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Equity Incentive Plans
 12 Months Ended
Dec. 31, 2023
Share-Based Payment Arrangement [Abstract]  
Equity Incentive Plans

Note 13 – Equity Incentive Plans

 

Revised Compensation Plan

 

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.

 

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.

 

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.

  

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.

 

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, 2023, of the 333,333 shares authorized under the 2017 Equity Plan, 163,692 relate to restricted shares issued, 145,512 relate to outstanding non-qualified stock options and 24,129 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.

 

 

CEA Industries Inc.

Notes to Consolidated Financial Statements

December 31, 2023

(in US Dollars except share numbers)

 

Equity Incentive Plan Issuances During 2023

 

-Issued 119,032 shares of common stock in settlement of restricted stock units issued to directors that vested immediately.
   
-Issued 3,366 shares of its common stock to two independent directors under the 2021 Equity Incentive Plan, pursuant to the Director Compensation plan adopted in January 2022.
   
-Issued 138,489 non-qualified stock options under the 2021 Equity Incentive Plan as annual incentive compensation awards to 8 employees, based on the Company’s performance and each employee’s contributions to such performance during the year ended December 31, 2022. The non-qualified stock options were issued effective April 1, 2023, vested immediately and were valued at $122,344. During the year ended December 31, 2022, the Company had accrued estimated equity compensation expense of $89,970 in respect of the 2022 annual bonus. During the three months ended March 31, 2023, the Company accrued a further $32,374 equity compensation expense in respect of the 2022 annual bonus. The total of the $89,970 accrued at December 31, 2022, together with the $32,374 accrued during 2023, was transferred from accruals to additional paid in capital on the issuance of these options.

 

Share-based compensation costs (including expenses from the accrued compensation liabilities related to the annual incentive awards subsequently settled in non-qualified stock options) totaled $187,614 and $314,081 for the years ended December 31, 2023 and 2022, respectively. Such share-based compensation costs are classified in the Company’s consolidated financial statements in the same manner as if such compensation was paid in cash.

 

The following is a summary of such share-based compensation costs included in the Company’s consolidated statements of operations for the years ended December 31, 2023 and 2022:

 

   2023   2022 
   For the Twelve Months Ended December 31, 
   2023   2022 
Share-based compensation expense included in:          
Cost of revenue  $4,898   $12,403 
Advertising and marketing expenses   1,113    13,921 
Product development costs   3,570    7,442 
Selling, general and administrative expenses   178,033    280,315 
Total share-based compensation expense included in consolidated statement of operations  $187,614   $314,081 

 

As of December 31, 2023, of the 666,667 shares authorized under the 2021 Equity Plan, 132,568 relate to restricted shares issued, 172,815 relate to outstanding non-qualified stock options, 40,816 relate to outstanding incentive stock options, and 320,467 shares remain available for future equity awards.

 

There was $5,398 in unrecognized compensation expense for unvested non-qualified stock options, incentive stock options and restricted stock units at December 31, 2023 which will be recognized over approximately 1 year.

 

As further discussed in Note 15 Subsequent Events below, effective January 3, 2024, the Company issued 136,365 shares of common stock in settlement of restricted stock units issued to three directors that vested immediately.

 

Restricted Stock Awards

 

No shares of restricted stock were issued during the year ended December 31, 2023 or the year ended December 31, 2022.

 

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 152.23%; expected term of 10 years and risk-free interest rate 3.48%.

 

 

CEA Industries Inc.

Notes to Consolidated Financial Statements

December 31, 2023

(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, 2023 and 2022 are presented in the table below:

 

   Number of
Options		   Weighted Average
Exercise Price		   Weighted Average Remaining Contractual Term   Aggregate
Intrinsic Value		 
                 
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   $- 
Granted   138,489   $0.90    6.9   $- 
Exercised   -   $-    -   $- 
Forfeited   (20,296)  $2.98    9.1   $- 
Expired   (8,244)  $0.89    -   $- 
Outstanding, December 31, 2023   302,022   $5.87    6.6   $- 
Exercisable, December 31, 2023   292,022   $5.99    6.5   $- 

 

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, 2023 and 2022 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, 2021   41,846   $7.65   $-   $320,122 
Granted   53,960   $2.86   $-   $154,555 
Vested   (52,049)  $3.89   $-   $- 
Forfeited   (15,000)  $8.52   $     -   $- 
Expired   -   $-   $-   $- 
Nonvested, December 31, 2022   28,756   $5.03   $-   $144,541 
Granted   138,489   $0.88   $-   $122,344 
Vested   (156,912)  $0.92   $-   $(241,247)
Forfeited   (333)  $6.67   $-   $(2,225)
Expired   -   $-   $-   $- 
Nonvested, December 31, 2023   10,000   $2.18   $-   $22,000 

 

For the years ended December 31, 2023 and 2022, the Company recorded $86,298 and $149,081 as compensation expense related to vested options issued to employees and consultants, net of forfeitures, respectively. The expense for 2023 was comprised of $44,263 for non-qualified stock options and $42,035 for incentive stock options. As of December 31, 2023, there was $5,398 in unrecognized share-based compensation related to unvested options.

 

 

CEA Industries Inc.

Notes to Consolidated Financial Statements

December 31, 2023

(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, 2023 and 2022 are presented in the table below:

 

   Number of Options   Weighted Average Exercise Price   Weighted Average Remaining Contractual Term   Aggregate Intrinsic Value ($000) 
                 
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   $- 
Granted   -    -    -   $     - 
Exercised   -    -    -   $- 
Forfeited/Cancelled   -    -    -   $- 
Expired   -    -    -   $- 
Outstanding, December 31, 2023   57,122   $9.44    5.0   $- 
Exercisable, December 31, 2023   57,122   $9.44    5.0   $- 

 

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, 2023 and 2022 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, 2021   -    -   $-   $- 
Granted   6,250   $4.75   $-   $29,656 
Vested   (6,250)  $4.75   $-   $- 
Forfeited   -    -   $       -   $- 
Expired   -    -   $-   $- 
Nonvested, December 31, 2022   -    -   $-   $- 
Granted   -    -   $-   $- 
Vested   -    -   $-   $- 
Forfeited   -    -   $-   $- 
Expired   -    -   $-   $- 
Nonvested, December 31, 2023   -        $-   $- 

 

During the years ended December 31, 2023 and 2022, the Company incurred $0 and $29,656, respectively, as compensation expense related to 0 and 6,250 vested options, respectively, issued to directors. As of December 31, 2023, there was no unrecognized share-based compensation related to unvested options.

 

 

CEA Industries Inc.

Notes to Consolidated Financial Statements

December 31, 2023

(in US Dollars except share numbers)

 

Restricted Stock Units

 

A summary of the RSUs awarded to employees, directors and consultants under the 2021 Equity Plan during the years ended December 31, 2023 and 2022 are presented in the table below:

 

  Number of
Units		   Weighted Average Grant-Date
Fair Value		   Aggregate
Intrinsic Value		 
            
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   3,366   $7.42   $- 
Granted   119,032   $0.84   $- 
Vested and settled with share issuance   (122,398)  $1.02   $- 
Forfeited/canceled   -   $-   $- 
Outstanding, December 31, 2023   -   $-   $- 

 

For the years ended December 31, 2023 and 2022, the Company recorded $101,316 and $18,736 as compensation expense related to vested RSUs issued to employees, directors and consultants. As of December 31, 2023, there was $0 in unrecognized share-based compensation related to unvested RSUs.

 

As further discussed in Note 15 Subsequent Events below, effective January 2, 2024, the Company issued 136,365 shares of common stock in settlement of restricted stock units issued to three directors that vested immediately.