Applied UV, Inc. [AUVIP] Filings

10-Q 1 auvi093023form10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2023

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

For the transition period from ___________ to ___________

Commission file number 001-39480

APPLIED UV, INC.

(Exact name of registrant as specified in its charter)

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

150 N. Macquesten Parkway

Mount Vernon, NY 10550

(Address of principal executive offices)

(914) 665-6100

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☐
Smaller reporting company	☒	Emerging Growth Company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act):

Yes ☐ No ☒

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	AUVI	The Nasdaq Stock Market LLC

10.5% Series A Cumulative Perpetual Preferred Stock, $0.0001 par value per share	AUVIP	The Nasdaq Stock Market LLC

As of November 17, 2023, the Company has 13,852,870 shares of common stock outstanding.

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 September 30, 2023 and December 31, 2022	3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022	4
Condensed Consolidated Statements of Redeemable Preferred Stock and Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022	5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3. Quantitative and Qualitative Disclosures About Market Risk	44
Item 4. Controls and Procedures	44
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	45
Item 1A. Risk Factors	45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3. Defaults Upon Senior Securities	45
Item 4. Mine Safety Disclosures	45
Item 5. Other Information	45
Item 6. Exhibits	45
Signatures	46

PART I

Item 1. Financial Statements

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

As of September 30, 2023 and December 31, 2022


	September 30,			December 31.
	2023			2022
Assets
Current Assets
Cash and cash equivalents	$	1,546,911		$	2,734,485
Accounts receivable, net of allowance for doubtful accounts		6,126,692			1,508,239
Costs and estimated earnings in excess of billings		2,883,057			1,306,762
Inventory, net		7,570,331			5,508,086
Vendor deposits		1,176,065			75,548
Prepaid expense and other current assets		2,064,870			1,187,223
Total Current Assets		21,367,926			12,320,343

Property and equipment, net of accumulated depreciation		1,250,350			1,133,468
Other assets		431,500			153,000
Goodwill		17,809,235			3,722,077
Other intangible assets, net of accumulated amortization		27,334,870			11,354,430
Right of use assets		3,396,751			4,044,109
Total Assets	$	71,590,632		$	32,727,427
Liabilities, Redeemable Preferred Stock and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses	$	10,278,076		$	2,982,760
Contingent consideration		18,375,672			—
Deferred revenue		6,113,192			4,730,299
Due to landlord (Note 2)		281,123			229,234
Warrant liability		7,863			9,987
Financing lease obligations		42,445			33,712
Operating lease liability		1,739,092			1,437,308
Notes payable, net		5,136,610			2,098,685
Total Current Liabilities		41,974,073			11,521,985
Long-Term Liabilities
Due to landlord - less current portion (Note 2)		174,938			393,230
Notes payable, net - less current portion		4,810,922			765,144
Financing lease obligations - less current portion		143,575			158,070
Operating lease liability - less current portion		1,731,923			2,655,103
Total Long-Term Liabilities		6,861,358			3,971,547
Total Liabilities		48,835,431			15,493,532

Redeemable Preferred Stock
Preferred Stock, Series B Cumulative Perpetual, $0.0001 par value, 1,250,000 shares authorized, 1,250,000 shares issued and outstanding as of September 30, 2023 and no shares issued and outstanding as of December 31, 2022		3,712,500			—
Preferred Stock, Series C Cumulative Perpetual, $0.0001 par value, 2,500,000 shares authorized, 399,996 shares issued and outstanding as of September 30, 2023 and no shares issued and outstanding as of December 31, 2022		1,063,989			—
Total Redeemable Preferred Stock		4,776,489			—
Equity
Preferred Stock, Series A Cumulative Perpetual, $0.0001 par value, 1,250,000 shares authorized, 552,000 shares issued and outstanding as of September 30, 2023 and December 31, 2022		55			55
Preferred Stock, Series X, $0.0001 par value, 10,000 shares authorized, 10,000 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		1			1
Common Stock $0.0001 par value, 150,000,000 shares authorized 9,872,228 shares issued and 9,849,531 outstanding as of September 30, 2023 and 2,735,290 shares issued and 2,712,593 outstanding as of December 31, 2022, respectively		987			274
Additional paid-in capital		57,665,013			45,620,764
Treasury stock at cost, 22,697, respectively		(149,686	)		(149,686	)
Accumulated deficit		(39,537,658	)		(28,237,513	)
Total Equity		17,978,712			17,233,895
Total Liabilities, Redeemable Preferred Stock and Stockholders' Equity	$	71,590,632		$	32,727,427

The accompanying notes are an integral part of these unaudited interim consolidated financial statements

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Interim Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2023 and 2022


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2023			2022			2023			2022
Net Sales	$	11,446,048		$	5,875,611		$	32,944,217		$	15,139,347
Cost of Goods Sold		8,790,764			5,036,997			25,956,853			11,847,842
Gross Profit		2,655,284			838,614			6,987,364			3,291,505

Operating Expenses
Research and development		91,085			93,522			460,588			234,885
Selling General and Administrative Expenses		5,013,988			3,505,097			15,200,486			10,637,538
Loss on impairment of goodwill and intangibles		—			—			—			1,138,203
Total Operating Expenses		5,105,073			3,598,619			15,661,074			12,010,626
Operating Loss		(2,449,789	)		(2,760,005	)		(8,673,710	)		(8,719,121	)

Other Income (Expense)
Change in Fair Market Value of Warrant Liability		1,206			34,804			2,124			46,521
Interest expense		(558,268	)		(43,037	)		(1,434,329	)		(96,113	)
Gain (Loss) on change in Fair Market Value of Contingent Consideration		434,000			—			1			(240,000	)
Gain on Settlement of Contingent Consideration (Note 2)		—			—			—			1,700,000
Other Income		—			67,765			—			69,713
Total Other Income (Expense)		(123,062	)		59,532			(1,432,204	)		1,480,121

Loss Before Provision for Income Taxes		(2,572,851	)		(2,700,473	)		(10,105,914	)		(7,239,000	)
Benefit from Income Taxes		—			—			—			—
Net Loss	$	(2,572,851	)	$	(2,700,473	)	$	(10,105,914	)	$	(7,239,000	)

Net Loss attributable to common stockholders:
Dividends to preferred shareholders		(424,750	)		(362,250	)		(1,194,231	)		(1,086,750	)
Net Loss attributable to common stockholders		(2,997,601	)		(3,062,723	)		(11,300,145	)		(8,325,750	)

Basic and Diluted Loss Per Common Share	$	(0.32	)	$	(1.21	)	$	(1.95	)	$	(3.26	)
Weighted Average Shares Outstanding - basic and diluted		9,351,478			2,531,219			5,794,689			2,550,272

The accompanying notes are an integral part of these unaudited interim consolidated financial statements

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Redeemable Preferred Stock and Changes in Stockholders' Equity

For the Three and Nine Months Ended September 30, 2023 and 2022


	Preferred Stock Series B			Preferred Stock Series C			Preferred Stock Series A			Preferred Stock Series X			Common Stock					Treasury Stock					Additional Paid-In Capital		Accumulated Deficit			Total Stockholders Equity
Balance, January 1, 2022	—	$	—	—	$	—	552,000	$	55	2,000	$	1	2,555,135		$	256		—	$	—		$	42,878,644	$	(10,213,196	)	$	32,665,760
Settlement of stock in connection with prior acquisition (Note 2)	—		—	—		—	—		—	—		—	(80,000	)		(8	)	—		—			8		—			—
Common stock issued for in public offering (over-allotment), net of costs	—		—	—		—	—		—	—		—	80,000			8		—		—			1,091,992		—			1,092,000
Stock-based compensation	—		—	—		—	—		—	—		—	22,500			2		—		—			287,997		—			287,999
Dividends paid to preferred shareholder	—		—	—		—	—		—	—		—	—			—		—		—			—		(362,250	)		(362,250	)
Cancellation of restricted stock	—		—	—		—	—		—	—		—	—			—		—		—			—		—			—
Net loss	—		—	—		—	—		—	—		—	—			—		—		—			—		(1,649,872	)		(1,649,872	)
Balance, March 31, 2022	—		—	—		—	552,000		55	2,000		1	2,577,635			258		—		—			44,258,641		(12,225,318	)		32,033,637
Cancellation of restricted shares	—		—	—		—	—		—	—		—	(10,500	)		(1	)	—		—			1		—			—
Stock-based compensation	—		—	—		—	—		—	—		—	19,000			2		—		—			112,449		—			112,451
Treasury shares repurchased	—		—	—		—	—		—	—		—	—			—		22,697		(149,686	)		—		—			(149,686	)
Dividends paid to preferred shareholder	—		—	—		—	—		—	—		—	—			—		—		—			—		(362,250	)		(362,250	)
Net Loss	—		—	—		—	—		—	—		—	—			—		—		—			—		(2,888,655	)		(2,888,655	)
Balance, June 30, 2022	—	$	—	—	$	—	552,000	$	55	2,000	$	1	2,586,135		$	259		22,697	$	(149,686	)	$	44,371,091	$	(15,476,223	)	$	28,745,497
Cancellation of restricted shares	—		—	—		—	—		—	—		—	—			—		—		—			—		—			—
Stock-based compensation	—		—	—		—	—		—	—		—	—			—		—		—			159,530		—			159,530
Treasury shares repurchased	—		—	—		—	—		—	8,000		—	—			—		—		—			—		—			—
Dividends paid to preferred shareholder	—		—	—		—	—		—	—		—	—			—		—		—			—		(362,250	)		(362,250	)
Net Loss	—		—	—		—	—		—	—		—	—			—		—		—			—		(2,700,473	)		(2,700,473	)
Balance, September 30, 2022	—	$	—	—	$	—	552,000	$	55	10,000	$	1	2,586,135		$	259		22,697	$	(149,686	)	$	44,530,621	$	(18,538,946	)	$	25,842,304
Balance, January 1, 2023	—	$	—	—	$	—	552,000	$	55	10,000	$	1	2,735,290		$	274		22,697	$	(149,686	)	$	45,620,764	$	(28,237,513	)	$	17,233,895
Common and Preferred stock issued for acquisition	1,250,000		3,712,500	399,996		1,063,989	—		—	—		—	774,999			78		—		—			4,029,922		—			4,030,000
Common stock issued in public offering (ATM), net of costs	—		—	—		—	—		—	—		—	352,862			35		—		—			2,242,891		—			2,242,926
Stock-based compensation	—		—	—		—	—		—	—		—	11,000			1		—		—			192,020		—			192,021
Dividends paid to preferred shareholder	—		—	—		—	—		—	—		—	—			—		—		—			—		(362,250	)		(362,250	)
Net Loss	—		—	—		—	—		—	—		—	—			—		—		—			—		(4,541,839	)		(4,541,839	)
Balance, March 31, 2023	1,250,000	$	3,712,500	399,996	$	1,063,989	552,000		55	10,000		1	3,874,151		$	388		22,697	$	(149,686	)	$	52,085,597	$	(33,141,602	)	$	18,794,753
Common stock issued in public offering ,net of costs	—		—	—		—	—		—	—		—	4,930,000			493		—		—			4,383,504		—			4,383,997
Common stock issued in public offering (ATM), net of costs	—		—	—		—	—		—	—		—	10,781			1		—		—			3,875		—			3,876
Common stock issued in connection with conversion of debt	—		—	—		—	—		—	—		—	110,131			11		—		—			217,489		—			217,500
Stock-based compensation	—		—	—		—	—		—	—		—	3,267			—		—		—			192,788		—			192,788
Dividends paid to preferred shareholder	—		—	—		—	—		—	—		—	—			—		—		—			—		(407,231	)		(407,231	)
Net Loss	—		—	—		—	—		—	—		—	—			—		—		—			—		(2,991,224	)		(2,991,224	)
Balance, June 30, 2023	1,250,000	$	3,712,500	399,996	$	1,063,989	552,000	$	55	10,000	$	1	8,928,330		$	893		22,697	$	(149,686	)	$	56,883,253	$	(36,540,057	)	$	20,194,459
Common stock issued in settlement	—		—	—		—	—		—	—		—	50,000			5		—		—			38,995		—			39,000
Common stock issued in connection with conversion of debt	—		—	—		—	—		—	—		—	893,898			89		—		—			549,911		—			550,000
Stock-based compensation	—		—	—		—	—		—	—		—	—			—		—		—			192,854		—			192,854
Dividends paid to preferred shareholder	—		—	—		—	—		—	—		—	—			—		—		—			—		(424,750	)		(424,750	)
Net Loss	—		—	—		—	—		—	—		—	—			—		—		—			—		(2,572,851	)		(2,572,851	)
Balance, September 30, 2023	1,250,000	$	3,712,500	399,996	$	1,063,989	552,000	$	55	10,000	$	1	9,872,228		$	987		22,697	$	(149,686	)	$	57,665,013	$	(39,537,658	)	$	17,978,712

The accompanying notes are an integral part of these unaudited interim consolidated financial statements

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Interim Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2023 and 2022


	2023			2022
Cash flows from Operating Activities
Net Loss	$	(10,105,914	)	$	(7,239,000	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities
Stock based compensation		616,660			559,980
Bad debt (recovery) expense		(59,839	)		94,714
Change in fair market value of warrant liability		(2,124	)		(46,521	)
Change in fair market value of contingent consideration		—			240,000
Gain on settlement of contingent consideration		—			(1,700,000	)
Loss on impairment of goodwill and intangible assets		—			1,138,203
Amortization of right-of-use asset		647,358			834,889
Depreciation and amortization		2,187,321			1,484,968
Amortization of debt discount		617,664			53,646
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(2,822,579	)		(103,343	)
Cost and estimated earnings excess of billings		(1,042,657	)		(234,869	)
Inventory		1,948,852			(2,612,773	)
Vendor deposits		(724,845	)		697,558
Prepaid expenses and other current assets		(146,197	)		(161,797	)
Accounts payable and accrued expenses		3,112,862			582,297
Other assets		(253,681	)
Billings in excess of costs and earnings on uncompleted contracts		—			(1,254,496	)
Deferred revenue		(915,205	)		1,151,496
Due to landlord		(279,515	)		(138,724	)
Operating lease payments		(621,396	)		(819,828	)
Net Cash Used in Operating Activities		(7,843,235	)		(7,473,600	)

Cash Flows From Investing Activities
Cash paid for patent costs		(66,023	)		(682	)
Purchase of machinery and equipment		(248,319	)		(46,196	)
Acquisitions, net of cash acquired (Note 2)		(4,115,709	)		(10	)
Payments on notes payable		(166,262	)		(41,730	)
Net Cash Used in Investing Activities		(4,596,313	)		(88,618	)

Cash Flows From Financing Activities
Payments on financing leases		(30,994	)		(5,269	)
Shares repurchased		—			(149,686	)
Dividends to preferred shareholders		(769,481	)		(1,086,750	)
Proceeds from equity raises, net		6,630,799			1,092,000
Proceeds from note payable, net		5,421,650			—
Net Cash Provided by (Used in) Financing Activities		11,251,974			(149,705	)

Net Decrease in Cash and equivalents		(1,187,574	)		(7,711,923	)
Cash and cash equivalents at January 1,		2,734,485			8,768,156
Cash and cash equivalents at September 30,	$	1,546,911		$	1,056,233

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest	$	642,877		$	101,365
Supplemental Non-Cash Disclosures of Investing and Financing Activities
Conversion of debt into common stock	$	767,500		$	—
Recognition of right of use asset and corresponding lease liability	$	563,315		$	1,380,658
Accrued dividends	$	424,750		$	—
Issuance of note payable for payment of prepaid expense	$	279,347		$	318,833

The accompanying notes are an integral part of these unaudited interim consolidated financial statements

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Applied UV, Inc. (the "Parent") was formed and incorporated in the State of Delaware for the intended purpose of holding the equity of SteriLumen, Inc. (“SteriLumen”), 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").

The Parent was subsequently re-incorporated in the State of Nevada, effective October 25, 2023 (See Note 13).

SteriLumen is engaged in the design, manufacture, assembly and distribution of (i) automated disinfecting mirror systems for use in hospitals and other healthcare facilities and (ii) air purification systems through its purchase of substantially all of the assets and certain liabilities of Akida Holdings, LLC, KES Science & Technology, and Scientific Air Management LLC, as described below. MunnWorks, LLC is engaged in the manufacture of fine mirrors and custom furniture specifically for the hospitality and retail industries.

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.

On January 26, 2023 we closed on the merger agreement with PURO Lighting LLC and LED Supply Co. LLC along with its operating subsidiaries (“PURO merger”). PURO and LED Supply Co. own a powerful suite of products used in education, government, and healthcare that incorporates UV Lighting and a HVAC monitoring software platform; LED Supply Co. provides design, distribution, and implementation services for lighting, controls and smart building technologies.

Principles of Consolidation

The consolidated financial statements include the accounts of Applied UV, Inc., Munnworks, LLC, SteriLumen, Inc., Puro Lighting, LLC, and LED Supply Co. LLC. 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, 2022.

Concentration of Credit and Business Risk

At times throughout the year, the Company maintains cash balances at various institutions, which may exceed the Federal Deposit Insurance Corporation limit. As of September 30, 2023, the Company was approximately $1,264,000 in excess of FDIC insured limits. The Company provides credit in the normal course of business.

For the nine months ended September 30, 2023 and 2022, the Company had no major suppliers that accounted for more than 10% of supplies and materials used by the Company.

For the three months ended September 30, 2023, the Company had one major supplier that accounted for 12.7% of supplies and materials used by the Company, and none for September 30, 2022.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation and accounting for equity awards related to warrants and stock-based compensation, determination of fair value for derivative instruments, the accounting for business combinations and allocating purchase price and estimating the useful life of intangible assets.

Cash and Cash Equivalents

Cash and equivalents include highly liquid investments that have original maturities less than 90 days at the time of their purchase. These investments are carried at cost which approximates market value because of their short maturities. As of September 30, 2023 and December 31, 2022, the Company had $27,000, respectively, in cash equivalents.

Accounts receivable

The Company’s accounts receivable balance consists of amounts due from its customers. The Company records accounts receivable at the invoiced amount less an allowance for any potentially uncollectable accounts under the current expected credit loss (“CECL”) impairment model and presents the net amount of the financial instrument expected to be collected. The CECL impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers forecasts of future economic conditions in addition to information about past events and current conditions. Based on this model, the Company considers many factors, including the age of the balance, collection history, and current economic trends.Bad debts are written off after all collection efforts have ceased. Allowances for credit losses are recorded as a direct reduction from an asset’s amortized cost basis. Credit losses and recoveries are recorded in selling, general and administrative expenses in the consolidated statements of operations. Recoveries of financial assets previously written off are recorded when received. For the three months ended September 30, 2023 and 2022, the Company had (recoveries) of $(75,629) and $(60,512), respectively. For the nine months ended September 30, 2023 and 2022, the Company had (recoveries) credit losses of $(59,839) and $94,714, respectively. Based on the Company’s current and historical collection experience, the Company recorded an allowance for doubtful accounts of approximately $108,000 and $35,000 as of September 30, 2023 and December 31, 2022, respectively.

Inventory

Inventories consist of raw materials, work-in-process, and finished goods. Raw materials and finished goods are valued at the lower of cost or net realizable value, using the first-in, first-out (“FIFO”) valuation method. Work-in-process and finished goods includes the cost of materials, freight and duty, direct labor and overhead. The Company writes down inventory for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. The Company had a reserve for inventory approximating $187,000 and $88,000 as of September 30, 2023 and December 31, 2022, respectively.

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. Repairs and maintenance expenditures, which do not extend the useful lives of the related assets, are expensed as incurred. Depreciation of machinery and equipment and furniture and fixtures are based on the estimated useful lives of the assets.

Schedule of estimated useful lives
Machinery and equipment		5 to 7 years
Leasehold improvements		Lesser of term of lease or useful life
Furniture and fixtures		5 to 7 years

Business Acquisition Accounting

The Company applies the acquisition method of accounting for those that meet the criteria of a business combination. The Company allocates the purchase price of its business acquisitions based on the fair value of identifiable tangible and intangible assets. The difference between the total cost of the acquisition and the sum of the fair values of acquired tangible and identifiable intangible assets less liabilities is recorded as goodwill. Transaction costs are expensed as incurred in general and administrative expenses.

Goodwill and Intangible Assets

The Company has recorded intangible assets, including goodwill, in connection with business combinations. Estimated useful lives of amortizable intangible assets are determined by management based on an assessment of the period over which the asset is expected to contribute to future cash flows.

In accordance with U.S. GAAP for goodwill and other indefinite-lived intangibles, the Company tests these assets for impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred. For the purposes of that assessment, the Company has determined to assign assets acquired in business combinations to a single reporting unit including all goodwill and indefinite-lived intangible assets acquired in business combinations.

Income Taxes

The Company files income tax returns using the cash basis of accounting. Income taxes are accounted for under the asset and liability method. Current income taxes are based on the year's income taxable for federal and state tax reporting purposes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be recovered.

Derivative Instruments

The Company evaluates its warrants to determine if those contracts or embedded components of those contracts qualify as derivatives. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The Company has concluded that there are no such reclassifications required to be made as of and for the periods ended September 30, 2023 and December 31, 2022.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company utilizes the Black-Scholes valuation model to value the derivative warrants as stipulated in the agreement for the warrant holders to receive cash based on that value.

Fair Value of Financial Instruments

The carrying amounts reported in the unaudited condensed consolidated balance sheets for loans payable approximate fair value because of the immediate or short-term maturity of the financial instruments. The Company's financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.

Loss Per Share

Basic loss per share is computed by dividing net loss attributable to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.

The following table sets forth the number of potential shares of common stock that have been excluded from diluted net loss per share because their effect was anti-dilutive:

Schedule of Anti-dilutive Securities Excluded from Computation of Loss Per Share:
	As of September 30,
	2023		2022
Common stock options		254,256		178,006
Series B Preferred Stock		1,250,000		—
Series C Preferred Stock		399,996		—
Common stock warrants		308,484		38,484
Total		2,212,736		216,490

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.

Reverse Stock Split

Applied UV, Inc. (the “Company”) filed a Certificate of Amendment to the Company’s Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Certificate of Amendment”) to effect a 1-for-5 reverse stock split (the “reverse stock split”) of the shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), on May 30, 2023. The Certificate of Amendment has no effect on the number of authorized shares of Common Stock or their par value. No fractional shares will be issued in connection with the reverse stock split and stockholders will receive cash in lieu of fractional shares.

All historical share and per share amounts in these financial statements have been retroactively adjusted to reflect the reverse stock split.

Research and Development

The Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, research and development costs are expensed as incurred.

Revenue Recognition

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

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Identify the contract with a customer.

Identify the performance obligations in the contract.

Determine the transaction price.

Allocate the transaction price to performance obligations in the contract.

Recognize revenue when or as the Company satisfies a performance obligation.

MunnWorks projects, including those from the VisionMark acquisition, are completed within the Company’s facilities. For these projects, the company designs, manufactures and sells custom mirrors and furniture for the hospitality and retail industries through contractual agreements. These sales require the company to deliver the products within three to nine months from commencement of order acceptance. Revenue is recognized using the input method of accounting. Deferred revenue represents amounts billed in excess of revenues recognized. Revenues recognized in excess of amounts billed typically does not occur as the Company will not perform any work in excess of the amount the company bills to its customers. If work is performed in excess of amounts billed, the Company will record an unbilled receivable

Revenue Recognition (Continued)

The company applied the five-step model to the sales of Puro's disinfection solution, LED's lighting products, Akida’s and KES’s Airocide™ and misting system products, and SciAir’s whole-room aerosol chamber and laboratory certified air disinfection machines. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company sells Airocide™ air sterilization units, misting systems, and whole-room aerosol chamber and laboratory certified disinfection machines to both consumer and commercial customers. These products are sold both domestically and internationally. The cycle from contract inception to shipment of products is typically one day to three months. The Company’s contracts for both its consumer and commercial customers each contain a single performance obligation (delivery of Airocide™, KES, and SciAir products), as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. As a result, the entire transaction price is allocated to this single performance obligation. The Company recognizes revenues at a point in time when the customer obtains control of the Company’s product, which typically occurs upon shipment of the product by the Company or upon customer pick-up via third party common carrier.

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

Schedule of revenue:

	September 30,
	2023		2022
Recognized over time	$	4,080,130	$	3,306,739
Recognized at a point in time		7,365,918		2,568,872
Total	$	11,446,048	$	5,875,611

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

Schedule of revenue:

	September 30,
	2023		2022
Recognized over time	$	12,565,031	$	6,719,888
Recognized at a point in time		20,379,186		8,419,459
Total	$	32,944,217	$	15,139,347

Deferred revenue was comprised of the following as of:

	September 30,		December 31,
	2023		2022
Recognized over time	$	3,156,192	$	3,581,195
Recognized at a point in time		2,957,000		1,149,104
Total	$	6,113,192	$	4,730,299

The Company recognized $1,179,381 and $4,426,522 of deferred revenue as of December 31, 2022 as revenue during the three and nine months ended September 30, 2023, respectively.

Advertising

Advertising costs consist primarily of online search advertising and placement, trade shows, advertising fees, and other promotional expenses. Advertising costs are expensed as incurred and are included in sales and marketing on the consolidated statements of operations. Advertising expense for the three months ended September 30, 2023 and 2022 was $110,111 and $264,614, respectively. Advertising expense for the nine months ended September 30, 2023 and 2022 was $405,829 and $810,986, respectively.

Vendor deposits

Vendor payments to third manufactures are capitalized until completion of the project and are recorded as vendor deposits. As of September 30, 2023 and December 31, 2022, the vendor deposit balance was $1,176,065 and $75,548, respectively.

Patent Costs

The Company capitalizes costs consisting principally of outside legal costs and filing fees related to obtaining and maintaining patents. The Company amortizes patent costs over the useful life of the patent which is typically 20 years, beginning with the date the patent is filed with the U.S. Patent and Trademark Office, or foreign equivalent. As of September 30, 2023 and December 31, 2022, capitalized patent costs net of accumulated amortization was $3,167,213 and $1,593,741, respectively. For the three months ended September 30, 2023 and 2022, the Company recorded $47,516 and $25,016, respectively, of amortization expense for these patents. For the nine months ended September 30, 2023 and 2022, the Company recorded $136,528 and $75,048, respectively, of amortization expense for these patents.

Recently adopted accounting standards:

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. The Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on the Company’s financial position or results of operations upon adoption.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 determined that this change does not have a material impact to the financial statements or financial statement disclosures.

Recently issued accounting pronouncements:

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470 20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if converted method for all convertible instruments. The amendments in this update will be effective for the Company on January 1, 2024 and may be early adopted at the beginning of fiscal year 2023. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.

NOTE 2 – BUSINESS ACQUISITION

The Company accounted for the acquisitions as a business combinations using the purchase method of accounting as prescribed in Accounting Standards Codification 805, Business Combinations (“ASC 805”) and ASC 820 – Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 805 and ASC 820, the Company used its best estimates and assumptions to accurately assign fair value to the tangible assets acquired, identifiable intangible assets and liabilities assumed as of the acquisition dates. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed. The results of operations of the acquired businesses since the date of acquisition are included in the consolidated financial statements of the Company for the three and nine months ended September 30, 2023 and 2022. The total purchase consideration was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition, as determined by management. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed has been recorded as goodwill. The value of the goodwill from the acquisitions described below can be attributed to a number of business factors including, but not limited to, cost synergies expected to be realized and a trained technical workforce.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 2 – BUSINESS ACQUISITION (CONTINUED)

In conjunction with acquisitions noted below, we used various valuation techniques to determine fair value of the assets acquired, with the primary techniques being discounted cash flow analysis, relief-from-royalty, a form of the multi-period excess earnings and the with-and-without valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Inputs to these valuation approaches require significant judgment including: (i) forecasted sales, growth rates and customer attrition rates, (ii) forecasted operating margins, (iii) royalty rates and discount rates used to present value future cash flows, (iv) the amount of synergies expected from the acquisition, (v) the economic useful life of assets and (vi) the evaluation of historical tax positions. In certain acquisitions, historical data is limited, therefore, we base our estimates and assumptions on budgets, business plans, economic projections, anticipated future cash flows and marketplace data.

In relation with the purchase by SteriLumen, Inc., of Old SAM Partners, LLC, 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 80,000 shares. During the nine months ended September 30, 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 and intangible assets 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 in the first quarter of 2022.

On March 25, 2022, the Company entered into an asset purchase agreement by and among the Company, Munnworks, LLC., a New York Limited Liability Company and wholly-owned subsidiary of the Company (the “Purchaser”) and VisionMark LLC, a New York limited liability company (the “Seller”), pursuant to which the Purchaser acquired substantially all of the assets of the Seller in exchange for the assumption of obligations of buyer under the sublease and sublease guarantee.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 2 – BUSINESS ACQUISITION (CONTINUED)

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


Purchase Price:
Cash paid at closing	$	10
Due to landlord		755,906
Total Purchase Price, net of cash acquired		755,916

Assets Acquired:
Accounts receivable, net		636,550
Inventory		176,583
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 of past due lease payments per month for the next 36 months commencing on April 1, 2022. The Company recognized a discount and related liability equal to the present value of the past due lease liability, and amortizes the difference between such present value and the liability through interest expense using a rate of 38.7% as per the effective interest rate method over the repayment period. Amortization of discount included in interest expenses was $34,493 and $47,620 for the three months ended September 30, 2023 and 2022, respectively. Amortization of discount included in interest expenses was $113,113 and $101,266 for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, the future maturity of the lease liability is as follows:


Years Ended December 31,
2023 (3 months)	$	93,174
2024		372,684
2025		93,174
Total		559,032
Less: Unamortized discount		(102,971	)
Total amount due to landlord		456,061
Less: current portion of amount due to landlord, net of discount		(281,123	)
Total long-term portion of amount due to landlord	$	174,938

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 2 – BUSINESS ACQUISITION (CONTINUED)

On January 26, 2023, the Company entered into an asset purchase agreement by the Company (the "Buyer") and PURO Lighting, LLC, (the “Seller”) a limited liability company under the laws of the State of Colorado, pursuant to which the Purchaser acquired substantially all of the assets of the Seller in exchange for cash, common stock and preferred stock of the buyer. The Company paid or issued, as applicable (i) 499,444 shares of the Company’s common stock (ii) 251,108 shares of the Company’s 5% Series C Cumulative Perpetual Preferred Stock, par value $0.0001 per share (“Series C Preferred Stock”) (iii) cash of $3,828,967 and (iv) 1,250,000 shares of the Company’s 2% Series B Cumulative Perpetual Preferred Stock (the “Series B Preferred Stock”). In addition, the seller has the right to receive earnout payments subject to certain conditions, including achieving certain revenue targets and gross profit margins and payable as set forth in the PURO Merger Agreement.

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


Purchase Price:
Cash paid at closing, net of cash acquired	$	3,828,967
Common stock		2,597,111
Series B Preferred Stock		3,712,500
Series C Preferred Stock		667,947
Contingent consideration-Make Whole***		2,397,334
Contingent consideration-Earnout		4,046,232
Total Purchase Price, net of cash acquired		17,250,091

Assets Acquired:
Accounts receivable, net		274,574
Inventory		2,085,912
Other current assets		415,188
Fixed assets, net		5,075
Tradenames/trademarks		1,228,000
Technology/know-how/trade secrets		1,842,000
Patented technology		1,710,000
Customer relationships		4,705,000
Total Assets Acquired:		12,265,749

Liabilities Assumed:
Accounts payable and accrued expenses		(936,448	)
Deferred revenue		(18,482	)
Total Liabilities Assumed		(954,930	)
Net Assets Acquired		11,310,819
Excess Purchase Price “Goodwill”	$	5,939,272

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 2 – BUSINESS ACQUISITION (CONTINUED)

***Represents the difference in fair value of common stock on the date of acquisition versus agreed upon $2 per share (“Make Whole”). The Make Whole provision cannot exceed $2,397,331. In the event any PURO Equity holder sells any shares of Common Stock obtained pursuant to the terms of the Agreement through a registered broker/dealer on or after the first anniversary of the Closing Date for a price per share of the Common Stock less than $2.00 (the “Sale Price”), Parent will pay to such PURO Equity holder within ten (10) Business Days following the consummation of such sale to an account designated in writing by such PURO Equity holder an amount equal to (a) (i) $2.00 less (ii) the Sale Price, multiplied by (b) the number of shares of Common Stock sold in such sale (the “Make Whole Amount”). The Make Whole Amount payment shall be 50% in cash and 50% in shares of Common Stock (with the number of shares of Common Stock to be issued determined based on a price per share equal to 90% of the Sale Price). In September 2023, the change in the Make Whole provision of $279,689 was recorded to other income within the consolidated statements of operations.

The excess purchase price has been recorded as goodwill in the amount of approximately $5,939,272. The goodwill is amortizable for tax purposes.

On January 26, 2023, the Company entered into an asset purchase agreement by the Company (the "Buyer") and LED Supply Co, LLC, (the “Seller”), a limited liability company under the laws of the State of Colorado, pursuant to which the Purchaser acquired substantially all of the assets of the Seller in exchange for cash, common stock and preferred stocks of the buyer. The Company paid or issued, as applicable (i) 275,555 shares of the Company’s common stock; (ii) 148,888 shares of Series C Preferred Stock; and (iii) cash of $286,742. In addition, the seller has the right to receive earnout payments subject to certain conditions, including achieving certain revenue targets and gross profit margins and payable as set forth in the LED Merger Agreement.

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


Purchase Price:
Cash paid at closing	$	286,742
Common stock		1,432,889
Series C Preferred Stock		396,042
Contingent considerations-Common Stock True Up***		1,322,665
Contingent considerations-Earnout		10,609,442
Total Purchase Price, net of cash acquired		14,047,780

Assets Acquired:
Accounts receivable, net		1,461,461
Inventory		1,925,285
Other current assets		232,095
Vendor deposits		375,672
Costs and estimated earnings in excess of billings		533,638
Fixed assets, net		106,330
Trademarks/tradenames		1,806,000
Technology/know-how/trade secrets		1,169,193
Vendor relationships		1,416,000
Rebate program		1,894,703
Customer relationships		2,088,000
Other non-current assets		24,819
Total Assets Acquired:		13,033,196

Liabilities Assumed:
Accounts payable		(2,854,509	)
Deferred revenue		(2,279,616	)
Notes payable		(1,973,946	)
Financing lease liability		(25,231	)
Total Liabilities Assumed		(7,133,302	)
Net Assets Acquired		5,899,894
Excess Purchase Price "Goodwill"	$	8,147,886

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 2 – BUSINESS ACQUISITION (CONTINUED)

***Represents the difference in fair value of common stock on the date of acquisition versus agreed upon $2 per share (“Make Whole”). The Make Whole provision cannot exceed $1,322,666. In the event any LED Equityholder sells any shares of Common Stock obtained pursuant to the terms of the Agreement through a registered broker/dealer on or after the first anniversary of the Closing Date for a price per share of the Common Stock less than $2.00 (the “Sale Price”), Parent will pay to such LED Equityholder within ten (10) Business Days following the consummation of such sale to an account designated in writing by such LED Equityholder an amount equal to (a) (i) $2.00 less (ii) the Sale Price, multiplied by (b) the number of shares of Common Stock sold in such sale (the “Make Whole Amount”). The Make Whole Amount payment shall be 50% in cash and 50% in shares of Common Stock (with the number of shares of Common Stock to be issued determined based on a price per share equal to 90% of the Sale Price). In September 2023, the change in the Make Whole provision of $154,311 was recorded to other income within the consolidated statements of operations.

The excess purchase price has been recorded as goodwill in the amount of approximately $8,147,886. The goodwill is amortizable for tax purposes

NOTE 3 – INVENTORY

Inventory consists of the following as of:

Schedule of Inventory
	September 30,			December 31,
	2023			2022
Raw materials	$	2,873,493		$	3,485,040
Finished goods		4,883,677			2,110,838
Inventory at cost		7,757,170			5,595,878
Less: Reserve		(186,839	)		(87,792	)
Inventory, net	$	7,570,331		$	5,508,086

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment (including machinery and equipment under capital leases) are summarized by major classifications as follows:

Schedule of property and equipment
	September 30,			December 31,
	2023			2022
Machinery and Equipment	$	1,476,834		$	1,266,189
Leasehold improvements		145,558			67,549
Furniture and Fixtures		274,326			203,256
Property and equipment at cost		1,896,718			1,536,994
Less: Accumulated Depreciation		(646,368	)		(403,526	)
Net Property and Equipment	$	1,250,350		$	1,133,468

Depreciation expense, including amortization of assets under Financing leases, for the three months ended September 30, 2023 and 2022 was $88,516 and $64,489, respectively.

Depreciation expense, including amortization of assets under Financing leases, for the nine months ended September 30, 2023 and 2022 was $242,842 and $159,016, respectively.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 5 – INTANGIBLE ASSETS

Intangible assets as of September 30, 2023 and December 31, 2022 consist of the following:

Schedule of Intangible Assets
	September 30,			December 31,
	2023			2022
Intangible assets subject to amortization
Customer Relationships	$	8,448,598		$	1,655,598
Tradenames/trademarks		5,242,530			2,208,530
Patented technology		3,475,045			1,730,771
Technology/know-how/trade secrets		11,383,943			8,341,000
Vendor relationships		1,416,000			—
Rebate program		1,894,703			—
		31,860,819			13,935,899
Less: Accumulated Amortization		(4,525,949	)		(2,581,469	)
	$	27,334,870		$	11,354,430

During the three months ended September 30, 2023 and 2022, the Company recorded total amortization expense related to intangible assets of $680,678 and $441,984, respectively. During the nine months ended September 30, 2023 and 2022, the Company recorded total amortization expense related to intangible assets of $1,944,479 and $359,600, respectively. The useful lives of tradenames ranges from 5 to 10 years, technology is 10 years, customer relationships ranges from 7 to 14 years, and patents range from 17 to 20 years. Future amortization of intangible assets are as follows:


For the year ending December 31,
2023 (3 months)		764,465
2024		3,050,982
2025		3,050,982
2026		3,033,272
Thereafter		17,435,169
Total	$	27,334,870

NOTE 6 – FINANCING LEASE OBLIGATION

The Company’s future minimum principal and interest payments under a financing lease for machinery and equipment are as follows:


2023 (3 months)	$	18,389
2024		54,901
2025		54,901
2026		49,260
2027		36,109
Total lease payments		213,560
Less: Amount representing interest		(27,540	)
Present value of future minimum lease payments		186,020
Less: current portion		(42,445	)
Financing lease obligations, net of current	$	143,575

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 7 – NOTES PAYABLE

As of September 30, 2023, the Company had the following notes payable outstanding:

Schedule of notes payable
	September 30,			December 31,
	2023			2022
Loan Agreement	$	157,500		$	157,500
Streeterville Note #1		2,405,000			2,807,500
Streeterville Note #2		2,575,754			—
Directors and Officers Liability Insurance Agreement		206,239			166,262
Pinnacle Note		4,810,922			—
Total		10,155,415			3,131,262
Less: Unamortized debt discount		(207,883	)		267,433
Total notes payable		9,947,532			2,863,829
Notes payable, current		(5,136,610	)		(2,098,685	)
Notes payable, non current	$	4,810,922		$	765,144

Minimum obligations under these loan agreement are as follows:


2023 (three months)	$	2,123,971
2024	$	8,031,444
Total	$	10,155,415

Loan Agreement

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, 2022, the company has an outstanding balance of $157,500, and no payments have been made as of September 30, 2023.

Streeterville Note #1

On October 7, 2022, the Company entered into a Security Purchase Agreement with Streeterville Capital, LLC whereby the Company issued an 8% unsecured redeemable note in the principal amount of $2,807,500. The Company received net proceeds of $2,462,500, after the deduction of debt issuance costs of $345,000. These fees were recorded as debt discounts, net of the carrying value of the debt, and are being amortized over the life of the loan using the effective interest rate method. The note has a maturity date of April 7, 2024. At any time following the occurrence of any event of default, interest shall accrue on the outstanding balance beginning on the date the applicable event of default occurred at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.

On May 1, 2023, the Company paid an amendment fee of $65,000 which was added to principal and recorded as a debt discount. The amendment was to extend the required principal payments to September of 2023. In May of 2023, the noteholders converted $217,500 of principal in exchange for 110,131 common shares. In August of 2023, the noteholders converted an additional $250,000 of principal in exchange for 413,975 common shares.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 7 – NOTES PAYABLE (continued)

Streeterville Note #1 (Continued)

The lender has the right at any time 6 months after the effective date, at its election, to redeem all or part of the maximum redemption amount as set forth in the promissory note. Payments of each redemption amount may be made (a) in cash, or (b) in common stock per the following formula: the portion of the applicable Redemption amount being paid in common stock divided by the common stock redemption price, or (c) by any combination of the foregoing. Whereas common stock redemption price means 87.5% multiplied by the Nasdaq minimum price. Whereas Nasdaq minimum price means the lower of: (i) the closing price on the trading day immediately preceding the date the common stock redemption price is measured; or (ii) the average closing price of the common stock for the five trading days immediately preceding the date the common stock redemption price is measured.

The principal amount of the Note may be prepaid in full, or any portion of the outstanding balance earlier than it is due; provided that in the event borrower elects to prepay all or any portion of the outstanding balance it shall pay to lender 120% of the portion of the outstanding balance borrower elects to prepay. The prepayment premium will not apply if borrower repays the Note in full on the anniversary date, which is one year from the purchase price date.

If prior to the anniversary date all redemption amounts are paid as common stock redemptions, then each time after the anniversary date that borrower makes a common stock redemption, $8,333 of the monitoring fee will be deducted from the outstanding balance, not to exceed $50,000. No interest will accrue on the monitoring fee.

Debt discount related to the note amounts to $345,000 and is being amortized using the effective interest method over the term of the note. The effective interest rate of the note is 21.84%. The Company recorded $98,632 and $263,259 due to debt discount amortization to interest expense in the accompanying Statement of Operations for the three and nine months ended September 30, 2023. As a result, at September 30, 2023, the remaining unamortized balance was $57,632. The Company paid an amendment fee in May of 2023 of $65,000 which was added to debt discount.

Interest expense recorded in the accompanying Statements of Operations by the Company was $61,945 and $172,792 for the three and nine months ended September 30, 2023, respectively.

Streeterville Note #2

The features and conditions relating to this note is similar with the Streeterville note issued on October 7, 2022.

Debt discount recognized during 2023 related to the note amounts to $344,500 and is being amortized using the effective interest method over the term of the note. The effective interest rate of the note is 22.63%. The Company recorded $100,416 and $240,119 due to debt discount amortization to interest expense in the accompanying Statement of Operations for the three and nine months ended September 30, 2023. As a result, at September 30, 2023, the remaining unamortized balance was $135,240. The Company paid an amendment fee in May of 2023 of $35,000 which was added to debt discount. In August of 2023, the noteholders converted $266,746 of principal and $33,254 of accrued interest in exchange for 479,923 common shares.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 7 – NOTES PAYABLE (continued)

Streeterville Note #2 (Continued)

Interest expense recorded in the accompanying Statements of Operations by the Company was $32,510 and $130,311 for the three and nine months ended September 30, 2023, respectively.

Directors and Officers Liability Insurance Agreement

On August 28, 2022, the Company entered into a one-year Directors and Officers Liability Insurance agreement for $318,833. Under the terms of the agreement, the Company made a down payment of $41,730, with the remaining balance financed over the remaining term at an annual percentage rate of 5.05%. Beginning in September 2022, the Company is making 10 monthly payments of $27,710, with the last payment made in June 2023. At September 30, 2023, the outstanding balance on the note payable was $0.

On August 28, 2023, the Company entered into a one-year Directors and Officers Liability Insurance agreement for $279,347. Under the terms of the agreement, the Company made a down payment of $42,115 and an additional payment of $30,933 prior to September 30, 2023, with the remaining balance financed over the remaining term at an annual percentage rate of 6.28%. Beginning in September 2023, the Company is making 10 monthly payments of $24,411, with the last payment made in June 2024. At September 30, 2023, the outstanding balance on the note payable was $206,239 and interest expense for the three months and nine months ended September 30, 2023 were immaterial to the consolidated financial statements.

Pinnacle Note

In December 2022, the Company entered into a Loan and Security Agreement, or (the “Loan Agreement”), with Pinnacle Bank, which provides for a $5,000,000 secured revolving credit facility (the “Loan Facility”). The facility was later amended and increased to $6,000,000 on May 23, 2023. The loan is subject to a maximum advance amount of up to 85% of net face amount of eligible accounts, plus the lessor a) of the sum of 20% of the aggregate eligible inventory value of raw materials and 35% of the aggregate eligible inventory value of finished goods, b) $1 million, c) 80% of the net orderly liquidation value of raw materials and finished goods, or d) 100% of the aggregate outstanding principal amount of advances. In no event shall the aggregate amount of the outstanding advances under the Loan Facility be greater than $6 million. The loan matures on December 9, 2024. The principal amount of outstanding revolving loan, together with accrued and unpaid interest, is due on the maturity date.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 7 – NOTES PAYABLE (continued)

Pinnacle Note (Continued)

The loan accrues interest at a 1.50% margin above the greater of the prime rate or 4.00%. The interest margin is increased to 2.00% in respect to the advances against eligible inventory. If the Company fails to meet any covenant, term or provision of the Loan Agreement, then interest shall accrue at the rate of 6.0% above the interest rate. If after the occurrence of an event of default and the loan is not paid in full by the maturity date, the loan shall bear interest at the rate of 18.0% above the interest rate.

Obligations under the Loan Agreement are secured by all of the Company's assets. On the effective date the Company paid a loan fee of 2% of the amount of the Loan Facility and will be required to pay a loan fee of 1.5% of the amount of the Loan Facility annually thereafter.

The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and the Subsidiaries, including, without limitation, restrictions on liens, indebtedness, fundamental changes, capital expenditures, consignments of inventory and distributions.

The Loan Agreement contains customary events of default, including, without limitation, payment defaults, covenant defaults, breaches of certain representations and warranties, certain events of bankruptcy and insolvency, certain events under ERISA and judgments. If an event of default occurs and is not cured within any applicable grace period or is not waived, the Lender is entitled to take various actions, including, without limitation, the acceleration of amounts due thereunder and termination of commitments under the Loan Facility.

There was a $4,810,922 outstanding balance under the Loan Facility as of September 30, 2023 which has all been classified as long term.

Chase Credit Facility

In connection with the acquisition of LED Supply Co, LLC, the Company assumed $1,728,474 in principal and $71,724 in accrued interest relating to a credit facility issued by JP Morgan Chase Bank. On March 15, 2023, the Company paid the principle in full and accrued interest of $71,724, for an aggregate payment of $1,800,198, by drawing down on the Company’s credit facility with Pinnacle Bank.

NOTE 8 – FAIR VALUE MEASUREMENTS

Accounting guidance on fair value measurements requires that financial assets and liabilities be classified and disclosed in one of the following categories of the fair value hierarchy:

Level 1 – Based on unadjusted quoted prices for identical assets or liabilities in an active market.

Level 2 – Based on observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3– Based on unobservable inputs that reflect the entity’s own assumptions about the assumptions that a market participant would use in pricing the asset or liability.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 8 – FAIR VALUE MEASUREMENTS (CONTINUED)

We did not have any transfers between levels during the periods presented.

The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheets on a recurring basis as of September 30, 2023 and December 31, 2022:


	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	As of September 30, 2023
Assets
Money market funds	$	27,064	$	27,064	$	27,064	$	—	$	—
Total assets	$	27,064	$	27,064	$	27,064	$	—	$	—
Liabilities
Contingent consideration	$	18,375,672	$	18,375,672	$	3,719,999	$	—	$	14,655,673
Warrant liability		7,863		7,863		—		—		7,863
Total liabilities	$	18,383,535	$	18,383,535	$	3,719,999	$	—	$	14,663,536

		As of December 31, 2022
Assets
Money market funds	$	26,828	$	26,828	$	26,828	$	—	$	—
Total assets	$	26,828	$	26,828	$	26,828	$	—	$	—
Liabilities
Warrant liability		9,987		9,987		—		—		9,987
Total liabilities	$	9,987	$	9,987	$	—	$	—	$	9,987

The carrying amounts of accounts receivable, accounts payable and short-term debt approximated fair values as of September 30, 2023 and December 31, 2022 because of the relatively short maturity of these instruments. There were no other level 3 or level 1 assets or liabilities as of September 30, 2023

Money market funds – Cash equivalents of $27,064 and $26,828 as of September 30, 2023 and December 31, 2022, respectively, consisted of money market funds. Money market funds are classified as Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

Contingent consideration – The fair value of the contingent consideration related to the common stock true-up is derived through the quoted market price of our stock, which represents a Level 1 measurement within the fair value hierarchy. As a result of the merger transaction, the company assumed an Earn-out liability, which is remeasured each reporting period. Given the unobservable nature of the inputs, the fair value measurement of the deferred earn-out is deemed to use Level 3 inputs. The Earn-out liability was accounted for as a liability as of the date of the merger transaction and will be remeasured to fair value until the Earnout Triggering Events are met.

Warrant liability – The fair value of the warrant liability is derived through the Black Scholes method and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 8 – FAIR VALUE MEASUREMENTS (CONTINUED)

Other Fair Value Measurements

In addition to assets and liabilities that are recorded at fair value on a recurring basis, GAAP requires that, under certain circumstances, we also record assets and liabilities at fair value on a nonrecurring basis.

In connection with our acquisitions we used various valuation techniques to determine fair value, with the primary techniques being discounted cash flow analysis and the relief-from-royalty, a form of the multi-period excess earnings, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy

NOTE 9 – STOCKHOLDERS' EQUITY

At the Market Sales Agreement

On July 1, 2022, the Company filed a $50,000,000 mixed use shelf registration (Form S-3) and entered into an At The Market sales agreement ("ATM") with Maxim Group, LLC for a total of $9,000,000, as a readily available source of funding if needed. During the year ended December 31, 2022 the Company sold 160,962 ATM shares through the sales agent with gross proceeds of $964,083. In connection with the sale of these ATM Shares, the compensation paid by the Company to the Sales Agent was $28,922. As of September 30, 2023, an additional 363,642 shares have been sold for gross proceeds of $2,342,084, and the compensation paid by the Company to the Sales Agent was $70,262, leaving a balance of $5,693,833 on the ATM facility. The ATM facility expired July 1, 2023. The shelf registration statement will expire on July 12, 2025.

Reverse Stock Split

The Common Stock began trading on a reverse stock split-adjusted basis on the Nasdaq Capital Market when the market opened on May 31, 2023. The trading symbol for the Common Stock will remain “AUVI.” The Common Stock was assigned a new CUSIP number (03828V402) following the reverse stock split.The Company has adjusted the number of shares available for future grant under its equity incentive plan as well as the number of outstanding awards, the exercise price per share of outstanding stock options and other terms of outstanding awards issued to reflect the effects of the reverse stock split

All historical share and per share amounts in these financial statements have been retroactively adjusted to reflect the reverse stock split.

June Public Offering

On June 16, 2023, the Company entered into an underwriting agreement, pursuant to which the Company agreed to sell to the Underwriters, an aggregate of (i) 4,730,000 shares of its common stock, at a public offering price of $1.00 per share and (ii) pre-funded warrants to purchase 270,000 shares of Common Stock at a price of $1 per share, minus $0.001. In addition, the Company granted the Underwriters a 45-day over-allotment option to purchase up to an additional 750,000 shares of Common Stock at the public offering price per security, less underwriting discounts, and commissions, of which was 200,000 shares were purchased. As a result of the offering, the Company received gross proceeds of $5,200,000 and incurred $816,000 of deal related costs. Each pre-funded warrant is exercisable for one share of our common stock, with an exercise price equal to $0.001 per share, at any time that the pre-funded warrant is outstanding. There is no expiration date for the pre-funded warrants. The holder of a pre-funded warrant will not be deemed a holder of our underlying common stock until the pre-funded warrant is exercised. On August 14, 2023, the Company entered into a settlement and release agreement with Maxim Group LLC related to the June Public Offering whereby the company issued 50,000 common shares valued at $0.78 per share.

Amendment of the Certificate of Designation

On March 9, 2022, the Board of Directors approved a resolution that authorized the senior management of the Company to purchase up to and limited to one million shares of common stock between March 10, 2022 and September 30, 2022. The Company has a total 22,697 of treasury shares as of September 30, 2023, all of which were purchased during April 2022.

Pursuant to the Company’s amended and restated certificate of incorporation, as amended, the Company is authorized to designate and issue up to 20,000,000 shares of preferred stock, par value $0.0001 per share, in one or more classes or series. During the year ended December 31, 2022, the Company had 10,000 preferred shares designated as Series X Preferred Stock, 1,250,000 shares of preferred stock designated as 10.5% Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”), and 18,740,000 shares undesignated. As of September 30, 2023 the Company had 1,250,000 preferred shares designated as Series B Preferred Stock, 2,500,000 preferred shares designated as Series C Preferred Stock, 10,000 preferred shares designated as Series X Preferred Stock, 1,250,000 shares designated as 10.5% Series A Cumulative Perpetual Preferred Stock, and 14,990,000 shares undesignated.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 9 – STOCKHOLDERS' EQUITY (CONTINUED)

Preferred Stock, Series A Cumulative Perpetual

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 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. 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. 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.

Preferred Stock, Series B Cumulative Perpetual

On January 25, 2023, the Company filed the Certificate of Designations, Rights, and Preferences for the Series B Preferred Stock with the Secretary of State of the State of Delaware, which became effective upon acceptance for record. On January 26, 2023, the Company filed the Amendment to the Series B Certificate of Designation (together with the Certificate of Designations, Rights, and Preferences for the Series B Preferred Stock, the “Series B Certificate of Designation”), which became effective upon acceptance for record. The Series B Certificate of Designation classified a total of 1,250,000 shares of the Company’s authorized shares of preferred stock, $0.0001 par value per share, as Series B Preferred Stock. As set forth in the Series B Certificate of Designation, the Series B Preferred Stock ranks, as to dividend rights and rights upon the Company’s liquidation, dissolution or winding up: (i) senior to all classes or series of Common Stock and to all other equity securities issued by the Company expressly designated as ranking junior to the Series B Preferred Stock; (ii) on parity with the Company’s 10.5% Series A Cumulative Perpetual Preferred Stock; (iii) at least on parity with any future class or series of the Company’s equity securities designated on or after January 25, 2023, including the Company’s 5% Series C Cumulative Perpetual Preferred Stock; and (iv) effectively junior to all the Company’s existing and future indebtedness (including indebtedness convertible into Common Stock or preferred stock) and to the indebtedness and other liabilities of the Company’s existing or future subsidiaries. Holders of Series B Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 2% of the $6 per share liquidation preference per year (equivalent to $0.12 per share per year). Dividends will be payable quarterly in arrears, on or about the 15th day after the end of a quarterly period, beginning on April 15, 2023. The holders of Series B Preferred Stock, at his, her, or its option, can require the Company to redeem all or a portion of the Series B Preferred Stock at any time and from time to time held by such holder after 30 months from the original issue date at a redemption price of $2.00 per share, plus any accrued and unpaid dividends (whether or not authorized or declared), up to but not including the date fixed for redemption, without interest, to the extent the Company has funds legally available therefore; provided that if a holder requires the Company to redeem all or a portion of the Series B Preferred Stock at any time and from time to time held by such holder on or after the five (5) year anniversary of the original issue date, the redemption price will be $6.00 per share, plus any accrued and unpaid dividends (whether or not authorized or declared), up to but not including the date fixed for redemption, without interest, to the extent the Company has funds legally available therefore. The Series B Certificate of Designation provides for a special optional redemption by the Company upon a change of control, in whole or in part, for $6.00 per share, plus accrued but unpaid dividends to, but not including the redemption date. The holders

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 9 – STOCKHOLDERS' EQUITY (CONTINUED)

Preferred Stock, Series B Cumulative Perpetual (Continued)

of Series B Preferred Stock neither have voting nor preemptive rights. Each share of Series B Preferred Stock is convertible, at any time and from time to time from and after the original issue date, at the option of the holder, into one share of Common Stock. The Series B Preferred Stock has no stated maturity and will not be subject to any sinking fund for the payment of the redemption price or mandatory redemption. The Series B Preferred Stock has been classified as temporary equity, outside of permanent equity, as they are redeemable at the option of the holder.

Preferred Stock, Series C Cumulative Perpetual

On January 25, 2023, the Company filed the Certificate of Designations, Rights, and Preferences for the Series C Preferred Stock with the Secretary of State of the State of Delaware, which became effective upon acceptance for record. On January 26, 2023, the Company filed the Amendment to the Series C Certificate of Designation (together with the Certificate of Designations, Rights, and Preferences for the Series C Preferred Stock, the “Series C Certificate of Designation”), which became effective upon acceptance for record. The Series C Certificate of Designation classified a total of 2,500,000 shares of the Company’s authorized shares of preferred stock, $0.0001 par value per share, as Series C Preferred Stock. As set forth in the Series C Certificate of Designation, the Series C Preferred Stock will rank, as to dividend rights and rights upon the Company’s liquidation, dissolution or winding up: (i) senior to all classes or series of Common Stock and to all other equity securities issued by the Company expressly designated as ranking junior to the Series C Preferred Stock; (ii) on parity with any future class or series of the Company’s equity securities expressly designated as ranking on parity with the Series C Preferred Stock; (iii) junior to all equity securities issued by the Company with terms specifically providing that those equity securities rank senior to the Series C Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up; and (iv) effectively junior to all the Company’s existing and future indebtedness (including indebtedness convertible into Common Stock or preferred stock) and to the indebtedness and other liabilities of the Company’s existing or future subsidiaries. Holders of Series C Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 5% of the $5.00 per share liquidation preference per year (equivalent to $0.25 per share per year). Dividends will be payable quarterly in arrears, on or about the 15th day after the end of a quarterly period, beginning on April 15, 2023. The Company, to the extent it has legally available funds, must redeem all shares of Series C Preferred Stock on the date that is three years from January 26, 2023. The Series C Certificate of Designation provides for a special optional redemption by the Company upon a change of control, in whole or in part, for $5.00 per share, plus accrued but unpaid dividends to, but not including the redemption date.The holders of Series C Preferred Stock neither have voting nor preemptive rights. Each share of Series C Preferred Stock will be convertible, at any time and from time to time from and after January 26, 2023, at the option of the holder, into one share of Common Stock. The Series C Preferred Stock has no stated maturity and will not be subject to any sinking fund for the payment of the redemption price or mandatory redemption. The Series C Preferred Stock shall be classified as temporary equity, outside of permanent equity, as they are redeemable at a fixed or determinable price on a fixed or determinable date.

Suspension of Preferred Dividends

On June 19, 2023, the Board of Directors of Applied UV, Inc (“Applied UV” or the “Company”) temporarily suspended the Company’s: (i) monthly $0.21875 dividend on its 10.5% Series A Cumulative Perpetual Preferred Stock (“Series A Preferred Stock”), commencing with the July dividend, that would have been paid on July 17, 2023; (ii) quarterly $0.03 dividend on its 2% Series B Cumulative Perpetual Preferred Stock (“Series B Preferred Stock”), commencing with the dividend for the quarter ending June 30, 2023, that would have been paid on July 17, 2023; and (iii) quarterly $0.0625 dividend on its 5% Series C Cumulative Perpetual Preferred Stock (“Series C Preferred Stock”), commencing with the dividend for the quarter ending June 30, 2023, that that would have been paid on July 17, 2023. The dividends on each Series cited above have been suspended by the Board for the next eleven (11) months, or until the month of May 2024 for the Series A Preferred Stock or the quarter ending March 31, 2024 for the Series B and C Preferred Stock but may be re-instated at any time in the Board’s discretion (the “Suspension Period”). The suspension of these dividends will defer approximately $1.5 million in cash dividend payments until after the Suspension Period.

Notwithstanding anything contained herein to the contrary, dividends on the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends, and whether or not such dividends are authorized or declared. No interest is payable in respect of any dividend payment or payments on the Series A, B or C Preferred Stock which may be in arrears. The Company previously paid a monthly cash dividend of $0.21875 per share on the Series A Preferred Stock having a record date of June 2, 2023, a quarterly cash dividend of $0.03 per share on the Series B Preferred Stock having a record date of March 31, 2023, and a quarterly cash dividend of $0.0625 on the Series C Preferred Stock having a record date of March 31, 2023.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 9 – STOCKHOLDERS' EQUITY (continued)

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, 2022		128,863		$	35.55	$	25.15		8.47	$	—
Options granted outside of the plan		127,800			8.30		5.30		10.00		—
Options forfeited		(56,657	)		35.10		—				—
Options exercised		—			—		—				—
Balances, December 31, 2022		200,006		$	18.05	$	—		9.03	$	—
Options granted outside of the plan		96,000			10.00		4.37		10.0		—
Options forfeited		(41,750	)		9.02		—				—
Options exercised		—			—		—				—
Balances, September 30, 2023		254,256		$	16.50	$	—		8.90	$	—
Vested and Exercisable		99,418		$	23.46					$	—

Share-based compensation expense for options totaling $161,465 and $118,030 was recognized for the three months ended September 30, 2023 and 2022, respectively, based on requisite service periods.

Share-based compensation expense for options totaling $483,527 and $448,270 was recognized for the nine months ended September 30, 2023 and 2022, 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.

Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation of estimated volatility is based on historical stock prices of peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.

As of September 30, 2023, there was $978,721 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 1.80 years.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 9– STOCKHOLDERS' EQUITY (continued)

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the nine months ended September 30, 2023 and 2022 are set forth in the table below.


	2023		2022
Risk-free interest rate		3.53% to 3.60%

Applied UV, Inc. [AUVIP] Filings
Applied UV, Inc. [AUVI] Filings
10-Q	[2023-11-17]
S-1	[2023-10-05]
10-Q	[2023-08-18]
10-Q	[2023-05-22]
S-1	[2023-05-03]
10-K	[2023-03-31]
10-Q	[2022-11-14]
10-Q	[2022-08-15]
10-Q	[2022-05-23]
10-K	[2022-04-07]
S-1	[2021-12-27]
S-1	[2021-11-23]
10-Q	[2021-11-15]
10-Q	[2021-08-16]
S-1	[2021-06-21]
10-Q	[2021-05-14]
10-K	[2021-03-30]
10-Q	[2020-11-16]
S-1	[2020-11-03]
S-1	[2020-07-16]

Applied UV, Inc. [AUVIP] Filings

Applied UV, Inc. [AUVI] Filings