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Equity Incentive Plans

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Equity Incentive Plans

Note 14 – Equity Incentive Plans

Revised Compensation Plan

On August 20, 2021, the Board of Directors revised the previously adopted equity-based compensation plan and adopted a new compensation plan for independent directors (the “Plan”). The Plan is effective retroactively for the current independent directors and for independent directors elected or appointed after the Effective Date of the Plan.

The Company will pay its independent directors an annual cash fee of $15,000, payable quarterly in advance on the first business day of each calendar quarter, retroactive commencing July 1, 2021, as consideration for their participation in: (i) any regular and special meetings of the Board and any committee participation and meetings thereof that are attended in person, (ii) any telephonic and other forms of electronic meetings of the Board or of any committee thereof in which the director is a member, (iii) any non-meeting consultations with the Company’s management, and (iv) any other services provided by them in their capacities as directors. In addition, on the first business day of January each year after the Effective Date, each independent director will receive a grant of Non-Qualified Stock Options valued at $15,000. As part of the retroactive compensation, each independent director on the Board as of the Effective Date will receive an additional grant of Non-Qualified Stock Options valued at $7,500 for service in 2021.

On January 17, 2022, the Board of Directors revised the previously adopted compensation plan. This plan supersedes the plan adopted on August 20, 2021. The Plan is effective retroactively for the current independent directors and for independent directors elected or appointed after the Effective Date.

The plan is divided into two phases: from the Effective Date of the Plan until February 9, 2022, the day prior to the uplisting of the Company to Nasdaq. (“Pre-uplist”) and from February 10, 2022, the uplist date forward (“Post-uplist”).

Pre-uplist phase: The Company paid its independent directors an annual cash fee of $15,000, payable quarterly in advance on the first business day of each quarter, as consideration for their participation in: (i) any regular or special meetings of the Board or any committee thereof attended in person, (ii) any telephonic meeting of the Board or any committee thereof in which the director is a member, (iii) any non-meeting consultations with the Company’s management, and (iv) any other services provided by them in their capacities as directors (other than services as the Chairman of the Board, the Chairman of the Company’s Audit Committee, and the Committee Chairman).

At the time of initial election or appointment, each independent director received an equity retention award in the form of restricted stock units (“RSUs”). The aggregate value of the RSUs at the time of grant was to be $25,000, with the number of shares underlying the RSUs to be determined based on the closing price of the Company’s common stock on the date immediately prior to the date of grant. Vesting of the RSUs was as follows: (i) 50% at the time of grant, and (ii) 50% on the first anniversary of the grant date.

In addition, on the first business day of January each year, each independent director will also receive an equity retention award in the form of RSUs. The aggregate value of the RSUs at the time of grant will be $25,000, with the number of shares underlying the RSUs to be determined based on the closing price of the Company’s common stock on the date immediately prior to the date of grant. These RSUs will be fully vested at date of grant.

The Company pays the Audit Committee Chairman an additional annual fee of $10,000, payable quarterly in advance, for services as the Audit Committee Chairman.

The Company pays the Chairmen of any other committees of the Board an additional annual fee of $5,000, payable quarterly in advance, for services as a Committee Chairman.

There is no additional compensation paid to members of any committee of the Board. Interested (i.e. Executive directors) serving on the Board do not receive compensation for their Board service.

Post-uplist phase: The Company will pay its independent directors an annual cash fee of $25,000, payable quarterly in advance on the first business day of each quarter. All other terms remain the same.

Each director is responsible for the payment of any and all income taxes arising with respect to the issuance of common stock and the vesting and settlement of RSUs.

CEA Industries Inc.

Notes to Consolidated Financial Statements

December 31, 2022

(in US Dollars except share numbers)

The Company reimburses independent directors for out-of-pocket expenses incurred in attending Board and committee meetings and undertaking certain matters on the Company’s behalf.

All independent directors, Messrs. Shipley, Etten, Reisner, and Mariathasan are subject to the Plan.

Each independent director is responsible for the payment of any and all income taxes arising with respect to the issuance of any equity awarded under the plan, including the exercise of any non-qualified stock options.

Employee directors do not receive separate fees for their services as directors.

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.

As of December 31, 2022, of the 333,333 shares authorized under the 2017 Equity Plan, 163,692 relate to restricted shares issued, 147,177 relate to outstanding non-qualified stock options and 22,464 shares remain available for future equity awards.

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.

Equity Incentive Plan Issuances During 2022

	-	Issued 3,367 shares of its common stock to two new independent directors under the 2021 Equity Incentive Plan, pursuant to the Director Compensation plan adopted in January 2022.

	-	Granted awards for 22,167 non-qualified stock options to newly hired employees and 5,000 stock options were cancelled under the 2021 Equity Incentive Plan.

	-	Granted awards for 6,250 non-qualified stock options to directors under the 2021 Equity Incentive Plan, pursuant to the Director Compensation plan adopted in August of 2021.

	-	Issued 31,793 non-qualified stock options were issued to 21 employees in respect of the Company’s 2021 Equity Incentive Plan. The options vested immediately, have a term of 10 years and an exercise price of $2.51. The expense in respect of this issuance had been fully accrued in 2021.

As of December 31, 2022, of the 666,667 shares authorized under the 2021 Equity Plan, 10,170 relate to restricted shares issued, 61,201 relate to outstanding non-qualified stock options, 40,816 relate to outstanding incentive stock options, 3,367 relate to outstanding restricted stock units and 551,113 shares remain available for future equity awards.

There was $65,087 in unrecognized compensation expense for unvested non-qualified stock options, incentive stock options and restricted stock units at December 31, 2022 which will be recognized over approximately 2 years.

CEA Industries Inc.

Notes to Consolidated Financial Statements

December 31, 2022

(in US Dollars except share numbers)

As further discussed in Note 16 Subsequent Events below, effective January 3, 2023, the Company issued 119,032 shares of common stock in settlement of restricted stock units issued to directors that vested immediately. Further on January 17, 2023, the Company issued a further 3,366 shares of common stock in settlement of restricted stock units issued to newly appointed directors in 2022 that vested one year after issuance.

Restricted Stock Awards

No shares of restricted stock were issued during the year ended December 31, 2022.

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.

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 157.27% - 158.7%; expected term of 5 - 10 years and risk-free interest rate 1.52% - 2.73%.

CEA Industries Inc.

Notes to Consolidated Financial Statements

December 31, 2022

(in US Dollars except share numbers)

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, 2022 and 2021 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, 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			$	-
Granted			53,960			$	2.90				9.2			$	-
Exercised			-			$	-				-			$	-
Forfeited			(20,061	)		$	8.85				8.6			$	-
Expired			-			$	-				-			$	-
Outstanding, December 31, 2022			192,073			$	8.94				7.6			$	-
Exercisable, December 31, 2022			148,227			$	9.86				7.2			$	-

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, 2022 and 2021 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, 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			$	-			$	320,122
Granted			53,960			$	2.86			$	-			$	154,555
Vested			(36,960	)		$	2.68			$	-			$	-
Forfeited			(15,000	)		$	8.52			$	-			$	-
Expired			-			$	-			$	-			$	-
Nonvested, December 31, 2022			43,846			$	5.65			$	-			$	247,739

For the years ended December 31, 2022 and 2021, the Company recorded $149,081 and $169,746 as compensation expense related to vested options issued to employees and consultants, net of forfeitures, respectively. The expense for 2022 was comprised of $18,942 for non-qualified stock options and $130,139 for incentive stock options. As of December 31, 2022, there was $63,770 in unrecognized share-based compensation related to unvested options.

CEA Industries Inc.

Notes to Consolidated Financial Statements

December 31, 2022

(in US Dollars except share numbers)

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, 2022 and 2021 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, 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			$	-
Granted			6,250			$	4.80				9.0			$	-
Exercised			-				-				-			$	-
Forfeited/Cancelled			-				-				-			$	-
Expired			-				-				-			$	-
Outstanding, December 31, 2022			57,122			$	9.44				6.0			$	-
Exercisable, December 31, 2022			57,122			$	9.44				6.0			$	-

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, 2022 and 2021 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, 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			-				-				-			$	-
Granted			6,250			$	4.75			$	-			$	29,656
Vested			(6,250	)		$	4.75			$	-			$	-
Forfeited			-				-				-			$	-
Expired			-				-				-			$	-
Nonvested, December 31, 2022			-							$	-			$	-

During the years ended December 31, 2022 and 2021, the Company incurred $29,656 and $21,174, respectively, as compensation expense related to 6,250 and 8,205 vested options, respectively, issued to directors. As of December 31, 2022, there was no unrecognized share-based compensation related to unvested options.

Effective January 3, 2022, the Company issued 6,250 non-qualified stock options under the 2021 Equity Plan to its then current 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.

Effective August 20, 2021, the Company issued 1,539 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.

CEA Industries Inc.

Notes to Consolidated Financial Statements

December 31, 2022

(in US Dollars except share numbers)

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, 2022 and 2021 are presented in the table below:

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

Outstanding, December 31, 2020			50,333			$	19.50			$	-
Granted			-				-			$	-
Vested and settled with share issuance			(45,000	)		$	18.15			$	-
Forfeited/canceled			(5,333	)		$	23.10			$	-
Outstanding, December 31, 2021			-			$	-			$	-
Granted			6,734			$	7.42			$	-
Vested and settled with share issuance			(3,367	)		$	7.42			$	-
Forfeited/canceled			-			$	-			$	-
Outstanding, December 31, 2022			3,367			$	7.42			$	-

For the years ended December 31, 2022 and 2021, the Company recorded $18,736 and $0 as compensation expense related to vested RSUs issued to employees, directors and consultants. As of December 31, 2022, there was $1,317 in unrecognized share-based compensation related to unvested RSUs.

As further discussed in Note 16 Subsequent Events below, effective January 3, 2023, the Company issued 119,032 shares of common stock in settlement of restricted stock units issued to directors that vested immediately. Further on January 17, 2023, the Company issued a further 3,366 shares of common stock in settlement of restricted stock units issued to newly appointed directors in 2022 that vested one year after issuance.