www.surna.com Q2 2019 INVESTOR PRESENTATION August 20, 2019
Cautionary Statements Forward Looking Statements This investor presentation may contain statements of a forward-looking nature relating to future events. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect our current beliefs, and a number of important factors could cause actual results to differ materially from those expressed in this investor presentation, including the factors set forth in “Risk Factors” set forth in our Form 10-K and Form 10-Q filed with the Securities and Exchange Commission (“SEC”), and subsequent filings with the SEC. Please refer to our SEC filings for a more detailed discussion of the risks and uncertainties associated with our business, including but not limited to the risks and uncertainties associated with our business prospects and the prospects of our existing and prospective customers; the inherent uncertainty of product development; regulatory, legislative and judicial developments, especially those related to changes in, and the enforcement of, cannabis laws; increasing competitive pressures in our industry; and relationships with our customers and suppliers. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. The reference to Surna’s website has been provided as a convenience, and the information contained on such website is not incorporated by reference into this investor presentation. Non-GAAP Financial Measures To supplement our financial results on U.S. generally accepted accounting principles (“GAAP”) basis, we use non-GAAP measures including net bookings and backlog, as well as adjusted net income (loss) which reflects adjustments for certain non-cash expenses such as stock-based compensation and certain debt-related expenses. We believe these non-GAAP measures are helpful in understanding our past performance and are intended to aid in evaluating our potential future results. The presentation of these non-GAAP measures should be considered in addition to our GAAP results and are not intended to be considered in isolation or as a substitute for financial information prepared or presented in accordance with GAAP. We believe these non-GAAP financial measures reflect an additional way to view aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. For purposes of this presentation, (i) “adjusted net income (loss)” and “adjusted operating income (loss)” mean GAAP net income (loss) and operating income (loss), respectively, after adjustment for non-cash equity compensation expense, debt-related items and depreciation expense, and (ii) “net bookings” means new sales contracts executed during the quarter for which we received an initial deposit, net of any adjustments including cancelations and change orders during the quarter. Statement about Cannabis Markets The use, possession, cultivation, and distribution of cannabis is prohibited by U.S. federal law. This includes medical and recreational cannabis. Although certain states have legalized medical and recreational cannabis, companies and individuals involved in the sector are still at risk of being prosecuted by federal authorities. Further, the landscape in the cannabis industry changes rapidly. This means that at any time the city, county, or state where cannabis is permitted can change the current laws and/or the federal government can supersede those laws and take prosecutorial action. Given the uncertain legal nature of the cannabis industry, it is imperative that investors understand that investments in the cannabis industry should be considered very high risk. A change in the current laws or enforcement policy can negatively affect the status and 2 operation of our business, require additional fees, stricter operational guidelines and unanticipated shut-downs.
Year-to-Date Report: Milestones Achieved Q2 2019 Results Revenue Net Income $4.2 MM $140,000 ● Company record for quarterly revenue ● Positive quarterly net income for first time in history ● $2.4 MM increase over Q1 2019, or 138% ● $390,000 adjusted operating income — key metric for cash profitability Financial Gross Profit Margin Cash 34.4 % $1.9 MM ● Highest level in two years ● $1.5 MM increase over Q1 2019 ending balance ● 6.7 percentage point improvement over Q1 2019 ● Highest cash position since raising $1.8 MM in Q4 2017 SentryIQ TM Sensors & Controls Ducted Air Handling Systems $225,000 $1.1 MM ● Total contract value for 3 projects sold to date ● Q2 2019 revenue from sale of custom-designed New ducted systems, or 27% of total revenue ● Turnkey HVAC equipment/controls solution Products ● New ducted systems and improved ductless fan coil ● New revenue source units broaden offering to larger facilities 3
Operating Results For the Three Months For the Six Months Ended June 30, Ended June 30, 2019 2018 2019 2018 Revenue, net $ 4,210,393 $ 2,007,745 $ 5,981,623 $ 4,062,473 Cost of revenue 2,762,601 1,484,320 4,043,758 3,157,034 Gross profi t 1,447,792 523,425 1,937,865 905,439 Operating expenses: Advertising and marketing expenses 167,287 223,903 291,913 434,919 Product development costs 111,581 56,917 228,514 132,089 Selling, general and administrative expenses 1,032,605 1,659,862 2,203,191 3,660,778 Total operating expenses 1,311,473 1,940,682 2,723,618 4,227,786 Operating income (loss) 136,319 (1,417,257) (785,753) (3,322,347) Other income (expense) 3,296 16,312 25,173 37,858 Income (loss) before provision for income taxes 139,615 (1,400,945) (760,580) (3,284,489) Income taxes - - - - $ 139,615 $ (1,400,945) $(760,580) $(3,284,489) Net income (loss) Income (loss) per common share $ 0.001 $ (0.006) $(0.003) $(0.015) Weighted average number of common shares outstanding 227,635,539 217,447,043 227,250,142 213,814,978 Non-GAAP Measures: Net income (loss) $ 139,615 $ (1,400,945) $ (760,580) $ (3,284,489) Non-cash equity compensation expense 207,279 822,554 548,010 1,480,509 Depreciation expense 46,892 41,378 93,999 66,512 Debt-related (income) expense - - - (21,403) 4 Adjusted net income (loss) $ 393,786 $ (537,013) $ (118,571) $ (1,758,871)
Key Financial Metrics REVENUE GROSS MARGIN $4.5 million 45% $4.2 4.0 40 34.4% 3.5 35 $3.3 33.0% 29.3% 3.0 30 27.7% 26.1% 25.0% 23.7% 2.5 25 $2.3 $2.2 $2.1 20.4% $2.0 18.6% 2.0 20 $1.8 $1.7 $1.6 1.5 15 1.0 10 0.5 5 0 0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2017 2017 2017 2018 2018 2018 2018 2019 2019 2017 2017 2017 2018 2018 2018 2018 2019 2019 OPERATING INCOME (LOSS) CASH 0.5 $3.0 million $0.4 $2.5 $0.0 million -$0.1 $0.1 2.5 -$0.4 -$0.5 -$0.6 -$0.6 -$0.6 -$0.8 $1.9 2.0 -0.5 -$1.2 $1.6 -$0.6 $1.4 $1.4 1.5 $1.3 -$0.9 -$0.9 -1.0 $0.9 1.0 -$1.2 -$1.2 -$1.2 -$1.4 -1.5 $0.5 Adjusted 0.5 Operating $0.3 Income (Loss) Operating Income (Loss) -$1.9 -2.0 0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 5 2017 2017 2017 2018 2018 2018 2018 2019 2019 2017 2017 2017 2018 2018 2018 2018 2019 2019
Bookings, Backlog and Revenue Conversion $14 million 70% Revenue $13.0 Conversion Revenue conversion % = quarterly revenue / prior quarter-end backlog $12 60 $11.5 54% 10 50 46% 46% $8.9 $8.9 $8.5 8 40 40% Backlog 37% $7.0 36% Net Bookings 6 $5.7* 30 29% $4.8 25% $4.6 $4.5 $4.3 $3.9 $3.9 21% 4 20 $3.3 $2.5 $1.9 $1.9 $1.8 2 10 0 0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2017 2017 2017 2018 2018 2018 2018 2019 2019 6 * New bookings of $8.5 million, plus change orders of $0.2 million, less cancellations of $3.0 million
Expanded Market Focus Q2 2019 YTD Results ($ in millions) Commercial-Scale Project Type (includes only projects under contracts signed in H1 ’19 with value > $100,000) New Build Expansion ������� Total 3 projects for a single MFO No. of Projects 1 2 1 4 customer Multi-Facility Operators (MFOs) � $1.8 – average project size Bookings $0.7 $5.2 $1.3 $7.2 � $4.1 – est. Q3 ’19 revenue 1 � 96% – est. Q3 ’19 YTD conversion rate 2 Revenue $0.1 $1.4 $1.3 $2.8 No. of Projects 8 1 0 9 Independent/Small Growers (ISGs) � $0.6 – average project size Bookings $5.4 $0.1 $0.0 $5.5 � $0.5 – est. Q3 ’19 revenue 1 � 14% – est. Q3 ’19 YTD conversion rate 2 Revenue $0.2 $0.1 $0.0 $0.3 Surna Surna historical focus expanded focus MFOs are individual businesses that own/operate two or more cannabis cultivation facilities in the U.S. or Canada. ISGs are all other cannabis cultivations that are not MFOs. 1 Estimated revenue from commercial-scale projects under contracts signed in H1 ’19 only 2 Conversion rate = Estimated Q3 ’19 YTD revenue / Q2 ’19 YTD bookings under contracts signed in H1 ’19 7
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