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Surna Reports Q1 2020 Results
[June 25, 2020]

Surna Reports Q1 2020 Results


Announces 2% Revenue Increase Over Q1 2019

Boulder, Colorado, June 25, 2020 (GLOBE NEWSWIRE) -- Surna Inc. (OTCQB: SRNA) announced today operating and financial results for the three months ended March 31, 2020.

Financial Highlights

  • Our Q1 2020 revenue was $1,810,000, which represents a 2% increase compared to Q1 2019 revenue of $1,771,000.
     
  • For Q1 2020, our operating loss and net loss was $946,000 and $938,000, respectively. This compares to a Q1 2019 operating loss and net loss of $922,000 and $900,000, respectively.
     
  • Our Q1 2020 adjusted net loss was $718,000, compared to a Q1 2019 adjusted net loss of $497,000.
     
  • Our Q1 2020 gross profit margin was 25.2% compared to 27.7% for Q1 2019, a decrease of 2.5 percentage points.
     
  • As of March 31, 2020, our cash was $194,000, compared to cash of $922,000 as of December 31, 2019. Our working capital deficit was $1,705,000 as of March 31, 2020, compared to a working capital deficit of $1,437,00 as of December 31, 2019.

Extended Downsizing of Operations

As we noted in our 2019 Annual Report on Form 10-K, filed in March of this year, recent events in the national and global economies have had an adverse impact on our operations and financial condition, including constraints on capital availability for us and our customers and prospects who have commenced, or are contemplating, new and expanded cannabis cultivation facilities. Most recently, the response to this coronavirus pandemic by federal, state and local governments in the U.S. has resulted in significant market and business disruptions across many industries and affecting businesses of all sizes. This pandemic has also further tightened capital access for most businesses. The full extent to which COVID-19 will impact our business and financial results will depend on future developments, which are uncertain and cannot be predicted at this time.

In late March we implemented a downsizing of our operations, including workforce reductions, reductions of salaried employee compensation, and a reduction of hours worked to preserve cash resources, cut costs and focus our operations on customer-centric sales and project management activities. In April we were able to secure a potentially forgivable loan in the amount of $554,000, which allowed us to reinstate our employee base. In June, however, we took further measures to reduce our operational expenses by furloughing several employees and reducing salaries for all employees with an eye towards meeting our customer’s requirements and continuing our operations while husbanding our resources. The duration and likelihood of success of this downsizing effort, workforce reduction and cost-cutting measures are uncertain.

The general economic conditions, government mandates about permitted work and working environments, and working capital constraints, all of which effect both our customers and us and our downsizing may have an adverse effect on our ability to effectively market our services, generate new customer orders, and contract implementation. If our customers or prospects are unable to continue operations or obtain project financing and we are unable to increase revenues or otherwise generate cash flows from operations, we will not be able to successfully execute on our various strategies and initiatives to grow our business. If these actions do not meet our expectations, or additional near-term capital is not available, we may not be able to continue our operations.

Tony McDonald, CEO, commented: “We had a quarter over quarter gain in revenue compared to 2019, and we continue to book contracts and fulfill our current obligations; but our future bookings have slowed considerably in the current economic crisis. Fortunately, retail sales of cannabis products continue to grow which gives us optimism for the long-term health of our industry. That said, we, along with all the companies in our industry, are in unchartered waters and we now face the uncertainties brought about by the coronavirus outbreak.”

About Surna Inc.

Surna Inc. (www.surna.com) designs, engineers and sells cultivation technologies for controlled environment agriculture including: (i) liquid-based process cooling systems and other climate control systems, (ii) air handling equipment and systems, (iii) a full-service engineering package for designing and engineering commercial scale thermodynamic systems specific to cannabis cultivation facilities, and (iv) automation and control devices, systems and technologies used for environmental, lighting and climate control. Our customers include commercial, state- and provincial-regulated cannabis growers in the U.S. and Canada as well as other international locations, including those growers building new facilities and those expanding or retrofitting existing facilities. Currently, our revenue stream is derived primarily from supplying our products, services and technologies to commercial indoor and hybrid sealed greenhouse facilities ranging from several thousand to more than 100,000 square feet.

Headquartered in Boulder, Colorado, we leverage our experience in this space to bring value-added climate control solutions to our customers that help improve their overall crop quality and yield, optimize energy and water efficiency, and satisfy the evolving state and local codes, permitting and regulatory requirements. Although our customers do, we neither produce nor sell cannabis.

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 Surna’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.

Statement about Cannabis Markets

The use, possession, cultivation, and distribution of marijuana is prohibited by U.S. federal law for medical and recreational purposes. Although certain states have legalized medical and recreational cannabis, companies and individuals involved in the sector are still at risk of being prosecuted by federal authorities. Further, the landscape in the cannabis industry changes rapidly. This means that at any time the city, county, or state where cannabis is permitted can change the current laws and/or the federal government can supersede those laws and take prosecutorial action. Given the uncertain legal nature of the cannabis industry, it is imperative that investors understand that investments in the cannabis industry should be considered very high risk. A change in the current laws or enforcement policy can negatively affect the status and operation of our business, require additional fees, stricter operational guidelines and unanticipated shut-downs.

 Surna Marketing
  
 Jamie English
 Managing Director of Marketing
 jamie.english@surna.com
 (303) 993-5271


Surna Inc.

Consolidated Balance Sheets

  March 31, 2020  December 31, 2019 
  (Unaudited)    
ASSETS        
Current Assets        
Cash and cash equivalents $194,290  $922,177 
Accounts receivable (net of allowance for doubtful accounts of $151,673 and $151,673, respectively)  137,669   138,357 
Inventory, net  1,314,179   1,231,243 
Prepaid expenses and other  194,567   269,491 
Total Current Assets  1,840,705   2,561,268 
Noncurrent Assets        
Property and equipment, net  238,339   257,923 
Goodwill  631,064   631,064 
Intangible assets, net  7,661   11,930 
Deposits  51,000   51,000 
Operating lease right-of-use asset  487,467   534,133 
Total Noncurrent Assets  1,415,531   1,486,050 
         
TOTAL ASSETS $3,256,236  $4,047,318 
         
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY        
         
CURRENT LIABILITIES        
Accounts payable and accrued liabilities $2,133,254  $1,832,959 
Deferred revenue  1,153,368   1,444,472 
Accrued equity compensation  36,463   503,466 
Current portion of operating lease liability  222,397   217,843 
Total Current Liabilities  3,545,482   3,998,740 
         
NONCURRENT LIABILITIES        
Operating lease liability, net of current portion  346,806   404,209 
Total Noncurrent Liabilities  346,806   404,209 
         
TOTAL LIABILITIES  3,892,288   4,402,949 
         
Commitments and Contingencies (Note 6)  -   - 
         
SHAREHOLDERS’ (DEFICIT) EQUITY        
Preferred stock, $0.00001 par value; 150,000,000 shares authorized; 42,030,331 shares issued and outstanding  420   420 
Common stock, $0.00001 par value; 350,000,000 shares authorized; 236,526,638 and 228,216,638 shares issued and outstanding, respectively  2,366   2,283 
Additional paid in capital  25,984,402   25,326,593 
Accumulated deficit  (26,623,240)  (25,684,927)
Total Shareholders’ (Deficit) Equity  (636,052)  (355,631)
         
TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY $3,256,236  $4,047,318 



Surna Inc.
Consolidated Statements of Operations
(Unaudited)

  For the Three Months Ended


March 31,
 
  2020  2019 
Revenue, net $1,809,925  $1,771,230 
         
Cost of revenue  1,353,401   1,281,157 
         
Gross profit  456,524   490,073 
         
Operating expenses:        
Advertising and marketing expenses  148,921   124,626 
Product development costs  144,948   116,933 
Selling, general and administrative expenses  1,108,993   1,170,586 
Total operating expenses  1,402,862   1,412,145 
         
Operating loss  (946,338)  (922,072)
         
Other (expense) income:        
Other (expense) income, net  14,320   21,877 
Interest expense  (6,295)  - 
Total other (expense) income  8,025   21,877 
         
Loss before provision for income taxes  (938,313)  (900,195)
         
Income taxes  -   - 
         
Net loss $(938,313) $(900,195)
         
Loss per common share – basic and dilutive $(0.00) $(0.00)
         
Weighted average number of common shares outstanding, basic and dilutive  231,062,462   226,860,462 

Surna Inc.
Consolidated Statements of Cash Flows
(Unaudited)

  For the Three Months Ended

March 31,
 
  2020  2019 
Cash Flows From Operating Activities:        
Net loss $(938,313) $(900,195)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Depreciation and intangible asset amortization expense  30,735   48,859 
Compensation paid in equity  657,892   355,731 
Provision for doubtful accounts  -   (27,802)
Provision for excess and obsolete inventory  (11,657)  4,092 
Loss on disposal of assets  4,124   - 
         
Changes in operating assets and liabilities:        
Accounts receivable  688   (28,056)
Inventory  (71,279)  191,503 
Prepaid expenses and other  74,924   6,800 
Accounts payable and accrued liabilities  289,289   136,635 
Deferred revenue  (291,104)  428,827 
Lease liability, net  (6,183)  (4,421)
Accrued equity compensation  (467,003)  - 
Net cash provided by (used in) operating activities  (727,887)  211,973 
         
Cash Flows From Investing Activities        
Net cash used in investing activities  -   - 
         
Cash Flows From Financing Activities        
Net cash provided by financing activities  -   - 
         
Net increase (decrease) in cash  (727,887)  211,973 
Cash, beginning of period  922,177   253,387 
Cash, end of period $194,290  $465,360 
         
Non-cash investing and financing activities:        
Interest paid $-  $- 
Income taxes paid $-  $- 

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