PART I — FINANCIAL INFORMATION This section covers the company's unaudited financial statements, management's analysis, market risk, and internal controls Item 1. Financial Statements (Unaudited) Unaudited Q1 2021 financials show revenue growth, a net loss, and a 'Going Concern' warning due to capital needs Condensed Consolidated Balance Sheets The balance sheet shows a significant increase in total assets and liabilities, primarily driven by cash and deferred revenue Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | March 31, 2021 ($) | December 31, 2020 ($) | | :--- | :--- | :--- | | Total Assets | $6,964,539 | $4,813,266 | | Cash, cash equivalents and restricted cash | $3,271,128 | $2,284,881 | | Total Liabilities | $8,889,829 | $6,146,964 | | Deferred revenue | $6,087,093 | $3,724,189 | | Total Shareholders' Deficit | ($1,925,290) | ($1,333,698) | - Total assets increased by 44.7% from year-end 2020, primarily due to a 43.2% increase in cash and a 99% increase in prepaid expenses. Total liabilities grew by 44.6%, largely driven by a 63.5% increase in deferred revenue17 Condensed Consolidated Statements of Operations The statement of operations shows a year-over-year revenue increase but a decline in gross profit and a narrowed net loss Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended March 31, 2021 ($) | Three Months Ended March 31, 2020 ($) | | :--- | :--- | :--- | | Revenue, net | $2,366,529 | $1,809,925 | | Gross profit | $344,606 | $456,524 | | Operating loss | ($685,650) | ($946,338) | | Net loss | ($793,368) | ($938,313) | | Loss per common share | ($0.00) | ($0.00) | - Revenue increased by 30.8% year-over-year, but gross profit decreased by 24.5% due to higher cost of revenue. The company narrowed its operating loss and net loss compared to the same period in the prior year20 Condensed Consolidated Statements of Cash Flows Cash flow statements indicate positive operating cash flow in Q1 2021, driven by deferred revenue and a new note payable Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2021 ($) | Three Months Ended March 31, 2020 ($) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $484,373 | ($727,887) | | Net cash used in investing activities | ($12,326) | $0 | | Net cash provided by financing activities | $514,200 | $0 | | Net change in cash | $986,247 | ($727,887) | - The company generated positive cash flow from operations in Q1 2021, a significant improvement from the cash burn in Q1 2020, primarily driven by a large increase in deferred revenue. Financing activities consisted of proceeds from a new note payable25 Notes to the Condensed Consolidated Financial Statements The notes provide critical details on the company's business, going concern uncertainty, backlog, and recent financial events - The company designs, engineers, and sells environmental control technologies for the Controlled Environment Agriculture (CEA) industry, with customers primarily in the U.S. and Canada. It does not produce or sell cannabis27 - There is substantial doubt about the Company's ability to continue as a going concern, as management believes cash balances and cash flow from operations will be insufficient to fund operations for the next 12 months without raising additional capital35 - As of March 31, 2021, the company's backlog (remaining performance obligations) was $11.58 million. The company expects to recognize approximately $11.13 million of this backlog in 2021 and $0.45 million in 20226061 - In February 2021, the company entered into a note payable with its bank for $514,200. The loan has a 1% interest rate and is potentially forgivable9394 - A legal dispute with a former employee was settled on March 30, 2021. The company agreed to pay $40,000 in cash and issue 1,000,000 shares of common stock. The total settlement cost of $107,000 was recognized as an expense in Q1 202196 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2021 revenue growth, declining gross margins, improved operating loss, increased backlog, and persistent 'Going Concern' concerns Overview and Corporate Strategy The company's overview details its CEA industry focus and a three-pillar strategy for organic growth, M&A, and uplisting - The company is an integrated provider of MEP (mechanical, electrical, plumbing) engineering design and proprietary environmental control equipment for the Controlled Environment Agriculture (CEA) industry, historically focused on cannabis cultivation132137 - The company's three-pillar corporate strategy includes: 1) Pursuing aggressive organic growth, 2) Seeking strategic relationships and M&A, and 3) Pursuing an uplisting to a national exchange and raising growth capital144 - The updated organic growth strategy involves expanding into new markets (broader CEA, vertical farming), offering new products and services (full CEA technical infrastructure), and adopting a new trade name, "Surna Cultivation Technologies," to reflect these changes153154 Bookings, Backlog and Revenue This section analyzes the company's sales performance, highlighting significant increases in net bookings and ending backlog Bookings and Backlog Trend (in thousands) | Metric | Q1 2020 ($ thousands) | Q2 2020 ($ thousands) | Q3 2020 ($ thousands) | Q4 2020 ($ thousands) | Q1 2021 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Beginning Backlog | $9,558 | $8,875 | $5,592 | $8,198 | $8,448 | | Net Bookings | $1,127 | ($1,601) | $4,241 | $3,637 | $5,497 | | Recognized Revenue | $1,810 | $1,682 | $1,635 | $3,387 | $2,367 | | Ending Backlog | $8,875 | $5,592 | $8,198 | $8,448 | $11,578 | - Net bookings for Q1 2021 were $5.5 million, a 51% increase from Q4 2020 and a 388% increase from Q1 2020165166 - Backlog increased by 37% to $11.6 million at the end of Q1 2021. 83% of this backlog is from 'partial equipment paid contracts,' which have a higher certainty of revenue recognition167173 Results of Operations Results of operations show a 31% revenue increase but a 10-point gross margin decline due to lower selling prices Q1 2021 vs Q1 2020 Performance | Metric | Three Months Ended March 31, 2021 ($) | Three Months Ended March 31, 2020 ($) | | :--- | :--- | :--- | | Revenue | $2,367,000 | $1,810,000 | | Gross Profit | $345,000 | $457,000 | | Gross Margin | 15% | 25% | | Operating Expenses | $1,030,000 | $1,403,000 | | Operating Loss | ($686,000) | ($946,000) | | Net Loss | ($793,000) | ($938,000) | - Revenue increased 31% YoY, but gross profit margin decreased by ten percentage points from 25% to 15%, primarily due to a decrease in the selling price of equipment176178 - Operating expenses decreased by 27% YoY, mainly due to a $369,000 reduction in SG&A expenses, which included a $141,000 decrease in stock-related compensation183184 Financial Condition, Liquidity and Capital Resources The company's financial condition shows increased cash but a growing working capital deficit and persistent 'Going Concern' concerns - As of March 31, 2021, the company had cash, cash equivalents, and restricted cash of $3.3 million, a 43% increase from year-end 2020, driven by operating cash flow and a $514,000 loan191 - The company had a working capital deficit of $2.3 million as of March 31, 2021, an increase from the $2.2 million deficit at year-end 2020, primarily due to a $2.4 million increase in deferred revenue192 - A 'Going Concern' warning is noted, as management states that cash balances and cash flow from operations are believed to be insufficient to fund operations for the next 12 months, necessitating additional capital raising203207 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Surna Inc. is exempt from providing quantitative and qualitative market risk disclosures - As a smaller reporting company, Surna Inc. is exempt from the requirement to provide quantitative and qualitative disclosures about market risk217 Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of March 31, 2021218 - The ineffectiveness is due to a material weakness in internal control over financial reporting, characterized by: - Lack of sufficient personnel with adequate accounting expertise - Inadequate segregation of duties - Insufficient controls over the accuracy and completeness of spreadsheets used in financial reporting219 PART II — OTHER INFORMATION This section includes information on legal proceedings, risk factors, equity sales, and exhibits Legal Proceedings The company settled litigation with a former employee, agreeing to cash payments and stock issuance, with no other material legal proceedings - Litigation with a former employee regarding alleged consulting fees was settled effective March 30, 2021224 - Settlement terms required the company to pay $40,000 in cash over eight months and issue 1,000,000 shares of common stock224 Risk Factors No material changes were reported to the significant risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes were reported to the significant risk factors affecting the business as described in the Annual Report on 10-K for the year ended December 31, 2020226 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the quarter - The company reported no unregistered sales of equity securities during the quarter226 Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - The Exhibit Index lists documents filed with the report, including Sarbanes-Oxley certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and XBRL interactive data files (Exhibit 101 series)229235236
CEA Industries(CEAD) - 2021 Q1 - Quarterly Report