Notes
to Consolidated Financial Statement
Note
1 – Description of Business
CEA
Industries Inc., formerly Surna Inc. (the “Company”), was incorporated in Nevada on October 15, 2009. We design, engineer
and sell environmental control and other technologies for the Controlled Environment Agriculture (CEA) industry. The CEA industry is
one of the fastest-growing sectors of the United States’ economy. From leafy greens (kale, Swiss chard, mustard, cress), microgreens
(leafy greens harvested at the first true leaf stage), ethnic vegetables, ornamentals, and small fruits (such as strawberries,
blackberries and raspberries) to bell peppers, cucumbers, tomatoes and cannabis and hemp, some producers grow crops indoors in response
to market dynamics or as part of their preferred farming practice. In service of the CEA industry, our principal technologies include:
(i) liquid-based process cooling systems and other climate control systems, (ii) air handling equipment and systems, (iii) a full-service
engineering package for designing and engineering commercial scale thermodynamic systems specific to cultivation facilities, and (iv)
automation and control devices, systems and technologies used for environmental, lighting and climate control. Our customers include
commercial, state- and provincial-regulated CEA growers in the U.S. and Canada as well as other international locations. Customers are
those growers building new facilities and those expanding or retrofitting existing facilities. Currently, our revenue stream is derived
primarily from supplying our products, services and technologies to commercial indoor facilities ranging from several thousand to more
than 100,000 square feet. Headquartered in Louisville, Colorado, we leverage our experience in this space to bring value-added climate
control solutions to our customers that help improve their overall crop quality and yield, optimize energy and water efficiency, and
satisfy the evolving state and local codes, permitting and regulatory requirements. Although our customers do, we neither produce nor
sell cannabis or its related products.
Impact
of the COVID-19 Pandemic on Our Business
The
impact of the government and the business economic response to the COVID-19 pandemic has affected demand across the majority of our markets
and disrupted work on projects. The COVID-19 pandemic is expected to have continued adverse effects on our sales, project implementation,
operating margins, and working capital. As of the date of this filing, uncertainty continues to exist concerning the magnitude and duration
of the economic impact of the COVID-19 pandemic.
In
response to the COVID-19 pandemic and its changing conditions the Company reduced its operational expenses to conserve its cash resources.
Many expenses, including travel, marketing, headcount, work hours, and compensation were reduced, deferred, or eliminated while still
allowing us to meet our customer obligations and develop new business. As the fiscal year progressed and our sales rebounded, and we
were able to obtain additional funds through a forgivable bank loan, we restored our workforce and compensation.
Due
to the speed with which the COVID-19 pandemic developed and the resulting uncertainties, including the depth and duration of the disruptions
to customers and suppliers, its future effect on our business, on our results of operations, and on our financial condition, cannot be
predicted. We expect that the economic disruptions will continue to have an effect on our business over the longer term. Despite this
uncertainty, we continue to monitor costs and continue to take actions to reduce costs in order to mitigate the impact of the
COVID-19 pandemic to the best of our ability. However, these actions may not be sufficient in the long-run to avoid reduced sales,
increased losses and reduced operating cash flows in our business.
Refer
to Risk Factors, included in Part I, Item 1A of this Annual Report on Form 10-K above, for further discussion of the possible
impact of the COVID-19 pandemic on our business.
Note
2 – Basis of Presentation; Summary of Significant Accounting Policies
Financial
Statement Presentation
The
preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and related disclosures.
The accompanying
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements
are available to be issued. In prior year consolidated financial statements, management’s assessment was that there was
substantial doubt as to the Company’s ability to raise equity or debt financing in sufficient amounts, when and if needed, on
acceptable terms or at all, in order to provide assurances that the Company would be able to continue as a going concern. The
Company continues to experience recurring losses since its inception, and currently shows negative cash flows from operations and
negative working capital as of December 31, 2021. As a result, in order to continue as a going concern, the Company has been reliant
on the ability to obtain additional sources of financing to fund growth. As indicated in Note 16 – Subsequent Events, on
February 15, 2022, the Company received approximately $22,000,000 in proceeds from completion of an equity offering. Based on
management’s evaluation, the proceeds from the Offering will be more than sufficient to fund any deficiencies in working
capital or cash flow from operations, and the Company is confident that it will be able to meet its obligations as they come due,
and fund operations for at least 12 months after the date the consolidated financial statements are available to be issued.
Accordingly, the conditions around liquidity and limited working capital necessary to fund operations have been addressed.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
Reverse
Stock Split
On
January 17, 2022, the Company’s Board of Directors approved a reverse stock split at a ratio of one-for-one hundred and fifty.
Such reverse stock split was implemented effective January 27, 2022. The
par value for the Common Stock was not affected.
As a result of this reverse
stock split, the number of the Company’s shares of common stock issued and outstanding as of December 31, 2021, was reduced from
240,125,224
to 1,600,835.
All
Common Stock, warrants, options and per share amounts set forth herein are presented to give retroactive effect to the Reverse Split
for all periods presented.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its controlled and wholly owned subsidiary, Hydro Innovations,
LLC (“Hydro”). Intercompany transactions, profit, and balances are eliminated in consolidation.
Use
of Estimates
Management
makes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and that affect the reported amounts of revenue and expenses during the reporting
period. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results could differ from those estimates. Key estimates include: allocation of transaction
prices to performance obligations under contracts with customers, standalone selling prices, timing of expected revenue recognition on
remaining performance obligations under contracts with customers, valuation of intangible assets as it applies to impairment analysis,
valuation of equity-based compensation, valuation of deferred tax assets and liabilities, warranty accruals, inventory allowances, and
legal contingencies.
Cash
and Cash Equivalents
All highly liquid investments
with original maturities of three months or less at the date of purchase are considered to be cash equivalents. The Company may, from
time to time, have deposits in financial institutions that exceed the federally insured amount of $250,000. As of December 31, 2021,
the balance in the Company’s account was approximately $2,160,000. The Company has not experienced any losses to date on depository
accounts.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivables are recorded at the invoiced amount or based on revenue earned for items not yet invoiced, and generally do not bear interest.
An allowance for doubtful accounts is established, as necessary, based on past experience and other factors, which, in management’s
judgment, deserve current recognition in estimating bad debts. Based on the Company’s review, it establishes or adjusts the allowance
for specific customers and the accounts receivable portfolio as a whole. As of December 31, 2021, and December 31, 2020, the allowance
for doubtful accounts was $181,942
and $165,098,
respectively. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
Inventory
Inventory
is stated at the lower of cost or net realizable value. The inventory is valued based on a first-in, first-out (“FIFO”) basis.
Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other
factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence
or impaired inventory. Excess and obsolete inventory is charged to cost of revenue and a new lower-cost basis for that inventory is established
and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
As of December 31, 2021, and December 31, 2020, the allowance for excess and obsolete inventory was $91,379
and $93,045,
respectively.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
Property
and Equipment
Property
and equipment are stated at cost. For financial statement purposes, property and equipment are recorded at cost and depreciated using
the straight-line method over their estimated useful lives, which is generally five years. Leasehold improvements are amortized on a
straight-line basis over the lesser of their useful lives or the life of the lease. Upon sale or retirement of assets, the cost and related
accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations.
Maintenance and repairs are charged to operations as incurred.
Long-lived
Assets
Long-lived
tangible assets, including property and equipment, are reviewed for impairment whenever events or changes in business circumstances indicate
the carrying value of the assets may not be recoverable. When such an event occurs, management determines whether there has been impairment
by comparing the anticipated undiscounted future net cash flows to the related asset’s carrying value. If an asset is considered
impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending
on the nature of the asset. The Company has not identified any indicators of impairment during the years ended December 31, 2021 and
2020.
Goodwill
and Intangible Assets
The
Company recorded goodwill in connection with its acquisition of Hydro in July 2014. Goodwill is reviewed for impairment annually on December
31st or more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced
to less than its carrying value. The Company performs a quantitative impairment test annually during the fourth quarter by comparing
the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its
carrying amount, goodwill is considered not impaired. An impairment charge would be recognized for the amount by which the carrying amount
exceeds the reporting unit’s fair value. The Company determined that it has one reporting unit. The Company completed this assessment
as of December 31, 2021 and concluded that no impairment existed.
Separable
identifiable intangibles consist of intellectual property such as patents and trademarks, and capitalized website costs. Except for trademarks,
which are not amortized, the Company’s separable identifiable intangible assets are subject to amortization on a straight-line
basis over their estimated useful lives. Trademarks are tested annually for impairment. Separable identifiable intangibles are also subject
to evaluation for potential impairment if events or circumstances indicate the carrying value may not be recoverable.
Fair
Value Measurement
The
Company records its financial assets and liabilities at fair value. The accounting standard for fair value provides a framework for measuring
fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between
market participants at the reporting date. The accounting standard establishes a three-tier hierarchy, which prioritizes the inputs used
in the valuation methodologies in measuring fair value:
Level
1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level
2 - inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability,
either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level
3 - inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
A
financial asset or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant
to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement
in its entirety requires management to make judgments and consider factors specific to the asset or liability.
Due
to their short-term nature, the carrying values of accounts receivable, accounts payable, and accrued expenses,
approximate fair value.
Leases
The
Company accounts for leases in accordance with ASC 842. The Company determines whether a contract is a lease at contract inception or
for a modified contract at the modification date. At inception or modification, the Company recognizes right-of-use (“ROU”)
assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. Lease liabilities and their
corresponding ROU assets are initially measured at the present value of the unpaid lease payments as of the lease commencement date.
If the lease contains a renewal and/or termination option, the exercise of the option is included in the term of the lease if the Company
is reasonably certain that a renewal or termination option will be exercised. As the Company’s leases do not provide an implicit
rate, the Company uses an estimated incremental borrowing rate (“IBR”) based on the information available at the commencement
date of the respective lease to determine the present value of future payments. The IBR is determined by estimating what it would cost
the Company to borrow a collateralized amount equal to the total lease payments over the lease term based on the contractual terms of
the lease and the location of the leased asset.
Operating
lease payments are recognized as an expense on a straight-line basis over the lease term in equal amounts of rent expense attributed
to each period during the term of the lease, regardless of when actual payments are made. This generally results in rent expense in excess
of cash payments during the early years of a lease and rent expense less than cash payments in later years. The difference between rent
expense recognized and actual rental payments is typically represented as the spread between the ROU asset and lease liability.
The
Company’s facilities operating leases have lease and non-lease fixed cost components, which we account for as one single lease
component in calculating the present value of minimum lease payments. Variable lease and non-lease cost components are expensed as incurred.
The
Company does not recognize ROU assets and lease liabilities for short-term leases that have an initial lease term of 12 months or less.
The Company recognizes the lease payments associated with short-term leases as an expense on a straight-line basis over the lease term.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded
at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
For stock-based derivative financial instruments, the Company uses the Black-Scholes Option Pricing Model (the “Black-Scholes Model”)
to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the
balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within
twelve months of the balance sheet date. As of December 31, 2021, and December 31, 2020, there were no derivative financial instruments.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
Revenue
Recognition
On
January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 (Topic 606), Revenue from Contracts with
Customers and all the related amendments (“ASC 606” or the “revenue standard”) to all contracts and elected
the modified retrospective method.
The
following table sets forth the Company’s revenue by source:
Schedule
of Revenue by Source
| |
For
the Years Ended
December
31, | |
| |
2021 | | |
2020 | |
Equipment and systems sales | |
$ | 12,754,131 | | |
$ | 7,730,371 | |
Engineering and other services | |
| 683,689 | | |
| 568,131 | |
Shipping and handling | |
| 200,738 | | |
| 215,770 | |
Total revenue | |
$ | 13,638,558 | | |
$ | 8,514,272 | |
Revenue
Recognition Accounting Policy Summary
The
Company accounts for revenue in accordance with ASC 606. Under the revenue standard, a performance obligation is a promise in a contract
with a customer to transfer a distinct good or service to the customer. Most of the Company’s contracts contain multiple performance
obligations that include engineering and technical services as well as the delivery of a diverse range of climate control system equipment
and components, which can span multiple phases of a customer’s project life cycle from facility design and construction
to equipment delivery and system installation and start-up. The Company does not provide construction services or system installation
services. Some of the Company’s contracts with customers contain a single performance obligation, typically engineering only services
contracts.
A
contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance
obligation is satisfied. When there are multiple performance obligations within a contract, the Company allocates the transaction price
to each performance obligation based on standalone selling price. When estimating the selling price, the Company uses various observable
inputs. The best observable input is the Company’s actual selling price for the same good or service, however, this input is generally
not available for the Company’s contracts containing multiple performance obligations. For engineering services, the Company estimates
the standalone selling price by reference to certain physical characteristics of the project, such as facility size and mechanical systems
involved, which are indicative of the scope and complexity of the mechanical engineering services to be provided. For equipment sales,
the standalone selling price is determined by forecasting the expected costs of the equipment and components and then adding an appropriate
margin, based on a range of acceptable margins established by management. Depending on the nature of the performance obligations, the
Company may use a combination of different methods and observable inputs if certain performance obligations have highly variable or uncertain
standalone selling prices. Once the selling prices are determined, the Company applies the relative values to the total contract consideration
and estimates the amount of the transaction price to be recognized as each promise is fulfilled.
Generally,
satisfaction occurs when control of the promised goods is transferred to the customer or as services are rendered or completed in exchange
for consideration in an amount for which the Company expects to be entitled. The Company recognizes revenue for the sale of goods when
control transfers to the customer, which primarily occurs at the time of shipment. The Company’s historical rates of return are
insignificant as a percentage of sales and, as a result, the Company does not record a reserve for returns at the time the Company recognizes
revenue. The Company has elected to exclude from the measurement of the transaction price all taxes (e.g., sales, use, value added, and
certain excise taxes) that are assessed by a governmental authority in connection with a specific revenue-producing transaction and collected
by the Company from the customer. Accordingly, the Company recognizes revenue net of sales taxes. The revenue and cost for freight and
shipping is recorded when control over the sale of goods passes to the Company’s customers.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
The
Company also has performance obligations to perform certain engineering services that are satisfied over a period of time. Revenue is
recognized from this type of performance obligation as services are rendered based on the percentage completion towards certain specified
milestones.
The
Company offers assurance-type warranties for its products and products manufactured by others to meet specifications defined by the contracts
with customers and does not have any material separate performance obligations related to these warranties. The Company maintains a warranty
reserve based on historical warranty costs.
Other
Judgments and Assumptions
The
Company typically receives customer payments in advance of its performance of services or transfers of goods. Applying the practical
expedient in ASC 606-10-32-18, which the Company has elected, the Company does not adjust the promised amount of consideration for the
effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company
transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Accordingly,
the remaining performance obligations related to customer contracts does not consider the effects of the time value of money.
Applying
the practical expedient in ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred
since the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs include
certain sales commissions and incentives, which are included in selling, general and administrative expenses, and are payable only when
associated revenue has been collected and earned by the Company.
Contract
Assets and Contract Liabilities
Contract
assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to
payments received in advance of the satisfaction of performance under the contract. The Company receives payments from customers based
on the terms established in its contracts.
Contract
assets include unbilled amounts where revenue recognized exceeds the amount billed to the customer and the right of payment is conditional,
subject to completing a milestone, such as a phase of a project. The Company typically does not have material amounts of contract assets
since revenue is recognized as control of goods are transferred or as services are performed. As of December 31, 2021, and 2020,
the Company had no contract assets.
Contract
liabilities consist of advance payments in excess of revenue recognized. The Company’s contract liabilities are recorded as a current
liability in deferred revenue in the consolidated balance sheets since the timing of when the Company expects to recognize revenue is
generally less than one year. As of December 31, 2021, and December 31, 2020, deferred revenue, which was classified as a current liability,
was $2,839,838 and
$3,724,189,
respectively.
For
the year ended December 31, 2021, the Company recognized revenue of $3,358,578
related to the deferred revenue at January 1,
2021, or 90%.
For the year ended December 31, 2020, the Company recognized revenue of $1,103,447
related to the deferred revenue at January 1,
2020, or 76%.
Remaining
Performance Obligations
Remaining
performance obligations, or backlog, represents the aggregate amount of the transaction price allocated to the remaining obligations
that the Company has not performed under its customer contracts. The Company has elected not to use the optional exemption in ASC 606-10-50-14,
which exempts an entity from such disclosures if a performance obligation is part of a contract with an original expected duration of
one year or less. Accordingly, the information disclosed about remaining performance obligations includes all customer contracts, including
those with an expected duration of one year or less.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
Industry
uncertainty, project financing concerns, and the licensing and qualification of our prospective customers, which are out of the Company’s
control, make it difficult for the Company to predict when it will recognize revenue on its remaining performance obligations. There
are risks that the Company may not realize the full contract value on customer projects in a timely manner or at all, and completion
of a customer’s cultivation facility project is dependent upon the customer’s ability to secure funding and real estate,
obtain a license and then build their cultivation facility so they can take possession of the equipment. Accordingly, the time it takes
for customers to complete a project, which corresponds to when the Company is able to recognize revenue, is driven by numerous factors
including: (i) the large number of first-time participants interested in the indoor cannabis cultivation business; (ii) the complexities
and uncertainties involved in obtaining state and local licensure and permitting; (iii) local and state government delays in approving
licenses and permits due to lack of staff or the large number of pending applications, especially in states where there is no cap on
the number of cultivators; (iv) the customer’s need to obtain cultivation facility financing; (v) the time needed, and coordination
required, for our customers to acquire real estate and properly design and build the facility (to the stage when climate control systems
can be installed); (vi) the large price tag and technical complexities of the climate control and air sanitation system; (vii) the availability
of power; and (viii) delays that are typical in completing any construction project. Further, based on the current economic climate,
the uncertainty regarding the COVID-19 virus, and the Company’s recent cost cutting measures, there is no assurance that the Company
will be able to fulfill its backlog, and the Company may experience contract cancellations, project scope reductions and project delays.
As
of December 31, 2021, the Company’s remaining performance obligations, or backlog, was $10,818,000,
of which $411,000,
or 4%,
was attributable to customer contracts for which the Company has only received an initial advance payment to cover the allocated value
of the Company’s engineering services (“engineering only paid contracts”). There is the risk that the equipment portion
of these engineering only paid contracts will not be completed or will be delayed. The reasons include the customer being dissatisfied
with the quality or timeliness of the Company’s engineering services, delay or abandonment of the project because of the customer’s
inability to obtain project financing or licensing, or other reasons such as a challenging business climate including an overall post-COVID-19
economic downturn or change in business direction. After the customer has made an advance payment for a portion of the equipment to be
delivered under the contract (“partial equipment paid contracts”), the Company is typically better able to estimate the timing
of revenue recognition since the risks and delays associated with licensing, permitting and project funding are typically mitigated once
the initial equipment payment is received. There is significant uncertainty regarding the timing of the Company’s recognition of
revenue on its remaining performance obligations, and there is no certainty that these will result in actual revenues. The backlog at
December 31, 2021, includes booked sales orders of $1,663,000 from several customers that the Company does not expect to be realized
until 2023, if at all. Given the present economic uncertainty arising from the impact of the novel coronavirus COVID-19, the Company
believes that several of its current contracts may be delayed or canceled.
The
remaining performance obligations expected to be recognized through 2023 are as follows:
Schedule
of Remaining Performance Obligations Expected to be Recognized
| |
2022 | | |
2023 | | |
Total | |
Remaining performance obligations related to engineering only
paid contracts | |
$ | - | | |
$ | 411,000 | | |
$ | 411,000 | |
Remaining performance obligations related to partial
equipment paid contracts | |
| 9,155,000 | | |
| 1,252,000 | | |
| 10,407,000 | |
Total remaining performance obligations | |
$ | 9,155,000 | | |
$ | 1,663,000 | | |
$ | 10,818,000 | |
Product
Warranty
The
Company warrants the products that it manufactures for a warranty period equal to the lesser of 12 months from start-up or 18 months
from shipment. The Company’s warranty provides for the repair, rework, or replacement of products (at the Company’s option)
that fail to perform within stated specification. The Company’s third-party suppliers also warrant their products under similar
terms, which are passed through to the Company’s customers.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
The
Company assesses the historical warranty claims on its manufactured products and, since 2016, warranty claims have been approximately
1% of annual revenue generated on these products. Based on the Company’s warranty policy, an accrual is established at 1% of the
trailing 18 months revenue. The Company continues to
assess the need to record a warranty reserve at the time of sale based on historical claims and other factors. As of December 31, 2021,
and December 31, 2020, the Company had an accrued warranty reserve amount of $186,605
and $173,365,
respectively, which are included in accounts payable and accrued liabilities on the Company’s consolidated balance sheets.
Cost
of Sales
Cost
of sales includes product costs (material, direct labor and overhead costs), shipping and handling expense, outside engineering costs,
engineering, project management and service salaries and benefits, client visits and warranty.
Concentrations
Three
customers accounted for 24%,
10%
and 10%
of the Company’s revenue for the year ended December 31, 2021. Three customers accounted for 28%,
11%
and 10%
of the Company’s revenue for the year ended December 31, 2020.
The
Company’s accounts receivable from two customers made up 68%
and 23%,
respectively, of the total balance as of December 31, 2021. The Company’s accounts receivable from two customers made up 48%,
and 38%,
respectively, of the total balance as of December 31, 2020.
Three
suppliers accounted for 29%,
11%
and 10%
of the Company’s purchases of inventory for the year ended December 31, 2021, and three suppliers accounted for 27%,
25%
and 12%
of the Company’s purchases of inventory for the year ended December 31, 2020.
Product
Development
The
Company expenses product development costs as incurred. Internal product development costs are expensed as incurred, and third-party
product developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. For the
years ended December 31, 2021 and December 31, 2020, the Company incurred $469,703
and $390,229,
respectively, on product development.
Accounting
for Share-Based Compensation
The
Company recognizes the cost resulting from all share-based compensation arrangements, including stock options, restricted stock awards
and restricted stock units that the Company grants under its equity incentive plan in its consolidated financial statements based on
their grant date fair value. For awards subject to service conditions, compensation expense is recognized over the vesting period on
a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are
recognized ratably from the service inception date to the vesting date for each tranche, based on the probability of vesting. The probability
of awards with future performance conditions is evaluated each reporting period and compensation expense is adjusted based on the probability
assessment.
Awards
are considered granted, and the service inception date begins, when mutual understanding of the key terms and conditions of the award
between the Company and the recipient has been established. For awards that provide discretion to adjust the amount of the award, the
service inception date for such awards could precede the grant date as a mutual understanding of the key terms and conditions of the
award between the Company and the recipient has not yet been established. For awards in which the service inception date precedes the
grant date, compensation cost is accrued beginning on the service inception date.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
On
February 16, 2021, the Company’s Board of Directors (the “Board”) approved annual incentive compensation awards
to certain employees payable in non-qualified stock options, based on the Company’s performance and each employee’s contributions
to such performance for the 2020 year. The non-qualified stock options were granted, were not subject to an additional service requirement
and were immediately vested at the date of the grant. The final amount of the annual incentive compensation award, and number of non-qualified
stock options granted, were determined, and communicated to the employees. The estimated compensation expense of $128,434
related to the 2020 incentive awards was accrued
as of December 31, 2020. Since such incentive awards were settled in non-qualified stock options, the accrued compensation expense was
classified as a current liability until the number of non-qualified stock options was fixed pursuant to a grant by the Board. At that
time, the incentive awards of $128,434
became equity-classified.
For
the year ended December 31, 2021, $83,625
was recorded in respect of the 2021 annual
incentive compensation awards. The final amount of the awards was approved by the Compensation Committee and Board of Directors on
March 16, 2022. The number of non-qualified stock options to be granted will be determined on April 1, 2022, and communicated
to the employees. The estimated expense was accrued as accrued equity compensation at December 31, 2021.
The
grant date fair value of stock options is based on the Black-Scholes Model. The Black-Scholes Model requires judgmental assumptions including
volatility and expected term, both based on historical experience. The risk-free interest rate is based on U.S. Treasury interest rates
whose term is consistent with the expected term of the option.
The
grant date fair value of restricted stock and restricted stock units is based on the closing price of the underlying stock on the date
of the grant.
The
Company has elected to reduce share-based compensation expense for forfeitures as the forfeitures occur since the Company does not have
historical data or other factors to appropriately estimate the expected employee terminations and to evaluate whether particular groups
of employees have significantly different forfeiture expectations.
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 $324,405
and $405,617
for the years ended December 31, 2021 and 2020,
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, 2021 and 2020:
Schedule
of Share-based Compensation Costs
| |
For
the Years Ended
December
31, | |
| |
2021 | | |
2020 | |
Share-based compensation expense included in: | |
| | | |
| | |
Cost of revenue | |
$ | 17,331 | | |
$ | 31,006 | |
Advertising and marketing expenses | |
| 7,938 | | |
| 8,333 | |
Product development costs | |
| 11,025 | | |
| 21,882 | |
Selling, general and administrative expenses | |
| 288,111 | | |
| 344,396 | |
Total share-based compensation expense included
in consolidated statement of operations | |
$ | 324,405 | | |
$ | 405,617 | |
Income
Taxes
The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company
determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets
and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change
in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
The
Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized.
In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company
determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company
would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The
Company records uncertain tax positions on the basis of a two-step process in which: (i) the Company determines whether it is more likely
than not that the tax positions will be sustained on the basis of the technical merits of the position, and (ii) for those tax positions
that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more likely
than not to be realized upon ultimate settlement with the related tax authority.
Basic
and Diluted Net Loss per Common Share
Basic
income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average
number of common shares outstanding during the period without consideration of common stock equivalents. Diluted net income (loss)
per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding and
potentially dilutive common stock equivalents, including stock options, warrants and restricted stock units and other equity-based
awards, except in periods when losses are reported where the effect of the common stock equivalents would be antidilutive. Potential
common stock equivalents consist of common stock issuable upon exercise of stock options and warrants and the vesting of restricted
stock units using the treasury method. As of December 31, 2021, and December 31, 2020, 115,684
and 194,757 potential common share equivalents from Series B Preferred Stock warrants and options, respectively, were excluded from the diluted EPS
calculations as their effect is anti-dilutive.
Commitments
and Contingencies
In
the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its
business, that cover a wide range of matters, including, among others, customer disputes, government investigations and tax matters.
An accrual for a loss contingency is recognized when it is probable that an asset had been impaired, or a liability had been incurred
and the amount of loss can be reasonably estimated.
Other
Risks and Uncertainties
To
achieve profitable operations, the Company must successfully develop, manufacture and market its products. There can be no assurance
that any such products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that
such products will be successfully marketed. These factors could have a material adverse effect upon the Company’s financial results,
financial position, and future cash flows.
The
Company is subject to risks common to similarly-situated companies including, but not limited to, general economic conditions, its customers’
operations and access to capital, and market and business disruptions including severe weather conditions, natural disasters, health
hazards, terrorist activities, financial crises, political crises or other major events, or the prospect of these events, new technological
innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of
market acceptance of products, product liability, and the need to obtain additional financing. As a supplier of services and equipment
to cannabis cultivators, the Company is also subject to risks related to the cannabis industry. Although certain states have legalized
medical and/or recreational cannabis, U.S. federal laws continue to prohibit marijuana in all its forms as well as its derivatives. Any
changes in the enforcement of U.S. federal laws may adversely affect the implementation of state and local cannabis laws and regulations
that permit medical or recreational cannabis and, correspondingly, may adversely impact the Company’s customers. The Company’s
success is also dependent upon its ability to raise additional capital and to successfully develop and market its products.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
Segment
Information
Operating
segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly
by the Company’s senior management team in deciding how to allocate resources and in assessing performance. The Company has one
operating segment that is dedicated to the manufacture and sale of its products.
Recently
Issued Accounting Pronouncements
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50),
Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic
815-40), which requires an entity to treat a modification of an equity-classified warrant that does not cause the warrant to become
liability-classified as an exchange of the original warrant for a new warrant. This guidance applies whether the modification is structured
as an amendment to the terms and conditions of the warrant or as termination of the original warrant and issuance of a new warrant. An
entity should measure the effect of a modification as the difference between the fair value of the modified warrant and the fair value
of that warrant immediately before modification. The amendments in this Update are effective for all entities for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to
modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities,
including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance
should be applied as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact
the adoption of the standard will have on the Company’s financial position or results of operations.
In
August 2020, the FASB issued ASU 2020-06: “Accounting for Convertible Instruments and Contracts In An Entity’s Own Equity”
(“ASU 2020-06”) ASU 2020-06 simplifies the accounting for certain convertible instruments by removing the separation
models for convertible debt with a cash conversion feature and for convertible instruments with a beneficial conversion feature. As a
result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded
conversion features. Additionally, ASU 2020-06 amends the diluted earnings per share calculation for convertible instruments by
requiring the use of the if-converted method. The treasury stock method is no longer available. Entities may adopt the ASU 2020-06
using either a full or modified retrospective approach, and it is effective for interim and annual reporting periods beginning after
December 15, 2021. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2020. The Company
early adopted ASU 2020-06 on January 1, 2021.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, which
simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also
improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12
is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company’s adoption of
this ASU has not had a material impact on its consolidated results of operations, cash flows and financial position.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated
to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Note
3 – Leases
The
Boulder Facility Lease
On
June 27, 2017, the Company entered into a lease for its manufacturing and office space (the “Boulder Facility Lease”), which
commenced September 29, 2017 and continued through August 31, 2022. The Company occupied a 12,700
square foot space for $12,967
per month until
January 1, 2018. On January 2, 2018, the leased
space was expanded to 18,952
square feet, and the monthly rental rate increased
to $18,979
until
August 31, 2018. Beginning September 1, 2018 and 2019,
the monthly rent increased to $19,549
and $20,135,
respectively. On
each September 1 through the end of the lease, the monthly rent was to be increased by 3%.
Pursuant to the Boulder Facility Lease, the Company made a security deposit of $51,000
on July 31, 2017. The deposit of $1,600
paid to the previous owner of the property was
forwarded to the current landlord. The Company had the option to renew the Boulder Facility Lease for an additional five years. Additionally,
the Company was to pay the actual amounts for property taxes, insurance, and common area maintenance. The Boulder Facility Lease agreement
contained customary events of default, representations, warranties, and covenants.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
Under
the Boulder Facility Lease, the landlord agreed to pay the Company or the Company’s contractors for tenant improvements made by
the Company not to exceed $100,000,
which were used for normal tenant improvements. The Company determined that these improvements were not specialized and could be utilized
by a subsequent tenant and, as such, the improvements were considered assets of the lessor. As of January 1, 2019, the unamortized amount
of tenant improvement allowance of $81,481
was treated as a reduction in measuring the right-of-use
asset.
Upon
adoption of ASC 842 on January 1, 2019, the Company recognized its Boulder Facility Lease on the balance sheet as an operating lease
right-of-use asset in the amount of $714,416
and as a lease liability of $822,374.
The lease liability was initially measured as the present value of the unpaid lease payments at adoption and the ROU asset was initially
measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease adoption
date, plus any initial direct costs incurred less any lease incentives received. The renewal option to extend the Boulder Facility Lease
was not included in the right-of-use asset or lease liability, as the option was not reasonably certain to be exercised. The Company
regularly evaluated the renewal option and if it is reasonably certain of exercise, the Company would have included the renewal period
in its lease term.
During
2020, the Company entered into an agreement with its landlord to apply its rent deposit of $52,600
to rent payments due during the period. The
deposit required on the lease will be reduced to approximately $32,000 and will be payable in 12 monthly installments from January through
December of 2021. Further, the landlord also agreed to defer payment of fifty percent of the three months of lease payments (base rent
only) for the period July to September 2020. The deferred lease payments amount to approximately $30,000 and were payable in 12 monthly
installments from January to December 2021.
On
April 30, 2021, the Company entered into an agreement to sublease approximately 6,900
square feet of its office and manufacturing space.
The sublease commenced on April 30, 2021 and was to continue on a month-to-month basis until either party gives 30-days’ notice.
Subject to the provision to terminate on 30-days’ notice, the sublease was to end upon termination of the Company’s Boulder
Facility Lease Agreement with the landlord. Rent was initially charged at $5,989
per month and increased to $11,978
per month effective July 1, 2021. The Sublessor
was also responsible for its prorated share of utilities and other related costs. This new sublease did not change the Company’s
legal relationship or financial obligations with its landlord. Consequently, the Company continued to be responsible for all the remaining
financial obligations under the Boulder Facility Lease agreement with the landlord. Accordingly, entering into the new sublease did not
impact the carrying value of the Company’s operating lease right of use asset or operating lease liability. Moreover, after an
initial two-month transitional period, the rental rate per square foot under the new sublease was identical to the rental rate per square
foot for the Company’s existing lease with its landlord which indicated that there was no impairment to the carrying value of the
Company’s operating lease right of use asset.
On
July 27, 2021, the Company entered into a Boulder Facility Lease Termination Agreement with its landlord for the 18,952
square foot office and manufacturing facility
in Boulder, CO, which was previously contracted to expire on August 31, 2022. The termination provided for the Company to vacate the
facility no later than November 15, 2021. In exchange for early termination from its lease obligation, the Company paid a nominal lease
termination fee on July 28, 2021. The termination was also contingent upon a successor tenant executing a new lease with the landlord
and the Company paying the remaining deferred rent and security deposit amounts. The landlord and successor tenant entered into a lease
agreement on July 27, 2021. The remaining deferred rent and security deposit was be paid in conjunction with the final rent payment.
As a result of the lease termination, effective November 15, 2021, the Company removed the outstanding balances relating to the Boulder
Facility Lease right of use asset and lease liability from its balance sheet and recorded a $15,832
gain on lease extinguishment which has been recognized
in other income.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
The
New Facility Lease
On
July 28, 2021, the Company entered into an agreement to lease 11,491
square feet of office and manufacturing space
(the “New Facility Lease”), in Louisville, CO. The
New Facility lease commenced on November 1, 2021 and continues through January 31, 2027. From
November 2021 through January 2022, the monthly rent was abated. Beginning February 2022, the monthly rent is $10,055
and will increase by 3%
annually every November through the end of the New Facility Lease term. Pursuant to the New Facility Lease, the Company made a security
deposit of $14,747.
The Company has the option to renew the New Facility Lease for an additional five years. Additionally, the Company pays the actual amounts
for property taxes, insurance, and common area maintenance. The New Facility Lease agreement contains customary events of default, representations,
warranties, and covenants.
Upon
commencement of the New Facility Lease, the Company recognized on the balance sheet an operating lease right-of-use asset and lease liability
in the amount of $582,838.
The lease liability was initially measured as the present value of the unpaid lease payments at commencement and the ROU asset was initially
measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement
date, plus any initial direct costs incurred less any lease incentives received. The renewal option to extend the New Facility Lease
is not included in the right-of-use asset or lease liability, as the option is not reasonably certain to be exercised. The Company regularly
evaluates the renewal option and when it is reasonably certain of exercise, the Company will include the renewal period in its lease
term.
The
Company’s operating and finance right-of-use assets and lease liabilities are as follows:
Schedule
of Lease Cost
| |
As
of December 31,
2021 | | |
As
of December 31,
2020 | |
Operating lease right-of-use asset | |
$ | 565,877 | | |
$ | 343,950 | |
Operating lease liability, current | |
$ | 100,139 | | |
$ | 266,105 | |
Operating lease liability, long-term | |
$ | 486,226 | | |
$ | 169,119 | |
| |
| | | |
| | |
Remaining lease term | |
| 5.1
years | | |
| 1.7
years | |
Discount rate | |
| 3.63 | % | |
| 5.00 | % |
Cash
paid during the year for amounts included in the measurement of lease liabilities is as follows:
| |
For
the Year Ended December 31, | |
| |
2021 | | |
2020 | |
Operating cash outflow from operating lease | |
$ | 257,961 | | |
$ | 160,934 | |
Future
annual minimum under non-cancellable operating leases as of December 31, 2021 were as follows:
Schedule
of Future Annual Minimum Lease Payments
Years ended December
31, | |
| |
2022 | |
$ | 111,204 | |
2023 | |
| 124,897 | |
2024 | |
| 128,643 | |
2025 | |
| 132,503 | |
2026 | |
| 136,473 | |
Thereafter | |
| 11,654 | |
Total minimum lease payments | |
| 645,374 | |
Less
imputed interest | |
| (59,009 | ) |
Present
value of minimum lease payments | |
$ | 586,365 | |
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
Note
4 – Inventory
Inventory
consisted of the following:
Schedule
of Inventory
| |
December
31,
2021 | | |
December
31,
2020 | |
Finished goods | |
$ | 272,199 | | |
$ | 201,778 | |
Work in progress | |
| 1,050 | | |
| 4,231 | |
Raw materials | |
| 196,456 | | |
| 214,145 | |
Allowance for excess & obsolete inventory | |
| (91,379 | ) | |
| (93,045 | ) |
Inventory, net | |
$ | 378,326 | | |
$ | 327,109 | |
Overhead
expenses of $13,589
and $17,974
were included in the inventory balance as of
December 31, 2021 and 2020, respectively.
Note
5 – Property and Equipment
Property
and equipment consisted of the following:
Schedule
of Property and Equipment
| |
December
31,
2021 | | |
December
31,
2020 | |
Furniture and equipment | |
$ | 274,472 | | |
$ | 398,422 | |
Vehicles | |
| 15,000 | | |
| 15,000 | |
Leasehold improvements | |
| - | | |
| 215,193 | |
| |
| 289,472 | | |
| 628,615 | |
Accumulated depreciation | |
| (212,126 | ) | |
| (480,883 | ) |
Property and equipment, net | |
$ | 77,346 | | |
$ | 147,732 | |
Depreciation
expense amounted to $64,937 for
the year ended December 31, 2021, of which $6,109
was allocated to cost of revenue, $1,527
was allocated to inventory, with the remainder
recorded as selling, general and administrative expense. Depreciation expense amounted to $119,524
for the year ended December 31, 2020, of which
$5,115
was allocated to cost of revenue, $1,279
was allocated to inventory, with the remainder
recorded as selling, general and administrative expense.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
Note
6 – Intangible Assets
Intangible
assets consisted of the following:
Schedule
of Intangible Assets
| |
As
of December 31, | |
| |
2021 | | |
2020 | |
Patents | |
$ | - | | |
$ | 8,110 | |
Website development costs | |
| 22,713 | | |
| 22,713 | |
Trademarks | |
| 1,830 | | |
| 1,830 | |
| |
| 24,543 | | |
| 32,653 | |
Accumulated amortization | |
| (22,713 | ) | |
| (25,426 | ) |
Intangible assets, net | |
$ | 1,830 | | |
$ | 7,227 | |
Patents
when issued are amortized over 14
years, and web site development costs are amortized
over five
years. Trademarks are not amortized since they
have an indefinite life. Amortization expense for intangibles amounted to $434
and $579
for the years ended December 31, 2021 and 2020,
respectively. During the years ended December 31, 2021 and 2020, the Company wrote-off $8,110
and $4,124,
respectively, related to patents that had been abandoned.
Note
7 – Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities consisted of the following:
Schedule
of Accounts Payable and Accrued Liabilities
| |
December
31,
2021 | | |
December
31,
2020 | |
Accounts payable | |
$ | 616,056 | | |
$ | 918,639 | |
Sales commissions payable | |
| 27,592 | | |
| 48,263 | |
Accrued payroll liabilities | |
| 322,873 | | |
| 288,071 | |
Product warranty accrual | |
| 186,605 | | |
| 173,365 | |
Other accrued expenses | |
| 192,463 | | |
| 356,623 | |
Total | |
$ | 1,345,589 | | |
$ | 1,784,961 | |
The
December 31, 2020 accounts payable and other accrued expenses included $402,651
relating to a one-time warranty issue experienced
on three customers’ projects. The expenses related to parts and labor to repair units that had been delivered to these customers
prior to year-end. Since
the issue was limited to these three projects and is not anticipated to reoccur in the future, we have made no adjustment to the ongoing
1% warranty reserve that we accrue on all sales.
Note
8 – Note Payable and Accrued Interest
On
February 10, 2021, the Company entered into a note payable with its current bank in the principal amount of $514,200,
for working capital purposes.
The
loan amount bears interest at 1%
and is due on February 5, 2026. The loan may be repaid in advance without penalty. The loan is also potentially forgivable in full provided
proceeds are used for payment of payroll expenses, rent, utilities and mortgage interest and certain other terms and conditions are met.
If any portion of the loan is not forgiven, payments will commence 10 months following the end of the 24-week deferral period. The loan
has typical default provisions, including for change of ownership, general lender insecurity as to repayment, non-payment of amounts
due, defaults on other debt instruments, insolvency, dissolution or termination of the business as a going concern and bankruptcy.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
During
the year ended December 31, 2021, interest of $2,832
was accrued, respectively, in respect of this
note payable.
On
November 30, 2021, the Company received notice from the bank that its loan received on February 10, 2021, in the principal amount of
$514,200 and
all accrued interest of $2,832,
was fully forgiven. This gain on loan forgiveness was recorded as Other Income in the Statement of Operations during the year.
On
April 22, 2020, the Company entered into a note payable with its current bank in the principal amount of $554,000,
for working capital purposes.
The
loan amount was subject to interest at 1%
and was initially due on April 20, 2022. Subsequently, the term of the loan was potentially to be extended to April 20, 2025. The loan
could be repaid in advance without penalty. The loan was also potentially forgivable in full provided proceeds were used for payment
of payroll expenses, rent, utilities and mortgage interest and certain other terms and conditions were met. The loan had typical default
provisions, including for change of ownership, general lender insecurity as to repayment, non-payment of amounts due, defaults on other
debt instruments, insolvency, dissolution or termination of the business as a going concern and bankruptcy.
During
the year ended December 31, 2020, interest of $3,203
was accrued in respect of this note payable.
On
December 11, 2020, the Company received notice from the bank that its loan received on April 22, 2020, in the principal amount of $554,000
and all accrued interest of $3,203,
was fully forgiven. This gain on loan forgiveness was recorded as Other Income in the Statement of Operations during the year.
Note
9 – Temporary Equity
Series
B Redeemable Convertible Preferred Stock
On
September 28, 2021, the Company sold to an institutional investor (the “Investor”), 3,300
shares of Series B Convertible Preferred Stock,
stated value $1,000
per share, currently convertible into 385,965
shares of common stock, and a warrant to
purchase up to 192,982
shares of common stock (“Investor Warrant”),
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, following completion
of an amendment to the certificate of incorporation to increase the number of authorized shares of common stock and redeem the outstanding
Series A Preferred Stock, as required by the Investor.
The
Series B Preferred Stock has an annual dividend of 8%
and has an initial common stock conversion price of $8.55.
The conversion rate is 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, is sold at a price below the then conversion price.
The
Series B Preferred Stock is mandatorily convertible on the third anniversary of its issuance. All conversions of the Series B Preferred
Stock are subject to a blocker provision of 4.99%.
The
Company will reserve 200%
of the number of shares of common stock into which the Series B Preferred Stock and Investor Warrant may be converted or exercised.
The
Series B Preferred Stock is redeemable at the demand by the holders, at 120%
of the stated value of $1,000,
at any time after the earlier of (x) the consummation by the Company of a qualified offering, or (y) the first anniversary of the issuance
of the Series B Preferred Shares.
The
Investor was granted a right of participation in future private offerings and has agreed to a 180-day lock-up in connection with a qualified
offering. A “qualified offering” is the first public offering after the sale of the Series B Preferred Stock in which the
common stock of the Company is listed on a national exchange.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
The
Investor Warrant may be exercised until September
28, 2024, at an initial exercise price of $9.45,
subject to adjustment. The Investor Warrant provides for cashless exercise if the underlying shares of common stock are not registered
for resale, and all issuances of common stock upon exercise are subject to a 4.99%
blocker provision.
The
Company granted the Investor registration rights for the shares of common stock underlying the Series B Preferred Stock and the Investor
Warrants. The Company must file a registration statement no later than 180 days after the date of a qualified offering and have it effective
in 45 days if there is no Securities and Exchange Commission (“SEC”) review, or if there is a review, within 75 days. The
Company must keep the registration statement effective until all the shares registered have been sold or may be sold under Rule 144,
without regard to volume and holding period restrictions.
The
Company engaged ThinkEquity LLC (“ThinkEquity”) as its placement agent and paid a total cash fee of 9%,
or $270,000,
and its expenses, less prepaid expenses, and issued to ThinkEquity and its designees warrants to purchase up to an aggregate of 34,737
shares of common stock. The exercise price of
the warrant initially will be $10.40
per share, subject to typical adjustment provisions,
and exercisable for a term of three years. The warrant has registration rights.
Probability
of Redemption: As it was considered probable the Series B Preferred stock will become redeemable outside of the Company’s control,
the Series B Preferred stock needs to be disclosed as temporary equity and restated at the balance sheet date at its redemption value
of 120%
the stated value of $1,000
per share, or $3,960,000.
As a result, the Company has adjusted the carrying value of the Series B Preferred Stock to its redemption value of $3,960,000
and recorded a $2,262,847
non-cash redemption value adjustment. This redemption
value adjustment is treated as similar to a dividend on the preferred stock for GAAP purposes; accordingly, the redemption value adjustment
is 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 does not have a balance of retained earnings, the
redemption value adjustment was recorded against additional paid-in capital.
Note
10 – Related Party Agreements and Transactions
Agreements
and Transaction with Company’s Co-Founders
Consulting
Agreement
On
January 7, 2021, the Company entered into a consulting agreement with RSX Enterprises, Inc. (RSX), a company controlled by Mr. James
R. Shipley, a director of the Company. RSX provided consulting services to the Company focused on product offerings, engineering requirements,
key customer marketing outreach, and related matters, as mutually determined by the Company and RSX. The Company paid a monthly consulting
fee of $6,500
for up to 50 hours per month for the various
consulting activities undertaken and provide for reimbursement of expenses. The total amount paid on this agreement was $19,500.
The term of the agreement was set for three months. Any intellectual property developed by RSX will belong to the Company, and the contract
provides for typical indemnification obligations and confidentiality provisions.
The
company entered into a manufacturer representative agreement with RSX Enterprises in March 2021 to become a non-exclusive representative
for the Company to assist in marketing and soliciting orders. James R. Shipley, a current director of the Company, has a significant
ownership interest in RSX.
Under
the manufacturer representative agreement, RSX will act as a non-exclusive representative for the Company within the United States, Canada
and Mexico and may receive a commission for qualified customer leads. The agreement has an initial term through December 31, 2021, with
automatic one-year renewal terms unless prior notice is given 90 days prior to each annual expiration. During the year ended December
31, 2021, the Company paid $42,639
in commissions under this agreement.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
Note
11 – Commitments and Contingencies
Litigation
The
Company settled a litigation with a former employee effective March 30, 2021. While the Company disputed the merits of the claims, the
Company agreed to issue an aggregate of 6,667 shares of common stock of the Company, as part of the settlement. These shares were issued
on April 8, 2021, as “restricted securities,” subject to a lock-up agreement of six months, without registration rights,
and pursuant to a private placement exemption. The settlement agreement also included mutual releases and no admission of liability.
The cost to the Company of this settlement, $107,000, in total, has been recognized in full in Other Expenses during the year ended December
31, 2021. The issuance of the 6,667 shares of common stock (valued at $67,000) has been recognized in common stock issued during the
year ended December 31, 2021.
From
time to time, in the normal course of its operations, the Company is subject to litigation matters and claims. Litigation can be expensive
and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict, and the Company’s
view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as
incurred. The Company records a liability for contingent losses when it is both probable that a liability has been incurred and the amount
of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the
Company’s operations or its financial position, liquidity or results of operations.
Other
Commitments
In
the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors,
business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s
breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties.
In addition, the Company has entered into indemnification agreements with its directors and certain of its officers and employees that
will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status
or service as directors, officers, or employees. The Company maintains director and officer insurance, which may cover certain liabilities
arising from its obligation to indemnify its directors and certain of its officers and employees, and former officers, directors, and
employees of acquired companies, in certain circumstances.
Note
12 – Preferred and Common Stock
Preferred
Stock
As
of December 31, 2021, and December 31, 2020, the Company had 150,000,000
shares of Preferred Stock authorized at a $0.00001
par value.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
A
further discussed in Note 16 Subsequent Events below, effective January 17, 2022, the Board of Directors approved a reduction
in the number of authorized shares of preferred stock from 150,000,000
to 25,000,000
shares of preferred stock.
Series
A Preferred Stock
As
of December 31, 2021, and December 31, 2020, the Company has 0
and 42,030,331
shares of Series A Preferred Stock issued and
outstanding, respectively.
Effective
November 4, 2021, the Company redeemed all 42,030,331
shares of Series A Preferred Stock issued and
outstanding for the issuance of 2,802
shares of common stock.
The
$20,595
excess in the fair value of the 2,802
shares of common stock ($21,015)
issued over the book value of the 42,030,331
shares of Series A Preferred Stock ($420)
redeemed has been accounted for as a deemed dividend to Series A Preferred shareholders.
Series
B Preferred Stock
As
of December 31, 2021, and December 31, 2020, the Company has 3,300
and 0
shares of Series B Preferred Stock issued and
outstanding, respectively.
As
further described in Note 9 – Temporary Equity above, on September 28, 2021, the Company entered into a Securities
Purchase Agreement (“Purchase Agreement”) with an institutional investor (the “Investor”), pursuant to which
the Investor purchased from the Company 3,300
shares of Series B Preferred Stock with a stated
value of $1,000
per share, or $3,300,000
of stated value in the aggregate (“Series
B Preferred Stock”), and a warrant to purchase up to 192,982
shares of common stock of the Company (“Investor
Warrant”), for an aggregate purchase price of $3,000,000
(“Consideration”).
Common
Stock
As
of December 31, 2021, and December 31, 2020, the Company was authorized to issue 850,000,000
and 350,000,000
shares of common stock, respectively, with a
par value of $0.00001 per
share.
Effective
November 3, 2021, the Company increased the number of authorized shares of common stock from 350,000,000
to 850,000,000.
As
further discussed in Note 16 – Subsequent Events below, effective January 17, 2022, the Company’s Board of
Directors approved a reduction in the number of authorized shares of common stock from 850,000,000
to 200,000,000
shares of common stock.
As
of December 31, 2021, and December 31, 2020, the Company has 1,600,835 and 1,576,844
shares of common stock issued and outstanding,
respectively.
During
the year ended December 31, 2021, the Company issued shares of its common stock as follows:
|
● |
On
April 8, 2021, the Company issued 6,667
shares of common stock, valued at $67,000
as part of a legal settlements as further
described in Note 11 – Commitments and Contingencies – Litigation above. |
|
|
|
|
● |
On
November 4, 2021, the Company issued 2,802
shares of common stock, valued at $21,015
to redeem 42,303,331
shares of Series A Preferred Stock as further
described in Note 12 – Preferred and Common Stock – Series A Preferred Stock above. |
|
|
|
|
● |
On
November 24, 2021, the Company issued 6,803
shares of its common stock, valued at
$50,000,
to the CEO, pursuant to a new Executive Employment Agreement, under the 2021 Equity Incentive Plan as further described in Note
14 Equity Incentive Plans below. |
|
|
|
|
● |
On
December 30, 2021, the Company issued 7,719
shares of its common stock, valued at
$39,368 in
settlement of $67,448 dividends
that had accrued on the Series A Preferred Stock.
The $28,080 gain
on settlement of this related party liability has been recognized in additional paid in capital |
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
Consequently,
effective December 31, 2021, 1,600,835
shares of common stock were issued and outstanding.
During
the year ended December 31, 2020, the Company did not issue any shares of its common stock in a private, non-registered transaction.
During
the year ended December 31, 2020, the Company issued shares of its common stock under the 2017 Equity Plan as follows:
| ● | 6,667
shares to an employee in settlement of certain RSUs that vested on December 31, 2019. |
| | |
| ● | 3,733
shares pursuant to a special incentive stock bonus approved by the Board for the period ended
December 31, 2019. |
| | |
| ● | 45,000
shares in settlement of RSUs to a former employee after taking measures to mitigate the Company’s
exposure to penalties and liability for the failure to properly withhold income taxes, as
further discussed in Note 11 – Commitments and Contingencies, Litigation above. |
Consequently,
effective December 31, 2020, 1,576,844 shares of common stock were issued and outstanding
Note
13 – Outstanding Warrants
The
following table summarizes information with respect to outstanding warrants to purchase common stock during the years ended December
31, 2021 and 2020:
Schedule
of Outstanding Warrants to Purchase Common Stock
| | |
| | |
Weighted | | |
Weighted | | |
| |
| | |
| | |
Average | | |
Average | | |
Aggregate | |
| | |
Number | | |
Exercise | | |
Remaining Life | | |
Intrinsic | |
| | |
Outstanding | | |
Price | | |
In
Months | | |
Value | |
| | |
| | |
| | |
| | |
| |
Outstanding at
December 31, 2019 | | |
| 260,727 | | |
$ | 36.00 | | |
| 9 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | |
Issued | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
Exercised | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
Expired | | |
| (210,310 | ) | |
$ | (34.50 | ) | |
| - | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | |
Outstanding at December 31,
2020 | | |
| 50,417 | | |
$ | 37.50 | | |
| 6 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | |
Issued | | |
| 222,719 | | |
$ | 9.59 | | |
| 36 | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
Exercised | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
Expired | | |
| (50,417 | ) | |
$ | 37.50 | | |
| - | | |
$ | 0 | |
| | |
| | | |
| | | |
| | | |
| | |
Outstanding
at December 31, 2021 | | |
| 227,719 | | |
$ | 9.59 | | |
| 33 | | |
$ | 0 | |
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
The
following table summarizes information about warrants outstanding at December 31, 2021.
Schedule
of Warrants Outstanding
| | |
Warrants | | |
Weighted Average | |
Exercise price | | |
Outstanding | | |
Months Outstanding | |
| | |
| | |
| |
9.45 | | |
| 192,982 | | |
| 33 | |
| | |
| | | |
| | |
10.40 | | |
| 34,737 | | |
| 33 | |
| | |
| 227,719 | | |
| 33 | |
Warrants
Issued to Investment Bank
Pursuant
to a certain agreement for services rendered in connection with the conversion of the Series 2 Convertible Notes, during the year ended
December 31, 2017, the Company issued to an investment bank or its designees a warrant (“Banker Warrant”) to purchase, at
an exercise price $52.50
per share, 3,333
shares of the Company’s common stock.
The Banker Warrants were fully vested on the date of issuance, were exercisable beginning December 20, 2017, and expired unexercised
on June 20, 2020.
Q1
2017 Warrants
In
March 2017, the Company issued 111,875
investment units, for aggregate gross proceeds
of $2,685,000,
or $24.00
per unit. Each
unit consisted of one hundred and fifty shares of the Company’s common stock and one hundred and fifty warrants for
the purchase of one share of the Company’s common stock (“Q1 2017 Warrants”);
however, one investor declined receipt of the warrant to purchase 3,125
shares of the Company’s common stock. Pursuant
to the Q1 2017 Warrants, the holder thereof may at any time on or after six months after the issuance date and on or prior to the close
of business on the date that is the third anniversary of the issuance date, purchase up to the number of shares of the Company’s
common stock as set forth in the respective warrant. The exercise price per share of the common stock under the Q1 2017 Warrants is $39.00,
subject to customary adjustments as provided in the warrant. Each Q1 2017 Warrant was callable at the Company’s option commencing
six months from the issuance date, provided the closing price of the Company’s common stock was $63.00
or greater for five
consecutive trading days. Commencing at any time
after the date on which such call condition was satisfied, the Company had the right, upon 30 days’ notice to the holder, to redeem
the warrant shares at a price of $1.50
per warrant share. The holder could have exercised
the warrant at any time (in whole or in part) prior to the redemption date at the exercise price. These
warrants expired unexercised in March 2020.
Q4
2017 Warrants
In
December 2017, the Company issued 98,227
investment units for aggregate proceeds of
$1,768,080,
or $18.00
per unit. Each
unit consisted of one hundred and fifty shares of the Company’s common stock and one hundred and fifty warrants for
the purchase of one share of the Company’s common stock (“Q4 2017 Warrants”).
The Q4 2017 Warrants had an exercise price of $30.00
per share, subject to customary adjustments as
provided in the warrant, and had a term of three years. The Q4 2017 Warrants were callable at the Company’s option, provided the
closing price of the Company’s common stock was $54.00
or greater for five
consecutive trading days. Commencing at any time
after the date on which the call condition is satisfied, the Company had the right, upon notice to the holders, to redeem the shares
of common stock underlying each warrant at a price of $1.50
per share, but such redemption could not occur
earlier than sixty-one (61) days following the date of the receipt of notice by the holder. The holder could exercise the warrant at
any time (in whole or in part) prior to the redemption date at the exercise price. These
warrants expired unexercised in December 2020.
CEA
Industries Inc.
Notes
to Consolidated Financial Statement
Q2
2018 Warrants
In
June 2018, the Company completed a private placement offering of investment units, with each
unit consisting of one share of the Company’s common stock and one Q2 2018 Warrant.
The Q2 2018 Warrants have an exercise price of $37.5
per share of the common stock underlying each
warrant, subject to customary adjustments as provided in the warrant. The
Q2 2018 Warrants are exercisable commencing July 1, 2018 until June 30, 2021.
The Q2 2018 Warrants are callable at the Company’s option, beginning on July 1, 2019 until the expiration thereof on June 30, 2021,
provided the closing price of the Company’s common stock is $60.00
(subject to adjustment as provided in the warrant)
or greater for five
consecutive trading days. Commencing at any time
after the date on which the call condition is satisfied, the Company has the right, upon notice to the holders, to redeem the shares
of common stock underlying each warrant at a price of $1.50
per share, but such redemption may not occur
earlier than sixty-one (61) days following the date of the receipt of notice by the holder. The holder may exercise the warrant (in whole
or in part) prior to the redemption date at the exercise price. These warrants expired unexercised in June 2021.
Q3
2021 Warrants
On
September 28, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which the investor
purchased from the Company 3,300
shares of convertible Series B Preferred Stock
with a stated value of $1,000
per share, or $3,300,000
of stated value in the aggregate, and a warrant
to purchase up to 192,982
shares of common stock of the Company (the “Q3
2021 Warrants”), for an aggregate purchase price of $3,000,000.
The warrant is exercisable until September 28, 2024, at an initial exercise price of $9.45,
subject to adjustment for stock splits, stock dividends and other typical adjustments and changes in capitalization, including mergers
and acquisitions and distribution of rights.
Warrants
Issued to Placement Agent
In
connection with the sale of the shares of convertible Series B Preferred described above, the Company issued 34,737
warrants to the placement agent and its designees
(the “Placement Agent Warrants”). Half of the warrants were issued on September 28, 2021, and the second half were issued
on November 3, 2021, and are exercisable until September 28, 2024 and November 3, 2024, respectively. The exercise price per share of
the placement agent warrants is $10.40,
subject to adjustment for stock splits, stock dividends and other typical adjustments and changes in capitalization, including mergers
and acquisitions and distribution of rights.
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:
Summary
of Non-vested Non-qualified Stock Option Activity