UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ___________ to ___________
Commission
file number
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☐ | |||
| Smaller reporting company | Emerging Growth Company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act):
Yes
☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| The Stock Market LLC | ||
| The Stock Market LLC |
As of November 15, 2021, the Company has shares of common stock issued and outstanding.
| 1 |
APPLIED UV, INC. & SUBSIDIARIES
INDEX TO FORM 10-Q
| Page # | |
| PART I - FINANCIAL INFORMATION | |
| Item 1. Financial Statements (Unaudited) | 3 |
| Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 | 3 |
| Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 | 4 |
| Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 | 5 |
| Condensed Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2021 and 2020 | 7 |
| Notes to Condensed Consolidated Financial Statements | 8 |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 29 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 35 |
| Item 4. Controls and Procedures | 35 |
| PART II - OTHER INFORMATION | |
| Item 1. Legal Proceedings | 37 |
| Item 1A. Risk Factors | 37 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 37 |
| Item 3. Defaults Upon Senior Securities | 37 |
| Item 4. Mine Safety Disclosures | 37 |
| Item 5.Other Information | 37 |
| Item 6. Exhibits | 37 |
| Signatures | 38 |
| 2 |
PART I
Item 1. Financial Statements
Applied UV, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
As of September 30, 2021 and December 31, 2020
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for doubtful accounts | ||||||||
| Inventory | ||||||||
| Vendor deposits | ||||||||
| Note receivable, related party | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total Current Assets | ||||||||
| Machinery and equipment, net of accumulated depreciation | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net of accumulated amortization | ||||||||
| Right of use asset | ||||||||
| Patents, net of accumulated amortization | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Deferred revenue | ||||||||
| Income tax payable | ||||||||
| Warrant liability | ||||||||
| Financing lease obligations | ||||||||
| Lease liability | ||||||||
| Payroll protection program loan | ||||||||
| Loan payable | ||||||||
| Total Current Liabilities | ||||||||
| Long-term Liabilities | ||||||||
| Financing lease obligations - less current portion | ||||||||
| Note payable-less current portion | ||||||||
| Lease liability-less current portion | ||||||||
| Payroll protection program loan-less current portion | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders' Equity | ||||||||
| Preferred stock, Series A Cumulative Perpetual, $par value, shares authorized, shares issued and outstanding as of September 30, 2021, and shares issued and outstanding as of December 31, 2020, $25 per share liquidation value | ||||||||
| Preferred stock, Series X, $par value, shares authorized, shares issued and outstanding as of September 30, 2021 and December 31, 2020 | ||||||||
| Common stock $par value, shares authorized;shares issued and outstanding as of September 30, 2021, and shares issued and outstanding as of December 31, 2020 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 3 |
Applied UV, Inc. and Subsidiaries
Unaudited Condensed Interim Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2021 and 2020 (Restated)
| Three Months Ended September 30, | Nine Months Ended September 30, 2020 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 (Restated- Note 13) | |||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Stock based compensation | ||||||||||||||||
| Selling, General and Administrative Expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Loss) | ||||||||||||||||
| Change in Fair Market Value | ( | ) | ||||||||||||||
| of Warrant Liability | ||||||||||||||||
| Forgiveness of paycheck protection program loan | ||||||||||||||||
| Other Income | ||||||||||||||||
| Total Other Income | ||||||||||||||||
| Loss Before Benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Benefit from Income Taxes | ( | ) | ( | ) | ||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss attributable to common stockholders: | ||||||||||||||||
| Dividends to preferred shareholders | ( | ) | ( | ) | ||||||||||||
| Net Loss attributable to common stockholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Basic and Diluted Loss Per Common Share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Shares Outstanding - basic and diluted | ||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
Applied UV, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity
For the Three and Nine Months Ended September 30, 2020 (Restated)
| Preferred Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||
| Series A Cumulative | Series X Voting | Common Stock | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid-In Capital | Retained Earnings (Accumulated Deficit) | Total Stockholders Equity | ||||||||||||||||||||||||||||
| Balance, January 1, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Net loss (Restated) | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2020 (Restated) | ||||||||||||||||||||||||||||||||||||
| Shares issued to Carmel, Milazzo & Feil LLP | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||
| Net loss (Restated) | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, June 30, 2020 (Restated) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued in public offering, net of costs | — | — | ||||||||||||||||||||||||||||||||||
| Shares issued to Carmel, Milazzo & Feil LLP | — | — | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 5 |
Applied UV, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity
For the Three and Nine Months Ended September 30, 2021
| Preferred Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||
| Series A Cumulative | Series X Voting | Common Stock | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid-In Capital | Retained Earnings (Accumulated Deficit) | Total Stockholder Equity | ||||||||||||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||
| Shares granted to settle previously recorded liability | — | — | ||||||||||||||||||||||||||||||||||
| Warrant liability recognized in connection with initial issuance of November offering (See Note 8) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Exercise of warrants | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued for acquisition | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Balance, March 31, 2021 | ( |
) | ||||||||||||||||||||||||||||||||||
| Cashless exercise of warrants | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Balance, June 30, 2021 | ( |
) | ||||||||||||||||||||||||||||||||||
| Preferred stock issued in public offering, net of costs | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued for acquisition | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||
| Dividends paid to preferred shareholders | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Net loss | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
Applied UV, Inc. and Subsidiaries
Condensed Interim Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2021 and 2020 (Restated)
| 2021 | 2020 (Restated) | |||||||
| Cash flows from Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities | ||||||||
| Stock based compensation | ||||||||
| Bad debt expense (recovery) | ( | ) | ||||||
| Change in fair market value of warrant liability | ||||||||
| Forgiveness of paycheck protection program loan | ( | ) | ||||||
| Gain on settlement of loan payable | ( | ) | ||||||
| Amortization of right-of-use asset | ||||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities, net of effects of acquisitions: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Vendor deposits | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Income taxes payable | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Operating lease liability | ( | ) | ||||||
| Total Adjustments | ( | ) | ||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Cash paid for patent costs | ( | ) | ( | ) | ||||
| Purchase of machinery and equipment | ( | ) | ||||||
| Cash paid for acquisition, net of cash acquired (Note 2) | ( | ) | ||||||
| Note receivable, related party | ( | ) | ||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Payments on Financing leases | ( | ) | ( | ) | ||||
| Proceeds from warrant exercise | ||||||||
| Loan to officer | ||||||||
| Dividends to preferred shareholders | ( | ) | ||||||
| Payments on loans payable | ( | ) | ( | ) | ||||
| Proceeds from equity raise,
net of offering costs of $ | ||||||||
| Proceeds from payroll protection program | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Increase in Cash and equivalents | ||||||||
| Cash, restricted cash and cash equivalents at January 1, | ||||||||
| Cash, restricted cash and cash equivalents at September 30, | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Income Taxes | $ | $ | ||||||
| Supplemental Non-Cash Items | ||||||||
| Initial recognition of warrant liability | $ | $ | ||||||
| Shares granted to settle previously recorded liability | $ | $ | ||||||
| Recognition of right of use asset - operating lease | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 7 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
In February 2019, Applied UV, Inc. (the "Parent") was formed and incorporated in the State of Delaware for the intended purpose of holding the equity of SteriLumen, Inc. (“SteriLumen”), Munnworks, LLC (“Munnworks” and together with SteriLumen, the “Subsidiaries”) and other companies acquired or created by the Parent in the future. The Parent acquired the Subsidiaries pursuant to three share exchanges whereby the equity holders of the Subsidiaries exchanged all of their equity interests in the Subsidiaries for shares of voting stock of the Parent. As a result of the share exchanges, each Subsidiary became a wholly-owned subsidiary of the Parent. The Parent and each Subsidiary are collectively referred to herein as (the "Company").
SteriLumen is engaged in the design, manufacture, assembly and distribution of (i) automated disinfecting mirror systems for use in hospitals and other healthcare facilities and (ii) air purification systems through its purchase of substantially all of the assets of Akida and KES as described below. Munnworks, LLC is engaged in the manufacture of fine mirrors specifically for the hospitality industry.
In February of 2021, the Company acquired all the assets and assumed certain liabilities of Akida Holdings, LLC (“Akida”). At the time of this acquisition, Akida owned the Airocide™ system of air purification technologies, originally developed for NASA, with assistance from the University of Wisconsin at Madison, that uses a combination of UVC and a proprietary, titanium dioxide based photocatalyst that may help to accelerate the reopening of the global economy with applications in the hospitality, hotel, healthcare, nursing homes, grocer, wine, commercial buildings and retail sectors. The Airocide™ system has been used by brands and organizations such as NASA, Whole Foods, Dole, Chiquita, Opus One, Sub-Zero Refrigerators and Robert Mondavi Wines. Akida contracted KES Science & Technology, Inc. (“KES”) to manufacture, warehouse and distribute the Airocide™ system and Akida’s contractual relationship with KES was assigned to and assumed by the Company as part of the acquisition.
On September 28, 2021, the Company acquired all the assets and assumed certain liabilities of KES. At the time of the acquisition, KES was principally engaged in the manufacturing and distribution of the Airocide™ system of air purification technologies and misting systems. KES also had the exclusive right to the sale and distribution of the Airocide™ system in certain markets. This acquisition consolidates all of manufacturing, sale and distribution of the Airocide™ system under the Sterilumen brand and expands the Company’s market presence in food distribution, post-harvest produce, wineries, and retail sectors. The Company sells its products throughout the United States, Canada, and Europe.
Principles of Consolidation
The consolidated financial statements include the accounts of Applied UV, Inc., Munnworks, LLC and SteriLumen, Inc. All significant intercompany transactions and balances are eliminated in consolidation.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) set forth in Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These financial statements should be read along with the Annual Report filed of the Company for the annual period ended December 31, 2020. The
consolidated balance sheet as of December 31, 2020 was derived from the audited consolidated financial statements as of and for the year then ended.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation and accounting for equity awards related to warrants and stock-based compensation, determination of fair value for derivative instruments, the accounting for business combinations and allocating purchase price, estimating the useful life of intangible assets, as well as the estimates related to accruals and contingencies.
| 8 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash, Restricted Cash and Cash Equivalents
Cash
and equivalents include highly liquid investments that have original maturities less than 90 days at the time of their purchase. These
investments are carried at cost, which approximates market value because of their short maturities. As of September 30, 2021 and December
31, 2020, the Company had $
Accounts receivable
An allowance for uncollectible accounts receivable is recorded when management believes the collectability of the accounts receivable is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance is determined based on management’s review of the debtor’s ability to repay and repayment history, aging history, and estimated value of collateral, if any.
Inventory
Inventories,
which consists of raw materials and finished goods is valued at the lower of cost or net realizable value, using the first-in, first-out
(“FIFO”) valuation method. Inventory costs are comprised primarily of product, freight and duty. The Company writes down
inventory for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon
assumptions about future demand and market conditions. The company did
Business Acquisition Accounting
The Company applies the acquisition method of accounting for those that meet the criteria of a business combination. The Company allocates the purchase price of its business acquisitions based on the fair value of identifiable tangible and intangible assets. The difference between the total cost of the acquisition and the sum of the fair values of acquired tangible and identifiable intangible assets less liabilities is recorded as goodwill. Transaction costs are expensed as incurred in general and administrative expenses.
Goodwill and Intangible Assets
The Company has recorded intangible assets, including goodwill, in connection with business combinations. Estimated useful lives of amortizable intangible assets are determined by management based on an assessment of the period over which the asset is expected to contribute to future cash flows.
In accordance with U.S. GAAP for goodwill and other indefinite-lived intangibles, the Company tests these assets for impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred. For the purposes of that assessment, the Company has determined to assign assets acquired in business combinations to a single reporting unit including all goodwill and indefinite-lived intangible assets acquired in business combinations.
Income Taxes
The Company files income tax returns using the cash basis of accounting. Income taxes are accounted for under the asset and liability method. Current income taxes are based on the year's income taxable for federal and state tax reporting purposes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be recovered.
| 9 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative Instruments
The Company evaluates its warrants to determine if those contracts or embedded components of those contracts qualify as derivatives. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The Company has concluded that there are no such reclassifications required to be made as of and for the periods ended September 30, 2021.
The Company utilizes the Black-Scholes valuation model to value the derivative warrants as stipulated in the agreement for the warrant holders to receive cash based on that value.
Fair Value of Financial Instruments
The carrying amounts reported in the unaudited condensed consolidated balance sheets for loans payable approximate fair value because of the immediate or short-term maturity of the financial instruments. The Company's financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.
Basic loss per share is computed by dividing net loss attributable to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.
The following table sets forth the number of potential shares of common stock that have been excluded from diluted net loss per share because their effect was anti-dilutive:
Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share:
| Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share | ||||||||
| As of September 30, | ||||||||
| 2021 | 2020 | |||||||
| Common stock options | ||||||||
| Common stock warrants | ||||||||
| Total | ||||||||
| 10 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company accounts for its stock-based compensation awards in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 718 ("ASC"), Compensation-Stock Compensation ("ASC 718"). ASC 718 requires all stock-based payments to employees, including grants of employee stock options and restricted stock and modifications to existing stock options, to be recognized in the statements of operations based on their fair values over the requisite service period.
Research and Development
The Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred.
Revenue Recognition
The Company recognizes revenue when the performance obligations in the client contract has been achieved. A performance obligation is a contractual promise to transfer product to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Under ASC 606, revenue is recognized when a customer obtains control of goods in an amount that reflects the consideration the Company expects to receive in exchange for those goods. To achieve this core principle, the Company applies the following five steps:
| 1) | Identify the contract with a customer. |
| 2) | Identify the performance obligations in the contract. |
| 3) | Determine the transaction price. |
| 4) | Allocate the transaction price to performance obligations in the contract. |
| 5) | Recognize revenue when or as the Company satisfies a performance obligation. |
For projects, that are completed within the Company’s facility, the company designs, manufactures and sells custom mirrors for hotels and hospitals through contractual agreements. These sales require the company to deliver the products within three to nine months from commencement of order acceptance. The Company recognizes revenue over time by using the input method based on costs incurred as it depicts our progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations. Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process as required by the project’s engineering design. Cost based input methods of revenue recognition require us to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated. Deferred revenue represents amounts billed in excess of revenues recognized. Revenues recognized in excess of amounts billed typically does not occur as the Company will not perform any work in excess of the amount the company bills to its customers. If work is performed in excess of amounts billed, the Company will record an unbilled receivable.
| 11 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Each product or service delivered to a third-party customer that is manufactured by a third-party vendor is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. These sales are shipped from the manufacturer to the customer without our taking physical inventory possession. The Company reports direct sales on a gross basis, that is, the amounts billed to our customers are recorded as "Sales," and inventory purchased from manufacturers are recorded as cost of sales. The Company is the principal of direct sales because the Company has the risk of loss and we control the inventory before it is transferred to our customers. Our control is evidenced by us being primarily responsible for fulfilling the promise to our customers, taking on inventory risk of returned product, and having discretion in establishing pricing. The Company typically pay our vendors a portion of the total cost up front and the remaining balance is accrued for and paid within 30 to 60 days of when the products are shipped from the third-party warehouse. Deferred revenue represents amounts invoiced or deposits received from our customer for which the Company has not yet satisfied our performance obligation.
The company applied the five-step model to the sales of Akida Holdings, LLC's and KES Science and Technology, Inc.’s Airocide and misting system products. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company sells Airocide air sterilization units and misting systems to both consumer and commercial customers. These products are sold both domestically and internationally. The cycle from contract inception to shipment of products is
typically one day to three months. The Company’s contracts for both its consumer and commercial customers each contain a single performance obligation (delivery of Airocide and KES products), as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct, as a result, the entire transaction price is allocated to this single performance obligation. The Company recognizes revenues at a point in time when the customer obtains control of the Company’s product, which typically occurs upon shipment of the product by the Company or upon customer pick-up via third party common carrier.
Revenue recognized over time and revenue recognized at a point in time for the three months ended:
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Recognized over time | $ | $ | ||||||
| Recognized at a point in time | ||||||||
| $ | $ | |||||||
Revenue recognized over time and revenue recognized at a point in time for the nine months ended:
| September 30, | ||||||||
| 2021 | 2020 (Restated) | |||||||
| Recognized over time | $ | $ | ||||||
| Recognized at a point in time | ||||||||
| $ | $ | |||||||
Deferred revenue was comprised of the following as of:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Recognized over time | $ | $ | ||||||
| Recognized at a point in time | ||||||||
| $ | $ | |||||||
All deferred revenue as of December 31, 2020 was recognized as revenue during the nine months ended September 30, 2021.
| 12 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising
Advertising costs consist primarily of online search advertising and placement, trade shows, advertising fees, and other promotional expenses. Advertising costs are expensed as incurred and are included in sales and marketing on the unaudited condensed consolidated statements of operations. Advertising expense for the three months ended
September
30, 2021 and 2020 was $
Vendor deposits
Vendor
payments to third manufactures are capitalized until completion of the project and are recorded as vendor deposits. As of September 30,
2021 and December 31, 2020, the vendor deposit balance was $
Patent Costs
The
Company capitalizes costs consisting principally of outside legal costs and filing fees related to obtaining and maintaining patents.
The Company amortizes patent costs over the useful life of the patent which is typically
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) (“ASU 2019-12”): Simplifying the Accounting for Income Taxes. The new standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. For public business entities, it is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the accompanying unaudited condensed consolidated financial statements.
In June 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company plans to adopt this standard on January 1, 2022.
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. The Company does not believe that the impact of recently issued
standards that are not yet effective will have a material impact on the Company’s financial position or results of operations upon adoption.
| 13 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 2 – BUSINESS ACQUISITIONS
The Company accounted for the acquisitions (as described below) as business combinations using the purchase method of accounting as prescribed in Accounting Standards Codification 805, Business Combinations (“ASC 805”) and ASC 820 – Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 805 and ASC 820, the Company used its best estimates and assumptions to accurately assign fair value to the tangible assets acquired, identifiable intangible assets and liabilities assumed as of the acquisition dates. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed. The results of operations of the acquired businesses since the date of acquisition are included in the unaudited condensed consolidated financial statements of the Company for the three and nine months ended September 30, 2021. The total purchase consideration was allocated to the assets acquired and liabilities assumed at their preliminary estimated fair values as of the date of acquisition, as determined by management. The purchase price allocations are preliminary and a final determination of purchase accounting adjustments, which may be material, will be made upon the finalization of the Company’s integration activities, which are expected to be completed during the year ended December 31, 2021. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed has been recorded as goodwill. The value of the goodwill from the acquisitions described below can be attributed to a number of business factors including cost synergies expected to be realized. The preliminary purchase price allocation is based upon preliminary valuations and our estimates and assumptions are subject to change within the purchase price allocation period (generally one year from the acquisition date). The primary areas of the purchase price allocation that are not yet finalized relate to the valuation of the intangible assets acquired and the residual goodwill.
On February 8, 2021 Applied UV, Inc. (the “Company”), entered into an asset purchase agreement (the “APA”) by and among the Company, SteriLumen, Inc., a New York corporation and wholly-owned subsidiary of the Company (the “Purchaser”) and Akida Holdings LLC, a Florida limited liability company (the “Seller”) pursuant to which the Purchaser acquired substantially all of the assets of the Seller and assumed certain of its current liabilities and contract obligations, as set forth in the APA (the “Acquisition”). In the Acquisition, the Purchaser acquired all the Seller’s assets and was assigned its contracts related to the manufacturer and sale of the Airocide™ system, originally developed for NASA with assistance from the University of Wisconsin at Madison, that uses a combination of UV-C and a proprietary, titanium dioxide-based photocatalyst that has applications in the hospitality, hotel, healthcare, nursing homes, grocer, wine, commercial buildings, and retail sectors. On February 8, 2021 (the “Closing Date”) the transactions contemplated by the APA were completed.
| 14 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 2 – BUSINESS ACQUISITION (CONTINUED)
The preliminary purchase price and related purchase price allocation (which are still in process and subject to change) are as follows:
| Purchase Price: | ||||
| Cash | $ | |||
| Fair market value of common stock issued (1,375,000 shares) | ||||
| Total Purchase Price | ||||
| Assets Acquired: | ||||
| Accounts receivable | ||||
| Inventory | ||||
| Prepaid expenses | ||||
| Machinery and equipment | ||||
| Customer relationships | ||||
| Trade names | ||||
| Technology and know how | ||||
| Total Assets Acquired: | ||||
| Liabilities Assumed: | ||||
| Accounts payable | ( |
) | ||
| Deferred revenue | ( |
) | ||
| Total Liabilities Assumed | ( |
) | ||
| Net Assets Acquired | ||||
| Excess Purchase Price "Goodwill" | $ | 2,728,279 | ||
The
excess purchase price has been recorded as goodwill in the amount of $
On September 28, 2021, SteriLumen, Inc. completed an Asset Purchase Agreement with the combined entities consisting of JJS Technologies, LLC (“JJS”), a Georgia limited liability company, and KES Science & Technology, Inc. (“KES”), a Georgia corporation.
| 15 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 2 – BUSINESS ACQUISITION (CONTINUED)
The preliminary purchase price and related purchase price allocation (which are still in process and subject to change) are as follows:
| Purchase Price: | ||||
| Cash | $ | |||
| Fair market value of common stock issued (300,000 shares) | ||||
| Total Purchase Price | ||||
| Assets Acquired: | ||||
| Accounts receivable | ||||
| Inventory | ||||
| Prepaid expenses | ||||
| Machinery and equipment | ||||
| Trade names | 914,000 | |||
| Technology and know how | 3,656,000 | |||
| Total Assets Acquired: | ||||
| Liabilities Assumed: | ||||
| Accounts payable | ( | ) | ||
| Total Liabilities Assumed | ( | ) | ||
| Net Assets Acquired | ||||
| Excess Purchase Price "Goodwill" | $ | |||
The
excess purchase price has been recorded as goodwill in the amount of $
NOTE 3 – INVENTORY
Inventory
consists of raw materials and finished goods of $
Inventory
consists of raw materials of $
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment (including machinery and equipment under Financing leases) are summarized by major classifications as follows:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Machinery and Equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Furniture and Fixtures | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| 16 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 4 – PROPERTY AND EQUIPMENT (continued)
Depreciation
expense, including amortization of assets under Financing leases, for the three months ended September 30, 2021 and 2020 was $
Depreciation
expense, including amortization of assets under Financing leases, for the nine months ended September 30, 2021 and 2020 was $
NOTE 5 – INTANGIBLE ASSETS
Intangible assets as of September 30, 2021 and December 31, 2020 consist of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Intangible assets subject to amortization | ||||||||
| Customer Relationship | $ | $ | ||||||
| Trade Names | ||||||||
| Technology and Know How | ||||||||
| Less: Accumulated Amortization | ( | ) | ||||||
| $ | $ | |||||||
During
the three months ended September 30, 2021 and 2020, the Company recorded total amortization expense related to intangible assets of $
NOTE 6 – FINANCING LEASE OBLIGATION
The Company's future minimum principal and interest payments under a Financing lease for machinery and equipment are as follows as of September 30, 2021:
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| Less: Amount representing interest | ( | ) | ||
| Present value of future minimum lease payments | ||||
| Less: current portion | ( | ) | ||
| Financing lease obligations | $ |
| 17 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 7 – LOANS PAYABLE
In
April of 2021, the company settled a previously issued loan payable of $
The
Company entered into a loan agreement in April of 2019 where the company was required to pay $
Minimum obligations under this loan agreement are as follows:
| For the twelve months ending September 30, | |||||
| 2021 | $ | ||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| Total | $ | ||||
NOTE 8 – STOCKHOLDERS' EQUITY
Amendment of the Certificate of Designation
On June 17, 2021, the Company filed an amendment of the certificate of designation of Series A Preferred Stock. The Board of Directors, by unanimous written consent, duly adopted resolutions to amend the Series A Preferred Stock Certificate of Designations and changed the name from “Series A Preferred Stock” to “Series X Preferred Stock”. All dividend, liquidation preference, voting, conversion, and redemption rights, did not change from the originally filed Certificate of Designation of Series A Preferred Stock. There are 2,000 Series X Preferred Shares issued and outstanding as of September 30, 2021.
Pursuant to the Company’s amended and restated certificate of incorporation, as amended, the Company is authorized to designate and issue up to shares of preferred stock, par value $per share, in one or more classes or series . The Company had preferred shares designated as Series X Preferred Stock and shares of preferred stock authorized but undesignated and unissued.
During the quarter ended September 30, 2021, the Company designated shares of preferred stock as 10.5% Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”). There are 552,000 shares of Series A Preferred Stock issued and outstanding as of September 30, 2021. Upon certain events, the Company may, subject to certain conditions, at the Company’s option, redeem the Series A Preferred Stock. See below for a further description of the Series A Preferred Stock:
Dividends: Holders are entitled to receive, cumulative cash dividends at the annual rate of 10.5% on $25.00 liquidation preference per share of the Series A Perpetual Preferred Stock. Dividends accrue and are payable in arrears beginning August 15, 2021, regardless of whether declared or there are sufficient earnings or funds available for payment. Sufficient net proceeds from the offering must be set aside to pay dividends for the first twelve months from issuance. The company has classified $1,207,500 as restricted cash as of September 30, 2021 as a reserve to pay the remaining required dividends for the first year.
| 18 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 8 – STOCKHOLDERS' EQUITY (continued)
Redemption: Company has an optional redemption right beginning July 16, 2022, which redemption price declines annually. The initial redemption price after year 1 is $30 and decreases annually over 5 years to $25 per share. The Company also has a special optional redemption right upon the occurrence of a Delisting Event or Change of Control, as defined, at $25 per share plus accrued and unpaid dividends.
Voting Rights: The holders have no voting rights, except for voting on certain corporate decisions, or upon default in payment of dividends for any twelve periods, in which case the holders would have voting rights to elect two additional directors to serve on the Board of Directors.
Conversion Rights: Such shares are not convertible unless and until the occurrence of a Delisting Event or Change of Control and when the Company has not exercised its special optional redemption right. The conversion price would be the lesser of the amount converted based on the $25.00 liquidation preference plus accrued dividends divided by the common stock price of the Delisting Event or Change of Control (as defined) or $5.353319 (Share Cap). Effectively, the Share Cap limits the common stock price to no lower than $4.67.
Reverse Stock Split
In
June of 2020, the Company
2020 Incentive Plan
On March 31, 2020, the Company adopted the Applied UV, Inc. 2020 Omnibus Incentive Plan (the “Plan”) with (post-split adjusted) shares of common stock available for issuance under the terms of the Plan. The Plan permits the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units and Other Awards. The objectives of the Plan are to optimize the profitability and growth of the Company through incentives that are consistent with the Company’s goals and that link the personal interests of Participants to those of the Company’s stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract and retain the services of Participants who make or are expected to make significant contributions to the Company’s success and to allow
Participants to share in the success of the Company. From time to time, the Company may issue Incentive Awards pursuant to the Plan. Each of the awards will be evidenced by and issued under a written agreement.
If
an incentive award granted under the Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to the
company in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for
future awards under the Plan. The number of shares subject to the Plan, and the number of shares and terms of any Incentive Award may
be adjusted in the event of any change in our outstanding common stock by reason of any stock dividend, spin-off, stock split, reverse
stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares, or similar
transaction. There are shares available for future grants under the
plan. The Company also granted an additional
| 19 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 8 – STOCKHOLDERS' EQUITY (continued)
A summary of the Company’s option activity and related information follows:
| Shares Available for Grant | Number
of Options | Weighted-Average Exercise Price | Weighted-Average Grant Date Fair Value | Weighted-Average Remaining Contractual Life (in years) | Aggregate intrinsic value | |||||||||||||||||||
| Balances, January 1, 2020 | $ | $ | $ | — | ||||||||||||||||||||
| Options granted | — | |||||||||||||||||||||||
| Options forfeited/cancelled | ( | ) | — | — | ||||||||||||||||||||
| Options exercised | — | — | — | |||||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | $ | — | ||||||||||||||||||||
| Options granted outside of the plan | — | |||||||||||||||||||||||
| Options granted | ( | ) | — | |||||||||||||||||||||
| Options forfeited/cancelled | ( | ) | — | — | ||||||||||||||||||||
| Options exercised | — | — | — | |||||||||||||||||||||
| Balances, September 30, 2021 | $ | $ | $ | |||||||||||||||||||||
| At September 30, 2021 | ||||||||||||||||||||||||
| Vested and exercisable | $ | $ | ||||||||||||||||||||||
Share-based compensation expense for options totaling $236,043 and $432,933 was recognized for the three and nine months ended September 30, 2021, respectively, based on awards vested. Share-based compensation expense for options totaling $763 and $1,474 was recognized for the three and nine months ended September 30, 2020, respectively, based on awards vested.
The valuation methodology used to determine the fair value of the options issued during the year was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options.
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options.
Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation of estimated volatility is based on historical stock prices of peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.
As of September 30, 2021, there was $2,379,978 of total unrecognized compensation expense related to unvested employee options granted under the Company’s share-based compensation plans that is expected to be recognized over a weighted average period of approximately 3.1 years.
| 20 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 8 – STOCKHOLDERS' EQUITY (continued)
The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the nine months ended September 30, 2021 and year ended December 31, 2020 are set forth in the table below.
| 2021 | 2020 | |||||||
| Weighted average fair value of options granted | $ | $ | ||||||
| Risk-free interest rate | % to % | % to % | ||||||
| Volatility | % to % | % to % | ||||||
| Expected life (years) | - | |||||||
| Dividend yield | % | % | ||||||
Common Stock Warrants
On August 31, 2020, the Company closed its offering (the “August Offering”) in which it issued 1,000,000 common shares at a public offering price of $5.00 per share. In connection with the Offering, the Company (i) received $5,750,000 less underwriting fees of $517,500 and write-off of capitalized IPO Costs in the amount of $341,145, resulting in net proceeds of $4,891,355. Additionally, the Company issued 167,794 shares to Ross Carmel of Carmel, Milazzo & Feil LLP for the Offering. In addition, the underwriters were granted a 45-day option to purchase up to an additional 150,000 shares of Common Stock or any combination thereof, to cover over-allotments, if any (the “Over-Allotment Option”). The shares were offered and sold to the public pursuant to the Company’s registration statement on Form S-1, filed by the Company with the SEC on August 26, 2020, as amended, which became effective on August 28, 2020.
A summary of the Company’s warrant activity and related information follows:
| Schedule of the Company's warrant activity | ||||||||
| Number
of Shares |
Weighted-Average Exercise Price | |||||||
| Warrants Outstanding at January 1, 2020 | ||||||||
| Granted | $ | |||||||
| Warrants Outstanding at December 31, 2020 | $ | |||||||
| Granted | $ | |||||||
| Exercised | ( |
) | ||||||
| Warrants Outstanding and exercisable, September 30, 2021 | $ | |||||||
Share-based
compensation expense of $and
$for
warrants granted was recognized for the three and nine months ended September 30, 2020, respectively, based on awards vested. There was
no compensation expense related to warrants during the three and nine months ended September 30, 2021. The warrants granted in 2020 were
issued in connection with the August and November offerings. The warrants issued in connection with the November offering contained a
cash settlement feature which resulted in a warrant liability of $
| 21 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 8 – STOCKHOLDERS' EQUITY (continued)
The valuation methodology used to determine the fair value of the warrants issued during the periods was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the warrants.
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the warrants.
Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation of estimated volatility is based on historical stock prices of peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.
As of September 30, 2021 there was no unrecognized compensation expense related to unvested warrants granted under the Company’s share-based compensation plans.
The weighted average fair value of warrants granted, and the assumptions used in the Black-Scholes model during the nine months ended September 30, 2021 are set forth in the table below.
| 2021 | ||||
| Weighted average fair value of options granted | $ | |||
| Risk-free interest rate | % | |||
| Volatility | ||||
| Expected life (years) | ||||
| Dividend yield | % | |||
On
November 13, 2020, the Company closed its second offering (the “November Offering”) in which it issued common shares at a public offering price of $per share. In connection with the Offering, the
Company (i) received $
| 22 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 8 – STOCKHOLDERS' EQUITY (continued)
On
July 13, 2021, Applied UV, Inc. (the “Company”) entered into an underwriting agreement (the “Underwriting Agreement”)
with Ladenburg Thalmann & Co. Inc. as representative (“Representative”) of the underwriters (“Underwriters”),
related to the offering of 480,000 shares (the “Shares”) of the Company’s 10.5% Series A Cumulative Perpetual Preferred
Stock [non-convertible], par value $0.0001 per share (“Series A Preferred Stock”), at a public offering price of $25.00 per
share, which excludes 72,000 shares of Series A Cumulative Perpetual Preferred Stock that may be purchased by the Underwriters pursuant
to their overallotment option granted to the Underwriters under the terms of the Underwriting Agreement. The Shares were offered and
sold by the Company pursuant to the terms of the Underwriting Agreement and registered pursuant to the Company’s registration statement
on (i) Form S-1 (File No. 333-257197), as amended, which was filed with the SEC and declared effective by the Commission on July 12,
2021 and (ii) the Company’s registration statement on Form S-1MEF (File No. 333-257862), which was filed with the Commission on
July 13, 2021 and declared effective upon filing. The closing of the offering for the Shares took place on July 16, 2021. The Shares
have been approved for listing on Nasdaq under the trading symbol “AUVIP” and trading on Nasdaq began on July 14, 2021. On
July 29, 2021, the Company issued a press release announcing that in connection with its previously announced public offering of its
10.5% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share, it had closed the exercise of the underwriter’s
overallotment option of 72,000 shares at $25.00 per share. Aggregate gross proceeds including the exercise of the underwriter's overallotment
option was $12,272,440 after deducting underwriting discounts and commissions and fees and other estimated offering expenses. As of September
30, 2021, the Company paid $
Restricted Stock Awards
The Company records compensation expense for restricted stock awards based on the quoted market price of our stock at the grant date and amortize the expense over the vesting period.
On
May 28, 2021, the Company granted restricted stock awards with a fair market value
of $
In June of 2020, the company granted restricted stock awards. Of these awards, 127,583 vest quarterly over an 18-month period with the first date of vesting being September 30, 2020. As of September 30, 2021, of these restricted stock awards were vested. The fair market value of these awards was $5 per share and the company expensed $106,319 and $318,958 of stock-based compensation related to these awards during the three and nine months ended September 30, 2021, respectively. On July 9, 2020, restricted stock awards were granted. The restricted stock awards vest in full on January 1, 2021. As of September 30, 2021, all the restricted stock awards were vested. The fair market value of these awards was $per share. No expense was recorded related to these awards during the three and nine months ended September 30, 2021. On July 9, 2020, an additional restricted stock awards were granted. The restricted stock awards vest evenly over a four-year period with the first vesting to occur on January 1, 2021. As of September 30, 2021, of these restricted stock awards were vested. The fair market value of these awards was $per share and the company expensed $and $of stock-based compensation related to these awards during the three and nine months ended September 30, 2021, respectively. On January 1, 2021, restricted stock awards were granted. The restricted stock awards vest in full on January 1, 2022. As of September 30, 2021, none of the restricted stock awards were vested. The fair market value of these awards was $per share. The company recorded $and $of compensation expense related to these awards during the three and nine months ended September 30, 2021, respectively.
| 23 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 9 - LEASING ARRANGEMENTS
The Company determines whether an arrangement qualifies as a lease under ASC 842 at inception. The Company has operating leases for office space and office equipment. The Company’s leases have remaining lease terms of one year to seven years, some of which include options to extend the lease term for up to five years. The Company considered these options to extend in determining the lease term used to establish the Company’s right-of use assets and lease liabilities once reasonably certain of exercise. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The operating lease ROU asset also includes any lease payments made in advance of lease commencement and excludes lease incentives. The lease terms used in the calculations of the operating ROU assets and operating lease liabilities include options to extend or terminate the lease when the Company is reasonably certain that it will exercise those options. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
As
the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate of
Munnworks, LLC entered into a lease agreement in Mount Vernon, New York for a term that commenced on April 1, 2019 and will expire on the 31st day of March 2024 at a monthly rate of $13,400. In March of 2021, the Company obtained additional lease space and the agreement was amended to increase rent expense to $15,000 per month. On July 1, 2021, the Company again obtained additional lease space and rent expense was increased to $27,500 per month through July 1, 2024 and $29,150 per month from July 1, 2024 through July 1, 2026.
On September 28, 2021, the Company entered into a lease agreement in Greenwood Village, Colorado for a term that commenced on September 29, 2021 and will expire on October 1, 2024, with a monthly rate of $14,729 for this first 12 months, $15,171 from months 13-24, and $15,626 from months 25-36.
Rent
expense for the nine months ended September 30, 2021 and 2020 was $
Schedule maturities of operating lease liabilities outstanding as of September 30, 2021 are as follows:
For the Year Ended December 31,
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Thereafter. | ||||
| Total lease payments | ||||
| Less: Imputed Interest | ( | ) | ||
| Present value of future minimum lease payments | $ |
Consistent with ASC 842-20-50-4, the Company calculated its total lease cost based solely on its monthly rent obligation. The Company had no cash flows arising from its lease, no finance lease cost, short term lease cost, or variable lease costs. The Company’s lease does not produce any sublease income, or any net gain or loss recognized from sale and leaseback transactions. As a result, the Company did not need to segregate amounts between finance and operating leases for cash paid for amounts included in the measurement of lease liabilities, segregated between operating and financing cash flows; supplemental non-cash information on lease liabilities arising from obtaining right-of-use assets; weighted-average calculations for the remaining lease term; or the weighted-average discount rate.
| 24 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 10 - PAYROLL PROTECTION PROGRAM
In
April of 2020, the Company submitted a Paycheck Protection Program (“PPP”) application to Chase Bank for a loan amount equal
to $
NOTE 11- NOTE RECEIVABLE- RELATED PARTY
The
company contemplated an acquisition with an entity where certain board members of the Company were also board members of the potential
acquiree. In February of 2021, the Company entered into a non-interest bearing note receivable agreement whereby the Company loaned $
NOTE 12 - SEGMENT REPORTING
FASB Codification Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has two reportable segments: the design, manufacture, assembly and distribution of disinfecting systems for use in healthcare, hospitality, and commercial municipal and residential markets (disinfection segment) and the manufacture of fine mirrors specifically for the hospitality industry (hospitality segment). The segments are determined based on several factors, including the nature of products and services, the nature of production processes, customer base, delivery channels and similar economic characteristics.
An operating segment’s performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, segment selling, general and administrative expenses, research and development costs and stock-based compensation. It does not include other charges (income), net and interest and other, net.
| 25 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 12 - SEGMENT REPORTING (continued)
| Hospitality | Disinfection | Corporate | Total | |||||||||||||
| Balance sheet at September 30, 2021 | ||||||||||||||||
| Assets | $ | $ | $ | $ | ||||||||||||
| Liabilities | $ | |||||||||||||||
| Balance sheet at December 31, 2020 | ||||||||||||||||
| Assets | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Hospitality | Disinfection | Total | ||||||||||
| Income Statement for the nine months ended September 30, 2021: | ||||||||||||
| Net Sales | $ | $ | $ | |||||||||
| Cost of Goods Sold | ||||||||||||
| Research and development | ||||||||||||
| Stock based compensation | ||||||||||||
| Selling, General and Administrative expenses | ||||||||||||
| Income Statement for the three months ended September 30, 2021: | ||||||||||||
| Net Sales | $ | $ | $ | |||||||||
| Cost of Goods Sold | ||||||||||||
| Stock based compensation | ||||||||||||
| Selling, General and Administrative expenses | ||||||||||||
| Hospitality | Disinfection | Total | ||||||||||
| Income Statement for the nine months ended September 30, 2020 (restated): | ||||||||||||
| Net Sales | $ | $ | $ | |||||||||
| Cost of Goods Sold | ||||||||||||
| Research and development | ||||||||||||
| Stock based compensation | ||||||||||||
| Selling, General and Administrative expenses | ||||||||||||