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Basis of Presentation; Summary of Significant Accounting Policies (Tables)
 12 Months Ended
Dec. 31, 2023
Accounting Policies [Abstract]  
Schedule of Property and Equipment Estimated Useful Life

Asset Type 

Estimated

Useful Life

 
Furniture and fixtures   5 
Computers   3 
Equipment   5 
Vehicles   5 
Schedule of Remaining Performance Obligations Expected to be Recognized

The following table sets forth the Company’s revenue by source:

 

    2023   2022 
    For the Twelve Months Ended December 31, 
    2023   2022 
Equipment and systems sales   $6,153,322   $10,737,875 
Engineering and other services    501,921    472,464 
Shipping and handling    21,573    72,850 
Forfeited non-refundable customer deposits    234,135    - 
Total revenue   $6,910,951   $11,283,189 

 

Other Judgments and Assumptions

 

The Company typically receives customer payments in advance of its performance of services or transfers of goods. Applying the practical expedient in ASC 606-10-32-18, which the Company has elected, the Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Accordingly, the remaining performance obligations related to customer contracts does not consider the effects of the time value of money.

 

 

CEA Industries Inc.

Notes to Consolidated Financial Statements

December 31, 2023

(in US Dollars except share numbers)

 

Applying the practical expedient in ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred since the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs include certain sales commissions and incentives, which are included in selling, general and administrative expenses, and are payable only when associated revenue has been collected and earned by the Company.

 

Contract Assets and Contract Liabilities

 

Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. The Company receives payments from customers based on the terms established in its contracts.

 

Contract assets include unbilled amounts where revenue recognized exceeds the amount billed to the customer and the right of payment is conditional, subject to completing a milestone, such as a phase of a project. The Company typically does not have material amounts of contract assets since revenue is recognized as control of goods are transferred or as services are performed. Contract assets increased by $224,414 in 2023, due to revenue recognition related to the partial satisfaction of performance obligations, on three contracts with one customer, for which we have not yet billed out customer. In accordance with ASU No. 2016-13 (as amended), Measurement of Credit Losses on Financial Instruments, which the Company adopted on a prospective basis effective January 1, 2023, an allowance for doubtful accounts is recorded against the Company’s contract assets by applying an expected credit loss model. Each period, management assesses the appropriateness of the level of allowance for credit losses by considering credit risk inherent within its contract assets as of the end of the period. As of December 31, 2023, and December 31, 2022, the allowance for doubtful accounts was $1,436 and $0, 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. We expect to complete our performance obligations and bill the customer for this contract asset during 2024. As of December 31, 2023, and 2022, the Company had contract assets of $224,414 and $0, respectively.

 

Contract liabilities consist of advance payments in excess of revenue recognized. The Company’s contract liabilities are recorded as a current liability in deferred revenue in the consolidated balance sheets since the timing of when the Company expects to recognize revenue is generally less than one year. As of December 31, 2023, and December 31, 2022, deferred revenue, which was classified as a current liability, was $499,800 and $4,338,570, respectively.

 

For the year ended December 31, 2023, the Company recognized revenue of $3,911,083 related to the deferred revenue at January 1, 2023, or 90%. For the year ended December 31, 2022, the Company recognized revenue of $2,318,935 related to the deferred revenue at January 1, 2022, or 82%.

 

Remaining Performance Obligations

 

Remaining performance obligations, or backlog, represents the aggregate amount of the transaction price allocated to the remaining obligations that the Company has not performed under its customer contracts. The Company has elected not to use the optional exemption in ASC 606-10-50-14, which exempts an entity from such disclosures if a performance obligation is part of a contract with an original expected duration of one year or less. Accordingly, the information disclosed about remaining performance obligations includes all customer contracts, including those with an expected duration of one year or less.

  

Industry uncertainty, project financing concerns, and the licensing and qualification of our prospective customers, which are out of the Company’s control, make it difficult for the Company to predict when it will recognize revenue on its remaining performance obligations. There are risks that the Company may not realize the full contract value on customer projects in a timely manner or at all, and completion of a customer’s cultivation 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. Accordingly, the time it takes for customers to complete a project, which corresponds to when the Company is 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 system; (vii) the availability of power; and (viii) delays that are typical in completing any construction project. Further, based on the current economic climate, the uncertainty regarding the COVID-19 virus, 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.

 

 

CEA Industries Inc.

Notes to Consolidated Financial Statements

December 31, 2023

(in US Dollars except share numbers)

 

As of December 31, 2023, the Company’s remaining performance obligations, or backlog, was $435,000. There is significant uncertainty regarding the timing of the Company’s recognition of revenue on its remaining performance obligations, and there is no certainty that these will result in actual revenues. The backlog at December 31, 2023, contains a booked sales order of $39,000 (9% of the total backlog) from one customer that we believe is at risk of cancellation based on conversations with this customer.

 

The remaining performance obligations expected to be recognized through 2024 are as follows:

   

   2024   Total 
Remaining performance obligations related to partial equipment paid contracts   435,000    435,000 
Total remaining performance obligations  $435,000   $435,000 
Schedule of Remaining Performance Obligations Expected to be Recognized

The remaining performance obligations expected to be recognized through 2024 are as follows:

   

   2024   Total 
Remaining performance obligations related to partial equipment paid contracts   435,000    435,000 
Total remaining performance obligations  $435,000   $435,000