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Temporary Equity | 9 Months Ended
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Sep. 30, 2022
Temporary Equity |
Temporary Equity | Note 7 – Temporary Equity On September 28, 2021, the Company sold to an institutional investor (the “Investor”), 3,300 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”), stated value $1,000 per share, convertible into shares of common stock, for an aggregate purchase price of $3,000,000 (“Consideration”). The Company received net proceeds of approximately $1,260,000 on September 28, 2021, and the balance of approximately $1,365,000 on November 4, 2021. CEA Industries Inc. Notes to Condensed Consolidated Financial Statements September 30, 2022 (in US Dollars except share numbers) (Unaudited) The Series B Preferred Stock had an annual dividend of 8% and an initial common stock conversion price of $8.55. The conversion rate was subject to adjustment in various circumstances, including stock splits, stock dividends, pro rata distributions, fundamental transactions and upon a triggering event and subject to reset if the common stock of the Company sold in any subsequent equity transaction, including a qualified offering, was sold at a price below the then conversion price. The Series B Preferred Stock was mandatorily convertible on the third anniversary of its issuance. All conversions of the Series B Preferred Stock were subject to a blocker provision of 4.99%. Probability of Redemption: As it was considered probable the Series B Preferred stock would become redeemable outside of the Company’s control, the Series B Preferred stock was disclosed as temporary equity and was initially adjusted as of September 30, 2021 to its redemption value of 120% of the stated value of $1,000 per share, or $3,960,000. As a result, the Company recorded a $2,262,847 non-cash redemption value adjustment during 2021. This redemption value adjustment is treated as similar to a dividend on the preferred stock for GAAP purposes; accordingly, the redemption value adjustment was therefore added to the “Net Loss” to arrive at “Net Loss Attributable to Common Shareholders” on the Company’s Consolidated Statements of Operations. In addition, since the Company did not have a balance of retained earnings, the redemption value adjustment was recorded against additional paid-in capital. On February 16, 2022, the Company redeemed 1,650 shares of its Series B Preferred Stock for payment of $2.016 million in cash, which included both principal and accrued dividends of approximately $36,000. On February 16, 2022, the remaining 1,650 shares of the Company’s Series B Preferred Stock were converted into 362,306 shares of common stock and 703,069 warrants; 170,382 of the warrants vested immediately, had an indefinite term and an exercise price of $0.01 (“pre-funded conversion warrants”), the balance of 532,688 warrants also vested immediately, have a term of 5 years and have an exercise price of $5.00. The initial common stock conversion price for the shares of Series B Preferred Stock was $8.55. However, the terms of the Series B preferred stock were such that the stock conversion price was to be reduced to 75% of the offering price in any subsequent qualified public offering of Company equity instruments, if lower than the common stock conversion price of $8.55. The Company’s public offering that closed on February 15, 2022, was completed at an offering price of $4.13. Accordingly, the initial common stock conversion price for the shares of Series B Preferred Stock was reduced from $8.55 to $3.0975, representing 75% of the offering price of $4.13. As a result, the Company recognized a deemed dividend of $439,999 to Series B Shareholders in respect of the additional shares of common stock and warrants they received on the conversion of their shares of Series B Preferred stock. As the Company does not have a balance of retained earnings, the deemed dividend was recorded against additional paid-in capital. The Company has no Preferred Shares outstanding as of September 30, 2022.

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