Surna Inc. announced operating and financial results for the three and nine months ended September 30, 2020.
Financial Highlights
| ● | As of September 30, 2020, our cash was $2,072,000, compared to cash of $922,000 as of December 31, 2019. Our working capital deficit was $1,793,000 as of September 30, 2020, compared to a working capital deficit of $1,437,00 as of December 31, 2019. Our continued focus on disciplined cash management has helped us weather the financial uncertainties of the current pandemic. | |
| ● | Our Q3 2020 gross profit margin was 32.3% compared to 28.6% for Q3 2019, an increase of 3.6 percentage points. | |
| ● | Our Q3 2020 revenue was $1,635,000, which represents a 70% decrease compared to Q3 2019 revenue of $5,524,000. | |
| ● | For Q3 2020, our operating loss and net loss was $283,000 and $270,000, respectively. This compares to a Q3 2019 operating income and net income of $277,000 and $222,000, respectively. | |
| ● | Our Q3 2020 adjusted net loss was $186,000, compared to a Q3 2019 adjusted net income of $365,000. |
Previous 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.
Recent Sales Contracts and Stability of Operations
During the third quarter of 2020, we entered into new sales contracts totaling approximately $4.4 million, including our largest-ever single contract for $2.8 million, most of which we expect to be realized as revenue in 2020. This level of contract booking is among the highest for the Company in the last several years. To meet this new demand, we have restored our hourly workforce to full-time status and recalled those previously on furlough.
Despite this good news, 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.
Product Development Initiatives
We have a sales and marketing program that generates many prospective customer relationships. However, our limited range of higher cost products, mostly chilled water systems, reduces the number of customer prospects who can afford to buy from us. In 2018 we started an aggressive effort to broaden our product and service offerings to provide a wider range of HVAC technical solutions (see chart in our Form 10-Q filed November 12, 2020). In 2018 we began to offer stamped mechanical plan sets and our first 4-pipe chilled water systems. In 2019 we broadened our engineering services to include full MEP (Mechanical, Electrical, and Plumbing) design services. We also began to offer our SentryIQ™ Controls System. And in 2020 we added new products to include: split system DX (direct expansion) with integrated dehumidification, packaged DX systems with modulating hot gas reheat, heat recovery chiller/boiler for 4-pipe systems, and we recently added our StrataAir™ racking airflow solution to address customer needs for multi-level cultivation facilities. These various systems provide solutions to answer a broader range of technical and cost constraints and we will continue to develop and offer new solutions to our customers’ problems, so that a broader group of growers can take advantage of our engineering expertise and capabilities. We believe these new products and services will increase our addressable market and increase sales, further leveraging our investment in sales and marketing.
The success of our product development initiative can be seen below, which documents the number of commercial-scale projects (over $100,000 sales) that have included one or more of our new products:
| Year | Percent Using New Products |
| 2018 | 35% |
| 2019 | 76% |
| 2020 | (through Q3): 100% |
Tony McDonald, CEO, commented: “The third quarter of this year has seen a dramatic turnaround in Surna’s new project bookings from the first half of the year. Our view has been that cultivation construction projects were delayed and not abandoned as a result of uncertainty around the economic impact of the pandemic. And while we did experience one large and several smaller project cancellations in the second and third quarters, we have been optimistic that project orders would rebound, especially given the continued growth of retail product sales. Fortunately, we saw just that in the third quarter.”
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.
