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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 March 31, 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 May 23, 2022, the Company has 12,963,174 shares of common stock issued and outstanding.

  1  

 

APPLIED UV, INC. & SUBSIDIARIES

INDEX TO FORM 10-Q 

  Page #
PART I - FINANCIAL INFORMATION  
Item 1. Consolidated Financial Statements (Unaudited)  
Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 4
Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021 5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk 33
Item 4. Controls and Procedures 33
PART II - OTHER INFORMATION  
Item 1. Legal Proceedings 35
Item 1A. Risk Factors 35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
Item 3. Defaults Upon Senior Securities 35
Item 4. Mine Safety Disclosures 35
Item 5. Other Information 35
Item 6. Exhibits 35
Signatures 36

  2  

 

PART I

Item 1. Financial Statements

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

As of March 31, 2022 and December 31, 2021

 

                 
    2022   2021
Assets        
Current Assets                
Cash and cash equivalents   $ 7,137,582     $ 7,922,906  
Restricted cash     483,000       845,250  
Accounts receivable, net of allowance for doubtful accounts     1,554,512       986,253  
Costs and estimated earnings in excess of billings     190,050           
Inventory, net of reserve     3,447,189       1,646,238  
Vendor deposits     372,972       992,042  
Prepaid expense and other current assets     602,983       419,710  
Total Current Assets     13,788,288       12,812,399  
Property and equipment, net of accumulated depreciation     1,286,960       196,611  
Goodwill     3,722,077       4,809,811  
Other intangible assets, net of accumulated amortization     18,535,244       18,976,556  
Right of use asset     1,632,997       1,730,615  
Total Assets   $ 38,965,566     $ 38,525,992  
                 
Liabilities and Stockholders’ Equity                
Current Liabilities                
Accounts payable and accrued expenses   $ 2,110,775     $ 1,642,108  
Contingent Consideration              1,460,000  
Billings in excess of costs and earnings on uncompleted contracts     1,267,173           
Deferred revenue     964,556       788,776  
Due to landlord (Note 2)     189,862           
Warrant liability     24,435       68,263  
Financing lease obligations     5,933       7,671  
Operating lease liability     398,267       389,486  
Note Payable     97,500       97,500  
Total Current Liabilities     5,058,501       4,453,804  
Long-term Liabilities                
Due to landlord -less current portion (Note 2)     570,080           
Note payable- less current portion     60,000       60,000  
Operating lease liability-less current portion     1,243,348       1,346,428  
Total Long-Term Liabilities     1,873,428       1,406,428  
Total Liabilities     6,931,929       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 March 31, 2022 and December 31, 2021     55       55  
Preferred stock, Series X, $0.0001 par value, 10,000 shares authorized, 2,000 shares issued and outstanding as of both March 31, 2022 and December 31, 2021     1       1  
Common stock $.0001 par value, 150,000,000 shares authorized;12,888,174 shares issued and outstanding as of March 31, 2022, and 12,775,674 shares issued and outstanding as of December 31, 2021     1,289       1,278  
Additional paid-in capital     44,257,610       42,877,622  
Accumulated deficit     (12,225,318 )     (10,213,196 )
Total Stockholders’ Equity     32,033,637       32,665,760  
Total Liabilities and Stockholders’ Equity   $ 38,965,566     $ 38,525,992  

See accompanying notes to the unaudited condensed consolidated financial statements.

 

  3  

 

 

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Interim Consolidated Statements of Operations

For the Three Months Ended March 31, 2022 and 2021

 

                 
    Three Months Ended March 31,
    2022   2021
Net Sales   $ 3,356,090     $ 2,312,615  
Cost of Goods Sold     2,206,991       1,388,349  
Gross Profit     1,149,099       924,266  
                 
Operating Expenses                
Research and development     59,314       43,645  
Selling. General and Administrative Expenses     3,101,226       1,601,517  
Loss on impairment of goodwill     1,138,203           
Total Operating Expenses     4,298,743       1,645,162  
                 
Operating Loss     (3,149,644 )     (720,896 )
                 
Other Income (Expense)                
Change in Fair Market Value of Warrant Liability     43,828       (311,400 )
Interest expense     (4,056 )         
Loss on change in Fair Market Value of Contingent Consideration (Note 2)     (240,000 )         
Gain on Settlement of Contingent Consideration (Note 2)     1,700,000           
Other Expense             (655 )
Total Other Income (Expense)     1,499,772       (312,055 )
                 
Loss Before Provision for Income Taxes     (1,649,872 )     (1,032,951 )
                 
Provision from Income Taxes                  
                 
Net Loss   $ (1,649,872 )   $ (1,032,951 )
                 
Net Loss attributable to common stockholders:                
Dividends to preferred shareholders     (362,250 )         
Net Loss attributable to common stockholders     (2,012,122 )     (1,032,951 )
Basic and Diluted Loss Per Common Share   $ (0.16 )   $ (0.12 )
Weighted Average Shares Outstanding - basic and diluted     12,928,174       8,630,811  

See accompanying notes to the unaudited condensed consolidated financial statements.

  4  

 

 

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2022 and 2021

 

                                                                         
    Preferred Stock   Preferred Stock          
    Series A Cumulative   Preferred Stock   Common 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  
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  

See accompanying notes to the unaudited condensed consolidated financial statements.

  5  

 

Applied UV, Inc. and Subsidiaries

Condensed Interim Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2022 and 2021

 

                 
    2022   2021
Cash flows from Operating Activities                
Net Loss   $ (1,649,872 )   $ (1,032,951 )
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities                
Stock based compensation     287,999       210,741  
Bad debt expense (recovery)     48,151       (73,895 )
Change in fair market value of warrant liability     (43,828 )     311,400  
Loss on change in fair market value of contingent consideration (Note 2)     240,000           
Gain on settlement of contingent consideration (Note 2)     (1,700,000 )         
Loss on impairment of goodwill (Note 2)     1,138,203           
Amortization of right-of-use asset     97,618           
Depreciation and amortization     467,746       100,109  
Amortization of debt discount     4,036           
Changes in operating assets and liabilities, net of effects of acquisitions:                
Accounts receivable     19,140       (335,766 )
Costs and estimated earnings in excess of billings     (8,898 )         
Inventory     (1,624,368 )     45,880  
Vendor deposits     619,070       8,767  
Prepaid expense and other current assets     (182,273 )     (486,997 )
Accounts payable and accrued expenses     468,667       (141,729 )
Billings in excess of costs and earnings on uncompleted contracts     (121,665 )         
Deferred revenue     175,780       (178,732 )
Operating lease payments     (94,299 )         
Total Adjustments     (208,921 )     (540,222 )
Net Cash Used in Operating Activities     (1,858,793 )     (1,573,173 )
                 
Cash Flows From Investing Activities                
Cash paid for patent costs     (672 )     (14,435 )
Purchase of machinery and equipment     (16,111 )         
Acquisitions, net of cash acquired (Note 2)     (10 )     (760,293 )
Note receivable, related party (Note 10)              (500,000 )
Net Cash Used in Investing Activities     (16,793 )     (1,274,728 )
                 
Cash Flows From Financing Activities                
Payments on financing leases     (1,738 )     (1,594 )
Proceeds from warrant exercise              1,157  
Dividends to preferred shareholders     (362,250 )         
Proceeds from equity raises, net     1,092,000           
Net Cash Provided by (Used in) Financing Activities     728,012       (437 )
                 
Net Decrease in Cash, restricted cash, and equivalents     (1,147,574 )     (2,848,338 )
Cash, restricted cash, and cash equivalents beginning     8,768,156       11,757,930  
Cash, restricted cash, and cash equivalents at ending   $ 7,620,582     $ 8,909,592  
                 
Supplemental Disclosures of Cash Flow Information:                
Cash paid during the year for:                
Interest   $ 1,022     $ 573  
Supplemental Non-Cash Items                
Initial recognition of warrant liability   $        $ 135,125  
Reclassification from liability to be settled in stock to additional paid in capital   $        $ 21,420  
Fair market value of stock granted in connection with acquisitions   $        $ 7,122,500  

See accompanying notes to the unaudited condensed consolidated financial statements.

  6  

 

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”), MunnWorks, LLC (“MunnWorks” and together with SteriLumen, the “Subsidiaries”) and other companies acquired or created by the Parent in the future. The Parent acquired the Subsidiaries pursuant to three share exchanges whereby the equity holders of the Subsidiaries exchanged all of their equity interests in the Subsidiaries for shares of voting stock of the Parent. As a result of the share exchanges, each Subsidiary became a wholly-owned subsidiary of the Parent. The Parent and each Subsidiary are collectively referred to herein as (the “Company”).

SteriLumen is engaged in the design, manufacture, assembly and distribution of (i) automated disinfecting mirror systems for use in hospitals and other healthcare facilities and (ii) air purification systems through its purchase of substantially all of the assets 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 furniture specifically for the hospitality industry.

In February of 2021, the Company acquired all the assets and assumed certain liabilities of Akida Holdings, LLC (“Akida”). At the time of this acquisition, Akida owned the Airocide™ system of air purification technologies, originally developed for NASA, with assistance from the University of Wisconsin at Madison, that uses a combination of UVC and a proprietary, titanium dioxide based photocatalyst that may help to accelerate the reopening of the global economy with applications in the hospitality, hotel, healthcare, nursing homes, grocer, wine, commercial buildings and retail sectors. The Airocide™ system has been used by brands and organizations such as NASA, Whole Foods, Dole, Chiquita, Opus One, Sub-Zero Refrigerators and Robert Mondavi Wines. Akida contracted KES Science & Technology, Inc. (“KES”) to manufacture, warehouse and distribute the Airocide™ system and Akida’s contractual relationship with KES was assigned to and assumed by the Company as part of the acquisition.

On September 28, 2021, the Company acquired all the assets and assumed certain liabilities of KES. At the time of the acquisition, KES was principally engaged in the manufacturing and distribution of the Airocide™ system of air purification technologies and misting systems. KES also had the exclusive right to the sale and distribution of the Airocide™ system in certain markets. This acquisition consolidates all of manufacturing, sale and distribution of the Airocide™ system under the SteriLumen brand and expands the Company’s market presence in food distribution, post-harvest produce, wineries, and retail sectors. The Company sells its products throughout the United States, Canada, and Europe.

On October 13, 2021, the Company acquired all the assets and assumed certain liabilities of Scientific Air Management LLC, (“SciAir”). SciAir is a provider of whole-room, aerosol chamber and laboratory certified air disinfection machines. SciAir is a provider of whole-room, aerosol chamber and laboratory certified air disinfection machines that use a combination of UVC and a proprietary, patented system to eliminate airborne bacteria, mold, fungi, viruses, volatile organic compounds, and many odors without producing any harmful by-products. The units are well suited for larger spaces within a facility and are mobile with industrial grade casters allowing for movement throughout a facility to address increased bio burden from larger meetings or increased human traffic.

On March 25, 2022, the Company acquired the assets and assumed certain liabilities of VisionMark, LLC, (“Visionmark”). Visionmark is engaged in the business of manufacturing furniture using wood and metal components for the hospitality and retail industries. Visionmark will be included as a component of our hospitality segment.

  7  

 

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 unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation and accounting for equity awards related to warrants and stock-based compensation, determination of fair value for derivative instruments, the accounting for business combinations and allocating purchase price 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 March 31, 2022 and December 31, 2021, the Company had $714,447 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 $104,000 and $9,000 as of March 31, 2022 and December 31, 2021, respectively.

Inventory

Inventories, which consists of raw materials and finished goods is valued at the lower of cost or net realizable value, using the first-in, first-out (“FIFO”) valuation method. Inventory costs are comprised primarily of product, freight and duty. The Company writes down inventory for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. The company had a reserve for inventory approximating $146,000 and $140,000 as of March 31, 2022 and December 31, 2021, respectively.

  8  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

       
    Years
Machinery and equipment     5-7  
Leasehold improvements     Lesser of term of lease or useful life  
Furniture and fixtures     7  

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.

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 March 31, 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.

  9  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 March 31,
    2022   2021
Common stock options     833,314       446,314  
Common stock warrants     192,419       192,419  
Total     1,025,733       638,733  

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.

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.

  10  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition

The Company recognizes revenue when the performance obligations in the client contract has been achieved. A performance obligation is a contractual promise to transfer product to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Under ASC 606, revenue is recognized when a customer obtains control of goods in an amount that reflects the consideration the Company expects to receive in exchange for those goods. To achieve this core principle, the Company applies the following five steps:

1) Identify the contract with a customer.
2) Identify the performance obligations in the contract.
3) Determine the transaction price.
4) Allocate the transaction price to performance obligations in the contract.
5) Recognize revenue when or as the Company satisfies a performance obligation.

For projects, that are completed within the Company’s facilities, both in Mt. Vernon and Brooklyn NY, the company designs, manufactures and sells custom mirrors and furniture for the hospitality industry through contractual agreements. These sales require the company to deliver the products within three to nine months from commencement of order acceptance. The Company may be entitled to receive an advance payment, which is recognized as a contract liability and included in deferred revenue for the amount in excess of the revenue recognized. If work is performed in excess of amounts billed, the amount is recognized as a contract asset and included in costs and estimated earnings more than billings.

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.

  11  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition (Continued)

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

Schedule of revenue:

               
    March 31,
    2022   2021
Recognized over time   $ 529,237     $ 1,869,078  
Recognized at a point in time     2,826,853       443,537  
    $ 3,356,090     $ 2,312,615  

Deferred revenue was comprised of the following as of:

    March 31,   December 31,
    2022   2021
Recognized over time   $ 92,493     $ 94,867  
Recognized at a point in time     872,063       693,909  
      $ 964,556     $ 788,776  

The Company recognized $429,118 of deferred revenue as of December 31, 2021 as revenue during the three months ended March 31, 2022.

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 March 31, 2022 and 2021 was $197,995 and $28,176.

Vendor deposits

Vendor payments to third manufactures are capitalized until completion of the project and are recorded as vendor deposits. As of March 31, 2022 and December 31, 2021, the vendor deposit balance was $372,972 and $992,041, 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 March 31, 2022 and December 31, 2021, capitalized patent costs net of accumulated amortization was $1,668,789 and $1,693,124, respectively. For the three months ended March 31, 2022 and 2021, the Company recorded $25,016 and $2,464, respectively, of amortization expense for these patents.

Recently adopted accounting standards:

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt Modifications and Extinguishments (Subtopic 470 50), Compensation Stock Based Compensation (Topic 718), and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options. This ASU provides guidance which clarified an issuer’s accounting for modification or exchanges of freestanding equity classified written call options that remain equity classified after modification or exchange. The provisions of ASU No. 2021-04 are effective January 1, 2022. This ASU shall be applied on a prospective basis. The adoption of this guidance did not have a material impact on the accompanying consolidated financial statements.

  12  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In June 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the accompanying consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) (“ASU 2019-12”): Simplifying the Accounting for Income Taxes. The new standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. For public business entities, it is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the accompanying consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2023. These standards replace the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measure at amortized cost to be presented at the net amount expected to be collected. The Company does not expect this change in guidance to have a material impact to its financial statements.

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 acquisition 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 months ended March 31, 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.

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.

  13  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 2 – BUSINESS ACQUISITION (CONTINUED)

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.

The purchase price and purchase price allocation as of the acquisition completion date follows.

       
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  
  14  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 2 – BUSINESS ACQUISITION (CONTINUED)

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.

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  
Customer relationships         
Trade names     914,000  
Technology and know how     3,656,000  
Total Assets Acquired:     5,612,254  
         
Liabilities Assumed:        
Accounts payable     (296,681 )
Capital lease obligations         
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.

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.

  15  

 

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 three months ended March 31, 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.

  16  

 

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:
  $ 10  
Cash paid at closing        
Due to landlord     755,906  
Total Purchase Price     755,916  
         
Assets Acquired:        
Accounts receivable, net     636,550  
Inventory
    176,583  
Costs and estimated earnings in excess of billings     181,152  
Machinery and equipment     1,100,000  
Total Assets Acquired:     2,094,285  
         
Liabilities Assumed:        
Billings in excess of costs and earnings on uncompleted contracts     (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 per month of past due lease payments for the next 36 months commencing on April 1, 2022. The Company recognized a liability equal to the present value of the amount due to landlord.

At March 31, 2022, the future maturity of the lease liability is as follows:

       
2022 (9 months)   $ 279,522  
2023     372,684  
2024     372,684  
2025     93,174  
Total     1,118,064  
Less: Unamortized discount     (358,122 )
Total amount due to landlord     759,942  
Less: current portion of amount due to landlord net of discount     (189,862 )
Total long-term portion of amount due to landlord   $ 570,080  
  17  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 3 – INVENTORY

Inventory consists of the following as of:

               
    March 31,   December 31,
    2022   2021
Raw materials   $ 3,046,993     $ 356,759  
Finished goods     400,196       1,289,479  
Inventory at cost   $ 3,447,189     $ 1,646,238  

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment are summarized by major classifications as follows:

               
    March 31,   December 31,
    2022   2021
Machinery and Equipment   $ 1,571,869     $ 254,685  
Leasehold improvements     67,549       67,549  
Furniture and Fixtures     203,255       54,041  
      1,842,673       376,275  
Less: Accumulated Depreciation     (555,713 )     (179,664 )
    $ 1,286,960     $ 196,611  

Depreciation expense, including amortization of assets under Financing leases, for the three months ended March 31, 2022 and 2021 was $25,762 and $7,745, respectively.

NOTE 5 – INTANGIBLE ASSETS

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

               
    March 31,   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     1,730,089       1,730,089  
Technology and Know How     8,341,000       8,341,000  
      19,790,089       19,790,089  
Less: Accumulated Amortization     (1,254,837 )     (813,533 )
    $ 18,535,254     $ 18,976,556  
  18  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 5 – INTANGIBLE ASSETS (CONTINUED)

During the three months ended March 31, 2022 and 2021, the Company recorded total amortization expense related to intangible assets of $441,984 and $89,900, 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 (9 months)     $ 1,325,387  
2023       1,767,181  
2024       1,767,181  
2025       1,767,181  
2026       1,750,881  
Thereafter       10,157,442  
 Total     $ 18,535,254  

NOTE 6 – LOANS PAYABLE

The Company entered into a loan agreement in April of 2019 where the company was required to pay $157,500 in five payments in the amount of $30,000 per year, with an additional $7,500, representing interest, in year two to a loan holder. As of December 31, 2021, the company has an outstanding balance of $157,500, and no payments have been made as of May 23, 2022.

Minimum obligations under this loan agreement are as follows:

         
For the year ending December 31,    
2022     $ 97,500  
2023       30,000  
2024       30,000  
 Total     $ 157,500  

NOTE 7 – STOCKHOLDERS’ EQUITY 

Amendment of the Certificate of Designation

On June 17, 2021, the Company filed an amendment of the certificate of designation of Series A Preferred Stock. The Board of Directors, by unanimous written consent, duly adopted resolutions to amend the Series A Preferred Stock Certificate of Designations and changed the name from “Series A Preferred Stock” to “Series X Preferred Stock”. All dividend, liquidation preference, voting, conversion, and redemption rights, did not change from the originally filed Certificate of Designation of Series A Preferred Stock. There are 2,000 Series X Preferred Shares issued and outstanding as of March 31, 2022.

  19  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 7 – STOCKHOLDERS’ EQUITY (CONTINUED)

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 December 31, 2021. Upon certain events, the Company may, subject to certain conditions, at the Company’s option, redeem the Series A Preferred Stock. See below for a further description of the Series A Preferred Stock:

Dividends: Holders are entitled to receive, cumulative cash dividends at the annual rate of 10.5% on $25.00 liquidation preference per share of the Series A Perpetual Preferred Stock. Dividends accrue and are payable in arrears beginning August 15, 2021, regardless of whether declared or there are sufficient earnings or funds available for payment. Sufficient net proceeds from the offering must be set aside to pay dividends for the first twelve months from issuance. The company has classified $483,000 and $845,250 as restricted cash as of March 31, 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.

2020 Incentive Plan

On March 31, 2020, the Company adopted the Applied UV, Inc. 2020 Omnibus Incentive Plan (the “Plan”) with 600,000 (post-split adjusted) shares of common stock available for issuance under the terms of the Plan. The Plan permits the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units and Other Awards. The objectives of the Plan are to optimize the profitability and growth of the Company through incentives that are consistent with the Company’s goals and that link the personal interests of Participants to those of the Company’s stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract and retain the services of Participants who make or are expected to make significant contributions to the Company’s success and to allow Participants to share in the success of the Company. From time to time, the Company may issue Incentive Awards pursuant to the Plan. Each of the awards will be evidenced by and issued under a written agreement.

  20  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 7 – STOCKHOLDERS’ EQUITY (CONTINUED)

2020 Incentive Plan (Continued)

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 78,000 shares available for future grants under the plan. The Company also granted an additional 309,835 options outside of the plan during the three months ended March 31, 2021.

A summary of the Company’s option activity and related information follows:

                                       
    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 outside of the plan in connection with employment agreement for Chief Executive Officer     309,564       7.80       5.06       10          
Options granted     293,000       7.82       5.82       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 outside of the plan     189,000       1.99       1.35       10       —    
Options forfeited              —                          —    
Options exercised                       —                 —    
Balances, March 31, 2022     833,314     $ 5.95     $ 4.30       9.25     $ —    
Vested and Exercisable     178,641     $ 6.84                     $ —    

Share-based compensation expense for options totaling $222,062 and $20,516 was recognized for the three months ended March 31, 2022 and 2021, respectively, based on requisite service periods.

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.

  21  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 7– STOCKHOLDERS’ EQUITY (CONTINUED)

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 March 31, 2022, there was $2,117,308 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 three months ended March 31, 2022 and 2021 are set forth in the table below.

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions                
    2022   2021
Risk-free interest rate     1.26% to 2.39 %     1.23 %
Volatility     78.95% to 79.91 %     75.54 %
Expected life (years)     5.75-6.08       5.77  
Dividend yield     0.00 %     0.00 %

Common Stock Warrants

A summary of the Company’s warrant activity and related information follows:

               
    Number of
Options
  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, March 31, 2022     192,419     $ 5.84  
                 
At March 31, 2022                
Vested and Exercisable     192,419     $ 5.84  

  22  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 7 – STOCKHOLDERS’ EQUITY (CONTINUED)

The warrants issued in connection with the November 2020 offering contained a cash settlement feature which resulted in a warrant liability of $24,435 and $68,262 as of March 31, 2022 and December 31, 2021, respectively. In connection with the preparation of the consolidated financial statements for the three months ended March 31, 2021, the Company recognized an error relating to the recognition of the initial warrant liability in November of 2020. The error caused additional paid in capital to be overstated by approximately $135,000, warrant liability to be understated by approximately $110,000, and net loss to be overstated by approximately $25,000 as of and for the year ended December 31, 2020. The Company concluded the impact on the interim and year ended December 31, 2020 financial statements was immaterial and corrected the balances as of December 31, 2021. For the three months ended March 31, 2022 and 2021, the Company recorded a gain (loss) on the change in fair value of warrant liability in the amount of $43,828 and ($311,400), 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 March 31, 2022: (a) exercise price of $6.5625, (b) volatility rate of 78.85%, (c) risk free rate of 1.01%, (d) term of 3.62 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-1MEF (File No. 333-257862), which was filed with the Commission on July 13, 2021 and declared effective upon filing. The closing of the offering for the Shares took place on July 16, 2021 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.

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.

  23  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 7 – STOCKHOLDERS’ EQUITY (CONTINUED)

Common Stock Offering (Continued)

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 March 31, 2022:

               
    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     112,500       2.70  
Vested     (65,000 )         
Forfeited/Cancelled     (200,000 )         
Unvested shares, March 31, 2022     140,000     $ 4.15  
Vested as of March 31, 2022     270,704     $ 5.04  

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 $65,938 and $190,225 of compensation expense within its statements of operations for the three months ended March 31, 2022 and 2021, respectively.

The unvested shares as of December 31, 2021 represent $362,813 in unrecognized stock based compensation which will be recognized over a weighted average period of 2.06 years.

  24  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 8 - LEASING ARRANGEMENTS

The Company determines whether an arrangement qualifies as a lease under ASC 842 at inception. The Company has operating leases for office space and office equipment. The Company’s leases have remaining lease terms of one year to seven years, some of which include options to extend the lease term for up to five years. The Company considered these options to extend in determining the lease term used to establish the Company’s right-of use assets and lease liabilities once reasonably certain of exercise. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The operating lease ROU asset also includes any lease payments made in advance of lease commencement and excludes lease incentives. The lease terms used in the calculations of the operating ROU assets and operating lease liabilities include options to extend or terminate the lease when the Company is reasonably certain that it will exercise those options. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate of 7.6% based on the information available at commencement date in determining the present value of lease payments.

Munnworks, LLC entered into a lease agreement in Mount Vernon, New York for a term that commenced on April 1, 2019 and will expire on the 31st day of March 2024 at a monthly rate of $13,400. In March of 2021, the Company obtained additional lease space and the agreement was amended to increase rent expense to $15,000 per month. On July 1, 2021, the Company again obtained additional lease space and rent expense was increased to $27,500 per month through July 1, 2024 and $29,150 per month from July 1, 2024 through July 1, 2026.

On September 28, 2021, the Company entered into a lease agreement in Kennesaw, Georgia for office and production space for a term that commenced on September 29, 2021 and will expire on October 1, 2024, with a rate ranging from $14,729 to $15,626 per month.

Rent expense for the three months ended March 31, 2022 and 2021 was $101,799 and $41,800, respectively.

Schedule maturities of operating lease liabilities outstanding as of March 31, 2022 are as follows:

         
2022     $ 381,384  
2023       513,413  
2024       470,532  
2025       349,800  
Thereafter...       174,900  
Total lease payments       1,890,029  
Less: Imputed Interest       (248,414 )
Present value of future minimum lease payments     $ 1,641,615  

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.

  25  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 9 - PAYROLL PROTECTION PROGRAM

In April of 2020, the Company submitted a Paycheck Protection Program (“PPP”) application to Chase Bank for a loan amount equal to $296,827. The amount was approved, and the Company has received the funds. The PPP Loan, which is in the form of a PPP promissory note and agreement, matures in April of 2025 and bears interest at a rate of 1.00% per annum. The Lender will have 90 days to review borrower’s forgiveness application and the SBA will have an additional 60 days to review the Lender’s decision as to whether the borrower’s loan may be forgiven. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered utilities, and certain covered mortgage interest payments during the twenty-four-week period beginning on the date of first disbursement of the PPP Loan. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee earning more than $100,000, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. The loan was forgiven in July of 2021 and in accordance with ASC 470, the amount was recorded as other income.

NOTE 10- NOTE RECEIVABLE- RELATED PARTY

The company contemplated an acquisition with an entity where certain board members of the Company were also board members of the potential acquiree. In February of 2021, the Company entered into a non-interest bearing note receivable agreement whereby the Company loaned $500,000 to the entity. The note receivable was recorded at cost basis which approximates fair value because of the short-term maturity of the instrument. The loan matures on the earlier of (i) 180 days from the issuance date or (ii) the closing of the transactions set forth in a definitive acquisition entered into between the lender and the borrower. In the event the loan is paid in full on or before the maturity date, there shall be no interest accrued or payable on the outstanding principal amount. If an acquisition occurs, the $500,000 will be applied against the total acquisition price. If the company decides not to execute a definitive agreement within 180 days from the issuance date, the maturity date shall be the one-year anniversary of the issuance date. The maturity date has since been extended to November 30, 2021. The acquisition did not occur and the full amount of $500,000 was repaid on November 30, 2021.

NOTE 11 - SEGMENT REPORTING

FASB Codification Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has two reportable segments: the design, manufacture, assembly and distribution of disinfecting systems for use in healthcare, hospitality, and commercial municipal and residential markets (disinfectant segment) and the manufacture of fine mirrors specifically for the hospitality industry (hospitality segment). The segments are determined based on several factors, including the nature of products and services, the nature of production processes, customer base, delivery channels and similar economic characteristics.

An operating segment’s performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, segment selling, general and administrative expenses, research and development costs and stock-based compensation. It does not include other charges (income), net and interest and other, net.

  26  

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 11 - SEGMENT REPORTING (CONTINUED)

                               
    Hospitality   Disinfectant   Corporate   Total
Balance sheet at March 31, 2022                                
Assets   $ 4,359,332     $ 26,943,971     $ 7,662,263     $ 38,965,566  
Liabilities   $ 4,817,389     $ 1,867,040     $ 247,518     $ 6,931,929  
Balance sheet at December 31, 2021                                
Assets   $ 2,158,789     $ 27,851,691     $ 8,515,512     $ 38,525,992  
Liabilities   $ 2,481,186     $ 1,528,706     $ 1,850,341     $ 5,860,233  

 

    Hospitality   Disinfectant   Corporate   Total
Income Statement for the three months ended March 31, 2022:                                
Net Sales   $ 1,409,250     $ 1,946,840     $        $ 3,356,090  
Cost of Goods Sold   $ 1,158,644     $ 1,048,347     $        $ 2,206,991  
Research and development   $        $ 59,314     $        $ 59,314  
Loss on impairment of goodwill   $        $ 1,138,203     $        $ 1,138,203  
Selling, General and Administrative Expenses   $ 745,099     $ 1,807,496     $ 548,631     $ 3,101,226  
Income Statement for the three months ended March 31, 2021:                                
Net Sales   $ 1,567,851     $ 744,764     $        $ 2,312,615  
Cost of Goods Sold   $ 1,071,324     $ 317,025     $        $ 1,388,349  
Research and development   $        $ 43,645     $        $ 43,645  
Selling, General and Administrative expenses   $ 656,001     $ 840,761     $        $ 1,601,517  

NOTE 12 – PROFORMA FINANCIAL STATEMENTS (UNAUDITED)

Unaudited Supplemental Pro Forma Data

Unaudited pro forma results of operations for the three months ended March 31, 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 March 31,
    2022   2021
         
Net Sales   $ 3,356,090     $ 6,011,646  
Net Loss   $ (1,649,872 )   $ (1,243,220 )
                 
Net Loss attributable to common stockholders:                
Dividends to preferred shareholders     (362,250 )         
Net Loss attributable to common stockholders     (2,012,122 )     (1,243,220 )
Basic and Diluted Loss Per Common Share   $ (0.16 )   $ (0.13 )
Weighted Average Shares Outstanding - basic and diluted     12,928,174       9,926,644  

 

  27  

 

 

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, commercial and municipal markets. The Company has two wholly owned subsidiaries - SteriLumen, Inc. (“SteriLumen”) and MunnWorks, LLC (“MunnWorks”).

SteriLumen’s connected platform for Data Driven Disinfection™ 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, grocery chains, wine making facilities, commercial real estate, schools, dental offices, post-harvest, grocery, food processing, storage and transportation, cannabis facilities, and homes.

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.

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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. This past year, 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(R) 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 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 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 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, 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’) for a purchase price of $9.5 million in cash and 200,000 fully vested shares of our Common Stock (the “Vested Shares”) and 200,000 shares of our Common Stock that are subject to vesting (the “Earnout Shares”) (the “Scientific Air Acquisition”). The number of shares of Common Stock included in the purchase price was based on a per share value of $10.00. 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 burdern from larger meetings or increased human traffic.

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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 furniture using wood and metal components for the hospitality and retail industries.

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 March 31, 2022 Compared to the Three Months Ended March 31, 2021

    Three Months Ended   Three Months Ended
    March 31, 2022   March 31, 2021
    Hospitality   Disinfection   Corporate   Total   Hospitality   Disinfection   Corporate   Total
Net Sales   $ 1,409,250     $ 1,946,840     $ —       $ 3,356,090     $ 1,567,851     $ 744,764     $ —       $ 2,312,615  
Cost of Goods Sold     1,158,644       1,048,347       —         2,206,991       1,071,324       317,025       —         1,388,349  
Gross Profit     250,606       898,493       —         1,149,099       496,527       427,739       —         924,266  
Research and development     —         59,314       —         59,314       —         43,645       —         43,645  
Stock based compensation     86,011       22,286       179,702       287,999       20,516       190,225       —         210,741  
Loss on impairment of goodwill     —         1,138,203       —         1,138,203       —                            
Selling, General and Administrative     659,087       1,785,210       368,930       2,813,227       635,485       755,291       —         1,390,776  
Total Operating expenses     745,098       3,005,013       548,632       4,298,743       656,001       989,161       —         1,645,162  
Operating Loss     (494,492 )     (2,106,520 )     (548,632 )     (3,149,644 )     (159,474 )     (561,422 )     —         (720,896 )
Other Income                                                                
Change in Fair Market Value of Warrant Liability     —         —         43,828       43,828       —         —         (311,400 )     (311,400 )
Loss on change in contingent consideration     —         (240,000 )     —         (240,000 )     —         —         —         —    
Gain on settlement of Contingent Consideration     —         1,700,000       —         1,700,000       —         —         —         —    
Other income (Expense)     (4,102 )     —         46       (4,066 )     —         (655 )     —         (655 )
Total Other (Expense) Income     (4,102 )     1,460,000       43,874       1,499,762       —         (655 )     (311,400 )     (312,055 )
Loss Before Provision for Income Taxes     (498,594 )     (646,520 )     (504,758 )     (1,649,882 )     (159,474 )     (562,077 )     (311,400 )     (1,032,951 )
Provision from Income Taxes     —         —         —         —         —         —         —         —    
Net Loss   $ (498,594 )   $ (646,520 )   $ (504,758 )   $ (1,649,882 )   $ (159,474 )   $ (562,077 )   $ (311,400 )   $ (1,032,951 )

 

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Non-GAAP Financial Measures

Adjusted EBITDA

                                                 
                                                                 
Operating Loss $   (494,492 )     (2,106,520 )     (548,632)         (3,149,644 )     (159,474 )     (561,422 )     —         (720,896 )
Depreciation and Amortization     7,975       459,771             467,746       7,745       92,364       —         100,109  
Loss on impairment of goodwill           1,138,203             1,138,203                          
Stock based compensation    

86,011