Surna Inc. Reports Third Quarter 2016 Financial Results

BOULDER, Colorado, November 14, 2016 /PRNewswire/ --

• Increased gross margin to 35.6% from 18.7% in Q3 2015 
• Improved operating loss 56% compared to Q3 2015 

Surna Inc. (OTCQB: SRNA), a technology company that engineers equipment for controlled environment agriculture (CEA) with special expertise in cannabis cultivation, reported its financial results for the three and nine months ended September 30, 2016.

"Last week, eight states, including California, initiated legalization of cannabis or expanded their status to include adult recreational use. This is expected to fuel tremendous growth in the CEA equipment market as these states come online in the next few years," stated Surna's President and Chief Executive Officer Trent Doucet. "To prepare for this significant increase in demand, we have been strengthening our foundation by improving our infrastructure, customer service policies and project management procedures. Through more efficient cost management, in the third quarter of 2016 compared to the same period in 2015, we increased our gross margin, improved our bottom line and grew our deferred revenue, even though our revenue decreased primarily due to delays in customer readiness to acceptance equipment.

"We are gaining recognition with our energy-efficient solutions coupled with our expertise in climate conditions necessary for optimal product yield. As energy is one of the largest cultivation operating expenses, we believe our technology will provide a significant competitive advantage as the market continues to grow dramatically. Additionally, we are in the process of establishing a regional sales organization and creating recurring revenue streams via service contracts. To that end, we are developing dynamic, proactive management systems to optimize energy usage, maximize equipment reliability, and leverage intelligent equipment that can be easily automated to reliably cultivate crops. Further, we expect to leverage our relationship with Surna-only Sterling Pharms to demonstrate our products and technology. We are very excited about our progress and the expanding opportunity."

ISIDEO, a LEEDs certified consultant, estimated, using a simulation of the current Surna model, the Hybrid Building may be able to reduce energy by 60% over the course of a year over traditional cultivation. A scale of the Hybrid Building will be exhibited in booth 329 at the Marijuana Business Conference & Expo® in Las Vegas from November 16 to 18.

Results for Third Quarter: 2016 Compared to 2015 

• Revenue was $1.2 million, compared to $3.6 million, primarily due to delays in customer readiness to acceptance equipment. Surna continues to expect quarterly sales will fluctuate due primarily to the timing of state legislation, procedural set up, licensing and general availability.
• Cost of revenue was $754,000, compared to $3.1 million, due to lower sales and the more efficient cost and supply chain management.
• Gross margin increased to 35.6%, compared to 14.0%.
• Operating expenses decreased to $654,000, compared to $1.0 million.
  • SG&A and marketing expenses were reduced to $582,000, compared to $825,000, due to reduced personnel costs and cost containment.
  • Product development costs decreased to $72,000, compared to $224,000 as the Surna Reflector and the Hybrid Building transitioned to production.
• Operating loss improved to $237,000 from $540,000.
• Net loss was $669,000, or $0.00 per share, compared to $1.3 million, or $0.01 per share.

Balance Sheet Highlights  

Cash on hand was $235,000 at September 30, 2016, compared to $331,000 at December 31, 2015. Deferred revenue increased to $1.4 million at September 30, 2016, from $986,000 at December 31, 2015.

Subsequent to quarter end, on October 31, Surna began private negotiations with certain holders of certain 10% convertible promissory notes and warrants with a view to converting the notes and amending the terms of the warrants, which would reduce outstanding indebtedness and make it more likely that holders would exercise the warrants. .  Surna anticipates reporting on the results of these negotiations when they are completed.  

Results for First Nine Months: 2016 Compared to 2015 

Revenue was $5.6 million, compared to $6.2 million.  Gross margin, which included the impact of the $455,000 warranty charge in the second quarter, increased to 32.7%, compared to 13.7%. Net loss was $2.1 million, or $0.02 per share, compared to $3.7 million, or $0.03 per share.

Conference Call  

Management will review the results on a conference call today, November 14, 2016, at
9:00 a.m. MT/ 11:00 a.m. ET. To access the conference call, please dial 855-327-6837, if calling from the United States or Canada, or 631-891-4304, if calling internationally, and use passcode 10001959.

A replay of the call will be available until November 18, 2016, which can be accessed by dialing 844-512-2921, if calling from the United States or Canada, or 412-317-6671, if calling internationally. Please use passcode 10001959 to access the replay.

The call will be webcast and available at http://www.surna.com/investor-relations where a transcript of the call will also be provided shortly after it concludes.  

About Surna 

Surna Inc. (http://www.surna.com) develops innovative technologies and products that monitor, control and or address the energy and resource intensive nature of indoor cannabis cultivation. Currently, the company's revenue stream is based on its main product offerings - supplying industrial technology and products to commercial indoor cannabis grow facilities.

Headquartered in Boulder, CO, Surna's diverse engineering team is tasked with creating novel energy and resource efficient solutions, including the company's signature water-cooled climate control platform. The company's engineers continuously seek to create technology that solves the highly specific demands of the cannabis industry for temperature, humidity, light and process control.

Surna's goal is to provide intelligent solutions to improve the quality, the control and the overall yield and efficiency of CEA. Though its clients do, the company neither produces nor sells cannabis.

Forward Looking Statements 

This press release contains forward-looking statements regarding the Company's future business expectations, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors including Surna's ability to monetize service components, Surna's support of premium prices for existing products, commercialization of research and development efforts and continued expansion of legal cannabis markets. Other risks and uncertainties include, among others, risks related to new products, services, and technologies, government regulation and taxation, and fraud. In addition, the current global economic climate amplifies many of these risks. More information about factors that potentially could affect Surna's financial results is included in Surna's filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and subsequent filings. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Statement About Cannabis Markets 

The use, possession, cultivation, and distribution of cannabis is prohibited by 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.  What was the law last week is not the law today and what is the law today may not be the law next week.  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 the cannabis industry is a high-risk investment. 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 Inc.
Condensed Consolidated Balance Sheets
   
                                                 Sept. 30, 2016         Dec. 31, 2015
                                                    Unaudited
    ASSETS
    Current Assets
    Cash                                    $           235,455    $          330,557
    Accounts receivable (net of allowance
    for doubtful accounts of $85,000 and
    $40,873, respectively)                               48,710               299,194
    Notes receivable                                    187,218               207,218
    Interest receivable                                  19,412                 -
    Inventory                                           916,486             1,261,802
    Prepaid expenses                                    176,758               193,969
    Total Current Assets                              1,584,039             2,292,740

    Noncurrent Assets
    Property and equipment, net                         100,738               162,530
    Intangible assets, net                              665,723               647,464
    Total Noncurrent Assets                             766,461               809,994

    TOTAL ASSETS                            $         2,350,500    $        3,102,734

    LIABILITIES AND SHAREHOLDERS' DEFICIT

    Current Liabilities
    Accounts payable and accrued
    liabilities                             $         1,223,296    $        2,066,803
    Deferred revenue                                  1,420,974               986,445
    Current portion long term debt                            -                 1,551
    Amounts due shareholders                             60,000               216,995
    Accrued interest                                      2,263                 -
    Convertible promissory notes, net                 2,272,694             1,227,761
    Convertible accrued interest                        467,074               201,257
    Derivative liability on conversion
    feature                                                   -               472,967
    Derivative liability on warrants                    287,406               139,192
    Total Current Liabilities                         5,733,707             5,312,971

    Noncurrent Liabilities
    Amounts due shareholders-long term                   15,989                     -
    Convertible promissory notes, net                         -               523,822
    Convertible accrued interest                              -                80,674
    Vehicle loan                                              -                32,564
    Total Noncurrent Liabilities                         15,989               637,060

    TOTAL LIABILITIES                                 5,749,696             5,950,031

    SHAREHOLDERS' DEFICIT
    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;
    145,268,135 and 125,839,862 shares
    issued and outstanding, respectively                  1,452                 1,259
    Paid in capital                                   9,780,598             8,214,271         
    Accumulated deficit                             (13,182,018)          (11,063,599)                                                                 
    Total Shareholders' Deficit                      (3,399,196)           (2,847,297)

    TOTAL LIABILITIES AND SHAREHOLDERS'
    DEFICIT                                 $         2,350,500    $        3,102,734

Surna Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)


   
                     For the Three Months Ended           For the Nine Months Ended
                            September 30,                       September 30,
                       2016                 2015           2016                  2015
    Revenue        $ 1,170,760          $ 3,634,091    $ 5,560,837           $ 6,182,936

    Cost of          
    revenue            753,624            3,125,151      3,740,488             5,338,230

    Gross margin       417,136              508,940      1,820,349               844,706

    Operating
    expenses:
    Advertising
    and marketing                                                        
    expenses          14,319                148,656         56,852               324,110
    Product
    development                            
    costs             72,184                224,365        272,410               533,808
    Selling,
    general and
    administrativ  
    e expenses       567,512                676,325      1,662,183             2,097,513
    Total
    operating        
    expenses         654,015              1,049,346      1,991,445             2,955,431

    Operating                
    income (loss)   (236,879 )             (540,406 )     (171,096 )          (2,110,725 )

    Other income
    (expense):
    Interest and
    other income,
    net               10,576                     -          19,060                     -
    Interest         
    expense          (89,203 )             (78,938 )      (282,657 )            (367,497 )
    Amortization
    of debt
    discount on
    convertible
    promissory       
    notes           (291,000 )             (716,078 )   (1,335,429 )          (1,727,126 )
    (Loss) gain
    on change in
    derivative       
    liabilities      (62,000 )                    -       (348,297 )             474,873
    Total other      
    (expense)       (431,627 )             (795,016 )   (1,947,323 )          (1,619,750 )

    Loss from
    continuing
    operations
    before
    provision for    
    income taxes    (668,506 )           (1,335,422 )   (2,118,419 )          (3,730,475 )

    Provision for
    income taxes           -                      -              -                     -

    Net loss        (668,506 )           (1,335,422 )   (2,118,419 )           (3,730,475 )

    Other
    comprehensive
    income
    (expense)                                                    -                      -
    Comprehensive    
    loss           $(668,506 )        $ (1,335,422 )  $ (2,118,419 )         $ (3,730,475 )

    Loss per
    common share
    - basic and
    dilutive       $  (0.00)          $      (0.01 )  $     (0.02 )          $      (0.03 )

Surna Marketing
Jamie English
Marketing Manager
[email protected]
+1-303-993-5271

Investor Relations
Kirsten Chapman/ Becky Herrick
LHA Investor Relations
[email protected]  
+1-(415)-433-3777

SOURCE Surna Inc.