10-Q 1 auvi033123form10q.htm 10-Q
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

For the quarterly period ended March 31, 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 May 22, 2023, the Company has 19,339,225 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  $2,081,886   $2,734,485 
Accounts receivable, net of allowance for doubtful accounts   4,758,883    1,508,239 
Costs and estimated earnings in excess of billings   2,087,553    1,306,762 
Inventory, net   8,609,494    5,508,086 
Vendor deposits   1,313,244    75,548 
Prepaid expense and other current assets   2,208,058    1,187,223 
Total Current Assets   21,059,118    12,320,343 
           
Property and equipment, net of accumulated depreciation   1,243,800    1,133,468 
Other assets        153,000 
Goodwill   17,809,235    3,722,077 
Other intangible assets, net of accumulated amortization   28,629,853    11,354,430 
Right of use assets   4,211,326    4,044,109 
Total Assets  $72,953,332   $32,727,427 
Liabilities and Stockholders' Equity          
Current Liabilities          
Accounts payable and accrued expenses  $8,855,698   $2,982,760 
Contingent consideration   18,995,673      
Deferred revenue   6,555,496    4,730,299 
Due to landlord (Note 2)   244,532    229,234 
Warrant liability   7,685    9,987 
Financing lease obligations   47,608    33,712 
Operating lease liability   1,645,250    1,437,308 
Notes payable, net   4,469,196    2,098,685 
Total Current Liabilities   40,821,138    11,521,985 
Long-Term Liabilities          
Due to landlord - less current portion (Note 2)   325,557    393,230 
Notes payable, net - less current portion   5,448,572    765,144 
Financing lease obligations - less current portion   160,871    158,070 
Operating lease liability - less current portion   2,625,952    2,655,103 
Total Long-Term Liabilities   8,560,952    3,971,547 
Total Liabilities   49,382,090    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 March 31, 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 March 31, 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 March 31, 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 March 31, 2023 and December 31, 2022 respectively   1    1 
Common Stock $0.0001 par value, 150,000,000 shares authorized 19,370,758 shares issued and 19,257,273 shares outstanding as of March 31, 2023 and 13,676,450 shares issued and 13,562,965 shares outstanding as of December 31, 2022 respectively   1,937    1,368 
Additional paid-in capital   52,084,048    45,619,670 
Treasury stock at cost, 113,485 shares, respectively   (149,686)   (149,686)
Accumulated deficit   (33,141,602)   (28,237,513)
Total Equity   18,794,753    17,233,895 
Total Liabilities, Redeemable Preferred Stock and Stockholders' Equity  $72,953,332   $32,727,427 

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  $10,654,483   $3,356,090 
Cost of Goods Sold   8,732,097    2,206,991 
Gross Profit   1,922,386    1,149,099 
           
Operating Expenses          
Research and development   189,210    59,314 
Selling General and Administrative Expenses   5,264,379    3,101,226 
Loss on impairment of goodwill and intangibles        1,138,203 
Total Operating Expenses   5,453,589    4,298,743 
           
Operating Loss   (3,531,203)   (3,149,644)
           
Other Income (Expense)          
Change in Fair Market Value of Warrant Liability   2,302    43,828 
Interest expense   (392,939)   (4,056)
Loss on change in Fair Market Value of Contingent Consideration   (619,999)   (240,000)
Gain on Settlement of Contingent Consideration (Note 2)        1,700,000 
Total Other Income (Expense)   (1,010,636)   1,499,772 
           
Loss Before Provision for Income Taxes   (4,541,839)   (1,649,872)
Benefit from Income Taxes          
Net Loss  $(4,541,839)  $(1,649,872)
           
Net Loss attributable to common stockholders:          
Dividends to preferred shareholders   (362,250)   (362,250)
Net Loss attributable to common stockholders   (4,904,089)   (2,012,122)
           
Basic and Diluted Loss Per Common Share  $(0.28)  $(0.16)
Weighted Average Shares Outstanding - basic and diluted   17,328,564    12,928,174 

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        $           $           $—      552,000   $55    2,000   $1    12,775,674   $1,278         $     $42,877,622   $(10,213,196)  $32,665,760 
Settlement of stock in connection with prior acquisition (Note 2)   —            —            —      —      —            —            (400,000)   (40)   —            40             
Common stock issued for in public offering (over-allotment), net of costs   —            —            —      —      —            —            400,000    40    —            1,091,960          1,092,000 
Stock-based compensation   —            —            —      —      —            —            112,500    11    —            287,988          287,999 
Dividends paid to preferred shareholders   —            —            —      —      —            —            —            —                  (362,250)   (362,250)
Cancellation of restricted stock   —            —            —      —      —            —            —            —                           
Net loss   —            —            —      —      —            —            —            —                  (1,649,872)   (1,649,872)
Balance, March 31, 2022        $           $           $—      552,000   $55    2,000   $1    12,888,174   $1,289         $     $44,257,610   $(12,225,318)  $32,033,637 
                                                                                      
Balance, January 1, 2023        $           $           $—      552,000   $55    10,000   $1    13,676,450   $1,368    113,485   $(149,686)  $45,619,670   $(28,237,513)  $17,233,895 
Common and Preferred stock issued for acquisition   1,250,000    3,712,500    399,996    1,063,989    1,649,996    4,776,489    —            —            3,874,997    387    —            4,029,613          4,030,000 
Common stock issued in public offering (ATM), net of costs   —            —            —      —      —            —            1,764,311    176    —            2,242,750          2,242,926 
Stock-based compensation   —            —            —      —      —            —            55,000    6    —            192,015          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    1,649,996   $4,776,489    552,000   $55    10,000   $1    19,370,758   $1,937    113,485   $(149,686)  $52,084,048   $(33,141,602)  $18,794,753 

  

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  $(4,541,839)  $(1,649,872)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities          
Stock based compensation   192,021    287,999 
Bad debt (recovery) expense   (93,562)   48,151 
Change in fair market value of warrant liability   (2,302)   (43,828)
Loss on change in Fair Market Value of Contingent Consideration   619,999    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   396,098    97,618 
Depreciation and amortization   660,505    467,746 
Amortization of debt discount   184,218    4,036 
Changes in operating assets and liabilities, net of effects of acquisitions:          
Accounts receivable   (1,421,047)   19,140 
Cost and estimated earnings excess of billings   (247,153)   (8,898)
Inventory   909,789    (1,624,368)
Vendor deposits   (862,024)   619,070 
Prepaid expense and other current assets   (373,552)   (182,273)
Other non-current assets   177,819      
Accounts payable and accrued expenses   2,081,981    468,667 
Billings in excess of costs and earnings on uncompleted contracts        (121,665)
Deferred revenue   (472,901)   175,780 
Due to landlord   (93,171)     
Operating lease payments   (384,524)   (94,299)
Net Cash Used in Operating Activities   (3,269,645)   (1,858,793)
           
Cash Flows From Investing Activities          
Cash paid for patent costs        (672)
Purchase of machinery and equipment   (75,959)   (16,111)
Acquisitions, net of cash acquired (Note 2)   (4,115,709)   (10)
Payments on note payable   (83,131)     
Net Cash Used in Investing Activities   (4,274,799)   (16,793)
           
Cash Flows From Financing Activities          
Payments on financing leases   (8,534)   (1,738)
Dividends to preferred shareholders   (362,250)   (362,250)
Payments on note payable   (1,793,688)     
Proceeds from equity raises, net   2,242,926    1,092,000 
Proceeds from note payable, net   6,813,391      
Net Cash Provided by Financing Activities   6,891,845    728,012 
           
Net Decrease in Cash and equivalents   (652,599)   (1,147,574)
Cash and cash equivalents at January 1,   2,734,485    8,768,156 
Cash and cash equivalents at December 31,  $2,081,886   $7,620,582 
           
Supplemental Disclosures of Cash Flow Information:          
Cash paid during the year for:          
Interest  $57,534   $1,022 
Income taxes  $    $  
Supplemental Non-Cash Items of Investing and Financing Activities:          
Recognition of right of use asset and corresponding lease liability  $563,315   $  

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 $1,760,000 in excess of FDIC insured limits. The Company provides credit in the normal course of business. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends and other information.

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 $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 March 31, 2023 and 2022, the Company had credit losses (recoveries) of $ (93,562) and $48,151, respectively. Based on the Company’s current and historical collection experience, the Company recorded an allowance for doubtful accounts of $118,000 and $35,000 as of March 31, 2023 and December 31, 2022, respectively.

 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 $187,000 and $88,000 as of March 31, 2023 and December 31, 2022, respectively.

Property and Equipment

Property and equipment are recorded at cost. Depreciation of furniture and fixtures is provided using the straight-line method, generally over the terms of the lease. Repairs and maintenance expenditures, which do not extend the useful lives of the related assets, are expensed as incurred. Depreciation of machinery and equipment is based on the estimated useful lives of the assets.

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

Business Acquisition Accounting

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

Goodwill and Intangible Assets

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

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

 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.

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:

 

Schedule of anti dilutive securities excluded from computation of earnings per share          
   As of March 31,
   2023  2022
Common stock options   1,301,195    833,314 
Series B Preferred Stock   1,250,000      
Series C Preferred Stock   399,996      
Common stock warrants   192,419    192,419 
Total   3,143,610    1,025,733 

 

 10 

 

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock-Based Compensation

The Company accounts for its stock-based compensation awards in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 718 ("ASC"), Compensation-Stock Compensation ("ASC 718"). ASC 718 requires all stock-based payments to employees, including grants of employee stock options and restricted stock and modifications to existing stock options, to be recognized in the statements of operations based on their fair values over the requisite service period.

Research and Development

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

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  $5,286,443   $529,237 
Recognized at a point in time   5,368,040    2,826,853 
   $10,654,483   $3,356,090 

Deferred revenue was comprised of the following as of:

   March 31,  December 31,
   2023  2022
Recognized over time  $2,661,199   $3,581,195 
Recognized at a point in time   3,894,297    1,149,104 
   $6,555,496   $4,730,299 

The Company recognized $2,702,034 of deferred revenue as of December 31, 2022 as revenue during the three months ended March 31, 2023.

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 $151,618 and $197,995, respectively.

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 $1,313,244 and $75,548, respectively.

 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 $1,568,725 and $1,593,741, respectively. For the three months ended March 31, 2023 and 2022, the Company recorded $41,495 and $25,016, 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.

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 400,000 shares. During the three months ended March 31, 2022, the company recorded a loss on change in fair market value of contingent consideration of $240,000 and, as a result of the settlement agreement, the company recorded a gain on settlement of contingent consideration of $1,700,000. The Company also determined that a triggering event had occurred as a result of the settlement agreement. A quantitative impairment test on the goodwill 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.

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  $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)
Net Assets Acquired   705,447 
Excess Purchase Price "Goodwill"  $50,469 

 

 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 $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 $40,797 and $0 for the three months ended March 31, 2023 and 2022, respectively.

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)  $279,512 
2024   372,684 
2025   93,174 
Total   745,370 
Less: Unamortized discount   (175,281)
Total amount due to landlord   570,089 
Less: current portion of amount due to landlord, net of discount   (244,532)
Total long-term portion of amount due to landlord  $325,557 

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) 2,497,220 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 $3,828,702 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.

 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  $3,828,972 
Common stock   2,597,111 
Series B Preferred Stock   3,712,500 
Series C Preferred Stock   667,947 
Contingent consideration-Make Whole***   2,397,329 
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   (936,448)
Deferred revenue   (18,482)
Total Liabilities Assumed   (954,930)
Net Assets Acquired   11,310,819 
Excess Purchase Price "Goodwill"  $5,939,272 

 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 date of acquisition versus agreed upon $2 per share ("Make Whole"). In the event any PURO 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 PURO Equityholder within ten (10) Business Days following the consummation of such sale to an account designated in writing by such PURO 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). As a result of the make-whole provision, the liability was increased to $2,796,889 as of March 31, 2023 with the change in fair market value of $399,555 being recorded to other expense within the consolidated statements of operations.

The excess purchase price has been recorded as goodwill in the amount of approximately $5,603,818. The goodwill is amortizable for tax purposes.

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 (i) 1,377,777 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.

Schedule of recognized identified assets acquired and liabilities assumed     
Purchase Price:   
Cash paid at closing, net of cash acquired  $286,742 
Common stock   1,432,889 
Series C Preferred Stock   396,042 
Contingent considerations - Make Whole***   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 
Tradenames/trademarks   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 and accrued expenses   (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 

 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 date of acquisition versus the agreed upon $2 per share ("Make Whole"). 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). As a result of the make-whole provision, the liability was increased to $1,543,110 as of March 31, 2023 with the change in fair market value of $220,444 being recorded to other expense within the consolidated statements of operations.

The excess purchase price has been recorded as goodwill in the amount of approximately $7,622,091. The goodwill is amortizable for tax purposes.

NOTE 3 – INVENTORY

Inventory consists of the following as of:

Schedule of Inventory          
   March 31,  December 31,
   2023  2022
Raw materials  $3,348,225   $3,485,040 
Finished goods   5,448,108    2,110,838 
Inventory at cost   8,796,333    5,595,878 
Less: Reserve   (186,839)   (87,792)
Inventory  $8,609,494   $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          
   March 31,  December 31,
   2023  2022
Machinery and Equipment  $1,319,974   $1,266,189 
Leasehold improvements   130,058    67,549 
Furniture and Fixtures   274,326    203,256 
    1,724,358    1,536,994 
Less: Accumulated Depreciation   (480,558)   (403,526)
   $1,243,800   $1,133,468 

Depreciation expense, including amortization of assets under Financing leases, for the three months ended March 31, 2023 and 2022 was $77,303 and $25,762, respectively.

 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  $8,448,598   $1,655,598 
Tradenames/trademarks   5,242,530    2,208,530 
Patented technology   3,440,771    1,730,771 
Technology/know-how/trade secrets   11,352,193    8,341,000 
Vendor relationships   1,416,000      
Rebate program   1,894,703      
    31,794,795    13,935,899 
Less: Accumulated Amortization   (3,164,942)   (2,581,469)
   $28,629,853   $11,354,430 

During the three months ended March 31, 2023 and 2022, the Company recorded total amortization expense related to intangible assets of $583,473 and $441,984, 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:

Future amortization of intangible assets      
For the year ending December 31,   
2023 (9 months)   $2,102,916 
2024    3,044,016 
2025    3,044,016 
2026    3,029,260 
Thereafter    17,409,645 
Total     $28,629,853 

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)  $47,949 
2024   54,901 
2025   54,901 
2026   49,260 
2027   36,109 
Total lease payments   243,120 
Less: Amount representing interest   (34,641)
Present value of future minimum lease payments   208,479 
Less: current portion   (47,608)
Financing lease obligations, net of current  $160,871 

 

 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  $157,500   $157,500 
Streeterville Note #1   2,807,500    2,807,500 
Streeterville Note #2   2,807,500      <