Stephen Keen - Co-Founder, Vice President of Research and Development Tae Darnell - Interim Principle Executive Officer Dough McKinnon - Chief Financial Officer Bryon Jorgenson - Chief Operating Officer David Traylor - Chief Business Officer Katie O’Block - VP of Marketing.

Katie O’Block - VP of Marketing, Surna Inc..

Good afternoon everyone. I hope everyone is well. Welcome to the Surna Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will be answering questions previously submitted to us via email, as well as taking some real time questions via Twitter. So if you have any, feel free to reach out.

This is call is being recorded, just so you’ll aware. The transcription and the audio recording of this call will be placed on our website Surna.com on the investor Relations page within the week after this call. So if you like to go back and listen, feel free to do that as well.

To kickoff the call I’d now like to introduce your host for today’s call, David Traylor Surna’s Chief Business Officer. David. .

Thanks Katie. The Surna team would like to thank you for taking the time to join our conference call today. On the call with me are Stephen Keen, Co-Founder and Vice President of Research and Development; Tae Darnell, Interim Principle Executive Officer; Dough McKinnon, Chief Financial Officer; and Bryon Jorgenson, our Chief Operating Officer.

We will begin with approximately 30 minutes of prepared remarks followed by questions and answers. We will be answering questions submitted to us prior to the call via email as well as questions submitted to us real time via Twitter directed towards @surnainc or surnainc or marked with a #SurnaConfCall.

To reiterate, the transcript of the call will be provided on our website for reference within the week. So let’s get into the forward looking statements. You can find these at the bottom of every Press Release. The statements in this interview may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Words such as "anticipate," "believe," "estimate," "expect," "intend," and similar expressions as they relate to the company or its management identify forward-looking statements. These statements are based on current expectations, estimates, and projections about the company's business, based in part on assumptions made by management.

These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict.

Therefore, actual outcomes and results may and probably will differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in Surna's filings with the Securities and Exchange Commission.

In addition, such statements could be affected by risks and uncertainties related to Surna's product demand, market and customer acceptance of its equipment and other goods, ability to obtain financing to expand its operations, ability to attract qualified personnel, competition, pricing, and development difficulties, general industry and market conditions and growth rates, and general economic conditions.

Any forward-looking statements speak only as of the date on which they are made, and the company does not undertake any obligation to update any forward-looking statement to reflect events and/or circumstances after the date of this release or interview. We also need to include a statement of Cannabis.

With regard to Cannabis, the use, possession, cultivation and distribution of Cannabis is prohibited by Federal Law. This includes medical and recreational Cannabis, although certain states have legalized medical and recreational Cannabis. Companies and individuals involved in this sector are still at risk of being prosecuted by federal authorities.

Further the landscape in the Cannabis industry changes rapidly, while the law last week is not the law today and what is the law today may not be the law next week.

This means that at any time with 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 actions. Given the uncertain legal nature the Cannabis industry is imperative that investors understand that the Cannabis industry is a high risk investment.

A change in the current laws or enforcement policy can negatively affect the status and operation of our business, require addition fees, stricter operational guidelines and unanticipated shutdowns. With that I would like to introduce Tae Darnell, Surna’s Interim Principle Executive Officer..

Thank you David and welcome everyone on the call. I wanted to start off today’s call rally first just by thanking you as our investors. The past few months have been a time for structure and for growth here at Surna and although there have been challenges over the course of the past year, we are also seeing the fruits of our labor come to light.

So for those of you who stayed with us, that remain committed shareholders, follow our news or reach out to us on social media, we greatly appreciate your commitment to Surna. So please know that your contribution to Surna as an investor is the reason we are here today. Surna is a company that’s driven by its exceptional team.

With over 10 engineers on staff and the most sophisticated management team in the Cannabis sector, we feel like we are only beginning to scratch the surface of what you will see from Surna over the next few years.

Personally I have been very honored to serve in this Interim role as CEO while we further establish a company that we believe is really truly leading the future technology for a controlled environment Ag. So on the call today you will hear from a number of our members from the team, so I will cut right to the chase.

I want to start the call really by discussion the first half of this year and this year really is one where we’ve hit a number of milestones and achieved a number of objectives.

First, it’s important to point out that we’ve continued our operational maturation and we’ve done this by expanding our team, we’ve added over 7000 square feet of manufacturing space to our footprint and formed relationships for external operations as well.

Most importantly, our increasing revenues are indicative of what we believe is an exceptionally advancing footprint in the sector and the brand awareness that continues to evolve for Surna.

I think as its obvious to most of our investors, another area of primary focus for Surna as a technology company is the breadth of our intellectual property portfolio. We continue to aggressively expand our portfolio with the filing of addition patent applications.

We now have 11 patents filed and that’s for our technologies including the design and technology of the Reflector that you’ll hear about later and also the hybrid building facility. I’m only touching on this, because later in the call – I’m incredibly excited to be able to introduce you to our newest Board Member, Stephen Keen.

Stephen Keen founded Hydro Innovations in 2007 and is really one of the true innovative pioneers in the Cannabis sector and I think more importantly for Surna and our shareholders Mr. Keen has been the driving and creative visionary force behind the Surna technology solution which Surna has evolved off of the Hydro Innovations platform. So Mr.

Keen will share with you about the advancement of our R&D platform and the relevance it has in the market today, a little bit later in the call. With regard to additional milestones, last quarter we reached an agreement with Kind Financial where we were able to restructure the relationship with Argrisoft.

By doing this we enabled ourselves to focus on internal R&D, while really retaining a footprint in a POS space. In addition to that, Surna was selected as a member of the association of responsible Cannabis Public Company with the ARCPC. It includes companies like Heliospectra and MassRoots.

I think more importantly this is just indicative of fundamentals that we are driving this company with and is a little feather in the cap for how this company has evolved. We also welcome three new members to our Board of Directors.

We added Stephen Keen and Brandy Keen for several reasons, least of which is that they are the driving force behind the Surna platform and our continued growth. In addition, we added Morgan Paxhia who is the Founding Partner and Managing Director of Poseidon Asset Management.

Poseidon is not only one the most respected funds in Cannabis, they are really one of the most knowledge sources for the nascent Cannabis industry and really provide us with a sophistication that really greatly bolsters our corporate IQ. So we are very excited by this expansion of the Board.

I think it’s very important to our investors that we eliminated nearly $200,000 in debt from the books and retired over 21 million shares held by Tom Bollich. To give you a little more clarity on that deal, Mr.

Bollich retained 2 million shares and just over 3 million options in a transaction with Private Parties disclosed in our Form 4, but most importantly, the most common question we receive regards why would Tom engage in this transaction? On behalf of Surna we can’t speak for Tom, we can only answer it from the perspective of Surna and basically this transaction is a very beneficial transaction for Surna and its shareholders.

Its enabled us to shrink our outstanding shares by 17% and reduce our debt by close to $200,000, so all very positive steps. I wanted to pass the call off now to our CFO, Dough McKinnon, who is going to dig into Surna’s recently released 10-Q and accompanying financials. So Dough, take the reins..

All right, thanks David and I also like to thank you very much, everyone on this call for your time and for your interest in Surna. And unfortunately I’m going to read part of the Press Release and the 10-Q, so if you will please bear with me for just a few minutes and then we will get a little more clarity on it.

We started with for the first six months ended June 30, 2015 the company reported gross revenues of $2,548,845 compared to $346,559 for the same period in 2014, representing an increase of 635%.

Revenues for the three months ended June 30, 2015 and that’s three months not six months were $1,677,950, up from $870,895 in the previous quarter and more than quadrupled the $346,559 in revenue during the same period in 2014. So is everybody confused yet? Surna continues to move towards profitability.

The net loss, which is a bottom line loss for the three and six months ended June 30, 2015 was $976,610 and $2,395,053 respectively when compared to $2,121,567 versus $2,175,174 respectively for 2014. So that being said, let me kind of break that down a little bit, so you kind of understand what’s going on.

Comparing the six months with the three months period for the prior period is kind of like comparing apples and oranges, because in its present incarnation Surna only became effective as a Cannabis company on March 31, 2014. So comparing the first half of 2015 versus 2014 is not a very good comparison.

So let me give you some kind of quarter-over-quarter numbers that might make it a little more clear on what’s happening with Surna. Revenues for the prior three quarters have been growing I think at an expediential rate. Quarter four for 2014, so that’s the quarter ended December 31, we had $632,000 of gross revenues.

The first quarter in 2015 which ended March 31, 2015 we had $870,000 so we are $632,000 to 870,000. And the quarter ended June 30, for the second quarter we had $1,677,950. So you can see we’ve had an impressive increase quarter-over-quarter. Similarly deferred revenue has increased along with the reported revenue.

Now what deferred revenue is, its sitting on the balance sheet as revenue that we cannot recognize yet because we have not completed the contract. Our revenue recognition policy is such that we don’t recognize revenue until the product is shipped.

So if you take a look at what’s happening on deferred revenue, at the end of last year 12/31/14, we had $408,000 of deferred revenue; at year end of March 2015 we had $786,000 of deferred revenue and at June 30, 2015 we had $1,423,000 of deferred revenue.

So you can see a dramatic increase in the revenue that we’ve recorded, as well as deferred revenue just sitting on the books.

Similarly our loss from operations and I say loss from operations because that’s more indicative with what’s happening with the company, because we have on our financial statements we have this other income and loss which his below the line, which really represents the changes in our convertible note liabilities, which is a non-cash item that includes derivative liability.

We have to mark-to-market the derivative liability, the accrued discount that we also do, so again these are non-cash items. So why don’t you just take a little at non or at the loss from operations to give you a bit of indication of what’s happening for our cash usage. So with that being said, Q4 for 2014, we had a loss from operations of $2,038,230.

Now I will qualify that because we did have a $1 million charge that is a non-recurring charge in that quarter. Without that charge we still have about $1 million of operating loss. Q1, 2015 that operating loss was reduced to $870,000. At the end of Q2 that loss is now reduced further to $690,000.

So we are continually decreasing our loss from operations. As continued emphasis for our technology portfolio, Surna has invested almost $310,000 during the first six months of 2015, which the company should reach substantial benefits as we move into Q3 and Q4 with the release for our new Reflector product.

Now I’ll leave that to Steven to expand on that product line a little bit further and give you kind of what the company thinks and what our expectations are. We also believe that brand awareness is very important to the company. So in the first six months of 2015 we also spent $175,000 in advertising and marketing compared to $78,000 in 2014.

The next thing I want to point out is general and administrative expenses. One thing that’s key to building a company is building a proper infrastructure. So from an infrastructure standpoint and a G&A standpoint we were pretty much flat Q1 over Q2. The Q1 G&A costs were about $804,000; Q2 were $821,000.

So you see, it’s just a negligible increase in G&A expense, while at the same time we increased revenues over 93%. So we believe that the infrastructure we have in place can accommodate this rapid growth with only normal additions to G&A costs. And the last thing I’d like to talk about is the balance sheet.

We finished the second quarter with a balance sheet that included liquid assets, and when I say liquid assets that mean cash, accounts receivable, inventory and prepaid assets of $1.9 million compared to $1,400,000 at year end. So that’s an increase of 33% over that six month period. So that’s kind of it as a summary of the 10-Q.

I’ve been asked on a couple different occasions and we have actually some questions with respect to margins that I’ll go into a little bit at this point in time. Our historical margins are not as high as we had hoped they would be or as we want them to be. There’s really two factors that are in play in this.

One of the things that we did when we first started in the industry in order to gain market share, we have a staff of engineers that we would devote to products and not just products, but actually facilities for our customers. So we virtually threw in that engineering for free. We charged a very nominal amount in the contract.

I think it was something between $1,200 and $1,800 for a complete set of engineering plants for a facility; that has changed. We have found that we are getting push back from our customers. When they come in we say we are going to engineer you facility, but we are going to do at market rates.

So we are now charging market rates instead of just a normal charge. For that we got no pushback from any of our customers. Secondly, when we started the business, again a little less than a year and a half ago, we were trying to gain market share. One of the ways you gain market share is you are very competitive on pricing.

So we have overly zealous with apricing policy that did not have a margin that we knew that we wanted to maintain.

So as a result, over the course of the last six months and as we move into Q3 and Q4, we’ve had two major price increases for our products and again, we’ve had no major push back from any of our customers, so I think that’s very important.

You’ll see margin increases starting in Q3 and you’ll see more of that in Q4 and then into the first quarter of 2016 as we move forward. So that’s it from me with the financial announcements. I’d like to turn it over to Stephen. Tae gave you a brief description of the background.

We welcome him to the Board and at this point I’ll turn it over to Stephen and talk about our technology and Surna’s innovative approach to the cannabis sector..

Thanks Dough. Hi everybody and thanks for calling in. My wife and I started this company, Hydro Innovations eight years ago. We had no idea it would turn into the monster that it has today, but it’s been a pretty fun ride. Even eight years ago we were doing the same thing that we are doing now, just on a much larger scale.

At that time we were selling residential products and we found an edge that supported our company. Three or four people for six or seven years and now we’re at I think 45 employees and still hiring weekly.

We understood that cooling the process heat that is created by the growers just had to be done with water cooling and that’s why we based all of our products around that. I mean if you look into industrial design for cooling of anything, it’s always done with water; it’s because of the efficiency of water.

So when this all went commercial, we were very much poised to pounce on all the opportunity in the HVC sector of this industry. For the last year and a half I’ve been the VP of R&D here at Surna, creating products, utilizing our amazing engineering team. I’d like to cover a bit of the technology strategy going forward.

One of the things we are doing is looking at the trends amongst growers and cultivation facilities, along with legislative trends to develop the most applicable and successful technology around.

We are also going to leverage the knowledge and skills of our engineering team and that’s what Doug had just mentioned, utilizing that ability to charge for all the information that we were giving away. We’re also going to leverage our name and infrastructure to co-develop and co-market complementary products and technology.

What that means is we are approached daily by people with technology and because of what we know, we are able to vet that technology and either add it to what we sell or kick it down the road and that’s important too, because we are able to vet things very efficiently with our engineering team.

Soon we’ll be offering mini bundled packages, including our own technology with other companies as well, which I think is really important and easy to do for Surna. One of the things they wanted to bring me in here for is they wanted me to talk about the Reflector in a little bit higher level.

I mean you first have to understand what a lighting reflector is and why it’s important to grower. If you think about your general light bulb in your kitchen, it’s about 100 watts. The light bulb for a grower facility is 1,000 watts and that’s over a very small area, 15 sq feet usually 4 foot by 4 foot.

When you have that many bulbs in a facility it creates a tremendous amount of heat and it also can create a tremendous amount of waste. If you waste any of the light that comes from that light bulb, it decreases your stock size. I mean it’s all linear, more light, more crop.

What we’ve done at Surna is we spent money to create a very column, a very focused reflector, so that we don’t have light spilling into the aisles, into the walls and places – I mean photons not striking a plant, it’s not efficient.

We also wanted to integrate cooling into the reflector, because if the reflector can cool and dehumidify the space that it’s mounted over, then it doesn’t matter if there’s 5 or 5,000, the room acts just the same and that’s really important for growers, because they are not HVAC guided.

They want to just turn something on and it worked right and this is a very simple way to do it. We take super concentrated heat off the bulb, run it through a heat exchanger before we introduce it back into the room.

So one of the things that makes the reflector absolutely unique is the water cooling feature, but beyond that, our reflector puts out 12% more light than any competing reflector with no additional energy. That’s patented technology with Surna and the way we do that is we are doing it through insulating the bulb.

The bulb has to reach a certain temperature for it to operate efficiently. We make sure the bulb reaches that temperature. With 12% more light you can achieve 12% more profit. That’s not something that Surna says. There’s white papers to prove it. That’s just what most growers know, that you add more light, you add more crop.

If you’re looking at 12% more light and you can do a pound and a half per harvest, 5.5 times a year and your selling that for $1,500 to $2,000 a pound, which is commercially doable. You’re looking at additional $4,500 to $10,000 per light over the three year life of the reflector and that’s only if it had a three year life.

It actually could go much further than that, because it’s completely rebuildable. For the cost of the reflector you’re looking at about $1,000. So this is a no-brainer for a lot of growers, to be able to produce more without spending any more energy.

With the cooling feature you can save an additional 50% to 70% of the energy used to cool the reflector by utilizing evaporative cooling outside the facility; that’s another key part of it.

Right now if a light bulb is burning in a facility, they are using compressors on the roof or outside to compress refrigerant and then absorb heat from that room and pull it out. RAB will actually remove that heat with just evaporating water outside; it’s really important.

We have two separate sources to confirm there’s about 100,000 reflectors sold in the industry per month. With an ROI of three to six months we expect to sell a significant amount of reflectors. To put this into perspective, if Surna sold 1% or 1,000 reflectors a month at $1,000 per reflector, that’s a top line revenue of $1 million per month.

It’s easy to justify the $500,000 expense to create it. If we are able to sell 20% or 20,000 reflectors per month, that would make the year-end sales really interesting. What’s important to note as well as that we sell cooling products that support the reflector.

So every reflector that we sell gets a pump, a cooling tower, chillers, an engineering package. These are all big ticket items that significantly change our top-line revenue. Thanks everybody for your time..

Thanks. Stephen I appreciate you discussing that. Would you – some people have been asking about the hybrid building.

Would you discuss that very quickly for us?.

Sorry, I totally missed that. So our hybrid building actually is one of the most exciting things we’ve been working on and it’s been in development for about nine months now and the idea was to create a turnkey indoor grow facility that utilizes the sun as its primary light source. So it’s a version of a greenhouse, but it’s more like an indoor grow.

We all know that the sun grows the plant most efficiently and the problem is, is that with the greenhouse you’re pulling in a lot of outside air and you’re using that air to cool the space.

Within that area is pollen, pest, bacterial, mould, I mean there’s all kinds of problems that come with it and those crutches have been taken away from growers, some of the pesticides and insecticides that they have been using to control the problems with these crops, they have been taken away from them.

So, greenhouses are becoming, especially in more humid areas really hard to manage. What we did is we created a sealed greenhouse that has climate control. Because it has sealed gross basis, we are able to eliminate the problems from pollen, pest, mildew and bacteria and these problems play in kind of the greenhouse design.

These sealed spaces can also have CO2 supplementation, that’s huge; that’s an additional 30% crop performance when you add CO2 and that’s widely known. We can also capture all the transpired moisture from the plants. This is really important; water reclamation. You hear a lot of people having problems with water, in getting water.

Well this facility can basically once you water the plants, we can treat the water that’s left over after the plants use it, plus the water that transpires from the plants, we capture that and give it back to the plants. The only water this facility looses is the water that goes out within the product.

For food crops this could be really important for places like California where they have such tight water restrictions. When you’re watering with the greenhouse, all that water is lost into the air and it’s just gone. We also add LED supplemental lighting within the structure.

This is built into the structure and so it actually absorbs its heat outside. So we’re not spending energy cooling that heat. This can increase your crop production by 30% to 50%, because with most greenhouses, its 6 a.m. they open the curtains, there’s not much light given to the plant, not until 10 O’clock or 11 O’clock.

Well, with our design we can actually add 600 watts of lighting, per foot by 4 foot. Just like an indoor growth we can add that at 6 a.m. and as soon as the sun comes out the LEDs dim down and then turn off completely in mid day and in the afternoon they ramp back up.

So we can actually dial-in the amount of light the plants receive in a given day and if there’s a foot of snow on the building or if there is a cloudy or rainy day, we can run the LEDs all day and we can be at full production at any time. We are not held to outdoor climate conditions or light conditions as other greenhouses are.

There’s also no heating costs associated with the hybrid building. What we do is there’s a lot of equipment that generates heat within a grow, and we are able to grab that heat from one place and move it to another.

We can utilize it for dehumidification reheat and we can heat the greenhouse during the winter times or we just reject that heat outside through evaporative cooling, which is also very efficient.

We’ll be building automation controls that will control everything that the building does from evaporative cooling, the chiller cooling, the light levels that opens and closes the curtains. We want to create a turnkey secure building that somebody can just purchase from Surna and have everything they need. The building shows up on a truck.

They can actually have the interiors show up on a truck and it all bodes together. Pretty exciting future. We are looking forward to getting the first prototype built maybe next year..

Thank you Steve and this is David Traylor again. I just wanted to add a little color to Stephens' comments regarding the commercial and developmental aspects of the reflector.

Perhaps one of the most frequently asked questions we get here at Surna is whether we possess a launch date for the reflectors and our current timeline is telling the launch of the reflector at some point in Q4. We’re aggressively managing timelines to have that date hopefully come sooner than later.

Also you may remember if you were on the call earlier this year in June that launch date is in line with our previous guidance for having $7 million or over $7 million in revenue just from the reflector in 2016.

Another important point I want to bring up is we are outsourcing the assembly of the reflector to a third party and that’s very important and the fact that we are not going to have to use our current manufacturing footprint here in our headquarters to assemble and produce the reflector.

We can use essentially additional manufacturing assemble space of a third party. Pricing, that certainly has been another question that has been broached a number of times to the team here.

I think the most important part and we’re not giving specific details on pricing, but you should know that we believe due to the innovate characteristics of the reflector that we believe we can target and utilize a premium pricing strategy. And then finally with regards to pre-orders, we did announce that we are taking pre-orders earlier this summer.

We are not going to provide guidance on that on this call, but we hope to provide some more detail on that in the near term, very near term.

We’d like to now take this time to provide some thoughts and insight on where we think the cannabis sector may be headed in the next 12 months or continue with updates too on our insights and real time perspectives on the industry. You can sign up on our monthly news letter on our website. For now I’ll let Stephen start with his perspectives. Steve..

So I get asked often, I go speak at events, cannabis events and I get asked often, where is cannabis heading? We definitely got our finger on the pulse and I feel like we definitely see the future.

Really what it boils down to is creating cannabis with using high energy efficient methods to get the costs as low as possible, because that’s where everything’s headed.

Its more competition and your margins have to be dead on and so what we see is a lot of people really want to flock to greenhouses and like I said before, without experience, it sounds like the absolute easiest thing to do and in reality it’s not. It can have a host of problems. When you’re growing vegetables, it’s not the same as cannabis.

Vegetables are produced by weight and cannabis has weight and it has essential oil production, so both are very important and its very susceptible to powdery mildew.

I tell people all the time with a greenhouse, if you can’t keep your greenhouse below 65% humidity, then you’re going to have problems and if I was a grower, I would never walk into a facility that didn’t have control over the humidity. Above 65%, powdery mildew strikes and you could lose everything.

So with that said, I feel like fueled greenhouses are going to be the future of cannabis. I think they could be the future of some food production in certain climates. Having control over the quality of the product is going to be essential for competition and to take care of your margins as well.

I mean with the sealed greenhouse you’re going to get consistent results year around, whereas with the traditional greenhouse, when the temperatures get above 85 degrees cannabis does not like to grow above 85 degrees and it turns in to a stretchy plant with wispy buds.

In the winter time there is not a lot of light getting into the greenhouse and then you spend a tremendous amount of money heating greenhouses. So the future of it I think is some kind of compromise between an indoor grow and that’s exactly what Surna has been working on.

I mean we see this coming and we get asked all the time, how do I fill up my greenhouse and air-condition it and frankly it’s not efficient to do that, because it’s all uninsulated, where our design is a little bit different..

Okay, I’d like to discuss the political environment moving forward. This is Tae Darnell and I’m going to do it kind of in a quick bullet point fashion, because I’m assume many of you are staying on top of this. But we’re actively building in many states right now. Of course Surna only sells into legal states or states with permissive licensing models.

States that have recently come online or have active legislative pushes, including Nevada, Alaska, Oregon, Washington, Illinois, Maryland, Hawaii. As a side note, I actually drafted that legislation in 2011 although it’s evolved; Ohio, New Hampshire, Rode Island, New York and Vermont.

We also continue to build our facilities in the active states and for those in the beginning stages we are there assisting with or developing relationships for when they do plan to build out. It’s important to note that most of the states are quite literally in their infancy or the developmental stages.

So we expect to see significant growth around the infrastructure that is required to be built out in each state as they come online. What’s exciting currently in the legislative process is in 2015, responsible Ohio has received enough signatures to get their initiative on the Ohio ballet.

That’s an outright legalization initiative and in 2016 the elections are going to be amazing. We are going to see recreational vote pushes in Nevada, Arizona and California as well. We are also going to see initiatives in Florida, Maine and Massachusetts. So I think you start to get a flavor for just how big this market is getting.

And again, I want to reiterate that many of these states are in their very early stages. Washington’s just building out. Nevada is just building out. States like Oregon will be coming online actively. Illinois is just beginning in addition to all those other states I just mentioned.

I think the election process and some of the congressional pushes are very interesting to watch. Federally there are several initiatives, some of which are based on respecting states rights and their candidate laws. Banking is a very popular one.

I think the most realistic congressional push that we’re going to see or passage will revolve around banking. This is based on conversations I had in the past six months with different Senators, some of which are pretty heavy weight republicans, some democrats, but I think banking is going to be the first access point federally.

I think it’s interesting to watch the kind of Presidential Campaigns kick off. The two leaders in the polls on both sides have stated fairly preliminary marijuana policy or hinting at that in some ways and as candidates come out against marijuana their numbers tend to drop.

Now I’m not saying there is a direct correlation every single time, no, but it certainly is indicative of what we think is the social push in this country for very realistic federal marijuana laws.

The timeline on that for us we think is at least six years, 2020, but for Surna that’s a good thing, because it requires infrastructure build-out in each of those states as they come online. So it’s very exciting to watch.

We think that the foundation of support is only increasing and as we see more of these states come online, especially states like California, Florida and Ohio, New York, you start really pushing things in a direction that it’s hard to turnaround.

So we’re very excited about where legislation is going and that’s our kind of current state of estate in that regard..

Thank you, Tae. Its David Traylor again. Certainly Tae did bring out some comments regarding money and banking and you may have seen certainly that when Colorado legalized for adult use early in 2014, we felt a significant spike in the amount of money going into public and private candidate companies.

Certainly on the tune in Q1 of $145 million and Q2 numbers were even above that, around $163 million, $165 million. Since that time we’ve seen a significant decrease in the funding for both public and private cannabis companies down to around $30 million to $40 million on a monthly basis.

Certainly that change in financing then has picked up the M&A activity in the sector, at least from what we’ve seen and up to this point in 2015 on a monthly basis we’ve seen a significant increase over what we saw in 2014, and the 2014 M&A numbers on a monthly basis were a record of that time.

So certainly the current M&A environment may provide a number of opportunities for the company in the near term and maybe even the long term too. So with that in mind, I’ll turn the call over to Tae Darnell to recap. .

I’ll just do a quick recap before we answer some of the questions we’ve received over the last couple of weeks. Again, thanks to everyone who has participated in the call. I wanted to reiterate some of our accomplishments.

First, we’ve continued to grow our revenues across our current product lines and we are really only beginning to scratch the surface of potential as more states prepare to come online and more Surna technology becomes available. Secondly, our technology platform continues to evolve.

The continued development of our IP platform will drive future growth for the company and we believe we are gaining a lead on the rest of the industry that will be difficult to catch. So it’s very exciting to have engineering strength we do, coupled with our aggressive IP push of a technology company.

Third, the retirement of Tom Bollich shares and the elimination of Tom Bollich’s debt was great for our shareholders and our balance sheet. We’ll continue to focus on increasing revenue and making positive moves that further cleanup our balance sheet as we proceed into the second half of this year.

Finally, the expansion of our facilities and the continued development of our internal operations continue to drive growth. Perhaps the most exciting component of this is the evolution of third party assembly relationships, and that enables us to cut direct manufacturing and infrastructure costs, while increasing our market efficiencies.

As for the second half of 2015, we continue to believe the future is incredibly bright for Surna. We don’t anticipate this slowing down. We’ll continue to aggressively work on improving our financials. As discussed on the call, one of the largest components is improving our margins.

We benefited from the establishing a brand identity over the past year and we are now at a point where we can really make sales based on ROI that you receive by using the Surna solution rather than selling based solely on a manufactured price, and that’s really indicative of a company making positive steps.

We will also continue to actively develop internal innovation and we’ll explore adding technology and products that are complementary to our existing line of solutions. Ultimately we are looking at options like bundling and becoming a full service provider for cultivation facilities.

So we are very excited about the rollout on the Reflector, which again has the potential for amazing numbers and we will continue to aggressively advance on the hybrid facility which his candidly the most advanced turnkey facility and CEA solution that this industry has ever seen.

So within in all of this, we continue to closely monitor opportunities for new customers and states that are coming online and pursuing medical or adult use legalization and we’ll continue to focus on that as our basis of expansion. So with that, I would like to send it over to Katie O’Block for the remainder of the presentation. .

Thank you, Tae; Tae and Dough and Stephen and David for providing some updates and insights. At this time we are going to be answering some questions that were submitted to us via email over via #tag. Its Thursday afternoon isn’t it, via Twitter using the #tag SurnaConfCall, so thanks to those who have done that.

So our first question this afternoon was submitted via email and it’s for David Traylor who is heading up our product launch of the Reflector.

David, are there any assumptions that were made on the reflector conference call a few months back? Are they still on track?.

Thank you, Katie. Since the guidance that we’ve provided on June 17 on the Reflector, we have not had any significant changes in plans or assumptions today with regarding any of the assumptions or data and information we provided during that call..

Tae, this next question is for you, also submitted via email.

Do you have any updates on the submitted patent applications such as possible approval dates or any progress being made?.

I think we’ve updated most of that on the call actually. We’ve got 11 patents filed. I think maybe it would help for me to explain the patent process a little bit and that some of these patents filed were provisional’s that we’ve now turned into full patent applications.

We have not received any office actions, which can be indicative of things moving forward or halting, so we are definitively within the process right now. With patent applications they can take sometimes six months to three years, there is really no guessing. The positive thing is that they are all moving forward at this point.

I think it’s always good to be realistic with regard to patents. You know you never anticipate getting all of them, but we are going to scoop up as many as we can as we move our technology forward. .

This next question is for Dough McKinnon and it’s a question we actually get all the time, so a confession. It wasn’t submitted via email, but we get enough to where I felt like I had to answer it on the conference call today and it’s for Dough our CFO.

What are your expectations for revenues for 2015?.

Yes, I really hate to say this, but because of the industry that we are in, the regulatory environment that we are in, we as a company have a policy that we don’t provide any guidance with respect to revenues.

But if you take a look at the last trailing two quarters, it will give you an indication as to what we think or what the company has done and what it could do into the future. .

And this next question is also for Dough. It came in via Twitter during the call.

What is the status of a customer in Nevada that we reported on earlier this year, what’s their contract status or their fulfillment status?.

Yes, that was actually, we did a Press Release as well as we filed an 8-K with respect to that customer. That customer actually had some great opportunities in the state of Nevada outside of what we were doing, so they actually pursued those first and now we are back on track with that contract. We received deposits with respect to the contract.

We are building product for them and we expect to have the first phase completed sometime into Q3 or sometime in Q4. And if you remember from that press release, it was a two phase contract, Phase 1 and Phase 2. Phase 2, is we are still working on scheduling a location. So that’s it for that. .

Perfect and this next question is for Bryon Jorgenson who we haven’t head on the call yet today, but he is our Chief Operating Officer and he is the champion around here.

So Bryon, what are doing to work towards profitability and improving operational efficiencies?.

All right, thanks Katie.

Yes so over the last six months we have been inputting a lot of margin improvement programs that are putting us on a path to net earnings, and as you heard from Dough, he discussed and you can see in our 10-Q filings that our net loss and their burn rates are returning favorably in response to implementing those programs, which include primarily monetizing the new products and services, including the high efficiency water coolant lighting reflector, the controlled environment, agricultural system that’s doing services and we got several other offerings in our development pipeline that will add to our top line revenue and also to our bottom line over the next several quarters.

So that’s really the most exacting activity that really will be driving us to profitability.

But in addition, there is a lot of fundamental things that we’ve done which include adjusting our general pricing strategies on existing products and in our project packages and fund links with other technologies products that are complementary and pull through more sales.

We’ve also from more of an operational efficiency standpoint have been doing some product enhancements.

We’ve been redesigning some of our products to improve their manufactureability which is cutting our cost inputs in those products and we’ve negotiated a number of lower cost contracts with our material suppliers and are gaining better and better terms as we are maturing as an organization as well.

Just in general though, we’ve implanted a number of production process improvements programs.

We’ve added inner correction operations to most staff who have far more experience with lean manufacturing and continuous line production, which then will add to our efficiencies, as well as really picking and choosing what we are manufacturing in house versus what we are outsourcing to our supply partners, which we talked about previously regarding our reflector programs.

And just in general with our increased sales and increased unit volume production, we are enjoying the benefits of having a higher absorption of our overheard, so that created it from a pre unit basis and are margins are improving as well.

So in summary, I think we are moving in the right direction and we are continuing to improve our product, our operational efficiencies through these kinds of programs and other types of programs as well next year..

Thanks guys. And this next question, is Surna considering getting into CBD extracts or any of the medical side of the Cannabis sector and I’m going to actually going to let Stephen go ahead and answer that. .

We are not at this time. I mean there is a lot of competition on that side of it and plus there is a lot of handling of plants that has to be done in order to test equipment line that. So for us we don’t really have many competitors with what we are doing and we like to stick with our core products of the water cooling.

Now not to say that once we have gotten everything created in the water cooling platform that we may not explore this in the future, but at this time we are not considering any attraction equipment. .

This is another question that we got. I’m going to direct it towards Tae Darnell. Tae, the new Board of Directors was appointed recently and when are we looking to hire a new CEO. .

Yes, I wish I could give you a direct answer on that, but I think the question is going to be better directed for the Broad.

But to give everybody a little background on that, when Tom Bollich stepped away we decided ultimately that the best thing for the company was to keep everybody in the places they were, so we can continue to develop and advance the platform that we are advancing and to continue in our path to success.

So I think the first step in that is appointing this new Board where we can combine the expertise and knowledge to really select a CEO that will help us take that next step. I’ve been honored to sit in the position while I’ve been here.

We have an amazing team, so I have the utmost confidence that we are going to find the right person to help us into that next phase for this company. .

Another question; we have just a few more people, bear with us.

Submitted via email, David Traylor, can you explain to us a little bit about how we are planning to raise additional capital for growth going forward?.

Thanks Katie. So as you all know, growth is certainly expenses and certainly when you are funding a high growth, high technology company and we are in a sector that is expecting 30% to 40% year-over-year growth, so we are always evaluating our funding options.

We certainly want to be cautious on how, when and where we are raising capital and also we want to make sure financing strategy continues to migrate towards more cost effect capital structures and source it from more instructional entities. One point I would like to make with regards to this question too is certainly the recent trend in our stock.

It certainly does allow us and provide us more funding, flexibility and options. .

Thanks David.

In regards to products, Stephen what are some thoughts about your products that are coming out after the hybrid building?.

We are always going to be looking at lighting. I mean lighting is an open field and frankly its very inefficient, the way it’s designed. I mean LEDs are probably going to be the future of growing Cannabis, but at this time the market is not very receptive to it. So that’s why we came out with a light bulb reflector versus an LED lighting solution.

This is will probably be the last lighting reflector Surna designs before we move into full LED lighting fixtures and supplying that fixture. .

Is Surna focused on only Cannabis industries or other industries and Stephen I’m going to let you go ahead and do that as well since you are behind all of our technology. .

Sure. I mean we have the capability to get into other industries, there is no doubt and ultimately the dream is to do that. But the reality of it is that we are so bogged down just with Cannabis, keeping up with this market is a feet all in itself.

At some point we would love to sell chillers to the brew industry or to other industries that need water chillers, because frankly our water chillers work for anyone and one of the things that make them so advantageous to customers is the price and that’s done through engineering. We’ve gotten the price down, very affordable.

But at this time we are at a three month backlog to build them for Cannabis customers. So once we clear out that and can move past that, we will certainly look at other industries. .

And this is the last question, so thank you guys for being on the call and we’ll conclude after this question, but this last question is for Bryon Jorgenson. Can you give us a little bit more insight on plans for expansion; expanding to the new building and then expanding manufacturing other teams going forward. .

Sure.

Yes, that’s a great question Katie and we did recently announce expansion into an additional facility and we had a great opportunity to lease a property that is [indiscernible] towards system headquarters and it’s just an indication of our confidence in the growth industry and the growth in Surna and frankly as Stephen mentioned, we have a 12 week backlog in production.

We still have a lot of growth in infrastructure to build up to and to attain that, to get a better service level for our customers.

It’s been a great growth ride and we’ve increased our staff substantially in the last couple of quarters and as you can imagine and you can extrapolate from our growth over the last couple of quarters, we feel that we should have adequate space and opportunity to continue to stay on pace with our increase in sales. .

What does that bring our footprint to, Bryon do you know off the top of your head?.

Yes, it’s about 22,000 square feet now and so ...

And a parking lot. .

And a parking lot full of different containers for temporary storage. So we are continuously growing and reconfiguring. We are looking at adding a second production shift to further leverage our manufacturing capital assets and our support staff. So we don’t overshoot with infrastructure.

So we are spending a lot of time focusing on how to manage our growth through both our supply chain in our manufacturing facilities and our support staff as we move up the curve to serve our customers. .

All right, ladies and gentlemen thank you so much for your time and participation on today’s conference call. We appreciate all the thoughtful questions submitted via email or via Twitter. We are going to continue doing that going forward. So when you see an announcement come out, get those questions ready and send them our way.

To receive any of our company updates going forward, including announcements of future conference calls, press releases that are going out or just general updates of what’s going on in the company, please sign up for our monthly newsletters that goes out or visit Surna.com, click on Investor Relation and go ahead and sign up for that newsletter as well which is very specific to Investor Relations and information for investors.

This concludes today’s call. Thank you so much again for being on the call and spending almost an hour with us on a Thursday afternoon. You may now disconnect. Have a wonderful afternoon. .

Thanks everyone, bye-bye..