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What changed in CEA Industries Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of CEA Industries Inc.'s 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+229 added−249 removedSource: 10-K (2025-03-27) vs 10-K (2024-03-29)

Top changes in CEA Industries Inc.'s 2025 10-K

229 paragraphs added · 249 removed · 183 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe do this by offering our customers a variety of service and product offerings that include: (i) architectural design and licensed engineering of commercial scale thermodynamic systems specific to cultivation facilities, (ii) liquid-based process cooling systems and other climate control systems, (iii) air handling equipment and systems, (iv) air sanitation products, (v) LED lighting, (vi) benching and racking solutions for indoor cultivation, (vii) proprietary and third party controls systems and technologies used for environmental, lighting and climate control, and (viii) preventative maintenance services, through our partnership with a certified service contractor network, for CEA facilities.
Biggest changeWe offer our customers a variety of service and product offerings that include: (i) air handling equipment and systems, (ii) air sanitation products, (iii) LED lighting, and (iv) benching and racking solutions for indoor cultivation.
Notwithstanding the actions of the Biden administration, it should be expected that the Department of Justice will continue at this time to enforce the Controlled Substances Act with respect to cannabis under established principles in setting their law enforcement priorities to prevent: ● the distribution of cannabis products, such as marijuana, to minors; 8 ● criminal enterprises, gangs and cartels receiving revenue from the sale of cannabis; ● the diversion of cannabis products from states where it is legal under state law to states where it is not legal under state law; ● the use of state-authorized cannabis activity as a cover or pretext for the trafficking of other illegal drugs or other illegal activity; ● violence and the use of firearms in the cultivation and distribution of cannabis products; ● driving while impaired and the exacerbation of other adverse public health and safety consequences associated with cannabis product usage; ● the growing of cannabis on public lands; and ● cannabis possession or use on federal property.
Notwithstanding the actions of the Biden administration, it should be expected that the Department of Justice will continue at this time to enforce the Controlled Substances Act with respect to cannabis under established principles in setting their law enforcement priorities to prevent: ● the distribution of cannabis products, such as marijuana, to minors; ● criminal enterprises, gangs and cartels receiving revenue from the sale of cannabis; ● the diversion of cannabis products from states where it is legal under state law to states where it is not legal under state law; ● the use of state-authorized cannabis activity as a cover or pretext for the trafficking of other illegal drugs or other illegal activity; ● violence and the use of firearms in the cultivation and distribution of cannabis products; ● driving while impaired and the exacerbation of other adverse public health and safety consequences associated with cannabis product usage; ● the growing of cannabis on public lands; and ● cannabis possession or use on federal property.
US Government Regulation While we do not generate any revenue from the direct sale of cannabis products, we have historically, and continue to, offer our services and engineering solutions to indoor cultivators that are engaged in various aspects of the cannabis industry. Cannabis is a Schedule I controlled substance and is illegal under federal law.
US Government Regulation in Relation to Cannabis While we do not generate any revenue from the direct sale of cannabis products, we have historically, and continue to, offer our services and engineering solutions to indoor cultivators that are engaged in various aspects of the cannabis industry. Cannabis is a Schedule I controlled substance and is illegal under federal law.
Our Customers and Prospects We aim to provide our services and products to customers who are building, upgrading, or expanding an indoor cultivation facility for any crop. Our customers vary based on the size of the facility, type of crop being cultivated, and extent of construction or retrofitting of the facility.
Our CEA Customers and Prospects We aim to provide our services and products to customers who are building, upgrading, or expanding an indoor cultivation facility for any crop. Our customers vary based on the size of the facility, type of crop being cultivated, and extent of construction or retrofitting of the facility.
However, we may engage, and have in the past utilized, the services of consultants, independent contractors, and other non-employee professionals. Additional employees may be hired in the future depending on need, available resources, and our achieved growth. The Company has experienced a decline in activity, as indicated in its 2023 sales and its current backlog.
However, we may engage, and have in the past utilized, the services of consultants, independent contractors, and other non-employee professionals. Additional employees may be hired in the future depending on need, available resources, and our achieved growth. The Company has experienced a decline in activity, as indicated in its 2024 sales and its current backlog.
We actively protect our inventions, new technologies, and product developments by maintaining trade secrets and, in limited circumstances, filing for patent protection. Employees We currently have 10 active full-time employees. We review our staffing needs in light of our contract obligations and attempt to size and skill match our employees as required.
We actively protect our inventions, new technologies, and product developments by maintaining trade secrets and, in limited circumstances, filing for patent protection. 6 Employees We currently have 6 active full-time employees. We review our staffing needs in light of our contract obligations and attempt to size and skill match our employees as required.
Our Services and Equipment Solutions Our goal is to develop relationships with our prospects and customers that will afford us the opportunity to provide comprehensive services and equipment for the complete lifecycle of indoor agriculture facilities.
Our Current CEA Services and Equipment Solutions Our goal is to develop relationships with our prospects and customers that will afford us the opportunity to provide comprehensive services and equipment for the complete lifecycle of indoor agriculture facilities.
Item 1. Business Overview CEA Industries, through our subsidiary, Surna Cultivation Technologies LLC, is focused on selling environmental control and other technologies and services to the Controlled Environment Agriculture (“CEA”) industry.
Item 1. Business Overview CEA Industries, through our subsidiary, Surna Cultivation Technologies LLC, has been focused on selling environmental control and other technologies and services to the Controlled Environment Agriculture (“CEA”) industry.
Intellectual Property We rely on a combination of patent and trademark rights, licenses, trade secrets, and laws that protect intellectual property, confidential procedures, and contractual restrictions with our employees and others to establish and protect our intellectual property rights.
Intellectual Property In our business operations, we generally rely on a combination of patent and trademark rights, licenses, trade secrets, and laws that protect intellectual property, confidential procedures, and contractual restrictions with our employees and others to establish and protect our intellectual property rights.
The CEA industry aims to optimize the use of horticultural resources such as water, energy, space, capital, and labor, to create an agriculture business that is more efficient and more productive than those that use traditional farming methods. Typically, the CEA industry is focused on indoor agriculture and vertical farming.
The CEA industry aims to optimize the use of horticultural resources such as water, energy, space, capital, and labor, to create an agriculture business that is more efficient and more productive than those that use traditional farming methods.
In January 2023, the FDA stated that given the growing cannabidiol (CBD) products market, it had convened a high-level internal working group to explore potential regulatory pathways for CBD products and is prepared to find a new regulatory pathway for CBD to balance individuals’ desire for access to CBD products with the regulatory oversight needed to manage risks.
In January 2023, the FDA stated that given the growing cannabidiol (CBD) products market, it had convened a high-level internal working group to explore potential regulatory pathways for CBD products and is prepared to find a new regulatory pathway for CBD to balance individuals’ desire for access to CBD products with the regulatory oversight needed to manage risks. 7 Currently, there is much legislation being considered to reform cannabis products and use.
The Justice Department maintains that it can still prosecute violations of the federal cannabis laws and continue cases already in the courts. The Rohrabacher-Blumenauer Amendment must be re-enacted every year, and it is continued through March 8, 2024. However, state laws do not supersede the prohibitions set forth in the federal drug laws.
The Justice Department maintains that it can still prosecute violations of the federal cannabis laws and continue cases already in the courts. The Rohrabacher-Blumenauer Amendment must be re-enacted every year, and it is continued through March 8, 2024.
In September 2023, the MORE Act was introduced that would provide full federal legalization through descheduling with a particular focus on equity provisions, including expungement for certain cannabis offenses and a community reinvestment program. The MORE Act has not passed through committee.
The proposed laws cover a wide spectrum from complete federal legalization to specific industry nuances. In September 2023, the MORE Act was introduced that would provide full federal legalization through descheduling with a particular focus on equity provisions, including expungement for certain cannabis offenses and a community reinvestment program. The MORE Act has not passed through committee.
Headquartered in Colorado, we aim to provide customers with a variety of value-added technology solutions 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.
Typically, the CEA industry has been focused on indoor agriculture and vertical farming. 4 Headquartered in Colorado, we aim to provide customers with a variety of value-added technology solutions 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.
In addition, all owners and employees must obtain an occupational license to be permitted to own or work in a facility. All applicants for licenses undergo a background investigation, including a criminal record check for all owners and employees.
As an example, Colorado issues four types of business licenses including cultivation, manufacturing, dispensing, and testing. In addition, all owners and employees must obtain an occupational license to be permitted to own or work in a facility. All applicants for licenses undergo a background investigation, including a criminal record check for all owners and employees.
While we do not intend to harvest, manufacture, distribute or sell cannabis or cannabis products, we may be irreparably harmed by a change in the enforcement of cannabis laws by the federal or state governments. 7 In the past, the Obama administration took the position that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana.
In the past, the Obama administration took the position that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana.
The part of the CEA industry focused on food related crops is also facing disruption from evolving market demand, competition, and reorganization, including the lack of growth capital and several noteworthy bankruptcies. We support our clients by providing integrated mechanical, electrical, and plumbing (“MEP”) engineering design, proprietary and curated environmental control equipment, and automation offerings that serve the CEA industry.
The part of the CEA industry focused on food related crops is also facing disruption from evolving market demand, competition, and reorganization, including the lack of growth capital and several noteworthy bankruptcies.
In order to participate in either the medical or the adult use aspects of the cannabis industry, all businesses and employees must obtain licenses from the state and, for businesses, local jurisdictions as well. As an example, Colorado issues four types of business licenses including cultivation, manufacturing, dispensing, and testing.
However, state laws do not supersede the prohibitions set forth in the federal drug laws. 8 In order to participate in either the medical or the adult use aspects of the cannabis industry, all businesses and employees must obtain licenses from the state and, for businesses, local jurisdictions as well.
Any change in the federal government’s enforcement of current federal laws could cause significant financial damage to us.
Any change in the federal government’s enforcement of current federal laws could cause significant financial damage to us. While we do not intend to harvest, manufacture, distribute or sell cannabis or cannabis products, we may be irreparably harmed by a change in the enforcement of cannabis laws by the federal or state governments.
We believe this sustainability-focused technical experience is crucial in the value we provide to our customers. Shares of our common stock and warrants currently are traded on the Nasdaq Capital Markets under the ticker symbols “CEAD” and “CEADW”, respectively. We received a continued listing deficiency letter and must satisfy the deficiency prior to April 9, 2024.
Shares of our common stock and warrants currently are traded on the Nasdaq Capital Markets under the ticker symbols “CEAD” and “CEADW”, respectively.
Since we do not install any of the products we sell, our customers are required to use third-party installation contractors, which adds to the variability of the sales cycle. 6 Our Competition Our environmental control systems and our related engineering and design services compete with various national and local Mechanical, Electrical & Plumbing (MEP) engineering firms.
Competition in the CEA Marke t Our environmental control systems and our related engineering and design services compete with various national and local Mechanical, Electrical & Plumbing (MEP) engineering firms.
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During our years in business we have served hundreds of commercial indoor CEA facilities. We believe our customers partner with us because we have the reputation and experience to help them make cost-conscious and effective decisions on the design and engineering of their indoor cultivation facilities.
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Recent Developments – Acquisition of Fat Panda We have entered into an acquisition agreement to acquire a group of Manitoba corporations that own all the assets used in the business of Fat Panda Ltd. (“Fat Panda”).
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CEA facilities are resource intensive, and a growing list of states have implemented building code changes that limit energy consumption in cultivation facilities. Energy and resource efficiency is a high priority to us as engineers, and the senior engineers on our team hold the Leadership in Energy and Environmental Design (“LEED”) credential.
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Fat Panda is engaged in the manufacture, distribution and retail sale of e-cigarettes, vape devices and e-liquids and related products through multiple retail locations in the provinces of Manitoba, Ontario, and Saskatchewan, Canada, as well as through its online e-commerce site.
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If we do not satisfy the deficiency our securities will be removed from trading on Nasdaq by action of the exchange. We believe our securities will then trade on the OTC. We do not anticipate applying for listing on the higher tiers of the OTC.
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Fat Panda, we believe, is central Canada’s largest retailer and manufacturer of e-cigarettes, vape devices and e-liquids, with a market share exceeding 50% in the region. Fat Panda operates 33 retail locations, including 29 Fat Panda stores and four Electric Fog vape outlets. Fat Panda also serves a wide range of customers through its online e-commerce platform.
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We will continue to be a reporting company with the Securities and Exchange Commission, and we anticipate that brokers will continue to be able to make share transactions in our securities, although they will be subject to trading requirements that will substantially restrict the ability of our stockholders to make share sales and others to make share purchases. 5 Impact of the COVID-19 Pandemic on Our Business The impact of the government and the business economic response to the COVID-19 pandemic affected demand across the majority of our markets and disrupted workflow and completion schedules on projects.
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Its retail footprint is complemented by a comprehensive portfolio of products, including its own line of premium e-liquids manufactured in-house, along with a robust portfolio of trademarks and intellectual property.
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We believe we continue to have adverse effects on our sales, project implementation, supply chain infrastructure, operating margins, costs, and working capital, as a result of the pandemic.
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The acquisition will include all the assets of Fat Panda, including among other things, the leases for the retail outlets, intellectual property, inventory, government licenses and permits, franchise agreements, manufacturing facilities and supply agreements, which are necessary for the ongoing manufacturing and retail operations of Fat Panda.
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Due to this uncertainty, we continue to monitor costs and continue to take actions to reduce costs in order to mitigate the long-term impact of the COVID-19 pandemic to the best of our ability. However, these actions may not be sufficient in the long run to avoid reduced sales, increased losses, and reduced operating cash flows in our business.
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The acquisition will continue the employment of the current management and of the production and retail staff, for the uninterrupted, continuous operations of the business. The sellers will enter into non-competition agreements at closing. Certain of the senior management persons will enter into employment agreements for their continued employment after the closing of the acquisition.
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During the years ended December 31, 2023 and December 31, 2022, and continuing since then, the Company experienced delays in the receipt of equipment it had ordered to meet its customer orders due to disruption and delays in its supply chain.
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The purchase price is CAD$18,000,000 (approximately, US$12,600,000), payable in cash, securities and seller loans. The Company also expects to borrow part of the cash portion of the purchase price, in an amount yet to be determined, which will be secured by the assets of Fat Panda.
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Consequently, our revenue recognition of some customer sales has been delayed until future periods when the shipment of orders can be completed. Impact of Ukrainian and Israeli Conflicts We believe that the conflicts involving Ukraine and Israel do not have any direct impact on our operations, financial condition, or financial reporting.
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The purchase price includes an initial cash payment of CAD$13,900,000, issuance of 39,000 shares of the common stock of the Company with an agreed aggregate value of CAD$700,000 (approximately CAD$18.00 per share), and issuance of notes to the sellers in the aggregate principal amount of CAD$2,060,000, and release of a CAD$100,000 due diligence deposit.
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We believe the conflicts will have only a general impact on our operations in the same manner as it is having a general impact on all businesses that have their operations limited to North America resulting from international sanction and embargo regulations, possible shortages of goods and goods incorporating parts that may be supplied from countries involved in the conflicts, supply chain challenges, and the international and US domestic inflation resulting from the conflict and government spending in relation to the conflicts.
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The Company is also agreeing to pay certain financial statement audit expenses of the selling parties. Of the notes to be issued by Fat Panda to the selling parties, one of the notes in the principal amount of CAD$1,030,000, is convertible into the common stock of the Company at a conversion rate of USD$19.00 per share.
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As our operations are related only to the North American controlled agricultural industry, largely within the cannabis space, we do not believe we will be targeted for cyber-attacks related to the conflicts.
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At closing the following will occur: first, a portion of the cash purchase price in the amount of CAD$1,375,000 will be held in a joint escrow account for 120 days after closing as a working capital adjustment escrow; second, the sum of CAD$1,240,000, will be paid into escrow for possible indemnity claims to be held for 18 months; and third, the purchase price will be reduced by CAD$112,500 and the sum of CAD$112,500 will be paid into escrow to be held for 18 months, both in relation to employee obligation claims under Canadian employment law.
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We have no operations in the countries directly involved in the conflict or are specifically impacted by any of the sanctions and embargoes, as we principally operate in the United States and Canada. We do not believe that the conflicts will have any impact on our internal control over financial reporting.
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Completion of the acquisition is subject to a number of conditions, which include the preparation and delivery of the Fat Panda companies audited consolidated financial statements and unaudited interim consolidated financial statements, satisfaction of the financial condition of Fat Panda, completion of due diligence by the Company, receipt of all necessary government approvals and licenses, and continuation and reformation of the various retail location leases.
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Other than general securities market trends, we do not have reason to believe that investors will evaluate the company as having special risks or exposures related to the conflicts.
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Completion is also subject to the Company obtaining financing for a portion of the cash purchase price. The acquisition agreement also provides for the selling persons to make representations and warranties and undertake certain covenants about many aspects of the business of Fat Panda that shall be true and correct and performed at or prior to closing.
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Sales and Marketing Our sales strategy involves reaching out to potential customers on leads developed by our marketing efforts and developing those relationships. Our sales cycle can range from several months to 18 months from first contact with a prospect to signing a contract.
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The representations, warranties and covenants are those that are typical in relation to the acquisition of an operating business.
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As a result, the Company evaluated its current operations, personnel needs and liquidity to make sure our personnel levels match the activity we expect to service over the next several months.
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The Company has also made certain representations, warranties and covenants, the principal one of which is to obtain financing for a part of the purchase price, which if not obtained will permit the Company to terminate the purchase agreement. 5 The Company anticipates that it will complete the acquisition in the first half of fiscal year 2025.
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On January 5, 2024, we implemented a downsizing of our operations, including a 23% reduction in our workforce, and significant non-personnel cost reductions in order to preserve our cash resources and better reflect our activity levels.
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Currently, there is much legislation being considered to reform cannabis products and use. The proposed laws cover a wide spectrum from complete federal legalization to specific industry nuances.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur future success depends on our ability to grow and expand our customer base. Our failure to achieve such growth or expansion could materially harm our business. Our success depends on us achieving greater and broader acceptance of our products and services. This will require us to expand our commercial customer base and win larger contracts.
Biggest changeOur success depends on us achieving greater and broader acceptance of our products and services in our current and proposed business operations. This will require us to expand our commercial customer base and win larger contracts. There can be no assurance that customers will purchase our services or products or that we will continue to expand our customer base.
If an ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our post tax income by effectively increasing our future tax obligations. We may not be able to successfully identify, consummate or integrate acquisitions or to successfully manage the impacts of such transactions on our operations.
If an ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our post tax income by effectively increasing our future tax obligations. 16 We may not be able to successfully identify, consummate or integrate acquisitions or to successfully manage the impacts of such transactions on our operations.
In addition, we have a substantial number of options and warrants outstanding held by investment bankers who provided us with underwriting and placement services that were issued warrants and employees that were issued options. To the extent that these are exercised for shares, there may be pressure on our stock price while the market absorbs them.
In addition, we have a substantial number of options and public warrants outstanding held by investment bankers who provided us with underwriting and placement services that were issued warrants and employees that were issued options. To the extent that these are exercised for shares, there may be pressure on our stock price while the market absorbs them.
The precise amount and timing of our funding needs cannot be determined accurately at this time, and will depend on a number of factors, including market demand for our products and services, the success of our product development efforts, the timing of receipts for customer payments, the management of working capital, and the continuation of normal payment terms and conditions for our purchase of goods and services.
The precise amount and timing of our funding needs cannot be determined accurately at this time, and will depend on a number of factors, including demand for our products and services, the success of our product development efforts, the timing of receipts for customer payments, the management of working capital, and the continuation of normal payment terms and conditions for our purchase of goods and services.
We cannot be assured that we will have a remedy for breach of contract, which would have a material adverse effect on our business. Due to our involvement in the cannabis industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liability.
We cannot be assured that we will have a remedy for breach of contract, which would have a material adverse effect on our business. 21 Due to our involvement in the cannabis industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liability.
There can be no assurance that we will be able to make any additional sales of products or services in Canada. 20 Variations in state and local regulation and enforcement in states that have legalized cannabis may impose certain restrictions on cannabis-related activities that may adversely impact our revenue and earnings.
There can be no assurance that we will be able to make any additional sales of products or services in Canada. Variations in state and local regulation and enforcement in states that have legalized cannabis may impose certain restrictions on cannabis-related activities that may adversely impact our revenue and earnings.
Shortages in qualified personnel could limit our ability to increase sales of existing products and services and launch new product and service offerings. 16 We are dependent upon certain key sales, managerial and executive personnel for our future success. If we lose any of our key personnel, our ability to implement our business strategy could be significantly harmed.
Shortages in qualified personnel could limit our ability to increase sales of existing products and services and launch new product and service offerings. We are dependent upon certain key sales, managerial and executive personnel for our future success. If we lose any of our key personnel, our ability to implement our business strategy could be significantly harmed.
Any inroads these companies make in halting or impeding legislative initiatives that would be beneficial to the cannabis industry could have a detrimental impact on our clients and, in turn on our operations. Changing legislation and evolving interpretations of law, could negatively impact our clients and, in turn, our operations.
Any inroads these companies make in halting or impeding legislative initiatives that would be beneficial to the cannabis industry could have a detrimental impact on our clients and, in turn on our operations. 19 Changing legislation and evolving interpretations of law, could negatively impact our clients and, in turn, our operations.
All of the foregoing may impact our customers’ ability to purchase our products and services, which may adversely affect our business, revenue and earnings. 22 Most, if not all, of our customers are impacted by Section 280E of the Code, which limits certain expenses marijuana companies can deduct.
All the foregoing may impact our customers’ ability to purchase our products and services, which may adversely affect our business, revenue and earnings. Most, if not all, of our customers are impacted by Section 280E of the Code, which limits certain expenses marijuana companies can deduct.
The departure of any one of our key employees could have a material adverse effect on our ability to achieve our business objective and maintain the specialized services that we offer our customers. We have a limited number of employees that may not be sufficient to service our contracts.
The departure of any one of our key employees could have a material adverse effect on our ability to achieve our business objective and maintain the specialized services that we offer our customers. 15 We have a limited number of employees that may not be sufficient to service our contracts.
The pursuit of acquisitions may pose certain risks to us. We may not be able to identify acquisition candidates that fit our criteria for growth and profitability. Even if we are able to identify such candidates, we may not be able to acquire them on terms or financing satisfactory to us.
The pursuit of any acquisitions may pose certain risks to us. We may not be able to identify acquisition candidates that fit our criteria for growth and profitability. Even if we are able to identify such candidates, we may not be able to acquire them on terms or financing satisfactory to us.
Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported results. 17 Our ability to use net operating losses to offset future taxable income may be subject to limitations.
Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported results. Our ability to use net operating losses to offset future taxable income may be subject to limitations.
If we cannot operate profitably, we may have to suspend or cease operations. We may extend credit to our customers in the future and, if we are unable to collect these accounts receivable, our future profitability could be adversely impacted.
If we cannot operate profitably, we may have to suspend or cease operations. We may extend credit to our CEA customers in the future and, if we are unable to collect these accounts receivable, our future profitability could be adversely impacted.
These effects, among others, could have an adverse effect on your investment in our common stock. 24 Registration rights and Rule 144 sales contain risks for shareholders.
These effects, among others, could have an adverse effect on your investment in our common stock. Registration rights and Rule 144 sales contain risks for shareholders.
We depend on third party suppliers around the world, including those in The People’s Republic of China, for materials used to assemble our products. Any of these suppliers could fail to produce products to our specifications or in a workmanlike manner and may not deliver the material or products on a timely basis.
We depend on third party suppliers around the world, including those in The People’s Republic of China, for materials used in our CEA operations, to assemble our products. Any of these suppliers could fail to produce products to our specifications or in a workmanlike manner and may not deliver the material or products on a timely basis.
The price of our securities in the market on any particular day depends on many factors including, but not limited to, the following: ● our ability to maintain the listing of our securities on the Nasdaq Stock Market, and our ability to satisfy current continued listing standards, including the current deficiency prior to April 9, 2024; ● price and volume fluctuations in the overall stock market from time to time; ● investor demand for our shares and warrants; ● significant volatility in the market price and trading volume of companies in the cannabis industry; ● variations in our operating results and market conditions specific to our business; ● the emergence of new competitors or new technologies; 23 ● operating and market price performance of other companies that investors deem comparable; ● changes in our Board of Directors (the “Board”) or management; ● sales or purchases of our securities by insiders, including sales of our common stock issued to employees, directors and consultants under our equity incentive plans which were registered under the Securities Act of 1933, as amended (the “Securities Act”) under our S-8 registration statement; ● commencement of, or involvement in, litigation; ● changes in governmental regulations, in particular with respect to the cannabis industry; ● actual or anticipated changes in our earnings, and fluctuations in our quarterly operating results; ● market sentiments about the cannabis industry; ● general economic conditions and trends; and ● departures of any of our key employees.
The price of our securities in the market on any particular day depends on many factors including, but not limited to, the following: ● our ability to maintain the listing of our securities on the Nasdaq Stock Market, and our ability to satisfy current continued listing standards; ● price and volume fluctuations in the overall stock market from time to time; ● investor demand for our shares and warrants; ● significant volatility in the market price and trading volume of companies in the cannabis industry; ● variations in our operating results and market conditions specific to our business; ● the emergence of new competitors or new technologies; ● operating and market price performance of other companies that investors deem comparable; ● changes in our Board of Directors (the “Board”) or management; ● sales or purchases of our securities by insiders, including sales of our common stock issued to employees, directors and consultants under our equity incentive plans which were registered under the Securities Act of 1933, as amended (the “Securities Act”) under our S-8 registration statement; ● commencement of, or involvement in, litigation; ● changes in governmental regulations, in particular with respect to the cannabis industry; ● actual or anticipated changes in our earnings, and fluctuations in our quarterly operating results; ● market sentiments about the cannabis industry; ● general economic conditions and trends; and ● departures of any of our key employees.
Our suppliers may also have to obtain inventories of the necessary parts and tools for production. Any change in our suppliers’ approach to resolving production issues could disrupt our ability to fulfill orders and could also disrupt our business due to delays in finding new suppliers, providing specifications and testing initial production.
Our suppliers may also have to obtain inventories of the necessary parts and tools for production. Any change in our suppliers’ approach to resolving production issues could disrupt our ability to fulfil orders and could also disrupt our business due to delays in finding new suppliers, providing specifications and testing initial production.
We have a substantial number of options and warrants outstanding, which if exercised for shares of common stock, may put pressure on the market price of a share. We have sold to public investors a substantial number of warrants to purchase common stock from time to time over the next several years.
We have a substantial number of options and public warrants outstanding, which if exercised for shares of common stock, may put pressure on the market price of a share. We have sold to public investors a substantial number of warrants to purchase common stock that may be exercised from time to time over the next several years.
Also, given the complexity and rapid change of the federal, state and local laws pertaining to cannabis, our customers may incur substantial legal costs associated with complying with these laws and in acquiring the necessary state and local licenses required by their business endeavors.
Also, given the complexity and rapid change of the federal, state and local laws pertaining to cannabis, our customers may incur substantial legal costs associated with complying with these laws and in acquiring the necessary state and local licenses required by their business endeavour’s.
Our revenue recognition is dependent upon shipment of the equipment portions of our sales contracts, which, in many cases, may be delayed while our customers complete permitting, prepare their facilities for equipment installation or obtain project financing.
Our revenue recognition in our CEA operations is dependent upon shipment of the equipment portions of our sales contracts, which, in many cases, may be delayed while our customers complete permitting, prepare their facilities for equipment installation or obtain project financing.
Our engineering and design services and solutions are focused on CEA facilities that are able to grow a wide variety of crops beyond that of cannabis, such as leafy greens (kale, Swiss chard, mustard, cress), microgreens (leafy greens harvested at the first true leaf stage), ethnic vegetables and small fruits (such as strawberries, blackberries and raspberries), bell peppers, cucumbers, and tomatoes.
Our engineering and design services and solutions are focused on CEA facilities that are able to grow a wide variety of crops other than that of cannabis, such as leafy greens (kale, Swiss chard, mustard, cress), microgreens (leafy greens harvested at the first true leaf stage), ethnic vegetables and small fruits (such as strawberries, blackberries and raspberries), bell peppers, cucumbers, and tomatoes.
Countries may also adopt other protectionist measures that could limit our ability to offer our products and services. 15 Our inability to effectively protect our intellectual property would adversely affect our ability to compete effectively, our revenue, our financial condition, and our results of operations.
Countries may also adopt other protectionist measures that could limit our ability to offer our products and services. 14 Our inability to effectively protect our intellectual property would adversely affect our ability to compete effectively, our revenue, our financial condition, and our results of operations.
Industry uncertainty, project financing concerns, and the licensing and qualification of our prospective customers, which are out of our control, make it difficult for us to predict when we will recognize revenue.
Uncertainty in the CEA industry, project financing concerns, and the licensing and qualification of our prospective customers, which are out of our control, make it difficult for us to predict when we will recognize revenue.
Our articles of incorporation authorizes us to issue shares of our common stock and options, rights, warrants and appreciation rights relating to our common stock for the consideration and on the terms and conditions established by our Board in its sole discretion.
Our articles of incorporation authorize us to issue shares of our common stock and options, rights, warrants and appreciation rights relating to our common stock for the consideration and on the terms and conditions established by our Board in its sole discretion.
Material acquisitions and other strategic transactions involve a number of risks, including: (i) the potential disruption of our ongoing business; (ii) the distraction of management away from the ongoing oversight of our existing business activities; (iii) incurring additional indebtedness; (iv) the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; (v) an increase in the scope and complexity of our operations; (vi) the disruption of a significant reorganization of the company; and (vii) the loss or reduction of control over certain of our assets.
Material acquisitions and other strategic transactions, such as the acquisition of Fat Panda involve a number of risks, including: (i) the potential disruption of our ongoing business; (ii) the distraction of management away from the ongoing oversight of our existing business activities; (iii) incurring additional indebtedness; (iv) the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; (v) an increase in the scope and complexity of our operations; (vi) the disruption of a significant reorganization of the company; and (vii) the loss or reduction of control over certain of our assets.
The failure to procure the products we need to satisfy our customer contracts would disrupt our business, harm our reputation, result in losses and potently cause us to lose our market. ● We rely on third party manufacturers to supply the equipment we sell or lease.
The failure to procure the products we need to satisfy our customer contracts would disrupt our business, harm our reputation, result in losses and potently cause us to lose our market. ● We rely on third party manufacturers to supply the equipment we sell or lease for our CEA customers.
Court of Appeals for the Ninth Circuit held that the provision prohibits the DOJ from spending funds to prosecute individuals who engage in conduct permitted by state medical-use cannabis laws and who strictly comply with such laws.
McIntosh , the U.S. Court of Appeals for the Ninth Circuit held that the provision prohibits the DOJ from spending funds to prosecute individuals who engage in conduct permitted by state medical-use cannabis laws and who strictly comply with such laws.
Therefore, we may not be able to seek the protection of the bankruptcy courts, and this could materially affect our business or our ability to obtain credit. Our business efforts in Canada present opportunities, but no assurance can be given that our revenues and earnings will be improved on the basis of our addressing the Canadian business.
Therefore, we may not be able to seek the protection of the bankruptcy courts, and this could materially affect our business or our ability to obtain credit. Our historical business efforts in Canada have presented opportunities, but no assurance can be given that our revenues and earnings will be improved on the basis of our addressing the Canadian business.
We may be unable to convert the full contract value of our backlog in a timely manner, or at all. We inconsistently convert our backlog into revenue on a quarter-to-quarter basis.
While we continue our CEA business, we may be unable to convert the full contract value of our backlog in a timely manner, or at all. We inconsistently convert our backlog into revenue on a quarter-to-quarter basis.
These companies generally offer products and services similar or the same as those offered by us. There can be no guarantees that in the future other companies will not enter this arena by developing products that are in direct competition with us or even superior in quality or price.
These companies generally offer products and services similar or the same as those offered by us. There can be no guarantees that in the future other companies will not enter this arena by developing products that are in direct competition with us or even superior in quality or price. The barriers to entry into the CEA industry are not significant.
As a result, we may be subject to the changes within that sector and certain of the regulations and enforcement issues of the cannabis industry. ● We have material weaknesses in our controls and procedures for financial reporting. ● We may not be able to implement a successful growth program and, even if that is successful, we may not manage such a program effectively, which may affect our investors’ return on investment. ● We will need to expand our customer base, developing customers operating in the CEA industry, expanding and developing our products and services for these potential customers and increasing our marketing and achieving timely contract execution. ● Due to supply disruptions and competing demand for products, we continue to experience supply issues similar to other members of our industry.
As a result, we may be subject to the changes within that sector and certain of the regulations and enforcement issues of the cannabis industry. ● We have material weaknesses in our controls and procedures for financial reporting. 9 ● We may not be able to implement a successful growth program and, even if that is successful, we may not manage such a program effectively, which may affect our investors’ return on investment. ● To the extent we continue in the CEA industry, we will need to expand our customer base, expand and develop our products and services and increase marketing and achieve timely contract execution. ● Due to supply disruptions and competing demand for products, we continue to experience supply issues similar to other members of the CEA industry.
As of December 31, 2023, the Company has U.S. federal and state net operating losses (“NOLs”) of approximately $28,840,000, of which $11,196,000 will expire, if not utilized, in the years 2034 through 2037. However, the balance of $17,644,000 NOLs generated subsequent to December 31, 2017, do not expire but may only be used against taxable income to 80%.
As of December 31, 2024, the Company has U.S. federal and state net operating losses (“NOLs”) of approximately $31,985,000, of which $11,196,000 will expire, if not utilized, in the years 2034 through 2037. However, the balance of $20,789,000 NOLs generated subsequent to December 31, 2017, do not expire but may only be used against taxable income to 80%.
Our inability or failure to manage our company effectively could harm our business and materially and adversely affect our operating results and financial condition. Our operating results may fluctuate significantly based on customer acceptance of our services and products, industry uncertainty, project financing concerns, and the licensing and qualification of our prospective customers.
Our inability or failure to manage our company effectively could harm our business and materially and adversely affect our operating results and financial condition. Our operating results may fluctuate significantly based on customer acceptance of our services and products, industry uncertainty, project financing concerns, and regulatory requirements.
There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, that third parties will not otherwise gain access to our trade secrets or proprietary knowledge, or that third parties will not independently develop competitive products with similar intellectual property. We may become subject to additional regulation of CEA facilities.
There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, that third parties will not otherwise gain access to our trade secrets or proprietary knowledge, or that third parties will not independently develop competitive products with similar intellectual property.
Public opinion and support for medical and adult-use marijuana has traditionally been inconsistent and varies from jurisdiction to jurisdiction. While public opinion and support appears to be improving for legalizing medical and adult-use marijuana, it remains a controversial issue subject to differing opinions surrounding the level of legalization (for example, medical marijuana as opposed to legalization in general).
While public opinion and support appears to be improving for legalizing medical and adult-use marijuana, it remains a controversial issue subject to differing opinions surrounding the level of legalization (for example, medical marijuana as opposed to legalization in general).
The inability of our customers to open bank accounts and otherwise access the services of banks, including obtaining credit, may make it more difficult and costly for them to operate and more difficult for such customers to purchase our products and services, which could materially harm our business, revenue and earnings.
The inability of our customers to open bank accounts and otherwise access the services of banks, including obtaining credit, may make it more difficult and costly for them to operate and more difficult for such customers to purchase our products and services, which could materially harm our business, revenue and earnings. 20 We are subject to certain federal regulations relating to cash reporting.
Trading on the OTCQB marketplace was infrequent and in limited volume. Although our common stock is now listed on Nasdaq, along with our public warrants, an active trading market for these securities may never develop or be sustained.
Prior to February 10, 2022, our common stock was quoted on the OTC Markets Group, Inc., OTCQB. Trading on the OTCQB marketplace was infrequent and in limited volume. Although our common stock is now listed on Nasdaq, along with our public warrants, an active trading market for these securities may never develop or be sustained.
As a result, period-to-period comparisons of our results of operations are unlikely to provide a good indication of our future performance. Management expects that, under typical operating conditions, we will experience substantial variations in our revenues and operating results from quarter to quarter. More recently, we have been experiencing a decline in revenues, which has also affected our operating results.
As a result, period-to-period comparisons of our results of operations are unlikely to provide a good indication of our future performance. Management expects that, under typical operating conditions, we will experience substantial variations in our revenues and operating results from quarter to quarter.
If we are unable to achieve effective internal control over financial reporting, or if our independent registered public accounting firm determines we continue to have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our shares could decline, and our reputation may be damaged.
If we are unable to achieve effective internal control over financial reporting, or if our independent registered public accounting firm determines we continue to have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our shares could decline, and our reputation may be damaged. 11 The inability to effectively manage our operational reorganization could harm our business and materially and adversely affect our operating results and financial condition.
We are subject to certain federal regulations relating to cash reporting. The BSA, enforced by FinCEN, requires us to report currency transactions in excess of $10,000, including identification of the customer by name and social security number, to the Internal Revenue Service.
The BSA, enforced by FinCEN, requires us to report currency transactions in excess of $10,000, including identification of the customer by name and social security number, to the Internal Revenue Service.
In addition, if the market for equity stocks of companies in our industry, or the stock market in general, experiences a loss of investor confidence, the market price of our securities could decline for reasons unrelated to our business, financial condition, or results of operations.
Securities litigation could result in substantial costs and divert management’s attention and resources from our business. 22 In addition, if the market for equity stocks of companies in our industry, or the stock market in general, experiences a loss of investor confidence, the market price of our securities could decline for reasons unrelated to our business, financial condition, or results of operations.
Additionally, since 2014, versions of the U.S. omnibus spending bill have included a provision prohibiting the DOJ, which includes the Drug Enforcement Administration, from using appropriated funds to prevent states from implementing their medical-use cannabis laws. In USA vs. McIntosh , the U.S.
The policy of not prosecuting companies complying with state cannabis laws is likely to continue under the Biden Administration. 17 Additionally, since 2014, versions of the U.S. omnibus spending bill have included a provision prohibiting the DOJ, which includes the Drug Enforcement Administration, from using appropriated funds to prevent states from implementing their medical-use cannabis laws. In USA vs.
Under such circumstances, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may still decline to attest to our management’s assessment, or may issue a report that is qualified, if it is not satisfied with our controls, or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. 12 We have identified material weaknesses in our internal control over financial reporting and, if we do not remediate the material weakness or are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected.
Under such circumstances, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may still decline to attest to our management’s assessment, or may issue a report that is qualified, if it is not satisfied with our controls, or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.
Furthermore, we may not execute successfully on commercializing those products because of errors in product planning or timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources. This could result in competitors providing those solutions before we do and a reduction in revenue and earnings.
Furthermore, we may not execute successfully on commercializing those products because of errors in product planning or timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources.
To be able to compete successfully, we will need to offer a wide range of products, have adequate capital for expansion, supply and execution, and develop robust marketing. ● We will need to attract and retain top quality employee talent.
To be able to compete successfully, we will need to offer a wide range of products, have adequate capital for expansion, supply and execution, and develop robust marketing. ● We will need to attract and retain top quality employee talent. We are dependent on certain key sales, managerial and executive personnel for our current and future success.
Three customers accounted for 27%, 26% and 11% of the Company’s revenue for the year ended December 31, 2022. The Company’s accounts receivable from three customers made up 59%, 29%, and 12%, respectively, of the total balance as of December 31, 2023.
The Company’s accounts receivable from three customers made up 59%, 29%, and 12%, respectively, of the total balance as of December 31, 2023.
Any one of these factors could slow or halt the progress and adoption of cannabis for recreational and/or medical purposes, which would limit the overall available market for our products and services, which could adversely impact our business, revenue and earnings. 21 Our customers may have difficulty accessing the service of banks, which may make it difficult for them to purchase our products and services.
Any one of these factors could slow or halt the progress and adoption of cannabis for recreational and/or medical purposes, which would limit the overall available market for our products and services, which could adversely impact our business, revenue and earnings.
Three suppliers accounted for 34%, 17%, and 16% of the Company’s purchases of inventory for the year ended December 31, 2023, and four suppliers accounted for 30%, 17%, 16%, and 11% of the Company’s purchases of inventory for the year ended December 31, 2022.
One supplier accounted for 80% of the Company’s purchases of inventory for the year ended December 31, 2024, and three suppliers accounted for 34%, 17%, and 16% of the Company’s purchases of inventory for the year ended December 31, 2023.
In that event, the trading price of our securities could decline, and you could lose part or all of your investment. 9 Summary Of Risk Factors Our business is subject to a number of risks and uncertainties, including those risks discussed at length in the section below titled “Risk Factors.” These risks include, among others, the following: ● Historically, we have had limited revenues and operated our business with a working capital deficit.
Summary Of Risk Factors Relating to our Current CEA Operations Our CEA business is subject to a number of risks and uncertainties, including those risks discussed at length in the section below titled “Risk Factors.” These risks include, among others, the following: ● Historically, we have had limited revenues and operated our business with a working capital deficit.
If we are unable to maintain our listing on the Nasdaq Market, it is possible that our securities will once again trade on the OTC with the limitations noted above. We received a continued listing deficiency letter and must satisfy the deficiency prior to April 9, 2024.
If we are unable to maintain our listing on the Nasdaq Market, it is possible that our securities will once again trade on the OTC with the limitations noted above.
Any borrowings made to finance operations, which are difficult to obtain from most traditional banks due to the federal laws prohibiting cannabis, could make us more vulnerable to a downturn in our operating results, a downturn in economic conditions, or increases in interest rates on borrowings that are subject to interest rate fluctuations.
Any borrowings made to finance acquisitions and operations, could make us more vulnerable to a downturn in our operating results, a downturn in economic conditions, or increases in interest rates on borrowings that are subject to interest rate fluctuations.
In that event, there is no assurance that we will list our securities on any other trading platform. 25 You may be diluted by future issuances of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.
Investors may be diluted by future issuances of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.
Notwithstanding that capital raise, we expect to need additional funds in the longer term, from time to time, to complete aspects of the overall development of our business plan, such as in connection with the acquisition of strategic assets.
We expect to need additional funds in the longer term, from time to time, to complete aspects of the overall development of our business plan, such as in connection with the acquisition of Fat Panda and other strategic assets. We also anticipate needing additional funds for ongoing operating expenses.
Historically, we have raised equity and debt capital to support our operations. We raised approximately $22 million from a public offering completed in February 2022. As of December 31, 2023, we had working capital of approximately $12,110,000 and our cash balance was approximately $12,508,000.
We raised approximately $22 million from a public offering completed in February 2022. As of December 31, 2024, we had working capital of approximately $9,064,000 and our cash balance was approximately $9,453,000.
Further, under U.S. federal law, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering if certain other elements are met. 19 Despite these laws, the FinCEN Memorandum states that in some circumstances, it is permissible for banks to provide services to cannabis-related businesses without risking FinCEN enforcement.
Further, under U.S. federal law, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering if certain other elements are met.
If any of the following risks actually occur, our business, financial condition, results of operations, and future prospects could be materially and adversely affected.
If any of the following risks actually occur, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of our securities could decline, and you could lose part or all of your investment.
No assurance can be given that we will list our securities on any other trading market. 10 Risk Factors Risks Relating to Our Business Our revenues have been limited, and we will need to obtain financing for any substantive growth, and possibly our continued operations, which may not be available to us.
Risk Factors Risks Relating to Our Current CEA Business Our revenues have been limited, and we will need to obtain financing for any substantive growth, and possibly our continued operations, which may not be available to us. Historically, we have raised equity and debt capital to support our operations.
While we are hopeful that the proportion of non-cannabis revenues might increase over time, decreases in demand from the legal cannabis industry will have a material adverse effect on our revenues and the success of our business operations. 13 The cannabis industry has been an emerging industry over the last several years, and cannabis has only been legalized in some states and remains illegal in other states and under U.S. federal law, making it difficult to accurately forecast the demand for our engineering and product solutions in this specific industry.
The cannabis industry has been an emerging industry over the last several years, and cannabis has only been legalized in some states and remains illegal in other states and under U.S. federal law, making it difficult to accurately forecast the demand for our engineering and product solutions in this specific industry.
As a result, the equipment that our customers acquire from us in the United States may be subject to such seizure and forfeiture. Additionally, a broad interpretation of the law could potentially result in the seizure and forfeiture of proceeds we generate from client payments who are subject to property seizure.
As a result, the equipment that our customers acquire from us in the United States may be subject to such seizure and forfeiture.
One or more of these qualities may allow them to respond more quickly than us to market opportunities. They may be able to devote greater resources to the marketing, promotion and sale of their products and/or services. Competitors may also adopt more aggressive pricing policies and make more attractive offers to clients, employees, strategic partners, distribution channels and advertisers.
They may be able to devote greater resources to the marketing, promotion and sale of their products and/or services. Competitors may also adopt more aggressive pricing policies and make more attractive offers to clients, employees, strategic partners, distribution channels and advertisers. Increased competition is likely to result in price reductions, reduced gross margins and a potential loss of market share.
Furthermore, due to relatively low trading volume of our stock, should one or more large stockholders seek to sell a significant portion of their stock in a short period of time, the price of our stock may decline.
Furthermore, due to relatively low trading volume of our stock, should one or more large stockholders seek to sell a significant portion of their stock in a short period of time, the price of our stock may decline. 23 An active, liquid trading market for our common stock and warrants may not develop or be sustained, and as a result, investors may not be able to sell their common stock at or above their acquisition price, or at all .
The processes of identifying and commercializing products are complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging technological trends our business could be harmed. We have already and may have to continue to commit significant resources to commercializing products before knowing whether our investments will result in products the market will accept.
The processes of identifying and commercializing products are complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging technological or other trends, then our business could be harmed.
The barriers to entry into the CEA industry are not overly significant. Over time we anticipate growth and intensity in our competition. Some of our current and future competition may have longer operating histories, greater name recognition, larger client bases and significantly greater financial, technical, sales and marketing resources.
Over time we anticipate growth and intensity in our competition. Some of our current and future competition may have longer operating histories, greater name recognition, larger client bases and significantly greater financial, technical, sales and marketing resources. One or more of these qualities may allow them to respond more quickly than us to market opportunities.
The inability to effectively manage our operational reorganization could harm our business and materially and adversely affect our operating results and financial condition. If there is any growth in or reorganization of our business and operations, it is likely to place a strain on our management and administrative resources, infrastructure and systems.
If there is any growth in or reorganization of our business and operations, including integrating any acquired business and assets, it is likely to place a strain on our management and administrative resources, infrastructure and systems.
This could materially impair our ability to increase sales and revenue, and materially and adversely affect our margins, which could harm our business and cause our stock price to decline. 14 Our suppliers could fail to fulfill our orders for parts used to assemble our products, which would disrupt our business, increase our costs, harm our reputation, and potentially cause us to lose our market.
Our suppliers in our CEA operations could fail to fulfil our orders for parts used to assemble our products, which would disrupt our business, increase our costs, harm our reputation, and potentially cause us to lose our market.
It refers to and incorporates supplementary Cole Memo guidance issued to federal prosecutors relating to the prosecution of money laundering offenses predicated on cannabis-related violations of the CSA on the same day.
Despite these laws, the FinCEN Memorandum states that in some circumstances, it is permissible for banks to provide services to cannabis-related businesses without risking FinCEN enforcement. It refers to and incorporates supplementary Cole Memo guidance issued to federal prosecutors relating to the prosecution of money laundering offenses predicated on cannabis-related violations of the CSA on the same day.
The amount and timing of additional financing needs will vary principally depending on the timing of new product launches, investments and/or acquisitions, and the amount of cash flow from our operations. If our resources are insufficient to satisfy our cash requirements, we may seek to issue additional equity or debt securities or obtain a credit facility.
The amount and timing of additional financing needs will vary principally depending on the timing of new product launches, investments and/or acquisitions, and the amount of cash flow from our operations.
Part of our business strategy includes evaluating and pursuing synergistic and other acquisitions.
Part of our business strategy includes evaluating and pursuing synergistic and other acquisitions. Currently, we are in the process of acquiring Fat Panda.
We may be unable to differentiate our products from those of our competitors, and our products may not be accepted by the market.
We have already and may have to continue to commit significant resources to commercializing products before knowing whether our investments will result in products the market will accept. We may be unable to differentiate our products from those of our competitors, and our products may not be accepted by the market.
If we are unable to effectively market or expand our product and service offerings, we will be unable to grow and expand our business or implement our business strategy.
If we are unable to effectively market or expand our product and service offerings, we will be unable to grow and expand our business or implement our business strategy. This could materially impair our ability to increase sales and revenue, and materially and adversely affect our margins, which could harm our business and cause our stock price to decline.
As a result, we may become subject to direct and indirect interaction with public officials in one or both the United States and Canada. No assurance can be provided that any heightened scrutiny will not in turn lead to the imposition of restrictions on our ability to operate in Canada, in addition to those described herein.
No assurance can be provided that any heightened scrutiny will not in turn lead to the imposition of restrictions on our ability to operate in Canada, in addition to those described herein. If we do not successfully have additional products and services, or if those products and services are not successfully commercialized, we could lose revenue opportunities.
Public opinion and perception of the cannabis industry may have an adverse effect on our business reputation. Government policy changes or public opinion may also result in a significant influence over the regulation of the cannabis industry in the United States, Canada, or elsewhere.
Government policy changes or public opinion may also result in a significant influence over the regulation of the cannabis industry in the United States, Canada, or elsewhere. Public opinion and support for medical and adult-use marijuana has traditionally been inconsistent and varies from jurisdiction to jurisdiction.
From time to time, such equipment may not perform to specifications or to our customers’ satisfaction. Such equipment deficiencies may lead to down time impacting our revenue. Further, frequent downtime at customers’ sites due to equipment failures may result in such customers generating less revenue and increasing credit default risk.
Further, frequent downtime at customers’ sites due to equipment failures may result in such customers generating less revenue and increasing credit default risk. In addition, these failures may also result in additional time spent by our personnel, decreasing profit margins on certain ancillary services.
The Company’s accounts receivable from two customers made up 57%, and 43%, respectively, of the total balance as of December 31, 2022.
Two customers accounted for 45% and 10% of the Company’s revenue for the year ended December 31, 2024. Three customers accounted for 37%, 21% and 12% of the Company’s revenue for the year ended December 31, 2023. The Company’s accounts receivable from two customers made up 61% and 36%, respectively, of the total balance as of December 31, 2024.
We seek grower customers in the CEA Canadian market, some of which are cannabis growers. Therefore, our existing and future operations may become the subject of heightened scrutiny by those regulators and other authorities in Canada that oversee the cannabis industry.
Our existing and future operations may become the subject of heightened scrutiny by those regulators and other authorities in Canada that oversee the cannabis industry. As a result, we may become subject to direct and indirect interaction with public officials in one or both the United States and Canada.
To date, the majority of our revenues have been generated from clients that operate in the legal cannabis industry in the United States and Canada. We provide the overwhelming majority of our facility engineering design and equipment integration and solutions to facilities in the legal cannabis industry.
We provide the overwhelming majority of our facility engineering design and equipment integration and solutions to facilities in the legal cannabis industry. While we are hopeful that the proportion of non-cannabis revenues might increase over time, decreases in demand from the legal cannabis industry will have a material adverse effect on our revenues and the success of our business operations.
If customers are unable to obtain licensing, permitting or financing, our sales and revenue will decline, resulting in a reduction in our operating income or possible increase in losses. Also, because of the coronavirus responses and our own cost savings actions, we cannot predict the course of our revenues and operating results with accuracy at this time.
If customers are unable to obtain licensing, permitting or financing, our sales and revenue will decline, resulting in a reduction in our operating income or possible increase in losses. 12 To date, the majority of our revenues have been generated from clients that operate in the legal cannabis industry in the United States and Canada.
We are dependent on certain key sales, managerial and executive personnel for our current and future success. ● Cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis, particularly against our customers, would likely result in our inability to execute our business plan.
We will incur expenses and dedicate attention and resources associated with the review of acquisition opportunities, whether or not we consummate such acquisitions. Risks Related to the Cannabis Industry Cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis, particularly against our customers, would likely result in our inability to execute our business plan.
We expect this to continue for some time. These disruptions are also causing price increases, which may become an inflationary force in the marketplace. Equipment failures or poor performance may negatively impact our business. We rely on third party manufacturers for equipment which we sell or lease.
Equipment failures or poor performance may negatively impact our business. We rely on third party manufacturers for equipment used in CEA operations which we sell or lease. From time to time, such equipment may not perform to specifications or to our customers’ satisfaction. Such equipment deficiencies may lead to down time impacting our revenue.
Removed
We are subject to a number of laws focused on businesses that are peripheral to the cannabis industry. Variations in state and local regulation and enforcement in states that have legalized cannabis may impose certain restrictions on cannabis-related activities that may adversely impact our business.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeIn addition, we carry insurance that provides levels of reimbursement protection against the potential losses arising from a cybersecurity incident; however, the insurance may not cover all the costs that we might incur, and we may suffer direct economic loss. 26 We have not had any reportable cybersecurity breaches, including what we may perceive or recognize as cybersecurity incidents or credible threats during the fiscal year ended December 31, 2023.
Biggest changeManagement coordinates with its third-party consultant on security controls and any issues are reported to the Audit Committee. In addition, we carry insurance that provides levels of reimbursement protection against the potential losses arising from a cybersecurity incident; however, the insurance may not cover all the costs that we might incur, and we may suffer direct economic loss.
We consider cybersecurity risks alongside other company risks and consult with subject matter experts where necessary to identify cybersecurity risks, and evaluate their nature and severity. Management offers cybersecurity updates to the Audit Committee on at least an annual basis, and more frequently if circumstances warrant. These briefings include assessments of risks, the threat landscape, and updates on any incidents.
We consider cybersecurity risks alongside other company risks and consult with subject matter experts where necessary to identify cybersecurity risks and evaluate their nature and severity. Management offers cybersecurity updates to the Audit Committee on at least an annual basis, and more frequently if circumstances warrant.
For example, our reputation would be damaged in the event of a cybersecurity infiltration. If there were a cybersecurity infiltration, we could lose access to our data which would disrupt our operations, and we even may not be able to operate. Such a loss of access might be temporary or permanent, and it might be localized or general.
If there were a cybersecurity infiltration, we could lose access to our data which would disrupt our operations, and we even may not be able to operate. Such a loss of access might be temporary or permanent, and it might be localized or general. The level of disruption will depend on our backup systems.
We may be held for cyber ransom, which would be loss to our financial resources. Our inability to operate, payment of damages, payment of ransom, and the costs of reparation of our systems, consultants and tangential expenses will all result in damage to our business and our financial resources.
Our inability to operate, payment of damages, payment of ransom, and the costs of reparation of our systems, consultants and tangential expenses will all result in damage to our business and our financial resources.
Our third-party consultant provides and assists with implementation on a formal IT Security Policy to provide appropriate governance over information security including control requirements for change management and patching, multifactor authentication, data backup, security monitoring, and mobile device management. Management coordinates with its third-party consultant on security controls and any issues are reported to the Audit Committee.
These briefings include assessments of risks, the threat landscape, and updates on any incidents. 24 Our third-party consultant provides and assists with implementation on a formal IT Security Policy to provide appropriate governance over information security including control requirements for change management and patching, multifactor authentication, data backup, security monitoring, and mobile device management.
To date, as a result, there has not been any material adverse effect on our business operations or financial condition. If there is a cybersecurity attack and an infiltration of our files, data, customer data and the like, there would be a material adverse effect on our business, our reputation, our operations and financial condition.
If there is a cybersecurity attack and an infiltration of our files, data, customer data and the like, there would be a material adverse effect on our business, our reputation, our operations and financial condition. For example, our reputation would be damaged in the event of a cybersecurity infiltration.
The level of disruption will depend on our backup systems. Our clients financial and other data could be taken and used against us reputationally or to damage our clients in different ways. In the latter instance, we may be liable for monetary damages to our clients.
Our clients financial and other data could be taken and used against us reputationally or to damage our clients in different ways. In the latter instance, we may be liable for monetary damages to our clients. We may be held for cyber ransom, which would be loss to our financial resources.
Added
We have not had any reportable cybersecurity breaches, including what we may perceive or recognize as cybersecurity incidents or credible threats during the fiscal year ended December 31, 2024. To date, as a result, there has not been any material adverse effect on our business operations or financial condition.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeRegardless, we intend to generally defend the claims on the basis that we promptly addressed all problems, and that any issues with defective HVAC equipment are the responsibility of our third-party equipment manufacturer.
Biggest changeWe intend to generally defend the claims on the basis that we promptly addressed all problems, and that any issues with defective HVAC equipment are the responsibility of our third-party equipment manufacturer. The Company’s equipment contract with Claimant requires the parties to arbitrate their disputes under the rules of the American Arbitration Association (“AAA”).
While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations. Item 4. Mine Safety Disclosures Not applicable. 27 PART II
While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations. Item 4. Mine Safety Disclosures Not applicable. 25 PART II
The Company intends to defend itself vigorously, believing there are no merits to the claims as currently presented. Given the current uncertainty around estimability and success of claims, we have not recorded an accrual for any potential loss related to this matter.
The Company intends to defend itself vigorously, believing there are no merits to the Claims as currently presented. Given the current uncertainty around estimating the likelihood of success of claims and potential damages, we have not recorded an accrual for any potential loss related to these matters.
The Company’s equipment contract with Claimant requires the parties to arbitrate their disputes under the rules of the American Arbitration Association (“AAA”). The arbitration will be heard in Denver, Colorado. The matter is in the preliminary phase. The parties will pay their own legal fees and expenses.
If Claimant moves forward with its Claims, the Company’s equipment contract with Claimant requires the parties to arbitrate their dispute with the American Arbitration Association (“AAA”). The arbitration will be heard in Denver, Colorado. The matter is in the preliminary phase. The parties will pay their own legal fees and expenses.
Added
The arbitration will be heard in Denver, Colorado. The matter is in the discovery phase. The parties will pay their own legal fees and expenses. The Company intends to defend itself vigorously, believing there are no merits to the claims as currently presented.
Added
On or about April 17, 2024, Optima Consulting Services, LLC (the “Claimant”), a client of the Company with which it had an equipment contract and engineering contract, advised the Company of a potential claim related to work performed by the Company for Claimant and demanded mediation under the parties’ contract.
Added
On or about October 28, 2024, Claimant informed the Company it was asserting claims for negligent/defective design and breach of warranty, and alleges its damages exceed $2,000,000 (Claims”). The Company denies all the Claims and that Claimant is entitled to any damages.
Added
The Company believes Claimant is owed nothing as the Company fulfilled all its obligations under the contracts to Claimant and performed all work in line with all applicable standards.
Added
We intend to generally defend the Claims on the basis that all work was performed pursuant to the contract and any alleged issues that may have occurred were the result of actions by Claimant and/or third parties.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 27 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 28 Item 6. Selected Financial Data 29 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 38 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 25 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6. Selected Financial Data 27 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 37 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeNumber of shares to be issued upon exercise of outstanding options Weighted-average exercise price of outstanding options Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) Equity compensation plans approved by shareholders (1) 213,632 $ 2.81 320,467 Equity compensation plans not approved by shareholders - - Total 213,632 $ 2.81 320,467 (1) Of the 666,667 Plan Shares allocated for issuance under the 2021 Equity Plan, as of December 31, 2023, 132,568 shares have been issued, non-qualified stock options over 172,815 shares were issued and outstanding, incentive stock options over 40,816 shares were issued and outstanding, and securities in respect of the remaining 320,467 shares were available for future issuance.
Biggest changeAs of December 31, 2024, we have granted under the 2021 Equity Plan, incentive stock options, non-qualified stock options, and a stock bonus award. 26 Number of shares to be issued upon exercise of outstanding options Weighted-average exercise price of outstanding options Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) Equity compensation plans approved by shareholders (1) 16,035 $ 33.81 15,581 Equity compensation plans not approved by shareholders - - - Total 16,035 $ 33.81 15,581 (1) Of the 55,556 Plan Shares allocated for issuance under the 2021 Equity Plan, as of December 31, 2024, 23,940 shares have been issued, non-qualified stock options over 11,104 shares were issued and outstanding, incentive stock options over 3,401 shares were issued and outstanding, restricted stock units over 1,529 shares were issued and outstanding, and securities in respect of the remaining 15,581 shares were available for future issuance.
Refer to Note 13 – Equity Incentive Plan of our consolidated financial statements, which are included as part of this Annual Report for further details on our 2017 Equity Plan and 2021 Equity Plan.
Refer to Note 12 – Equity Incentive Plan of our consolidated financial statements, which are included as part of this Annual Report for further details on our 2017 Equity Plan and 2021 Equity Plan.
The 2021 Equity Plan permits the Board to grant awards of up to 666,667 shares of common stock.
The 2021 Equity Plan permits the Board to grant awards of up to 55,556 shares of common stock.
The information for our 2017 Equity Plan as of December 31, 2023 is summarized as follows: Number of shares to be issued upon exercise of outstanding options Weighted-average exercise price of outstanding options Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) Equity compensation plans approved by shareholders - - - Equity compensation plans not approved by shareholders (1) 145,512 $ 11.85 24,129 Total 145,512 $ 11.85 24,129 (1) Of the 333,333 Plan Shares allocated for issuance under the 2017 Equity Plan, as of December 31, 2023, 163,692 shares have been issued, non-qualified stock options over 145,512 shares were issued and outstanding and securities in respect of the remaining 24,129 shares were available for future issuance. 28 2021 Equity Incentive Plan On March 22, 2021, the Board approved the 2021 Equity Incentive Plan (the “2021 Equity Plan”), which was approved by the stockholders on July 22, 2021.
The information for our 2017 Equity Plan as of December 31, 2024 is summarized as follows: Number of shares to be issued upon exercise of outstanding options Weighted-average exercise price of outstanding options Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) Equity compensation plans approved by shareholders - - - Equity compensation plans not approved by shareholders (1) 11,615 $ 140.70 2,522 Total 11,615 $ 140.70 2,522 (1) Of the 27,778 Plan Shares allocated for issuance under the 2017 Equity Plan, as of December 31, 2024, 13,641 shares have been issued, non-qualified stock options over 11,615 shares were issued and outstanding, and securities in respect of the remaining 2,522 shares were available for future issuance. 2021 Equity Incentive Plan On March 22, 2021, the Board approved the 2021 Equity Incentive Plan (the “2021 Equity Plan”), which was approved by the stockholders on July 22, 2021.
The 2017 Equity Plan allocates 333,333 shares of our common stock (“Plan Shares”) for issuance of equity awards under the 2017 Equity Plan. As of December 31, 2023, we have granted, under the 2017 Equity Plan, awards in the form of RSAs for services rendered by independent directors and consultants, non-qualified stock options, RSUs, and stock bonus awards.
As of December 31, 2024, we have granted, under the 2017 Equity Plan, awards in the form of RSAs for services rendered by independent directors and consultants, non-qualified stock options, RSUs, and stock bonus awards.
In addition, we have a class of publicly traded warrants to purchase shares of common stock that are quoted on Nasdaq under the symbol “CEADW.” We received a continued listing deficiency letter and must satisfy the deficiency prior to April 9, 2024.
In addition, we have a class of publicly traded warrants to purchase shares of common stock that are quoted on Nasdaq under the symbol “CEADW.” As of March 7, 2025, we had approximately 40 shareholders of record and we believe we have approximately 12,247 shareholders who hold their shares in street name based on the solicitation of proxies for our 2024 annual meeting.
Removed
If we do not satisfy the deficiency our securities will be removed from trading on Nasdaq by action of the exchange. We believe our securities will then trade on the OTC. We do not anticipate applying for listing on the higher tiers of the OTC.
Added
The 2017 Equity Plan allocates 27,778 shares of our common stock (“Plan Shares”) for issuance of equity awards under the 2017 Equity Plan.
Removed
We will continue to be a reporting company with the Securities and Exchange Commission, and we anticipate that brokers will continue to be able to make share transactions in our securities, although they will be subject to trading requirements that will substantially restrict the ability of our stockholders to make share sales and others to make share purchases.
Added
If any shares subject to an award are forfeited, expire, or otherwise terminate without issuance of such shares, the shares will, to the extent of such forfeiture, expiration, or termination, again be available for awards under the 2017 Equity Plan.
Removed
The limited trading will also restrict our ability to use our equity to fund our operations. As of March 9, 2024, we had approximately 32 shareholders of record and as of October 25, 2023, we had approximately 11,694 shareholders who hold their shares in street name.
Removed
As of December 31, 2023, we have granted under the 2021 Equity Plan, incentive stock options, non-qualified stock options, and a stock bonus award.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe decrease in SG&A expenses for the year ended December 31, 2023 compared to the year ended December 31, 2022, was due primarily to: (i) a decrease of $998,000 in salaries, benefits (including equity-based compensation) and other employee related costs, (ii) a decrease of $314,000 in accounting and other professional fees, (iii) a decrease in commissions of $111,000, (iv) a decrease in travel of $104,000, (v) a decrease of $96,000 for facility and office expenses, and (vi) a decrease in bad debt of $89,000, (vii) a decrease of $5,000 for insurance and, (viii) lower losses on asset disposals of $5,000, offset by (ix) an increase of $67,000 for investor relations expense, (x), higher business taxes and licenses of $31,000 , and (xi) an increase of $10,000 for Board of Director fees. 34 The decrease in advertising and marketing expenses was due primarily to: (i) a decrease in salaries and benefits (including equity-based compensation) of $358,000, (ii) a decrease of $296,000 for advertising and promotion, web development and other marketing expenses, (iii) a decrease in expenses for industry trade shows and events of $194,000, and (iv) a decrease of $36,000 for outside marketing services.
Biggest changeThe decrease in SG&A expenses for the year ended December 31, 2024 compared to the year ended December 31, 2023, was due primarily to: (i) a decrease of $449,000 in salaries, benefits (including equity-based compensation) and other employee related costs, (ii) a decrease of $53,000 for facility and office expenses, (iii) a decrease in bad debt expense of $38,000, and (iv) a decrease in commissions of $16,000, offset by (v) an increase in accounting and professional fees of $299,000, (vi) higher business taxes and licenses of $33,000 primarily due to an increase in real estate taxes, and (vii) an increase in loss on asset disposals of $13,000.
We continue to experience softening demand in the markets we serve, and an inability to replace our backlog of projects. As a result, we have taken steps during 2023 and early 2024 to reduce our operating costs and general and administrative expenses to better reflect the activity levels we are observing in the industry.
We continue to experience softening demand in the markets we serve, and an inability to replace our backlog of projects. As a result, we have taken steps during 2023, 2024, and early 2025 to reduce our operating costs and general and administrative expenses to better reflect the activity levels we are observing in the industry.
In the normal course of business, we are subject to loss contingencies, such as legal proceedings and claims arising out of our business, that cover a wide range of matters, including, among others, customer disputes, government investigations and tax matters.
Commitments and contingencies . In the normal course of business, we are subject to loss contingencies, such as legal proceedings and claims arising out of our business, that cover a wide range of matters, including, among others, customer disputes, government investigations and tax matters.
As our operations are related only to the North American controlled agricultural industry, largely within the cannabis space, we do not believe we will be targeted for cyber-attacks related to the conflicts.
As our operations are related only to the North American controlled agricultural industry, largely within the cannabis space, we do not believe we will be specifically targeted for cyber-attacks related to the conflicts.
Based on the current economic climate and our cost cutting measures, there is no assurance that we will be able to continue to obtain the level of bookings that we have had in the past and or fulfill our current backlog, and we may experience contract cancellations, project scope reductions and project delays.
Based on the current economic climate and our cost cutting measures, there is no assurance that we will be able to continue to obtain the level of bookings that we have had in the past and or fulfil our current backlog, and we may experience contract cancellations, project scope reductions and project delays.
Further, based on the current economic climate, and the Company’s recent cost cutting measures, there is no assurance that the Company will be able to fulfill its backlog, and the Company may experience contract cancellations, project scope reductions and project delays.
Further, based on the current economic climate, and the Company’s recent cost cutting measures, there is no assurance that the Company will be able to fulfil its backlog, and the Company may experience contract cancellations, project scope reductions and project delays.
In contrast, after the customer has made an advance payment for a portion of the equipment to be delivered under the contract (“partial equipment paid contracts”), we are typically better able to estimate the timing of revenue recognition since the risks and delays associated with licensing, permitting and project funding are typically mitigated once the initial equipment payment is received. 33 Commitments and contingencies .
In contrast, after the customer has made an advance payment for a portion of the equipment to be delivered under the contract (“partial equipment paid contracts”), we are typically better able to estimate the timing of revenue recognition since the risks and delays associated with licensing, permitting and project funding are typically mitigated once the initial equipment payment is received.
We believe the lower bookings are due to the suppression of capital expenditures in the cannabis market environment as a result of the prolonged effects of pricing and inflationary pressure, in addition to a reduced sales effort by the Company.
We believe the lower bookings are due to the reduction in capital expenditures in the cannabis market environment as a result of the prolonged effects of pricing and inflationary pressure, in addition to a reduced sales effort by the Company.
We have no operations in the countries directly involved in the conflict or are specifically impacted by any of the sanctions and embargoes, as we principally operate in the United States and Canada. We do not believe that the conflicts will have any impact on our internal control over financial reporting.
We have no operations in the countries directly involved in the conflict or are specifically impacted by any of the sanctions and embargoes specifically related to those conflicts, as we principally operate in the United States and Canada. We do not believe that the conflicts will have any impact on our internal control over financial reporting.
This section provides an analysis of cash flow, contractual obligations, and certain other matters affecting our financial position. 29 Executive Overview CEA Industries Inc. is focused on selling environmental control and other technologies and services to the Controlled Environment Agriculture (“CEA”) industry.
This section provides an analysis of cash flow, contractual obligations, and certain other matters affecting our financial position. 27 Executive Overview CEA Industries Inc. currently is focused on selling environmental control and other technologies and services to the Controlled Environment Agriculture (“CEA”) industry.
As of December 31, 2023, and December 31, 2022, the allowance for doubtful accounts was $125,000 and $127,000, respectively. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Inventory . Inventory is stated at the lower of cost or net realizable value.
As of December 31, 2024, and December 31, 2023, the allowance for doubtful accounts was $85,000 and $125,000, respectively. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. 30 Inventory . Inventory is stated at the lower of cost or net realizable value.
As of December 31, 2023, and December 31, 2022, the allowance for excess and obsolete inventory was $193,000 and $71,000, respectively. Product warranty . We warrant the products that we manufacture for a warranty period equal to the lesser of 12 months from start-up or 18 months from shipment.
As of December 31, 2024, and December 31, 2023, the allowance for excess and obsolete inventory was $220,000 and $193,000, respectively. Product warranty . We warrant the products that we manufacture for a warranty period equal to the lesser of 12 months from start-up or 18 months from shipment.
There is significant uncertainty regarding the timing of our recognition on all remaining performance obligations as of December 31, 2023.
There is significant uncertainty regarding the timing of our recognition on all remaining performance obligations as of December 31, 2024.
As of December 31, 2023, and December 31, 2022, we had an accrued warranty reserve amount of $191,000 and $180,000, respectively, which are included in accounts payable and accrued liabilities on our consolidated balance sheets. 32 Share-based compensation .
As of December 31, 2024, and December 31, 2023, we had an accrued warranty reserve amount of $53,000 and $191,000, respectively, which are included in accounts payable and accrued liabilities on our consolidated balance sheets. Share-based compensation .
Accordingly, the time it takes for these customers to complete a new build project, which corresponds to when we are able to recognize revenue, is driven by numerous factors including: (i) the large number of first-time participants interested in the indoor cannabis cultivation business; (ii) the complexities and uncertainties involved in obtaining state and local licensure and permitting; (iii) local and state government delays in approving licenses and permits due to lack of staff or the large number of pending applications, especially in states where there is no cap on the number of cultivators; (iv) the customer’s need to obtain cultivation facility financing; (v) the time needed, and coordination required, for our customers to acquire real estate and properly design and build the facility (to the stage when climate control systems can be installed); (vi) the large price tag and technical complexities of the climate control and air sanitation systems; (vii) the availability of power; and (viii) delays that are typical in completing any construction project. 31 We have provided an estimate in our consolidated financial statements of when we expect to recognize revenue on our remaining performance obligations (i.e., our Q4 2023 backlog), using separate time bands, with respect to engineering only paid contracts and partial equipment paid contracts.
Accordingly, the time it takes for these customers to complete a new build project, which corresponds to when we are able to recognize revenue, is driven by numerous factors including: (i) the large number of first-time participants interested in the indoor cannabis cultivation business; (ii) the complexities and uncertainties involved in obtaining state and local licensure and permitting; (iii) local and state government delays in approving licenses and permits due to lack of staff or the large number of pending applications, especially in states where there is no cap on the number of cultivators; (iv) the customer’s need to obtain cultivation facility financing; (v) the time needed, and coordination required, for our customers to acquire real estate and properly design and build the facility (to the stage when climate control systems can be installed); (vi) the large price tag and technical complexities of the climate control and air sanitation systems; (vii) the availability of power; and (viii) delays that are typical in completing any construction project.
In the year ended December 31, 2023, as compared to the prior year, our cost of equipment decreased by $3,109,000 primarily due to the decrease in revenue, offset by a decrease in our equipment margin.
In the year ended December 31, 2024, as compared to the prior year, our cost of equipment decreased by $2,537,000 primarily due to the decrease in revenue, offset by a decrease in our equipment margin.
The Company intends to defend itself vigorously, believing there are no merits to the claims as currently presented. Given the current uncertainty around estimability and success of claims, we have not recorded an accrual for any potential loss related to this matter.
The Company intends to defend itself vigorously, believing there are no merits to the Claims as currently presented. Given the current uncertainty around our ability to estimate the amount of loss and success of the Claims, we have not recorded an accrual for any potential loss related to these matters.
The decrease of $293,000 was primarily due to a decrease in salaries and benefits (including stock-based compensation) of $267,000, and a decrease of $26,000 in fixed overhead.
The decrease of $388,000 was primarily due to a decrease in salaries and benefits (including stock-based compensation) of $327,000, and a decrease of $61,000 in fixed overhead.
The Company’s equipment contract with Claimant requires the parties to arbitrate their disputes under the rules of the American Arbitration Association (“AAA”). The arbitration will be heard in Denver, Colorado. The matter is in the preliminary phase. The parties will pay their own legal fees and expenses.
If Claimant moves forward with its Claims, the Company’s equipment contract with Claimant requires the parties to arbitrate their dispute with the American Arbitration Association (“AAA”). The arbitration will be heard in Denver, Colorado. The matter is in the preliminary phase. The parties will pay their own legal fees and expenses.
Our recognized revenue for the quarters ended March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023 in the table below, excludes $149,000, $56,000, $29,000, and $0, respectively, in revenue arising from the forfeiture of non-refundable deposits from former customers on previously cancelled contracts. The contracts were removed from the backlog at the time of cancellation.
Our recognized revenue for the quarters ended December 31, 2023, March 31, 2024, June 30, 2024, September 30, 2024, and December 31, 2024 in the table below, excludes $0, $31,000, $12,000, $0, and $46, respectively, in revenue arising from the forfeiture of non-refundable deposits from former customers on previously cancelled contracts.
The variable cost component, which represents our cost of equipment, outside engineering costs, shipping and handling, travel and warranty costs, totaled $5,090,000, or 73.6% of total revenue, in the year ended December 31, 2023, as compared to $8,567,000, or 75.9% of total revenue, in the year ended December 31, 2022.
The variable cost component, which represents our cost of equipment, outside engineering costs, shipping and handling, travel and warranty costs, totaled $2,132,000, or 76% of total revenue, in the year ended December 31, 2024, as compared to $5,090,000, or 74% of total revenue, in the year ended December 31, 2023.
However, there continues to be significant uncertainty regarding the timing of our recognition of revenue in our Q4 2023 backlog. Refer to the Revenue Recognition section of Note 2 in our consolidated financial statements, included as part of this Annual Report for additional information on our estimate of future revenue recognition on our remaining performance obligations.
Refer to the Revenue Recognition section of Note 2 in our consolidated financial statements, included as part of this Annual Report for additional information on our estimate of future revenue recognition on our remaining performance obligations.
An unfavorable outcome to any legal matter, if material, could have an adverse effect on our operations or our financial position, liquidity or results of operations. 37 Other Commitments In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties.
Other Commitments In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties.
Nonetheless, there remain risks and uncertainties regarding our ability to grow revenue and generate sufficient revenues and cash flows. And there can be no assurances that we will be able to raise future capital on commercially reasonable terms, or at all. Contract Bookings.
The reductions have been offset by higher costs for professional fees related to a potential acquisition. Nonetheless, there remain risks and uncertainties regarding our ability to grow revenue and generate sufficient revenues and cash flows. And there can be no assurances that we will be able to raise future capital on commercially reasonable terms, or at all. Contract Bookings.
As of December 31, 2023, we had accounts receivable (net of allowance for doubtful accounts) of $19,000, contract assets of $224,000, inventory (net of excess and obsolete allowance) of $296,000, and prepaid expenses and other of $313,000 (including $5,500 in advance payments on inventory purchases).
As of December 31, 2024, we had accounts receivable (net of allowance for doubtful accounts) of $13,000, contract assets (net of allowance for doubtful accounts) of $234,000, inventory (net of excess and obsolete allowance) of $26,000, and prepaid expenses and other of $368,000 (including $83,500 in advance payments on inventory purchases).
Other than general securities market trends, we do not have reason to believe that investors will evaluate the company as having special risks or exposures related to the conflicts. 30 Revenue . Our 2023 revenue was approximately $6,911,000. Our 2023 revenue represents a decrease of 39% compared to 2022. Gross Margin .
Other than general securities market trends, we do not have reason to believe that investors will evaluate the company as having special risks or exposures related to the conflicts. 28 Revenue . Our 2024 revenue was approximately $2,803,000. Our 2024 revenue represents a decrease of 59% compared to 2023 See Results of Operations on page 33 below. Gross Margin .
Our 2023 adjusted net loss was approximately $2,698,000, compared to a 2022 adjusted net loss of approximately $4,526,000, a decrease of $1,828,000, or 40%. See Results of Operations below. Our adjusted net income (loss) is a key management metric for us because it provides a proxy for the cash we generate from (use in) operations. Capital Resources.
Our 2024 adjusted net loss was approximately $3,046,000, compared to a 2023 adjusted net loss of approximately $2,698,000, an increase of $348,000, or 13%. See Results of Operations on page 33 below. Our adjusted net income (loss) is a key management metric for us because it provides a proxy for the cash we generate from (use in) operations. Capital Resources.
Cost of revenue decreased by $3,769,000, or 37%, from $10,138,000 for the year ended December 31, 2022 to $6,369,000 for the year ended December 31, 2023. The factors impacting this change are discussed below. The gross profit for the year ended December 31, 2023 was $542,000 compared to $1,145,000 for the year ended December 31, 2022.
Cost of revenue decreased by $3,346,000, or 53%, from $6,369,000 for the year ended December 31, 2023 to $3,023,000 for the year ended December 31, 2024. The factors impacting this change are discussed below. The gross loss for the year ended December 31, 2024 was $220,000 compared to a gross profit of $542,000 for the year ended December 31, 2023.
The operating loss included $188,000 of non-cash, stock-based compensation expenses and $26,000 for depreciation and amortization in the year ended December 31, 2023, as compared to $631,000 for a goodwill impairment charge, $314,000 for stock-based compensation, and $26,000 of depreciation and amortization for the year ended December 31, 2022. Excluding these non-cash items, our adjusted operating loss decreased by $2,013,000.
The operating loss included $82,000 of non-cash, stock-based compensation expenses and $17,000 for depreciation and amortization in the year ended December 31, 2024, as compared to $188,000 for stock-based compensation, and $26,000 of depreciation and amortization for the year ended December 31, 2023. Excluding these non-cash items, our adjusted operating loss increased by $333,000.
Our revenue cost structure is comprised of both fixed and variable components. The fixed cost component represents engineering, manufacturing and project management salaries and benefits and manufacturing overhead that totaled $1,279,000, or 18.5% of total revenue, for the year ended December 31, 2023, as compared to $1,572,000, or 13.9% of total revenue, for the year ended December 31, 2022.
The fixed cost component represents engineering, manufacturing and project management salaries and benefits and manufacturing overhead that totaled $892,000, or 32% of total revenue, for the year ended December 31, 2024, as compared to $1,279,000, or 18% of total revenue, for the year ended December 31, 2023.
Additionally in the year ended December 31, 2023 as compared to the year ended December 31, 2022: (i) our warranty expense decreased by $195,000, (ii) travel was down by $101,000, (iii) our outside engineering costs were down by $43,000, (iv) other variable costs decreased by $41,000, and (iv) shipping and handling expenses decreased by $26,000.
Additionally in the year ended December 31, 2024 as compared to the year ended December 31, 2023: (i) our warranty expense decreased by $190,000, (ii) excess and obsolete inventory expenses decreased by $95,000, (iii) travel was down by $81,000, (iv) our outside engineering costs were down $29,000, and (v) shipping and handling and other overhead expenses decreased by $26,000.
Our 2023 gross margin was 7.8%, a decrease from 10.1% in 2022. This decrease was primarily due to lower revenue and an increase in our fixed cost base as a percent of revenue. We experienced a small decrease in variable costs as a percentage of revenue. See Results of Operations below. Profitability .
Our 2024 gross loss margin was 7.8%, a decrease from a gross profit margin of 7.8% in 2023. This decrease was primarily due to lower revenue and an increase in our fixed cost base as a percent of revenue. See Results of Operations on page 33 below. Profitability .
This revenue decrease was primarily the result of our decreased net bookings in 2023 which dropped from $6,042,000 in 2022 to $1,535,000 in 2023, or 75%.
This revenue decrease was primarily the result of our significant decrease in net bookings since 2022, which dropped from $6,042,000 in 2022 to $1,535,000 in 2023, or 75%. Net bookings were higher in 2024, increasing to $2,769,000, or an increase of 80% over 2023.
We had an accumulated deficit of $37,190,000 as of December 31, 2023. Cash used in operations for the year ended December 31, 2023 was $6,129,000 compared to cash used in operations of $3,190,000 for the year ended December 31, 2022, an increase of $2,939,000.
We had an accumulated deficit of $40,336,000 as of December 31, 2024. Cash used in operations for the year ended December 31, 2024 was $3,055,000 compared to cash used in operations of $6,129,000 for the year ended December 31, 2023, a decrease of $3,074,000.
Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and events related thereto unfold.
Moreover, the results of complex legal proceedings are difficult to predict, and the Company’s view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred.
For the quarter ended December 31, 2022 March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 Backlog, beginning balance $ 6,832,000 $ 5,577,000 $ 1,869,000 $ 1,066,000 $ 548,000 Net bookings, current period 206,000 826,000 205,000 366,000 138,000 Recognized revenue, current period (1,461,000 ) (4,534,000 ) (1,008,000 ) (884,000 ) (251,000 ) Backlog, ending balance $ 5,577,000 $ 1,869,000 $ 1,066,000 $ 548,000 $ 435,000 The completion of a customer’s new build facility project is dependent upon the customer’s ability to secure funding and real estate, obtain a license and then build their cultivation facility so they can take possession of the equipment.
For the quarter ended December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024 December 31, 2024 Backlog, beginning balance $ 548,000 $ 435,000 $ 535,000 $ 227,000 $ 352,000 Net bookings, current period 138,000 303,000 1,440,000 516,000 510,000 Recognized revenue, current period (251,000 ) (203,000 ) (1,748,000 ) (391,000 ) (372,000 ) Backlog, ending balance $ 435,000 $ 535,000 $ 227,000 $ 352,000 $ 490,000 29 The completion of a customer’s new build facility project is dependent upon the customer’s ability to secure funding and real estate, obtain a license and then build their cultivation facility so they can take possession of the equipment.
The decrease in cash and cash equivalents during the year ended December 31, 2023 was the result of cash used in operations of $6,129,000. Our cash is held in bank depository accounts in certain financial institutions. During the year ended December 31, 2023, we held deposits in financial institutions that exceeded the federally insured amount.
Our cash is held in bank depository accounts in certain financial institutions. During the year ended December 31, 2024, we held deposits in financial institutions that exceeded the federally insured amount.
While we typically require advance payment before we commence engineering services or ship equipment to our customers, we have made exceptions requiring us to record accounts receivable, which carry a risk of non-collectability, especially since most of our customers are funded on an as-needed basis to complete facility construction. 35 As of December 31, 2023, we had no indebtedness, total accounts payable and accrued liabilities of $625,000, deferred revenue of $500,000, and the current portion of operating lease liability of $127,000.
While we typically require advance payment before we commence engineering services or ship equipment to our customers, we have made exceptions requiring us to record accounts receivable, which carry a risk of non-collectability, especially since most of our customers are funded on an as-needed basis to complete facility construction.
The operating expense increase consisted of: (i) a decrease in selling, general and administrative expenses (“SG&A expenses”) of $1,615,000, (ii) a decrease in advertising and marketing expenses of $884,000, (iii) a decrease in goodwill impairment charges of $631,000, and (iv) a decrease in product development expenses of $244,000.
The operating expense decrease consisted of: (i) a decrease in advertising and marketing expenses of $257,000, (ii) a decrease in selling, general and administrative expenses (“SG&A expenses”) of $209,000, and (iii) a decrease in product development expenses of $76,000.
Commitments and Contingencies Litigation On October 20, 2023, Sweet Cut Grow, LLC and Green Ice, LLC (collectively, “Claimant”) a client of the Company with which it had an equipment contract and engineering contract, filed a demand for arbitration asserting claims for breach of contract, breach of warranty, and unjust enrichment, and demand for $1,049,280 in damages, plus interest (“Claims”).
Contractual Payment Obligations Refer to Note 3 – Leases of our consolidated financial statements, which are included as part of this Annual Report for further details on our obligations under a lease for our manufacturing and office space. 35 Commitments and Contingencies Litigation On October 20, 2023, Sweet Cut Grow, LLC and Green Ice, LLC (collectively, “Claimant”) a client of the Company with which it had an equipment contract and engineering contract, filed a demand for arbitration asserting claims for breach of contract, breach of warranty, and unjust enrichment, and a demand for $1,049,280 in damages, plus interest (“Claims”).
Other Income (Expense) Our other income (net) decreased by $185,000 from $227,000 for the year ended December 31, 2022, to $42,000 for the year ended December 31, 2023. The other income for 2023 primarily consisted of (i) $34,000 for interest on our money market account, and (ii) $8,000 for and adjustment to our ERC credit and unclaimed property.
The other income for 2023 consisted of (i) $34,000 of interest on the money market account, and (ii) $8,000 for an adjustment to our ERC credit and unclaimed property.
Because of the challenges to the CEA industry economy and the specific challenges of our business, we cannot predict the continuing level of working capital that we will have in the future.
We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. Because of the challenges to the CEA industry economy and the specific challenges of our business, we cannot predict the continuing level of working capital that we will have in the future.
Significant non-cash items during 2023 included: (i) stock-related compensation of $188,000, (ii) excess and obsolete inventory charges of $122,000, and (iii) $107,000 for the amortization on an ROU asset. Significant non-cash items during 2022 included: (i) a goodwill impairment charge of $631,000, (ii) stock-related compensation of $314,000, and (iii) $103,000 for the amortization on an ROU asset.
Significant non-cash items during 2023 included: (i) stock-related compensation of $188,000, (ii) excess and obsolete inventory charges of $122,000, and (iii) $107,000 for the amortization on an ROU asset. Investing Activities There was no cash provided by investing activities for the year ended December 31, 2024.
The following table summarizes results for the years ended December 31, 2023 and December 31, 2022. 2023 2022 $ Change % Change Revenue $ 6,911,000 $ 11,283,000 $ (4,372,000 ) (39 )% Net loss $ (2,912,000 ) $ (5,497,000 ) $ (2,585,000 ) (-47 )% Adjusted net loss $ (2,698,000 ) $ (4,526,000 ) $ (1,828,000 ) (-40 )% Our adjusted net income (loss) is our GAAP net income (loss) after addback for our non-cash equity compensation expenses, debt-related items, goodwill impairment charges, and depreciation expense.
The following table summarizes results for the years ended December 31, 2024 and December 31, 2023. 2024 2023 $ Change % Change Revenue $ 2,803,000 $ 6,911,000 $ (4,108,000 ) (59 )% Net loss $ (3,146,000 ) $ (2,912,000 ) $ (234,000 ) (-8 )% Adjusted net loss $ (3,046,000 ) $ (2,698,000 ) $ (348,000 ) (-13 )% Our adjusted net income (loss) is our GAAP net income (loss) after addback for our non-cash equity compensation expenses, debt-related items, and depreciation expense.
The net loss included $188,000 of non-cash, stock-based compensation costs and depreciation and amortization expense of $26,000 in the year ended December 31, 2023, as compared to $631,000 for a goodwill impairment charge, $314,000 of non-cash, stock-based compensation costs and depreciation and amortization expense of $26,000 in the year ended December 31, 2022.
The net loss included $82,000 of non-cash, stock-based compensation costs and depreciation and amortization expense of $17,000 in the year ended December 31, 2024, as compared to $188,000 of non-cash, stock-based compensation costs and depreciation and amortization expense of $26,000 in the year ended December 31, 2023. Excluding these non-cash items, our adjusted net loss increased by $348,000.
Impact of the COVID-19 Pandemic on Our Business The impact of the government and the business economic response to the COVID-19 pandemic affected demand across the majority of our markets and disrupted workflow and completion schedules on projects. We believe we continue to have adverse effects on our sales, project implementation, supply chain infrastructure, operating margins, costs, and working capital.
Impact of the COVID-19 Pandemic on Our Business The impact of the government and the business economic response to the COVID-19 pandemic affected demand across the majority of our markets and disrupted workflow and completion schedules on projects.
As of December 31, 2023, we had an accumulated deficit of $37,190,000, working capital of $12,110,000, and stockholders’ equity of $12,261,000. Inflation Our operations are being influenced by the inflation existent in the larger economy and in the industries related to building renovations, retrofitting and new build CEA facilities in which we operate.
Inflation Our operations are being influenced by the inflation existent in the larger economy and in the industries related to building renovations, retrofitting and new build CEA facilities in which we operate.
Recent Developments Refer to Note 15 - Subsequent Events of our consolidated financial statements, included as part of this Annual Report, for the significant events occurring since December 31, 2023.
During the years ended December 31, 2024 and December 31, 2023, we did not engage in any off-balance sheet financing activities. 36 Recent Developments Refer to Note 14 - Subsequent Events of our consolidated financial statements, included as part of this Annual Report, for the significant events occurring since December 31, 2024.
Financing Activities There were no cash flows from financing activities during the year ended December 31, 2023.
Cash provided by investing activities was less than $1,000 for the year ended December 31, 2023. Financing Activities There were no cash flows from financing activities during the year ended December 31, 2024 or the year ended December 31, 2023.
Once the selling prices are determined, we apply the relative values to the total contract consideration and estimates the amount of the transaction price to be recognized as each promise is fulfilled.
Once the selling prices are determined, we apply the relative values to the total contract consideration and estimates the amount of the transaction price to be recognized as each promise is fulfilled. 31 Generally, satisfaction occurs when control of the promised goods is transferred to the customer or as we recognize revenue for the sale of goods when control transfers to the customer, which primarily occurs at the time of shipment.
Regardless, we intend to generally defend the claims on the basis that we promptly addressed all problems, and that any issues with defective HVAC equipment are the responsibility of our third-party equipment manufacturer. From time to time, in the normal course of our operations, we are subject to litigation matters and claims.
We intend to generally defend the claims on the basis that we promptly addressed all problems, and that any issues with defective HVAC equipment are the responsibility of the third-party equipment manufacturer. The Company’s equipment contract with Claimant requires the parties to arbitrate their disputes under the rules of the American Arbitration Association (“AAA”).
Operating Loss We had an operating loss of $2,953,000 for the year ended December 31, 2023, as compared to an operating loss of $5,724,000 for the year ended December 31, 2022, a decrease of $2,771,000, or 48%.
Net Loss Overall, we had a net loss of $3,146,000 for the year ended December 31, 2024, as compared to a net loss of $2,912,000 for the year ended December 31, 2023, an increase of $234,000.
The increase was primarily attributable to: (i) an increase in cash used for working capital of $4,965,000, (ii) a decrease in net loss of $2,586,000 and, (iii) a decrease in non-cash operating charges of $560,000.
The decrease was primarily attributable to: (i) a decrease in cash used for working capital of $3,539,000, (ii) a decrease in net loss of $234,000 and, (iii) a decrease in non-cash operating charges of $231,000. Significant non-cash items during 2024 included: (i) $111,000 for the amortization on an ROU asset, and (ii) stock related compensation of $82,000.
Summary of Cash Flows The following summarizes our cash flows for the years ended December 31, 2023 and December 31, 2022: For the Twelve Months Ended December 31, 2023 2022 Net cash used in operating activities $ (6,129,000 ) $ (3,190,000 ) Net cash used in investing activities - (28,000 ) Net cash provided by financing activities - 19,695,000 Net increase (decrease) in cash $ (6,129,000 ) $ 16,477,000 Operating Activities We incurred a net loss for the year ended December 31, 2023 of $2,912,000 compared to a net loss for the year ended December 31, 2022 of $5,497,000.
As mentioned elsewhere, we have taken steps to conserve our cash resources by reducing staff and taking other cost cutting measures and we will continue to evaluate further such measures in the future. 34 Summary of Cash Flows The following summarizes our cash flows for the years ended December 31, 2024 and December 31, 2023: For the Year Ended December 31, 2024 2023 Net cash used in operating activities $ (3,055,000 ) $ (6,129,000 ) Net cash provided by (used in) investing activities - - Net cash provided by (used in) financing activities - - Net decrease in cash $ (3,055,000 ) $ (6,129,000 ) Operating Activities We incurred a net loss for the year ended December 31, 2024 of $3,146,000 compared to a net loss for the year ended December 31, 2023 of $2,912,000.
During the year ended December 31, 2022, and continuing into the current fiscal quarter, the Company experienced delays in the receipt of equipment it had ordered to meet its customer orders due to disruption and delays in its supply chain.
However, these actions may not be sufficient in the long run to avoid reduced sales, increased losses, and reduced operating cash flows in our business. During the year ended December 31, 2024, , the Company experienced delays in the receipt of equipment it had ordered to meet its customer orders due to disruption and delays in its supply chain.
An accrual for a loss contingency is recognized when it is probable that an asset has been impaired, or a liability has been incurred and the amount of loss can be reasonably estimated.
An accrual for a loss contingency is recognized when it is probable that an asset has been impaired, or a liability has been incurred and the amount of loss can be reasonably estimated. 32 Results of Operations Comparison of Years ended December 31, 2024 and 2023 Revenues and Cost of Goods Sold Revenue for the year ended December 31, 2024 was $2,803,000 compared to $6,911,000 for the year ended December 31, 2023, a decrease of $4,108,000, or 59%.
The decrease in product development costs was primarily due to (i) a decrease in salaries and benefits (including equity-based compensation) of $193,000, (ii) a decrease in material costs of $35,000 and, (iii) a decrease in travel of $16,000.
The decrease in product development costs was primarily due to (i) a decrease in salaries and benefits (including equity-based compensation) of $70,000, (ii) a decrease in material costs of $4,000 and, (iii) a decrease in travel of $2,000. 33 Operating Loss We had an operating loss of $3,172,000 for the year ended December 31, 2024, as compared to an operating loss of $2,953,000 for the year ended December 31, 2023, an increase of $219,000, or 7%.
Gross profit margin decreased by 2.3 percentage points from 10.1% for the year ended December 31, 2022 to 7.8% for the year ended December 31, 2023. This decrease was primarily due to a decrease in revenue, an increase in our fixed cost base as a percent of revenue, offset by slightly lower variable costs as a percent of revenue.
This decrease was primarily due to a decrease in revenue, an increase in our fixed cost base as a percent of revenue, offset by slightly lower variable costs as a percent of revenue. Our revenue cost structure is comprised of both fixed and variable components.
These decreases were offset by an increase in excess and obsolete inventory expense of $37,000. Operating Expenses Operating expenses decreased by 49% from $6,869,000 for the year ended December 31, 2022 to $3,495,000 for the year ended December 31, 2023, a decrease of $3,374,000.
Operating Expenses Operating expenses decreased by 16% from $3,495,000 for the year ended December 31, 2023 to $2,952,000 for the year ended December 31, 2024, a decrease of $543,000.
Our bookings decreased in 2023, and our backlog at December 31, 2023, was $435,000, a decrease of $5,142,000, or 92%, from our December 31, 2022 backlog. During 2023, we had net bookings of $1,535,000, consisting of: (i) $1,848,000 of new sales contracts executed in 2023, (ii) $59,000 in net positive changes orders, and (iii) $372,000 in project cancellations.
During 2024, we had net bookings of $2,769,000, consisting of: (i) $2,874,000 of new sales contracts executed in 2023, (ii) $92,000 in net negative change orders, and (iii) $14,000 in project cancellations.
Due to this uncertainty, we continue to monitor costs and continue to take actions to reduce costs in order to mitigate the long-term impact of the COVID-19 pandemic to the best of our ability. However, these actions may not be sufficient in the long run to avoid reduced sales, increased losses, and reduced operating cash flows in our business.
We believe we continue to have adverse effects on our sales, project implementation, supply chain infrastructure, operating margins, costs, and working capital, as a result of the pandemic. We continue to monitor costs and continue to take actions to reduce costs in order to mitigate the long-term impact of the COVID-19 pandemic to the best of our ability.
As of December 31, 2023, we had no off-balance sheet arrangements. During the years ended December 31, 2023 and December 31, 2022, we did not engage in any off-balance sheet financing activities.
As of December 31, 2024, we had no off-balance sheet arrangements.
We received a continued listing deficiency letter and must satisfy the deficiency prior to April 9, 2024, which if not satisfied will require Nasdaq to delist both securities. Capital Raising Since inception, we have incurred significant operating losses and have funded our operations primarily through issuances of equity securities, debt, and operating revenue.
Capital Raising Since inception, we have incurred significant operating losses and have funded our operations primarily through issuances of equity securities, debt, and operating revenue. As of December 31, 2024, we had an accumulated deficit of $40,336,000, working capital of $9,064,000, and stockholders’ equity of $9,198,000.
The other income for 2022 primarily consisted of (i) $185,000 from an insurance settlement, and (ii) $35,000 for interest on a money market account. Net Loss Overall, we had a net loss of $2,912,000 for the year ended December 31, 2023, as compared to a net loss of $5,497,000 for the year ended December 31, 2022, a decrease of $2,585,000.
Other Income Our other income (net) decreased by $15,000 from $42,000 for the year ended December 31, 2023, to $26,000 for the year ended December 31, 2024. The other income for 2024 consisted of interest on our money market account.
Excluding these non-cash items, our adjusted net loss decreased by $1,828,000. Liquidity, Capital Resources and Financial Position Cash and Cash Equivalents As of December 31, 2023, we had cash and cash equivalents of $12,508,000, compared to cash and cash equivalents of $18,637,000 as of December 31, 2022.
Liquidity, Capital Resources and Financial Position Cash and Cash Equivalents As of December 31, 2024, we had cash and cash equivalents of $9,453,000, compared to cash and cash equivalents of $12,508,000 as of December 31, 2023. The decrease in cash and cash equivalents during the year ended December 31, 2024 was the result of cash used in operations of $3,055,000.
Removed
Generally, satisfaction occurs when control of the promised goods is transferred to the customer or as we recognize revenue for the sale of goods when control transfers to the customer, which primarily occurs at the time of shipment.
Added
Our bookings increased in 2024, and our backlog at December 31, 2024, was $490,000, an increase of $55,000, or 13%, from our December 31, 2023 backlog. The increase in bookings was primarily due to one large equipment contract of approximately $1,300,000 booked in the second quarter of 2024.
Removed
Results of Operations Comparison of Years ended December 31, 2023 and 2022 Revenues and Cost of Goods Sold Revenue for the year ended December 31, 2023 was $6,911,000 compared to $11,283,000 for the year ended December 31, 2022, a decrease of $4,372,000, or 39%.
Added
The contracts were removed from the backlog at the time of cancellation.
Removed
On February 15, 2022, we received the net proceeds from the offering of shares of common stock and warrants to purchase common stock in the amount of $21,711,000.
Added
We have provided an estimate in our consolidated financial statements of when we expect to recognize revenue on our remaining performance obligations (i.e., our Q4 2024 backlog). However, there continues to be significant uncertainty regarding the timing of our recognition of revenue in our Q4 2024 backlog.
Removed
As of December 31, 2023, we had working capital of $12,110,000, compared to a working capital of $14,724,000 as of December 31, 2022. We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future.
Added
Gross profit margin decreased by 15.7 percentage points from a 7.8% gross profit for the year ended December 31, 2023 to a 7.8% gross loss for the year ended December 31, 2024.
Removed
As mentioned elsewhere, we have taken steps to conserve our cash resources by reducing staff and taking other cost cutting measures and we will continue to evaluate further such measures in the future.
Added
The decrease in advertising and marketing expenses was due primarily to: (i) a decrease in salaries and benefits (including equity-based compensation) of $133,000, (ii) a decrease of $114,000 for advertising and promotion, web development and other marketing expenses, (iii) a decrease of $9,000 for outside marketing services, and (iv) a decrease of $1,000 in expenses related to trade shows and events.
Removed
Investing Activities Cash provided by investing activities for the year ended December 31, 2023 was less than $1,000, compared to $28,000 cash used in investing activities for the year ended December 31, 2022. The change was related to lower purchases of property and equipment.
Added
As of December 31, 2024, we had no indebtedness, total accounts payable and accrued liabilities of $550,000, deferred revenue of $344,000, and the current portion of operating lease liability of $136,000. As of December 31, 2024, we had working capital of $9,064,000, compared to a working capital of $12,110,000 as of December 31, 2023.
Removed
Cash flows from financing activities during the year ended December 31, 2022, was the result of cash proceeds from the sale of common stock and warrants (net of issuance costs) of $21,711,000, offset by a cash payment of $2,016,000 for the redemption of series B preferred stock, including related dividends. 36 Common Stock Equity Offering On February 10, 2022, the Company signed a firm commitment underwriting agreement for the public offering of shares of common stock and warrants, which closed on February 15, 2022.
Added
The arbitration will be heard in Denver, Colorado. The matter is in the discovery phase. The parties will pay their own legal fees and expenses. The Company intends to defend itself vigorously, believing there are no merits to the Claims as currently presented.
Removed
The Company received net proceeds of approximately $21,711,000, for the sale of 5,811,138 shares of common stock and 6,572,808 warrants, each warrant to purchase one share of common stock for five years, exercisable immediately, at an exercise price of $5.00.

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