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

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

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

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

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

First Quarter 2023 Financial Results

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

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

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

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

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

Cash and cash equivalents were $15.9 million on March 31, 2023, compared to $18.6 million on December 31, 2022, while working capital decreased by $0.2 million during this period. At March 31, 2023, the Company remained debt free.

Conference Call

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

Date: Monday, May 15, 2023Time: 4:15 p.m. ETDial: 1-973-528-0008Access Code: 704185Webcast URL: https://www.webcaster4.com/Webcast/Page/2893/48284

Interested parties may submit questions to the Company prior to the call by emailing info@ceaindustries.com. For those unable to participate in the conference call at that time, a replay will be available for two weeks in the Investors section of the Company’s website at www.ceaindustries.com beginning on May 15, 2023, at 5:15 p.m. ET.

About CEA Industries Inc.

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

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

Forward Looking Statements

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

Non-GAAP Financial Measures

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

Investor Contact:

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

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

  March 31,   December 31,
    2023       2022  
  (Unaudited)    
ASSETS      
Current Assets      
Cash and cash equivalents $ 15,948,077     $ 18,637,114  
Accounts receivable, net   61,774       2,649  
Inventory, net   441,133       348,411  
Prepaid expenses and other   471,137       1,489,921  
Total Current Assets   16,922,121       20,478,095  
Noncurrent Assets      
Property and equipment, net   60,713       68,513  
Intangible assets, net   1,830       1,830  
Deposits   14,747       14,747  
Operating lease right-of-use asset   436,549       462,874  
Total Noncurrent Assets   513,839       547,964  
       
TOTAL ASSETS $ 17,435,960     $ 21,026,059  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
       
LIABILITIES      
Current Liabilities      
Accounts payable and accrued liabilities $ 1,164,134     $ 1,207,258  
Deferred revenue   1,102,601       4,338,570  
Accrued equity compensation   -       89,970  
Current portion of operating lease liability   120,245       118,235  
Total Current Liabilities   2,386,980       5,754,033  
       
Noncurrent Liabilities      
Operating lease liability, net of current portion   348,179       376,851  
Total Noncurrent Liabilities   348,179       376,851  
       
TOTAL LIABILITIES   2,735,159       6,130,884  
       
Commitments and Contingencies (Note 6)   -       -  
       
SHAREHOLDERS’ EQUITY      
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; 0 shares issued and outstanding   -       -  
Common stock, $0.00001 par value; 200,000,000 authorized; 8,076,372 and 7,953,974 shares issued and outstanding, respectively   81       80  
Additional paid in capital   49,410,899       49,173,836  
Accumulated deficit   (34,710,179 )     (34,278,741 )
Total Shareholders’ Equity   14,700,801       14,895,175  
       
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 17,435,960     $ 21,026,059  

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

  For the Three Months Ended March 31,
    2023       2022  
Revenue, net $ 4,682,573     $ 1,744,427  
       
Cost of revenue   3,829,297       1,653,919  
       
Gross profit   853,276       90,508  
       
Operating expenses:      
Advertising and marketing expenses   202,323       251,015  
Product development costs   76,413       138,918  
Selling, general and administrative expenses   1,020,702       1,311,777  
Total operating expenses   1,299,438       1,701,710  
       
Operating loss   (446,162 )     (1,611,202 )
       
Other income (expense):      
Other income (expense), net   5,704       185,000  
Interest income (expense), net   9,020       3,260  
Total other income (expense)   14,724       188,260  
       
Loss before provision for income taxes   (431,438 )     (1,422,942 )
       
Income taxes   -       -  
       
Net loss $ (431,438 )   $ (1,422,942 )
       
Convertible preferred series B stock dividends   -       (35,984 )
Deemed dividend on convertible preferred series B stock on down round   -       (439,999 )
       
Net loss available to common shareholders $ (431,438 )   $ (1,898,925 )
       
Loss per common share – basic and diluted $ (0.05 )   $ (0.41 )
       
Weighted average number of common shares outstanding, basic and diluted   8,071,731       4,622,427  

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

  For the Three Months Ended March 31,
    2023       2022  
Cash Flows From Operating Activities:      
Net loss $ (431,438 )   $ (1,422,942 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Depreciation and intangible asset amortization expense   7,500       8,556  
Share-based compensation   147,094       92,517  
Provision for doubtful accounts   (1,705 )     (22,168 )
Provision for excess and obsolete inventory   33,638       3,676  
Loss on disposal of assets   100       5,499  
Amortization of operating lease ROU asset   26,325       25,433  
       
Changes in operating assets and liabilities:      
Accounts receivable   (57,420 )     10,610  
Inventory   (126,360 )     (631,269 )
Prepaid expenses and other   1,018,785       (551,261 )
Accounts payable and accrued liabilities   (43,124 )     43,438  
Deferred revenue   (3,235,970 )     2,645,579  
Operating lease liability, net   (26,662 )     (14,811 )
Net cash provided by (used in) operating activities   (2,689,237 )     192,857  
       
Cash Flows From Investing Activities      
Purchases of property and equipment   -       (13,948 )
Proceeds from the sale of property and equipment   200       -  
Net cash provided by (used in) investing activities   200       (13,948 )
       
Cash Flows From Financing Activities      
Payment of dividends on series B preferred stock   -       (35,984 )
Redemption of series B preferred stock   -       (1,980,000 )
Net cash proceeds on sale of common stock and warrants, net of expenses   -       21,711,131  
Net cash provided by financing activities   -       19,695,147  
       
Net change in cash and cash equivalents   (2,689,037 )     19,874,056  
Cash and cash equivalents, beginning of period   18,637,114       2,159,608  
Cash and cash equivalents, end of period $ 15,948,077     $ 22,033,664  
       
Supplemental cash flow information:      
Interest paid $ -     $ -  
Income taxes paid $ -     $ -  
       
Non-cash investing and financing activities:      
Conversion of series B preferred stock   -     $ 1,980,000  
Deemed dividend on series B preferred stock arising on down round   -     $ 439,999  
Options issued for accrued equity compensation liability $ 89,970     $ -  
       
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