BOULDER, Colorado , Nov. 14, 2018 /PRNewswire/ -- Surna Inc. (OTCQB: SRNA) announced today operating and financial results for the three and nine months ended September 30, 2018. Surna designs, engineers and manufactures application-specific environmental control and air sanitation systems for commercial, state- and provincial-regulated indoor cannabis cultivation facilities in the U.S. and Canada.

Q3 2018 versus Q2 2018 Highlights

Key highlights comparing Q3 2018 to Q2 2018 are set forth below. Additionally, our condensed financial statements for the three and nine months ending September 30, 2018 are included at the end of this press release.

Our Q3 2018 revenue was $3,325,000 , an increase of $1,317,000 , or 66%, compared to Q2 2018.

, an increase of , or 66%, compared to Q2 2018. Our Q3 2018 net bookings were $3,328,000 , a decrease of $539,000 , or 14% compared to Q2 2018. See 'Sales Activity and Backlog' below

, a decrease of , or 14% compared to Q2 2018. See 'Sales Activity and Backlog' below Our ending backlog as of September 30, 2018 was $8,886,000 , an increase of $3,000 , or 1%, compared to our June 30, 2018 backlog.

was , an increase of , or 1%, compared to our backlog. Our Q3 2018 gross profit margin was 33%, an increase of seven percentage points from our Q2 2018 gross profit margin.

We realized a Q3 2018 net loss of $644,000 as compared to a Q2 2018 net loss of $1,401,000 , a decrease of $757,000 , or 54%. The Q3 2018 net loss included $574,000 of non-cash, stock-based compensation expenses and $48,000 of depreciation and intangible asset amortization expense as compared to $823,000 of non-cash, stock-based compensation expenses and $44,000 of depreciation and intangible asset amortization expense in Q2 2018. Excluding these non-cash items, our net loss was $22,000 , a decrease $512,000 or 96%.

as compared to a Q2 2018 net loss of , a decrease of , or 54%. The Q3 2018 net loss included of non-cash, stock-based compensation expenses and of depreciation and intangible asset amortization expense as compared to of non-cash, stock-based compensation expenses and of depreciation and intangible asset amortization expense in Q2 2018. Excluding these non-cash items, our net loss was , a decrease or 96%. As of September 30, 2018 , we had cash and cash equivalents of $1,417,000 , compared to cash and cash equivalents of $1,629,000 as of June 30, 2018 , a decrease of $212,000 , or 13%.

Our current management team was put in place just over a year ago with a primary objective of increasing revenue, improving operations and creating a visible path to sustained profitability. Q3 2018 marked the first quarter where the fruits of these efforts became visible across three of the Company's key operating metrics:

1. Revenue. Q3 2018 reflects a positive revenue-generating capability. Although, for a variety of reasons typical to most small businesses, it is certain that revenue will continue to be uneven in future quarters, management believes that the trend will continue and improve over time.

2. Margins. The seven-percentage point increase in gross margin to 33% in Q3 2018 demonstrates the Company's capability of improving margins contemporaneous with increasing revenue growth—rather than sacrificing one for the other, as is sometimes the case for businesses seeking to ramp revenue.

3. Cash. The net loss, excluding non-cash, stock-based compensation, depreciation, and amortization expenses, of only $22,000 in Q3 2018 demonstrates the Company's ability to conserve cash as our revenue level increases. As with the uncertainty surrounding revenue and changes in revenue from quarter to quarter, the Company also cannot accurately forecast whether it will generate or use cash over the next few quarters. Nonetheless, the Company remains highly focused on its cash balance as a key operating metric.

Chris Bechtel, the Company's CEO stated: "While we realize that one quarter is just that and the Company still has losses, Q3 2018 was nonetheless a gratifying validation of the foundation that we have established and the operational improvements that have been implemented across every aspect of Surna's business over the last four quarters. If and when Surna achieves sustained positive cash flow over a number of quarters, we believe that proof point will be a significant differentiating factor in our industry and correspondingly open up a wide range of strategic opportunities that may not otherwise be available to us or other companies consuming cash in our industry. We further believe that cash flow positive companies in our industry have the ability to maximize the visibility, liquidity and marketability of their public shares and build shareholder value. Surna is working toward being one of those companies."

Year-to-Date Highlights

Revenue for the nine months ended September 30, 2018 was $7,387,000 compared to $4,901,000 for the nine months ended September 30, 2017 , an increase of $2,486,000 , or 51%.

was compared to for the nine months ended , an increase of , or 51%. We had a net loss of $3,928,000 for the nine months ended September 30, 2018 , as compared to a net loss of $3,553,000 for the nine months ended September 30, 2017 , an increase of $375,000 , or 11%. However, the net loss included $2,067,000 of non-cash, stock-based compensation expenses and $119,000 of depreciation and intangible asset amortization expense in the nine months ended September 30, 2018 as compared to non-cash, stock-based compensation expense of $1,271,000 and depreciation and intangible asset amortization expense of $34,000 in the nine months ended September 30, 2017 . Excluding these non-cash items, our net loss was $1,742,000 , a decrease of $506,000 or 23%.

Sales Activity and Backlog

During the nine months ended September 30, 2018, we entered into sales orders for 28 projects, each with a sales value over $100,000, which we refer to as commercial-scale projects. These commercial-scale projects represented aggregate net bookings of $11,609,000 for the nine months ended September 30, 2018, or an average of $415,000. This compares to 21 commercial-scale projects representing aggregate net bookings of $6,749,000 for the entire 2017 year, or an average of $321,000.

The following table sets forth our net bookings of commercial-scale projects for each cohort period presented (meaning, the commercial-scale contracts executed during each period for which we received an initial deposit, adjusted for any change orders or cancellations for that cohort group to date) by country/state.



























For the Nine Months Ended September 30, 2018

For the Year Ended December 31, 2017

Number of New Commercial-Scale Projects

Total Commercial-Scale Project Net Bookings

Average Commercial-Scale Project Net Bookings

Number of New Commercial-Scale Projects

Total Commercial-Scale Project Net Bookings

Average Commercial-Scale Project Net Bookings Canada 9

$ 3,393,442

$ 377,049

7

$ 3,302,917

$ 471,845 California 6

2,141,379

356,896

1

262,336

262,336 Colorado -

-

-

3

421,948

140,649 Arizona -

-

-

3

785,547

261,849 Oregon 1

370,898

370,898

2

403,365

201,682 Washington 3

1,859,413

619,804

1

170,976

170,976 Massachusetts 1

594,748

594,748

-

-

- Ohio 1

135,860

135,860

-

-

- Alaska -

-

-

1

297,500

297,500 Rhode Island 1

400,003

400,003

1

227,680

227,680 Nevada -

-

-

1

556,950

556,950 Texas -

-

-

1

319,557

319,557 Michigan 3

1,368,630

456,210

-

-

- New Mexico 1

104,772

104,772

-

-

- Maryland 1

405,343

405,343

-

-

- Arkansas 1

834,578

834,578

-

-

-























Total 28

$ 11,609,065

$ 414,609

21

$ 6,748,776

$ 321,370

The following table sets forth: (i) our beginning backlog (the remaining contract value of outstanding sales contracts for which we have received an initial deposit as of the previous period), (ii) our net bookings for the period (new sales contracts executed during the period for which we received an initial deposit, net of any adjustments including change orders during the period), (iii) our recognized revenue for the period, and (iv) our ending backlog for the period (the sum of the beginning backlog and net bookings, less recognized revenue).



















For the quarter ended



September 30, 2017 December 31, 2017 March 31, 2018 June 30, 2018 September 30, 2018 Backlog, beginning balance $ 3,933,000 $ 4,311,000 $ 4,456,000 $ 7,024,000 $ 8,883,000 Net bookings, current period $ 1,944,000 $ 2,454,000 $ 4,623,000 $ 3,867,000 $ 3,328,000 Recognized revenue, current period $ 1,566,000 $ 2,309,000 $ 2,055,000 $ 2,008,000 $ 3,325,000 Backlog, ending balance $ 4,311,000 $ 4,456,000 $ 7,024,000 $ 8,883,000 $ 8,886,000















We believe net bookings in any given cohort quarter are our best leading indicator of revenue that we may recognize in the ensuing two to eight quarters from that cohort. However, our backlog includes projects for which we have only received an initial deposit and, as a result, there are potential risks that the equipment portion of these projects will not be completed or will be delayed.

About Surna Inc.

Surna Inc. ( www.surna.com ) designs, engineers and manufactures application-specific environmental control and air sanitation systems for commercial, state- and provincial-regulated indoor cannabis cultivation facilities in the U.S. and Canada. Our engineering and technical team provides energy and water efficient solutions that allow growers to meet the unique demands of a cannabis cultivation environment through precise temperature, humidity, light, and process controls and to satisfy the evolving code and regulatory requirements being imposed at the state and local levels.

Headquartered in Boulder, Colorado, we leverage our experience in this space in order to bring value-added climate control solutions to our customers that help improve their overall crop quality and yield as well as optimize the resource efficiency of their controlled environment (i.e., indoor and greenhouses) cultivation facilities. We have been involved in consulting, equipment sales and/or full-scale design for over 700 grow facilities since 2006 making us a trusted resource for indoor environmental design and control management for the cannabis industry.

Our customers have included small cultivation operations to licensed commercial facilities ranging from several thousand to more than 100,000 square feet. We have sold our equipment and systems throughout the U.S. and Canada as well as internationally in South Africa, Switzerland and the United Kingdom. Our revenue stream is derived primarily from supplying mechanical engineering services and climate and environmental control equipment to commercial indoor cannabis grow facilities. We also sell equipment to smaller cultivators who can purchase either directly from us, or from our authorized wholesalers or retailers. Though 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 Form 10-K and Form 10-Q 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 the 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 cannabis is prohibited by U.S. federal law. This includes medical and recreational cannabis. 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.

Table 1

Surna Inc.

Condensed Consolidated Balance Sheets

(Unaudited)









September 30, 2018

December 31, 2017 ASSETS





Current Assets





Cash and cash equivalents $ 1,416,882

$ 2,468,199 Accounts receivable (net of allowance for doubtful accounts of $108,949 and $105,267, respectively) 325,305

422,589 Other receivables -

550 Inventory, net 501,198

522,622 Prepaid expenses 349,419

293,458 Total Current Assets 2,592,804

3,707,418 Noncurrent Assets





Property and equipment, net 530,155

401,356 Goodwill 631,064

631,064 Intangible assets, net 24,282

37,985 Deposits 51,000

51,000 Total Noncurrent Assets 1,236,501

1,121,405







TOTAL ASSETS $ 3,829,305

$ 4,828,823







LIABILITIES AND SHAREHOLDERS' EQUITY













CURRENT LIABILITIES





Accounts payable and accrued liabilities $ 2,113,716

$ 1,969,263 Deferred revenue 555,417

1,011,871 Amounts due to shareholders -

6,927 Derivative liability on warrants -

410,880 Total Current Liabilities 2,669,133

3,398,941







NONCURRENT LIABILITIES





Deferred Rent 112,382

17,396 Total Noncurrent Liabilities 112,382

17,396







TOTAL LIABILITIES 2,781,515

3,416,337







Commitments and Contingencies (Note 8)













SHAREHOLDERS' EQUITY





Preferred stock, $0.00001 par value; 150,000,000 shares authorized; 77,220,000 shares issued and outstanding 772

772 Common stock, $0.00001 par value; 350,000,000 shares authorized; 223,834,604 and 206,248,522 shares issued and outstanding, respectively 2,238

2,062 Additional paid in capital 24,575,798

20,664,563 Accumulated deficit (23,531,018)

(19,254,911) Total Shareholders' Equity 1,047,790

1,412,486







TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,829,305

$ 4,828,823

















Table 2

Surna Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

















Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017 Revenue, net $ 3,324,621

$ 1,566,256

$ 7,387,094

$ 4,901,241















Cost of revenue 2,228,069

1,175,047

5,385,103

3,668,698















Gross profit 1,096,552

391,209

2,001,991

1,232,543















Operating expenses:













Advertising and marketing expenses 223,474

168,476

658,393

484,418 Product development costs 75,448

60,145

207,537

250,228 Selling, general and administrative expenses 1,440,995

1,396,957

5,101,773

3,518,528 Total operating expenses 1,739,917

1,625,578

5,967,703

4,253,174















Operating loss (643,365)

(1,234,369)

(3,965,712)

(3,020,631)















Other income (expense):













Interest and other income (expense), net (197)

1,016

16,293

3,808 Interest expense -

-

(35)

(41,233) Amortization of debt discount on convertible promissory notes -

(10,037)

-

(63,157) Loss on extinguishment of debt -

(228,428)

-

(643,428) Gain (loss) on change in derivative liabilities -

(6,660)

21,403

212,054 Total other income (expense) (197)

(244,109)

37,661

(531,956)















Loss before provision for income taxes (643,562)

(1,478,478)

(3,928,051)

(3,552,587)















Income taxes -

-

-

-















Net loss $ (643,562)

$ (1,478,478)

$ (3,928,051)

$ (3,552,587)















Loss per common share – basic and dilutive $ (0.00)

$ (0.01)

$ (0.02)

$ (0.02)















Weighted average number of common shares outstanding, basic and dilutive 222,782,404

184,912,253

216,836,968

179,470,179

































Table 3

Surna Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)









For the Nine Months Ended September 30,

2018

2017 Cash Flows From Operating Activities:





Net loss $ (3,928,051)

$ (3,552,587) Adjustments to reconcile net loss to net cash used in operating activities:





Depreciation and intangible asset amortization expense 118,999

34,087 Amortization of debt discounts -

38,433 Amortization of original issue discount on notes payable -

25,520 Gain on change in derivative liabilities (21,403)

(212,054) Compensation paid in equity 2,067,191

1,270,933 Provision for doubtful accounts 3,682

1,715 Provision for excess and obsolete inventory 4,926

208,801 Loss on extinguishment of debt -

643,428 Loss on disposal of other assets 19,278

-







Changes in operating assets and liabilities:





Accounts and other receivable 94,152

(207,205) Inventory 16,498

(15,066) Prepaid expenses (55,960)

(119,753) Accounts payable and accrued liabilities 368,328

112,516 Deferred revenue (399,542)

(179,525) Accrued interest -

(10,574) Deferred rent (5,014)

- Net cash provided by (used in) operating activities (1,716,916)

(1,961,331)







Cash Flows From Investing Activities





Capitalization of intangible assets (2,503)

(16,454) Purchases of property and equipment (232,109)

(14,566) Proceeds from payment of tenant improvement allowance 100,000

- Cash disbursed for equipment held for lease (16,237)

- Cash disbursed for lease deposit -

(51,000) Payments received on note receivable -

157,218 Net cash provided by (used in) investing activities (150,849)

75,198







Cash Flows From Financing Activities





Cash proceeds from sale of common stock and warrants 1,210,000

2,685,000 Payments on convertible notes payable -

(270,000) Proceeds from issuance of notes payable -

500,000 Proceeds from exercises of stock options 3,375

- Proceeds from exercise of investor warrants 15,000

- Repurchase of common shares from related party (400,000)

- Purchase of option to repurchase preferred stock from related party (5,000)

- Payments on loans from shareholders (6,927)

(47,707) Net cash provided by (used in) financing activities 816,448

2,867,293







Net (decrease) increase in cash (1,051,317)

981,160 Cash, beginning of period 2,468,199

319,546 Cash, end of period $ 1,416,882

$ 1,300,706







Supplemental cash flow information:





Interest paid $ 35

$ 44,150







Non-cash investing and financial activities:





Conversions of promissory notes and accrued interest to common stock $ -

$ 1,205,856 Equity issued in settlement $ 226,400

$ - Extinguishment of derivative liability on cashless exercise of warrants $ 389,477

$ - Unpaid purchases of equipment and other assets $ 2,525

$ -









Media Contact:

Surna Marketing

Jamie English

Director of Marketing

[email protected]

+1-(303) 993-5271

SOURCE Surna Inc.