- Grew revenue 20% and 72%, compared to Q4 2015 and Q3 2016, respectively
- Strengthened balance sheet by more than $5.5 million reflecting debt conversion and equity raise concluded in March 2017

Surna Inc. (OTCQB: SRNA) reported its financial results for the three and twelve months ended December 31, 2016.

"In 2016, we began executing growth, cost reduction and capital market initiatives that have strengthened our operations and financial position," stated Surna's President and Chief Executive Officer Trent Doucet. "As a result, fourth quarter revenue grew 20% year-over-year and 72% compared to the third quarter. Full year improvements include gross margin reaching 30% and a reduction in our operating loss of 83% compared to 2015. Additionally, our recent debt conversion and equity financing fortified our balance sheet by more than $5.5 million, enabling us to pursue our sales team expansion more aggressively.

"Both the medicinal and recreational segments of the cannabis cultivation market are growing rapidly in the US and internationally. We also have been building our presence and recently signed our sixth deal in Canada. In 2017, we anticipate rolling out our next generation equipment as well as beta test of our control and automation platform.

"Overall, 2016 was a pivotal year for our market and for Surna specifically. We believe the positive trends are continuing in 2017, and we are very excited about our prospects," concluded Doucet.

Recent Highlights

• Converted $3.2 million in principal and interest, or 100% of the obligations related to the 10% convertible promissory notes, in a series of transactions beginning in the fourth quarter of 2016 through March 2017.
• Raised $2.7 million in the sale of equity in a series of closings in March 2017.
• Obtained a 6% short-term loan of approximately $500,000 in February 2017.
• Exhibited at several important cannabis trade shows including Marijuana Business Conference & Expo® in Las Vegas in November and CannaCon in Seattle in February.
• Signed a contract with Vancouver's Sante Veritas Therapeutic to design and provide equipment for the environmental control system in its first commercial cultivation facility. As announced in March 2017, Surna expects to ship product and recognize associated revenue of $835,000 in the third quarter of 2017.
• Appointed Timothy J. Keating, capital markets thought leader, as chairman of the board of directors in March 2017.

Results for Fourth Quarter: 2016 Compared to 2015

• Revenue was $2.0 million, compared to $1.7 million in the fourth quarter of 2015 and $1.2 million in the third quarter of 2016, reflecting increased sales of climate control equipment.
•  Cost of revenue was $1.5 million. This compared to $2.0 million, which included reclassifications in the fourth quarter of 2015.
• Gross margin was 23.9%, reflecting more efficient cost and supply chain management. 
• Operating expenses were $845,000, compared to $725,000 in the fourth quarter of 2015.
  • SG&A and marketing expenses were $675,000, compared to $566,000, reflecting efforts related to the 2016 Marijuana Business Conference & Expo.
  • Product development costs decreased to $78,000, compared to $174,000 as the Surna Reflector and the Hybrid Building transitioned to production.

Operating loss improved to $362,000, from $1.0 million in the fourth quarter of 2015.

Net loss was $886,000, compared to $1.6 million in the fourth quarter of 2015.

Balance Sheet Highlights

At December 31, 2016, cash was $320,000, compared to $235,000 at September 30, 2016 and $331,000 at December 31, 2015. Deferred revenue was to $1.4 million, equivalent to the level at September 30, 2016 and up from $986,000 at December 31, 2015.

Subsequent to quarter end, the company completed the conversion of its entire obligation related to its 10% convertible promissory notes, consisting of $3.2 million in principal and accrued interest, into approximately 19.6 million shares of newly issued common stock and cash payments of $314,000.  Also, the company raised $2.2 million, gross on March 7th and another $465,000 was raised by the end of March.

Results for Twelve Months: 2016 Compared to 2015

• • Revenue was $7.6 million, compared to $7.9 million.  The December 31, 2016 backlog – sales amounts under contract but which were not yet completed and not included in revenue – was $2.6 million, up substantially from $1.4 million at December 31, 2015.
  • Gross margin, which included the negative impact of the $530,000 warranty charge, increased to 30%, compared to 12%, primarily due to product mix, the elimination of low margin installation services and lower cost of goods.
  • Operating loss was narrowed to $532,000, from $3.1 million.
  • Net loss was $3.3 million, or $0.02 per share, compared to $5.3 million, or $0.04 per share.