CEA Industries(CEAD) - 2025 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited financial statements for Q1 2025 show significant revenue growth and a shift to gross profit, though net loss widened due to increased operating expenses, while total assets decreased Condensed Consolidated Balance Sheets Total assets decreased to $9.44 million as of March 31, 2025, from $10.36 million at year-end 2024, primarily due to reduced cash, while liabilities slightly increased and equity declined Condensed Consolidated Balance Sheet Highlights (in US Dollars) | Balance Sheet Item | March 31, 2025 (Unaudited) | December 31, 2024 (Audited) | | :--- | :--- | :--- | | Cash and cash equivalents | $8,707,353 | $9,452,826 | | Total Current Assets | $9,198,066 | $10,094,243 | | TOTAL ASSETS | $9,436,100 | $10,361,788 | | Total Current Liabilities | $1,127,516 | $1,029,918 | | TOTAL LIABILITIES | $1,228,830 | $1,164,065 | | Total Shareholders' Equity | $8,207,270 | $9,197,723 | Condensed Consolidated Statements of Operations Q1 2025 revenue significantly increased to $713,460, achieving a gross profit of $39,287, but higher operating expenses led to a wider net loss of $1.07 million Condensed Consolidated Statements of Operations (in US Dollars) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenue | $713,460 | $234,506 | | Gross profit (loss) | $39,287 | $(154,375) | | Operating loss | $(1,073,837) | $(923,809) | | Net loss | $(1,068,578) | $(916,603) | | Loss per common share | $(1.33) | $(1.34) | Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased from $9.20 million at year-end 2024 to $8.21 million by March 31, 2025, primarily due to the $1.07 million net loss - Total Shareholders' Equity decreased by approximately $990,000 during the first quarter of 2025, mainly due to the net loss of $1,068,578[21] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $745,473 in Q1 2025, with no investing or financing activities, resulting in cash and cash equivalents ending at $8.71 million Cash Flow Summary (in US Dollars) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(745,473) | $(909,415) | | Net cash provided by investing activities | - | - | | Net cash provided by financing activities | - | - | | Net change in cash | $(745,473) | $(909,415) | | Cash and cash equivalents, end of period | $8,707,353 | $11,598,836 | Notes to the Condensed Consolidated Financial Statements The notes detail the company's CEA business, the pending CAD$18 million acquisition of Fat Panda, key accounting policies, customer concentration, ongoing litigation, and a recent reverse stock split - The company designs, engineers, and sells environmental control technologies for the Controlled Environment Agriculture (CEA) industry, serving commercial growers in the U.S. and Canada[27] - The company has entered into an agreement to acquire Fat Panda, a Canadian manufacturer and retailer of e-cigarettes and vape products, for CAD$18 million (approx. US$12.6 million)[28][31][33] The acquisition is expected to close in the first half of 2025 Fat Panda Preliminary Unaudited Financials (FY ended April 30, 2024) | Metric | Amount (CAD) | Amount (USD) | | :--- | :--- | :--- | | Revenue | $38.5 million | $28.5 million | | Gross Margin | 39% | 39% | | Adjusted EBITDA | $8.4 million | $6.2 million | - A one-for-twelve reverse stock split was effective on June 7, 2024[44][111] All share and per-share amounts have been retroactively adjusted - The company faces two significant legal claims from former clients, Sweet Cut Grow, LLC (demanding ~$1.05 million) and Optima Consulting Services, LLC (demanding >$2.0 million)[103][105] The company denies the claims and intends to defend itself vigorously[105] The Optima claim was settled subsequent to the quarter end for $250,000[143] - For Q1 2025, three customers accounted for 58%, 23%, and 11% of revenue, indicating significant customer concentration[81] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant Q1 2025 revenue growth and improved gross profit, offset by increased operating expenses leading to a wider net loss, while highlighting increased backlog, a strong cash position, and identified material weaknesses in internal controls Bookings, Backlog and Revenue Net bookings for Q1 2025 increased 104% to $1.04 million, contributing to a 72% increase in backlog to $844,000, though timing of revenue recognition remains uncertain Backlog and Bookings Trend (in thousands) | Metric | Q4 2024 | Q1 2025 | Change | | :--- | :--- | :--- | :--- | | Net Bookings | $510 | $1,042 | +104% | | Ending Backlog | $490 | $844 | +72% | - The company expects to recognize all revenue from the current backlog in 2025, but notes significant uncertainty regarding the timing due to factors like customer financing and project delays[162][167] Results of Operations Q1 2025 revenue increased 203% to $713,000, achieving a gross profit of $39,000, but a 45% rise in operating expenses led to an increased net loss of $1.07 million Q1 2025 vs Q1 2024 Performance (in thousands) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $713 | $235 | +203% | | Gross Profit (Loss) | $39 | $(154) | +125% | | Operating Expenses | $1,113 | $769 | +45% | | Net Loss | $(1,069) | $(917) | +17% | - The increase in operating expenses was mainly due to a $361,000 increase in accounting and other professional fees, largely related to a potential acquisition[176][177] Financial Condition, Liquidity and Capital Resources As of March 31, 2025, the company held $8.7 million in cash and $8.1 million in working capital, with cash decreasing by $745,000 due to operating activities, though current funds are deemed sufficient for the next 12 months - Cash and cash equivalents decreased by $745,000 during Q1 2025, ending the period at $8,707,000[182] - Working capital decreased from $9.06 million at year-end 2024 to $8.07 million at March 31, 2025[184] - Cash used in operations decreased to $745,000 in Q1 2025 from $909,000 in Q1 2024, primarily due to changes in working capital[187][188] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, CEA Industries is exempt from providing quantitative and qualitative disclosures about market risk[198] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2025, due to material weaknesses in internal control over financial reporting, including insufficient personnel, inadequate segregation of duties, and weak spreadsheet controls - The CEO and Principal Financial Officer concluded that disclosure controls and procedures were not effective as of March 31, 2025[199] - Material weaknesses identified include: (i) lack of sufficient personnel with adequate accounting expertise, (ii) inadequate segregation of duties, and (iii) insufficient controls over financial reporting spreadsheets[200] - No changes were identified in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[203] PART II — OTHER INFORMATION Legal Proceedings The company is involved in arbitration with Sweet Cut Grow, LLC for $1.05 million in damages, which it denies, and settled a potential $2 million claim from Optima Consulting Services, LLC post-quarter end - The company is in arbitration with Sweet Cut Grow, LLC and Green Ice, LLC, who are demanding $1,049,280 in damages[205] The company denies the claims and intends to defend itself vigorously[205] - A potential claim from Optima Consulting Services, LLC for over $2,000,000 was raised[207] The company denies the claims[207] This matter was settled subsequent to the quarter end for $250,000[143] Risk Factors Investors are directed to review the comprehensive risk factors detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - The company refers to the risk factors disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024[209] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities during the period[210] Defaults Upon Senior Securities There were no defaults upon senior securities during the period - There were no defaults upon senior securities[211] Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable to the company[212] Other Information This item is not applicable to the company - This item is not applicable[213] Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and Inline XBRL data files - The exhibits filed with the report include certifications from the Principal Executive Officer and Principal Financial and Accounting Officer, as well as Inline XBRL documents[219]