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Equity Incentive Plans

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Note 14 – Equity Incentive Plans

2017 Equity Incentive Plan

Under the Company’s 2017 Equity Incentive Plan, as may be modified and amended by the Company from time to time (the “2017 Equity Plan”), the Board of Directors (the “Board”) (or the compensation committee of the Board, if one is established) may award stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock unit awards (“RSUs”), shares granted as a bonus or in lieu of another award, and other stock-based performance awards. The 2017 Equity Plan allocates 333,333 shares of the Company’s common stock (“Plan Shares”) for issuance of equity awards under the 2017 Equity Plan. If any shares subject to an award are forfeited, expire, or otherwise terminate without issuance of such shares, the shares will, to the extent of such forfeiture, expiration, or termination, again be available for awards under the 2017 Equity Plan.

2021 Equity Incentive Plan

On March 22, 2021, the Board approved the 2021 Equity Incentive Plan (the “2021 Equity Plan”), which was approved by the stockholders on July 22, 2021. The 2021 Equity Plan permits the Board to grant awards of up to 666,667 shares of common stock. The 2021 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), non-qualified stock options, stock appreciation rights (“SARs”), restricted stock awards and restricted stock unit awards and other equity linked awards to our employees, consultants and directors. If an equity award (i) expires or otherwise terminates without having been exercised in full or (ii) is settled in cash (i.e., the holder of the award receives cash rather than stock), such expiration, termination or settlement will not reduce (or otherwise offset) the number of shares of common stock that may be issued pursuant to this Plan.

CEA Industries Inc.

Notes to Consolidated Financial Statement

Equity Incentive Plan Issuances During 2021

During the year ended December 31, 2021, the Company issued 6,803 shares of its common stock under the 2021 Equity Incentive Plan.

During the year ended December 31, 2021, the Company granted awards for 67,046 stock options, 40,816 as incentive stock options and 26,230 as non-qualified stock options as further described below.

Of the total stock options granted, 20,239 were non-qualified stock options under the 2017 Equity Plan and 46,807 stock options were issued under the 2021 Equity Plan, 40,816 as incentive stock options and 5,991 as non-qualified stock options.

During the year ended December 31, 2021, 2,341 non-qualified stock options under the 2017 Equity Plan were forfeited by employees who ceased to be employed by the Company during the course of the year.

As of December 31, 2021, stock options related to 209,045 shares were issued and outstanding.

As of December 31, 2021, of the 333,333 shares authorized under the 2017 Plan for equity awards, 163,692 shares have been issued, awards related to 162,238 options remain outstanding, and 7,403 shares remain available for future equity awards.

As of December 31, 2021, of the 666,667 shares authorized under the 2021 Equity Plan, 6,803 relate to restricted shares issued, 5,991 relate to outstanding non-qualified stock options, 40,816 relate to outstanding incentive stock options and 613,057 shares remain available for future equity awards.

There was $277,422 in unrecognized compensation expense for unvested stock options at December 31, 2021 which will be recognized over approximately 2.5 years.

Restricted Stock Awards

During the year ended December 31, 2021, the Company awarded 6,803 shares of restricted stock under the 2021 Equity Incentive Plan with a value of $50,000 to the Chief Executive Officer in accordance with a new Executive Employment Agreement effective November 24, 2021.

Stock Options

The Company uses the Black-Scholes Model to determine the fair value of options granted. Option-pricing models require the input of highly subjective assumptions, particularly for the expected stock price volatility and the expected term of options. Changes in the subjective input assumptions can materially affect the fair value estimate. The expected stock price volatility assumptions are based on the historical volatility of the Company’s common stock over periods that are similar to the expected terms of grants and other relevant factors. The Company derives the expected term based on an average of the contract term and the vesting period taking into consideration the vesting schedules and future employee behavior with regard to option exercise. The risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected term calculated at the date of grant. The Company has never paid any cash dividends on its common stock and the Company has no intention to pay a dividend at this time; therefore, the Company assumes that no dividends will be paid over the expected terms of option awards.

CEA Industries Inc.

Notes to Consolidated Financial Statement

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 valuation assumptions used to determine the fair value of each option award on the date of grant were: expected stock price volatility 148.87% - 152.51%; expected term of 5 - 10 years and risk-free interest rate 1.2% - 1.64%.

Employee and Consultant Options

A summary of the stock options granted to employees and consultants under the 2017 Equity Plan and the 2021 Equity Incentive Plan during the years ended December 31, 2021 and 2020 are presented in the table below:

Schedule of Stock Option Activity

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding, December 31, 2019		67,567		$	14.40		7.7	$	-
Granted		44,113		$	10.50		10.0
Exercised		-
Forfeited		-
Expired		(16,673	)	$	15.15		4.3
Outstanding, December 31, 2020		95,007		$	12.45		7.1	$	-
Granted		65,508		$	9.00		10.0	$	-
Exercised		-
Forfeited		(2,341	)	$	16.83		7.0	$	-
Expired		-
Outstanding, December 31, 2021		158,174		$	10.99		7.6	$	-
Exercisable, December 31, 2021		116,328		$	12.12		6.8	$	-

A summary of non-vested stock options activity for employees and consultants under the 2017 Equity Plan and the 2021 Equity Plan for the years ended December 31, 2021 and 2020 are presented in the table below:

	Number of Options			Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value		Grant-Date Fair Value

Nonvested, December 31, 2019		13,333		$	11.25	$	-	$	149,534
Granted		44,113		$	8.85			$	387,199
Vested		(57,446	)	$	9.30			$	536,733
Forfeited		-						$	-
Expired		-						$	-
Nonvested, December 31, 2020		-		$	-	$	-	$	-
Granted		65,508		$	8.85	$	-	$	575,711
Vested		(23,662	)	$	10.65	$	-	$	(252,571	)
Forfeited		-						$	-
Expired		-						$	-
Nonvested, December 31, 2021		41,846		$	7.65	$	-	$	323,140

For the years ended December 31, 2021 and 2020, the Company recorded $169,746 and $189,568 as compensation expense related to vested options issued to employees and consultants, net of forfeitures, respectively. The expense for 2021 was comprised of $56,752 for non-qualified stock options and $112,994 for incentive stock options. As of December 31, 2021, there was $277,422 in unrecognized share-based compensation related to unvested options.

CEA Industries Inc.

Notes to Consolidated Financial Statement

Director Options

A summary of the non-qualified stock options granted to directors under the 2017 Equity Plan and 2021 Equity Plan during the years ended December 31, 2021 and 2020 are presented in the table below:

Schedule of Stock Option Activity

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)

Outstanding, December 31, 2019		6,000	$	20.25		7.6	$	-
Granted		43,333	$	8.55		8.5
Exercised		-		-
Forfeited/Cancelled		-		-
Expired		-		-
Outstanding, December 31, 2020		49,333	$	10.05		4.5	$	-
Granted		1,539	$	9.75		10.0	$	-
Exercised		-
Forfeited/Cancelled		-
Expired		-
Outstanding, December 31, 2021		50,872	$	10.02		6.6	$	-
Exercisable, December 31, 2021		50,872	$	10.02		6.6	$	-

A summary of non-vested non-qualified stock options activity for directors under the 2017 Equity Plan and the 2021 Equity Plan for the years ended December 31, 2021 and 2020 are presented in the table below:

	Number of Options			Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value		Grant-Date Fair Value

Nonvested, December 31, 2019		-			-	$	-
Granted		43,333		$	8.55			$	373,000
Vested		(36,667	)	$	9.45			$	344,000
Forfeited		-			-			$	-
Expired		-			-			$	-
Nonvested, December 31, 2020		6,666		$	4.35	$	3,400	$	29,000
Granted		1,539		$	9.75	$		$	15,000
Vested		(8,205	)	$	5.40	$	4,431	$	(44,000	)
Forfeited		-
Expired		-
Nonvested, December 31, 2021		-				$	-	$	-

During the years ended December 31, 2021 and 2020, the Company incurred $21,174 and $62,452, respectively, as compensation expense related to 8,205 and 10,000 vested options, respectively, issued to directors. As of December 31, 2021, there was no unrecognized share-based compensation related to unvested options.

CEA Industries Inc.

Notes to Consolidated Financial Statement

Effective January 2, 2020, the Company issued 26,667 fully vested stock options to directors valued at $234,126 in respect of a 2019 special equity award that had been accrued for in full in the Company’s financial statements at December 31, 2019.

Further on January 2, 2020, the Company issued an additional 3,333 fully vested, non-qualified stock options under the 2017 Equity Plan valued at $29,266 to directors. The options have a term of 5 years and have an exercise price equal to the closing price of the Company’s common stock on The OTC Markets on the day immediately preceding the grant date of $10.50.

Effective June 24, 2020, the Company issued 13,333 non-qualified stock options under the 2017 Equity Plan, valued at $39,600, to newly appointed directors. The options vested 50% upon grant and 50% on April 1, 2021, if the Director remains on the Board up to that time. The options have a term of 5 years and have an exercise price equal to the closing price of the Company’s common stock on The OTC Markets on the day immediately preceding the grant date of $4.35.

Effective August 20, 2021, the Company issued 1,538 non-qualified stock options under the 2021 Equity Plan to its directors. The options vested upon grant. The options have a term of 10 years and an exercise price equal to the closing price of the Company’s common stock on The OTC Markets on the day immediately preceding the grant date of $9.75.

Restricted Stock Units

A summary of the RSUs awarded to employees, directors and consultants under the 2017 Equity Plan during the years ended December 31, 2021 and 2020 are presented in the table below:

	Number of Units			Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value

Outstanding, December 31, 2019		50,333		$	19.20	$	-
Granted		-			-
Vested and settled with share issuance		(45,00	)	$	18.15
Forfeited/cancelled		(5,333	)	$	23.10
Outstanding, December 31, 2020		-				$	-
Granted		-
Vested and settled with share issuance		-
Forfeited/cancelled		-
Outstanding, December 31, 2021		-				$	-

For the years ended December 31, 2021 and 2020, the Company recorded $0 and $25,163 as compensation expense related to vested RSUs issued to employees, directors and consultants. As of December 31, 2021, there was no unrecognized share-based compensation related to unvested RSUs. The total intrinsic value of RSUs vested and settled with share issuance was $0 and $199,125 for the years ended December 31, 2021 and 2020. During the year ended December 31, 2020, the total intrinsic value of RSUs vested and settled with share issuance was $1,105,750, including the intrinsic value of $1,035,750 related to RSUs that had vested in 2018 but had not been settled until 2020 due to a dispute with a former employee over the required withholding taxes to be paid to the Company for remittance to the appropriate tax authorities as further discussed in Note 11 Commitments and Contingencies above.

CEA Industries Inc.

Notes to Consolidated Financial Statement

Effective April 30, 2020, 5,333 RSUs vested. However, the holder elected to cancel the RSUs.