Thank you for standing by, this is the conference operator. Welcome to the Surna Fourth Quarter 2016 Conference Call. As a reminder all participants are in a listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions [Operator Instruction]. I would now like to turn the conference over to Kirsten Chapman. Please go ahead.

Good day, everyone. Welcome to Surna’s fourth quarter and year-end 2016 financial results conference call. This is Kirsten Chapman from LHA Investor Relations. Thank you for joining the call today. With me is President and CEO; Trent Doucet. After the prepared remarks, we will address questions submitted via email. A transcript of this call will be provided on Surna’s website when available. Before beginning the call, I will read statements that you can find at the bottom of every Surna press release. Statements on this call 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 to 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 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, 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 statements to reflect events and/or circumstances after the date of this release. 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. What was 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 the City, County or State where cannabis is permitted can change and the current laws and/or the Federal government can supersede those laws and take prosecutorial actions. Given the uncertain legal nature of the cannabis industry it is imperative that investors understand that 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 additional fees, stricter operational guidelines and unanticipated shutdowns. With that, it’s my pleasure to introduce Surna’s Chief Executive Officer, Trent Doucet. Please go ahead, Trent.

Thank you Kirsten, and thanks everyone for joining us today. 2016 was a pivotal year for both the cannabis cultivation market and Surna which serves that market. And the good news has continued into 2017, I’ll review some highlights. Domestically and internationally our market continues to benefit from regulatory actions. State Election results in November of 2016 expanded our domestic opportunity and cultivation for both medicinal and recreational cannabis. California's recreational approval alone is a game changer, market conducts and Wall Street analyst alike have offered forecast. The current legal California market is estimated to be $2.8 billion when the recreational licensing is finalized, which is expected to be in January of 2018. Legalized recreational sales are projected to be $1.6 billion in the first year and then grow 18.5% annually. These forecasts indicate the new use markets will add over $6 billion to the U.S. market by 2020. Others suggest the recreational market alone could go to $50 billion by 2026. Also it was recently reported that Canada's planning to introduce legislation to legalize recreational marijuana in the week of April 10th if approved it will become law by July of 2018. This prospect is very promising, already Surna is attracting interest from large Canadian facilities. In March, we announced our sixth deal in Canada as we signed Vancouver's Sante Veritas Therapeutic. We’re designing its first commercial cultivation facility and will provide the equipment for the environmental control system. We expect to ship product and recognize $835,000 of associated revenue in the third quarter of 2017. We're actively looking to expanding our capabilities in Canada and other legal markets internationally, including developing a specialist sales manager to concentrate on those areas. Equally important our company has significantly improved financially and operationally over the past year. When I became CEO…

Thank you, Trent. Now to our first question. What are you concerns about the new administration?

Okay. Well, thank you. Frankly, that's a question that I get almost daily and while uncertainty seem to be a moderate impact to us in Q1, tensions seem to be easing quite a bit. Regardless President Trump has stated that he sees the benefit from medicinal marijuana, the more establish industry segment that continues to grow rapidly. And he has also stated many time that strongly support state rights.

Thank you. Next question, I was pleased to see 2016 gross margin improved over 2015. However, I’m wondering why Q4 margin was lower than Q3?

That’s also a good question. Q4, 2016 included from year-end adjustment, such as an update estimates to the warranty previously mentioned and the inventory reserve. 2016 gross margin included the full impact of the $530,000 warranty charge and increased to 30% compared to 12% in 2015, reflecting better product mix and more efficient costs and supply chain management. I think it’s important to mention that of not for the warranty charge, Surna would have ended the year at a mid-operating breakeven.

Great. Now the last question is, it's great to hear this Sterling Farms will provide R&D and touring options, what is Surna supplying them in return?

Well, I have to say we’re really excited about this working relationship going forward. What we've done is we've structed a preputial lease in which we will ensure Sterling Farms receives and installs our latest and newest equipment. When we have next generation versions, we’ll replace those systems, which we'll be able resell on our grey market. In exchange for continually cutting edge technology Sterling Farms will accumulate Surna only data on grows and act as a reference site and touring facility for perspective customers.

And that is our last question. Trent, do you have any further comments?

No, with that, I’d like to thank everyone for joining us today and say that we’re really excited in 2017 and look forward to updating you in the future.

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