Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number 001-39480

APPLIED UV, INC.

(Exact name of registrant as specified in its charter)

Delaware		84-4373308
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

150 N. Macquesten Parkway

Mount Vernon, NY 10550

(Address of principal executive offices)

(914) 665-6100

(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.

Yes ☒ No ☐

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).

Yes ☒ No ☐

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	☐
Non-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 ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	AUVI	The Nasdaq Stock Market LLC
10.5% Series A Cumulative Perpetual Preferred Stock, $0.0001 par value per share	AUVIP	The Nasdaq Stock Market LLC

As of November 15, 2022, the Company has 12,817,189 shares outstanding.

APPLIED UV, INC. & SUBSIDIARIES

INDEX TO FORM 10-Q

	Page #
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	3
Condensed Interim Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021	4
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021	5
Condensed Interim Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2022 and 2021	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3. Quantitative and Qualitative Disclosures About Market Risk	40
Item 4. Controls and Procedures	40
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3. Defaults Upon Senior Securities	42
Item 4. Mine Safety Disclosures	42
Item 5. Other Information	42
Item 6. Exhibits	42
Signatures	43

PART I

Item 1. Financial Statements

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

As of September 30, 2022 and December 31, 2021


	2022			2021
Assets
Current Assets
Cash and cash equivalents	$	1,056,233		$	7,922,906
Restricted cash		—			845,250
Accounts receivable, net of allowance for doubtful accounts		1,631,432			986,253
Costs and estimated earnings in excess of billings		416,021			—
Inventory, net		4,435,594			1,646,238
Vendor deposits		294,484			992,042
Prepaid expense and other current assets		900,340			419,710
Total Current Assets		8,734,104			12,812,399
Property and equipment, net of accumulated depreciation		1,183,791			196,611
Goodwill		3,722,077			4,809,811
Other intangible assets, net of accumulated amortization		17,651,286			18,976,556
Right of use asset		2,276,384			1,730,615
Total Assets	$	33,567,642		$	38,525,992

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses	$	2,224,405		$	1,642,108
Contingent consideration		—			1,460,000
Billings in excess of costs and earnings on uncompleted contracts		134,342			—
Deferred revenue		1,940,272			788,776
Due to landlord (Note 2)		214,766			—
Warrant liability		21,742			68,263
Financing lease obligations		2,402			7,671
Operating lease liability		1,265,505			389,486
Note payable		277,103			—
Loan payable		97,500			97,500
Total Current Liabilities		6,178,037			4,453,804
Long-term Liabilities
Due to landlord-less current portion (Note 2)		456,062			—
Loan payable- less current portion		60,000			60,000
Operating lease liability-less current portion		1,031,239			1,346,428
Total Long-Term Liabilities		1,547,301			1,406,428
Total Liabilities		7,725,338			5,860,232

Stockholders' Equity
Preferred stock, Series A Cumulative Perpetual, $0.0001 par value, 19,990,000 shares authorized, 552,000 shares issued and outstanding as of both September 30, 2022 and December 31, 2021		55			55
Preferred stock, Series X, $0.0001 par value, 10,000 shares authorized, 10,000 shares issued and outstanding as of September 30, 2022, and 2,000 shares issued and outstanding as of December 31, 2021		1			1
Common stock $.0001 par value, 150,000,000 shares authorized; 12,930,674 shares issued and 12,817,189 outstanding as of September 30, 2022, and 12,775,674 shares issued and outstanding as of December 31, 2021		1,294			1,278
Treasury stock at cost, 113,485 shares as of September 30, 2022, and 0 shares as of December 31, 2021, respectively		(149,686	)		—
Additional paid-in capital		44,529,586			42,877,622
Accumulated deficit		(18,538,946	)		(10,213,196	)
Total Stockholders' Equity		25,842,304			32,665,760
Total Liabilities and Stockholders' Equity	$	33,567,642		$	38,525,992

See accompanying notes to the unaudited condensed consolidated financial statements.

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Interim Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2022 and 2021


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net Sales	$	5,875,611		$	3,551,564		$	15,139,347		$	7,748,499
Cost of Goods Sold		5,036,997			2,500,163			11,847,842			5,231,155
Gross Profit		838,614			1,051,401			3,291,505			2,517,344

Operating Expenses
Research and development		93,522			—			234,885			53,408
Selling general and administrative expenses		3,505,097			2,683,025			10,637,538			6,991,472
Loss on impairment of goodwill		—			—			1,138,203			—
Total Operating Expenses		3,598,619			2,683,025			12,010,626			7,044,880
Operating Loss		(2,760,005	)		(1,631,624	)		(8,719,121	)		(4,527,536	)

Other Income (Expense)
Change in Fair Market Value of Warrant Liability		34,804			151,570			46,521			(148,882	)
Interest expense		(43,037	)		—			(96,113	)		—
Loss on change in Fair Market Value of Contingent Consideration		—			—			(240,000	)		—
Gain on Settlement of Contingent Consideration (Note 2)		—			—			1,700,000			—
Other Income		67,765			1,068			69,713			26,250
Forgiveness of paycheck protection program loan		—			296,827			—			296,827
Total Other Income (Expense)		59,532			449,465			1,480,121			174,195
Loss Before Provision for Income Taxes		(2,700,473	)		(1,182,159	)		(7,239,000	)		(4,353,341	)
Benefit from Income Taxes		—			(101,354	)		—			(101,354	)
Net Loss	$	(2,700,473	)	$	(1,080,805	)	$	(7,239,000	)	$	(4,251,987	)

Net Loss attributable to common stockholders:
Dividends to preferred shareholders		(362,250	)		(241,500	)		(1,086,750	)		(241,500	)
Net Loss attributable to common stockholders		(3,062,723	)		(1,322,305	)		(8,325,750	)		(4,493,487	)

Basic and Diluted Loss Per Common Share	$	(0.24	)	$	(0.14	)	$	(0.65	)	$	(0.48	)
Weighted Average Shares Outstanding - basic and diluted		12,656,093			9,421,908			12,751,360			9,282,675

See accompanying notes to the unaudited condensed consolidated financial statements.

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity

For the Three and Nine Months Ended September 30, 2022 and 2021


	Preferred Stock Series A Cumulative			Preferred Stock Series X			Common Stock					Treasury Stock					Additional Paid-In Capital			Retained Earnings			Total Stockholders Equity
Balance, January 1, 2021	—	$	—	2,000	$	1	7,945,034		$	795		—	$	—		$	11,973,051		$	(2,219,091	)	$	9,754,756
Shares granted to settle previously recorded liability	—		—	—		—	3,000			—		—		—			21,420			—			21,420
Warrant liability recognized in connection with initial issuance of November offering (See Note 7)	—		—	—		—	—			—		—		—			(135,125	)		—			(135,125	)
Exercise of warrants	—		—	—		—	17,135			2		—		—			1,155			—			1,157
Common stock issued for acquisition	—		—	—		—	1,375,000			137		—		—			7,122,363			—			7,122,500
Stock-based compensation	—		—	—		—	62,500			6		—		—			210,735			—			210,741
Net loss	—		—	—		—	—			—		—		—			—			(1,032,951	)		(1,032,951	)
Balance, March 31, 2021	—		—	2,000		1	9,402,669			940		—		—			19,193,599			(3,252,042	)		15,942,498
Exercise of warrants	—		—	—		—	717			—		—		—			—			—			—
Stock-based compensation	—		—	—		—	12,000			2		—		—			465,598			—			465,600
Net loss	—		—	—		—	—			—		—		—			—			(2,138,232	)		(2,138,232	)
Balance, June 30, 2021	—		—	2,000		1	9,415,386			942		—		—			19,659,197			(5,390,274	)		14,269,866
Preferred stock issued in public offering, net of costs	552,000		55	—		—	—			—		—		—			12,272,385			—			12,272,440
Common stock issued for acquisition	—		—	—		—	300,000			30		—		—			1,958,970			—			1,959,000
Stock-based compensation	—		—	—		—	—			—		—		—			426,268			—			426,268
Dividends paid to preferred shareholders	—		—	—		—	—			—		—		—			—			(241,500	)		(241,500	)
Net loss	—		—	—		—	—			—		—		—			—			(1,080,804	)		(1,080,804	)
Balance, September 30, 2021	552,000	$	55	2,000	$	1	9,715,386		$	972		—	$	—		$	34,316,820		$	(6,712,578	)	$	27,605,270

Balance, January 1, 2022	552,000		55	2,000		1	12,775,674			1,278		—		—			42,877,622			(10,213,196	)		32,665,760
Settlement of stock in connection with prior acquisition (note 2)	—		—	—		—	(400,000	)		(40	)	—		—			40			—			—
Common stock issued in public offering (over-allotment), net of costs	—		—	—		—	400,000			40		—		—			1,091,960			—			1,092,000
Stock-based compensation	—		—	—		—	112,500			11		—		—			287,988			—			287,999
Dividends paid to preferred shareholders	—		—	—		—	—			—		—		—			—			(362,250	)		(362,250	)
Net loss	—		—	—		—	—			—		—		—			—			(1,649,872	)		(1,649,872	)
Balance, March 31, 2022	552,000		55	2,000		1	12,888,174			1,289		—		—			44,257,610			(12,225,318	)		32,033,637
Cancellation of restricted shares	—		—	—		—	(52,500	)		(5	)	—		—			5			—			—
Stock-based compensation	—		—	—		—	95,000			10		—		—			112,441			—			112,451
Treasury Shares repurchased	—		—	—		—	(113,485	)		—		113,485		(149,686	)		—			—			(149,686	)
Dividends paid to preferred shareholder	—		—	—		—	—			—		—		—			—			(362,250	)		(362,250	)
Net Loss	—		—	—		—	—			—		—		—			—			(2,888,655	)		(2,888,655	)
Balance, June 30, 2022	552,000		55	2,000		1	12,817,189			1,294		113,485		(149,686	)		44,370,056			(15,476,223	)		28,745,497
Stock-based compensation	—		—	—		—	—			—		—		—			159,530			—			159,530
Reissuance of preferred stock Series X	—		—	8,000		—	—			—		—		—			—			—			—
Dividends paid to preferred shareholder	—		—	—		—	—			—		—		—			—			(362,250	)		(362,250	)
Net Loss	—		—	—		—	—			—		—		—			—			(2,700,473	)		(2,700,473	)
Balance, September 30, 2022	552,000	$	55	10,000	$	1	12,817,189		$	1,294		113,485	$	(149,686	)	$	44,529,586		$	(18,538,946	)	$	25,842,304

See accompanying notes to the unaudited condensed consolidated financial statements.

Applied UV, Inc. and Subsidiaries

Condensed Interim Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2022 and 2021


	2022			2021
Cash flows from Operating Activities
Net Loss	$	(7,239,000	)	$	(4,251,987	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities
Stock based compensation		559,980			1,102,609
Bad debt expense (recovery)		94,714			(70,004	)
Forgiveness of paycheck protection program loan		—			(296,827	)
Change in fair market value of warrant liability		(46,521	)		148,882
Gain on settlement of loan payable		—			(20,000	)
Loss on change in fair market value of contingent consideration (Note 2)		240,000			—
Gain on settlement of contingent consideration		(1,700,000	)		—
Loss on impairment of goodwill		1,138,203			—
Amortization of right-of-use asset		834,889			539,692
Depreciation and amortization		1,484,968			481,040
Amortization of debt discount		53,646			—
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(103,343	)		113,967
Cost and estimated earnings excess of billings		(234,869	)		—
Inventory		(2,612,773	)		(313,994	)
Vendor deposits		697,558			(925,366	)
Prepaid expenses and other current assets		(161,797	)		84,828
Income taxes payable		—			(173,716	)
Accounts payable and accrued expenses		582,297			(645,183	)
Billings in excess of costs and earnings on uncompleted contracts		(1,254,496	)		—
Deferred revenue		1,151,496			(422,793	)
Due to landlord		(138,724	)		—
Operating lease payments		(819,828	)		(537,712	)
Net Cash Used in Operating Activities		(7,473,600	)		(5,186,564	)

Cash Flows From Investing Activities
Cash paid for patent costs		(682	)		(19,001	)
Purchase of machinery and equipment		(46,196	)		—
Acquisitions, net of cash acquired (Note 2)		(10	)		(5,060,193	)
Payments on note payable		(41,730	)		—
Note receivable, related party		—			(500,000	)
Net Cash Used in Investing Activities		(88,618	)		(5,579,194	)

Cash Flows From Financing Activities
Payments on financing leases		(5,269	)		(4,943	)
Proceeds from warrant exercise		—			1,157
Shares repurchased		(149,686	)		—
Dividends to preferred shareholders		(1,086,750	)		(241,500	)
Settlement of loan payable		—			(65,000	)
Proceeds from equity raises, net		1,092,000			12,272,440
Net Cash (Used in) Provided by Financing Activities		(149,705	)		11,962,154

Net (Decrease) Increase in Cash and equivalents		(7,711,923	)		1,196,396
Cash, restricted cash, and cash equivalents beginning		8,768,156			11,757,930
Cash, restricted cash, and cash equivalents ending	$	1,056,233		$	12,954,326

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest	$	101,365		$	1,022
Income taxes	$	—		$	185,105
Supplemental Non-Cash Items
Initial recognition of warrant liability	$	—		$	135,125
Shares granted to settle previously recorded liability	$	—		$	21,420
Recognition ofright of use asset – operating lease	$	1,380,658		$	—
Issuance of Note Payable for payment of prepaid expense	$	318,833		$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

Applied UV, Inc. and Subsidiaries

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.

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 September 30, 2022 and December 31, 2021, the Company had $26,801 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 $9,000 as of both September 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 $88,000 and $140,000 as of September 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 September 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.

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.

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 September 30,
	2022		2021
Common stock options		890,028		589,314
Common stock warrants		192,419		192,419
Total		1,082,447		781,733

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:

Identify the contract with a customer.

Identify the performance obligations in the contract.

Determine the transaction price.

Allocate the transaction price to performance obligations in the contract.

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
	September 30,
	2022		2021
Recognized over time	$	3,306,739	$	322,656
Recognized at a point in time		2,568,872		3,228,909
	$	5,875,611	$	3,551,565

Revenue recognized over time and revenue recognized at a point in time for the nine months ended:

Schedule of revenue:

	September 30,
	2022		2021
Recognized over time	$	6,719,888	$	1,097,793
Recognized at a point in time		8,419,459		6,650,706
	$	15,139,347	$	7,748,499

Deferred revenue was comprised of the following as of:

	September 30,		December 31,
	2022		2021
Recognized over time	$	1,035,444	$	94,868
Recognized at a point in time		904,828		693,908
	$	1,940,272	$	788,776

The Company recognized $48,112 of deferred revenue as of December 31, 2021 as revenue during the three months ended September 30, 2022. The Company recognized $786,707 of deferred revenue as of December 31, 2021 as revenue during the nine months ended September 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 September 30, 2022 and 2021 was $264,614 and $315,115. Advertising expense for the nine months ended September 30, 2022 and 2021 was $810,986 and $624,549.

Vendor deposits

Vendor payments to third manufactures are capitalized until completion of the project and are recorded as vendor deposits. As of September 30, 2022 and December 31, 2021, the vendor deposit balance was $294,484 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 September 30, 2022 and December 31, 2021, capitalized patent costs net of accumulated amortization was $1,618,757 and $1,693,124, respectively. For the three months ended September 30, 2022 and 2021, the Company recorded $25,016 and $7,030, respectively, of amortization expense for these patents. For the nine months ended September 30, 2022 and 2021, the Company recorded $75,048 and $11,957, 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 the acquisitions as a 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 nine months ended September 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 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 nine months ended September 30, 2022. There was no impairment of goodwill recorded during the mime months ended September 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 September 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 (3 months)	$	93,172
2023		372,684
2024		372,684
2025		93,174
Total		931,714
Less: Unamortized discount		(260,886	)
Total amount due to landlord		670,828
Less: current portion of amount due to landlord, net of discount		(214,766	)
Total long-term portion of amount due to landlord	$	456,062

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
	September 30,			December 31,
	2022			2021
Raw materials	$	436,408		$	356,759
Work in process		402,445			—
Finished goods		3,684,533			1,429,479
Inventory at cost	$	4,523,386		$	1,786,238
Less: Reserve		(87,792	)		(140,000	)
Inventory	$	4,435,594		$	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
	September 30,			December 31,
	2022			2021
Machinery and Equipment	$	1,251,666		$	254,685
Leasehold improvements		67,549			67,549
Furniture and Fixtures		203,256			54,041
		1,522,471			376,275
Less: Accumulated Depreciation		(338,680	)		(179,664	)
	$	1,183,791		$	196,611

Depreciation expense, including amortization of assets under Financing leases, for the three months ended September 30, 2022 and 2021 was $64,489 and $26,840, respectively.

Depreciation expense, including amortization of assets under Financing leases, for the nine months ended September 30, 2022 and 2021 was $159,016 and $109,482, respectively.

NOTE 5 – INTANGIBLE ASSETS

Intangible assets as of September 30, 2022 and December 31, 2021 consist of the following:

Schedule of Intangible Assets
	September 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		(2,139,485	)		(813,533	)
	$	17,651,286		$	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 September 30, 2022 and 2021, the Company recorded total amortization expense related to intangible assets of $441,984 and $134,850, respectively. During the nine months ended September 30, 2022 and 2021, the Company recorded total amortization expense related to intangible assets of $1,325,953 and $359,600, respectively.

The useful lives of tradenames ranges 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:


For the year ending December 31,
2022 (3 months)	$	439,629
2023		1,767,181
2024		1,767,181
2025		1,767,181
2026		1,750,881
Thereafter		10,159,233
Total	$	17,651,286

NOTE 6 – NOTE PAYABLE

On August 28, 2022, the Company entered into a one-year Directors and Officers Liability Insurance agreement for $318,833. Under the terms of the agreement, the Company made a down payment of $41,730, with the remaining balance financed over the remaining term at an annual percentage rate of 5.05%. Beginning in September 2022, the Company is making 10 monthly payments of $27,710, with the last payment expected to be made in June 2023. At September 30, 2022, the outstanding balance on the note payable was $277,103. The interest expense for the three and nine months ended September 30, 2022 was immaterial to the consolidated financial statements.

NOTE 7 – LOAN 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 September 30, 2022, the company has an outstanding balance of $157,500, and no payments have been made as of November 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 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 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 now 10,000 Series X Super Voting Preferred Shares issued and outstanding as of September 30, 2022. On July 11, 2022, the Board of Directors had approved the reissuance of 8,000 shares of the Company’s Series X Super Voting Preferred Shares, which represented 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 September 30, 2022, the Company has a total 113,485 of treasury shares, all of which were purchased during the three 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 September 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 $-0- and $845,250 as restricted cash as of September 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 8 – STOCKHOLDERS' EQUITY (continued)

On July 11, 2022, the Board of Directors of Applied UV, Inc. (the “Company”) approved the reissuance of 8,000 shares of the Company’s Series X Super Voting Preferred Stock (the “Super Voting Preferred Stock”) to The Munn Family 2020 Irrevocable Trust, for which Max Munn, the founder, a director and President of the Company is the trustee, which represent the remainder of the designated but unissued shares of Super Voting Preferred Stock. The Company has 10,000 shares of preferred stock designated as Super Voting Preferred Stock and after the issuance of the 8,000 shares, Mr. Munn will beneficially own all 10,000 shares of the Super Voting Preferred Stock. Mr. Munn previously held all 10,000 shares of Super Voting Preferred Stock prior to a reverse stock split that was effected by the Company. In accordance with Nasdaq rules, the Company will not be able to designate or issue any additional shares of the Super Voting Preferred Stock. The Super Voting Preferred Stock has no rights other than the right to 1,000 votes per share (voting along with the common stock as a single class on all matters). The shares of Super Voting Preferred Stock was issued on July 13, 2022.

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 1,609,972 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		529,000			1.63		1.16		10		—
Options forfeited		(283,286	)		7.20		4.53				—
Options exercised		—			—		—				—
Balances, September 30, 2022		890,028		$	3.83	$	2.78		8.22	$	—
Vested and Exercisable		260,768		$	6.78					$	—

Share-based compensation expense for options totaling $118,030 and $236,043 was recognized for the three months ended September 30, 2022 and 2021, respectively, based on requisite service periods.

Share-based compensation expense for options totaling $448,270 and $432,933 was recognized for the nine months ended September 30, 2022 and 2021, respectively, based on requisite service periods.

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 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, 2022 there was $1,166,641 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 2.7 years.

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the nine months ended September 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 3.46%			1.02% to 1.54%
Volatility		78.95% to 88.41%			75.04% to 85%
Expected life (years)		5.75 to 6.08			5.36 to 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, September 30, 2022		192,419		$	5.84

At September 30, 2022
Vested and Exercisable		192,419		$	5.84

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 8– STOCKHOLDERS' EQUITY (continued)

For the three months ended September 30, 2022 and 2021, the Company recorded a gain on the change in fair value of warrant liability in the amount of $34,804 and $151,570, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded a gain (loss) on the change in fair value of warrant liability in the amount of $46,521 and ($148,882), 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 September 30, 2022: (a) exercise price of $6.5625, (b) volatility rate of 85.32%, (c) risk free rate of 3.09%, (d) term of 3.12 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 8 – 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 September 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		(87,084	)		—
Forfeited/Cancelled		(252,500	)		—
Unvested shares, September 30, 2022		160,416		$	2.12

Vested as of September 30, 2022		292,788		$	4.90

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 $41,501 and $190,225 of compensation expense within its statements of operations for the three months ended September 30, 2022 and 2021, respectively.

In connection with the grant of restricted shares, the Company recognized $111,710 and $669,676 of compensation expense within its statements of operations for the nine months ended September 30, 2022 and 2021, respectively.

The unvested shares as of September 30, 2022 represent $270,813 in unrecognized stock based compensation which will be recognized over a weighted average period of 2.28 years.

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 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 a rate ranging from $14,729 to $15,626 per month.

On April 1, 2022, the Company entered into a lease agreement in Brooklyn, New York for office and production space the commenced on April 1, 2022 and will expire on June 1, 2023, with a rate ranging from $94,529 to $97,365 per month.

Rent expense for the three months ended September 30, 2022 and 2021 was $380,852 and $177,013, respectively. Rent expense for the nine months ended September 30, 2022 and 2021 was $909,873 and $223,813 respectively.

Schedule maturities of operating lease liabilities outstanding as of September 30, 2022 are as follows:

Year Ended December 31,


2022 (3 months)	$	420,107
2023		1,097,603
2024		480,532
2025		349,800
Thereafter...		174,900
Total lease payments		2,522,942
Less: Imputed Interest		(226,198	)
Present value of future minimum lease payments	$	2,296,744

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 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 $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 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 $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 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 (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 12 - SEGMENT REPORTING (continued)

Schedule of segment reporting
	Hospitality		Disinfectant		Corporate		Total
Balance sheet at September 30, 2022
Assets	$	6,563,520	$	26,469,870	$	534,252	$	33,567,642
Liabilities		5,747,415		1,259,278		718,645		7,725,338
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		1,850,340		5,860,232

	Hospitality		Disinfectant		Corporate		Total
Income Statement for the three months ended September 30, 2022:
Net Sales	$	4,282,030	$	1,593,581	$	—	$	5,875,611
Cost of Goods Sold		4,117,717		919,280		—		5,036,997
Research and development		—		93,522		—		93,522
Selling, General and Administrative expenses		965,511		1,932,858		606,728		3,505,097
Income Statement for the three months ended September 30, 2021:
Net Sales	$	1,750,227	$	1,801,337	$	—	$	3,551,564
Cost of Goods Sold		1,451,560		1,048,603		—		2,500,163
Selling, General and Administrative expenses		788,173		1,894,852		—		2,683,025

	Hospitality		Disinfectant		Corporate		Total
Income Statement for the nine months ended September 30, 2022:
Net Sales	$	9,860,392	$	5,278,955	$	—	$	15,139,347
Cost of Goods Sold		8,971,628		2,876,214		—		11,847,842
Research and development		—		234,885		—		234,885
Loss on impairment of goodwill		—		1,138,203		—		1,138,203
Selling, General and Administrative expenses		2,936,219		5,811,228		1,890,091		10,637,538
Income Statement for the nine months ended September 30, 2021:
Net Sales	$	4,282,696	$	3,465,803	$	—	$	7,748,499
Cost of Goods Sold		3,269,335		1,961,820		—		5,231,155
Research and development		—		53,408		—		53,408
Selling, General and Administrative expenses		2,351,533		4,639,939		—		6,991,472

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 13 – PROFORMA FINANCIAL STATEMENTS (UNAUDITED)

Unaudited Supplemental Pro Forma Data

Unaudited pro forma results of operations for the three and nine months ended September 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.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net Sales	$	5,875,611		$	5,894,136		$	15,139,347		$	16,149,817
Net Loss		(2,700,473	)		(1,629,337	)		(7,239,000	)		(5,181,575	)

Net Loss attributable to common stockholders:
Dividends to preferred shareholders		(362,250	)		—			(1,086,750	)		—
Net Loss attributable to common stockholders		(3,062,723	)		1,629,337			(8,325,750	)		(5,181,575	)
Basic and Diluted Loss Per Common Share	$	(0.24	)	$	(0.17	)	$	(0.65	)	$	(0.53	)
Weighted Average Shares Outstanding - basic and diluted		12,656,093			9,799,123			12,751,360			9,764,634

NOTE 14 – SUBSEQUENT EVENTS

On October 7, 2022, the Company executed a Redeemable Promissory Note with Streeterville Capital, LLC, in the amount of $2,807,500 (the “Note”). The Note matures eighteen (18) months from its issuance date of October 7, 2022 and bears interest at 8% per annum on the outstanding principal balance of the Note, except no interest accrues on any amount attributable to the monitoring fee referred to below. The original principal balance of the Note consists of the purchase price of $2,500,000, an original discount of $237,000, a monitoring fee of $50,000 and a transaction fee of $20,000. Beginning on April 7, 2023, the Investor shall have the right in any month to cause the Company to redeem up to $247,500 of the principal amount of the Note in such month. The Company may elect, in its sole discretion, to redeem such portions of the Note in cash or in its common stock or in any combination thereof. If redemptions are made by the Company with its common stock, such stock will be valued at 87.5% of the Nasdaq Minimum Price.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements made in this prospectus are “forward-looking statements” regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the “Company” to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company’s plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and therefore, there can be no assurance the forward-looking statements included in this prospectus will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and in other parts of this prospectus. Our fiscal year ends on December 31.

Overview

Applied UV is focused on the development and acquisition of technology that addresses infection control in the healthcare, hospitality, government, food and beverage, education, cannabis, entertainment and consumer markets. The Company has two wholly owned subsidiaries - SteriLumen, Inc. (“SteriLumen”) and MunnWorks, LLC (“MunnWorks”).

SteriLumen applies the power of ultraviolet light (UVC) to destroy pathogens safely, thoroughly, and automatically, addressing the challenge of healthcare-acquired infections ("HAIs"). Targeted for use in facilities that have high customer turnover such as hospitals, hotels, commercial facilities, and other public spaces, the Company’s Lumicide™ platform uses UVC LEDs in several patented designs for infection control in and around high-traffic areas, including sinks and restrooms, killing bacteria, viruses, and other pathogens residing on hard surfaces within the devices’ proximity. The Company’s patented in-drain disinfection device, Lumicide™ Drain, is the only product on the market that addresses this critical pathogen-intensive location.

SteriLumen’s Airocide™ air purification devices are research backed, clinically proven and developed for NASA with assistance from the University of Wisconsin. Airocide™ is listed as an FDA Class II Medical device, utilizes a proprietary photocatalytic (PCO) bioconversion technology that draws air into a reaction chamber that converts damaging molds, microorganisms, dangerous airborne pathogens, destructive VOCs, allergens, odors and biological gasses into harmless water vapor and green carbon dioxide without producing ozone or other harmful byproducts. Airocide™ applications include healthcare, hospitality, food preservation, wineries, dairy, commercial real estate, education, dental offices, post-harvest, grocery, food processing, transportation, correctional facilities, cannabis, and consumer.

SteriLumen’s Scientific Air product was developed initially for healthcare facilities and is helping hospitals across the country address the growing need for effective and safe airborne infection prevention. Utilizing Scientific Air systems, hospitals report significant reductions in viable airborne pathogens as well as significant declines in non-viable particulates including elimination of odor and VOC's. Scientific Air products produce no harmful by-products, provide rapid, portable, whole-room disinfection via a patented 3-phase design, are safe and fast-acting in occupied spaces, and have been proven and tested in facilities with EPA and FDA guidance compliance.

According to Resource and Markets, the UV Disinfection market is expected to reach $9 billion by 2026 as technology continues to improve and the focus on stopping the spread of contagious diseases increases. The Center for Disease Control states that 1 in 25 patients have at least one Hospital Associated Infection (HAI) annually and that 3 million serious infections occur every year in long-term care facilities. Scientists globally have been advocating improving air quality post pandemic, significantly boosting global adoption to control airborne pathogen transmission. Governments globally mandating health agencies to address air quality via grants and mechanisms to ease visitation and protect facilities against future pathogens (Centers for Medicare and Medicaid Services – CMS) February 2022 Long-term Care Initiative.

Indoor air quality has become an even more important issue as world economies start the recovery process. In 2021, 39 scientists reiterated the need for a "paradigm shift" and called for improvements in, "how we view and address the transmission of respiratory infections to protect against unnecessary suffering and economic losses."

In addition to this, the global air purifier market size is set to grow exponentially. It was valued at $9.24 billion in 2021 and is predicted to grow to approximately $22.84 billion by 2030. According to Precedence Research, the immense demand for air purification and sterilization in the US will be driven by the commercial sector.

SteriLumen’s product portfolio is one of the only research-backed, clinically proven pure-play air and surface disinfection technology companies with international distribution and globally recognized end users, with product developed for NASA. In addition to the numerous recognized research institutions and globally recognized names who published the reports that were completed by the acquired companies, Airocide™ was independently proven to kill SARS, MRSA and Anthrax, in addition to removing damaging molds, microorganisms, destructive VOC’s, allergens, odors, and biological gases. Also, SteriLumen’s air purification (Airocide™) and surface disinfection Lumicide™) were independently tested and proven to kill both Candida Auris (Resinnova Laboratories) and SARS CoV-2 (COVID-19) (MRIGlobal).

SteriLumen’s product portfolio is used by globally recognized names including: Walmart, Whole Foods, SuperValue, Delmonte, Esmeralda, Joel Gott Wines, Opus One, Athena Healthcare, NYC Health and Hospitals, Kaiser Permanente, Advent Health, University Rochester Medical Center and Baptist Health South Florida. Additionally, the SteriLumen product portfolio expanded its reach and deployed its air purification products into Boston Red Sox Fenway Park and Jet Blue Park, The Palace Versaille , Uruguayan School Systems, Tennessee Department of Corrections, Armed Forces Research Institute of Medical Sciences (AFRIMS), US Army Aberdeen Proving Grounds and Schools throughout South Korea.

The Company works with a global base of distributors to sell both SteriLumen air purification and disinfection products and the MunnWorks product lines. The past year, the Company has signed distribution agreements covering Africa (360BioPharma), US Healthcare (Axis), Lootah Batta Water and Environment Sign Exclusive Distribution Agreement for Airocide™ Air Purification Systems for the United Arab Emirates, and Plandent a wholly owned subsidiary of Planmeca Oy (Scandinavia). SteriLumen plans to continue to expand its global distribution base of significant breadth and scale to introduce the entire SteriLumen’s air purification product lines to new markets, including building management, commercial real estate, retail, healthcare, cannabis and environmental health and safety, leveraging the networks of the recent acquisitions described above.

MunnWorks is a manufacturer of custom designed fine mirrors and furniture specifically for the hospitality industry with one manufacturing facility in Mount Vernon, New York and, with the acquisition of the assets of VisionMark, another manufacturing facility in Brooklyn, New York. Our goal is to contribute to the creation of what our design industry clients seek: manufacturing better framed mirrors and customized furniture on budget and on time. As part of our long-term strategy, the Company has instituted multi-site production for high-value items, complicated designs and finishes. Our headquarters in Mount Vernon, NY serves as the center for multi-country manufacturing. The Company works with a satellite network of artisans and craftsmen, including gilders, carvers, and old-world finishers.

Acquisitions

In February of 2021, the Company acquired all the assets and assumed certain liabilities of Akida Holdings, LLC (“Akida”). At the time of the 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 had 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 October 13, 2021, we acquired substantially all of the assets of Old SAM Partners, LLC F/K/A Scientific Air Management, LLC, which owned a line of air purification technologies (“Scientific Air’). Scientific Air 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 custom furniture using wood and metal components for the hospitality and retail industries. This acquisition is synergistic with our legacy MunnWorks operations, and allows for further market expansion and business diversification, as well as improvement in cost and onshore manufacturing efficiencies.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

•

our ability to acquire new customers or retain existing customers.

•

our ability to offer competitive product pricing.

•

our ability to broaden product offerings.

•

industry demand and competition; and

•

market conditions and our market positions

Results of Operations

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

	Three Months Ended September 30, 2022												Three Months Ended September 30, 2021
	Hospitality			Disinfection			Corporate			Total			Hospitality			Disinfection			Corporate			Total
Net Sales	$	4,282,030		$	1,593,581		$	—		$	5,875,611		$	1,750,227		$	1,801,337		$	—		$	3,551,564
Cost of Goods Sold		4,117,717			919,280			—			5,036,997			1,451,560			1,048,603			—			2,500,163
Gross Profit		164,313			674,301			—			838,614			298,667			752,734			—			1,051,401
Research and development		—			93,522			—			93,522			—			—			—			—
Selling, General and Administrative		965,511			1,932,858			606,728			3,505,097			788,173			1,894,852			—			2,683,025
Total Operating expenses		965,511			2,026,380			606,728			3,598,619			788,173			1,894,852			—			2,683,025
Operating Loss		(801,198	)		(1,352,079	)		(606,728	)		(2,760,005	)		(489,506	)		(1,142,118	)		—			(1,631,624	)
Other Income
Change in Fair Market Value of Warrant Liability		—			—			34,804			34,804			—			—			151,570			151,570
Forgiveness of paycheck protection program loan		—			—			—			—			—			—			296,827			296,827
Other income (expense)		24,728			—			—			24,728			—			—			1,068			1,068
Total Other Income (Expense)		24,728			—			34,804			59,532			—			—			449,465			449,465
Loss Before Provision for Income Taxes		(776,470	)		(1,352,079	)		(571,924	)		(2,700,473	)		(489,506	)		(1,142,118	)		449,465			(1,182,159	)
Provision for Income Taxes		—			—			—			—			—			—			(101,354	)		(101,354	)
Net Loss	$	(776,470	)	$	(1,352,079	)	$	(571,924	)	$	(2,700,473	)	$	(489,506	)	$	(1,142,118	)	$	550,819		$	(1,080,805	)
Non-GAAP Financial Measures
Adjusted EBITDA
Operating Loss	$	(801,198	)	$	(1,352,079	)	$	(606,728	)	$	(2,760,005	)	$	(489,506	)	$	(1,142,118	)	$	—		$	(1,631,624	)
Depreciation and Amortization		56,009			452,068			—			508,077			23,235			145,486			—			168,721
Stock based compensation		35,519			39,647			84,364			159,530			216,568			209,700			—			426,268
Adjusted EBITDA	$	(709,681	)	$	(860,364	)	$	(522,353	)	$	(2,092,398	)	$	(249,703	)	$	(786,932	)	$	—		$	(1,036,635	)

The Company utilizes Adjusted EBITDA, a non-GAAP financial measure, to assist in analyzing our segment operating performance by removing the impact of certain key items that management believes do not directly reflect our underlying operations. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity, and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenues, operating income, net income (loss), earnings (loss) per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. Adjusted EBITDA is defined as Operating Profit (Loss), excluding Depreciation and Amortization, and excluding Stock Based Compensation and Loss on Impairment of Goodwill. Adjusted EBITDA was a loss of ($2,092,398) for the three months ended September 30, 2022, which was ($1,055,763) higher as compared to the three months ended September 30, 2021. Adjusted EBITDA loss by segment: Hospitality increased ($459,967), Disinfection increased ($73,432) and Corporate increased ($522,364).

Segments

The Company has three reportable segments: the design, manufacture, assembly and distribution of disinfecting systems for use in healthcare, hospitality, food, wine and commercial municipal and residential markets (Disinfection segment); the manufacture of fine mirrors and custom furniture specifically for the hospitality and retail industries (Hospitality segment); and the Corporate Segment, which includes expenses primarily related to corporate governance, such as board fees, legal expenses, audit fees, executive management, and listing costs. See NOTE 11 – Segment Reporting.

Net Sales

Net sales of $5,875,611 for the three months ended September 30, 2022 as compared to net sales of $3,551,564 for the three months ended September 30, 2021 represented an increase of $2,324,047, or 65.4%. This increase was attributable to the Hospitality segment, which increased $2,531,803, primarily as a result of the fulfilment of orders from the VisionMark acquisition, offset by a decrease of ($207,756) in the Disinfection segment, primarily due to the push-out of orders into the next two quarters.

Gross Profit

Gross profit decreased ($212,787) for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, due to the decrease in sales in the Disinfection segment, and the higher sales mix of the Hospitality segment at a lower gross profit. The reduction in Hospitality gross profit is driven primarily by the costs required to complete lower margin projects in process from the VisionMark asset acquisition, and the additional costs to integrate and absorb the VisionMark operations. Hospitality pricing and margins are expected to improve in Q4 as we are now focused on new projects. As the Company continues to integrate our strategic acquisitions, the focus will be on realizing cost reduction synergies from the consolidation and streamlining of the manufacturing and distribution operations.

Operating Expenses

Selling, General, and Administrative – S,G&A costs for the three months ended September 30, 2022, increased to $3,505,097 as compared to $2,683,025 for the three months ended September 30, 2021. This increase of $822,072 was driven primarily by the expansion of the Disinfection segment with the additional acquisitions of KES and SciAir; the expansion of the Hospitality segment with the addition of the VisionMark acquisition; and Corporate segment expenses due to increased consulting, legal, accounting, and infrastructure costs related to the initial integration of the operations of our strategic acquisitions. S,G&A costs decreased ($526,118) from last quarter, and we anticipate efficiency gains in the coming year as we fully integrate our acquisitions and leverage synergies where practical.

Net Loss

The Company recorded a net loss of ($2,700,473) for the three months ended September 30, 2022, compared to a net loss of ($1,080,805) for the three months ended September 30, 2021. The increase of ($1,619,668) in the net loss was mainly due to the reduction in gross profit of ($212,787) and the increase is S, G&A costs of $822,072 incurred in support of the business acquisitions and expansion of the both the Disinfection and Hospitality segments. The Company also realized a gain last year of $296,827 due to the forgiveness of their PPP loan. The Company anticipates improvements in gross profit as the initial VisionMark projects are now completed and also as the Disinfection sales pipeline accelerates revenue realization.

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

	Nine Months Ended September 30, 2022												Nine Months Ended September 30, 2021
	Hospitality			Disinfection			Corporate			Total			Hospitality			Disinfection			Corporate			Total
Net Sales	$	9,860,392		$	5,278,955		$	—		$	15,139,347		$	4,282,696		$	3,465,803		$	—		$	7,748,499
Cost of Goods Sold		8,971,628			2,876,214			—			11,847,842			3,269,335			1,961,820			—			5,231,155
Gross Profit		888,764			2,402,741			—			3,291,505			1,013,361			1,503,983			—			2,517,344
Research and development		—			234,885			—			234,885			—			53,408			—			53,408
Loss on impairment of goodwill		—			1,138,203			—			1,138,203			—			—			—			—
Selling, General and Administrative		2,936,219			5,811,228			1,890,091			10,637,538			2,351,533			4,639,939			—			6,991,472
Total Operating expenses		2,936,219			7,184,316			1,890,091			12,010,626			2,351,533			4,693,347			—			7,044,880
Operating Loss		(2,047,455	)		(4,781,575	)		(1,890,091	)		(8,719,121	)		(1,338,172	)		(3,189,364	)		—			(4,527,536	)
Other Income
Change in Fair Market Value of Warrant Liability		—			—			46,521			46,521			—			—			(148,882	)		(148,882	)
Loss on change in contingent consideration		—			(240,000	)		—			(240,000	)		—			—			—			—
Gain on settlement of contingent consideration		—			1,700,000			—			1,700,000			—			—			—			—
Forgiveness of paycheck protection program loan		—			—			—			—			—			—			296,827			296,827
Other income (expense)		(26,400	)		—			—			(26,400	)		26,250			—			—			26,250
Total Other Income (Expense)		(26,400	)		1,460,000			46,521			1,480,121			26,250			—			147,945			174,195
Loss Before Provision for Income Taxes		(2,073,855	)		(3,321,575	)		(1,843,570	)		(7,239,000	)		(1,311,922	)		(3,189,364	)		147,945			(4,353,341	)
Provision for Income Taxes		—			—			—			—			—			—			(101,354	)		(101,354	)
Net Loss	$	(2,073,855	)	$	(3,321,575	)	$	(1,843,570	)	$	(7,239,000	)	$	(1,311,922	)	$	(3,189,364	)	$	249,299		$	(4,251,987	)
Non-GAAP Financial Measures
Adjusted EBITDA
Operating Loss	$	(2,047,455	)	$	(4,781,575	)	$	(1,890,091	)	$	(8,719,121	)	$	(1,338,172	)	$	(3,189,364	)	$	—		$	(4,527,536	)
Depreciation and Amortization		119,157			1,367,415			—			1,486,572			46,470			434,570			—			481,040
Loss on impairment of goodwill		—			1,138,203			—			1,138,203			—			—			—			—
Stock based compensation		151,679			99,733			308,568			559,980			559,698			542,911			—			1,102,609
Adjusted EBITDA	$	(1,776,619	)	$	(2,176,224	)	$	(1,581,523	)	$	(5,534,366	)	$	(732,004	)	$	(2,211,883	)	$	—		$	(2,943,887	)

The Company utilizes Adjusted EBITDA, a non-GAAP financial measure, to assist in analyzing our segment operating performance by removing the impact of certain key items that management believes do not directly reflect our underlying operations. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity, and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenues, operating income, net income (loss), earnings (loss) per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. Adjusted EBITDA is defined as Operating Profit (Loss), excluding Depreciation and Amortization, and excluding Stock Based Compensation and Loss on Impairment of Goodwill. Adjusted EBITDA was a loss of ($5,534,366) for the nine months ended September 30, 2022, which was an increase of ($2,590,479) as compared to the nine ended September 30, 2021. Adjusted EBITDA loss by segment: Hospitality increased ($1,044,615), Disinfection decreased $35,659, and Corporate increased ($1,581,523).

Segments

The Company has three reportable segments: the design, manufacture, assembly and distribution of disinfecting systems for use in healthcare, hospitality, food, wine, and commercial municipal and residential markets (Disinfection segment); the manufacture of fine mirrors and custom furniture specifically for the hospitality and retail industries (Hospitality segment); and the Corporate Segment, which includes expenses primarily related to corporate governance, such as board fees, legal expenses, audit fees, executive management, and listing costs. See NOTE 11 – Segment Reporting.

Net Sales

Net sales of $15,139,347 for the nine months ended September 30, 2022 as compared to net sales of $7,748,499 for the nine months ended September 30, 2021 represented an increase of $7,390,848, or 95.4%. This increase was attributable to both the Disinfection segment, which increased $1,813,152, largely as a result of the strategic acquisitions of KES and Scientific Air in Q3 and Q4 of 2021, respectively, and the Hospitality segment, which increased $5,577,696, primarily due to orders that were delayed from Q2 and fulfilled in Q3, and from the fulfillment of orders related to the VisionMark acquisition.

Gross Profit

Gross profit increased $774,161 for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, driven by volume growth in the Disinfection segment, offset by a decrease in gross profit in the Hospitality segment, mainly due to the costs necessary to complete lower margin projects that were in process at the time of the VisionMark asset acquisition, and the costs incurred to integrate and absorb the VisionMark operations. Hospitality pricing and margins are expected to improve in Q4 as we are now focused on new projects. As the Company continues to integrate our strategic acquisitions, the focus will be on realizing cost reduction synergies from the consolidation and streamlining of the manufacturing and distribution operations.

Operating Expenses

Selling, General, and Administrative – S,G&A costs for the nine months ended September 30, 2022, increased to $10,637,538 as compared to $6,991,472 for the nine months ended September 30, 2021. This increase of $3,646,066 was driven primarily by the expansion of both the Disinfection segment, with the additional acquisitions of KES and SciAir, and the Hospitality segment, with the addition of the VisionMark acquisition, and Corporate segment expenses due to increased consulting, legal, accounting, and infrastructure costs related to the initial integration of the operations of our strategic acquisitions. The Company anticipates efficiency gains in the coming year as we fully integrate our acquisitions and leverage synergies where practical.

Loss on Impairment of Goodwill - The Company determined that a triggering event had occurred as a result of a settlement agreement with Scientific Air (“Old SAM Partners”) - see explanation of Other Income/Expense below. 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 Condensed Consolidated Statements of Operations during the nine months ended September 30, 2022.

Other Income/Expense

On March 31, 2022, there was a dispute between the Company and Scientific Air (“Old SAM Partners”) regarding certain representations and warranties in the purchase agreement which resulted in a settlement and mutual release agreement where Old Sam Partners agreed to relinquish such Partner’s right, title, and interest in the previously issued 400,000 shares that were part of the original asset acquisition transaction. The Company recorded a loss on change in fair market value of contingent consideration of $240,000, and as a result of the settlement, the company recorded a gain on settlement of $1,700,000 during the nine months ended September 30, 2022.

Net Loss

The Company recorded a net loss of ($7,239,000) for the nine months ended September 30, 2022, compared to a net loss of ($4,251,987) for the nine months ended September 30, 2021. The increase of ($2,987,013) in the net loss was mainly due to the increase is S,G&A costs incurred in support of the business acquisitions and expansion of both the Disinfection and Hospitality segments.

Liquidity and Capital Resources

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Net Cash Used in Operating Activities	$	(7,473,600	)	$	(5,186,564	)
Net Cash Used in Investing Activities		(88,618	)		(5,579,194	)
Net Cash Provided by (Used In) Financing Activities		(149,705	)		11,962,154
Net increase (decrease) in cash and cash equivalents		(7,711,923	)		1,196,396
Cash and equivalents at beginning of period		8,768,156			11,757,930
Cash and equivalents at end of period		1,056,233			12,954,326

In the nine months ended September 30, 2022, net cash used in operating activities was ($7,473,600), as compared to ($5,186,465) in the nine months ended September 30, 2021. The increase in net cash used was due mainly to the increase in net loss to ($7,239,000) for the nine months ended September 30, 2022, as compared to a net loss of ($4,251,987) for the nine months ended September 30, 2021. Working capital was largely impacted by an increase in inventory for the nine months ended September 30, 2022 as the Company has secured parts in advance of production to mitigate supply chain disruptions.

In the nine months ended September 30, 2022, net cash used in investing activities decreased to ($88,618) as compared to ($5,579,194) in the nine months ended September 30, 2021. The decrease in cash used was mainly attributable to cash paid in 2021 in connection with the Akida and KES/JJS asset acquisitions, net of cash acquired, ($760,293) and ($4,299,900) respectively, and a loan of ($500,000) to a related party in the form of a secured note receivable.

In the nine months ended September 30, 2022, cash used in financing activities was ($149,705) as compared to cash provided by financing activities of $11,962,154 in the nine months ended September 30, 2021. The decrease in cash for the nine months ended September 30, 2022 was primarily due to the full exercise of the common stock offering over-allotment, which was $1,092,000 net, offset by dividends to preferred shareholders of ($1,086,750) and the purchase of treasury shares ($149,686). The increase in cash for the nine months ended September 30, 2021 was primarily due to the net proceeds from the equity raise of $12,272,440, offset by dividends paid to the preferred shareholders of ($241,500), and a liability settlement of ($65,000),

The Company believes our sources of liquidity and capital will be sufficient to finance our continued operations and growth strategy. On July 1, 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.

Contractual Obligations and Other Commitments

	Payment due by period
	Total		2022		2023-2025		2026-2027		Thereafter
Financing lease obligations	$	2,402	$	2,402	$	—	$	—	$	—
Operating lease obligations (1)		2,522,942		420,107		1,927,935		174,900		—
Loan payable (2)		157,500		97,500		60,000		—		—
Assumed lease liability (3)		931,714		93,172		838,542		—		—
Note payable (4)		277,103		110,840		166,263
Total	$	3,891,661	$	724,021	$	2,992,740	$	174,900	$	—

(1)

The Company entered into a lease agreement in Mount Vernon, New York for a term that commenced on April 1, 2019 and expires on the 31st day of March 2024 at a monthly rate of $15,000. On July 1, 2021, the Company obtained additional lease space and rent expense was increased to $27,500 per month through July 1, 2024 and $29,150 per month from Jul 1, 2024 through July 1, 2026. On September 28, 2021, the Company entered into a lease agreement in Kennesaw, Georgia 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.

(2)

In March 2020, as part of the On-Deck Capital settlement, the Company issued a promissory note for the principal amount of $157,500 due within the next 5 years. The Company is required to pay $157,500 in five payments in the amount of $30,000 per year, with an additional $7,500 in year two.

(3)		In connection with the VisionMark LLC acquisition, the Company is obligated to repay $31,057 of prior lease payments per month for the next 36 months commencing on April 1, 2022.
(4)		On August 28, 2022, the Company entered into a one-year Directors and Officers Liability Insurance agreement for $318,833. Under the terms of the agreement, the Company made a down payment of $41,730, with the remaining balance financed over the remaining term at an annual percentage rate of 5.05%. Beginning in September 2022, the Company is making 10 monthly payments of $27,710, with the last payment expected to be made in June 2023.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2022. Based on that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have concluded that as of September 30, 2022, due to the existence of the material weakness in the Company’s internal control over financial reporting described below, the Company’s disclosure controls and procedures were not effective.

Evaluation of Disclosure Controls and Procedures

Our Chief Financial Officer is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our Board, senior management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We continue to review our internal control over financial reporting and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the control deficiencies identified during this evaluation and set forth below, our senior management has concluded that we did not maintain effective internal control over financial reporting as of September 30, 2022 due to the existence of a material weakness in internal control over financial reporting as described below.

As set forth below, management will continue to take steps to remediate the control deficiencies identified below. Notwithstanding the control deficiencies described below, we have performed additional analyses and other procedures to enable management to conclude that our consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our financial condition and results of operations as of and for the three and nine months ended September 30, 2022.

A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The Company’s management has developed a remediation plan to address the material weakness and as of January 1, 2021 began using a new cloud-based software which tracks the progress of jobs and more accurately reflects the percentage of job completeness ensure such revenue is recognized in the appropriate period. In addition, the Company intends to further remediate the deficiency by performing the following:

•

design and implement additional internal controls and policies to ensure that we routinely review and document our application of established significant accounting policies; and

•

implement additional systems and technologies to enhance the timeliness and reliability of financial data within the organization.

•

continue to engage third-party subject matter experts to aid in identifying and applying US GAAP rules related to complex financial instruments as well as to enhance the financial reporting function.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal controls over financial reporting since December 31, 2021.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

The Company is a smaller reporting company and therefore not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None

Item 6. Exhibits

Exhibit No.		Description
1.1	Equity Distribution Agreement, dated July 1, 2022 between the Registrant and Maxim Group LLC (incorporated by reference to Exhibit 1.2 of the Registrant’s Registration Statement on Form S-3 (File No. 333-266015).
3.1		Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.2		Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.3		Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.4		Certificate of Designation, Preferences and Rights of Series A Preferred Stock (incorporated by reference to Exhibit 3.4 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.5		Certificate of Amendment of Certificate of Incorporation filed on June 17, 2020 (incorporated by reference to Exhibit 3.5 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.6		Certificate of Amendment of Certificate of Incorporation filed on June 23, 2020 (incorporated by reference to Exhibit 3.6 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.7		Certificate of Amendment of Certificate of Incorporation filed July 14, 2020 (incorporated by reference to Exhibit 3.7 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.8		Certificate of Amendment to Certificate of Designation of Series A Preferred Stock, filed on June 17, 2021 (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K, filed on July 19, 2021).
3.9		Certificate of Designation, Preferences and Rights of 10.5% Series A Cumulative Perpetual Preferred Stock (incorporated by reference to Exhibit 3.9 of the Registrant’s Registration Statement on Form S-1 (File No. 333-257197) filed with the SEC as of June 25, 2021).
3.10		Certificate of Amendment to the Amended and Restated Certificate of Incorporation, filed on October 7, 2021
3.11		Certificate of Amendment to the Certificate of Designation of Series A Preferred Stock, filed on December 8, 2021
10.1		Warrant, dated April 1, 2020 issued to Max Munn (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
10.2		The Registrant’s 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.5 of the Registrant’s Registration Statement on Form S-1 (333-239892) filed with the SEC as of July 16, 2020).
10.3		Form of Option Agreement and Grant issued under February 18, 2020 Board Approval (incorporated by reference to Exhibit 10.6 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
10.4		Agreement, dated April 20, 2020 between Icahn School of Medicine at Mount Sinai and SteriLumen, Inc. (incorporated by reference to Exhibit 10.7 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
10.5		Form of Option issued to Medical Advisory Board members (incorporated by reference to Exhibit 10.12 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
10.6		Employment Offer to Michael Riccio (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC as of April 20, 2021).
10.7		Employment Agreement, dated June 30, 2020 between the Registrant and Max Munn (incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
10.8		Employment Agreement, dated April 11, 2022 between the Registrant and John F. Andrews (incorporated by reference to Exhibit 10.1 the Registrant’s Current Report on Form 8-K filed with the SEC on April 8, 2022)
10.9	Sublease, dated as of March 29, 2022 between VisionMark, LLC, Munn Works, LLC and Randolph Associates and Randolph Associates (incorporated by reference to Exhibit 10.1 the Registrant’s Current Report on Form 8-K filed with the SEC on March 31, 2022).
10.10	Guaranty of Sublease dated as of March 29, 2022 made by Applied UV, Inc. in favor of VisionMark, LLC (incorporated by reference to Exhibit 10.2 the Registrant’s Current Report on Form 8-K filed with the SEC on March 31, 2022).
31.1		Certification of the Principal Executive Officer pursuant to Rule 13a-14(a)
31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	APPLIED UV, INC.
	(Registrant)

Date: November 14, 2022	By:	/s/ John Andrews
		John Andrews
		Chief Executive Officer

Date: November 14, 2022	By:	/s/ Michael Riccio
		Michael Riccio
		Chief Financial Officer