Notes
to the Condensed Consolidated Financial Statements
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Business
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”) and MunnWorks, LLC (“MunnWorks”), together “the Subsidiaries”, and
other companies acquired or created by the Parent in the future. The Parent acquired the Subsidiaries pursuant to 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 and certain liabilities
of Akida Holdings, LLC, KES Science & Technology, and Scientific Air Management LLC, as described below. MunnWorks, LLC is engaged
in the manufacture of fine mirrors and custom furniture specifically for the hospitality and retail industries.
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 (“PCO”) to eliminate airborne bacteria, mold, fungi, viruses, volatile organic compounds, and many odors without
producing any harmful by-products, 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.
On
October 13, 2021, the Company acquired all the assets and assumed certain liabilities of Scientific Air Management LLC, ("SciAir").
SciAir is a provider of whole-room, aerosol chamber and laboratory certified air disinfection machines. SciAir is a provider of whole-room,
aerosol chamber and laboratory certified air disinfection machines that use a combination of UVC and a proprietary, patented system to
eliminate airborne bacteria, mold, fungi, viruses, volatile organic compounds, and many odors without producing any harmful by-products.
The units are well suited for larger spaces within a facility and are mobile with industrial grade casters allowing for movement throughout
a facility to address increased bio burden from larger meetings or increased human traffic.
On
March 25, 2022, the Company acquired the assets and assumed certain liabilities of VisionMark, LLC, ("Visionmark"). Visionmark
is engaged in the business of manufacturing customized furniture using wood and metal components for the hospitality and retail industries.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 2021. The consolidated balance sheet as of December 31, 2021 was derived
from the audited consolidated financial statements as of and for the year then ended.
Use
of Estimates
The
preparation of 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 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 and estimating
the useful life of intangible assets.
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 June 30, 2022 and December
31, 2021, the Company had $352,820 and
$1,076,664,
respectively, in cash equivalents. The Company also maintains a restricted cash balance to satisfy its preferred shareholder redemption
requirements (Refer to Note 7).
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. The Company had
an allowance for doubtful accounts approximating $18,000
and $9,000
as of June 30, 2022 and December 31, 2021, respectively.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory
Inventories
consist of raw materials, work-in-process, and finished goods. Raw materials and finished goods are valued at the lower of cost or net
realizable value, using the first-in, first-out (“FIFO”) valuation method. Work-in-process and finished goods includes the
cost of materials, freight and duty, direct labor and overhead. 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 had a reserve for inventory approximating $146,000
and $140,000
as of June 30, 2022 and December 31, 2021, respectively.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation of furniture and fixtures is provided using the straight-line method, generally over
the terms of the lease. Repairs and maintenance expenditures, which do not extend the useful lives of the related assets, are expensed
as incurred. Depreciation of machinery and equipment is based on the estimated useful lives of the assets.
| Schedule
of estimated useful lives |
|
| Machinery
and equipment |
5
to 7 years |
| Leasehold
improvements |
Lesser
of term of lease or useful life |
| Furniture
and fixtures |
5
to 7 years |
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.
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 June 30, 2022 and December 31, 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.
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.
Loss
Per Share
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 | |
| | | |
| | |
| | |
As
of June 30, |
| | |
2022 | |
2021 |
| Common
stock options | |
| 819,278 | | |
| 579,314 | |
| Common
stock warrants | |
| 192,419 | | |
| 192,419 | |
| Total | |
| 1,011,697 | | |
| 771,733 | |
Stock-Based
Compensation
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.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 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. |
MunnWorks
projects, including those from the VisionMark acquisition, are completed within the Company’s facilities. For these projects, the
company designs, manufactures and sells custom mirrors and furniture for the hospitality and retail industries through contractual agreements.
These sales require the company to deliver the products within three to nine months from commencement of order acceptance. 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.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition (Continued)
The
company applied the five-step model to the sales of Akida’s and KES’s Airocide™ and misting system products, and SciAir’s
whole-room aerosol chamber and laboratory certified air disinfection machines. 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, misting systems, and whole-room aerosol chamber and laboratory certified disinfection machines 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™, KES, and SciAir 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:
Schedule
of revenue:
| Schedule
of revenue | |
| | | |
| | |
| | |
June
30, |
| | |
2022 | |
2021 |
| Recognized
over time | |
$ | 2,883,912 | | |
$ | 331,600 | |
| Recognized
at a point in time | |
| 3,023,734 | | |
| 1,552,720 | |
| | |
$ | 5,907,646 | | |
$ | 1,884,320 | |
Revenue
recognized over time and revenue recognized at a point in time for the six months ended:
Schedule
of revenue:
| | |
June
30, |
| | |
2022 | |
2021 |
| Recognized
over time | |
$ | 3,413,149 | | |
$ | 775,137 | |
| Recognized
at a point in time | |
| 5,850,587 | | |
| 3,421,798 | |
| | |
$ | 9,263,736 | | |
$ | 4,196,935 | |
Deferred
revenue was comprised of the following as of:
| | |
June
30, | |
December
31, |
| | |
2022 | |
2021 |
| Recognized
over time | |
$ | 707,343 | | |
$ | 94,867 | |
| Recognized
at a point in time | |
| 768,927 | | |
| 693,909 | |
| | |
$ | 1,476,270 | | |
$ | 788,776 | |
The
Company recognized $309,477 of
deferred revenue as of December 31, 2021 as revenue during the three months ended June 30, 2022. The Company recognized $738,595
of deferred revenue as of December 31, 2021 as
revenue during the six months ended June 30, 2022.
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 consolidated statements of operations. Advertising expense
for the three months ended June 30, 2022 and 2021 was $348,377
and $281,258.
Advertising expense for the six months ended June 30, 2022 and 2021 was $546,372
and $309,434.
Vendor
deposits
Vendor
payments to third manufactures are capitalized until completion of the project and are recorded as vendor deposits. As of June 30, 2022
and December 31, 2021, the vendor deposit balance was $497,154
and $992,042,
respectively.
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 20 years, beginning with the date the patent
is filed with the U.S. Patent and Trademark Office, or foreign equivalent. As of June 30, 2022 and December 31, 2021, capitalized patent
costs net of accumulated amortization was $1,643,774
and $1,693,124,
respectively. For the three months ended June 30, 2022 and 2021, the Company recorded $25,016
and $2,463,
respectively, of amortization expense for these patents. For the six months ended June 30, 2022 and 2021, the Company recorded $50,032
and $4,927,
respectively, of amortization expense for these patents.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
adopted accounting standards
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.
NOTE
2 – BUSINESS ACQUISITION
The
Company accounted for its acquisitions 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 consolidated financial statements of the Company for the three and six months ended June 30, 2022 and 2021. The total purchase consideration
was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition, as determined
by management. 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,
but not limited to, cost synergies expected to be realized, the intellectual property acquired, and a trained technical workforce.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
2 – BUSINESS ACQUISITION (CONTINUED)
In
conjunction with acquisitions noted below, we used various valuation techniques to determine fair value of the assets acquired, with
the primary techniques being discounted cash flow analysis, relief-from-royalty, a form of the multi-period excess earnings and the with-and-without
valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Inputs to
these valuation approaches require significant judgment including: (i) forecasted sales, growth rates and customer attrition rates, (ii)
forecasted operating margins, (iii) royalty rates and discount rates used to present value future cash flows, (iv) the amount of synergies
expected from the acquisition, (v) the economic useful life of assets and (vi) the evaluation of historical tax positions. In certain
acquisitions, historical data is limited, therefore, we base our estimates and assumptions on budgets, business plans, economic projections,
anticipated future cash flows and marketplace data.
Akida
Holdings LLC
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.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
2 – BUSINESS ACQUISITION (CONTINUED)
The
purchase price and purchase price allocation as of the acquisition completion date follows.
| Schedule
of Recognized Identified Assets Acquired and Liabilities Assumed | |
| | |
| Purchase
Price: | |
|
| Cash | |
$ | 760,293 | |
| Fair
market value of common stock issued (1,375,000 shares) | |
| 7,122,500 | |
| Total
Purchase Price, Net of Cash Acquired | |
| 7,882,793 | |
| | |
| | |
| Assets
Acquired: | |
| | |
| Accounts
receivable | |
| 233,241 | |
| Inventory | |
| 211,105 | |
| Prepaid
expenses | |
| 285,490 | |
| Machinery
and equipment | |
| 168,721 | |
| Customer
relationships | |
| 539,000 | |
| Trade
names | |
| 1,156,000 | |
| Technology
and know how | |
| 3,468,000 | |
| Total
Assets Acquired: | |
| 6,061,557 | |
| | |
| | |
| Liabilities
Assumed: | |
| | |
| Accounts
payable | |
| (415,341 | ) |
| Deferred
revenue | |
| (491,702 | ) |
| Total
Liabilities Assumed | |
| (907,043 | ) |
| Net
Assets Acquired | |
| 5,154,514 | |
| Excess
Purchase Price "Goodwill" | |
$ | 2,728,279 | |
The
excess purchase price has been recorded as goodwill in the amount of approximately $2,728,279.
The estimated useful life of the identifiable intangible assets (see note 5) is seven to ten years. The goodwill is amortizable for tax
purposes.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
2 – BUSINESS ACQUISITION (CONTINUED)
KES
Science & Technology, Inc.
On
September 28, 2021, SteriLumen, Inc. completed an Asset Purchase Agreement with KES Science & Technology, Inc. (“KES”),
a Georgia corporation.
The
purchase price and purchase price allocation as of the acquisition completion date follows.
| Purchase
Price: | |
|
| Cash | |
$ | 4,299,900 | |
| Fair
market value of common stock issued (300,000 shares) | |
| 1,959,001 | |
| Total
Purchase Price, Net of Cash Acquired | |
| 6,258,901 | |
| | |
| | |
| Assets
Acquired: | |
| | |
| Accounts
receivable | |
| 392,367 | |
| Inventory | |
| 602,746 | |
| Prepaid
expenses | |
| 10,995 | |
| Machinery
and equipment | |
| 36,146 | |
| | |
| | |
| Trade
names | |
| 914,000 | |
| Technology
and know how | |
| 3,656,000 | |
| Total
Assets Acquired: | |
| 5,612,254 | |
| | |
| | |
| Liabilities
Assumed: | |
| | |
| Accounts
payable | |
| (296,681 | ) |
| | |
| | |
| Total
Liabilities Assumed | |
| (296,681 | ) |
| Net
Assets Acquired | |
| 5,315,573 | |
| Excess
Purchase Price "Goodwill" | |
$ | 943,328 | |
The
excess purchase price has been recorded as goodwill in the amount of $943,328.
The estimated useful life of the identifiable intangible assets is ten years (see note 5). The goodwill is amortizable for tax purposes.
Old
SAM Partners (Scientific Air)
On
October 13, 2021, the Company entered into an asset purchase agreement by and among the Company, SteriLumen, Inc., a New York corporation
and wholly-owned subsidiary of the Company (the “Purchaser”) and Old SAM Partners, LLC, a Florida limited liability company
(the “Seller”), pursuant to which the Purchaser acquired substantially all of the assets of the Seller, including the assignment
of an exclusive distribution agreement. On October 13, 2021 the Seller received, as consideration for the Acquisition (i) $9,500,000
in cash; and (ii) 200,000 shares of the Company’s common stock and (iii) 200,000 unvested shares of the Company’s common
stock, which are subject to cancellation if the earnout is not met. On the date of acquisition, the fair market value of the 200,000
vested shares was $5.57 for a total value of $1,114,000. An additional liability was recorded for $886,000 as a result of the agreement
calling for additional cash consideration to the extent the share price is below $10 on the free trading date, as defined in the agreement.
On December 31, 2021, the share price of our common stock was $2.70 per share and a loss on contingent consideration of $574,000
was recorded in the consolidated statements of operations and increased the liability to $1,460,000.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
2 – BUSINESS ACQUISITION (CONTINUED)
The
purchase price and purchase price allocation as of the acquisition completion date follows.
| Purchase
Price: | |
|
| Cash | |
$ | 9,500,000 | |
| Fair
market value of common stock issued | |
| 1,114,000 | |
| Contingent
consideration based on stock price | |
| 886,000 | |
| Total
Purchase Price, net of cash acquired | |
| 11,500,000 | |
| | |
| | |
| Assets
Acquired: | |
| | |
| Accounts
receivable | |
| 129,845 | |
| Inventory | |
| 369,970 | |
| Machinery
and equipment | |
| 1,982 | |
| Customer
relationships | |
| 6,784,000 | |
| Patents | |
| 1,533,000 | |
| Technology
and know how | |
| 1,217,000 | |
| Trade
names | |
| 326,000 | |
| Total
Assets Acquired: | |
| 10,361,797 | |
| | |
| | |
| Assets
Acquired | |
| 10,361,797 | |
| Excess
Purchase Price "Goodwill" | |
$ | 1,138,203 | |
The
excess purchase price has been recorded as goodwill in the amount of approximately $1,138,203.
The estimated useful life of the identifiable intangible assets (see note 5) is ten years. The goodwill is amortizable for tax purposes.
On
March 31, 2022, there was a settlement of a dispute that arose during the first quarter of 2022 between both parties regarding certain
representations and warranties in the purchase agreement which resulted in a settlement and mutual release agreement where the seller
agreed to relinquish any right, title, and interest in the previously issued 400,000
shares. During the three months ended March 31,
2022, the company recorded a loss on change in fair market value of contingent consideration of $240,000
and, as a result of the settlement agreement,
the company recorded a gain on settlement of contingent consideration of $1,700,000
.The Company also determined that a triggering
event had occurred as a result of the settlement agreement. A quantitative impairment test on the goodwill determined that the fair value
was below the carrying value and as a result the Company recorded a full goodwill impairment charge of $1,138,203
on the Unaudited Condensed Consolidated Statements
of Operations during the six months ended June 30, 2022. There was no
impairment of goodwill recorded during the six
months ended June 30, 2022.
On
March 25, 2022, the Company entered into an asset purchase agreement by and among the Company, Munnworks, LLC., a New York Limited Liability
Company and wholly-owned subsidiary of the Company (the “Purchaser”) and VisionMark LLC, a New York limited liability company
(the “Seller”), pursuant to which the Purchaser acquired substantially all of the assets of the Seller in exchange for the
assumption of obligations of buyer under the sublease and sublease guarantee.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
2 – BUSINESS ACQUISITION (CONTINUED)
The
purchase price and purchase price allocation as of the acquisition completion date follows.
| Purchase
Price: | |
|
| Cash
paid at closing | |
$ | 10 | |
| Due
to landlord | |
| 755,906 | |
| Total
Purchase Price, net of cash acquired | |
| 755,916 | |
| | |
| | |
| Assets
Acquired: | |
| | |
| Accounts
receivable, net | |
| 636,550 | |
| Inventory | |
| 176,583 | |
| Contract
asset | |
| 181,152 | |
| Machinery
and equipment | |
| 1,100,000 | |
| Total
Assets Acquired: | |
| 2,094,285 | |
| | |
| | |
| Liabilities
Assumed: | |
| | |
| Contract
liability | |
| (1,388,838 | ) |
| Total
Liabilities Assumed | |
| (1,388,838 | ) |
| Net
Assets Acquired | |
| 705,447 | |
| Excess
Purchase Price "Goodwill" | |
$ | 50,469 | |
The
excess purchase price has been recorded as goodwill in the amount of approximately $50,469.
The goodwill is amortizable for tax purposes.
In
connection with the VisionMark LLC acquisition, the Company is obligated to repay $31,057
of past due lease payments per month for the
next 36 months commencing on April 1, 2022. The Company recognized a discount and related liability equal to the present value of the
past due lease liability, and amortizes the difference between such present value and the liability through interest expense using the
effective interest rate method over the repayment period.
At June
30, 2022, the future maturities of past due lease payments are as follows:
| Schedule
of future maturity of the lease liability | |
| | |
| For
Years Ended December 31, | |
|
| 2022
(6 months) | |
$ | 186,348 | |
| 2023 | |
| 372,684 | |
| 2024 | |
| 372,684 | |
| 2025 | |
| 93,174 | |
| Total | |
| 1,024,890 | |
| Less:
Unamortized discount | |
| (308,510 | ) |
| Total
amount due to landlord | |
| 716,380 | |
| Less:
current portion of amount due to landlord, net of discount | |
| (201,640 | ) |
| Total
long-term portion of amount due to landlord | |
$ | 514,740 | |
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
3 – INVENTORY
Inventory
consists of the following as of:
| Schedule
of Inventory | |
| | | |
| | |
| | |
June
30, | |
December
31, |
| | |
2022 | |
2021 |
| Raw
materials | |
$ | 1,140,770 | | |
$ | 356,759 | |
| Work-in-Process | |
| 690,449 | | |
| — | |
| Finished
goods | |
| 2,992,853 | | |
| 1,429,479 | |
| Inventory
at cost | |
$ | 4,824,072 | | |
$ | 1,786,238 | |
| Less:
Reserve | |
| (146,178 | ) | |
| (140,000 | ) |
| Inventory | |
$ | 4,677,894 | | |
$ | 1,646,238 | |
NOTE
4 – PROPERTY AND EQUIPMENT
Property
and equipment (including machinery and equipment under capital leases) are summarized by major classifications as follows:
| Schedule
of property and equipment | |
| | | |
| | |
| | |
June
30, | |
December
31, |
| | |
2022 | |
2021 |
| Machinery
and Equipment | |
$ | 1,231,514 | | |
$ | 254,685 | |
| Leasehold
improvements | |
| 67,549 | | |
| 67,549 | |
| Furniture
and Fixtures | |
| 203,255 | | |
| 54,041 | |
| | |
| 1,502,318 | | |
| 376,275 | |
| Less:
Accumulated Depreciation | |
| (274,191 | ) | |
| (179,664 | ) |
| | |
$ | 1,228,127 | | |
$ | 196,611 | |
Depreciation
expense, including amortization of assets under Financing leases, for the three months ended June 30, 2022 and 2021 was $68,765
and $74,896,
respectively.
Depreciation
expense, including amortization of assets under Financing leases, for the six months ended June 30, 2022 and 2021 was $94,527
and $82,642,
respectively.
NOTE
5 – INTANGIBLE ASSETS
Intangible
assets as of June 30, 2022 and December 31, 2021 consist of the following:
| Schedule
of Intangible Assets | |
| | | |
| | |
| | |
June
30, | |
December
31, |
| | |
2022 | |
2021 |
| Intangible
assets subject to amortization | |
| | | |
| | |
| Customer
Relationship | |
$ | 7,323,000 | | |
$ | 7,323,000 | |
| Trade
Names | |
| 2,396,000 | | |
| 2,396,000 | |
| Patents | |
| 1,730,771 | | |
| 1,730,089 | |
| Technology
and Know How | |
| 8,341,000 | | |
| 8,341,000 | |
| | |
| 19,790,771 | | |
| 19,790,089 | |
| Less:
Accumulated Amortization | |
| (1,697,501 | ) | |
| (813,533 | ) |
| | |
$ | 18,093,270 | | |
$ | 18,976,556 | |
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
5 – INTANGIBLE ASSETS (CONTINUED)
During
the three months ended June 30, 2022 and 2021, the Company recorded total amortization expense related to intangible assets of $441,985
and $134,850,
respectively. During the six months ended June 30, 2022 and 2021, the Company recorded total amortization expense related to intangible
assets of $883,969 and
$224,750,
respectively.
The
useful lives of tradenames range from 5 to 10 years, technology is 10 years, customer relationships ranges from 7 to 14 years, and patents
range from 17 to 20 years.
Future
amortization of intangible assets is as follows:
| Future
amortization of intangible assets | | |
| | |
| For
the year ending December 31, | |
|
| 2022
(6 months) | | |
$ | 881,613 | |
| 2023 | | |
| 1,767,181 | |
| 2024 | | |
| 1,767,181 | |
| 2025 | | |
| 1,767,181 | |
| 2026 | | |
| 1,750,881 | |
| Thereafter | | |
| 10,159,233 | |
| Total | | |
$ | 18,093,270 | |
NOTE
6 – LOANS PAYABLE
The Company
entered into a loan agreement in April of 2019 where the company was required to pay $157,500
in five payments in the amount of $30,000
per year, with an additional $7,500,
representing interest, in year two to a loan holder. As of June 30, 2022, the company has an outstanding balance of $157,500,
and no payments have been made as of August 15, 2022.
Minimum
obligations under this loan agreement are as follows:
| Schedule
of minimum obligations under loan agreement | | |
| | |
| For
the year ending December 31, | |
|
| 2022 | | |
$ | 97,500 | |
| 2023 | | |
| 30,000 | |
| 2024 | | |
| 30,000 | |
| Total | | |
$ | 157,500 | |
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
7 – 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 Super Voting 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 Super Voting Preferred Shares issued and outstanding as of June 30, 2022. On July 11, 2022,
the Board of Directors approved the reissuance of 8,000
shares of the Company’s Series X Super
Voting Preferred Shares, which represent the remainder of the designated but unissued shares of Super Voting Preferred Stock.
On
March 9, 2022, the Board of Directors approved a resolution that authorized the senior management of the Company to purchase up to and
limited to one million shares of common stock between March 10, 2022 and September 30, 2022. As of June 30, 2022, the Company has a total
113,485 of
treasury shares, all of which were purchased during the 3 months ended June 30, 2022.
Pursuant
to the Company’s amended and restated certificate of incorporation, as amended, the Company is authorized to designate and issue
up to 20,000,000
shares of preferred stock, par value $0.0001
per share, in one or more classes or series.
During the year ended December 31, 2021, the Company had 10,000
preferred shares designated as Series X Preferred
Stock and 19,990,000 shares
of preferred stock designated 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 June 30, 2022. 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 $120,750
and $845,250
as restricted cash as of June 30, 2022 and December
31, 2021, respectively, as a reserve to pay the remaining required dividends for the first year.
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.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
7 – STOCKHOLDERS' EQUITY (continued)
2020
Incentive Plan
On
March 31, 2020, the Company adopted the Applied UV, Inc. 2020 Omnibus Incentive Plan (the “Plan”) with 600,000
shares of common stock available for issuance
under the terms of the Plan. On May 17, 2022, the shareholders of the Company approved an amendment to the Plan, increasing the shares
available for issuance to 2,500,000. 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 1,680,722
shares available for future grants under the
plan.
A
summary of the Company’s option activity and related information follows:
| Schedule
of the Company's option activity | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
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, 2021 | |
| 136,750 | | |
$ | 4.96 | | |
$ | 2.27 | | |
| 9.95 | | |
$ | — | |
| Options
granted | |
| 602,564 | | |
| 7.81 | | |
| 5.43 | | |
| 10 | | |
| — | |
| Options
forfeited | |
| (95,000 | ) | |
| 4.96 | | |
| 3.73 | | |
| | | |
| — | |
| Options
exercised | |
| — | | |
| — | | |
| — | | |
| | | |
| — | |
| Balances,
December 31, 2021 | |
| 644,314 | | |
$ | 7.11 | | |
$ | 5.03 | | |
| 8.47 | | |
$ | — | |
| Options
granted | |
| 444,000 | | |
| 1.60 | | |
| 1.10 | | |
| 10 | | |
| — | |
| Options
forfeited | |
| (269,036 | ) | |
| 7.28 | | |
| 4.72 | | |
| | | |
| — | |
| Options
exercised | |
| — | | |
| — | | |
| — | | |
| | | |
| — | |
| Balances,
June 30, 2022 | |
| 819,278 | | |
$ | 4.07 | | |
$ | 2.94 | | |
| 9.33 | | |
$ | — | |
| Vested
and Exercisable | |
| 220,989 | | |
$ | 6.78 | | |
| | | |
| | | |
$ | — | |
Share-based
compensation expense for options totaling $108,178
and $176,374
was recognized for the three months ended June
30, 2022 and 2021, respectively, based on requisite service periods.
Share-based
compensation expense for options totaling $330,240
and $196,890
was recognized for the six months ended June
30, 2022 and 2021, respectively, based on requisite service periods.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
7 – STOCKHOLDERS' EQUITY (continued)
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 June 30, 2022 there was $1,163,293
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 2.6 years.
The
weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the six months ended June
30, 2022 and 2021 are set forth in the table below.
| Schedule
of Share-based Payment Award, Stock Options, Valuation Assumptions | |
| | | |
| | |
| | |
2022 | |
2021 |
| Risk-free
interest rate | |
| 1.26%
to 2.82% | | |
| 1.23%
to 1.54% | |
| Volatility | |
| 78.95%
to 81.22% | | |
| 75.04%
to 85% | |
| Expected
life (years) | |
| 5.75-6.08 | | |
| 6.08-10 | |
| Dividend
yield | |
| 0.00 | % | |
| 0.00 | % |
Common
Stock Warrants
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 |
| Balances,
January 1, 2021 | |
| 235,095 | | |
$ | 5.89 | |
| Granted | |
| — | | |
| — | |
| Exercised | |
| (42,676 | ) | |
| — | |
| Balances,
December 31, 2021 | |
| 192,419 | | |
$ | 5.84 | |
| Granted | |
| — | | |
| — | |
| Exercised | |
| — | | |
| — | |
| Balances,
June 30, 2022 | |
| 192,419 | | |
$ | 5.84 | |
| | |
| | | |
| | |
| At
June 30, 2022 | |
| | | |
| | |
| Vested
and Exercisable | |
| 192,419 | | |
$ | 5.84 | |
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
7– STOCKHOLDERS' EQUITY (continued)
For
the three months ended June 30, 2022 and 2021, the Company recorded a gain (loss) on the change in fair value of warrant liability in
the amount of ($32,111)
and $10,948,
respectively. For the six months ended June 30, 2022 and 2021, the Company recorded a gain (loss) on the change in fair value of warrant
liability in the amount of $11,717
and ($300,452),
respectively. The Company valued the warrant using the Black-Scholes option pricing model with the following terms on date of grant of:
(a) exercise price of $6.5625, (b) volatility rate of 50.39%, (c) risk free rate of 0.26%, (d) term of five years, and (e) dividend rate
of 0%. The Company valued the warrant using the Black-Scholes option pricing model with the following terms on June 30, 2022: (a) exercise
price of $6.5625, (b) volatility rate of 85.32%, (c) risk free rate of 3.09%, (d) term of 3.37 years, and (e) dividend rate of 0%. The
Company valued the warrant using the Black-Scholes option pricing model with the following terms on December 31, 2021: (a) exercise price
of $6.5625, (b) volatility rate of 77.34%, (c) risk free rate of 0.98%, (d) term of 3.86 years, and (e) dividend rate of 0%.
Preferred
Stock Offering
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-1 (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 and were
approved for listing on Nasdaq under the trading symbol “AUVIP”. On July 29, 2021, in connection with its offering of its
10.5% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share, the Company 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 offering expenses.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
7 – STOCKHOLDERS' EQUITY (continued)
Common
Stock Offering
On
December 28, 2021, the Company closed a common stock offering in which it issued 2,666,667
common shares at a public offering price of $3.00
per share. In connection with the Offering, the
Company (i) received $8,000,000
less underwriting fees of $560,000
and offering Costs in the amount of $440,073,
resulting in net proceeds of $6,999,928.
On
January 5, 2022, the underwriters fully exercised their over-allotment option to purchase an additional 400,000
shares of common stock at the public offering
price of $3.00
per share. The Company received gross proceeds
of $1,200,000
for the over-allotment, which resulted in net
proceeds to us of $1,092,000,
after deducting underwriting discounts and commissions of $108,000.
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
the expense is amortized over the vesting period. These restricted stock awards are subject to time-based vesting conditions based on
the continued service of the restricted stock award holder. Restricted stock awards granted typically have an initial annual cliff vest
and then vest quarterly over the remaining service period, which is generally one to four years.
The following
table presents the restricted stock unit activity from January 1, 2021 through June 30, 2022
| Schedule
of Unvested Restricted Stock Units Activity | |
| | | |
| | |
| | |
Number
of
Shares | |
Weighted-
Average Fair Market Value |
| Unvested
shares at January 1, 2021 | |
| 187,555 | | |
$ | 5.00 | |
| Granted
and unvested | |
| 274,500 | | |
| 5.16 | |
| Vested | |
| (163,176 | ) | |
| 5.24 | |
| Forfeited/Cancelled | |
| (6,379 | ) | |
| 5.00 | |
| Unvested
shares, December 31, 2021 | |
| 292,500 | | |
$ | 4.71 | |
| Granted
and unvested | |
| 207,500 | | |
| 2.10 | |
| Vested | |
| (76,667 | ) | |
| — | |
| Forfeited/Cancelled | |
| (252,500 | ) | |
| — | |
| Unvested
shares, June 30, 2022 | |
| 170,833 | | |
$ | 2.11 | |
| | |
| | | |
| | |
| Vested
as of June 30, 2022 | |
| 282,371 | | |
$ | 5.01 | |
Upon
vesting, the restricted stock units are converted to common shares. Based on the terms of the restricted share and restricted stock unit
grants, all forfeited shares revert back to the Company.
In
connection with the grant of restricted shares, the Company recognized $4,271
and $289,225
of compensation expense within its statements
of operations for the three months ended June 30, 2022 and 2021, respectively.
In
connection with the grant of restricted shares, the Company recognized $70,209
and $479,451
of compensation expense within its statements
of operations for the six months ended June 30, 2022 and 2021, respectively.
The
unvested shares as of June 30, 2022 represent $312,313
in unrecognized stock based compensation which
will be recognized over a weighted average period of 2.53 years.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
8 - 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 7.6%
based on the information available at commencement date in determining the present value of lease payments.
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 Kennesaw, Georgia for office and production space for a term that commenced
on September 29, 2021 and will expire on October 1, 2024, with monthly payments ranging from approximately $14,700 to $15,600 per month.
On
April 1, 2022, the Company entered into a lease agreement in Brooklyn, New York for office and production space that commenced on April
1, 2022 and will expire on June 1, 2023, with monthly payments ranging from approximately $94,500 to $97,400 per month.
Rent
expense for the three months ended June 30, 2022 and 2021 was $427,222
and $43,400,
respectively. Rent expense for the six months ended June 30, 2022 and 2021 was $529,021
and $46,800,
respectively.
Schedule
maturities of operating lease liabilities outstanding as of June 30, 2022 are as follows:
| Schedule
of maturities of operating lease liabilities | | |
| | |
| Years
Ended December 31, | |
|
| 2022
(6 months) | | |
$ | 838,888 | |
| 2023 | | |
| 1,097,603 | |
| 2024 | | |
| 470,532 | |
| 2025 | | |
| 349,800 | |
| Thereafter... | | |
| 174,900 | |
| Total
lease payments | | |
| 2,931,723 | |
| Less:
Imputed Interest | | |
| (264,539 | ) |
| Present
value of future minimum lease payments | | |
$ | 2,667,184 | |
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.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
9 - 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 $296,827.
The amount was approved, and the Company has received the funds. The PPP Loan, which is in the form of a PPP promissory note and agreement,
matures in April of 2025 and bears interest at a rate of 1.00% per annum. The Lender will have 90 days to review borrower’s forgiveness
application and the SBA will have an additional 60 days to review the Lender’s decision as to whether the borrower’s loan
may be forgiven. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered
utilities, and certain covered mortgage interest payments during the twenty-four-week period beginning on the date of first disbursement
of the PPP Loan. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee earning more than $100,000,
prorated annually. Not
more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries
and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. The loan was forgiven in July of 2021
and in accordance with ASC 470, the amount was recorded as other income.
NOTE
10- 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 $500,000
to the entity. The note receivable was recorded
at cost basis which approximates fair value because of the short-term maturity of the instrument. The loan matures on the earlier of
(i) 180 days from the issuance date or (ii) the closing of the transactions set forth in a definitive acquisition entered into between
the lender and the borrower. In the event the loan is paid in full on or before the maturity date, there shall be no interest accrued
or payable on the outstanding principal amount. If an acquisition occurs, the $500,000
will be applied against the total acquisition
price. If the company decides not to execute a definitive agreement within 180 days from the issuance date, the maturity date shall be
the one-year anniversary of the issuance date. The maturity date has since been extended to November 30, 2021. The acquisition did not
occur and the full amount of $500,000 was
repaid on November 30, 2021.
NOTE
11 - 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 (disinfectant segment) and the manufacture of fine
mirrors and custom furniture specifically for the hospitality and retail industries (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.
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
11 - SEGMENT REPORTING (continued)
| Schedule
of segment reporting | |
| | | |
| | | |
| | | |
| | |
| | |
Hospitality | |
Disinfectant | |
Corporate | |
Total |
| Balance
sheet at June 30, 2022 | |
| | | |
| | | |
| | | |
| | |
| Assets | |
$ | 7,302,345 | | |
$ | 26,979,356 | | |
$ | 2,725,197 | | |
$ | 37,006,898 | |
| Liabilities | |
$ | 6,158,065 | | |
$ | 1,721,894 | | |
$ | 381,442 | | |
$ | 8,261,401 | |
| Balance
sheet at December 31, 2021 | |
| | | |
| | | |
| | | |
| | |
| Assets | |
$ | 2,158,789 | | |
$ | 27,851,691 | | |
$ | 8,515,512 | | |
$ | 38,525,992 | |
| Liabilities | |
$ | 2,481,186 | | |
$ | 1,528,706 | | |
$ | 1,850,341 | | |
$ | 5,860,233 | |
| | |
Hospitality | |
Disinfectant | |
Corporate | |
Total |
| Income
Statement for the three months ended June 30, 2022: | |
| | | |
| | | |
| | | |
| | |
| Net
Sales | |
$ | 4,169,112 | | |
$ | 1,738,534 | | |
$ | — | | |
$ | 5,907,646 | |
| Cost
of Goods Sold | |
$ | 3,695,267 | | |
$ | 908,587 | | |
$ | — | | |
$ | 4,603,854 | |
| Research
and development | |
$ | — | | |
$ | 82,049 | | |
$ | — | | |
$ | 82,049 | |
| Selling,
General and Administrative expenses | |
$ | 1,225,609 | | |
$ | 2,070,874 | | |
$ | 734,732 | | |
$ | 4,031,215 | |
| | |
| | | |
| | | |
| | | |
| | |
| Income
Statement for the three months ended June 30, 2021: | |
| | | |
| | | |
| | | |
| | |
| Net
Sales | |
$ | 964,618 | | |
$ | 919,702 | | |
$ | — | | |
$ | 1,884,320 | |
| Cost
of Goods Sold | |
$ | 746,451 | | |
$ | 604,640 | | |
$ | — | | |
$ | 1,351,091 | |
| Research
and development | |
$ | — | | |
$ | 9,763 | | |
$ | — | | |
$ | 9,763 | |
| Selling,
General and Administrative expenses | |
$ | 907,359 | | |
$ | 1,791,123 | | |
$ | — | | |
$ | 2,698,482 | |
| | |
Hospitality | |
Disinfectant | |
Corporate | |
Total |
| Income
Statement for the six months ended June 30, 2022: | |
| | | |
| | | |
| | | |
| | |
| Net
Sales | |
$ | 5,578,362 | | |
$ | 3,685,374 | | |
$ | — | | |
$ | 9,263,736 | |
| Cost
of Goods Sold | |
$ | 4,853,911 | | |
$ | 1,956,934 | | |
$ | — | | |
$ | 6,810,845 | |
| Research
and development | |
$ | — | | |
$ | 141,363 | | |
$ | — | | |
$ | 141,363 | |
| Selling,
General and Administrative expenses | |
$ | 1,970,708 | | |
$ | 3,878,370 | | |
$ | 1,283,363 | | |
$ | 7,132,441 | |
| Loss
on impairment of goodwill | |
$ | — | | |
$ | 1,138,203 | | |
$ | — | | |
$ | 1,138,203 | |
| | |
| | | |
| | | |
| | | |
| | |
| Income
Statement for the six months ended June 30, 2021: | |
| | | |
| | | |
| | | |
| | |
| Net
Sales | |
$ | 2,532,469 | | |
$ | 1,664,466 | | |
$ | — | | |
$ | 4,196,935 | |
| Cost
of Goods Sold | |
$ | 1,817,775 | | |
$ | 921,665 | | |
$ | — | | |
$ | 2,739,440 | |
| Research
and development | |
$ | — | | |
$ | 53,408 | | |
$ | — | | |
$ | 53,408 | |
| Selling,
General and Administrative expenses | |
$ | 1,563,360 | | |
$ | 2,736,639 | | |
$ | — | | |
$ | 4,299,999 | |
Applied
UV, Inc. and Subsidiaries
Notes
to the Condensed Consolidated Financial Statements
NOTE
12 – PROFORMA FINANCIAL STATEMENTS (UNAUDITED)
Unaudited
Supplemental Pro Forma Data
Unaudited
pro forma results of operations for the three and six months ended June 30, 2022 and 2021 as though the company acquired Akida, KES,
Visionmark, and SciAir (the “Acquired Companies”) on January 1, 2021 is set forth below.
| Business
Acquisition, Pro Forma Information | |
| | | |
| | | |
| | | |
| | |
| | |
Three
Months Ended
June 30, | |
Six
Months Ended
June 30, |
| | |
2022 | |
2021 | |
2022 | |
2021 |
| Net
Sales | |
$ | 5,907,646 | | |
$ | 4,244,035 | | |
$ | 9,263,736 | | |
$ | 10,255,681 | |
| Net
Loss | |
$ | (2,888,655 | ) | |
$ | (2,309,018 | ) | |
$ | (4,538,527 | ) | |
$ | (3,552,238 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net
Loss attributable to common stockholders: | |
| | | |
| | | |
| | | |
| | |
| Dividends
to preferred shareholders | |
| (362,250 | ) | |
| — | | |
| (724,500 | ) | |
| — | |
| Net
Loss attributable to common stockholders | |
| (3,250,905 | ) | |
| 2,309,018 | | |
| (5,263,027 | ) | |
| (3,552,238 | ) |
| Basic
and Diluted Loss Per Common Share | |
$ | (0.26 | ) | |
$ | (0.24 | ) | |
$ | (0.41 | ) | |
$ | (0.36 | ) |
| Weighted
Average Shares Outstanding - basic and diluted | |
| 12,665,385 | | |
| 9,726,644 | | |
| 12,799,783 | | |
| 9,747,104 | |
NOTE
13 – SUBSEQUENT EVENTS
On
July 1, 2022, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission to register and
aggregate $50,000,000 of securities which may be issued in the form of common stock, preferred stock, warrants, debt securities, rights
or units. Such securities will be offered pursuant to the base prospectus contained in the shelf registration statement and a prospectus
supplement that will be prepared and filed at the time of any offering. Also, included in the registration statement was a second
prospectus which provides for the issuance of $9,000,000 of the Company’s common stock in at-the-market transactions pursuant to
an equity distribution agreement dated July 1, 2022 between the Company and Maxim Group LLC, as sales agent. The shelf registration
statement will expire on July 12, 2025.