Thank you for standing by. This is the conference operator. Welcome to the Surna's Second Quarter 2016 Conference Call. As a remainder all participants are in a listen-only mode and the conference is being recorded. [Operator Instruction] I would now like to turn the conference over to Kirsten Chapman. Please go ahead.

Good day, everyone. Welcome to Surna's second quarter 2016 financial results conference call. This is Kirsten Chapman from LHA Investor Relations. On Behalf of the entire Surna's team, I would like to thank you for joining us today. On the call are CEO; Trent Doucet, Director of Technology, Stephen Keen. After the prepared remarks, we will address questions submitted by email. A transcript of this call will be provided on our Web site later this week. Before beginning the call, I will read statements that you can find at the bottom of every Surna press release: Statements on this call that 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 identifies 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 in risks and results 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 equipment and other goods, ability to obtain financing to expand its operations, ability to attract qualified personnel, competition, pricing, development difficulties, and 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…

Thank you Kirsten, and thanks everyone for joining us today. As you know I was honored to take on the mantle of CEO on June 30, and I am proud to be leading Surna at this exciting time in the market, in the company evolution. During my brief tenure I have already worked with the team to fortify the foundation and create new opportunities for long term growth in shareholder value. I'll look forward to reviewing those with you today and in the future. Firstly, we’ve expanded our vision to leverage our priority technology. Our goal is to become a leading provider of innovated products and solutions for indoor cultivations both, cannabis and food production, this vision defines our direction. My team and I had established the strategy that build upon our unique position as a pioneer in controlled environments. We will focus our efforts on the following key areas. Delivering exceptional customer service and after sales support and development. Innovating through R&D and acquisition of emerging technologies, redefining our brand to be a leader in controlled environment agricultures specializing in cannabis and expanding in the food growth production. Developing energy-efficient y solutions that reduce our customer’s production cost, while providing consistent results and maximize production, and streamlining Surna's business to maximize profitability and growth potential. These efforts align with the strategic priorities we set for 2016, which include expanding sales of core products, including our water chillers and dehumidifiers, commercializing our reflector products, demonstrating our Hybrid Building concept in pilot form, and capitalizing on the positive trends in the regulatory environment, and ultimately creating shareholder value. Allow me to elaborate, first ensuring exceptional customer service and support is the bedrock to strong referrals [ph] for new and repeat business in companies mature to the point of expansion. Therefore we…

Thank you, Trent. Surna has been a long time pioneer in controlling environment agriculture. Our years of working with commercial cultivators in addition to hobby gardeners has built an invaluable web of knowledge that cannot be bought. We will plot our data to develop our climate control solutions, cooling, lighting, air sanitation and dehumidification which amount to the innovation and key advantages. Firstly entire portfolio in both turnkey with a [indiscernible] architecture. The structure drastically reduces the potential for contamination to ensure sanitary environment. In addition system reduces energy uses less space and is easily scalable for the cultivators that are ready to expand. Our products are tailored to the commercial gardener versus the hobby gardener. Regarding our chillers we have built in redundancy if one chiller goes out, the heat loads can be dispersed among the others, while maintenance is been completed. Cultivators prioritize this safety features as it can save crops, time and money. [Indiscernible] offers significant benefits over other lighting systems. They provide more light on target that increases yield and uses less energy and not only is this green, those could get a big cost saver. This summer we began shipping the reflector. Our current products uses HPS line as it has been the first choice for most growers, but now we’re in the process of evaluating LED version for producers who prefer that type of lighting system. And we're very excited about the possibilities of LED. We're also reviewing what purification technology which is another area with room for improvement in our industry. We've talked about the progress we're making on the Hybrid Building Design as well. Which brings an indoor cultivation facility and a greenhouse. We will formally launch this turnkey solution for climate control buildings at the Marijuana Business Daily Conference, in November. Please visit us, our booth to see the scale model constructed by the team of engineers from Colorado University. Overall Surna is a strong part of portfolio that delivers unique energy resource efficient solutions that enabled cultivator to crease highly specific environment providing the ability to control temperature, humidity, light and process in a way no other technology has. Surna's products and technologies help reduce costs, maintained consistency and improved yield. We build our promising pipeline of innovations that will fuel our future growth. With that, I'll turn the call back to Trent

Thanks, Steven. So on to the review of our financial statements, first I'd like to note that during the quarter we chose a new structure for our finance group, so rather than hire a full-time CFO we have hired consultants with expertise from derivatives and SEC filings and I am very confident on our ability continue to manage costs and all of our accounting detail. On the call today. I'll provide a brief summary of recent results compare to the same period in 2015. So from the quarter of 2016 with the second quarter 2016, we reported total sales of $1.9 million. Year-over-year revenue increased by 13% or $1.7 million. Sequentially revenue decreased from $2.5 million as Q1 in higher equipment sales reflect in the program we had in Oregon. We are encouraged to see Q2 service revenue increased over the Q1 and year-to-date revenue grew 72% or 1.4 million up from 2.5 million in the same period last year. And looking ahead, we believe the hot summer [Indiscernible] have a positive impact on our sales. Q2 2016 cost of revenue was $1.6 million with the aforementioned $455,000 warranty charge of which 145,000 was made cash and remainder occurred in cash payment in Q3. Q2 2015 gross margin which included the impact of warranty charge was 17% compared to 21% year ago excluding the warranty gross margin would have been almost flat compare to 44% in first quarter this year. Year-to-date gross margin included the impact of the warranty charge increased 32% compared to 21.1% same period last year. Q2 2016 total operating expenses decreased $614,000 compared to $1 million in the same quarter last year, reflecting our overall focus on cost containment, our reduction in advertising and the timing of R&D cost related to our reflector. And while management…

Thank you, Trent. Now for our first question. Your [indiscernible] debt comes due December, what actions are you taking to ensure that you have the funds?

So we are working with our lenders and others to evaluate certain options, and I am confident that we will have the resolution by December.

Thank you. The next question is, how many reflectors have been shipped and is there a problem with the new lease deal? Do you have any other deals in the work?

I’ll take that one Trent. The initial batch of reflectors have been shipped in Italy and those are being tested in the facility to terminate [ph] for any other changes that need to be make before we ship to many reflectors. But I think the delay is probably is starting to come an end.

I would like to add that we do have a large amount of outstanding proposals for reflectors. So we hope to see an increase on sales going forward for Q3 and Q4.

Thank you. The third question is regarding, schedule one, how is the decision to leave cannabis classified as a Schedule I drug impact Surna?

Yes, with the current legislation, there is more than enough growing demand to fuel our growth. Additionally, this deters large corporations who may have been eyeing to get on this market. So hold off for the reclassification. And obviously, minimal competition is clearly beneficial for Surna.

The next question is, please review the warranty issue and has this been revolved result?

So the issue with the results of an improper installation by third party mechanical installer, the installer walked away from the situation and then rather that banning our customers, we have made the decision to fully support them and correct the situation. We have also agreed to work jointly with customers to attempt the repeat the installs and responsible party to whatever mean is necessary. So this is fully resolve for the $435,000 all of which was expense for this quarter, $145,000 of which was paid in cash and the remaining will be incurred going forward.

Next question, why did Alan leave, was there a problem with the financial statements?

So, please be confident, there was no problem with our financial statements. We've simply decided to take a different path to leverage its financial experts and derivatives in some SEC filings as well as to level his expertise of our in-house financing.

Next, question, why are you expanding into the food production, it seems honorable but premature as you're small company that’s yet to provide consistent top line growth and bottom line futility. Can you elaborate please?

There's a lot of similarities between indoor cannabis cultivation and indoor food production and many of the products that we develop for cannabis will work and can be sold right now into the food industry. So, this simply just wideness basis [indiscernible], it allows us to sell our same products our emerging industry as well which is indoor food production.

The final question -- well did you have anything else to add?

No, well actually I was going to say as I’ve mentioned earlier we’ve open to acquiring specific technologies that complement our product line and that includes evaluating options used from the indoor food production industry, which is being cited by experts as one of the most promising fields in agriculture these days. So, vertical farming entails growing crops in control climate of specializing lighting and stacked layered racks and some people believe that the market has the opportunity to be much large than the marijuana market.

Thank you. Your final question was, you've net income for Q1 and a net loss for Q2, do you expect this trend going forward?

Well, we don't provide guidance, I can comment on history and trends. Q2 was impacted majorly by the warranty, I think going forward we expect our strict cost management will help us achieve our goal and as I’ve stated earlier we believe sales related to the hot summer months will fuel growth for the third quarter.

Thank you very much. Do you have any closing comments?

Yes, our vision is to become a leading provider of innovative products and solutions for indoor cultivation, specializing in cannabis and then expanding into food production. Our team members have a renewed enthusiasm to achieve our goals. And I look forward to discussing with you for the next quarter.

Thank you, every one. This concludes our conference call for today.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.