历史保修成本维持保修准备金。
营业收入的拆分
根据ASC 606-10-50-5至6的规定，公司考虑了适当的分散营业收入信息级别，以描绘经济因素如何影响营业收入和现金流的性质、金额、时机和不确定性。此外，根据ASC 606-10-55-90至91的实施指引，公司还考虑了(a) 财务报表之外的披露，例如收益发布和投资者演示，(b) 运营决策主要负责人定期审核的信息，以评估运营部门的财务表现，以及(c) 与(a)和(b)中识别的信息类型相似的信息，公司或公司的基本报表用户用以评估财务表现或做出资源配置决策。最后，我们考虑了指导中可能适当的类别示例，包括：(a) 商品或服务类型（主要产品线），(b) 地理区域（国家或地域），(c) 市场或客户类型（政府或非政府客户），(d) 合同类型（固定价格或时间与材料），(e) 合同持续时间（短期或长期），(f) 商品或服务的转移时机（即时或随时间），以及(g) 销售渠道（直接面向客户或通过中介）。
基于上述指导和考虑，公司决定需要将营业收入按设备销售、工程和其他服务、运输与处理以及没收的不可退还客户保证金、押金进行拆分。
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CEA 工业公司。
附注 于简化合并基本报表
2024年9月30日
(以 美元为单位，除股份数量外)
（未经审计）
下表列出了公司的营业收入来源：
| 截至三个月 9月30日， | 截至九个月 9月30日， | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 设备和系统销售 | $ | $ | $ | $ | ||||||||||||
| 工程及其他服务 | ||||||||||||||||
| 运输与处理 | ||||||||||||||||
| 没收的不可退还客户保证金、押金 | ||||||||||||||||
| 总营业收入 | $ | $ | $ | $ | ||||||||||||
其他 判断和假设
公司通常在提供服务或转让商品之前就收到了客户的付款。根据ASC 606-10-32-18中所适用的实用性豁免，公司选择不调整承诺款项的金额，以考虑重大融资成分的影响，因为公司在合同成立时预计，公司向客户转让承诺的商品或服务与客户支付该商品或服务的时间间隔将不超过一年。因此，与客户合同相关的剩余履约责任不考虑货币时间价值的影响。
根据ASC 340-40-25-4中的实际便利，公司在发生时确认获得合同的增量成本为费用，因为公司本应确认的资产的摊销期为一年或更短。这些成本包括某些销售佣金和激励，这些费用包含在销售、一般和行政费用中，仅在公司收集并获得相关营业收入时才能支付。
合同 资产和合同负债
合同 资产反映已确认的营业收入和在客户开票之前已满足的履约义务。合同负债与 在合同下履约之前已收到的预付款项相关。公司根据合同中约定的条款从客户处收到款项。
Contract
assets include unbilled amounts where revenue recognized exceeds the amount billed to the customer and the right of payment is conditional,
subject to completing a milestone, such as a phase of a project. The Company typically does not have material amounts of contract assets
since revenue is recognized as control of goods are transferred or as services are performed. Contract assets increased by $
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CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
Contract
liabilities consist of advance payments in excess of revenue recognized. The Company’s contract liabilities are recorded as a current
liability in deferred revenue in the consolidated balance sheets since the Company generally expects to recognize revenue in less than
one year. Non-refundable customer deposits are recognized as revenue when previously abandoned customer contracts have been forfeited
and a period of three years has passed. As of September 30, 2024, and December 31, 2023, deferred revenue, which was classified as a
current liability, was $
For
the three and nine months ended September 30, 2024, the Company recognized revenue of $
Remaining Performance Obligations
Remaining performance obligations, or backlog, represents the aggregate amount of the transaction price allocated to the remaining obligations that the Company has not performed under its customer contracts. The Company has elected not to use the optional exemption in ASC 606-10-50-14, which exempts an entity from such disclosures if a performance obligation is part of a contract with an original expected duration of one year or less. Accordingly, the information disclosed about remaining performance obligations includes all customer contracts, including those with an expected duration of one year or less.
Industry uncertainty, project financing concerns, and the licensing and qualification of our prospective customers, which are out of the Company’s control, make it difficult for the Company to predict when it will recognize revenue on its remaining performance obligations. There are risks that the Company may not realize the full contract value on customer projects in a timely manner or at all, and completion of a customer’s cultivation facility project is dependent upon the customer’s ability to secure funding and real estate, obtain a license and then build their cultivation facility so they can take possession of the equipment. Accordingly, the time it takes for customers to complete a project, which corresponds to when the Company is able to recognize revenue, is driven by numerous factors including: (i) the large number of first-time participants interested in the indoor cannabis cultivation business; (ii) the complexities and uncertainties involved in obtaining state and local licensure and permitting; (iii) local and state government delays in approving licenses and permits due to lack of staff or the large number of pending applications, especially in states where there is no cap on the number of cultivators; (iv) the customer’s need to obtain cultivation facility financing; (v) the time needed, and coordination required, for our customers to acquire real estate and properly design and build the facility (to the stage when climate control systems can be installed); (vi) the large price tag and technical complexities of the climate control and air sanitation system; (vii) the availability of power; and (viii) delays that are typical in completing any construction project. Further, based on the current economic climate, t and the Company’s recent cost cutting measures, there is no assurance that the Company will be able to fulfill its backlog, and the Company may experience contract cancellations, project scope reductions and project delays.
As
of September 30, 2024, the Company’s remaining performance obligations, or backlog, was approximately $
The remaining performance obligations expected to be recognized through 2024 are as follows:
| 2024 | Total | |||||||
| Remaining performance obligations related to partial equipment & engineering paid contracts | ||||||||
| Total remaining performance obligations | $ | $ | ||||||
| 12 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
Product Warranty
The Company warrants the products that it manufactures for a warranty period equal to the lesser of 12 months from start-up or 18 months from shipment. The Company’s warranty provides for the repair, rework, or replacement of products (at the Company’s option) that fail to perform within stated specification. The Company’s third-party suppliers also warrant their products under similar terms, which are passed through to the Company’s customers.
The Company recognizes the cost resulting from all share-based compensation arrangements, including stock options, restricted stock awards and restricted stock units that the Company grants under its equity incentive plan in its condensed consolidated financial statements based on their grant date fair value. The expense is recognized over the requisite service period or performance period of the award. Awards with a graded vesting period based on service are expensed on a straight-line basis for the entire award. Awards with performance-based vesting conditions, which require the achievement of a specific company financial performance goal at the end of the performance period and required service period, are recognized over the performance period. Each reporting period, the Company reassesses the probability of achieving the respective performance goal. If the goals are not expected to be met, no compensation cost is recognized and any previously recognized amount recorded is reversed. If the award contains market-based vesting conditions, the compensation cost is based on the grant date fair value and expected achievement of market condition and is not subsequently reversed if it is later determined that the condition is not likely to be met or is expected to be lower than initially expected.
The grant date fair value of stock options is based on the Black-Scholes Option Pricing Model (the “Black-Scholes Model”). The Black-Scholes Model requires judgmental assumptions including volatility and expected term, both based on historical experience. The risk-free interest rate is based on U.S. Treasury interest rates whose term is consistent with the expected term of the option. The Company determines the assumptions used in the valuation of option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company may use different assumptions for options granted throughout the year.
The grant date fair value of restricted stock and restricted stock units is based on the closing price of the underlying stock on the date of the grant.
The Company has elected to reduce share-based compensation expense for forfeitures as the forfeitures occur since the Company does not have historical data or other factors to appropriately estimate the expected employee terminations and to evaluate whether particular groups of employees have significantly different forfeiture expectations.
| 13 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Share-based compensation expense included in: | ||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Advertising and marketing expenses | ||||||||||||||||
| Product development costs | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Total share-based compensation expense included in consolidated statement of operations | $ | $ | $ | $ | ||||||||||||
Concentrations
Two
customers accounted for
Three
customers accounted for
Recently Issued Accounting Pronouncements
In March 2024, the SEC issued a final rule under SEC Release Nos. 33-11275 and 34-99678, The Enhancement and Standardization of Climate-Related Disclosures for Investors, requires the disclosure of material Scope 1 and Scope 2 greenhouse gas emissions and other climate-related topics in annual reports and registration statements. In April 2024, the SEC announced its decision to voluntarily stay the new rules pending judicial review of certain legal challenges, and thus the timing and scope of the new rules remains unknown. However, the Company is continuing to evaluate the impact these rules will have on its consolidated financial statements and related disclosures.
In March 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-01 to clarify how an entity should determine whether a profits interest or similar award should be accounted for as a share-based payment arrangement or similar to a cash bonus or profit-sharing arrangement. The amendments are effective in annual periods beginning after December 15, 2024, and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the new guidance and the impact on its future consolidated statements.
In December 2023, FASB issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate. The standard also requires that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) each disaggregated between domestic and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is currently assessing the impact of ASU 2023-09 on its disclosures.
| 14 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
In November 2023, the FASB issued Accounting Standards Update 2023-07, Improvements to Reportable Segment Disclosures (ASU 2023-07). ASU 2023-07 includes requirements that an entity disclose the title of the chief operating decision maker (CODM) and on an interim and annual basis, significant segment expenses and the composition of other segment items for each segment’s reported profit. The standard also permits disclosure of additional measures of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently assessing the impact of ASU 2023-07 on its disclosures.
In December 2022, the FASB issued ASU No. 2022-06, which defers the sunset date of Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) from December 31, 2022 to December 31, 2024. ASU No. 2022-06 was effective upon issuance. Topic 848 provides temporary optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting, providing optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The Company does not expect this ASU to have a material impact on its consolidated results of operations, cash flows and financial position.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Note 2 – Leases
The Louisville Facility Lease
On
July 28, 2021, the Company entered into an agreement to lease
Upon
commencement of the New Facility Lease, the Company recognized on the balance sheet an operating lease right-of-use asset and lease liability
in the amount of $
| 15 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
The Company’s operating and finance right-of-use assets and lease liabilities are as follows:
| As of September 30, 2024 | ||||
| Operating lease right-of-use asset | $ | |||
| Operating lease liability, current | $ | |||
| Operating lease liability, long-term | $ | |||
| Remaining lease term | ||||
| Discount rate | % | |||
For the Nine Months Ended September 30, 2024 | ||||
| Cash paid for operating lease | $ | |||
Future annual minimum lease payments under non-cancellable operating leases as of September 30, 2024, were as follows:
| As of September 30, 2024 | ||||
| Years ended December 31, | ||||
| 2024 (excluding the nine months ended September 30, 2024) | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present value of minimum lease payments | $ | |||
Note 3 – Inventory
Inventory consisted of the following:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Finished goods | $ | $ | ||||||
| Raw materials | ||||||||
| Allowance for excess & obsolete inventory | ( | ) | ( | ) | ||||
| Inventory, net | $ | $ | ||||||
| 16 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
Overhead
expenses of $
Advance
payments on inventory purchases are recorded in prepaid expenses until title for such inventory passes to the Company. Prepaid expenses
included approximately $
Note 4 – Property and Equipment
Property and equipment consisted of the following:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Furniture and equipment | $ | $ | ||||||
| Vehicles | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense was $
Note 5 – Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Sales commissions payable | ||||||||
| Accrued payroll liabilities | ||||||||
| Product warranty accrual | ||||||||
| Other accrued expenses | ||||||||
| Total | $ | $ | ||||||
| 17 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
Note 6 – Commitments and Contingencies
Litigation
On
October 20, 2023, Sweet Cut Grow, LLC and Green Ice, LLC (collectively, “Claimant”) a client of the Company with which it
had an equipment contract and engineering contract, filed a demand for arbitration asserting claims for breach of contract, breach of
warranty, and unjust enrichment, and a demand for $
As
further discussed in Note 12 Subsequent Events below, on or about April 17, 2024, Optima Consulting Services, LLC (the “Claimant”),
a client of the Company with which it had an equipment contract and engineering contract, advised the Company of a potential claim related
to work performed by the Company for Claimant and demanded mediation under the parties’ contract. On or about October 28, 2024,
Claimant informed the Company it was asserting claims for negligent/defective design and breach of warranty, and alleges its damages
exceed $
Given the current uncertainty around estimability and success of the Claims, we have not recorded an accrual for any potential loss related to these matters.
From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict, and the Company’s view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a liability for contingent losses when it is both probable that a liability has been incurred and the amount of the loss is known. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company’s operations or its financial position, liquidity or results of operations.
Leases
The Company has a lease agreement for its manufacturing and office space. Refer to Note 2 Leases above.
Other Commitments
In the ordinary course of business, the Company enters into commitments to purchase inventory and may also provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers and employees that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and certain of its officers and employees, and former officers, directors, and employees of acquired companies, in certain circumstances.
| 18 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
Note 7 – Stockholders’ Equity
As of September 30, 2024, the Company had shares of common stock and shares of preferred stock authorized at a $ par value.
As of September 30, 2024, shares of common stock were issued and outstanding and shares of preferred stock were issued and outstanding.
Reverse Stock Split
On
May 7, 2024, the Company’s Board of Directors approved a reverse stock split at a ratio of
As a result of the reverse stock split, all outstanding options, restricted stock units, and common stock purchase warrants were proportionately adjusted as to number of securities and exercise prices.
An additional shares of common stock were issued to round up partial shares following the reverse split. As a result of the stock split, immediately thereafter there were shares of common stock issued and outstanding.
Also, as a result of this reverse stock split, the number of the Company’s shares of common stock issued and outstanding at December 31, 2023 was reduced from to .
Directors Remuneration
On January 3, 2023, the Company issued an RSU grant of shares of common stock under the 2021 Equity Incentive Plan to each of its four independent directors. The RSUs were granted as an equity retention award pursuant to the Company’s compensation plan for independent directors effective January 17, 2022 and vested immediately on the grant date. A total of shares of the Company’s common stock were issued in settlement of the RSUs.
On January 2, 2024, the Company issued an RSU grant of shares of common stock under the 2021 Equity Incentive Plan to three of its four independent directors. Mr. Shipley declined to receive the RSUs which he was entitled to receive. The RSUs were granted as an equity retention award pursuant to the Company’s compensation plan for independent directors effective January 17, 2022 and vested immediately on the grant date. A total of shares of the Company’s common stock were issued in settlement of the RSUs.
Revised Compensation Plan for Directors
On January 17, 2022, the Board of Directors revised the previously adopted compensation plan. This plan supersedes the plan adopted on August 20, 2021. The Plan is effective retroactively for the current independent directors and for independent directors elected or appointed after the Effective Date.
At the time of initial election or appointment, each independent director received an equity retention award in the form of restricted stock units (“RSUs”). The aggregate value of the RSUs at the time of grant was to be $, with the number of shares underlying the RSUs to be determined based on the closing price of the Company’s common stock on the date immediately prior to the date of grant.
In addition, on the first business day of January each year, each independent director will also receive an equity retention award in the form of RSUs. The aggregate value of the RSUs at the time of grant will be $, with the number of shares underlying the RSUs to be determined based on the closing price of the Company’s common stock on the date immediately prior to the date of grant. These RSUs will be fully vested at date of grant.
| 19 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
There is no additional compensation paid to members of any committee of the Board. Directors who are also executives of the Company, serving on the Board, do not receive compensation for their Board service.
All the independent directors, Messrs. Shipley, Etten, Reisner, and Mariathasan are subject to the Plan.
Each independent director is responsible for the payment of any and all income taxes arising with respect to the issuance of any equity awarded under the plan, including the exercise of any non-qualified stock options.
2017 Equity Incentive Plan
Under the Company’s 2017 Equity Incentive Plan, as may be modified and amended by the Company from time to time (the “2017 Equity Plan”), the Board of Directors (the “Board”) (or the compensation committee of the Board, if one is established) may award stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock unit awards (“RSUs”), shares granted as a bonus or in lieu of another award, and other stock-based performance awards. The 2017 Equity Plan allocates shares of the Company’s common stock (“Plan Shares”) for issuance of equity awards under the 2017 Equity Plan. If any shares subject to an award are forfeited, expire, or otherwise terminate without issuance of such shares, the shares will, to the extent of such forfeiture, expiration, or termination, again be available for awards under the 2017 Equity Plan.
During the nine months ended September 30, 2024, no shares or options were issued and options were forfeited under the 2017 Plan.
As of September 30, 2024, of the shares authorized under the 2017 Plan for equity awards, shares have been issued, awards relating to options remain outstanding, and shares remain available for future equity awards.
2021 Equity Incentive Plan
On March 22, 2021, the Board approved the 2021 Equity Incentive Plan (the “2021 Equity Plan”), which was approved by the stockholders on July 22, 2021. The 2021 Equity Plan permits the Board to grant awards of up to shares of common stock. The 2021 Equity Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), non-qualified stock options, stock appreciation rights (“SARs”), restricted stock awards and restricted stock unit awards and other equity linked awards to our employees, consultants, and directors. If an equity award (i) expires or otherwise terminates without having been exercised in full or (ii) is settled in cash (i.e., the holder of the award receives cash rather than stock), such expiration, termination or settlement will not reduce (or otherwise offset) the number of shares of common stock that may be issued pursuant to this Plan.
During the nine months ended September 30, 2024:
| - | The Company issued shares of its common stock in settlement of restricted stock units issued to three of its independent directors under the 2021 Equity Incentive Plan, pursuant to the Director Compensation plan adopted on January 17, 2022. | |
| - | non-qualified stock options were forfeited that had previously been issued under the 2021 Equity Incentive Plan. |
| 20 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
As of September 30, 2024, of the shares authorized under the 2021 Equity Plan, shares have been issued in settlement of restricted stock units, awards relating to non-qualified stock options, and incentive stock options remain outstanding, and shares remain available for future equity awards.
There was unrecognized compensation expense for unvested non-qualified options as of September 30, 2024.
Non-Qualified and Incentive Stock Options
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding, December 31, 2023 | $ | $ | ||||||||||||||
| Granted | $ | - | $ | - | ||||||||||||
| Exercised | $ | - | $ | - | ||||||||||||
| Forfeited | ( | ) | $ | - | $ | - | ||||||||||
| Expired | $ | - | $ | - | ||||||||||||
| Outstanding, September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable, September 30, 2024 | $ | $ | ||||||||||||||
| Number of Options | Weighted Average Grant-Date Fair Value | Aggregate Intrinsic Value | Grant-Date Fair Value | |||||||||||||
| Nonvested, December 31, 2023 | $ | $ | ( | ) | $ | |||||||||||
| Granted | $ | $ | - | $ | - | |||||||||||
| Vested | ( | ) | $ | $ | $ | ( | ) | |||||||||
| Forfeited | ( | ) | $ | $ | $ | ( | ) | |||||||||
| Expired | $ | $ | - | $ | ||||||||||||
| Nonvested, September 30, 2024 | $ | $ | $ | |||||||||||||
For the nine months ended September 30, 2024 and September 30, 2023, the Company recorded $ and $ as compensation credit and expense related to vested options issued to employees and consultants, net of forfeitures of unvested options issued to employees and consultants, respectively.
| 21 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value ($000) | |||||||||||||
| Outstanding, December 31, 2023 | $ | $ | ||||||||||||||
| Granted | $ | - | $ | - | ||||||||||||
| Exercised | $ | - | $ | - | ||||||||||||
| Forfeited/Cancelled | $ | - | $ | - | ||||||||||||
| Expired | $ | - | $ | - | ||||||||||||
| Outstanding, September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable, September 30, 2024 | $ | $ | ||||||||||||||
There were non-vested, non-qualified stock options issued to directors under the 2017 Equity Plan and the 2021 Equity Plan, for the nine months ended September 30, 2024.
During the nine months ended September 30, 2024 and September 30, 2023, the Company incurred compensation expense related to options issued to directors.
Restricted Stock Units
Effective January 2, 2024, the Company issued a total of restricted stock units (RSUs) under the 2021 Equity Plan to three of its independent directors. These RSUs vested upon grant.
During the nine months ended September 30, 2024 and September 30, 2023, the Company recorded $ and $, respectively, as compensation expense related to vested RSUs issued to directors.
| Number of Units | Weighted Average Grant-Date Fair Value | Aggregate Intrinsic Value | ||||||||||
| Outstanding, December 31, 2023 | $ | $ | ||||||||||
| Granted | $ | $ | ||||||||||
| Vested and settled with share issuance | ( | ) | $ | $ | ||||||||
| Forfeited/canceled | $ | $ | ||||||||||
| Outstanding, September 30, 2024 | $ | $ | ||||||||||
| 22 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
Note 9 - Warrants
The following table summarizes information with respect to outstanding warrants to purchase common stock during the nine months ended September 30, 2024:
| Weighted | Weighted | |||||||||||||||||||
| Average | Average | Aggregate | ||||||||||||||||||
| Warrants | Exercise | Remaining Life | Intrinsic | |||||||||||||||||
| Outstanding | Exercisable | Price | In Months | Value | ||||||||||||||||
| Outstanding at December 31, 2023 | $ | |||||||||||||||||||
| Granted | ||||||||||||||||||||
| Exercised | ||||||||||||||||||||
| Expired | ( | ) | ( | ) | $ | |||||||||||||||
| Outstanding at September 30, 2024 | $ | |||||||||||||||||||
The following table summarizes information about warrants outstanding at September 30, 2024:
| Warrants | Weighted Average | |||||||||||||
| Exercise price | Outstanding | Exercisable | Months Outstanding | |||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
Q3 2021 Warrants Issued to Series B Preferred Stockholder
On
September 28, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which the investor
purchased from the Company shares of convertible Series B Preferred Stock with a stated value of $ per share, or $
Q3 2021 Warrants Issued to Series B Preferred Placement Agent
In
connection with the sale of the shares of convertible Series B Preferred Stock described above, the Company issued
| 23 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
Note 10 – Income Taxes
As
of September 30, 2024, the Company has U.S. federal and state net operating losses (“NOLs”) of approximately $
In
addition, pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, use of the Company’s NOLs carryforwards may
be limited in the event of cumulative changes in ownership of more than
The Company must assess the likelihood that its net deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, the Company establishes a valuation allowance. Management’s judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets. The Company recorded a full valuation allowance as of September 30, 2024 and December 31, 2023. Based on the available evidence, the Company believes it is more likely than not that it will not be able to utilize its net deferred tax assets in the foreseeable future. The Company intends to maintain valuation allowances until sufficient evidence exists to support the reversal of such valuation allowances. The Company makes estimates and judgments about its future taxable income that are based on assumptions that are consistent with the Company’s plans. Should the actual amounts differ from the Company’s estimates, the carrying value of the Company’s deferred tax assets could be materially impacted.
Note 11 – Related Party Transactions
Agreements and Transaction with a Company Director
The Company entered into a manufacturer representative agreement with RSX Enterprises (“RSX”) in March 2021 to become a non-exclusive representative for the Company to assist in marketing and soliciting orders. James R. Shipley, one of our independent directors, has a significant ownership interest in RSX.
Under
the manufacturer representative agreement, RSX will act as a non-exclusive representative for the Company within the United States, Canada
and Mexico and may receive a commission for qualified customer leads. The agreement had an initial term through December 31, 2021 with
automatic one-year renewal terms unless notice is given 90 days prior to each annual expiration. During the nine months ended September
30, 2024 and September 30, 2023, the Company paid $
On
October 13, 2022, the Company entered into an agreement with Lone Star Bioscience, Inc. (Lone Star) to provide engineering design services.
Nicholas Etten, one of our independent directors, is the Chief Executive Officer of Lone Star. The balance due under this agreement totaled
$
| 24 |
CEA Industries Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2024
(in US Dollars except share numbers)
(Unaudited)
On
June 19, 2024, the Company engaged Nicholas J. Etten, a director of the Company, to provide services covering transaction sourcing and
evaluation, in the Company’s effort to arrange for a merger, acquisition, combination or other strategic transaction. Mr. Etten
has a background in corporate development and investment banking in multiple industries. Mr. Etten will be paid a weekly fee of $
Note 12 – Subsequent Events
In accordance with ASC 855, Subsequent Events, the Company has evaluated all subsequent events through the date of issuance of these financial statements issued. No material subsequent events occurred after September 30, 2024, other than as set out below:
Litigation
On
or about April 17, 2024, Optima Consulting Services, LLC (the “Claimant”), a client of the Company with which it had an equipment
contract and engineering contract, advised the Company of a potential claim related to work performed by the Company for Claimant and
demanded mediation under the parties’ contract. On or about October 28, 2024, Claimant informed the Company it was asserting claims
for negligent/defective design and breach of warranty, and alleges its damages exceed $
Given the current uncertainty around estimability and success of the Claims, we have not recorded an accrual for any potential loss related to this matter.
Q3 2021 Warrants Issued to Series B Preferred Placement Agent
In
connection with the sale of the shares of convertible Series B Preferred Stock described above, the Company issued
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report, which include additional information about our accounting policies, practices, and the transactions underlying our financial results, as well as with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC. In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under “Cautionary Statements” appearing elsewhere herein and the risks and uncertainties described or identified in “Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as updated from time to time in the Company’s filings with the SEC, and Part II, Item 1A of this Quarterly Report entitled “Risk Factors.”
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, backlog, as well as adjusted net income (loss) which reflects adjustments for certain non-cash expenses such as stock-based compensation, certain debt-related items and depreciation expense. 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. For purposes of this Quarterly Report, (i) “adjusted net income (loss)” and “adjusted operating income (loss)” mean GAAP net income (loss) and operating income (loss), respectively, after adjustment for non-cash equity compensation expense, debt-related items and depreciation expense, and (ii) “net bookings” means new sales contracts executed during the quarter for which we received an initial deposit, net of any adjustments including cancellations and change orders during the quarter.
Our backlog, remaining performance obligations and net bookings may not be indicative of future operating results, and our customers may attempt to renegotiate or terminate their contracts for a number of reasons, including delays in or inability to obtain project financing or licensing or abandonment of the project entirely. Accordingly, there can be no assurance that contracts included in the backlog or remaining performance obligations will actually generate revenues or when the actual revenues will be generated.
Overview
CEA Industries, through our subsidiary, Surna Cultivation Technologies LLC, is focused on selling environmental control and other technologies and services to the Controlled Environment Agriculture (“CEA”) industry. The CEA industry aims to optimize the use of horticultural resources such as water, energy, space, capital, and labor, to create an agriculture business that is more efficient and more productive than those that use traditional farming methods. Typically, the CEA industry is focused on indoor agriculture and vertical farming.
Headquartered in Colorado, we aim to provide customers with a variety of value-added technology solutions that help improve their overall crop quality and yield, optimize energy and water efficiency, and satisfy the evolving state and local codes, permitting and regulatory requirements. We do this by offering our customers a variety of service and product offerings that include: (i) air handling equipment and systems, (ii) air sanitation products, (iii) LED lighting, and (iv) benching and racking solutions for indoor cultivation.
CEA growers currently face a challenging business environment that includes high energy costs, water usage and conservation issues, continuously evolving waste removal regulations, inflationary pressures, and labor shortages. In addition to these issues, our cannabis growing customers face increasingly rigorous quality standards and declining cannabis prices in a growing industry whose standards are constantly evolving. The part of the CEA industry focused on by the Company has been food related crops, a segment that is also facing disruption from evolving market demand, competition, and reorganization, including the lack of growth capital and several noteworthy bankruptcies.
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Impact of the COVID-19 Pandemic on Our Business
The impact of the government and the business economic response to the COVID-19 pandemic affected demand across the majority of our markets and disrupted workflow and completion schedules on projects. We believe we continue to have adverse effects on our sales, project implementation, supply chain infrastructure, operating margins, costs, and working capital, as a result of the pandemic. Due to this uncertainty, we continue to monitor costs and continue to take actions to reduce costs in order to mitigate the long-term impact of the COVID-19 pandemic to the best of our ability. However, these actions may not be sufficient in the long run to avoid reduced sales, increased losses, and reduced operating cash flows in our business. During the year ended December 31, 2023, and the nine months ended September 30, 2024, the Company experienced delays in the receipt of equipment it had ordered to meet its customer orders due to disruption and delays in its supply chain. Consequently, our revenue recognition of some customer sales has been delayed until future periods when the shipment of orders can be completed.
Impact of Ukrainian and Israeli Conflicts
We believe that the conflicts involving Ukraine and Israel do not have any direct impact on our operations, financial condition, or financial reporting. We believe the conflicts will have only a general impact on our operations in the same manner as it is having a general impact on all businesses that have their operations limited to North America resulting from international sanction and embargo regulations, possible shortages of goods and goods incorporating parts that may be supplied from countries involved in the conflicts, supply chain challenges, and the international and US domestic inflation resulting from the conflict and government spending in relation to the conflicts. As our operations are related only to the North American controlled agricultural industry, largely within the cannabis space, we do not believe we will be specifically targeted for cyber-attacks related to the conflicts. We have no operations in the countries directly involved in the conflict or are specifically impacted by any of the sanctions and embargoes specifically related to those conflicts, as we principally operate in the United States and Canada. We do not believe that the conflicts will have any impact on our internal control over financial reporting. Other than general securities market trends, we do not have reason to believe that investors will evaluate the company as having special risks or exposures related to the conflicts.
Our Bookings, Backlog and Revenue
During the three months ended September 30, 2024, we executed new sales contracts with a total contract value of $516,000. During this same period, we had no change orders or cancellations. Consequently, our net bookings in the three months ended September 30, 2024 were $516,000, representing a decrease of $924,000 (or 64%) from net bookings of $1,440,000 in the second quarter of 2024.
Our backlog at September 30, 2024 was $352,000, an increase of $125,000, or 55%, from our backlog of $227,000 at June 30, 2024. The increase in backlog is primarily the result of bookings in the third quarter that have not yet been fulfilled. While we expect to recognize all the revenue from the remaining backlog in 2024, there is significant uncertainty regarding the timing of the Company’s recognition of revenue on its remaining performance obligations, and there is no certainty that these will result in actual revenues. Therefore, investors should not view backlog as earned revenue.
Our backlog has significantly declined since the January 1, 2023 backlog of $5,578,000. The primary reason for the decline has been fewer new order bookings and contract cancellations.
The following table sets forth: (i) our beginning backlog (the remaining contract value of outstanding sales contracts for which we have received an initial deposit as of the previous period), (ii) our net bookings for the period (new sales contracts executed during the period for which we received an initial deposit, net of any adjustments including cancellations and change orders during the period), (iii) our recognized revenue for the period, and (iv) our ending backlog for the period (the sum of the beginning backlog and net bookings, less recognized revenue). Based on the current economic climate and our cost cutting measures, there is no assurance that we will be able to continue to obtain the level of bookings that we have had in the past and or fulfill our current backlog, and we may experience contract cancellations, project scope reductions and project delays.
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Our recognized revenue for the quarters ended September 30, 2023, December 31, 2023, March 31, 2024, June 30, 2024, and September 30, 2024, in the table below, excludes $29,000, $0, $31,000, $12,000, and $0, respectively, in revenue arising from the forfeiture of non-refundable deposits from former customers on previously cancelled contracts. The contracts were removed from the backlog at the time of cancellation.
| For the quarter ended | ||||||||||||||||||||
| September 30, 2023 | December 31, 2023 | March 31, 2024 | June 30, 2024 | September 30, 2024 | ||||||||||||||||
| Backlog, beginning balance | $ | 1,066,000 | $ | 548,000 | $ | 435,000 | $ | 535,000 | $ | 227,000 | ||||||||||
| Net bookings, current period | 366,000 | 138,000 | 303,000 | 1,440,000 | 516,000 | |||||||||||||||
| Recognized revenue, current period | (884,000 | ) | (251,000 | ) | (203,000 | ) | (1,748,000 | ) | (391,000 | ) | ||||||||||
| Backlog, ending balance | $ | 548,000 | $ | 435,000 | $ | 535,000 | $ | 227,000 | $ | 352,000 | ||||||||||
The completion of a customer’s new build facility project is dependent upon the customer’s ability to secure funding and real estate, obtain a license and then build their cultivation facility so they can take possession of the equipment. Accordingly, the time it takes for these customers to complete a new build project, which corresponds to when we are able to recognize revenue, is driven by numerous factors including: (i) the large number of first-time participants interested in the indoor cannabis cultivation business; (ii) the complexities and uncertainties involved in obtaining state and local licensure and permitting; (iii) local and state government delays in approving licenses and permits due to lack of staff or the large number of pending applications, especially in states where there is no cap on the number of cultivators; (iv) the customer’s need to obtain cultivation facility financing; (v) the time needed, and coordination required, for our customers to acquire real estate and properly design and build the facility (to the stage when climate control systems can be installed); (vi) the large price tag and technical complexities of the climate control and air sanitation systems; (vii) the availability of power; and (viii) delays that are typical in completing any construction project.
As has historically been the case for the Company at each quarter-end, there remains significant uncertainty regarding the timing of revenue recognition of our backlog as of September 30, 2024.
We have provided an estimate in our condensed consolidated financial statements for when we expect to recognize revenue on our remaining performance obligations (i.e., our Q3 2024 backlog), using separate time bands, with respect to engineering only paid contracts and partial equipment paid contracts. There continues to be significant uncertainty regarding the timing of our recognition of revenue on our Q3 2024 backlog. Refer to the Revenue Recognition section of Note 1 in our condensed consolidated financial statements, included as part of this Quarterly Report for additional information on our estimate of future revenue recognition on our remaining performance obligations.
Our backlog, remaining performance obligations, and net bookings may not be indicative of future operating results, and our customers may attempt to renegotiate or terminate their contracts for a number of reasons, including delays in or inability to obtain project financing or licensing or abandonment of the project entirely. Accordingly, there can be no assurance that contracts included in backlog or remaining performance obligations will generate revenues or when the revenues will be generated. Net bookings and backlog are considered non-GAAP financial measures, and therefore, they should be considered in addition to, rather than as a substitute for, our GAAP measures for recognized revenue, deferred revenue, and remaining performance obligations. Further, we can provide no assurance as to the profitability of our contracts reflected in remaining performance obligations, backlog and net bookings.
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Results of Operations
Comparison of the Three Months Ended September 30, 2024 and September 30, 2023
Revenues and Cost of Goods Sold
Revenue for the three months ended September 30, 2024 was $391,000, compared to $914,000 for the three months ended September 30, 2023, representing a decrease of $523,000, or 57%. The decrease was primarily due to lower bookings and a reduced backlog over the past 18 months.
Cost of revenue decreased by $557,000 or 55%, from $1,018,000 for the three months ended September 30, 2023 to $461,000 for the three months ended September 30, 2024. The decrease was primarily due to a decrease in revenue, along with a decrease in fixed and other variable costs, as discussed below.
During the three months ended September 30, 2024, we recognized a gross loss of $70,000 compared to a gross loss of $104,000 for the three months ended September 30, 2023, a decrease of $34,000 or 33%. Our gross loss margin increased by 7 percentage points from 11% for the three months ended September 30, 2023 to 18% for the three months ended September 30, 2024 primarily due to lower revenue, an increase in fixed costs as a percent of revenue, offset by lower variable costs, as described below. Additionally, total revenue in the three months ended September 30, 2024 and September 30, 2023 included $0 and $29,000, respectively, from forfeited, non-refundable deposits from former customers on previously cancelled contracts.
Our fixed costs (which include engineering, service, manufacturing and project management salaries and benefits and manufacturing overhead) totaled $183,000, or 47% of total revenue, for the three months ended September 30, 2024, as compared to $292,000, or 32% of total revenue, for the three months ended September 30, 2023. The decrease of $109,000 was due to a decrease in salaries and benefits of $91,000 and a decrease in fixed overhead of $18,000.
Our variable costs (which include the cost of equipment, outside engineering costs, shipping and handling, travel and warranty costs) totaled $278,000, or 71% of total revenue, during the three months ended September 30, 2024, as compared to $726,000, or 80% of total revenue, in the three months ended September 30, 2023. The decrease in variable costs was primarily due to: (i) a decrease in equipment costs of $240,000 driven by lower revenue, (ii) a decrease of $70,000 for outside engineering services, (iii) a decrease in warranty expense of $56,000, due to a reduction in the warranty accrual as a result of lower revenue during the past 18 months, (iv) a decrease in excess and obsolete inventory expense of $52,000, (v) a reduction in travel of $22,000, and (vi) lower shipping and handling and other expenses of $8,000.
Operating Expenses
Operating expenses decreased to $677,000 for the three months ended September 30, 2024, from $703,000 for the three months ended September 30, 2023, a decrease of $26,000, or 4%. The operating expense decrease consisted of: (i) a decrease in selling, general and administrative expenses (“SG&A expenses”) of $5,000, and (ii) a decrease in advertising and marketing expenses of $21,000. These decreases are the result of our cost-cutting measures.
Our decrease in SG&A expenses for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, was primarily due to: (i) a decrease of $133,000 in salaries and benefits (including stock-based compensation) and other employee related costs, (ii) a decrease for investor relations expense of $11,000, and (iii) a decrease of $9,000 for facility and office expense, partially offset by (iv) an increase of $134,000 for accounting and other professional fees, (v) a $7,000 increase for insurance, (vi) an increase in sales related expenses of $4,000 due to outside sales referral fees, and (vii) an increase of $3,000 for business taxes and licenses.
The decrease in advertising and marketing expenses was primarily due to (i) a decrease in advertising and promotion of $20,000, and (ii) a decrease of $1,000 for outside services and web development.
Operating Loss
We recognized an operating loss of $747,000 for the three months ended September 30, 2024, as compared to an operating loss of $807,000 for the three months ended September 30, 2023, a decrease of $60,000 or 7%. The operating loss for the three months ended September 30, 2024 included $4,000 of depreciation expense, compared to $15,000 of non-cash, stock-based compensation, and $7,000 of depreciation expense for the three months ended September 30, 2023. Excluding these non-cash items, our operating loss decreased by $42,000.
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Other Income (Expense)
We recognized other income (net) of $6,000 for the three months ended September 30, 2024, compared to other income (net) of $8,000 for the three months ended September 30, 2023. Other income for both periods consisted of interest income from a money market account.
Net Loss
Overall, we recognized a net loss of $740,000 for the three months ended September 30, 2024, as compared to a net loss of $799,000 for the three months ended September 30, 2023, a decrease of $59,000 or 7%. The net loss for the three months ended September 30, 2024 included $4,000 of depreciation expense, compared to $15,000 of non-cash, stock-based compensation, and $7,000 of depreciation expense for the three months ended September 30, 2023. Excluding these non-cash items, our operating loss decreased by $41,000.
Comparison of the Nine Months Ended September 30, 2024 and September 30, 2023
Revenues and Cost of Goods Sold
Revenue for the nine months ended September 30, 2024 was $2,386,000, compared to $6,660,000 for the nine months ended September 30, 2023, representing a decrease of $4,274,000, or 64%. The decrease was primarily due to a decrease in bookings in the last 18 months. We believe the lower bookings are due to the delay of capital expenditures in the cannabis market environment as a result of the prolonged effects of pricing and inflationary pressure, in addition to a reduced sales effort by the Company.
Cost of revenue decreased by $3,401,000 or 58%, from $5,832,000 for the nine months ended September 30, 2023, to $2,431,000 for the nine months ended September 30, 2024. The decrease was primarily due to a decrease in revenue, along with a decrease in fixed and other variable costs, as discussed below.
Our gross loss for the nine months ended September 30, 2024 was $45,000 compared to a gross profit of $828,000 for the nine months ended September 30, 2023, a decrease of $873,000 or 105%. Our gross profit margin decreased by 14 percentage points from 12% for the nine months ended September 30, 2023, to a gross loss margin of 2% for the nine months ended September 30, 2024, primarily due to lower revenue and an increase in fixed and other variable costs as a percentage of revenue, as described below. Additionally, total revenue in the nine months ended September 30, 2024 and September 30, 2023 included $44,000 and $234,000, respectively, from forfeited, non-refundable deposits from former customers on previously cancelled contracts.
Our fixed costs (which include engineering, service, manufacturing and project management salaries and benefits and manufacturing overhead) totaled $643,000, or 27% of total revenue, for the nine months ended September 30, 2024, as compared to $1,002,000, or 15% of total revenue, for the nine months ended September 30, 2023. The decrease of $359,000 was due to a decrease in salaries and benefits (including stock-based compensation) of $310,000 and a decrease in fixed overhead of $49,000.
Our variable costs (which include the cost of equipment, outside engineering costs, shipping and handling, travel and warranty costs) totaled $1,788,000, or 75% of total revenue, during the nine months ended September 30, 2024, as compared to $4,830,000, or 73% of total revenue, in the nine months ended September 30, 2023. The decrease in variable costs was primarily due to: (i) a decrease in equipment costs of $2,664,000 driven by lower revenue and lower equipment margins, (ii) a decrease in warranty expense of $193,000 due to a reduction in the warranty accrual as a result of lower revenue during the past 18 months, (iii) a decrease of $74,000 in excess and obsolete inventory expense, (iv) a decrease of $45,000 for travel expenses, and (v) reduced outside engineering services expense of $44,000, and (vi) a decrease in shipping and handling and other variable costs of $22,000.
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Operating Expenses
Operating expenses decreased to $2,103,000 for the nine months ended September 30, 2024, from $2,786,000 for the nine months ended September 30, 2023, a decrease of $683,000, or 25%. The operating expense decrease consisted of: (i) a decrease in selling, general and administrative expenses (“SG&A expenses”) of $363,000, (ii) a decrease in advertising and marketing expenses of $243,000, and (iii) a decrease in product development of $77,000. These decreases are the result of our cost-cutting measures.
Our decrease in SG&A expenses for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily due to: (i) a decrease of $465,000 in salaries and benefits (including stock-based compensation) and other employee related costs, (ii) a decrease in facilities and offices expenses of $42,000, (iii) a decrease in bad debt expense of $38,000, (iv) a reduction in commissions and other sales related expenses of $17,000, (v) a decrease of $7,000 for travel, and (vi) a decrease in depreciation expense of $5,000. These decreases were offset by (i) an increase of $151,000 for accounting and other professional fees, (ii) an increase of $30,000 in business taxes and licenses primarily due to an increase for real estate taxes, (iii) an increase in investor relations expense of $17,000, and (iv) an increase for loss on the disposal of fixed assets of $12,000.
The decrease in advertising and marketing expenses was primarily due to (i) a decrease in salaries and benefits (including stock compensation) of $133,000, (ii) a decrease in advertising and promotion of $94,000, (iii) a decrease in outside services and other marketing expenses of $14,000, and (iv) a reduction in trade show related costs of $2,000.
The decrease in product development costs was due to (i) a decrease in salaries and benefits (including stock-based compensation) of $70,000, (ii) a decrease of $4,000 for materials and other R&D costs, and (iii) a decrease in travel of $2,000.
Operating Loss
We recognized an operating loss of $2,148,000 for the nine months ended September 30, 2024, as compared to an operating loss of $1,958,000 for the nine months ended September 30, 2023, an increase of $190,000 or 10%. The operating loss for the nine months ended September 30, 2024 included $69,000 of non-cash, stock-based compensation, and $14,000 of depreciation expense, compared to $177,000 of non-cash, stock-based compensation, and $20,000 of depreciation expense for the nine months ended September 30, 2023. Excluding these non-cash items, our operating loss increased by $303,000. This increase in operating loss was primarily due to a significant decrease in revenue for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 as well as an increase in fixed and variable costs as a percent of revenue.
Other Income (Expense)
We recognized other income (net) of $20,000 for the nine months ended September 30, 2024, compared to other income (net) of $34,000 for the nine months ended September 30, 2023. Other income for the nine months ended September 30, 2024 consisted of interest income on our money market account. Other income for nine months ended September 30, 2023 primarily consisted of interest income on a money market account of $26,000 and an adjustment to our ERC credit and unclaimed property of $8,000.
Net Loss
Overall, we recognized a net loss of $2,127,000 for the nine months ended September 30, 2024, as compared to a net loss of $1,924,000 for the nine months ended September 30, 2023, an increase of $203,000 or 11%. The net loss for the nine months ended September 30, 2024 included $69,000 of non-cash, stock-based compensation, and $14,000 of depreciation expense, compared to $177,000 of non-cash, stock-based compensation, $20,000 of depreciation expense for the nine months ended September 30, 2023. Excluding these non-cash items, our net loss increased by $317,000. This increase in net loss was primarily due to a significant decrease in revenue for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 along with an increase in fixed and variable costs as a percent of revenue.
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Financial Condition, Liquidity and Capital Resources
Cash, Cash Equivalents
As of September 30, 2024, we had cash and cash equivalents of $10,295,000, compared to cash and cash equivalents of $12,508,000 as of December 31, 2023. The $2,213,000 decrease in cash and cash equivalents during the nine months ended September 30, 2024, was the result of cash used in operations. Our cash is held in bank depository accounts in a financial institution. During the nine months ended September 30, 2024, we held deposits in this financial institution that exceeded the federally insured amount.
As of September 30, 2024, we had accounts receivable (net of allowance for doubtful accounts) of $71,000, contract assets (net of allowance for doubtful accounts) of $224,000, inventory (net of excess and obsolete allowance) of $25,000, and prepaid expenses and other assets of $421,000 (including $128,000 in advance payments on inventory purchases). While we typically require advance payment before we commence engineering services or ship equipment to our customers, we have made exceptions requiring us to record accounts receivable, which carry a risk of non-collectability especially since most of our customers are funded on an as-needed basis to complete facility construction.
As of September 30, 2024, we had total accounts payable and accrued expenses of $364,000, deferred revenue of $469,000, and the current portion of operating lease liability of $133,000. As of September 30, 2024, we had working capital of $10,071,000, compared to working capital of $12,110,000 as of December 31, 2023. The decrease in our working capital was primarily related to (i) a decrease in cash of $2,213,000, (ii) a decrease in inventory (net) of $272,000, partially offset by (iii) a decrease in accounts payable and accrued liabilities of $261,000, (iv) an increase in prepaid expenses and other assets of $108,000, (v) an increase in accounts receivable of $53,000, and (v) a decrease in deferred revenue of $31,000.
We currently intend to retain all available funds and any future earnings for use in the operation of our business. We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future.
Because of the challenges to the CEA industry economy and the specific challenges of our business, we cannot predict the continuing level of working capital that we will have in the future. As mentioned elsewhere, we have taken steps to conserve our cash resources by reducing staff and taking other cost-cutting measures and we will continue to evaluate further such measures in the future.
Summary of Cash Flows
The following summarizes our approximate cash flows for the nine months ended September 30, 2024 and September 30, 2023:
| For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (2,213,000 | ) | $ | (5,294,000 | ) | ||
| Net cash provided by (used in) investing activities | - | - | ||||||
| Net cash provided by (used in) financing activities | - | - | ||||||
| Net decrease in cash | $ | (2,213,000 | ) | $ | (5,294,000 | ) | ||
Operating Activities
We incurred a net loss for the nine months ended September 30, 2024 of $2,127,000 and have an accumulated deficit of $39,318,000 as of September 30, 2024.
Cash used in operations for the nine months ended September 30, 2024 was $2,213,000 compared to cash used in operating activities of $5,294,000 for the nine months ended September 30, 2023, a decrease of $3,081,000.
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The decrease in cash used in operating activities during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, was primarily attributable to: (i) a decrease in cash used to fund working capital of $3,496,000, (ii) an increase in net loss of $203,000, and (iii) a decrease in non-cash operating charges of $211,000.
The decrease in our working capital was primarily related to (i) a decrease in cash of $2,213,000, (ii) a decrease in inventory (net) of $272,000, partially offset by (iii) a decrease in accounts payable and accrued liabilities of $261,000, (iv) an increase in prepaid expenses and other assets of $108,000, (v) an increase in accounts receivable of $53,000, and (v) a decrease in deferred revenue of $31,000.
Investing Activities
There were no cash flows from investing activities during the nine months ended September 30, 2024. Cash provided by investing activities during the nine months ended September 30, 2023 was less than $1,000.
Financing Activities
There were no cash flows from financing activities during the nine months ended September 30, 2024 and September 30, 2023.
Inflation
Our operations are being influenced by the inflation in the larger economy and in the industries related to building renovations, retrofitting and new build CEA facilities in which we operate. We believe that we will continue to face inflationary increases in the cost of products and our operations, which will adversely affect our margins and financial results and the pricing of our service and product supply contracts. Inflation is reflected in higher wages, increased pricing of equipment, delivery and transportation costs, and general operational expenses. As we move forward, we plan to continuously monitor our various contract terms and may decide to add clauses that will permit us to adjust pricing if inflation and price increase pressures on us will impact our ability to perform our contracts and maintain our margins.
Contractual Payment Obligations
As of September 30, 2024, our contractual payment obligations consisted of a building lease. Refer to Note 2 – Leases of the notes to the condensed consolidated financial statements, included as part of this Quarterly Report for a discussion of our building lease.
Commitments and Contingencies
Refer to Note 6 – Commitments and Contingencies of the notes to the condensed consolidated financial statements, included as part of this Quarterly Report for a discussion of commitments and contingencies.
Off-Balance Sheet Arrangements
We are required to disclose any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. As of September 30, 2024, we had no off-balance sheet arrangements. During the nine months ended September 30, 2024, we did not engage in any off-balance sheet financing activities other than those included in the “Contractual Payment Obligations” discussed above and those reflected in Note 6 of our condensed consolidated financial statements.
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Critical Accounting Estimates
This discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain accounting policies are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, observance of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate. Actual results could materially differ from those estimates. Key estimates include: allocation of transaction prices to performance obligations under contracts with customers, standalone selling prices, timing of expected revenue recognition on remaining performance obligations under contracts with customers, valuation of intangible assets, valuation of equity-based compensation, valuation of deferred tax assets and liabilities, warranty accruals, accounts receivable and inventory allowances, and legal contingencies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, therefore are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Principal Financial and Accounting Officer, both of which positions are held by the same person, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer concluded that as a result of material weaknesses in our internal control over financial reporting as described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC, our disclosure controls and procedures were not effective as of September 30, 2024.
We did not maintain effective controls over certain aspects of the financial reporting process because: (i) we lack a sufficient complement of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial reporting requirements, (ii) there is inadequate segregation of duties due to our limited number of accounting personnel, and (iii) we have insufficient controls and processes in place to adequately verify the accuracy and completeness of spreadsheets that we use for a variety of purposes including revenue, taxes, stock-based compensation and other areas, and place significant reliance on, for our financial reporting.
We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies in the future when our financial assets and our operations would support the requirements of additional personnel. We are committed to continuing to improve our financial organization, when we are able, including, without limitation, expanding our accounting staff and improving our systems and controls to reduce our reliance on the manual nature of our existing systems. However, due to our size and our financial resources, remediating the several identified weaknesses has not been possible and may not be economically feasible now or in the future.
Changes in Internal Control over Financial Reporting
There were no changes identified in connection with our internal control over financial reporting during the three months ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
On October 20, 2023, Sweet Cut Grow, LLC and Green Ice, LLC (collectively, “Claimant”) a client of the Company with which it had an equipment contract and engineering contract, filed a demand for arbitration asserting claims for breach of contract, breach of warranty, and unjust enrichment, and demand for $1,049,280 in damages, plus interest (“Claims”). The Company continues to deny all the Claims and has asserted a counterclaim. The Company believes Claimant is owed nothing as the Company fulfilled all its obligations under the contracts to Claimant, and further, that the negligence of a third-party supplier is the basis of the Claims. We intend to generally defend the claims on the basis that we promptly addressed all problems, and that any issues with defective HVAC equipment are the responsibility of our third-party equipment manufacturer. The Company’s equipment contract with Claimant requires the parties to arbitrate their disputes under the rules of the American Arbitration Association (“AAA”). The arbitration will be heard in Denver, Colorado. The matter is in the preliminary phase. The parties will pay their own legal fees and expenses. The Company intends to defend itself vigorously, believing there are no merits to the claims as currently presented.
On or about April 17, 2024, Optima Consulting Services, LLC (the “Claimant”), a client of the Company with which it had an equipment contract and engineering contract, advised the Company of a potential claim related to work performed by the Company for Claimant and demanded mediation under the parties’ contract. On or about October 28, 2024, Claimant informed the Company it was asserting claims for negligent/defective design and breach of warranty, and alleges its damages exceed $2,000,000 (Claims”). The Company denies all the Claims and that Claimant is entitled to any damages. The Company believes Claimant is owed nothing as the Company fulfilled all its obligations under the contracts to Claimant and performed all work in line with all applicable standards. We intend to generally defend the Claims on the basis that all work was performed pursuant to the contract and any alleged issues that may have occurred were the result of actions by Claimant and/or third parties. If Claimant moves forward with its Claims, the Company’s equipment contract with Claimant requires the parties to arbitrate their dispute with the American Arbitration Association (“AAA”). The arbitration will be heard in Denver, Colorado. The matter is in the preliminary phase. The parties will pay their own legal fees and expenses. The Company intends to defend itself vigorously, believing there are no merits to the Claims as currently presented.
Given the current uncertainty around estimating the likelihood of success of claims and potential damages, we have not recorded an accrual for any potential loss related to these matters.
From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our customers. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
Item 1A. Risk Factors
In addition to the information set forth in this Form 10-Q, you should also carefully review and consider the risk factors contained in our other reports and periodic filings with the SEC, including, without limitation, the risk factors and uncertainties contained under the caption “Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, that could materially and adversely affect our business, financial condition, and results of operations. The risk factors discussed in that Form 10-K do not identify all risks that we face because our business operations could also be affected by additional factors that are not known to us or that we currently consider to be immaterial to our operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The documents listed in the Exhibit Index of this Form 10-Q are incorporated by reference or are filed with this Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CEA INDUSTRIES INC. | ||
| (the “Registrant”) | ||
| Dated: November 14, 2024 | By: | /s/ Anthony K. McDonald |
| Anthony K. McDonald | ||
| Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
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EXHIBIT INDEX
| * | Filed herewith. |
| ** | Furnished herewith. |
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