UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-41266

CEA INDUSTRIES INC.

(formerly known as Surna Inc.)

(Exact name of registrant as specified in its charter)

Nevada

27-3911608

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

385 South Pierce Avenue, Suite C

Louisville, Colorado 80027

80027

(Address of principal executive offices)

(Zip code)

(303) 993-5271

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value	CEAD	Nasdaq Capital Markets
Warrants to purchase common stock	CEADW	Nasdaq Capital Markets

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller Reporting Company	☒
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

As of November 14, 2022, the number of outstanding shares of common stock of the registrant was 7,953,974.

CEA Industries Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended September 30, 2022

Table of Contents

	Page
Cautionary Statement	ii

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	2

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and September 30, 2021	3

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2022 and September 30, 2021	4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and September 30, 2021	5

Notes to the Condensed Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3. Quantitative and Qualitative Disclosures About Market Risk	39

Item 4. Controls and Procedures	39

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	40

Item 1A. Risk Factors	40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3. Defaults Upon Senior Securities	40

Item 4. Mine Safety Disclosures	40

Item 5. Other Information	40

Item 6. Exhibits	40

SIGNATURES	41

EXHIBIT INDEX	42

In this Quarterly Report on Form 10-Q, unless otherwise indicated, the “Company”, “we”, “us” or “our” refer to CEA Industries Inc. and, where appropriate, its wholly owned subsidiary.

CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical fact but are based on current management expectations that involve substantial risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other similar words. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements including, but not limited to, any projections of revenue, gross profit, earnings or loss, tax provisions, cash flows or other financial items; any statements of the plans, strategies or objectives of management for future operations; any statements regarding current or future macroeconomic or industry-specific trends or events and the impact of those trends and events on us or our financial performance; any statements regarding pending investigations, legal claims or tax disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing.

These forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause our actual results of operations, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or suggested by, these forward-looking statements. These forward-looking statements are based on assumptions regarding our present and future business strategies and the environment in which we operate. Important factors that could cause those differences include, but are not limited to:

	●	our business prospects and the prospects of our existing and prospective customers;

	●	the impact on our business and that of our customers of the current and future response by the government and business to the COVID-19 pandemic and other health crises, including what is necessary to protect our staff and the staff of our customers in the conduct of our business;

	●	our overall financial condition, including the impact of higher interest rates and inflation, business disruption due to the COVID-19 pandemic, the Ukraine war, and the supply chains on which we depend;

	●	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 the CEA (Controlled Environment Agriculture) industry;

	●	the ability to effectively operate our business, including servicing our existing customers and obtaining new business;

	●	our relationships with our customers and suppliers;

	●	the continuation of normal payment terms and conditions with our customers and suppliers, including our ability to obtain advance payments from our customers;

	●	general economic conditions, our customers’ operations and access to capital, and market and business disruptions including severe weather conditions, natural disasters, health hazards, terrorist activities, financial crises, political crises or other major events, or the prospect of these events, adversely affecting demand for the products and services offered by us in the markets in which we operate;

	●	the supply of products from our suppliers and our ability to complete contracts, some of which depend on other actors for a comprehensive project completion;

	●	changes in our business strategy or development plans, including our expected level of capital expenses and working capital;

	●	our ability to attract and retain qualified personnel;

	●	our ability to raise equity and debt capital, as needed from time to time, to fund our operations and growth strategy, including possible acquisitions;

	●	our ability to identify, complete and integrate potential strategic acquisitions;

	●	future revenue being lower than expected;

	●	our ability to convert our backlog into revenue in a timely manner, or at all; and

	●	our intention not to pay dividends.

Although we believe that we use reasonable assumptions for these forward-looking statements, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in “Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as updated from time to time in the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”). You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. 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, to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. The forward-looking statements and projections contained in this Quarterly Report on Form 10-Q are intended to be within the meaning of “forward-looking statements” in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”).

iii

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CEA Industries Inc.

Condensed Consolidated Balance Sheets

(in US Dollars except share numbers)

	September 30,			December 31,
	2022			2021
		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	21,083,549		$	2,159,608
Accounts receivable (net of allowance for doubtful accounts of $275,442 and $181,942, respectively)		77,143			179,444
Inventory, net		614,623			378,326
Prepaid expenses and other		1,102,138			1,273,720
Total Current Assets		22,877,453			3,991,098
Noncurrent Assets
Property and equipment, net		76,224			77,346
Goodwill		-			631,064
Intangible assets, net		1,830			1,830
Deposits		14,747			14,747
Operating lease right-of-use asset		488,960			565,877
Total Noncurrent Assets		581,761			1,290,864

TOTAL ASSETS	$	23,459,214		$	5,281,962

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities	$	2,256,111		$	1,345,589
Deferred revenue		4,435,481			2,839,838
Accrued equity compensation		69,560			83,625
Other liabilities		37,078			37,078
Current portion of operating lease liability		115,943			100,139
Total Current Liabilities		6,914,173			4,406,269

Noncurrent Liabilities
Operating lease liability, net of current portion		405,265			486,226
Total Noncurrent Liabilities		405,265			486,226

TOTAL LIABILITIES		7,319,438			4,892,495

Commitments and Contingencies (Note 6)		-			-

TEMPORARY EQUITY
Series B Redeemable Convertible Preferred Stock, $0.00001 par value; 0 and 3,300 issued and outstanding, respectively		-			3,960,000
Total Temporary Equity		-			3,960,000

SHAREHOLDERS’ EQUITY (DEFICIT)
Common stock, $0.00001 par value; 200,000,000 and 850,000,000 shares authorized, respectively; 7,953,974 and 1,600,835 shares issued and outstanding, respectively		80			16
Additional paid in capital		49,146,840			25,211,017
Accumulated deficit		(33,007,144	)		(28,781,566	)
Total Shareholders’ Equity (Deficit)		16,139,776			(3,570,533	)

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)	$	23,459,214		$	5,281,962

The accompanying notes are an integral part of these condensed consolidated financial statements.

CEA Industries Inc.

Condensed Consolidated Statements of Operations

(in US Dollars except share numbers)

(Unaudited)

	2022			2021			2022			2021
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Revenue, net	$	5,063,079		$	3,706,436		$	9,822,391		$	10,582,470

Cost of revenue		4,465,888			2,959,264			8,828,453			8,208,368

Gross profit		597,191			747,172			993,938			2,374,102

Operating expenses:
Advertising and marketing expenses		304,600			224,393			865,305			569,580
Product development costs		58,978			98,623			254,473			322,807
Selling, general and administrative expenses		1,292,746			866,699			3,684,617			2,493,930
Goodwill impairment charges		-			-			631,064			-
Total operating expenses		1,656,324			1,189,715			5,435,459			3,386,317

Operating income (loss)		(1,059,133	)		(442,543	)		(4,441,521	)		(1,012,215	)

Other income (expense):
Other income (expense), net		6,358			35,934			191,358			79,452
Interest income (expense),net		10,725			(1,296	)		24,585			(3,268	)
Total other income (expense)		17,083			34,638			215,943			76,184

Income (Loss) before provision for income taxes		(1,042,050	)		(407,905	)		(4,225,578	)		(936,031	)

Income taxes		-			-			-			-

Net income (loss)	$	(1,042,050	)	$	(407,905	)	$	(4,225,578	)	$	(936,031	)

Convertible Preferred Series B Stock Redemption Value Adjustment	$	-		$	(2,262,847	)	$	-		$	(2,262,847	)
Convertible preferred series B stock dividends		-			(1,447	)		(35,984	)		(1,447	)
Deemed dividend on convertible preferred series B stock on down round		-			-			(439,999	)		-

Net income (loss) available to common shareholders	$	(1,042,050	)	$	(2,672,199	)	$	(4,701,561	)	$	(3,200,325	)

Income (loss) per common share – basic and diluted	$	(0.13	)	$	(1.69	)	$	(0.69	)	$	(2.02	)

Weighted average number of common shares outstanding, basic and diluted		7,953,974			1,583,511			6,804,741			1,581,142

The accompanying notes are an integral part of these condensed consolidated financial statements.

CEA Industries Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

For the Three and Nine Months Ended September 30, 2022 and September 30, 2021

(in US Dollars except share numbers)

(Unaudited)


		Common Stock				Additional					Shareholders’
		Number of Shares		Amount		Paid in Capital		Accumulated Deficit			Equity (Deficit)
Balance June 30, 2022	-		7,953,974	$	80	$	49,091,496	$	(31,965,094	)	$	17,126,482
Fair value of vested stock options granted to employees			-		-		49,099		-			49,099
Fair value of restricted stock units issued to directors			-		-		6,245		-			6,245
Net loss	-		-		-		-		(1,042,050	)		(1,042,050	)
Balance September 30, 2022	-		7,953,974	$	80	$	49,146,840	$	(33,007,144	)	$	16,139,776

Common Stock

Additional

Shareholders’

Number of Shares

Amount

Paid in
Capital

Accumulated Deficit

Equity
(Deficit)

Balance December 31, 2021