CEA Industries Inc. (NASDAQ: CEAD, CEADW) (“CEA Industries” or the “Company”), a leader in controlled environment agriculture (CEA) systems engineering and technologies, is reporting results for the three months ended September 30, 2022.

Third Quarter 2022 Financial Highlights (in $ thousands, excl. margin items):

    Q3 2022     Q2 2022     Q3 2021     % QoQ     % YoY  
Revenue   $ 5,063     $ 3,015     $ 3,706       68%       37%  
Gross Profit   $ 597     $ 306     $ 747       95%       -20%  
Gross Margin     11.8%       10.2%       20.2%       160 bps       -840 bps  
Operating Expenses   $ 1,656     $ 2,077     $ 1,190       -20%       39%  
Net Income/(Loss)   $ (1,042 )   $ (1,761 )   $ (408 )     NA       NA  
                                         

Management Commentary

“Q3 was highlighted by strong revenue growth on a sequential and year-over-year basis, reflecting both the benefit of our investments in sales and marketing this year and less disruption to our operations from past supply chain issues,” said Tony McDonald, Chairman and CEO of CEA Industries Inc. “We recently signed contracts with two non-cannabis vertical agriculture companies, which reflects our focus on diversifying the customer base beyond our traditional cannabis customers. Although we are proud of our sales growth, we acknowledge that the macro environment continues to present challenges as we work through a prolonged inflationary environment and certain residual supply chain headwinds.

“Last week, we announced a significant new non-equity strategic alliance with Hydrobuilder Holdings LLC, a leading omnichannel platform with 22 retail locations and 10 warehouses serving the indoor and outdoor CEA and hydroponics industry. This alliance will combine our industry-leading CEA systems engineering and technologies with Hydrobuilder Holdings’ expansive commercial-first omnichannel platform, creating a one-stop-shop solution for cultivation companies across North America.

“As we look ahead, we plan to continue executing on both our organic and inorganic growth initiatives. We have been judicious in our approach to M&A and our patience has paid off given the contraction in valuation multiples for many of the targets we have evaluated. We will continue to exercise diligence in identifying targets that will be accretive to our business and accelerate growth and profitability for the future.”

Third Quarter 2022 Financial Results

Revenue in the third quarter of 2022 increased 37% to $5.1 million compared to $3.7 million for the same period in 2021. The increase was primarily attributed to some recovery in the supply chain that enabled delivery of products with fewer delays.

Net bookings in the third quarter of 2022 were $2.2 million compared to $5.6 million in the year-ago period. The Company’s quarter-end backlog was $6.8 million compared to $9.9 million for the same period in 2021. This quarter-end backlog is expected to generate revenue over the next 18 months. The decrease in the Company’s net bookings and backlog for the third quarter of 2022 was primarily driven by fewer new orders to replace the Company’s backlog as it recognized revenue during the quarter.

Gross profit in the third quarter of 2022 was $0.6 million compared to $0.7 million for the same period in 2021. Gross margin was 11.8% compared to 20.2% in the year ago period. The decrease in gross margin was primarily driven by an increase in variable costs (which include the cost of equipment, external engineering costs, shipping and handling, and travel and warranty costs) as a percentage of revenue, as well as the reallocation of certain operating expenses to cost of goods sold.

Operating expenses in the third quarter of 2022 were $1.7 million compared to $1.2 million for the same period in 2021. The increase was primarily driven by higher selling, general and administrative expenses in support of organic and inorganic growth initiatives, and an increase in advertising and marketing expenses.

Net loss in the third quarter of 2022 was $1.0 million or $(0.13) per share, compared to a net loss of $0.4 million or $(1.69) per share for the same period in 2021. Net loss per share for the third quarter of 2022 was lower than the net loss per share in the year-ago quarter due to higher issued and outstanding shares as of the third quarter of 2022.

Cash and cash equivalents were $21.1 million on September 30, 2022, compared to $2.2 million on December 31, 2021, while working capital increased by $16.4 million during this period. The increase was primarily driven by net proceeds from the Company’s sale of common stock and warrants of approximately $24 million in February 2022. At September 30, 2022, the company remained debt free.

Conference Call

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

Date: Monday, November 14, 2022Time: 4:15 p.m. ETDial: 1-973-528-0008 Access Code: 712632Webcast URL: https://www.webcaster4.com/Webcast/Page/2893/46837 

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 November 15, 2022, at 5:00 p.m. ET.

About CEA Industries Inc.

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

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

Forward Looking Statements

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

Non-GAAP Financial Measures

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

Media Contact:

Jamie EnglishVice President, Marketing CommunicationsJamie.english@ceaindustries.com (303) 993-5271

Investor Contact:

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

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

    September 30,     December 31,  
    2022     2021  
    (Unaudited)        
ASSETS                
Current Assets                
Cash and cash equivalents   $ 21,083,549     $ 2,159,608  
Accounts receivable (net of allowance for doubtful accounts of $275,442 and $181,942, respectively)     77,143       179,444  
Inventory, net     614,623       378,326  
Prepaid expenses and other     1,102,138       1,273,720  
Total Current Assets     22,877,453       3,991,098  
Noncurrent Assets                
Property and equipment, net     76,224       77,346  
Goodwill     -       631,064  
Intangible assets, net     1,830       1,830  
Deposits     14,747       14,747  
Operating lease right-of-use asset     488,960       565,877  
Total Noncurrent Assets     581,761       1,290,864  
                 
TOTAL ASSETS   $ 23,459,214     $ 5,281,962  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)                
                 
LIABILITIES                
Current Liabilities                
Accounts payable and accrued liabilities   $ 2,256,111     $ 1,345,589  
Deferred revenue     4,435,481       2,839,838  
Accrued equity compensation     69,560       83,625  
Other liabilities     37,078       37,078  
Current portion of operating lease liability     115,943       100,139  
Total Current Liabilities     6,914,173       4,406,269  
                 
Noncurrent Liabilities                
Operating lease liability, net of current portion     405,265       486,226  
Total Noncurrent Liabilities     405,265       486,226  
                 
TOTAL LIABILITIES     7,319,438       4,892,495  
                 
Commitments and Contingencies (Note 6)     -       -  
                 
TEMPORARY EQUITY                
Series B Redeemable Convertible Preferred Stock, $0.00001 par value; 0 and 3,300 issued and outstanding, respectively     -       3,960,000  
Total Temporary Equity     -       3,960,000  
                 
SHAREHOLDERS’ EQUITY (DEFICIT)                
Common stock, $0.00001 par value; 200,000,000 and 850,000,000 shares authorized, respectively; 7,953,974 and 1,600,835 shares issued and outstanding, respectively     80       16  
Additional paid in capital     49,146,840       25,211,017  
Accumulated deficit     (33,007,144 )     (28,781,566 )
Total Shareholders’ Equity (Deficit)     16,139,776       (3,570,533 )
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)   $ 23,459,214     $ 5,281,962  

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

    For the Three Months Ended September 30,     For the Nine Months Ended September 30,  
    2022     2021     2022     2021  
Revenue, net   $ 5,063,079     $ 3,706,436     $ 9,822,391     $ 10,582,470  
                                 
Cost of revenue     4,465,888       2,959,264       8,828,453       8,208,368  
                                 
Gross profit     597,191       747,172       993,938       2,374,102  
                                 
Operating expenses:                                
Advertising and marketing expenses     304,600       224,393       865,305       569,580  
Product development costs     58,978       98,623       254,473       322,807  
Selling, general and administrative expenses     1,292,746       866,699       3,684,617       2,493,930  
Goodwill impairment charges     -       -       631,064       -  
Total operating expenses     1,656,324       1,189,715       5,435,459       3,386,317  
                                 
Operating income (loss)     (1,059,133 )     (442,543 )     (4,441,521 )     (1,012,215 )
                                 
Other income (expense):                                
Other income (expense), net     6,358       35,934       191,358       79,452  
Interest income (expense),net     10,725       (1,296 )     24,585       (3,268 )
Total other income (expense)     17,083       34,638       215,943       76,184  
                                 
Income (Loss) before provision for income taxes     (1,042,050 )     (407,905 )     (4,225,578 )     (936,031 )
                                 
Income taxes     -       -       -       -  
                                 
Net income (loss)   $ (1,042,050 )   $ (407,905 )   $ (4,225,578 )   $ (936,031 )
                                 
Convertible Preferred Series B Stock Redemption Value Adjustment   $ -     $ (2,262,847 )   $ -     $ (2,262,847 )
Convertible preferred series B stock dividends     -       (1,447 )     (35,984 )     (1,447 )
Deemed dividend on convertible preferred series B stock on down round     -       -       (439,999 )     -  
                                 
Net income (loss) available to common shareholders   $ (1,042,050 )   $ (2,672,199 )   $ (4,701,561 )   $ (3,200,325 )
                                 
Income (loss) per common share – basic and diluted   $ (0.13 )   $ (1.69 )   $ (0.69 )   $ (2.02 )
                                 
Weighted average number of common shares outstanding, basic and diluted     7,953,974       1,583,511       6,804,741       1,581,142  

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

    For the Nine Months Ended September 30,  
    2022     2021  
Cash Flows From Operating Activities:                
Net loss   $ (4,225,578 )   $ (936,031 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
Depreciation and intangible asset amortization expense     24,731       54,973  
Share-based compensation     280,739       51,055  
Common stock issued for other expense     -       67,000  
Provision for doubtful accounts     93,500       20,975  
Provision for excess and obsolete inventory     (5,332 )     (13,764 )
Loss on disposal of assets     4,489       8,042  
Amortization of ROU asset     76,917       149,597  
Goodwill impairment charges     631,064       -  
                 
Changes in operating assets and liabilities:                
Accounts receivable     8,801       (19,740 )
Inventory     (230,966 )     (139,481 )
Prepaid expenses and other     171,582       (119,296 )
Accounts payable and accrued liabilities     910,523       (107,604 )
Deferred revenue     1,595,644       (664,663 )
Deposits     -       (24,183 )
Operating lease liability, net     (65,157 )     (197,085 )
Accrued equity compensation     (14,065 )     108,945  
Net cash used in operating activities     (743,108 )     (1,761,260 )
                 
Cash Flows From Investing Activities                
Purchases of property and equipment     (30,348 )     (15,316 )
Proceeds from the sale of property and equipment     2,250       1,500  
Net cash used in investing activities     (28,098 )     (13,816 )
                 
Cash Flows From Financing Activities                
Payment of dividends on series B preferred stock     (35,984 )     -  
Redemption of series B preferred stock     (1,980,000 )     -  
Cash proceeds on sale of common stock and warrants, net of expenses     21,711,131       -  
Payments on convertible notes payable             1,259,874  
Proceeds from issuances of convertible notes             514,200  
Net cash provided by financing activities     19,695,147       1,774,074  
                 
Net change in cash and cash equivalents     18,923,941       (1,002 )
Cash and cash equivalents, beginning of period     2,159,608       2,284,881  
Cash and cash equivalents, end of period   $ 21,083,549     $ 2,283,879  
                 
Supplemental cash flow information:                
Interest paid   $ -     $ -  
Income taxes paid   $ -     $ -  
                 
Non-cash investing and financing activities:                
Adjustment of carrying value of series B preferred stock to redemption value   $ -     $ 2,262,847  
Conversion of series B preferred stock   $ 1,980,000     $ -  
Subscription receivable - series B preferred stock   $ -     $ 1,365,000  
Options issued for accrued equity compensation   $ -     $ 128,434  
Accrued Series B dividend payable settled in shares of common stock   $ -     $ 1,447  
Deemed dividend on series B preferred stock arising on down round   $ 439,999     $ -  
Cashless exercise of prefunded warrants   $ 2     $ -  
Options issued for accrued equity compensation liability   $ 78,938     $ -  
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