CEA Industries(CEAD) - 2023 Q4 - Annual Report

Financial Performance - The company's 2023 revenue was approximately $6,911,000, representing a decrease of 39$2,698,000, a decrease of $1,828,000 or 40$4,526,000 in 2022[200]. - Gross profit for the year ended December 31, 2023, was $542,000, down from$1,145,000 in 2022, with a gross profit margin decrease of 2.3 percentage points to 7.8%[214]. - Operating expenses decreased by 49% from $6,869,000 in 2022 to$3,495,000 in 2023, a reduction of $3,374,000[215]. - The decrease in operating expenses included a reduction in selling, general and administrative expenses by$1,615,000 and advertising and marketing expenses by $884,000[215]. - The gross profit margin decline was attributed to a decrease in revenue and an increase in fixed costs as a percentage of revenue[214]. Customer Concentration and Risks - Three customers accounted for 37$1,049,280 in damages from a client[156]. Market and Industry Challenges - The company experienced a decline in activity, with sales and backlog affected by challenges in the cannabis market, supply chain delays, and a broader macroeconomic slowdown[40]. - The cannabis industry remains illegal under federal law, posing significant risks to the company's business operations and customer base[22]. - The company has observed softening demand from Canadian prospects due to limited capital availability and overbuilding of cultivation capacity following federal legalization[79]. - The competitive landscape in the cannabis industry is highly challenging, with the company having less capital and resources compared to many competitors[93]. - The company faces risks related to the cannabis industry, including the uncertainty of federal enforcement against state-legal cannabis activities[104]. - The continued development of the cannabis markets is dependent on state-level legislative authorization, with potential setbacks impacting the overall market for the company's products and services[130]. Operational and Compliance Issues - The company has identified material weaknesses in its internal control over financial reporting, which could adversely affect the accuracy and timeliness of its financial reporting[52]. - The company relies heavily on third-party suppliers, with potential disruptions in production affecting its ability to fulfill orders[57]. - The company may face business disruptions and increased costs due to potential interruptions in IT infrastructure during systems integration or migration work[64]. - The company is subject to anti-money laundering laws and regulations, with substantial penalties for non-compliance that could materially affect its financial condition[106][116]. - The company may face challenges in obtaining necessary insurance due to its involvement in the cannabis industry, exposing it to additional risks[87]. Strategic Decisions and Future Outlook - The company implemented a 23% reduction in its workforce on January 5, 2024, to align personnel levels with expected activity[40]. - The company is currently evaluating its banking relationships to increase the amount of fully insured deposits due to recent liquidity concerns in the market[69]. - The company is focused on evaluating and pursuing synergistic acquisitions, which involve risks such as potential disruption of ongoing business and incurring additional indebtedness[100]. - The company intends to retain future earnings to repay indebtedness and fund its business, rather than paying dividends[173]. - The company does not anticipate paying any cash dividends on its common stock in the foreseeable future[147]. - The company may face dilution of existing stockholders due to future issuances of common stock or preferred stock[176]. Miscellaneous - The company has approximately 32 shareholders of record and 11,694 shareholders holding shares in street name as of October 25, 2023[159]. - The company has issued 145,512 shares under equity compensation plans not approved by shareholders, with a weighted-average exercise price of $11.85[161]. - The company has a total of 666,667 Plan Shares allocated under the 2021 Equity Plan, with 132,568 shares issued and 172,815 non-qualified stock options outstanding as of December 31, 2023[163]. - The company has allocated 333,333 shares for issuance under the 2017 Equity Plan, with 24,129 shares available for future issuance[220]. - The company continues to monitor costs and take actions to reduce costs due to the ongoing impacts of the COVID-19 pandemic[197]. - The company believes that geopolitical conflicts will have only a general impact on operations, with no direct effects on financial condition[198]. - The company faces risks and uncertainties regarding its ability to grow revenue and generate sufficient cash flows in the future[201]. - The company has not experienced any reportable cybersecurity breaches during the fiscal year ended December 31, 2023[181]. - The allowance for doubtful accounts as of December 31, 2023, was$125,000, compared to $127,000 as of December 31, 2022[207]. - The accrued warranty reserve as of December 31, 2023, was$191,000, an increase from $180,000 in the previous year[208].