SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ___________ to ___________
Commission
file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company |
Emerging
Growth Company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act):
Yes
☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market LLC | ||||
| The Stock Market LLC |
As of May 22, 2023, the Company has shares of common stock issued and outstanding.
| 1 |
APPLIED UV, INC. & SUBSIDIARIES
INDEX TO FORM 10-Q
| Page # | |
| PART I - FINANCIAL INFORMATION | |
| Item 1. Consolidated Financial Statements (Unaudited) | |
| Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 | 3 |
| Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 | 4 |
| Condensed Consolidated Statements of Redeemable Preferred Stock and Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 | 5 |
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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 | 43 |
| Item 4. Controls and Procedures | 43 |
| PART II - OTHER INFORMATION | |
| Item 1. Legal Proceedings | 44 |
| Item 1A. Risk Factors | 44 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 44 |
| Item 3. Defaults Upon Senior Securities | 44 |
| Item 4. Mine Safety Disclosures | 44 |
| Item 5. Other Information | 44 |
| Item 6. Exhibits | 44 |
| Signatures | 45 |
| 2 |
PART I
Item 1. Financial Statements
Applied UV, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
As of March 31, 2023 and December 31, 2022
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts | ||||||||
| Costs and estimated earnings in excess of billings | ||||||||
| Inventory, net | ||||||||
| Vendor deposits | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net of accumulated depreciation | ||||||||
| Other assets | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net of accumulated amortization | ||||||||
| Right of use assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Contingent consideration | ||||||||
| Deferred revenue | ||||||||
| Due to landlord (Note 2) | ||||||||
| Warrant liability | ||||||||
| Financing lease obligations | ||||||||
| Operating lease liability | ||||||||
| Notes payable, net | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities | ||||||||
| Due to landlord - less current portion (Note 2) | ||||||||
| Notes payable, net - less current portion | ||||||||
| Financing lease obligations - less current portion | ||||||||
| Operating lease liability - less current portion | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Redeemable Preferred Stock | ||||||||
| Preferred Stock, Series B Cumulative Perpetual, $par value, shares authorized, shares issued and outstanding as of March 31, 2023 and shares issued and outstanding as of December 31, 2022 | ||||||||
| Preferred Stock, Series C Cumulative Perpetual, $par value, shares authorized, shares issued and outstanding as of March 31, 2023 and shares issued and outstanding as of December 31, 2022 | ||||||||
| Total Redeemable Preferred Stock | ||||||||
| Equity | ||||||||
| Preferred Stock, Series A Cumulative Perpetual, $par value, shares authorized, shares issued and outstanding as of March 31, 2023 and December 31, 2022. | ||||||||
| Preferred Stock, Series X, $par value, shares authorized, shares issued and outstanding as of March 31, 2023 and December 31, 2022 respectively | ||||||||
| Common Stock $ par value, shares authorized shares issued and shares outstanding as of March 31, 2023 and shares issued and shares outstanding as of December 31, 2022 respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock at cost, shares, respectively | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Equity | ||||||||
| Total Liabilities, Redeemable Preferred Stock and Stockholders' Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
| 3 |
Applied UV, Inc. and Subsidiaries
Unaudited Condensed Interim Consolidated Statements of Operations
For the Three Months Ended March 31, 2023 and 2022
| 2023 | 2022 | |||||||
| Net Sales | $ | $ | ||||||
| Cost of Goods Sold | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Research and development | ||||||||
| Selling General and Administrative Expenses | ||||||||
| Loss on impairment of goodwill and intangibles | ||||||||
| Total Operating Expenses | ||||||||
| Operating Loss | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Change in Fair Market Value of Warrant Liability | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Loss on change in Fair Market Value of Contingent Consideration | ( | ) | ( | ) | ||||
| Gain on Settlement of Contingent Consideration (Note 2) | ||||||||
| Total Other Income (Expense) | ( | ) | ||||||
| Loss Before Provision for Income Taxes | ( | ) | ( | ) | ||||
| Benefit from Income Taxes | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Net Loss attributable to common stockholders: | ||||||||
| Dividends to preferred shareholders | ( | ) | ( | ) | ||||
| Net Loss attributable to common stockholders | ( | ) | ( | ) | ||||
| Basic and Diluted Loss Per Common Share | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Shares Outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
| 4 |
Applied UV, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Redeemable Preferred Stock and Changes in Stockholders' Equity
For the Three Months Ended March 31, 2023 and 2022
Preferred Stock Series B | Preferred Stock Series C | Total Redeemable Preferred Stock | 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 | $ | $ | $ | — | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of stock in connection with prior acquisition (Note 2) | — | — | — | — | — | — | ( | ) | ( | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for in public offering (over-allotment), net of costs | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to preferred shareholders | — | — | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of restricted stock | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | — | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | — | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common and Preferred stock issued for acquisition | 4,776,489 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued in public offering (ATM), net of costs | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to preferred shareholder | — | — | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | 4,776,489 | $ | 10,000 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
| 5 |
Applied UV, Inc. and Subsidiaries
Condensed Interim Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2023 and 2022
| 2023 | 2022 | |||||||
| Cash flows from Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities | ||||||||
| Stock based compensation | ||||||||
| Bad debt (recovery) expense | ( | ) | ||||||
| Change in fair market value of warrant liability | ( | ) | ( | ) | ||||
| Loss on change in Fair Market Value of Contingent Consideration | ||||||||
| Gain on settlement of contingent consideration | ( | ) | ||||||
| Loss on impairment of goodwill and intangible assets | ||||||||
| Amortization of right-of-use asset | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Changes in operating assets and liabilities, net of effects of acquisitions: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Cost and estimated earnings excess of billings | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Vendor deposits | ( | ) | ||||||
| Prepaid expense and other current assets | ( | ) | ( | ) | ||||
| Other non-current assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Billings in excess of costs and earnings on uncompleted contracts | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Due to landlord | ( | ) | ||||||
| Operating lease payments | ( | ) | ( | ) | ||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Cash paid for patent costs | ( | ) | ||||||
| Purchase of machinery and equipment | ( | ) | ( | ) | ||||
| Acquisitions, net of cash acquired (Note 2) | ( | ) | ( | ) | ||||
| Payments on note payable | ( | ) | ||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Payments on financing leases | ( | ) | ( | ) | ||||
| Dividends to preferred shareholders | ( | ) | ( | ) | ||||
| Payments on note payable | ( | ) | ||||||
| Proceeds from equity raises, net | ||||||||
| Proceeds from note payable, net | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Decrease in Cash and equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at January 1, | ||||||||
| Cash and cash equivalents at December 31, | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental Non-Cash Items of Investing and Financing Activities: | ||||||||
| Recognition of right of use asset and corresponding lease liability | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited interim 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 and pathogen elimination 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 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, 2022. The consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements as of and for the year then ended.
| 7 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 March 31, 2023, the Company was approximately $
For the three months ended March 31, 2023 and 2022, the Company had no major suppliers that accounted for over 10% of supplies and materials used by the Company.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation and accounting for equity awards related to warrants and stock-based compensation, determination of fair value for derivative instruments, the accounting for business combinations and allocating purchase price and estimating the useful life of intangible assets.
Cash, Restricted Cash and Cash Equivalents
Cash
and equivalents include highly liquid investments that have original maturities less than 90 days at the time of their purchase. These
investments are carried at cost, which approximates market value because of their short maturities. As of March 31, 2023 and December
31, 2022, the Company had approximately $
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 March 31, 2023 and 2022, the Company
had credit losses (recoveries) of $ (
| 8 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory
Inventories
consist of raw materials, work-in-process, and finished goods. Raw materials and finished goods are valued at the lower of cost or net
realizable value, using the first-in, first-out (“FIFO”) valuation method. Work-in-process and finished goods includes the
cost of materials, freight and duty, direct labor and overhead. The Company writes down inventory for estimated obsolescence equal to
the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.
The company had a reserve for inventory approximating $
Property and Equipment
Property and equipment are recorded at cost. Depreciation of furniture and fixtures is provided using the straight-line method, generally over the terms of the lease. Repairs and maintenance expenditures, which do not extend the useful lives of the related assets, are expensed as incurred. Depreciation of machinery and equipment is based on the estimated useful lives of the assets.
| Schedule of estimated useful lives | ||
| Machinery and equipment | ||
| Leasehold improvements | ||
| Furniture and fixtures |
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.
| 9 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
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, 2023 and December 31, 2022.
The Company utilizes the Black-Scholes valuation model to value the derivative warrants as stipulated in the agreement for the warrant holders to receive cash based on that value.
Fair Value of Financial Instruments
The carrying amounts reported in the unaudited condensed consolidated balance sheets for loans payable approximate fair value because of the immediate or short-term maturity of the financial instruments. The Company's financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.
Basic loss per share is computed by dividing net loss attributable to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.
The following table sets forth the number of potential shares of common stock that have been excluded from diluted net loss per share because their effect was anti-dilutive:
Schedule of Anti-dilutive Securities Excluded from Computation of Loss Per Share:
| Schedule of anti dilutive securities excluded from computation of earnings per share | ||||||||
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| Common stock options | ||||||||
| Series B Preferred Stock | ||||||||
| Series C Preferred Stock | ||||||||
| Common stock warrants | ||||||||
| Total | ||||||||
| 10 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company accounts for its stock-based compensation awards in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 718 ("ASC"), Compensation-Stock Compensation ("ASC 718"). ASC 718 requires all stock-based payments to employees, including grants of employee stock options and restricted stock and modifications to existing stock options, to be recognized in the statements of operations based on their fair values over the requisite service period.
Research and Development
The Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, research and development costs are expensed as incurred.
Revenue Recognition
The Company recognizes revenue when the performance obligations in the client contract has been achieved. A performance obligation is a contractual promise to transfer product to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Under ASC 606, revenue is recognized when a customer obtains control of goods in an amount that reflects the consideration the Company expects to receive in exchange for those goods. To achieve this core principle, the Company applies the following five steps:
| 1) | Identify the contract with a customer. |
| 2) | Identify the performance obligations in the contract. |
| 3) | Determine the transaction price. |
| 4) | Allocate the transaction price to performance obligations in the contract. |
| 5) | Recognize revenue when or as the Company satisfies a performance obligation. |
MunnWorks projects, including those from the VisionMark acquisition, are completed within the Company’s facilities. For these projects, the company designs, manufactures and sells custom mirrors and furniture for the hospitality and retail industries through contractual agreements. These sales require the company to deliver the products within three to nine months from commencement of order acceptance. 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.
| 11 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (Continued)
The company applied the five-step model to the sales of 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:
| Schedule of revenue | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Recognized over time | $ | $ | ||||||
| Recognized at a point in time | ||||||||
| $ | $ | |||||||
Deferred revenue was comprised of the following as of:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Recognized over time | $ | $ | ||||||
| Recognized at a point in time | ||||||||
| $ | $ | |||||||
The
Company recognized $
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, 2023 and 2022 was $
Vendor deposits
Vendor
payments to third manufactures are capitalized until completion of the project and are recorded as vendor deposits. As of March 31, 2023
and December 31, 2022, the vendor deposit balance was $
| 12 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 2023 and December 31, 2022, capitalized patent
costs net of accumulated amortization was $
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.
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 months ended March 31, 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.
| 13 |
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 shares.
During the three months ended March 31, 2022, the company recorded a loss on change in fair market value of contingent consideration
of $
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.
The purchase price and purchase price allocation as of the acquisition completion date follows.
| Schedule of recognized identified assets acquired and liabilities assumed | ||||
| Purchase Price: | ||||
| Cash paid at closing | $ | |||
| Due to landlord | ||||
| Total Purchase Price, net of cash acquired | ||||
| Assets Acquired: | ||||
| Accounts receivable, net | ||||
| Inventory | ||||
| Costs and estimated earnings in excess of billings | ||||
| Machinery and equipment | ||||
| Total Assets Acquired: | ||||
| Liabilities Assumed: | ||||
| Billings in excess of costs and earnings on uncompleted contracts | ( | ) | ||
| Net Assets Acquired | ||||
| Excess Purchase Price "Goodwill" | $ | |||
| 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 $
In
connection with the VisionMark LLC acquisition, the Company is obligated to repay $
As of March 31, 2023, the future maturity of the lease liability is as follows:
| Schedule of future maturity of the lease liability | ||||
| Years Ended December 31, | ||||
| 2023 (9 months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| Total | ||||
| Less: Unamortized discount | ( | ) | ||
| Total amount due to landlord | ||||
| Less: current portion of amount due to landlord, net of discount | ( | ) | ||
| Total long-term portion of amount due to landlord | $ | |||
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
| 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.
| Schedule of recognized identified assets acquired and liabilities assumed | ||||
| Purchase Price: | ||||
| Cash paid at closing, net of cash acquired | $ | |||
| Common stock | ||||
| Series B Preferred Stock | ||||
| Series C Preferred Stock | ||||
| Contingent consideration-Make Whole*** | ||||
| Contingent consideration-Earnout | ||||
| Total Purchase Price, net of cash acquired | ||||
| Assets Acquired: | ||||
| Accounts receivable, net | ||||
| Inventory | ||||
| Other current assets | ||||
| Fixed assets, net | ||||
| Tradenames/trademarks | ||||
| Technology/know-how/trade secrets | ||||
| Patented technology | ||||
| Customer relationships | ||||
| Total Assets Acquired: | ||||
| Liabilities Assumed: | ||||
| Accounts payable | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Total Liabilities Assumed | ( | ) | ||
| Net Assets Acquired | ||||
| Excess Purchase Price "Goodwill" | $ | |||
| 16 |
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
The
excess purchase price has been recorded as goodwill in the amount of approximately $
On
January 26, 2023, the Company also 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
The purchase price and purchase price allocation as of the acquisition completion date follows.
| Schedule of recognized identified assets acquired and liabilities assumed | ||||
| Purchase Price: | ||||
| Cash paid at closing, net of cash acquired | $ | |||
| Common stock | ||||
| Series C Preferred Stock | ||||
| Contingent considerations - Make Whole*** | ||||
| Contingent considerations - Earnout | ||||
| Total Purchase Price, net of cash acquired | ||||
| Assets Acquired: | ||||
| Accounts receivable, net | ||||
| Inventory | ||||
| Other current assets | ||||
| Vendor deposits | ||||
| Costs and estimated earnings in excess of billings | ||||
| Fixed assets, net | ||||
| Tradenames/trademarks | ||||
| Technology/know-how/trade secrets | ||||
| Vendor relationships | ||||
| Rebate program | ||||
| Customer relationships | ||||
| Other non-current assets | ||||
| Total Assets Acquired: | ||||
| Liabilities Assumed: | ||||
| Accounts payable and accrued expenses | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Notes payable | ( | ) | ||
| Financing lease liability | ( | ) | ||
| Total Liabilities Assumed | ( | ) | ||
| Net Assets Acquired | ||||
| Excess Purchase Price "Goodwill" | $ | |||
| 17 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 2 – BUSINESS ACQUISITION (CONTINUED)
***The
amount represents the difference in fair value of common stock on the
The
excess purchase price has been recorded as goodwill in the amount of approximately $
NOTE 3 – INVENTORY
Inventory consists of the following as of:
| Schedule of Inventory | ||||||||
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Inventory at cost | ||||||||
| Less: Reserve | ( | ) | ( | ) | ||||
| Inventory | $ | $ | ||||||
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 | ||||||||
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Machinery and Equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Furniture and Fixtures | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation
expense, including amortization of assets under Financing leases, for the three months ended March 31, 2023 and 2022 was $
| 18 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 5 – INTANGIBLE ASSETS
Intangible assets as of March 31, 2023 and December 31, 2022 consist of the following:
| Schedule of Intangible Assets | ||||||||
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Intangible assets subject to amortization | ||||||||
| Customer Relationships | $ | $ | ||||||
| Tradenames/trademarks | ||||||||
| Patented technology | ||||||||
| Technology/know-how/trade secrets | ||||||||
| Vendor relationships | ||||||||
| Rebate program | ||||||||
| Less: Accumulated Amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
During
the three months ended March 31, 2023 and 2022, the Company recorded total amortization expense related to intangible assets of
$
Future amortization of intangible assets are as follows:
| Future amortization of intangible assets | |||||
| For the year ending December 31, | |||||
| 2023 (9 months) | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total | $ | ||||
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:
| Schedule of future minimum principal and interest payments under capital lease arrangements | ||||
| 2023 (9 months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | ||||
| Less: Amount representing interest | ( | ) | ||
| Present value of future minimum lease payments | ||||
| Less: current portion | ( | ) | ||
| Financing lease obligations, net of current | $ |
| 19 |
Applied UV, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NOTE 7 – NOTES PAYABLE
As of March 31, 2023 the Company had the following notes payable outstanding:
| Schedule of notes payable | ||||||||
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Loan Agreement | $ | $ | ||||||
| Streeterville Note #1 | ||||||||
| Streeterville Note #2 | < | |||||||