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Basis of Presentation and Significant Accounting Policies | 3 Months Ended
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Jul. 31, 2025
Accounting Policies [Abstract] |
Basis of Presentation and Significant Accounting Policies | Note 2 – Basis of Presentation and Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and note disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three months ended July 31, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2026. The balance sheet information as of April 30, 2025 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto contained in the Transitional Annual Report on Form 10-KT for the four months ended April 30, 2025. On June 6, 2025 (the “Acquisition Date”), CEA Industries Inc. completed its acquisition of the Fat Panda Group of Companies (“Fat Panda”) (the “Fat Panda Acquisition”). As further described in Note 3 – Business Combination, CEA Industries Inc. has been identified as the accounting acquirer (the “Successor”) and Fat Panda as the accounting predecessor (the “Predecessor”) in accordance with the acquisition method of accounting under ASC 805, Business Combinations. This determination was based on an evaluation of the post-acquisition governance structure, management composition, and other indicators of control. As a result of this designation, the financial statements reflect a change in reporting entity. Financial information for periods prior to the Acquisition Date represents the historical operations of Fat Panda and is labeled as “Predecessor.” Financial information for periods beginning on and after the Acquisition Date reflects the operations of the combined entity under the control of CEA Industries Inc. and is labeled as “Successor” since CEA Industries Inc.’s operations prior to the acquisition were insignificant relative to those of Fat Panda. The merger was accounted for as a business combination using the acquisition method of accounting. The Successor financial statements reflect a new basis of accounting based on the fair value of the identifiable net assets acquired. Determining the fair value of certain assets and liabilities assumed involves significant judgment and the use of estimates and assumptions. See Business Combinations below for additional information on the fair values of assets and liabilities recorded in connection with the Fat Panda Acquisition. As a result of applying the acquisition method of accounting as of the Acquisition Date, the accompanying consolidated financial statements include a black line division to distinguish between the Predecessor and Successor reporting entities. These entities are presented on different bases and are therefore not comparable. The lack of comparability is primarily due to the impacts of the Fat Panda Acquisition, including the remeasurement of acquired assets and assumed liabilities at fair value in the Successor consolidated financial statements. CEA Industries Inc. Notes to Condensed Consolidated Financial Statements July 31, 2025 (in US Dollars except share numbers) (Unaudited) Liquidity In assessing the Company’s liquidity, the Company monitors and analyzes its cash on-hand and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. Cash flow from investing and financing activities have been utilized to finance the working capital requirements of the Company. During the period June 7, 2025 through July 31, 2025, the Company had cash outflow from operating activities of approximately $1.7 million. As of July 31, 2025 the Company had cash of approximately $3 million and a working capital deficit of approximately $1 million. In August 2025 subsequent to the end of the current quarter, the Company obtained $500 million in private investment in public equity (“PIPE”) investment commitments which is expected to provide sufficient liquidity to fund its operations for at least the next twelve months following the issuance of these consolidated financial statements. Based on the closing of the PIPE, the Company believes its working capital will be adequate to sustain the Company’s operations for the next twelve months. Principles of Consolidation These consolidated statements include the financial statements of the Company and the following subsidiary companies from the date of their incorporation, formation, or acquisition. Schedule of Subsidiary Companies from the Date of their Incorporation, Formation, or Acquisition
Company Name |  | Country of Formation / Incorporation |  | Date of Incorporation / Acquisition |  | Percentage Ownership |
Hydro Innovations LLC |  | USA |  | August 1, 2008 |  |  | 100 | %
Surna Cultivation Technologies LLC |  | USA |  | January 25, 2022 |  |  | 100 | %
16728502 Canada Inc* |  | Canada |  | February 6, 2025 |  |  | 100 | %
Fat Panda Ltd |  | Canada |  | July 6, 2025 |  |  | 100 | %
Fat Panda Direct Ltd** |  | Canada |  | July 6 2025 |  |  | 100 | %
10050200 Manitoba Ltd** |  | Canada |  | July 6, 2025 |  |  | 100 | %
7446285 Manitoba Ltd |  | Canada |  | July 6, 2025 |  |  | 100 | %
CEA Management Canada Ltd |  | Canada |  | May 16, 2025 |  |  | 100 | %
CEA BRS LLC |  | USA |  | July 28, 2025 |  |  | 100 | %
* |  | Amalgamated with Fat Panda Ltd on August 1, 2025
** |  | Amalgamated with Fat Panda Ltd on July 9, 2025
All intercompany balances and transactions have been eliminated in consolidation. CEA Industries Inc. Notes to Condensed Consolidated Financial Statements July 31, 2025 (in US Dollars except share numbers) (Unaudited) Use of Estimates Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and that affect the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Key estimates include: allocation of transaction prices to performance obligations under contracts with customers, standalone selling prices, timing of expected revenue recognition on remaining performance obligations under contracts with customers, valuation of intangible assets as it applies to impairment analysis and fair value of acquired assets, valuation of goodwill as it relates to acquisition, valuation of equity-based compensation, valuation of deferred tax assets and liabilities, warranty accruals, allowances for excess and obsolete inventory, allowances for leases relating to incremental borrowing rates, allowances for gift cards based on breakage, and legal contingencies. Business Combinations For acquisitions meeting the definition of a business combination, the acquisition method of accounting is used. The consideration transferred for the acquired business is allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets. Any excess of the amount paid over the estimated fair values of the identifiable net assets acquired is allocated to goodwill. Acquisition-related costs, such as professional fees, are excluded from the consideration transferred and are expensed as incurred. The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions, tax-related valuation allowances and pre-acquisition contingencies are initially recorded in connection with a business combination as of the acquisition date. Cash, Cash Equivalents, and Restricted Cash All highly liquid investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents. Cash includes deposits held in financial institutions which are insured by the Canada Deposit Insurance Corporation (CDIC) which automatically insures eligible deposits separately up to $100,000 Canadian dollars (“CAD”) per depositor, per insured bank, for each ownership category. As of July 31, 2025 (Successor), the Company had approximately $3,511,000 CAD in cash deposits in excess of the CDIC insurance limits at certain financial institutions. The Company maintains deposits in U.S. financial institutions that exceed the federally insured amount of $250,000. As of July 31, 2025 *(Successor), the Company had approximately $153,000 in cash deposits in excess of the FDIC insurance limits at one financial institution. The Company periodically monitors the financial condition of its financial institutions and considers strategies to mitigate credit risk exposure related to uninsured balances. The Company has not experienced any losses to date on depository accounts. The Company maintains its cash accounts with high credit quality financial institutions and therefore believes that its loss exposure is minimal. Accounts Receivable and Allowance for Accounts Receivable Accounts receivables are recorded at the invoiced amount and generally do not bear interest. 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 receivables 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 receivables as of the end of the period. The Company considers a receivable past due when a debtor has not paid us by the contractually specified payment due date. Account balances are written off against the allowance for credit losses if collection efforts are unsuccessful and the receivable balance is deemed uncollectible (debtor default), based on factors such as the debtor’s credit rating as well as the length of time the amounts are past due. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. CEA Industries Inc. Notes to Condensed Consolidated Financial Statements July 31, 2025 (in US Dollars except share numbers) (Unaudited) As of July 31, 2025 (Successor), and April 30, 2025 (Predecessor), the allowance for doubtful accounts was $86,000 (successor) and $0 (predecessor), respectively. Goodwill Goodwill represents the excess of the purchase price for an acquisition over the fair value of the identifiable net assets acquired. Goodwill is not amortized but rather is reviewed annually for impairment, at the reporting unit level, or when there is evidence that events or changes in circumstances indicate that the Company’s carrying amount may not be recovered. When testing goodwill for impairment, the Company first performs an assessment of qualitative factors. If qualitative factors indicate that it is more likely than not that the fair value of the relevant reporting unit is less than its carrying amount, the Company tests goodwill for impairment at the reporting unit level using a two-step approach. In step one, the Company determines if the fair value of the reporting unit exceeds the unit’s carrying value. If step one indicates that the fair value of the reporting unit is less than its carrying value, the Company performs step two, determining the fair value of goodwill and, if the carrying value of goodwill exceeds its implied fair value, an impairment charge is recorded. Intangible assets: As of July 31, 2025 (Successor), the Company has recognized two intangible assets: one with an indefinite useful life and one with a finite useful life. The indefinite-lived intangible asset, a trade name, is not subject to amortization. Instead, it is evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances suggest that the asset may be impaired. The impairment assessment involves estimating the fair value of the trade name using discounted future cash flows and comparing it to its carrying amount. If the carrying amount exceeds the estimated fair value, an impairment charge is recorded for the difference. The finite-lived intangible asset, also a trade name, is recorded at historical cost less accumulated amortization. Amortization is recognized on a straight-line basis over the asset’s estimated useful life of 10 years, which is determined based on the expected economic benefit and usage of the asset. This asset is reviewed for impairment whenever indicators of potential impairment arise. The evaluation compares the carrying value to the estimated future undiscounted cash flows expected to be generated by the asset. If the carrying value exceeds those cash flows, the asset is considered impaired, and the impairment loss is measured as the excess of the carrying amount over its fair value. Based on the carrying value of intangible assets at July 31, 2025, estimated amortization expense for the subsequent five years is as follows: remaining three quarters of 2026—$388,306; 2027—$523,543; 2028—$523,543; 2029—$523,543; 2030—$523,543; and thereafter—$2,674,065. Income (Loss) Per Common Share Basic income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period without consideration of common stock equivalents. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding and potentially dilutive common stock equivalents, including common stock issuable upon conversion of a convertible loan note – related party, the exercise of stock options, warrants and restricted stock units, except in cases where the effect of the common stock equivalents would be antidilutive. Potential common stock equivalents consist of common stock issuable upon conversion of a convertible loan note – related party, exercise of stock options and warrants and the vesting of restricted stock units using the treasury method. As of July 31, 2025 and 2024, there were respectively 1,085,621 (Successor) and 0 (Predecessor), potentially dilutive equity instruments outstanding in respect of a convertible loan note – related party, warrants, restricted stock units and stock options that were convertible into shares of the Company’s common stock. Of these potentially dilutive equity instruments outstanding, 496,803 (Successor) and 0 (Predecessor) related to warrants outstanding at July 31, 2025 and 2024, respectively, issued in connection with the sale of the Successor’s shares of series B Preferred stock and common stock, 524,999 (Successor) and 0 (Predecessor) as of July 31, 2025 and 2024, respectively, related to restricted stock units issued to directors and employees as compensation, 39,174 (Successor) and 0 (Predecessor) as of July 31, 2025 and 2024, respectively, related to shares of common share potentially issuable upon conversion a convertible loan note – related party and the remaining 24,645 (Successor) and 0 (Predecessor) potentially dilutive equity instruments outstanding as of July 31, 2025 and 2024, respectively, related to stock options that were convertible into shares of the Company’s common stock that had been issued to our directors and staff as compensation. CEA Industries Inc. Notes to Condensed Consolidated Financial Statements July 31, 2025 (in US Dollars except share numbers) (Unaudited) Revenue Recognition The Company accounts for revenue in accordance with ASC 606 Revenue from Contracts with Customers. Under the revenue standard, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Most of the Company’s contracts contain multiple performance obligations that include engineering and technical services as well as the delivery of a diverse range of climate control system equipment and components, which can span multiple phases of a customer’s project life cycle from facility design and construction to equipment delivery and system installation and start-up. The Company does not provide construction services or system installation services. Some of the Company’s contracts with customers contain a single performance obligation, typically engineering only services contracts. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When there are multiple performance obligations within a contract, the Company allocates the transaction price to each performance obligation based on standalone selling price. When estimating the selling price, the Company uses various observable inputs. The best observable input is the Company’s actual selling price for the same good or service, however, this input is generally not available for the Company’s contracts containing multiple performance obligations. For engineering services, the Company estimates the standalone selling price by reference to certain physical characteristics of the project, such as facility size and mechanical systems involved, which are indicative of the scope and complexity of the mechanical engineering services to be provided. For equipment sales, the standalone selling price is determined by forecasting the expected costs of the equipment and components and then adding an appropriate margin, based on a range of acceptable margins established by management. Depending on the nature of the performance obligations, the Company may use a combination of different methods and observable inputs if certain performance obligations have highly variable or uncertain standalone selling prices. Once the selling prices are determined, the Company applies the relative values to the total contract consideration and estimates the amount of the transaction price to be recognized as each promise is fulfilled. Generally, satisfaction occurs when control of the promised goods is transferred to the customer or as services are rendered or completed in exchange for consideration in an amount for which the Company expects to be entitled. The Company recognizes revenue for the sale of goods when control transfers to the customer, which primarily occurs at the time of shipment. The Company has elected to exclude from the measurement of the transaction price all taxes (e.g., sales, use, value added, and certain excise taxes) that are assessed by a governmental authority in connection with a specific revenue-producing transaction and collected by the Company from the customer. Accordingly, the Company recognizes revenue net of sales taxes. The revenue and cost for freight and shipping is recorded when control over the sale of goods passes to the Company’s customers. The Company also has performance obligations to perform certain engineering services that are satisfied over a period of time. Revenue is recognized from this type of performance obligation as services are rendered based on the percentage completion towards certain specified milestones. The Company offers assurance-type warranties for its products and products manufactured by others to meet specifications defined by the contracts with customers and does not have any separate material performance obligations related to these warranties. The Company maintains a warranty reserve based on historical warranty costs.
| ● | Retail sales
Retail sales represent a single performance obligation to transfer goods to the customer, satisfied at the point of sale. The transaction price is allocated entirely to the product, and control transfers to the customer upon payment and delivery of the product. Revenue from retail sales is recognized at the point of sale, when control of the product transfers to the customer. Any sales taxes (e.g., GST and PST, where applicable) collected from customers are excluded from the transaction price and recorded as a liability on the balance sheet until remitted to the appropriate tax authority. The company’s return policy is restrictive, and based on historical data and management’s judgment, no material liability for expected returns has been recorded for the period from June 7, 2025 to July 31, 2025 (Successor), the period from May 1, 2025 to June 6, 2025 (Predecessor) and the three months ended July 31, 2024 (Predecessor). Gift card sales are recorded as a liability at the time of issuance. Revenue is recognized when gift cards are redeemed by customers or, if applicable, when the likelihood of redemption becomes remote (breakage), in accordance with applicable regulations. The Company monitors breakage rates for gift cards based on historical redemption patterns. Revenue related to breakage is recognized in proportion to the pattern of expected redemptions in accordance with ASC 606 guidance. The Company also operates a customer loyalty program using promotional “buy 10, get 1 free” punch cards. Each punch card represents a performance obligation to provide a free product upon meeting the required threshold. At each reporting date, the company evaluates outstanding punch card obligations and records a liability based on the estimated redemption rate. For FY 2025 and 2024, management determined that the liability was immaterial to the financial statements. The loyalty program represents a separate performance obligation. Revenue allocated to loyalty points is deferred and recognized when points are redeemed or expired. Management evaluated the redemption rate annually and determined the liability to be immaterial as of July 31, 2025 (Successor) and April 30, 2025 (Predecessor). CEA Industries Inc. Notes to Condensed Consolidated Financial Statements July 31, 2025 (in US Dollars except share numbers) (Unaudited)
| ● | E-commerce sales
Revenue is recognized according to FOB shipping point, where revenue is recognized when product ships from the warehouse. Historical return rates are minimal, and no material liability for returns has been recorded. Revenue is recognized when control of the product transfers to the customer, which occurs when product ships from the warehouse. Shipping and handling are considered fulfillment costs. There is no allowance for returns due to the historically low rate of returns.
| ● | Phone order sales
Phone order sales are treated as e-commerce sales. Revenue is recognized when product ships from the warehouse, where control transfers to the customer.
| ● | Factory direct wholesale revenue
Factory direct wholesale revenue follows the same recognition policy as e-commerce and phone order sales, with revenue recognized when product ships from the warehouse. Historical return rates are minimal, and no material liability for returns has been recorded.
| ● | Franchise fee revenue
Franchise royalty fees are variable consideration, based on a percentage of the franchisee’s sales. These are recognized as revenue in the period the sales occur. Initial franchise fees are recognized upon opening of the new franchise location. CEA Industries Inc. Notes to Condensed Consolidated Financial Statements July 31, 2025 (in US Dollars except share numbers) (Unaudited) Disaggregation of Revenue In accordance with ASC 606-10-50-5 through 6, revenue is disaggregated by major products and services and geographic location, as it best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following table sets forth the Company’s revenue by source: Schedule of Revenue by Source
|  | Successor |  |  | Predecessor |  |  | Predecessor |
|  | Successor |  |  | Predecessor |
|  | Period from June 7 through July 31, |  |  | Period from May 1 through June 6, |  |  | Three Months Ended July 31, |
|  | 2025 |  |  | 2025 |  |  | 2024 |
CEA equipment and systems sales |  | $ | 106,827 |  |  | $ | - |  |  | $ | - |
CEA engineering and other services |  |  | 49,146 |  |  |  | - |  |  |  | - |
CEA shipping and handling |  |  | 988 |  |  |  | - |  |  |  | - |
Retail Vape sales |  |  | 4,182,722 |  |  |  | 2,717,341 |  |  |  | 6,061,541 |
E-commerce Vape sales |  |  | 220,675 |  |  |  | 165,818 |  |  |  | 735,688 |
Factory direct wholesale Vape sales |  |  | 7,064 |  |  |  | 794 |  |  |  | 7,766 |
Franchise fee Vape sales |  |  | - |  |  |  | - |  |  |  | 122,887 |
Other Vape sales |  |  | 12,336 |  |  |  | 43,736 |  |  |  | 30,389 |
Total revenue |  | $ | 4,579,758 |  |  | $ | 2,927,689 |  |  | $ | 6,958,270 |
Geographic Information The Company classifies sales by customers’ locations in two geographic regions: the United States and Canada. Schedule of Sales by Customers Locations in Geographic Regions
Revenue |  | Period June 7, 2025 – July 31, 2025 (Successor) |  |  | Period May 1, 2025 – June 6, 2025 (Predecessor) |  |  | For the three months ended July 31, 2025 (Predecessor) |
United States |  | $ | 156,961 |  |  | $ | - |  |  | $ | - |
Canada |  | $ | 4,422,797 |  |  | $ | 2,927,689 |  |  | $ | 6,958,270 |
Total |  | $ | 4,579,758 |  |  | $ | 2,927,689 |  |  | $ | 6,958,270 |
CEA Industries Inc. Notes to Condensed Consolidated Financial Statements July 31, 2025 (in US Dollars except share numbers) (Unaudited) 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. 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. 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 July 31, 2025 (Successor), and April 30, 2025 (Predecessor), the allowance for doubtful accounts was $1,000 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 2025. As of July 31, 2025 (Successor), and April 30, 2025 (Predecessor), the Company had contract assets of $233,274 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 Company generally expects to recognize revenue in less than one year. Non-refundable customer deposits are recognized as revenue when previously abandoned customer contracts have been forfeited and a period of three years has passed. As of July 31, 2025 (Successor), and April 30, 2025 (Predecessor), deferred revenue, which was classified as a current liability, was $433,122 (Successor) and $0 (Predecessor), respectively. 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. CEA Industries Inc. Notes to Condensed Consolidated Financial Statements July 31, 2025 (in US Dollars except share numbers) (Unaudited) 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 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, t 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. As of July 31, 2025 (Successor), the Company’s remaining performance obligations, or backlog, was approximately $630,000, a decrease of $96,000 from the June 6, 2025 (Successor) backlog of $726,000. The decrease was primarily the result of lower bookings for the period. 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 remaining performance obligations expected to be recognized through fiscal year 2026 are as follows (Successor): Schedule of Remaining Performance Obligations Expected to be Recognized
|  | Q2FY26 |  |  | Total |
Remaining performance obligations related to partial equipment & engineering paid contracts |  |  | 630,000 |  |  |  | 630,000 |
Total remaining performance obligations |  | $ | 630,000 |  |  | $ | 630,000 |
Product Warranty The Company warrants the products that it manufactures for indoor cultivation facilities for a warranty period equal to the lesser of 12 months from start-up or 18 months from shipment. The Company’s warranty provides for the repair, rework, or replacement of products (at the Company’s option) that fail to perform within stated specification. The Company’s third-party suppliers also warrant their products under similar terms, which are passed through to the Company’s customers. The Company (Successor) assesses the historical warranty claims on its manufactured products and, since 2016, warranty claims have been approximately 1% of annual revenue generated on these products. Based on the Company’s warranty policy, an accrual is established at 1% of the trailing 18 months revenue. The Company continues to assess the need to record a warranty reserve at the time of sale based on historical claims and other factors. The VAPE business (Predecessor) does not have a warranty policy for its products. As of July 31, 2025 (Successor), and April 30, 2025 (Predecessor), the Company had an accrued warranty reserve amount of $49,124 and $0, respectively, which are included in accounts payable and accrued liabilities on the Company’s consolidated balance sheets. CEA Industries Inc. Notes to Condensed Consolidated Financial Statements July 31, 2025 (in US Dollars except share numbers) (Unaudited) Accounting for Share-Based Compensation The Company recognizes the cost resulting from all share-based compensation arrangements, including stock options, restricted stock awards and restricted stock units that the Company grants under its equity incentive plan in its condensed consolidated financial statements based on their grant date fair value. The expense is recognized over the requisite service period or performance period of the award. Awards with a graded vesting period based on service are expensed on a straight-line basis for the entire award. Awards with performance-based vesting conditions, which require the achievement of a specific company financial performance goal at the end of the performance period and required service period, are recognized over the performance period. Each reporting period, the Company reassesses the probability of achieving the respective performance goal. If the goals are not expected to be met, no compensation cost is recognized and any previously recognized amount recorded is reversed. If the award contains market-based vesting conditions, the compensation cost is based on the grant date fair value and expected achievement of market condition and is not subsequently reversed if it is later determined that the condition is not likely to be met or is expected to be lower than initially expected. The grant date fair value of stock options is based on the Black-Scholes Option Pricing Model (the “Black-Scholes Model”). The Black-Scholes Model requires judgmental assumptions including volatility and expected term, both based on historical experience. The risk-free interest rate is based on U.S. Treasury interest rates whose term is consistent with the expected term of the option. The Company determines the assumptions used in the valuation of option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company may use different assumptions for options granted throughout the year. The grant date fair value of restricted stock and restricted stock units is based on the closing price of the underlying stock on the date of the grant. The Company has elected to reduce share-based compensation expense for forfeitures as the forfeitures occur since the Company does not have historical data or other factors to appropriately estimate the expected employee terminations and to evaluate whether particular groups of employees have significantly different forfeiture expectations. Concentrations Three customers accounted for 53%, 23% and 10% of the (Successor) Company’s revenue for the period June 7, 2025 through July 31, 2025. Three customers accounted for 52%, 26%, and 10% of the (Successor) Company’s accounts receivable as of July 31, 2025. The (Predecessor) Company’s accounts receivable from three customers made up 57%, 33%, and 10% of the total accounts receivable balance as of April 30, 2025. Foreign Currency Translation The Company’s condensed consolidated financial statements are presented in U.S. dollar (“USD”). Financial statements of foreign subsidiaries are translated into U.S. dollars using period-end exchange rates for assets and liabilities and average exchange rates for revenues and expenses. Adjustments resulting from translating net assets are reported as a separate component of accumulated other comprehensive loss within common shareholders’ equity as currency translation adjustment. Monetary assets and liabilities that are denominated in foreign currencies are translated at the rate prevailing at each reporting date. The U.S. dollar effects that arise from translating the net assets of these companies are recorded in other comprehensive income. Segment Information Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company’s senior management team in deciding how to allocate resources and in assessing performance. The Company has one operating segment that is dedicated to the manufacture and sale of its products. CEA Industries Inc. Notes to Condensed Consolidated Financial Statements July 31, 2025 (in US Dollars except share numbers) (Unaudited) Recently Issued Accounting Pronouncements In July 2025, the FASB issued Accounting Standards Update No. 2025-05, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets” (“ASU 2025-05”), which introduces a practical expedient (for all entities) and an accounting policy election for non-public entities when estimating expected credit losses for current receivables and contract assets under ASC 606. The standard is effective for annual reporting periods beginning after December 15, 2025, including interim periods within those fiscal years, and early adoption is permitted. The amendments are applied prospectively, and eligible entities can choose to apply the practical expedient and accounting policy election, with required disclosures. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements and disclosures. In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. This standard clarifies the guidance in determining the acquirer in an acquisition transaction effected primarily by exchanging equity interests when the legal acquiree is a VIE that meets the definition of a business. The amendments require that an entity consider the same factors that are currently required for determining which entity is the accounting acquirer in other acquisition transactions. This guidance is effective for fiscal years beginning after December 15, 2026, and therefore will be effective beginning with the Company’s financial statements issued for the fiscal year ending April 30, 2028 and interim reporting periods beginning in fiscal 2029, with early adoption permitted. The amendments are required to be applied prospectively to any acquisition transaction that occurs after the initial application date. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and disclosures. In January 2025, the FASB issued Accounting Standards Update No. 2025-01 to clarify the effective date of ASU 2024-03 (disaggregation of income statement expenses) for non-calendar year-end entities. The clarification ensures that initial adoption is required in an annual reporting period (rather than unintentionally in an interim period) for entities with non-calendar year ends. The amendments align with the effective dates stated in ASU 2024-03 (annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027) and early adoption is permitted. The Company is currently evaluating the potential impact of ASU 2024-03 (as clarified by ASU 2025-01) on its unaudited condensed consolidated financial statements and related disclosures. In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-04 – Debt – Debt with Conversion and Other Options: Induced Conversions of Convertible Debt Instruments, which improves the relevance and consistency in application of the induced conversion guidance in Subtopic 470-20, Debt-Debt with Conversion and Other Options. Specifically, the guidance is intended to clarify how to determine whether a settlement of convertible debt (particularly cash convertible instruments) at terms that differ from the original conversion terms should be accounted for under the induced conversion or extinguishment guidance. The amendments in this update are effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06. The Company is currently evaluating the impact this guidance will have on the Company’s financial statements and related disclosures. In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 22-40): Disaggregation of Income Statement Expenses. The ASU requires entities to provide enhanced disclosures related to certain costs and expenses in the notes to the financial statements. The guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on the Company’s financial statements and related disclosures. In December 2023, FASB issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate. The standard also requires that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) each disaggregated between domestic and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is currently assessing the impact of ASU 2023-09 on its disclosures. CEA Industries Inc. Notes to Condensed Consolidated Financial Statements July 31, 2025 (in US Dollars except share numbers) (Unaudited) In November 2023, the FASB issued Accounting Standards Update 2023-07, Improvements to Reportable Segment Disclosures (ASU 2023-07). ASU 2023-07 includes requirements that an entity disclose the title of the chief operating decision maker (CODM) and on an interim and annual basis, significant segment expenses and the composition of other segment items for each segment’s reported profit. The standard also permits disclosure of additional measures of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of ASU 2023-07 has not had a material impact on the Company’s financial statements and related disclosures. In August 2023, FASB issued ASU 2023-05, “Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement.” ASU 2023-05 requires certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value. The objectives of the amendments are to provide decision-useful information to investors and other allocators of capital in a joint venture’s financial statements and also to reduce diversity in practice. ASU 2023-05 should be applied prospectively and is effective for all newly formed joint venture entities with a formation date on or after January 1, 2025. Early adoption is permitted, and joint ventures formed prior to the adoption date may elect to apply the new guidance retrospectively back to their original formation date. The adoption of ASU 2023-05 has not had a material impact on the Company’s condensed consolidated financial statements and related disclosures. Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosure.

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