CEA Industries Inc. Reports Second Quarter 2023 Results and Initiates Review of Strategic Alternatives

- Management to Host Conference Call Today at 4:15pm E.T. -

Louisville, Colorado, Aug. 14, 2023 (GLOBE NEWSWIRE) -- CEA Industries Inc. (NASDAQ:CEAD, CEADW))) ("CEA Industries" or the "Company"), is reporting results for the three months ended June 30, 2023.

"The cannabis market environment continues to present challenges as operators contend with the prolonged effects of pricing and inflationary pressure," said Tony McDonald, Chairman and CEO of CEA Industries. "The controlled agricultural sector is also experiencing reorganization and reduced investment. As a result, capital expenditures across both sectors remain suppressed, which is impacting our net bookings. To offset these headwinds, we preemptively implemented a series of cost-cutting initiatives that have reduced our operating expenses by more than 60% compared to the year-ago period. We plan to maintain this lean cost structure moving forward, while targeting new contracts in both the cannabis and traditional agriculture sectors.

"In addition to pursuing new contracts, given the current environment we have begun to review strategic alternatives, including a sale, merger or other potential strategic or financial transaction, to protect and maximize shareholder value. We will pursue a path that we believe will maximize value for our shareholders and ensure a successful outcome for our customers and employees."

The Company's Board of Directors has retained Roth Capital Partners as financial advisor to assist in its review of strategic alternatives. There can be no assurance regarding the results or outcome of this review.

McDonald continued, "Between our robust balance sheet and prudent approach to capital allocation, we are well positioned to navigate this environment and deliver value to our shareholders and customers alike."

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

	Q2 2023			Q1 2023			Q2 2022
Revenue	$	1,064		$	4,683		$	3,015
Gross Profit	$	79		$	853		$	306
Gross Margin		7.4	%		18.2	%		10.2	%
Operating Expenses	$	783		$	1,299		$	2,077
Net Income/(Loss)	$	(694	)	$	(431	)	$	(1,761	)

Second Quarter 2023 Financial Results

Revenue in the second quarter of 2023 was $1.1 million compared to $3.0 million for the same period in 2022. The decrease was primarily attributed to lower revenue recognition from the Company's backlog and an overall reduction in capital expenditures by cannabis operators.

Net bookings in the second quarter of 2023 were $0.2 million compared to $1.5 million in the year-ago period. The Company's quarter-end backlog was $1.1 million compared to $9.7 million for the same period in 2022. The decrease in the Company's net bookings and backlog for the second quarter of 2023 was primarily driven by fewer capital projects and expenditures by cannabis operators.

Gross profit in the second quarter of 2023 was $79,000 compared to $0.3 million for the same period in 2022. Gross margin was 7.4% compared to 10.2% in the prior year period. The decrease in gross margin was primarily driven by an increase in fixed costs as a percentage of revenue, which include the cost of services, engineering, manufacturing and project management.

Operating expenses in the second quarter of 2023 decreased 62% to $0.8 million compared to $2.1 million for the same period in 2022. The decrease was primarily driven by lower product development expenses, reduced personnel and marketing costs, as well as a $0.6 million goodwill impairment that occurred in the year-ago period.

Net loss in the second quarter of 2023 improved to $0.7 million or $(0.09) per share, compared to a net loss of $1.8 million or $(0.23) per share for the same period in 2022.

Cash and cash equivalents were $14.2 million on June 30, 2023, compared to $18.6 million on December 31, 2022, while working capital decreased by $0.9 million during this period. At June 30, 2023, the Company remained debt free.

Conference Call

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

Date: Monday, August 14, 2023

Time: 4:15 p.m. ET

Dial: 1-973-528-0008

Access Code: 168922

Webcast URL: https://www.webcaster4.com/Webcast/Page/2893/48719

Interested parties may submit questions to the Company prior to the call by emailing [email protected]. 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 August 14, 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, CFA

Elevate IR

[email protected]

(720) 330-2829

CEA Industries Inc.

Condensed Consolidated Balance Sheets

(in US Dollars except share numbers)

	June 30,				December 31,
		2023				2022
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	14,197,485			$	18,637,114
Accounts receivable, net		293,767				2,649
Inventory, net		397,155				348,411
Prepaid expenses and other		520,256				1,489,921
Total Current Assets		15,408,663				20,478,095
Noncurrent Assets
Property and equipment, net		53,225				68,513
Intangible assets, net		1,830				1,830
Deposits		14,747				14,747
Operating lease right-of-use asset		409,981				462,874
Total Noncurrent Assets		479,783				547,964
TOTAL ASSETS	$	15,888,446			$	21,026,059
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities	$	798,624			$	1,207,258
Deferred revenue		625,911				4,338,570
Accrued equity compensation		-				89,970
Current portion of operating lease liability		122,272				118,235
Total Current Liabilities		1,546,807				5,754,033
Noncurrent Liabilities
Operating lease liability, net of current portion		319,247				376,851
Total Noncurrent Liabilities		319,247				376,851
TOTAL LIABILITIES		1,866,054				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		49,426,065				49,173,836
Accumulated deficit		(35,403,754	)			(34,278,741	)
Total Shareholders' Equity		14,022,392				14,895,175
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	15,888,446			$	21,026,059

CEA Industries Inc.

Condensed Consolidated Statements of Operations

(in US Dollars except share numbers)

(Unaudited)

	For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2023				2022				2023				2022
Revenue, net	$	1,063,714			$	3,014,885			$	5,746,287			$	4,759,312
Cost of revenue		985,021				2,708,646				4,814,318				4,362,565
Gross profit		78,693				306,239				931,969				396,747
Operating expenses:
Advertising and marketing expenses		33,091				309,690				235,414				560,705
Product development costs		74				56,577				76,487				195,495
Selling, general and administrative expenses		750,156				1,080,094				1,770,858				2,391,871
Goodwill impairment charges		-				631,064				-				631,064
Total operating expenses		783,321				2,077,425				2,082,759				3,779,135
Operating loss		(704,628	)			(1,771,186	)			(1,150,790	)			(3,382,388	)
Other income (expense):
Other income (expense), net		2,074				-				7,778				185,000
Interest income (expense), net		8,979				10,600				17,999				13,860
Total other income (expense)		11,053				10,600				25,777				198,860
Loss before provision for income taxes		(693,575	)			(1,760,586	)			(1,125,013	)			(3,183,528	)
Income taxes		-				-				-				-
Net loss	$	(693,575	)		$	(1,760,586	)		$	(1,125,013	)		$	(3,183,528	)
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	$	(693,575	)		$	(1,760,586	)		$	(1,125,013	)		$	(3,659,511	)
Loss per common share – basic and diluted	$	(0.09	)		$	(0.23	)		$	(0.14	)		$	(0.59	)
Weighted average number of common shares outstanding, basic and diluted		8,076,372				7,801,211				8,074,064				6,220,600

CEA Industries Inc.

Condensed Consolidated Statements of Cash Flows

(in US Dollars except share numbers)

(Unaudited)

	For the Six Months Ended June 30,
		2023				2022
Cash Flows From Operating Activities:
Net loss	$	(1,125,013	)		$	(3,183,528	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and intangible asset amortization expense		14,988				16,697
Share-based compensation		162,260				225,396
Provision for doubtful accounts		2,096				(9,182	)
Provision for excess and obsolete inventory		60,574				(34,417	)
Loss on disposal of assets		100				4,060
Amortization of operating lease ROU asset		52,893				51,061
Goodwill impairment charges		-				631,064
Changes in operating assets and liabilities:
Accounts receivable		(293,214	)			48,153
Inventory		(109,318	)			10,986
Prepaid expenses and other		969,665				(1,692,816	)
Accounts payable and accrued liabilities		(408,634	)			(317,453	)
Deferred revenue		(3,712,659	)			3,095,431
Operating lease liability, net		(53,567	)			(39,870	)
Accrued equity compensation		-				(37,251	)
Net cash provided by (used in) operating activities		(4,439,829	)			(1,231,669	)
Cash Flows From Investing Activities
Purchases of property and equipment		-				(13,948	)
Proceeds from the sale of property and equipment		200				2,250
Net cash provided by (used in) investing activities		200				(11,698	)
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		(4,439,629	)			18,451,781
Cash and cash equivalents, beginning of period		18,637,114				2,159,608
Cash and cash equivalents, end of period	$	14,197,485			$	20,611,388
Supplemental cash flow information:
Interest paid	$	-			$	-
Income taxes paid	$	-			$	-
Non-cash investing and financing activities:
Unpaid purchases of equipment and other assets	$	-			$	16,400
Conversion of series B preferred stock		-			$	1,980,000
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	$	89,970			$	83,625