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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2023
Or
☐ 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)
| Nevada | 84-4373308 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
150 N. Macquesten Parkway
Mount Vernon, NY 10550
(914) 665-6100
(Address, including zip code, of registrant’s principal executive offices and
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | 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, par value $0.0001 per share | AUVIP | The Nasdaq Stock Market LLC |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes: ☐ No: ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes: ☐ No: ☒
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, a 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).
Yes: ☐ No: ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2023 was approximately $6,959,000.
At April 16, 2024, the registrant had 4,285,995 shares of common stock, par value $0.0001 per share, outstanding.
Table of Contents
In this Annual Report on Form 10-K (this “Annual Report”) unless otherwise stated or as the context otherwise requires, references to “Applied UV, Inc.,” “Applied UV,” the “Company,” “we,” “us,” “our” and similar references refer to Applied UV, Inc., a Nevada corporation. Our logo and other trademarks or service marks of the Company appearing in this Annual Report are the property of Applied UV, Inc. This Annual Report also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this Annual Report are the property of their respective holders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. You should read these factors and the other cautionary statements made in this Annual Report and in the documents we incorporate by reference into this Annual Report as being applicable to all related forward-looking statements wherever they appear in this Annual Report or the documents we incorporate by reference into this Annual Report. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:
| ● | our ability to continue as a going concern; |
| ● | our ability to successfully integrate our recent acquisitions into our overall business; |
| ● | our ability to secure sufficient funding and alternative source of funding to support our current and proposed operations, which could be more difficult in light of the negative impact of any future COVID-19 outbreak on investor sentiment and investing ability; |
| ● | our anticipated growth strategies and our ability to manage the expansion of our business operations effectively; |
| ● | our ability to maintain or increase our market share in the competitive markets in which we do business; |
| ● | our ability to grow net revenue and increase our gross profit margin; |
| ● | our ability to keep up with rapidly changing technologies and evolving industry standards, including our ability to achieve technological advances; |
| ● | our dependence on the growth in demand for our products; |
| ● | our ability to compete with larger companies with far greater resources than we have; |
| ● | our continued ability to obtain raw materials and other supplies for our products at competitive prices and on a timely basis, particularly in light of the potential impact of any future COVID-19 outbreak on our suppliers and supply chain; |
| ● | our ability to diversify our product offerings and capture new market opportunities; |
| ● | our ability to source our needs for skilled labor, machinery, parts and raw materials economically; |
| ● | our ability to retain key members of our senior management; |
| ● | our ability to continue to operate safely and effectively during any future COVID-19 outbreak; and |
| ● | our ability to maintain our listing on The Nasdaq Capital Market. |
Also, forward-looking statements represent our estimates and assumptions only as of the date of this Annual Report. You should read this Annual Report and the documents that we reference and file as exhibits to this Annual Report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
Use of Certain Defined Terms
Except where the context otherwise requires and for the purposes of this Annual Report only:
● |
the “Company,” “Applied UV,” “AUVI,” “we,” “us” and “our” refer to the combined business of Applied UV, Inc., a Delaware corporation and its wholly-owned subsidiaries, Sterilumen, Inc., a New York corporation (“Sterilumen”), Munn Works, LLC, a New York limited liability company (“MunnWorks”), PURO Lighting, LLC, a Colorado limited liability company (“PURO”) and LED Supply Co., LLC, a Colorado limited liability company (“LED”); |
| ● | “Exchange Act” refers the Securities Exchange Act of 1934, as amended; |
| ● | “SEC” refers to the Securities and Exchange Commission; and |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended. |
SUMMARY OF RISK FACTORS
Our business is subject to a number of risks. You should be aware of these risks before making an investment decision. These risks are discussed more fully in Item 1A Risk Factors in this Annual Report. These risks include, among others, that:
● |
We operate through Sterilumen, MunnWorks, Puro Lighting, and LED Supply Co., and our only current source of revenue is distributions from our subsidiaries. Sterilumen and Puro Lighting have incurred losses since their inception and we anticipate they will continue to incur significant losses for the foreseeable future, and revenue from MunnWorks and LED Supply Co. may not be sufficient to offset those loses; |
| ● | We could need to raise additional capital in the future, and if we are unable to secure adequate funds on terms acceptable to us, we could be unable to execute our business plan; |
| ● | Our suppliers may not supply us with a sufficient amount or adequate quality of materials; |
| ● | Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed; |
| ● | We could be subject to significant warranty obligations if our products are defective; |
| ● | Product liability claims against us could be costly and could harm our reputation; |
| ● | If we lose our key management personnel, or are unable to attract or retain qualified personnel, it could adversely affect our ability to execute our growth strategy; |
| ● | Climate change initiatives could materially and adversely affect our business, financial condition, and results of operations; |
| ● |
Our financial controls and procedures may not be sufficient to ensure timely and reliable reporting of financial information, which, as a public company, could materially harm our stock price;
There is substantial doubt about our ability to continue as a going concern. |
| ● | The air purification market is fragmented and competitive and we may not be able to compete successfully with our existing competitors or new entrants into the markets we serve; |
| ● | If we are unable to execute our plan to distribute Sterilumen’s and Puro Lighting’s products, we may not be able to generate revenues and your investment could be materially adversely affected; |
| ● | We are subject to significant regulatory oversight and changes in applicable regulatory requirements could adversely affect our business; |
| ● | Sterilumen’s and Puro Lighting’s businesses are highly dependent on market perceptions of it and the safety and quality of its products; |
| ● | Rapidly changing standards and competing technologies could harm demand for our products; |
| ● | We could be unable to effectively manage and implement our growth strategies, which could have a material adverse effect on our business, financial condition, and results of operations; |
| ● | International sales may comprise a significant portion of Sterilumen’s revenues and will be subject to risks associated with operating in domestic and international markets; |
| ● | Sterilumen’s and Puro Lighting’s collaborations with outside scientists and consultants may be subject to restriction and change; |
| ● | The custom design decorative framed mirror supply market is highly competitive; |
| ● | MunnWorks’ and LED Supply Co.’s possible failure to develop new products or respond to changing consumer preferences and purchasing practices could have a material adverse effect; |
| ● | MunnWorks’ and LED Supply Co.’s business is highly dependent on market perceptions of it and the quality of its products; |
| ● | If the patents that we own or license, or our other intellectual property rights, do not adequately protect our technologies, we could lose market share to our competitors and be unable to operate our business profitably; |
| ● | Changes in U.S. patent law could diminish the value of patents in general; |
| ● | Our directors and officers beneficially will own more than 50% of the voting power of our voting stock and will be able to exert a controlling influence over our business affairs and matters submitted to stockholders for approval; |
| ● | We have not paid dividends on our Common Stock in the past and do not expect to pay dividends on our Common Stock in the future, and any return on investment may be limited to the value of our stock; and we have stopped paying dividends on our Series A preferred stock effective June 23, 2023. |
| ● | Provisions of our Amended and Restated Certificate of Incorporation could delay or prevent the acquisition or sale of our business. |
| ● | We expect that we will need to raise additional capital, and raising additional funds by issuing additional equity securities or with additional debt financing may cause dilution to shareholders or restrict our operations; |
| ● | The Series A Preferred Stock ranks junior to all of our indebtedness and other liabilities; |
| ● | The Series A Preferred Stock will be effectively subordinated to the obligations of our subsidiaries; |
| ● | A holder of Series A Preferred Stock has essentially no voting rights; |
PART I
Item 1. Business
Corporate History
Applied UV, Inc. is a leading sales and marketing company that develops, acquires, markets and sells proprietary surface and air disinfection technology focused on Improving Indoor Air Quality (“IAQ”), specialty LED lighting and luxury mirrors and commercial furnishings, all of which serves clients globally in the healthcare, commercial and public venue, hospitality, food preservation, cannabis, education and winery vertical markets.
With its established strategic manufacturing partnerships and alliances including Canon, Acuity, Johnson Controls, USHIO, Siemens, Grainger and a global network of 89 dealers and distributors in 52 countries, 47 manufacturing representatives and 19 U.S. based internal sales representatives, AUVI offers a complete suite of products through its four wholly owned subsidiaries - Sterilumen, Inc., Munn Works, LLC, PURO Lighting, LLC and LED Supply Co. LLC.
Sterilumen owns, brands and markets a portfolio of research backed and clinically proven products utilizing advanced UVC Carbon, Broad Spectrum UVC LED’s and Photo-catalytic oxidation (PCO) pathogen elimination technology, branded as Airocide™, Scientific Air™, Airoclean™ 420, Lumicide™, PUROAir, PUROHealth, PURONet and LED Supply Company. Sterilumen’s proprietary platform suite of patented surface and air technologies offers one of the most complete pathogen disinfection platforms including mobile, fixed and HVAC systems and software solutions interconnecting its entire portfolio suite into the Internet of Things (“IoT”), allowing customers to implement, manage and monitor Indoor Air Quality (“IAQ”) measures recommended by the Environmental Protection Agency (“EPA”) across any enterprise. Additionally, the Lumicide™ platform applies the power of ultraviolet light (“UVC”) to destroy pathogens automatically, addressing the challenge of healthcare-acquired infections (“HAI’s”) in several patented designs for infection control in healthcare. LED Supply Company is a full-service, wholesale distributor of LED lighting and controls throughout North America. MunnWorks manufactures and sells custom luxury and backlit mirrors and conference room and living spaces furnishings.
Our global list of Fortune 100 end users including Kaiser Permanente, NY Health+Hospitals, MERCY Healthcare, University of Chicago Medical, Baptist Health South Florida, New York City Transit, Samsung, JB Hunt, Boston Red Sox’s Fenway Park, JetBlue Park, France’s Palace of Versailles, Whole Foods, Del Monte Foods, U.S. Department of Veterans Affairs, Marriott, Hilton, Four Seasons and Hyatt and more. For information on Applied UV, Inc. and its subsidiaries, please visit www.applieduvinc.com.
Air Disinfection Solutions & LED Lighting: Airocide™, Scientific Air™, PURO Lighting and LED Supply Co.
Airocide™
In February of 2021, the Company acquired all the assets and assumed certain liabilities of Akida Holdings, LLC (“Akida”). At the time of the acquisition, Akida owned the Airocide™ system of air purification technologies, originally developed for NASA with assistance from the University of Wisconsin at Madison, that uses a combination of UVC and a proprietary, titanium dioxide based photocatalyst that has helped to accelerate the reopening of the global economy with applications in the hospitality, hotel, healthcare, nursing home, grocer, wine, commercial building and retail sectors. The Airocide™ system has been used by brands such as National Aeronautics and Space Administration (NASA), Whole Foods, Dole, Chiquita, Opus One, Sub-Zero Refrigerators and Robert Mondavi Wines. Akida had contracted KES Science & Technology, Inc. (“KES”) to manufacture, warehouse and distribute the Airocide™ system and Akida’s contractual relationship with KES was assigned to and assumed by the Company as part of the acquisition.
On September 28, 2021, the Company acquired all the assets and assumed certain liabilities of KES. At the time of the acquisition, KES was principally engaged in the manufacturing and distribution of the Airocide™ system of air purification technologies and misting systems. KES also had the exclusive right to the sale and distribution of the Airocide™ system in certain markets. This acquisition consolidated all of manufacturing, sale and distribution of the Airocide™ system under the Sterilumen brand and expanded the Company’s market presence in food distribution, post-harvest produce, wineries and retail sectors. The Company sells its products throughout the United States, Canada and Europe.
The Airocide™ system of air purification technologies, originally developed for NASA with assistance from the University of Wisconsin at Madison, uses a combination of UVC and a proprietary, titanium dioxide based photocatalyst to eliminate airborne bacteria, mold, fungi, viruses, volatile organic compounds and many odors. The core Airocide™ technology has been in use on the International Space Station and is based on photo-catalytic oxidation (PCO), a bioconversion process that continuously converts damaging molds, microorganisms, dangerous pathogens, destructive volatile organic chemicals (VOCs) and biological gasses into harmless water vapor. Unlike other air purification systems that provide “active” air cleaning, ozone producing systems, ionization or “photo-electrochemical oxidation”, Airocide’s™ nanocoating technology permanently bonds titanium dioxide to the surface of the catalytic bed. This permits the perpetual generation of surface-bound (OH-) radicals over the large surface area created by their advanced geometric design and prevents the generation and release of ozone and other harmful byproducts. The proprietary formulation and methods for creating the catalyst are the basis of Airocide’s™ competitive advantage, making it the only consistently robust, highly effective, ozone free Photocatalytic Oxidation (“PCO”) technology on the market. Airocide™ has been tested over the past 12 years by governmental agencies such as NASA, the National Renewable Energy Laboratory, independent universities including the University of Wisconsin, Texas Tech University and Texas A&M, as well as air quality science laboratories. Airocide™ technology is listed as a U.S. Food and Drug Administration (“FDA”) Class II Medical Device, making it a suitable for providing medical grade air purification in critical hospital use cases. Airocide™ product lines include APS (consumer units), the GCS and HD lines (commercial units that will include the Sterilumen application (the “Sterilumen App”) to bring connectivity, reporting and asset management to our suite of products). The APS series provides true choice, low maintenance filter-less PCO or a filtered PCO air purification option ideal for restaurants, conference rooms, residential and small business or home office spaces. The GCS series is suitable for larger public spaces and enclosed rooms that may have high occupancy such as offices, waiting rooms and hotel lobbies and airport gate areas. The HD series is the most powerful, providing two-stage purification for fast sanitization of larger or industrial spaces such as sporting venues and locker rooms, airports, museums, winery cellars, warehouses and food-processing facilities. All Airocide™ products also extend the life of any perishables like fruit, produce or flowers.
Scientific Air™
On October 13, 2021, we acquired substantially all of the assets of Old SAM Partners, LLC F/K/A Scientific Air Management, LLC (“Old SAM”), which owned a line of air purification technologies (“Scientific Air™”). The Scientific Air product line uses a combination of UVC and a proprietary, patented system to eliminate airborne bacteria, mold, fungi, viruses, volatile organic compounds and many odors without producing any harmful by-products. Scientific Air’s™ products are well suited for larger spaces within a facility due to the higher air flow of these units. The units are also mobile with industrial grade casters, allowing for movement throughout a facility to address increased bio burden from larger meetings or increased human traffic. Both of these key items extend our Airocide™ line, creating a comprehensive air disinfection portfolio that spans from small to large spaces and mobile applications. Scientific Air’s™ products are currently sold predominantly in North America and into the healthcare market.
PURO Lighting
On January 26, 2023, we acquired PURO Lighting LLC and its operating subsidiaries (the “PURO Acquisition”). PURO was founded in 2019 with the goal of using light technology to promote health and wellness within spaces. Today PURO provides a suite of UV disinfection systems that have the ability to disinfect air and surfaces in commercial and industrial spaces. They focus their sales efforts in three primary verticals: Education, Government and Healthcare. The acquisition of PURO Lighting, LLC adds PUROHealth and PURONet - a powerful suite of products used in education, government and healthcare that incorporates ultraviolet (UV) lighting and a Heating, Ventilation & A/C (“HVAC”) monitoring software platform. With its UL listed and patented portfolio of independently tested (ResInnova Laboratories) synergistic surface and air disinfection technologies that help facility managers protect against multiple pathogens; PURO opens new opportunities for cross marketing sales to existing distribution channels. Additionally, the potential to inter-connect our entire portfolio of disinfection technology solutions into the IoT will provide our customers with both products and smart tools to manage and monitor IAQ across any enterprise. Applied UV’s proprietary platform suite of patented technologies offers the most complete pathogen disinfection platform including mobile, fixed and HVAC systems and solutions allowing companies to implement the IAQ measures recommended by the EPA. PURO boast a strong domestic sales network with representatives in 43 states and distribution in all 50 states. Their product offerings encompass a range of innovative solutions, including UVC systems for air handling, in-room continuous disinfection using cutting-edge Far-UVC technology and specialized surface disinfection solutions designed specifically for the healthcare industry.
The PURO Acquisition further positions the Company to address a growing air disinfection market trend that aligns with the White House “Clean Air Initiatives” implemented during the height of the SARS CoV-2 (COVID-19) pandemic designed to protect consumers and businesses against existing and future airborne pathogens allowing economies globally to remain open. The merged entities have proven applications that can now be included in improving IAQ at the facility level including HVAC systems in public, government, municipal, retail spaces and buildings. The PURO Acquisition positions Applied UV to be one of the only companies in the world to offer a complete air and surface disinfection platform that includes consumer, fixed and mobile and commercial applications that are research backed, clinically tested and that are used by global Fortune 100 end users in multiple verticals.
LED Supply
On January 26, 2023, we acquired LED Supply Co. LLC (“LED”) and its operating subsidiaries (the “LED Acquisition”). Founded in 2009, LED Supply Company is a national, Colorado-based company that provides design, distribution and implementation services for lighting, controls and smart building technologies. LED Supply continues to expand its market reach with a focus on new types of energy efficiency and sustainable technologies. Along with its robust e-commerce component, LED Supply has recently taken the next step in revenue growth by repositioning itself as a preferred supplier for not only the latest in LED technologies, but the source for emerging technologies and product categories that the construction and retrofit market need; from electric vehicle charging to smart home technology, emergency and safety equipment and much more.
We see synergies across our entire air and surface disinfection portfolio. First, we look to leverage Airocide’s™ global distribution capabilities to facilitate the sale of Scientific Air’s™ and PURO’s offerings internationally. Second, we look to leverage PURO’s strength in healthcare to pull through existing Airocide™ units, creating a broad healthcare product line, from small clinics, patient rooms and doctor’s offices to larger spaces such as nursing stations, waiting rooms and cafeterias. Third, we look to leverage the national MunnWorks hospitality reach with leading luxury hotel chain operators to pull through our entire air and surface disinfection portfolio (Airocide™ and Lumicide™) as well as PURO’s offerings into future hotel, condo and other renovation, upgrade and remodeling projects. Fourth, the Company will look to work with Canon Virginia, Inc.’s (“CVI”) extensive field support team to promote the sale of the Company’s products as well as service capabilities. Finally, we look to incorporate the PUROAir, PUROHealth and PURONet (a powerful suite of products used in healthcare that incorporates UV lighting and a HVAC monitoring software platform) into our IoT integration plans via the Sterilumen App across our entire platform connecting all our units, thereby creating a leading smart asset management, reporting and control system tool that can be incorporated across all enterprises.
Market Opportunity
According to Research and Markets, the UV Disinfection market is expected to reach $9 billion by 2027 as technology continues to improve and the focus on stopping the spread of contagious diseases increases. The Center for Disease Control states that one in 25 patients have at least one Hospital Associated Infection (“HAI”) annually and that three million serious infections occur every year in long-term care facilities. Losses from contagious infections, pathogens and viruses cost the U.S. economy more than $270B every year as per the U.S. Center for Disease Control (CDC) $28B lost through HAIs; $225B in lost productivity due to absenteeism; and $25B in losses due to student/teacher absenteeism. Scientists globally have been advocating improving air quality post pandemic, significantly boosting global adoption to control airborne pathogen transmission. Governments globally mandating health agencies to address improving IAQ via grants and mechanisms to ease visitation and protect facilities against future pathogens (Centers for Medicare and Medicaid Services – CMS, February 2022 Long-term Care Initiative April 2022 WH Clean Air Initiatives).
IAQ has become an even more important issue as world economies transition beyond the COVID-19 pandemic. In 2021, 39 scientists reiterated the need for a “paradigm shift” and called for improvements in, “how we view and address the transmission of respiratory infections to protect against unnecessary suffering and economic losses.” In mid 2022, we began to see this seismic shift from pandemic related mobile apparatuses to complete systems within systems for facilities designed to monitor, improve and report on a more permanent basis. While there are opportunities for mobile systems, our emphasis will be on this growing market trend.
In addition to this, the global air purifier market size is set to grow exponentially. It was valued at $9.24 billion in 2021 and is predicted to grow to approximately $22.84 billion by 2030. According to Precedence Research, the immense demand for air purification and sterilization in the U.S. will be driven by the commercial sector.
Sterilumen’s product portfolio is one of the only research-backed, clinically proven pure-play air and surface disinfection technology companies with international distribution and globally recognized end users, with products developed for NASA. In addition to the numerous recognized research institutions and globally recognized names who published the reports that were completed by the acquired companies, Airocide™ was independently proven to kill SARS, MERSA and Anthrax. Sterilumen’s air purification (Airocide™, Scientific Air™ and PURO) and surface disinfection (Lumicide) were independently tested and proven to kill both Candida Auris (ResInnova Laboratories) and COVID-19 (MRIGlobal), MRSA (ResInnova Laboratories), Salmonella enterica (ResInnova Laboratories) and Escherichia coli (ResInnova Laboratories).
Our goal is to build a company that successfully designs, develops and markets our air and surface disinfection solutions that will enable U.S. and global economies to implement “Clean Air” initiatives aimed at IAQ as recommended by the U.S. Government’s EPA. We will seek to achieve this goal by having our products actively involved in the following activities:
Focus on key target verticals that have proven business use cases including:
| ● | Post-Harvest and Distribution/Logistics from ”farm-to-table” (Winery, Dairy, Meat and Seafood) |
| ● | Food Preservation |
| ● | Hospitals, Long-Term Care and Dental |
| ● | Commercial (HVAC) |
| ● | Hospitality |
| ● | Hotels and Restaurants |
| ● | Education |
| ● | Sports Arenas |
| ● | Cannabis |
| ● | Correctional Facilities |
In addition to further developing Airocide™, Scientific Air™, PURO, Lumicide and LED Supply specific sales efforts, we intend to leverage the Company’s hospitality business (MunnWorks) for cross-selling opportunities of our air purification and surface disinfectant solutions and products. Our initial research indicates that the key stakeholders in this market value the asset management and reporting capabilities of our platform and provide key points of differentiation.
● |
Expand our global distributor channels into new markets not currently served. |
| ● | Continue scientific validation through lab testing and data from real world deployments; publish case studies in peer reviewed journals. |
Manufacturing
In an effort to improve operationally, after analyzing each of the points in our supply chain to tighten integration to optimize inventory, improve quality control and mitigate against supply chain disruptions that were witnessed globally throughout the pandemic, on December 18, 2022, Applied UV announced that it signed a strategic manufacturing and related services agreement (the “Manufacturing Agreement”) with Canon Virginia, Inc., a global manufacturing, engineering and technical operation for the Canon family and a wholly owned subsidiary of Canon U.S.A, Inc. The Manufacturing Agreement establishes CVI’s status as the primary manufacturer, assembler and logistical authority for Applied UV’s entire suite of air purification solutions. The Manufacturing Agreement, the first of a series of anticipated agreements, enables the Company to leverage the resources of CVI’s two million-square-foot state-of-the-art engineering, manufacturing and distribution facility. Applied UV plans to leverage CVI’s almost 40 years of innovative and efficient production methods to manufacture the Company’s patented, FDA Class II Listed Airocide™ PCO commercial and consumer devices, as well as the patented advanced Activated Carbon UVC and HEPA Mobile disinfection Scientific Air™ portfolio. From an R&D perspective, working closely with Canon, we are also beginning to formulate our new product roadmap and making substantial improvements to our entire line of mobile and fixed air purification products, further differentiating our patented PCO and UVC Carbon based solutions from that of our competition. Applied UV also plans to collaborate with Canon Financial Services, Inc. to enable better cash flow management in regard to its growing supply chain requirements. Further, the Company will look to work with CVI’s extensive field support team to promote the sale of the Company’s products, as well as service capabilities.
Business Developments
The following highlights recent material developments in our business:
| ● | On February 29, 2024, we announced that MunnWorks purchased the continuing business and a multi-year exclusive global licensing agreement with Element Designs, a well-established designer and fabricator of large scale and public metal systems such as custom water cascades and fountains, outdoor monumental furnishings and public green-walls. | |
| ● | On February 1, 2024, we announced that we plan to develop smart building technologies for Larimar City, a new luxury development with six hotels and 20,000 high-end residences. | |
| ● | On January 29, 2024, we announced receipt of a provisional patent for our pulse modulated UVC LED system to be added to our portfolio. | |
| ● | On January 25, 2024, we announced the appointment of a hospitality industry expert, Christopher Kochuba, as a member to our Board of Directors (“Board”), effective as of February 14, 2024. |
Human Capital Resources
As of December 31, 2023, we had a total of 131 employees, all of which are full-time.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase stockholder value and the success of our Company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
Corporate Information
Applied UV, Inc. was incorporated in the State of Delaware on February 26, 2019. In March 2019, Applied UV, Inc. acquired all of the capital stock of Sterilumen pursuant to two exchange agreements in which the shareholders of Sterilumen exchanged all of their shares in Sterilumen for shares of common stock in Applied UV, Inc. In July 2019, Applied UV, Inc. acquired all of the membership interests of MunnWorks pursuant to an exchange agreement in which the member of MunnWorks exchanged all of his shares for shares of common stock in Applied UV, Inc. In January 2023, Applied UV, Inc., through its wholly owned subsidiaries, acquired PURO and LED Supply in a merger transaction in which all of the membership interests of PURO and LED Supply were converted into the equity of the wholly owned subsidiaries in exchange for the issuance of securities of Applied UV, Inc. and earn-out payments payable to the members of PURO and LED Supply. On May 31, 2023, Applied UV, Inc. implemented a 1:5 reverse stock split of its issued and outstanding shares of common stock.
On October 25, 2023, Applied UV, Inc. completed its reincorporation from a Delaware corporation to a Nevada corporation pursuant to that certain Agreement and Plan of Merger dated as of September 1, 2023. On December 12, 2023, Applied UV, Inc. implemented a 1:25 reverse stock split of its issued and outstanding shares of common stock.
Applied UV, Inc. operates through a total of four wholly owned subsidiaries. Our principal executive offices are located at 150 N. Macquesten Parkway, Mount Vernon, NY 10550.
Available Information
Our website address is www.applieduvinc.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, any amendments to those reports, proxy and registration statements filed or furnished with the SEC, are available free of charge through our website. We make these materials available through our website as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the SEC. The reports filed with the SEC by our executive officers and directors pursuant to Section 16 under the Exchange Act are also made available, free of charge on our website, as soon as reasonably practicable after copies of those filings are provided to us by those persons. These materials can be accessed through the “Investor Relations” section of our website. The information contained in, or that can be accessed through, our website is not part of this Annual Report.
Item 1A. Risk Factors.
Investing in our common stock is highly speculative and involves a significant degree of risk. Before you invest in our securities, you should give careful consideration to the following risk factors, in addition to the other information included in this Annual Report on Form 10-K, including our financial statements and related notes, before deciding whether to invest in our securities. The occurrence of any of the adverse developments described in the following risk factors could materially and adversely harm our business, financial condition, results of operations or prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business and Operations
There is substantial doubt about our ability to continue as a going concern.
Our revenues continue to increase, and for the year ended December 31, 2023 were $40.8 million, compared to $20.1 million for the same period in 2022, an increase of $20.7 million, or 102.4%. However, we have incurred substantial operating losses since our inception. As reflected in our consolidated financial statements included in this Annual Report for the year ended December 31, 2023, we had an accumulated deficit of approximately $43.1million at December 31, 2023, a net loss of approximately $13.2 million, and approximately $8.2 million of net cash used in operating activities for the year ended December 31, 2023. The consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We anticipate incurring additional losses until such time, if ever, that we will be able to effectively market our products. As such, it is likely that additional financing will be needed by us to fund our operations. These factors raise substantial doubt about our ability to continue as a going concern. We will seek to obtain additional capital through the sale of debt or equity financings or other arrangements to fund operations; however, there can be no assurance that we will be able to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of common stock. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. If we are unable to obtain such additional financing, future operations would need to be scaled back or discontinued.
The Company operates through its subsidiaries and its only material assets are its equity interests in those subsidiaries. As a result, our only current source of revenue is distributions from our subsidiaries, and all of its subsidiaries have been incurring losses and may continue to incur losses in the future.
The Company is a holding company for Sterilumen, MunnWorks, PURO and LED Supply, and has no material assets other than its equity interests in those subsidiaries. Therefore, the only current revenue source is future distributions from its subsidiaries. These subsidiaries, however, have been incurring losses and may continue to incur losses, posing a substantial risk to the Company’s financial health.
Sterilumen owns, brands and markets a comprehensive portfolio of proven disinfection products, of which leverage advanced technologies, including without limitation, UVC Carbon, Broad Spectrum UVC LEDs and photo-catalytic oxidation, to offer a comprehensive pathogen disinfection platform. We expect negative cash flows from Sterilumen’s operations for the foreseeable future. Our cash expenses will be highly dependent on the success of the products of Sterilumen, MunnWorks, PURO and LED Supply. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop any future product candidates.
Our future revenue will depend upon our ability to achieve sufficient market acceptance for all of our products, pricing, the performance of our independent sales representatives and our manufacturing and distribution suppliers.
We anticipate that our expenses will increase substantially if and as we:
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● | continue the research and development of any of our products; |
| ● | establish an effective sales, marketing and distribution infrastructure to commercialize any of our products or product candidates; | |
| ● | seek to maintain, protect and expand our intellectual property portfolio; | |
| ● | seek to attract and retain skilled personnel; and | |
| ● | create additional infrastructure to support any of our future product candidate development and planned future commercialization efforts. |
Furthermore, any additional fundraising efforts may divert our management from our subsidiaries’ day-to-day activities, which may adversely affect our ability to effectively market our products and develop and commercialize any product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of holders of our securities and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. Even if we believe that we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidates or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Our financial condition and results of operations may be adversely affected by COVID-19 or similar global pandemic.
A significant outbreak, epidemic or pandemic of contagious diseases in any geographic area in which we operate or plan to operate could result in a health crisis adversely affecting the economies and financial markets. In addition, any preventative or protective actions that governments implement or that we take in response to a health crisis, such as travel restrictions, quarantines or site closures, may interfere with the ability of our employees, suppliers and customers to perform their responsibilities. Such results could have a material adverse effect on our business.
COVID-19 created significant volatility, uncertainty and economic disruption. To date, COVID-19 has affected nearly all regions around the world. In the United States, businesses as well as federal, state and local governments implemented significant actions to mitigate this public health crisis. While we cannot predict the duration or scope of COVID-19, it may negatively impact our business and such impact could be material to our financial results, condition and outlook related to:
| ● | disruption to our operations or the operations of our suppliers, through the effects of business and facilities closures, worker sickness and COVID-19 related inability to work, social, economic, political or labor instability in affected areas, transportation delays, difficulty in enrolling patients, travel restrictions and changes in operating procedures, including for additional cleaning and safety protocols; |
| ● | increased volatility or significant disruption of global financial markets due in part to any future COVID-19 outbreak, which could have a negative impact on our ability to access capital markets and other funding sources, on acceptable terms or at all and impede our ability to comply with debt covenants; and |
| ● | the further spread of COVID-19, and the requirements to take action to mitigate the spread of any future COVID-19 outbreak (e.g., hygiene requirements or social distancing or other measures), will impact our ability to carry out our business as usual and may materially adversely impact global economic conditions, our business, results of operations, cash flows and financial condition. |
While COVID-19 has heightened public awareness of airborne pathogens, significantly increasing demand for our pathogen disinfection and air purifier products, it is important to note that our performance may potentially be susceptible to any future COVID-19 outbreaks and corresponding public health responses. Should the global health community succeed in substantially mitigating the impact of COVID-19 or any other airborne pathogens through vaccination, herd immunity or effective treatment protocols, public concern regarding indoor air quality may diminish. This potential reduction in concern may lead to a corresponding decrease in demand for our pathogen disinfection and air purification products. In addition, a significant portion of our growth can be attributed to heightened health and safety measures adopted by businesses and individuals in response to COVID-19. As a result, our sales growth may decelerate or decline if public concern regarding indoor air quality continues to diminish.
To the extent COVID-19 or a similar public health threat has an impact on our business, it is likely to also have the effect of heightening many of the other risks described in this “Risk Factors” section.
We are vulnerable to continued global economic uncertainty and volatility in financial markets.
Our business is highly sensitive to changes in general economic conditions as a seller of goods and services. Financial markets inside the United States and internationally have experienced extreme disruption in recent times, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability and declining valuations of investments. We believe these disruptions are likely to have an ongoing adverse effect on the world economy. A continuing economic downturn and financial market disruptions could have a material adverse effect on our business, financial condition and results of operations, including by:
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● | reducing demand for our products and services, increasing order cancellations and resulting in longer sales cycles and slower adoption of new technologies; |
| ● | increasing the difficulty of collecting accounts receivable and the risk of excess and obsolete inventories; |
| ● | increasing price competition in our served markets; and |
| ● | resulting in supply interruptions, which could disrupt our ability to produce our products. |
We could need to raise additional capital in the future, and if we are unable to secure adequate funds on terms acceptable to us, we could be unable to execute our business plan.
To remain competitive, we must continue to make significant investments in the development of any product candidates, the expansion of our sales and marketing activities and the expansion of our operating and management infrastructure as we increase sales domestically and internationally. If cash generated from our operations is insufficient to fund such growth, we could be required to raise additional funds through the issuance of equity or debt securities in the public or private markets, or through a collaborative arrangement or sale of assets. Additional financing opportunities may not be available to us, or if available, may not be on favorable terms. The availability of financing opportunities will depend, in part, on market conditions, and the outlook for our business. Any future issuance of equity securities or securities convertible into equity securities could result in substantial dilution to our stockholders, and the securities issued in such a financing could have rights, preferences or privileges senior to those of our common stock. In addition, if we raise additional funds through debt financing, we could be subject to debt covenants that place limitations on our operations. We could not be able to raise additional capital on reasonable terms, or at all, or we could use capital more rapidly than anticipated. If we cannot raise the required capital when needed, we may not be able to satisfy the demands of existing and prospective customers, we could lose revenue and market share and we may have to curtail our capital expenditures.
The following factors, among others, could affect our ability to obtain additional financing on favorable terms, or at all:
| ● | our results of operations; |
| ● | general economic conditions and conditions in the sanitation and disinfection industries and performance of sanitation devices as opposed to sanitation and disinfection substances; |
| ● | the perception of our business in the capital markets; | |
| ● | making capital improvements to improve our infrastructure; |
| ● | hiring qualified management and key employees; |
| ● | responding to competitive pressures; |
| ● | complying with regulatory requirements, if any; |
| ● | our ratio of debt to equity; |
| ● | our financial condition; |
| ● | our business prospects; and |
| ● | interest rates. |
If we are unable to obtain sufficient capital in the future, we could have to curtail our capital expenditures. Any curtailment of our capital expenditures could result in a reduction in net revenue, reduced quality of our products, increased manufacturing costs for our products, harm to our reputation or reduced manufacturing efficiencies and could have a material adverse effect on our business, financial condition and results of operations.
Raising additional capital may cause dilution to our existing stockholders and restrict our operations or require us to relinquish certain intellectual property rights.
We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances, licensing arrangements and grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders may be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt and receivables financings may be coupled with an equity component, such as warrants to purchase shares, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our or our subsidiaries’ products or grant licenses on terms that are not favorable to us. A failure to obtain adequate funds may cause us to curtail certain operational activities, including research and development, validation/marketing studies, sales and marketing and manufacturing operations, in order to reduce costs and sustain the business, and would have a material adverse effect on our business and financial condition.
Our success depends, in part, on our relationships with, and the efforts of, third-party manufacturers, distributors and other third parties that perform various tasks for us. If these third parties do not successfully carry out their contractual duties or meet expected, we may not be able to commercialize our product candidates and our business could be substantially harmed.
While we internally manufacture all of MunnWorks’ products that are manufactured domestically, currently approximately 50% of MunnWorks’ products and substantially all of Sterilumen’s products, PURO’s products and LED Supply products are manufactured by third party manufacturers. We do not currently have the infrastructure or capability internally to manufacture all of the components of our products and systems, and we lack the resources and the capability to manufacture and distribute the products on a commercial scale. We plan to rely on third parties for such operations. There are a limited number of manufacturers who have the ability to produce our products, and there may be a need to identify alternate manufacturers to prevent a possible disruption of our manufacturing and distribution process. Switching manufacturers or distributors, if necessary, may involve substantial costs and is likely to result in a delay in our desired commercial timelines, which could harm our business and results of operations.
Our suppliers may not supply us with a sufficient amount or adequate quality of materials, which could have a material adverse effect on our business, financial condition and results of operations.
Our business depends on our ability to obtain timely deliveries of materials, components and subassemblies of acceptable quality and in acceptable quantities from third-party suppliers. We generally purchase components and subassemblies from a limited group of suppliers through purchase orders, rather than written supply contracts. Consequently, many of our suppliers have no obligation to continue to supply us on a long-term basis. In addition, our suppliers manufacture products for a range of customers, and fluctuations in demand for the products those suppliers manufacture for others could affect their ability to deliver components for us in a timely manner. Moreover, our suppliers could encounter financial hardships, be acquired or experience other business events unrelated to our demand for components, which could inhibit or prevent their ability to fulfill our orders and satisfy our requirements.
If any of our suppliers cease to provide us with sufficient quantities of our components in a timely manner or on terms acceptable to us, or ceases to manufacture components of acceptable quality, we could incur manufacturing delays and sales disruptions while we locate and engage alternative qualified suppliers, and we might be unable to engage acceptable alternative suppliers on favorable terms. In addition, we could need to reengineer our components, which could significantly delay production. Any interruption or delay in the supply of components or materials, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive procedures. We are continually in the process of identifying and qualifying alternate source suppliers for our key components. There can be no assurance, however, that we will successfully identify and qualify an alternate source supplier for any of our key components or that we could enter into an agreement with any such alternate source supplier on terms acceptable to us, or at all.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we rely on third parties to develop and manufacture our products, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
We may engage in future acquisitions or strategic transactions which may require us to seek additional financing or financial commitments, increase our expenses and/or present significant distractions to our management.
We may make acquisitions in the future. In the event we engage in an acquisition or strategic transaction, we may need to acquire additional financing. Obtaining financing through the issuance or sale of additional equity and/or debt securities, if possible, may not be on favorable terms and may result in additional dilution to our current stockholders. Any future acquisition by us or one of our subsidiaries may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, an acquisition or strategic transaction such as the acquisition may entail numerous operational and financial risks, including the risks outlined above and additionally:
| ● | exposure to unknown liabilities; |
| ● | disruption of our business and diversion of our management’s time and attention in order to develop acquired products or technologies higher than expected acquisition and integration costs; |
| ● | write-downs of assets or goodwill or impairment charges; |
| ● | increased amortization expenses; |
| ● | difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel; |
| ● | impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and |
| ● | inability to retain key employees of any acquired businesses. |
Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.
Recent U.S. tax legislation may materially affect our financial condition, results of operations and cash flows.
The recently enacted Tax Cuts and Jobs Act (the “Tax Act”) has significantly changed the U.S. federal income taxation of U.S. businesses, including by reducing the U.S. corporate income tax rate, limiting interest deductions, permitting immediate expensing of certain capital expenditures, modifying or repealing many business deductions and credits.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) modifies certain provisions of the Tax Act, including increasing the amount of interest expense that may be deducted.
The Tax Act as modified by the CARES Act is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and the U.S. Internal Revenue Service any of which could lessen or increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. Our analysis and interpretation of this legislation is preliminary and ongoing and there may be material adverse effects resulting from the legislation that we have not yet identified. While some of the changes made by the tax legislation may adversely affect us, other changes may be beneficial. We continue to work with our tax advisors and auditors to determine the full impact that the recent tax legislation as a whole will have on us. We urge our investors to consult with their legal and tax advisors with respect to such legislation and its potential effect on an investment in our common stock.
Our operating results are affected by many factors and may fluctuate significantly on a quarterly basis.
Our operating results may vary substantially from quarter to quarter and may be greater or less than those achieved in the immediately preceding period or in the comparable period of the prior year. Factors that may cause quarterly results to vary include, but are not limited to, the following:
| ● | the number of new product introductions by our subsidiaries; |
| ● | losses related to inventory write-offs; |
| ● | marketing exclusivity, if any, which may be obtained on certain new products; |
| ● | the level of competition in the marketplace for certain products; |
| ● | our subsidiaries’ ability to create demand in the marketplace for their products; |
| ● | availability of raw materials and finished products from suppliers; |
| ● | our subsidiaries’ ability to contract manufacturers to make their products; |
| ● | our dependence on a small number of products for a significant portion of net revenue or income; |
| ● | price erosion and customer consolidation; and |
| ● | uncertainty of future import tariffs. |
The profitability of our subsidiaries’ product sales is also dependent upon the prices they are able to charge for their products, the costs to purchase products from third parties and their ability to manufacture their products in a cost-effective manner. If their revenues decline or do not grow as anticipated, they may not be able to reduce their operating expenses to offset such declines. Failure to achieve anticipated levels of revenues could, therefore, significantly harm our operating results for a particular fiscal period.
We could be subject to significant warranty obligations if our products are defective, which could have a material adverse effect on our business, financial condition, and results of operations.
In manufacturing our products, we depend upon third parties for the supply of various components. Many of these components require a significant degree of technical expertise to design and produce. If we fail to adequately design, or if our suppliers fail to produce components to specification, or if the suppliers, or we, use defective materials or workmanship in the manufacturing process, the reliability and performance of our products will be compromised. Our products could contain defects that cannot be repaired easily and inexpensively that can result some or all of the following:
| ● | loss of customer orders and delay in order fulfillment; |
| ● | damage to our brand reputation; |
| ● | increased cost of our warranty program due to product repair or replacement; |
| ● | inability to attract new customers; |
| ● | diversion of resources from our manufacturing and engineering and development departments into our service department; and |
| ● | legal action. |
We are increasingly dependent on information technology, and our systems and infrastructure face certain risks, including cybersecurity and data leakage risks.
Significant disruptions to our information technology systems or breaches of information security could adversely affect our business. In the ordinary course of business, we collect, store and transmit large amounts of confidential information, and it is critical that we do so in a secure manner to maintain the confidentiality and integrity of such information. We have also outsourced significant elements of our information technology infrastructure; as a result, we manage independent vendor relationships with third parties who are responsible for maintaining significant elements of our information technology systems and infrastructure and who may or could have access to our confidential information. The size and complexity of our information technology systems, and those of our third-party vendors, make such systems potentially vulnerable to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners or vendors. These systems are also vulnerable to attacks by malicious third parties and may be susceptible to intentional or accidental physical damage to the infrastructure maintained by us or by third parties. Maintaining the secrecy of confidential, proprietary and/or trade secret information is important to our competitive business position. While we have taken steps to protect such information and have invested in systems and infrastructures to do so, there can be no guarantee that our efforts will prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful use or disclosure of confidential information that could adversely affect our business operations or result in the loss, dissemination or misuse of critical or sensitive information. A breach our security measures or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse of trade secrets, proprietary information or other confidential information, whether as a result of theft, hacking, fraud, trickery or other forms of deception, or for any other cause, could enable others to produce competing products, use our proprietary technology or information and/or adversely affect our business position. Further, any such interruption, security breach, loss or disclosure of confidential information could result in financial, legal, business and reputational harm to us and could have a material adverse effect on our business, financial position, results of operations and/or cash flow.
Product liability claims against us could be costly and could harm our reputation.
The sale of our products involves the risk of product liability claims against us. Claims could exceed our product liability insurance coverage limits. Our insurance policies are subject to various standard coverage exclusions, including damage to the product itself, losses from recall of our product, and losses covered by other forms of insurance such as workers compensation. We cannot be certain that we will be able to successfully defend any claims against us, nor can we be certain that our insurance will cover all liabilities resulting from such claims. In addition, we cannot provide assurance that we will be able to obtain such insurance in the future on terms acceptable to us, or at all. Regardless of merit or eventual outcome, any product liability claim brought against us could result in harm to our reputation, decreased demand for our products, costs related to litigation, product recalls, loss of revenue, an increase in our product liability insurance rates or the inability to secure coverage in the future, and could have a material adverse effect on our business by reducing cash collections from customers and limiting our ability to meet our operating cash flow requirements.
Litigation against us could be costly and time-consuming to defend and could materially and adversely affect our business, financial condition and results of operations.
We are from time to time involved in various claims, litigation matters and regulatory proceedings incidental to our business, including claims for damages arising out of the use of our products or services and claims relating to intellectual property matters, employment matters, commercial disputes, competition, sales and trading practices, environmental matters, personal injury and insurance coverage. Some of these lawsuits include claims for punitive as well as compensatory damages. The defense of these lawsuits could divert our management’s attention, and we could incur significant expenses in defending these lawsuits. In addition, we could be required to pay damage awards or settlements or become subject to unfavorable equitable remedies. Moreover, any insurance or indemnification rights that we could have may be insufficient or unavailable to protect us against potential loss exposures.
If we lose our key management personnel, or are unable to attract or retain qualified personnel, it could adversely affect our ability to execute our growth strategy.
Our success is dependent, in part, upon our ability to hire and retain management, engineers, marketing and sales personnel and technical, research and other personnel who are in high demand and are often subject to competing employment opportunities. Our success will depend on our ability to retain our current personnel and to attract and retain qualified like personnel in the future. Competition for senior management, engineers, marketing and sales personnel, and other specialized technicians is intense and we may not be able to retain our personnel. If we lose the services of any executive officers or key employees, our ability to achieve our business objectives could be harmed or delayed, which could have a material adverse effect on our daily operations, operating cash flows, results of operations and ultimately share price. In general, our officers could terminate their employment at any time without notice for any reason.
Climate change initiatives could materially and adversely affect our business, financial condition and results of operations.
Both domestic and international legislation to address climate change by reducing greenhouse gas emissions and establishing a price on carbon could create increases in energy costs and price volatility. Considerable international attention is now focused on development of an international policy framework to address climate change. Proposed and existing legislative efforts to control or limit greenhouse gas emissions could increase the cost of raw materials derived from sources that generate greenhouse gas emissions. If our suppliers are unable to obtain energy at a reasonable cost in the future, the cost of our raw materials could be negatively impacted which could result in increased manufacturing costs.
As a “controlled company” under the Nasdaq Marketplace Rules, we may choose to exempt our Company from certain corporate governance requirements that could have an adverse effect on our public stockholders.
Max Munn of Chief Executive Officer holds 70% of our voting power. Under Rule 4350(c) of the Nasdaq Marketplace Rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, as defined in the rules of The Nasdaq Stock Market LLC (“Nasdaq”) and the requirement that our compensation and nominating and corporate governance committees consist entirely of independent directors. Although we have not relied nor do we intend to rely on the “controlled company” exemption under Nasdaq rules, we could elect to rely on this exemption in the future. If we elect to rely on the “controlled company” exemption, a majority of the members of our Board might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors. Accordingly, during any time while we remain a controlled company relying on the exemption and during any transition period following a time when we are no longer a controlled company, you would not have the same protections afforded to shareholders of companies that are subject to all of the Nasdaq corporate governance requirements. Our status as a controlled company could cause our common stock to look less attractive to certain investors or otherwise harm our trading price.
Our failure to maintain effective internal controls over financial reporting could have an adverse impact on us.
We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting or disclosure of our public accounting firm’s attestation to or report on management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
At present, we believe that we have effective internal controls in place. However, our management, including our Chief Executive Officer, cannot guarantee that our internal controls and disclosure controls that we have in place will prevent all possible errors, mistakes or all fraud.
Our financial controls and procedures may not be sufficient to ensure timely and reliable reporting of financial information, which, as a public company, could materially harm our stock price.
We require significant financial resources to maintain our public reporting status. We cannot assure you we will be able to maintain adequate resources to ensure that we will not have any future material weakness in our system of internal controls. The effectiveness of our controls and procedures may in the future be limited by a variety of factors including:
|
● | faulty human judgment and simple errors, omissions or mistakes; |
| ● | fraudulent action of an individual or collusion of two or more people; |
| ● | inappropriate management override of procedures; and |
| ● | the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information. |
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Despite these controls, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies like us face additional limitations. Smaller reporting companies employ fewer individuals and can find it difficult to employ resources for complicated transactions and effective risk management. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.
If we fail to have effective controls and procedures for financial reporting in place, we could be unable to provide timely and accurate financial information and be subject to investigation by the SEC and civil or criminal sanctions.
We are an “emerging growth company” under the JOBS Act of 2012 and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 (the “Securities Act”) for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards.
We will remain an “emerging growth company” until December 31, 2025, the last day of the fiscal year following the fifth anniversary of August 31, 2020, the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act, although we will lose that status sooner if our revenues exceed $1.235 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the last day of our most recently completed second fiscal quarter.
Our status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we need it.
Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.
There may be limitations on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud may materially harm our Company. If we fail to remediate a material weakness, or if we experience material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock and warrants.
Prior to the completion of our initial public offering in August 2020, we had been a private company with limited accounting personnel to adequately execute our accounting processes and limited supervisory resources with which to address our internal control over financial reporting. As a public company, we have designed a control environment as required of public companies under the rules and regulations of the SEC.
Proper systems of internal controls over financial accounting and disclosure controls and procedures are critical to the operation of a public company. We may be unable to effectively establish and maintain such systems. This would leave us without the ability to compile financial information about our Company and significantly impair our ability to prevent error and detect fraud, all of which would have a negative impact on our Company from many perspectives.
Moreover, we do not expect that disclosure controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to prevent error or fraud could materially adversely impact us.
Geopolitical conditions, including trade disputes and direct or indirect acts of war or terrorism, could have an adverse effect on our operations and financial results.
In February 2022, Russia initiated significant military action against Ukraine. In response, the U.S. and certain other countries imposed significant sanctions and export controls against Russia, Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations, and the U.S. and certain other countries could impose further sanctions, trade restrictions, and other retaliatory actions should the conflict continue or worsen. It is not possible to predict the broader consequences of the conflict, including related geopolitical tensions, and the measures and retaliatory actions taken by the U.S. and other countries in respect thereof as well as any counter measures or retaliatory actions by Russia or Belarus in response, including, for example, potential cyberattacks or the disruption of energy exports, is likely to cause regional instability, geopolitical shifts, and could materially adversely affect regional economies and the global economy. The situation remains uncertain, and while it is difficult to predict the impact of any of the foregoing, the conflict and actions taken in response to the conflict could increase our costs, disrupt our supply chain, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition, and results of operations.
Geopolitical tensions and conflicts in the Middle East, specifically the Israel-Hamas war, may lead to global economic instability and adversely affect supply chains, which may adversely impact our operations, financial conditions and business prospects.
While we do not have any direct operations or significant sales in the Middle East, geopolitical tensions and ongoing conflicts in the region, particularly between Israel and the Hamas, may lead to global economic instability and fluctuating energy prices that could materially affect our business. It is not possible to predict the broader consequences of the Israel-Hamas war, including related geopolitical tensions, and the measures and actions taken by other countries in respect thereof, which could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. While it is difficult to predict the impact of any of the foregoing, the Israel-Hamas war may increase our costs, disrupt our supply chain, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition and results of operations.
If we sustain a cyber-attack or suffer privacy or data security breaches that disrupt our information systems or operations, or result in the dissemination of sensitive personal or confidential information, we could suffer increased costs, exposure to significant liability, reputational harm, loss of business and other serious negative consequences.
Our information technology systems and safety control systems are subject to a growing number of threats from computer programmers, hackers and other adversaries that may be able to penetrate our network security and misappropriate our confidential information or that of third parties, create system disruptions or cause damage, security issues or shutdowns. They also may be able to develop and deploy viruses, worms and other malicious software programs that attack our systems or otherwise exploit security vulnerabilities. Because the techniques used to circumvent, gain access to or sabotage security systems, can be highly sophisticated and change frequently, they often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world. We may be unable to anticipate these techniques or implement adequate preventive measures, resulting in potential data loss and damage to our systems. Our systems are also subject to compromise from internal threats such as improper action by employees, including malicious insiders, or by vendors, counterparties and other third parties with otherwise legitimate access to our systems. Our policies, employee training (including phishing prevention training), procedures and technical safeguards may not prevent all improper access to our network or proprietary or confidential information by employees, vendors, counterparties or other third parties. Our facilities may also be vulnerable to security incidents or security attacks, acts of vandalism or theft, misplaced or lost data, human errors or other similar events that could negatively affect our systems, and our and our members’ data. Additionally, our third-party service providers who process information on our behalf may cause security breaches for which we are responsible.
Moreover, we face the ongoing challenge of managing access controls in a complex environment. The process of enhancing our protective measures can itself create a risk of systems disruptions and security issues. Given the breadth of our operations and the increasing sophistication of cyber-attacks, a particular incident could occur and persist for an extended period of time before being detected. The extent of a particular cyber-attack and the steps that we may need to take to investigate the attack may take a significant amount of time before such an investigation could be completed and full and reliable information about the incident is known. During such time, the extent of any harm or how best to remediate it might not be known, which could further increase the risks, costs and consequences of a data security incident. In addition, our systems must be routinely updated, patched and upgraded to protect against known vulnerabilities. The volume of new software vulnerabilities has increased substantially, as has the importance of patches and other remedial measures. In addition to remediating newly identified vulnerabilities, previously identified vulnerabilities must also be updated. We are at risk that cyber-attackers exploit these known vulnerabilities before they have been addressed. The complexity of our systems and platforms, the increased frequency at which vendors are issuing security patches to their products, our need to test patches, and, in some instances, coordinate with third-parties before they can be deployed, all could further increase our risks.
Any compromise or perceived compromise of the security of our systems or the systems of one or more of our vendors or service providers could damage our reputation and brand, cause the termination of relationships with our members, result in disruption or interruption to our business operations, marketing partners and carriers, reduce demand for our services and subject us to significant liability and expense, which would harm our business, operating results and financial condition.
Inflation may adversely affect our operations and financial results.
In periods of rising inflation, the cost of raw materials, components and labor essential for manufacturing our products may increase and as a consequence, our overall profit margin may be adversely affected. In addition, inflation may result in limitations on consumer spending A decrease in demand for these procedures may significantly impact our financial condition and results of operations.
Risks Related to Sterilumen’s Business
Certain ResInnova testing limitations.
Our claims on the effectiveness of the Disinfecting System against certain pathogens are supported by the analysis of the Disinfecting System performed in ResInnova’s laboratory. The environment in ResInnova’s laboratory is controlled and does not account for all real-world variables, which may impact the effectiveness of ultraviolet light in killing microorganisms. Such variables include humidity, air temperature and the presence of organic soils that differ from those used in the laboratory tests. If any one of these un-accounted for variables proves to be significant in the evaluation of the effectiveness of the Disinfecting System, the laboratory results obtained by ResInnova could be significantly more favorable than the results experienced by our customers. Furthermore, in accordance with CDC guidelines only laboratories with a biosafety level 3 or 4 may test against SARS-CoV-2, the virus that causes COVID-19. ResInnova is a biosafety level 2 laboratory and cannot test against SARS-CoV-2 and therefore in its place tested against OC43, which, according to ResInnova is a common surrogate for SARS-CoV-2 as both are of the Beta genre of coronaviruses. If the results from testing the Disinfecting System against OC43 are different from the results that would have occurred from testing against SARS-CoV-2, ResInnova’s testing results could be materially more favorable than the results experienced by our customers with respect to SARS-CoV-2. If the Disinfecting System is not effective against SARS-CoV-2, this could have a material adverse effect on the Company, which would have a material adverse effect on our business prospects and financial condition.
The complete and final assembly of the Disinfecting System has not yet received safety certification from a nationally recognized testing laboratory.
All of the component parts of the Disinfecting System have been certified by ETL. The ETL listings for ETL Listing numbers: SLR-1 = E519669 for the ribbon unit and SLD-1 = E519957 for the drain unit is new for such a UVC device for the UL and due to incomplete standards does not guarantee successful deployment and installation at scale in the U.S. If we are unable or significantly delayed in obtaining confidence for installations within the marketplace with above certifications, our business and financial prospects will be materially adversely affected.
In accordance with an August 24, 1993 Interpretation Letter from Occupational Safety and Health Administration, all electrical equipment must be accepted, certified, labeled, listed or otherwise determined that such equipment is safe by a Nationally Recognized Testing Laboratory or by another federal agency or by a state, municipal or other local authority responsible for enforcing occupational safety provisions of the National Electric Safety Code.
If Sterilumen is unable to develop a successful marketing approach, our business will suffer.
If Sterilumen fails to develop a successful marketing approach or to manage its growth effectively, our business and financial results will be materially harmed. Healthcare facilities operate in a highly regulated and dynamic market with changing regulations, codes, standards and guidelines and as a result are very loyal to vendors they trust. Achieving market acceptance will require extensive customer education and product validation. Some of the ways in which Sterilumen intends on achieving market acceptance is through working with professional trade organizations, having articles published in industry trade publications, conducting validation/marketing studies at well-known hospitals and lab testing. However, there is no assurance that Sterilumen will be successful in organizing these efforts or if the results from them will be positive. Sterilumen has sought and may also seek in the future to expand its business through complementary or strategic acquisitions of other businesses, products or assets such as its recent acquisition of the Airocide™ product line, or through joint ventures, strategic partnerships or other arrangements with established and trusted disinfection companies. Any such acquisitions, joint ventures or other business combinations may involve significant integration challenges, operational complexities and time consumption and require substantial resources and effort. It may also disrupt Sterilumen’s ongoing businesses, which may adversely affect its relationships with customers, employees and others with whom it has business or other dealings. Further, if Sterilumen is unable to realize synergies or other benefits expected to result from any acquisitions, joint ventures or other business combinations, or to generate additional revenue to offset any unanticipated inability to realize these expected synergies or benefits, its growth and ability to compete may be impaired, which would require it and us to focus additional resources on the integration of operations rather than other profitable areas of its business, and may otherwise cause a material adverse effect on our business, results of operations and financial condition. However, failure to acquire or partner with established and trusted disinfection companies would prevent Sterilumen’s products from being part of a bundle of disinfection products that could be sold all at once, which could have a material adverse effect on the financial results of our business.
The air purification market is fragmented and competitive and we may not be able to compete successfully with our existing competitors or new entrants into the markets we serve.
The air purification market is fragmented and competitive. Sterilumen’s competition varies by product line, customer classification and geographic market. The principal competitive factors in our industry are quality of product, pricing, service and delivery capabilities and availability of product. We will compete with many local, regional and national air purification distributors and dealers. In addition, some air purification suppliers might sell and distribute their products directly to our customers, and the volume of such direct sales could increase in the future. Additionally, distributors of products similar to those distributed by us may elect to sell and distribute to our customers in the future or enter into exclusive supplier arrangements with other distributors. Some of our competitors have greater financial resources and may be able to withstand sales or price decreases more effectively than we can. We also expect to continue to face competition from new market entrants. We may be unable to continue to compete effectively with these existing or new competitors, which could have a material adverse effect on our financial condition and results of operations.
If we are unable to execute our plan to distribute Sterilumen’s Airocide™ products, we may not be able to generate revenues and your investment could be materially adversely affected.
We acquired the rights to manufacture and sell our Airocide™ products in February of 2021 and have not yet fully scaled to execute our plan to sell and distribute Sterilumen’s Airocide™ products. The success of the Airocide™ business will depend on the execution of our plan and the acceptance of Airocide™ products by the consumer and commercial markets. Achieving such acceptance will require significant marketing investment. Once we execute our plan to sell and distribute the Airocide™ products, it may not be accepted by consumers at sufficient levels to support our operations and build our business. If Sterilumen’s Airocide™ products are not accepted at sufficient levels, our business could fail.
We are subject to significant regulatory oversight and changes in applicable regulatory requirements could adversely affect our business.
We may become subject to significant government regulation, by the U.S. Environmental Protection Agency (“EPA”) and, to a certain extent, by Congress, other federal agencies and foreign, state and local authorities. Depending upon the circumstances, noncompliance with legislation or regulations promulgated by these entities could result in the suspension or revocation of our licenses or registrations, the termination or loss of contracts or the imposition of contractual damages, civil fines or criminal penalties any of which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, the adoption or modification of laws or regulations relating to UVC or air purification or other areas of our business could limit or otherwise adversely affect the manner in which we currently conduct our business. If we are required to comply with new regulations or legislation or new interpretations of existing regulations. This compliance could cause us to incur additional expenses or alter our business model.
Sterilumen’s Disinfecting System business is highly dependent on its suppliers’ and any disruption in their operations could have a material adverse effect on our business, results of operations and financial condition.
Sterilumen’s Disinfecting System business will be dependent upon the continued ability of its suppliers to deliver systems, components, raw materials and finished disinfection products. Its UVC LEDs are manufactured in South Korea and then shipped to China or the United States for assembly with all other components, which if manufactured in China, the finished products are shipped to Long Beach, California for warehousing and distribution, otherwise the units are shipped from Mount Vernon, New York. Any number of factors, including labor disruptions, catastrophic weather events, contractual or other disputes with suppliers and supplier financial difficulties or solvency problems could disrupt its suppliers’ operations and lead to uncertainty in its supply chain or cause supply disruptions, which could, in turn, disrupt its operations. If Sterilumen experiences supply disruptions, it may not be able to develop alternate sourcing quickly. Any disruption of its production schedule caused by an unexpected shortage of systems, components, raw materials or parts even for a relatively short period of time could cause it to alter production schedules or suspend production entirely. If any such disruptions occur it could have a material adverse effect on our business, results of operations and financial condition.
Sterilumen’s business is highly dependent on market perceptions of it and the safety and quality of its products.
Market perceptions of Sterilumen’s business are very important to us, especially market perceptions of the safety and quality of Sterilumen’s products. If any of its products or similar products that other companies distribute are subject to market withdrawal or recall or are proven to be, or are claimed to be, harmful to end users, then this could have a material adverse effect on our business, results of operations and financial condition. Also, because Sterilumen’s business is dependent on market perceptions, negative publicity associated or perceived to be associated with its business, products or product pricing could have a material adverse impact on our business, results of operations and financial condition.
Customers may be hesitant in adopting UV light-based technologies, and our inability to overcome this hesitation could limit the market acceptance of our products and our market share.
Our UV light disinfection systems represent relatively new technologies in the market. Only a small percentage of professional medical institutions or hospitality providers are immediately willing to conduct sanitation using our systems. Our future success will depend on our ability to increase demand for our products by demonstrating to a broad spectrum of medical professional, dentists, hospitality industry, their patients and customers, the potential performance advantages of our UV light systems over traditional methods of disinfection over competitive UV light systems and our inability to do so could have a material adverse effect on our business, financial condition and results of operations.
Conventional germicidal UV light was historically considered as a human health hazard if improperly used and can lead to skin cancer and cataracts. We may experience long sales cycles because healthcare facilities and hotels and other facilities may be slow to adopt new technologies on a widespread basis and admit that such technologies can sanitize public space without damaging public health. As a result, we generally are required to invest a significant amount of time and resources to educate general public about the benefits of our products in comparison to competing products and technologies before completing a sale, if any. Factors that could inhibit adoption of UV technologies by healthcare facilities or hospitality companies include the initial cost and concerns about the safety, efficacy and reliability of our UV systems. In addition, economic pressure, caused, for example, by an economic slowdown as a result of any potential COVID-19 outbreak, changes in health care reimbursement or by competitive factors in a specific market, could make businesses reluctant to purchase substantial capital equipment or invest in new technologies. Customer acceptance will depend on the recommendations of governmental authorities, as well as other factors, including the relative effectiveness, safety, reliability and comfort of our systems as compared to other instruments and methods for performing disinfecting procedures.
If future data proves to be inconsistent with our research results or if competitors’ products present more favorable results our revenues could decline and our business, financial condition, and results of operations could be materially and adversely affected.
Even though our disinfecting devices and air purifiers are protected with patents, if new studies or comparative studies generate results that are not as favorable as our research results, our revenues could decline. Additionally, if future studies indicate that our competitors’ products are more effective or safer than ours, our revenues could decline. Furthermore, hospitals, businesses and consumers could choose not to purchase our UV light sanitation systems or air purifiers until they receive additional published long-term clinical evidence and recommendations from prominent hospitals and businesses that indicate our UV light sanitation systems are effective for disinfecting applications.
We may face competition from other companies, many of which have substantially greater resources than we do. If we do not successfully develop and commercialize enhanced or new products that remain competitive with products or alternative technologies developed by others, we could lose revenue opportunities and customers and our ability to grow our business would be impaired.
A number of competitors have substantially greater capital resources, larger customer bases, larger technical, sales and marketing forces and stronger reputations with target customers than ours. We compete with a number of domestic and foreign companies that market traditional chemical sanitation products, as well as companies that market UV technologies. The marketplace is highly fragmented and very competitive. We expect that the rapid technological changes occurring in the health care industry could lead to the entry of new competitors, particularly if UV disinfecting increases market acceptance. If we do not compete successfully, our revenue and market share could decline, which would impact our ability to meet our operating cash flow requirements and our business, financial condition and results of operations could be adversely affected.
Our long-term success depends upon our ability to (i) distinguish our products through improving our product performance and pricing, protecting our intellectual property, improving our customer support, accurately timing the introduction of new products and developing sustainable distribution channels worldwide; and (ii) develop and successfully commercialize new products, new or improved technologies and additional applications for our UV light sanitation systems. We may not be able to distinguish our products and commercialize any new products, new or improved technologies, or additional applications for our UV light disinfecting systems.
We could incur problems in manufacturing our products.
In order to grow our business, we must expand our manufacturing capabilities to produce the systems and accessories necessary to meet any demand we may experience. We could encounter difficulties in increasing the production of our products, including problems involving production capacity and yields, quality control and assurance, component supply and shortages of qualified personnel. In addition, before we can begin commercial manufacture of our products, we must ensure our manufacturing facilities, processes and quality systems, and the manufacture of our UV light sanitation systems, quality control and documentation policies and procedures. From time to time, we could expend significant resources in obtaining, maintaining and addressing our compliance with various federal and requirements that may be subject to changes. Our success will depend in part upon our ability to manufacture our products without FDA approval or compliance with other regulatory requirements.
We have not experienced significant quality issues with components of our products supplied by third parties, however, we could in the future. Our future success depends on our ability to manufacture our products on a timely basis with acceptable manufacturing costs, while at the same time maintaining good quality control and complying with applicable regulatory requirements, and an inability to do so could have a material adverse effect on our product sales, cash collections from customers, and our ability to meet operating cash flow requirements, which could have a material adverse effect on our business, financial condition and results of operations.
Adverse publicity regarding our technology or products could negatively impact us.
Adverse publicity regarding any of our products or similar products marketed or sold by others could negatively affect us. If any studies raise or substantiate concerns regarding the efficacy or safety of our products or other concerns, our reputation could be harmed and demand for our products could diminish, which could have a material adverse effect on growth in new customers and sales of our products, leading to a decline in revenues, cash collections and ultimately our ability to meet operating cash flow requirements.
Rapidly changing standards and competing technologies could harm demand for our products, result in significant additional costs, and have a material adverse effect on our business, financial condition and results of operations.
The markets in which our products compete are subject to rapid technological change, evolving industry standards, changes in the regulatory environment and frequent introductions of new devices and evolving sanitizing solutions and practices, specifically catalyzed by the impact of the COVID-19 pandemic. Competing products could emerge that render our products uncompetitive or obsolete. We cannot guarantee that we will successfully identify new product opportunities, identify new and innovative applications of our technology, or be financially or otherwise capable of completing the research and development required to bring new products to market in a timely manner. An inability to expand our product offerings or the application of our technology could limit our growth. In addition, we could incur higher manufacturing costs if manufacturing processes or standards change, and we could need to replace, modify, design or build and install equipment, all of which would require additional capital expenditures bring new products to market in a timely manner. An inability to expand our product offerings or the application of our technology could limit our growth. In addition, we could incur higher manufacturing costs if manufacturing processes or standards change, and we could need to replace, modify, design, or build and install equipment, all of which would require additional capital expenditures.
We could be unable to effectively manage and implement our growth strategies, which could have a material adverse effect on our business, financial condition and results of operations.
Our growth strategy includes expanding our product line and applications by developing enhancements and transformational innovations, including new solutions for various fields and industries. Expansion of our existing product line and entry into new applications divert the use of our resources and systems, require additional resources that might not be available (or available on acceptable terms), may require regulatory approvals, result in new or increasing competition, could require longer implementation times or greater start-up expenditures than anticipated, and could otherwise fail to achieve the desired results in a timely fashion, if at all. These efforts could also require that we successfully commercialize new technologies in a timely manner, price them competitively and cost-effectively and manufacture and deliver sufficient volumes of new products of appropriate quality on time. We could be unable to increase our sales and earnings by expanding our product offerings in a cost-effective manner, and we could fail to accurately predict future customer needs and preferences or to produce viable technologies. In addition, we could invest heavily in research and development of products that do not lead to significant revenue. Even if we successfully innovate and develop new products and product enhancements, we could incur substantial costs in doing so. In addition, promising new products could fail to reach the market or realize only limited commercial success because of efficacy or safety concerns, failure to achieve positive clinical outcomes or uncertainty over third-party reimbursement.
International sales may comprise a significant portion of Sterilumen’s revenues and will be subject to risks associated with operating in domestic and international markets.
International sales may comprise a significant portion of Sterilumen’s revenue, and we intend to continue to pursue and expand our international business activities. Political and economic conditions outside the United States could make it difficult for us to increase our international revenue or to operate abroad. International operations are subject to many inherent risks, which could have a material adverse effect on our revenues and operating cash flow, including among others:
| ● | adverse changes in tariffs and trade restrictions; |
| ● | political, social and economic instability and increased security concerns; |
| ● | fluctuations in foreign currency exchange rates; |
| ● | longer collection periods and difficulties in collecting receivables from foreign entities; |
| ● | exposure to different legal standards; |
| ● | transportation delays and difficulties of managing international distribution channels; |
| ● | reduced protection for our intellectual property in some countries; |
| ● | difficulties in obtaining domestic and foreign export, import, and other governmental approvals, permits and licenses and compliance with foreign laws; |
| ● | the imposition of governmental controls; |
| ● | unexpected changes in regulatory or certification requirements; |
| ● | difficulties in staffing and managing foreign operations; and |
| ● | potentially adverse tax consequences and the complexities of foreign value-added tax systems. |
We believe that international sales may represent a significant portion of Sterilumen’s revenue, and we intend to expand its international operations. In international markets where our sales are denominated in U.S. dollars, an increase in the relative value of the dollar against the currency in such markets could indirectly increase the price of our products in those markets and result in a decrease in sales. We do not currently engage in any transactions as a hedge against risks of loss due to foreign currency fluctuations. However, we could do so in the future.
Sterilumen’s collaborations with outside scientists and consultants may be subject to restriction and change.
Sterilumen works with scientists at academic and other institutions, and consultants who assist it in its research, development and design efforts. These scientists and consultants have provided, and we expect that they will continue to provide, valuable advice on Sterilumen’s programs. These scientists and consultants are not our or Sterilumen’s employees, may have other commitments that would limit their future availability to Sterilumen and typically will not enter into non-compete agreements with Sterilumen. If a conflict of interest arises between their work for Sterilumen and their work for another entity, Sterilumen may lose their services. In addition, Sterilumen will be unable to prevent them from establishing competing businesses or developing competing products. For example, if a key scientist acting as a principal investigator in any of Sterilumen’s clinical trials identifies a potential product or compound that is more scientifically interesting to his or her professional interests, his or her availability to remain involved in its clinical trials could be restricted or eliminated.
Sterilumen has entered into or intends to enter into non-competition agreements with certain of Sterilumen’s employees. These agreements prohibit its employees, if they cease working for it, from competing directly against it or working for its competitors for a limited period. However, under current law, Sterilumen may be unable to enforce these agreements against certain of its employees and it may be difficult for it to restrict their competitors from gaining the expertise its former employees gained while working for it. If Sterilumen cannot enforce its employees’ non-compete agreements, it may be unable to prevent its competitors from benefiting from the expertise of its former employees.
Risks Related to MunnWorks’ Business
The custom design decorative framed mirror supply market is highly competitive, and we may not be able to compete successfully.
MunnWorks operates within the highly competitive custom design decorative framed mirror supply market, which is characterized by competition from a number of other manufacturers. Competition is further intensified during economic downturns. MunnWorks competes with numerous large national and regional companies for, among other things, customers, raw materials and skilled management and labor resources. Purchase volumes have fluctuated substantially from time to time in the past, and we expect such fluctuations to occur from time to time in the future. Some of its competitors have greater financial, marketing and other resources than it does and, therefore, may be able to adapt to changes in customer preferences more quickly, devote more resources to the marketing and sale of their products, generate greater national brand recognition or adopt more aggressive pricing policies than MunnWorks can.
In addition, some of our competitors may resort to price competition to sustain or gain market share and manufacturing capacity utilization, and MunnWorks may have to adjust the prices on some of its products to stay competitive, which could reduce its revenues. MunnWorks may not ultimately succeed in competing with other manufacturers and distributors in its market, which may have a material adverse effect on our business, financial condition or results of operations.
MunnWorks’ possible failure to develop new products or respond to changing consumer preferences and purchasing practices could have a material adverse effect on our business, financial condition or results of operations.
The custom design decorative framed mirror supply market is subject to changing consumer trends, demands and preferences. The uncertainties associated with developing and introducing new products, such as gauging changing consumer preferences and successfully developing, manufacturing, marketing and selling new products, could lead to, among other things, rejection of a new product line, reduced demand and price reductions for our products. If MunnWorks’ products do not keep up with consumer trends, demands and preference, it could lose market share, which could have a material adverse effect on our business, financial condition or results of operations.
Changes to the buying strategies of MunnWorks’ customers could also affect its ability to compete. Further, the volatile and challenging economic environment of recent years has caused shifts in trends, demands, preferences and purchasing practices and changes in the business models and strategies of its customers. Shifts in consumer preferences, which may or may not be long-term, have altered the quantity, type and prices of products demanded by the end-consumer and MunnWorks’ customers. If it does not timely and effectively identify and respond to these changing consumer preferences and purchasing practices, its relationships with our customers could be harmed, the demand for its products could be reduced and its market share could be negatively affected.
MunnWorks’ independent sales force may not be effective.
MunnWorks hires independent sales representatives who have primary responsibility for contacting existing and potential customers and are paid on a commission basis. While this sales model has proven successful in the past, to continue to be effective, sales representatives will need to continue to be extremely knowledgeable about MunnWorks’ products. However, these independent sales representatives may be selling products from different non-competitive sellers, which could prevent them from focusing on MunnWorks’ products and providing the required information to the customers, which could have a material adverse effect on our business, results of operations and financial condition.
MunnWorks’ business is highly dependent on its suppliers’ and any disruption in their operations could have a material adverse effect on our business, results of operations and financial condition.
MunnWorks’ operations will be dependent upon the continued ability of its suppliers to deliver components, raw materials and finished products. Although many of its products are manufactured at our corporate headquarters in New York, many of its products are manufactured overseas. Any number of factors, including labor disruptions, catastrophic weather events, contractual or other disputes with suppliers and supplier financial difficulties or solvency problems could disrupt its suppliers’ operations and lead to uncertainty in its supply chain or cause supply disruptions, which could, in turn, disrupt its operations. If MunnWorks experiences supply disruptions, it may not be able to develop alternate sourcing quickly. Any disruption of its production schedule caused by an unexpected shortage of systems, components, raw materials or parts even for a relatively short period of time could cause it to alter production schedules or suspend production entirely. If any such disruptions occur it could have a material adverse effect on our business, results of operations and financial condition.
MunnWorks’ business is highly dependent on market perceptions of it and the quality of its products.
Market perceptions of MunnWorks’ business are very important to us, especially market perceptions of the quality of MunnWorks’ products. Because MunnWorks’ business is dependent on market perceptions, negative publicity associated or perceived to be associated with its business, products or product pricing could have a material adverse impact on our business, results of operations and financial condition.
Risks Related to Our Intellectual Property
If the patents that we own or license, or our other intellectual property rights, do not adequately protect our technologies, we could lose market share to our competitors and be unable to operate our business profitably.
Our future success depends, in part, on our ability to obtain and maintain patent protection for our products and technology, to preserve our trade secrets and to operate without infringing the intellectual property of others. We rely on patents to establish and maintain proprietary rights in our technology and products. We currently possess a number of issued patents and patent applications with respect to our products and technology. However, we cannot ensure that any additional patents will be issued, that the scope of any patent protection will be effective in helping us address our competition, or that any of our patents will be held valid if subsequently challenged. It is also possible that our competitors could independently develop similar or more desirable products, duplicate our products or design products that circumvent our patents. The laws of foreign countries may not protect our products or intellectual property rights to the same extent as the laws of the United States. In addition, there have been recent changes in the patent laws and rules of the U.S. Patent and Trademark Office (“USPTO”), and there could be future proposed changes that, if enacted, have a significant impact on our ability to protect our technology and enforce our intellectual property rights. If we fail to protect our intellectual property rights adequately, our competitive position could be adversely affected, and there could be a material adverse effect on sales, cash collections and our ability to meet operating cash flow requirements.
If third parties claim that we infringe their intellectual property rights, we could incur liabilities and costs and have to redesign or discontinue selling certain products, which could have a material adverse effect on our business, financial condition, and results of operations.
We face substantial uncertainty regarding the impact that other parties’ intellectual property positions will have on UV light applications. From time to time, we expect to continue to receive notices of claims of infringement, misappropriation or misuse of other parties’ proprietary rights. Some of these claims could lead to litigation. We may not prevail in any future intellectual property infringement litigation given the complex technical issues and inherent uncertainties in litigation. Any claims, with or without merit, could be time-consuming and distracting to management, result in costly litigation or cause product shipment delays. Adverse determinations in litigation could subject us to significant liability and could result in the loss of proprietary rights. A successful lawsuit against us could also force us to cease selling or redesign products that incorporate the infringed intellectual property. Additionally, we could be required to seek a license from the holder of the intellectual property to use the infringed technology, and we may not be able to obtain a license on acceptable terms, or at all.
Patent terms are limited and we may not be able to effectively protect our products and business.
Patents have a limited lifespan. In the U.S., the natural expiration of a patent is generally 20 years after it is filed. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. In addition, upon issuance in the U.S., the patent term may be extended based on certain delays caused by the applicant(s) or the USPTO. Even if we obtain effective patent rights for all our current patent applications, we may not have sufficient patent terms or regulatory exclusivity to protect our products, and our business and results of operations would be adversely affected.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in or right to compensation with respect to our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. To the extent that our employees have not effectively waived the right to compensation with respect to inventions that they helped create, they may be able to assert claims for compensation with respect to our future revenue may be successful. As a result, we may receive less revenue from future products if such claims are successful which in turn could impact our future profitability.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other equipment manufacturing companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involves both technological and legal complexity. Therefore, obtaining and enforcing patents is costly, time-consuming and inherently uncertain. In addition, the U.S. has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the U.S. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the U.S. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.
In addition to patent protection, we also rely upon copyright and trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants, contract manufacturers and third parties, to protect our confidential and proprietary information. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using commonly accepted physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our product that we consider proprietary. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. Even though we use commonly accepted security measures, trade secret violations are often a matter of state law, and the criteria for protection of trade secrets can vary among different jurisdictions. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, our business and competitive position could be harmed.
Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.
We employ individuals who previously worked with other companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third party. Litigation may be necessary to defend against these claims. If we fail in defending any such claims or settling those claims, in addition to paying monetary damages or a settlement payment, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Risks Relating to Ownership of Our Securities
We may not be able to maintain a listing of our Common Stock.
In order for our common stock to continue to be listed on Nasdaq, we must meet certain financial and liquidity criteria to maintain such listing. If we violate the maintenance requirements for continued listing of our common stock, our common stock may be delisted. In addition, our Board may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. In addition, the delisting of our common stock could significantly impair our ability to raise capital.
Max Munn, our Chief Executive Officer and a director, beneficially own more than 50% of the voting power of our voting stock as of December 31, 2023, and will be able to exert a controlling influence over our business affairs and matters submitted to stockholders for approval.
Max Munn, our Chief Executive Officer and a director, has voting control over more than 50% of our voting stock (which excludes shares underlying options and warrants but does include 10,000 shares of the Company’s Super Voting Preferred Stock beneficially owned by Max Munn, which entitles him to 1,000 votes per share (10,000,000 votes in aggregate) and votes with the common stock as a single class. As a result, Max Munn will have control over all matters submitted to our stockholders for approval, including the election of directors, amendments to our certificate of incorporation and bylaws, the approval of certain business combinations and any other significant corporate transaction. These actions may be taken even if they are opposed by other stockholders. This concentration of ownership may also have the effect of delaying or preventing a change of control of our company or discouraging others from making tender offers for our shares, which could prevent our stockholders from receiving a premium for their shares. Max Munn may have interests different from yours.
We have not paid dividends on our common stock in the past and do not expect to pay dividends on our common stock in the future, and any return on investment may be limited to the value of our stock.
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. We currently intend to retain any future earnings to support the development of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board after taking into account various factors, including, but not limited to, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock is limited by the terms of our Series A Perpetual Preferred Stock and may be limited by Nevada state law. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment.
We stopped paying dividends on our Series A Preferred Stock effective June 23, 2023 and if we continue to stop paying dividends and fail to pay all dividends in arrears prior to or on June 23, 2024, the holders of the Series A Preferred Stock and any preferred stock on parity with the Series A Preferred Stock have the ability to elect a majority of the Board and as a result, there may be significant implications for corporate governance and strategic decision making.
We stopped paying dividends on the shares of the Series A Preferred Stock effective as of June 23, 2023. Pursuant to the Certificate of Designation for the Series A Preferred Stock, if there is a failure to pay Series A Preferred Stock dividends for twelve (12) consecutive or non-consecutive months, the Board will be increased by the number of directors that when added to the then current number of directors will constitute a majority of the Board, and the holders of the Series A Preferred Stock and all holders of any preferred stock on parity with the Series A Preferred Stock shall be entitled to vote for the election of a number of directors equal to the increased director number to serve on the Board until all dividends in arrears have been fully paid. If we continue to stop paying Series A Preferred Stock dividends and fail to pay all dividends in arrears prior to or on June 23, 2024, there may be significant implications for corporate governance and strategic decision making.
While we have not yet finalized or approved a specific plan of action, we are currently evaluating a range of potential remedies to address this issue, including without limitation, the potential issuance of shares of common stock to the holders of the Series A Preferred Stock in exchange for the cancellation and extinguishment of this financial obligation (i.e., the missed Series A Preferred Stock dividend payments).
If we decide to issue shares of common stock, the issuance will increase the total number of outstanding shares of common stock and reduce earnings per share and dilute the ownership interest of the existing holders of the common stock, potentially affecting the market value of the common stock. It is important to note that while this strategy may provide a pathway to resolve the outstanding Series A Preferred Stock dividend obligation, it has not yet been approved or may not be implemented. Any failure to pay all Series A dividends in arrears or implement any plan of action to remedy this issue prior to or on June 23, 2024 will result in the altering of the composition of the Board, potentially resulting in changes to corporate strategy, management oversight and shareholder priorities. This change may impact our ability to pursue our existing business objectives effectively and may lead to conflicts among shareholders and management.
We have agreed to indemnify our officers and directors against lawsuits to the fullest extent of the law.
Nevada law permits the indemnification of officers and directors against expenses incurred in successfully defending against a claim. Nevada law also authorizes Nevada corporations to indemnify their officers and directors against expenses and liabilities incurred because of their being or having been an officer or director. Our organizational documents and indemnification agreements that we entered into with our officers and directors provide for this indemnification to the fullest extent permitted by Nevada law. Those indemnification obligations could expose us to substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to afford. In addition, we agreed to advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Further, those provisions and resulting costs may discourage us or our stockholders from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, even if such actions might otherwise benefit our stockholders, and indemnification rights held by our directors, officers and employees may result in substantial expenses.
We may obtain director and officer liability insurance in the future to cover liabilities our directors and officers may incur in connection with their services to us. There is no guarantee that any insurance coverage will protect us from any damages or loss claims filed against it.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to provisions of the State of Nevada, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Anti-takeover provisions in our charter documents and Nevada law could discourage delay or prevent a change of control of our Company and may affect the trading price of our common stock.
We are a Nevada corporation and the anti-takeover provisions of the Nevada Control Shares Acquisition Act may discourage, delay, or prevent a change of control by limiting the voting rights of control shares acquired in a control share acquisition. In addition, our articles of incorporation (“Articles of Incorporation”) and bylaws (“Bylaws”) may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Among other things, our Articles of Incorporation and Bylaws:
| ● | authorize the issuance of “blank check” preferred stock that could be issued by our Board in response to a takeover attempt; |
| ● | provide that vacancies on our Board, including newly created directorships, may be filled only by a majority vote of directors then in office, except a vacancy occurring by reason of the removal of a director without cause shall be filled by vote of the stockholders; and |
| ● | limit who may call special meetings of stockholders. |
These provisions could have the effect of delaying or preventing a change of control, whether or not it is desired by, or beneficial to, our stockholders.
Our revenues, operating results and cash flows may fluctuate in future periods and we may fail to meet investor expectations, which may cause the price of our Common Stock to decline.
Variations in our quarterly and year-end operating results are difficult to predict and our income and cash flows may fluctuate significantly from period to period, which may impact our Board’s willingness or legal ability to declare a monthly dividend. If our operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Specific factors that may cause fluctuations in our operating results include:
| ● | demand and pricing for our products and services; |
| ● | introduction of competing products; |
| ● | our operating expenses which fluctuate due to growth of our business; and |
| ● | variable sales cycle and implementation periods for content and services. |
The market price of our securities could be substantially affected by various factors.
The market price of our common stock could be subject to wide fluctuations in response to numerous factors, some of which are beyond our control and may not be directly related to our operating performance.
These factors include, but are not limited to, the following:
| ● | trading prices of securities generally; |
| ● | general economic and financial market conditions; |
| ● | government action or regulation; |
| ● | the financial condition, performance and prospects of us and our competitors; |
| ● | our issuance of preferred equity or debt securities; and |
| ● | actual or anticipated variations in quarterly operating results of us and our competitors. |
In addition, if the market for healthcare stocks or the stock market, in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, results of operations or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business. This could have a material adverse effect on our business, results of operations and financial condition.
Provisions of our Articles of Incorporation could delay or prevent the acquisition or sale of our business.
Our Articles of Incorporation permits our Board to designate new series of preferred stock and issue those shares without any vote or action by our stockholders. Such newly authorized and issued shares of preferred stock could contain terms that grant special voting rights to the holders of such shares that make it more difficult to obtain stockholder approval for an acquisition of our business or increase the cost of any such acquisition.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports, including financial estimates, that securities or industry analysts publish about us or our business. If too few securities or industry analysts provide coverage or if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, the price of our stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our stock could decrease, which might cause the price of our stock and trading volume to decline.
We expect that we will need to raise additional capital, and raising additional funds by issuing additional equity securities or with additional debt financing may cause dilution to shareholders or restrict our operations.
We expect that we will need to raise additional capital in the future. We may raise funds through public or private equity or debt offerings or other financings, as well as borrowings from banks or through the issuance of debt securities.
Any new debt financing we enter into may involve covenants that restrict our operations more than our current outstanding debt. These restrictive covenants could include limitations on additional borrowings and specific restrictions on the use of our assets, as well as prohibitions or limitations on our ability to create liens, pay dividends, receive distributions from our subsidiaries, redeem or repurchase our stock or make investments. These factors could hinder our access to capital markets and limit or delay our ability to carry out our capital expenditure plan or pursue other opportunities beyond the current capital expenditure plan. Further, we may incur substantial costs in pursuing any capital-raising transactions, including investment banking, legal and accounting fees. On the other hand, if we are unable to obtain capital when needed, on reasonable terms and in amounts sufficient to fund our obligations, expenses, capital expenditure plan and other strategic initiatives, we could be forced to suspend, delay or curtail these plans or initiatives or could default on our contractual commitments. Any such outcome could negatively affect our business, performance, liquidity and prospects.
The Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock ranks junior to all of our indebtedness and other liabilities.
In the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay obligations on the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock only after all of our indebtedness and other liabilities have been paid. The rights of holders of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our current and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock. Also, the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock effectively ranks junior to all existing and future indebtedness and to the indebtedness and other liabilities of any future subsidiaries. Our existing subsidiaries are, and future subsidiaries would be, separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
We have incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due on any or all of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock then outstanding.
The Company’s ability to pay dividends and to meet its debt obligations largely depends on the performance of its subsidiaries and the ability to utilize the cash flows from those subsidiaries.
The Company is a holding company for Sterilumen, MunnWorks, PURO and LED Supply, and has no material assets other than its equity interests in those subsidiaries. Therefore, the only current revenue source for future dividends on the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock is from its subsidiaries. We do not expect the cash flow from our operations will be sufficient to pay dividends on the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock. Our utilization of cash has been and will continue to be highly dependent on Sterilumen’s products, including Airocide™, Scientific Air™, the products of PURO and LED Supply, and cash flow from and MunnWorks’ operations. Our cash expenses will be highly dependent on the any product development programs Sterilumen chooses to pursue, the progress of these product development programs, the results of any validation/marketing studies, the terms and conditions of Sterilumen’s contracts with service providers and manufacturing contractors and the terms of recruitment of facilities in any validation/marketing studies.
In addition, the subsidiaries and any joint ventures or other entities accounted for as equity method investments are separate and distinct legal entities that are not obligated to pay dividends or make loans or distributions to the Company, whether to enable us to pay principal and interest on our debt, our other obligations or dividends on our common stock or preferred stock, and could be precluded from paying any such dividends or making any such loans or distributions under certain circumstances, including, without limitation, as a result of legislation, regulation, court order, contractual restrictions or in times of financial distress. The inability to access capital from our subsidiaries and entities accounted for as equity method investments as well from the capital markets could have a material adverse effect on the Company’s cash flows and financial condition and, on our ability, to pay dividends on the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
The Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock will be effectively subordinated to the obligations of our subsidiaries.
We are a holding company and conduct substantially all of our operations through our subsidiaries. Our right to receive any assets of any of our subsidiaries upon their liquidation, reorganization or otherwise, and thus the ability of a holder of our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock to benefit indirectly from such distribution, will be subject to the prior claims of the subsidiaries’ creditors. Even if we were a creditor of any of our subsidiaries, our rights as a creditor would be subordinate to any security interest in the assets of those subsidiaries and any indebtedness of those subsidiaries senior to that held by us.
We must adhere to prescribed legal requirements and we must also have sufficient cash in order to be able to pay dividends on the preferred stock.
In accordance with Section 78.288 of the Nevada Revised Statutes (“NRS”), we may only declare and pay cash dividends on the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock from either net profits during the fiscal year in which the dividend is declared and/or the preceding fiscal year, or a “surplus,” meaning the excess, if any, of our net assets (total assets less total liabilities) over our capital. In accordance with NRS 78.288, if the assets of the Company, after accounting for liabilities and stated capital, are reduced due to depreciation, losses or other causes, to an amount less than the total preferential rights of issued and outstanding shares entitled to asset distribution upon dissolution, the directors cannot declare and distribute dividends on any class of capital stock until such deficit is remedied. Specifically, distributions can only be made if, after giving effect to the distribution, the Company would be able to pay its debts as they become due in the usual course of business, and its total assets would not be less than the sum of its total liabilities plus the amount necessary to satisfy preferential rights upon dissolution not involved in the distribution. We can provide no assurance that we will satisfy such requirements in any given year. Further, even if we have the legal ability to declare a dividend, we may not have sufficient cash to pay dividends on the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock. Our ability to pay dividends may be impaired if any of the risks described in this prospectus actually occur. Also, payment of our dividends depend upon our financial condition and other factors as our Board may deem relevant from time to time. We cannot assure you that our businesses will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay dividends on the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
The Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, represents perpetual equity interests in us, and investors should not expect us to redeem the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock on any such date that the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock becomes redeemable by us or on any particular date afterwards.
The Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock represents perpetual equity interests in us, and it has no maturity or mandatory redemption, is not redeemable at the option of investors under any circumstances. As a result, unlike our indebtedness, the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock will not give rise to a claim for payment of a principal amount at a particular date. As a result, holders of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock may be required to bear the financial risks of an investment in the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock for an indefinite period of time.
Either we or the holder of the preferred stock may redeem the shares of preferred stock on a date or dates determined in our sole discretion, on a date as determined by the holder or upon certain events, as applicable, and the investor may not find a new investment with a comparable dividend or interest rate.
The Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock are perpetual equity securities. This means that the preferred stock has no maturity date. We may, at our option, after July 16, 2022, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time as we may determine in our sole discretion, for cash at a redemption price equal to $27.50 until July 16, 2026 and $25.00 thereafter. The holders of Series B Preferred Stock have the option, after thirty (30) months from January 26, 2023, to ask the Company to redeem their shares of the Series B Preferred Stock at $2.00 per share, escalating to $6.00 per share if redemption is sought on or after five (5) years from January 26, 2023. In the event of a change of control, the Company may choose to redeem the Series B Preferred Stock at $6.00 per share. In addition, the Company may redeem the shares of Series C Preferred Stock at its sole discretion at $5.00 per share after a change of control.
We may have an incentive to redeem the preferred stock voluntarily if we can do so without paying the premium or if market conditions allow us to issue other preferred stock or debt securities at a rate that is lower than the dividend rate on the Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock. If we redeem the preferred stock, then from and after the redemption date, dividends will cease to accrue on shares of the applicable preferred stock, and the shares of the preferred stock shall no longer be deemed outstanding and all rights as a holder of those shares will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption. If we choose to redeem any shares of the preferred stock, you may not be able to reinvest the redemption proceeds in a comparable security at an effective dividend or interest rate as high as the dividend payable on the applicable preferred stock.
The conversion feature may not adequately compensate you, and the conversion and redemption features of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock may make it more difficult for a party to take over our Company and may discourage a party from taking over our Company.
Upon the occurrence of a Delisting Event or Change of Control, holders of the Series A Preferred Stock will have the right (unless, prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, we have provided or provide notice of our election to redeem the Series A Preferred Stock) to direct the depositary to convert some or all of the Series A Preferred Stock into our common stock (or equivalent value of alternative consideration), and under these circumstances we will also have a special optional redemption right to redeem the Series A Preferred Stock. See “Description of Series A Preferred—Conversion Rights” and “—Special Optional Redemption.” Upon such a conversion, the holders will be limited to a maximum number of shares of our common stock equal to the Share Cap multiplied by the number of shares of Series A Preferred Stock converted. If the Common Stock Price is less than a specified amount (which is approximately 50% of the closing sale price per share of our common stock), subject to adjustment, the holders will receive a certain number of shares of our common stock per share of Series A Preferred Stock, which may result in a holder receiving value that is less than the liquidation preference of the Series A Preferred Stock. In addition to the redemption rights, the holders of the Series A Preferred Stock and the Series B Preferred Stock have the option to convert their shares into shares of common stock on a 1:1 basis at any time. These features of the preferred stock may have the effect of inhibiting a third party from making an acquisition proposal for our Company or of delaying, deferring or preventing a change of control of our Company under circumstances that otherwise could provide the holders of our common stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock with the opportunity to realize a premium over the then-current market price or that stockholders may otherwise believe is in their best interests.
The Series A Preferred Stock has not been rated.
We have not sought to obtain a rating for the Series A Preferred Stock, and the Series A Preferred Stock may never be rated. It is possible, however, that one or more rating agencies might independently determine to assign a rating to the Series A Preferred Stock or that we may elect to obtain a rating of the Series A Preferred Stock in the future. In addition, we may elect to issue other securities for which we may seek to obtain a rating. If any ratings are assigned to the Series A Preferred Stock in the future or if we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for or the market value of the Series A Preferred Stock. Ratings only reflect the views of the issuing rating agency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. A rating is not a recommendation to purchase, sell or hold any particular security, including the Series A Preferred Stock. Ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of the Series A Preferred Stock may not reflect all risks related to us and our business, or the structure or market value of the Series A Preferred Stock.
If Nasdaq delists the Series A Preferred Stock, investors’ ability to make trades in the Series A Preferred Stock could be limited.
Our Series A Preferred Stock is traded on The Nasdaq Capital Market under the symbol “AUVIP.” In order to continue to be listed on The Nasdaq Capital Market, we must meet and maintain certain financial, distribution and share price levels. Generally, this means having a minimum number of publicly held shares of Series A Preferred Stock (generally 1,000,000 shares), a minimum market value (generally $5,000,000), a minimum net income from continuing operations (generally $750,000) and a minimum number of holders (generally 300 public holders). If we are also unable to meet the listing standards for The Nasdaq Capital Market, we may apply to have our Series A Preferred Stock quoted by the OTC markets. If we are unable to maintain listing for the Series A Preferred Stock on The Nasdaq Capital Market, the ability to transfer or sell shares of the Series A Preferred Stock will be limited and the market value of the Series A Preferred Stock will likely be materially adversely affected. Moreover, since the Series A Preferred Stock has no stated maturity date, investors may be forced to hold shares of the Series A Preferred Stock indefinitely while receiving stated dividends thereon when, as and if authorized by our Board and paid by us with no assurance as to ever receiving the liquidation value thereof.
The market for our Series A Preferred Stock may not provide investors with adequate liquidity.
Liquidity of the market for the Series A Preferred Stock depends on a number of factors, including prevailing interest rates, our financial condition and operating results, the number of holders of the Series A Preferred Stock, the market for similar securities and the interest of securities dealers in making a market in the Series A Preferred Stock. We cannot predict the extent to which investor interest in our Company will maintain a trading market in our Series A Preferred Stock, or how liquid that market will be. If an active market is not maintained, investors may have difficulty selling shares of our Series A Preferred Stock.
We are allowed to issue shares of other series of preferred stock that rank above or equal to the Series A Preferred Stock as to dividend payments and rights upon our liquidation, dissolution or winding up of our affairs without first obtaining the approval of the holders of our Series A Preferred Stock. The issuance of additional shares of Series A Preferred Stock and/or additional series of preferred stock could have the effect of reducing the amounts available to the Series A Preferred Stock upon our liquidation or dissolution or the winding up of our affairs. It also may reduce dividend payments on the Series A Preferred Stock if we do not have sufficient funds to pay dividends on all Series A Preferred Stock outstanding and other classes or series of stock with equal or senior priority with respect to dividends. Future issuances and sales of senior or pari passu preferred stock, or the perception that such issuances and sales could occur, may cause prevailing market prices for the Series A Preferred Stock and our Common Stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.
Market interest rates may materially and adversely affect the value of the Series A Preferred Stock.
One of the factors that will influence the price of the Series A Preferred Stock is the dividend yield on the Series A Preferred Stock (as a percentage of the market price of the Series A Preferred Stock) relative to market interest rates. Continued increase in market interest rates may lead prospective purchasers of the Series A Preferred Stock to expect a higher dividend yield (and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for dividend payments). Thus, higher market interest rates could cause the market price of the Series A Preferred Stock to materially decrease.
Holders of the preferred stock may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.”
Distributions paid to corporate U.S. holders of the preferred stock may be eligible for the dividends-received deduction, and distributions paid to non-corporate U.S. holders of the preferred stock may be subject to tax at the preferential tax rates applicable to “qualified dividend income,” only if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Additionally, we may not have sufficient current earnings and profits during future fiscal years for the distributions on the preferred stock to qualify as dividends for U.S. federal income tax purposes. If the distributions fail to qualify as dividends, U.S. holders would be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.” If any distributions on the preferred stock with respect to any fiscal year are not eligible for the dividends-received deduction or preferential tax rates applicable to “qualified dividend income” because of insufficient current or accumulated earnings and profits, it is possible that the market value of the Series A Preferred Stock or value of the Series B Preferred Stock and the Series C Preferred Stock might decline.
A holder of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock have essentially no voting rights.
The holders of Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock will not be entitled to vote on any matter that comes before our stockholders for a vote unless such vote is required by the NRS. This means that, unless it is required by Nevada law, you will not have the right to participate in any decisions regarding or affecting our Company or your investment, including the election of directors or any extraordinary events, such as a merger, acquisition or other similar transaction. Decisions on those matters could be made in a manner that materially and adversely affects your interests. Our shares of the Series X Super Voting Preferred Stock and our common stock are the only classes of our securities that carry full voting rights. See “Description of the Securities--Series A Preferred Stock—Voting Rights.”
Future issuances of preferred stock may reduce the value of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
We may sell additional shares of preferred stock on terms that may differ from those of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock. Such shares could rank on parity with or senior to the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock as to dividends, voting or rights upon liquidation, winding up or dissolution. The creation and subsequent issuance of additional classes of preferred stock on parity with the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock could dilute the interests of the holders of Series A Preferred Stock, Series B Preferred Stock and the Series C Preferred Stock. Any issuance of preferred stock that is senior to the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock would not only dilute the interests of the holders of Series A Preferred Stock, Series B Preferred Stock and the Series C Preferred Stock, but also could affect our ability to pay distributions on, redeem or pay the liquidation preference on the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
We have issued 1,250,000 shares of another series of preferred stock, and 2,500,000 shares of another series of preferred stock, that rank on parity with the Series A Preferred Stock and such issuance could impact our ability to pay dividends upon the Series A Preferred Stock and will dilute the payment of any liquidation proceeds to the Series A Preferred Stock.
We have issued 1,250,000 shares of 2% Series B Cumulative Perpetual Preferred Stock (the “Series B Preferred Stock”) which has a liquidation preference of $6.00 per share and ranks on parity with the Series A Preferred Stock and 2,500,000 shares of 5% Series C Cumulative Perpetual Preferred Stock (the “Series C Preferred Stock”) which has a liquidation preference of $5.00 per share and ranks on parity with the Series A Preferred Stock. As long as any dividend payments on the Series B Preferred Stock and the Series C Preferred Stock that are due are not made, we will not be able make dividend payments on the Series A Preferred Stock. Additionally, because the Series B Preferred Stock and the Series C Preferred Stock rank on parity with the Series A Preferred Stock, upon a liquidation of the Company, holders of the Series A Preferred Stock and holders of Series B Preferred Stock and Series C Preferred Stock will be entitled to receive their pro rata portion of the liquidation proceeds available to the aggregate outstanding amount of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, which could result in the holders of the Series A Preferred Stock receiving less liquidation proceeds than it otherwise be entitled to.
If we are not paying full dividends on any future dividend parity stock, we will not be able to pay full dividends on the Series A Preferred Stock.
When dividends are not paid in full on outstanding shares of any class or series of our stock that ranks on a parity with the Series A Preferred Stock (e.g., Series B Preferred Stock and Series C Preferred Stock) in the payment of dividends (“dividend parity stock”) for a dividend period, all dividends declared with respect to shares of Series A Preferred Stock and all shares of outstanding dividend parity stock for such dividend period shall be declared pro rata so that the respective amounts of such dividends declared bear the same ratio to each other as all accrued but unpaid dividends per share on the shares of Series A Preferred Stock and all shares of outstanding dividend parity stock for such dividend period bear to each other. Therefore, if we are not paying full dividends on any outstanding shares of dividend parity stock, we will not be able to pay full dividends on the Series A Preferred Stock.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity.
We acknowledge the increasing importance of cybersecurity in today’s digital and interconnected world. Cybersecurity threats pose significant risks to the integrity of our systems and data, potentially impacting our business operations, financial condition and reputation.
Risk Management and Strategy
We have established policies and processes for assessing, identifying and managing material risk from cybersecurity threats, and have integrated these processes into our overall risk management systems and processes. We routinely assess material risks from cybersecurity threats, including any potential unauthorized occurrence on or conducted through our information systems that may result in adverse effects on the confidentiality, integrity or availability of our information systems or any information residing therein.
We engage third parties in connection with our risk assessment processes. These service providers assist us to monitor, enhance and test our safeguards. We oversee and identify risks from cybersecurity threats associated with the use of a third party service provider in the same way as any other situation with regard to potential cybersecurity threats.
Item 2. Properties.
We lease and maintain our primary offices and manufacturing facility at 150 N. Macquesten Parkway, Mount Vernon, NY 10550, 185 Randolph Street, Brooklyn, NY 11237, 3625 Kennesaw North Industrial Pkwy NW, Kennesaw, GA. 30144 and 12340 W Cedar Dr, Lakewood, CO 80228. We do not currently own any real estate.
Item 3. Legal Proceedings
On February 25, 2022, James Doyle, a former Chief Operating Officer of the Company filed an arbitration claim against the Company for approximately $1.5 million plus attorneys’ fees and other costs with the American Arbitration Association in the State of New York for severance pay and other claims after being terminated by the Company for cause. The arbitration proceeding was initiated pursuant to the arbitration provision in Mr. Doyle’s employment agreement with the Company. The evidentiary hearing was conducted at the American Arbitration Association’s midtown offices on November 7, 8, 9 and 10, 2022. Afterwards, the parties submitted post-hearing briefs. On January 24, 2023, the Arbitration Panel issued a Partial Final Award, whereby the Panel denied five of the seven counts asserted by Doyle, and awarded him only $100,000 in severance pay plus $21,153.84 in unused vacation time plus 6,379 additional shares in the Company pursuant to the terms of his employment agreement. On April 7, 2023, the Panel issued a Final Award further awarding Claimant $434,535.00 in legal fees and $39,628.03 in expenses. On July 6, 2023, the Company filed an Article 75 Petition in Westchester County (New York) Supreme Court seeking to vacate and/or modify the Final Award with respect to the legal fees and expenses. On September 21, 2023, the Court confirmed the Final Award. On October 2, 2023, the parties entered into a payment schedule agreement, thereby resolving, and concluding their dispute.
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We may in the future receive claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability and validity of third-party proprietary rights, or to establish our proprietary rights. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. To date, we have not been made aware of any actual, pending or threatened litigation against the Company.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock has been traded on The Nasdaq Capital Market under the symbol “AUVI.”
Holders
As of April 16, 2024, there were 22 stockholders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, this number is not representative of the total number of beneficial owners of our stock.
Dividends
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. We currently intend to retain any future earnings to support the development of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including, but not limited to, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock is limited by the terms of our Series A Preferred Stock and may be limited by Delaware state law. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment.
Recent Sales of Unregistered Securities
During the fiscal year ended December 31, 2023 we made the following unregistered sales of our securities:
On January 1, 2023, the Company issued in the aggregate 280 unvested shares of its common stock to its independent directors, which vested on January 1, 2024.
On January 26, 2023, the Company issued 31,002 shares of its common stock pursuant to the merger agreements for the acquisitions of PURO and LED Supply.
On January 26, 2023, the Company issued 399,996 shares of its Series C Preferred Stock to the equity holders of PURO and LED Supply in connection with the acquisitions of those entities.
On January 26, 2023, the Company issued 1,250,000 shares of its Series B Preferred Stock to one of PURO’s vendors in connection with the settlement of a $5 million promissory note.
On March 3, 2023 the Company issued in the aggregate 160 unvested shares of its common stock to its independent directors, which vested on January 1, 2024.
On April 19, 2023, the Company issued 104 shares of its common stock to Monica Woo, former Board member, as payment for services rendered.
On June 1, 2023, the Company issued 51 shares of its common stock to James Doyle, former Chief Operating Officer of the Company, pursuant to a settlement agreement.
On August 11, 2023, the Company issued 2,000 shares of its common stock to Maxim Partners, LLC, pursuant to a settlement agreement.
The foregoing issuances were exempt from registration under Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information concerning grants of option awards pursuant to employees, directors, consultants and other independent contractors during the year ended December 31, 2023:
|
Plan category |
Number
of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average
exercise price of outstanding options, warrants and rights |
Number
of securities remaining available for future issuance under equity compensation plans |
|||||||||
| Equity compensation plans approved by security holders(1) | 6,716 | $ | 368.89 | 328,874 | ||||||||
| Equity compensation plans not approved by security holders(2) | 826 | 174.12 | — | |||||||||
| Total | 7,542 | $ | 543.01 | 328,874 | ||||||||
| (1) | The Applied UV, Inc. 2023 Equity Incentive Plan (the “Plan”) permits grants of equity awards to employees, directors, consultants and other independent contractors. Our board of directors and shareholders have approved a total reserve of 335,590 shares for issuance under the Plan. |
| (2) | 826 options granted to Max Munn pursuant his employment contract. |
2023 Equity Incentive Plan
On August 24, 2023, our Board and stockholders approved the Applied UV, Inc. 2023 Equity Incentive Plan (the “2023 Plan”). The 2023 Plan was deemed effective on October 22, 2023. The 2023 Plan governs equity awards to our employees, directors, officers, consultants and other eligible participants. Initially, the maximum number of shares of our Common Stock that may be subject to awards under the 2023 Plan is 100,000 (post-split). Subject to adjustment upon changes in capitalization of the Company as provided in Section 15 of the 2023 Plan, the number of shares available for issuance under the 2023 Plan will be increased on the first day of each fiscal year beginning with the 2024 fiscal year, in an amount equal to the least of (a) 20,000 shares, (b) a number of shares equal to twenty percent (20%) of the total number of shares of all classes of our common stock outstanding on the last day of the immediately preceding fiscal year less the number of shares allocated to the 2023 Plan and (c) such number of shares determined by the administrator no later than the last day of the immediately preceding fiscal year. As of January 1, 2024, the maximum number of shares of our common stock that may be subject to awards under the 2023 Plan was 335,590.
Transfer Agent
The transfer agent for the common stock is Vstock Transfer LLC, 18 Lafayette Place, Woodmere, New York, telephone (212) 828-8436.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6. [Reserved].
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Applied UV, Inc. is a leading smart building technology company that develops, acquires, markets and sells proprietary surface and air disinfection technology focused on Improving Indoor Air Quality (IAQ), smart LED lighting and interior furnishings, all of which serves clients globally in the healthcare, commercial & public venue, hospitality, food preservation, cannabis, education and winery vertical markets.
With its established strategic manufacturing partnerships and alliances including Canon Inc., Acuity Brands, Johnson Controls, Siemens, Grainger and a global network of 90 dealers and distributors in 52 countries, 47 manufacturing representatives and 19 U.S. based internal sales representatives, AUVI offers a complete suite of products through its four wholly owned subsidiaries - Sterilumen, Inc., Munn Works, LLC, PURO Lighting, LLC and LED Supply Co. LLC.
Sterilumen owns, brands and markets a portfolio of research backed and clinically proven products utilizing advanced UVC Carbon, Broad Spectrum UVC LED’s and Photo-catalytic oxidation (PCO) pathogen elimination technology, branded as Airocide ™, Scientific Air™, Airoclean™ 420, Lumicide™, PUROAir, PUROHealth, PURONet and LED Supply Company. Sterilumen’s proprietary platform suite of patented surface and air technologies offers one of the most complete pathogen disinfection platforms including mobile, fixed and HVAC systems and software solutions interconnecting its entire portfolio suite into the IoT, allowing customers to implement, manage and monitor IAQ measures recommended by the EPA across any enterprise. Additionally, the Lumicide™ platform applies the power of ultraviolet light (UVC) to destroy pathogens automatically, addressing the challenge of healthcare-acquired infections in several patented designs for infection control in healthcare. LED Supply is a full-service, wholesale distributor of smart building LED lighting and controls throughout North America. MunnWorks manufactures in the USA and sells hotels furnishings.
Our global list of Fortune 100 end users including Kaiser Permanente, NY Health+Hospitals, MERCY Healthcare, University of Chicago Medical, University of Texas Healthcare, University of California Healthcare, Baptist Health South Florida, Mt. Sinai Hospital in New York, New York City Transit, Samsung, JB Hunt, Boston Red Sox’s Fenway Park, JetBlue Park, France’s Palace of Versailles, Whole Foods, Del Monte Foods, U.S. Department of Veterans Affairs, Marriott, Hilton, Four Seasons and Hyatt and more. For information on Applied UV, Inc., and its subsidiaries, please visit www.applieduvinc.com.
According to a report by Research and Markets, the global UV disinfection equipment market size was valued at US$ 2.6 Billion in 2022, and it's expected to reach US$ 6.9 Billion by 2028, growing at a compound annual growth rate (“CAGR”) of 17.66% during the forecast period of 2022-2028. This growth is driven by the increasing demand for ultra-pure water, natural methods for air, water, and waste purification, and the urgent need to counter water-borne diseases. UV disinfection equipment is lauded for its germicidal capabilities, minimal toxicity, and cost-efficient maintenance across various sectors including healthcare, where it's used to reduce the spread of hospital-acquired diseases.
Furthermore, Allied Market Research supports the observation of the UV disinfection equipment market's substantial role in addressing air and water pollution challenges, particularly in developing economies. The residential sector has notably led the market share, propelled by urbanization and initiatives like India's "Piped Water for All by 2024." The COVID-19 pandemic has also significantly boosted the demand for UV-C surface disinfection devices.
The surge in demand for UV disinfection equipment due to the COVID-19 pandemic is echoed by BCC Research, which highlights hospitals' utilization of UV-C lamps for surface and air disinfection. The global market for UV disinfection equipment is forecasted to grow from nearly $2.1 billion in 2018 to $4.4 billion by 2023, reflecting a CAGR of 16.2% for the period of 2018-2023. This growth is attributed to the equipment's effectiveness in destroying the RNA and DNA of microorganisms, making it a crucial tool in maintaining hygiene and preventing the spread of viruses and other pathogens.
As societies navigate the post-COVID-19 era, the significance of indoor air quality has been underscored by a collective call from scientists for transformative improvements in preventing respiratory infections. This call has catalyzed a pivotal shift observed since mid-2022, transitioning from temporary mobile units to sophisticated, integrated systems. These systems are designed for ongoing monitoring, enhancement, and documentation of air quality within facilities. The focus has been redirected toward these comprehensive solutions, which promise a more sustainable approach to air quality management, aligning with the market’s evolving needs.
Concurrently, the air purifier market is poised for robust growth. Valued at $9.24 billion in 2021, forecasts suggest a surge to approximately $22.84 billion by 2030. This growth trajectory is expected to be led predominantly by the commercial sector in the United States, as indicated by Precedence Research.
Further expanding the scope of air quality solutions, there is a burgeoning application of these systems within the food industry for safeguarding food quality through the disinfection of both surfaces and air, and removal of volatile organic compounds. This application is critical in preventing contamination and extending shelf life, thereby enhancing food safety and quality. In healthcare, particularly in operating rooms, the stakes are high for eliminating pathogens from both surfaces and the air to protect patient health and prevent HAIs. These applications extend to the realm of HVAC systems as well, where energy-saving measures are being integrated to not only purify the air but also reduce energy consumption, creating a dual benefit of improved air quality and operational efficiency.
Sterilumen’s product portfolio is one of the only research-backed, clinically proven pure-play air and surface disinfection technology companies with international distribution and globally recognized end users, with product developed for NASA. In addition to the numerous recognized research institutions and globally recognized names who published the reports that were completed by the acquired companies, Airocide™ was independently proven to kill SARS, MERSA and Anthrax. Sterilumen’s air purification (Airocide™, Scientific Air™ & PURO Lighting) and surface disinfection (Lumicide) were independently tested and proven to kill both Candida Auris (ResInnova Laboratories) and SARS CoV-2 (COVID-19) (MRIGlobal), MRSA (ResInnova Laboratories), Salmonella enterica (ResInnova Laboratories) and Escherichia coli (ResInnova Laboratories).
The Company recently received approval for its patented Lumicide™ drain disinfecting device, currently undergoing rigorous testing at Mt. Sinai Hospital in New York.
The Company has submitted a new patent for its groundbreaking Fighter Flex™ LED technology, which is designed to further enhance the Company’s advanced HVAC and Smart Buildings solutions for improving indoor air quality and building efficiency.
The Company recently introduced its new Airocide™ Pro+ air purification system at the Global Produce & Floral Show. The Airocide™ Pro+ system was engineered and manufactured through the collaborative efforts of the Company and Canon Virginia, Inc., a subsidiary of Canon U.S.A. Inc. Airocide’s™ proprietary PCO technology removes ethylene safely and effectively, which is critical to reducing ripening, aging, and spoilage of fruits and vegetables. It is estimated that food waste of fruits and vegetables on a global scale approximates $680 billion. The Airocide™ Pro+ smaller size is designed for refrigerated truck trailers and shipping containers, which will nicely complement the Airocide™ products already in use by Del Monte, Dole and Whole Foods and most recently Fresh Taste Produce.
Our goal is to build a company that successfully designs, develops and markets our air and surface disinfection solutions that will enable U.S. and global economies to implement “Clean Air” initiatives aimed at improving IAQ as recommended by the EPA. We will seek to achieve this goal by having our products actively involved in the following activities:
Focus on key target verticals that have proven business use cases including:
| ● | Post-Harvest and Distribution/Logistics from ”farm-to-table” (Winery, Dairy, Meat & Seafood) |
| ● | Food Preservation |
| ● | Hospitals, Long-Term Care, Dental |
| ● | Commercial (HVAC) |
| ● | Hospitality |
| ● | Hotels, Restaurants |
| ● | Education |
| ● | Sports Arenas |
| ● | Cannabis |
| ● | Correctional Facilities |
In addition to further developing Airocide™, Scientific Air™, PURO, Lumicide and LED Supply specific sales efforts, we intend to leverage the Company’s hospitality business (MunnWorks) for cross-selling opportunities of our air purification and surface disinfectant solutions and products. Our initial research indicates that the key stakeholders in this market value the asset management and reporting capabilities of our platform and provide key points of differentiation.
● |
Expand our global distributor channels into new markets not currently served. |
| ● | Continue scientific validation through lab testing and data from real world deployments; publish case studies in peer reviewed journals. |
Manufacturing
In an effort to improve operationally, after analyzing each of the points in our supply chain to tighten integration to optimize inventory, improve quality control and mitigate against supply chain disruptions that were witnessed globally throughout the pandemic, on December 18, 2022, Applied UV announced that it has signed a strategic manufacturing and related services agreement with Canon Virginia, Inc., (“CVI”) a global manufacturing, engineering and technical operation for the Canon family and a wholly owned subsidiary of Canon U.S.A, Inc. The agreement establishes CVI’s status as the primary manufacturer, assembler and logistical authority for Applied UV’s entire suite of air purification solutions. The Manufacturing Agreement, the first of a series of anticipated agreements, enables the Company to leverage the resources of CVI’s two million-square-foot state-of-the-art engineering, manufacturing and distribution facility. Applied UV plans to leverage CVI’s almost 40 years of innovative and efficient production methods to manufacture the Company’s patented, FDA Class II Listed Airocide™ PCO commercial and consumer devices, as well as the patented advanced Activated Carbon UVC and HEPA Mobile disinfection Scientific Air™ portfolio. From an R&D perspective, working closely with Canon, we are also beginning to formulate our new product roadmap and making substantial improvements to our entire line of mobile and fixed air purification products, further differentiating our patented PCO and UVC Carbon based solutions from that of our competition. Applied UV also plans to collaborate with Canon Financial Services, Inc. to enable better cash flow management in regard to its growing supply chain requirements. Further, the Company will look to work with CVI’s extensive field support team to promote the sale of the Company’s products, as well as service capabilities.
MunnWorks is a manufacturer of custom designed fine mirrors and furniture specifically for the hospitality industry with one manufacturing facility in Mount Vernon, New York and, with the acquisition of the assets of VisionMark, another manufacturing facility in Brooklyn, New York. Our goal is to contribute to the creation of what our design industry clients seek: manufacturing better framed mirrors and customized furniture on budget and on time. As part of our long-term strategy, the Company has instituted multi-site production for high-value items, complicated designs and finishes. Our headquarters in Mount Vernon, NY serves as the center for multi-country manufacturing. The Company works with a satellite network of artisans and craftsmen, including gilders, carvers, and old-world finishers.
Acquisitions
Air Disinfection Solutions & LED Lighting: Airocide™, Scientific Air™, PURO and LED Supply Co.
In February of 2021, the Company acquired all the assets and assumed certain liabilities of Akida Holdings, LLC (“Akida”). At the time of the acquisition, Akida owned the Airocide™ system of air purification technologies, originally developed for NASA with assistance from the University of Wisconsin at Madison, that uses a combination of UVC and a proprietary, titanium dioxide based photocatalyst that has helped to accelerate the reopening of the global economy with applications in the hospitality, hotel, healthcare, nursing home, grocer, wine, commercial building and retail sectors. The Airocide™ system has been used by brands such as NASA, Whole Foods, Dole, Chiquita, Opus One, Sub-Zero Refrigerators and Robert Mondavi Wines. Akida had contracted KES Science & Technology, Inc. (“KES”) to manufacture, warehouse and distribute the Airocide™ system and Akida’s contractual relationship with KES was assigned to and assumed by the Company as part of the acquisition.
On September 28, 2021, the Company acquired all the assets and assumed certain liabilities of KES. At the time of the acquisition, KES was principally engaged in the manufacturing and distribution of the Airocide™ system of air purification technologies and misting systems. KES also had the exclusive right to the sale and distribution of the Airocide™ system in certain markets. This acquisition consolidated all of manufacturing, sale and distribution of the Airocide™ system under the Sterilumen brand and expanded the Company’s market presence in food distribution, post-harvest produce, wineries, and retail sectors. The Company sells its products throughout the United States, Canada, and Europe.
The Airocide™ system of air purification technologies, originally developed for the National Aeronautics and Space Administration (“NASA”) with assistance from the University of Wisconsin at Madison, uses a combination of UVC and a proprietary, titanium dioxide based photocatalyst to eliminate airborne bacteria, mold, fungi, viruses, volatile organic compounds and many odors. The core Airocide™ technology has been in use on the International Space Station and is based on photo-catalytic oxidation (PCO), a bioconversion process that continuously converts damaging molds, microorganisms, dangerous pathogens, destructive volatile organic chemicals (VOCs) and biological gasses into harmless water vapor. Unlike other air purification systems that provide “active” air cleaning, ozone producing systems, ionization or “photo-electrochemical oxidation”, Airocide’s™ nanocoating technology permanently bonds titanium dioxide to the surface of the catalytic bed. This permits the perpetual generation of surface-bound (OH-) radicals over the large surface area created by their advanced geometric design and prevents the generation and release of ozone and other harmful byproducts. The proprietary formulation and methods for creating the catalyst are the basis of Airocide’s™ competitive advantage, making it the only consistently robust, highly effective, ozone free PCO technology on the market. Airocide™ has been tested over the past 12 years by governmental agencies such as NASA, the National Renewable Energy Laboratory, independent universities including the University of Wisconsin, Texas Tech University, and Texas A&M, as well as air quality science laboratories. Airocide™ technology is listed as a FDA Class II Medical Device, making it a suitable for providing medical grade air purification in critical hospital use cases. Airocide™ Product lines include APS (consumer units), the GCS and HD lines (commercial units that will include the Sterilumen App to bring connectivity, reporting and asset management to our suite of products). The APS series provides true choice, low maintenance filter-less PCO or a filtered PCO air purification option ideal for restaurants, conference rooms, residential and small business or home office spaces. The GCS series is suitable for larger public spaces and enclosed rooms that may have high occupancy such as offices, waiting rooms and hotel lobbies, and airport gate areas. The HD series is the most powerful, providing two-stage purification for fast sanitization of larger or industrial spaces such as sporting venues and locker rooms, airports, museums, winery cellars, warehouses, and food-processing facilities. All Airocide™ products also extend the life of any perishables like fruit, produce or flowers.
On October 13, 2021, we acquired substantially all of the assets of Old SAM Partners, LLC F/K/A Scientific Air Management, LLC (“Old SAM”), which owned a line of air purification technologies. The Scientific Air™ product line uses a combination of UVC and a proprietary, patented system to eliminate airborne bacteria, mold, fungi, viruses, volatile organic compounds, and many odors without producing any harmful by-products. Scientific Air’s™ products are well suited for larger spaces within a facility due to the higher air flow of these units. The units are also mobile with industrial grade casters, allowing for movement throughout a facility to address increased bio burden from larger meetings or increased human traffic. Both of these key items extend our Airocide™ line, creating a comprehensive air disinfection portfolio that spans from small to large spaces and mobile applications. Scientific Air’s™ products are currently sold predominantly in North America and into the healthcare market.
PURO Lighting
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.
PURO Lighting was founded in 2019 with the goal of using light technology to promote health and wellness within spaces. Today PURO provides a suite of UV disinfection systems that have the ability to disinfect air and surfaces in commercial and industrial spaces. They focus their sales efforts in three primary verticals: Education, Government, and Healthcare. The acquisition of PURO Lighting, LLC adds PUROHealth and PURONet - a powerful suite of products used in education, government, and healthcare that incorporates UV Lighting and a HVAC monitoring software platform. With its UL listed and patented portfolio of independently tested (ResInnova Laboratories) synergistic surface and air disinfection technologies that help facility managers protect against multiple pathogens; PURO opens new opportunities for cross marketing sales to existing distribution channels. Additionally, the potential to inter-connect our entire portfolio of disinfection technology solutions into the IoT will provide our customers with both products and smart tools to manage and monitor indoor air quality (IAQ) across any enterprise. Applied UV’s proprietary platform suite of patented technologies offers the most complete pathogen disinfection platform including mobile, fixed and HVAC systems and solutions allowing companies to implement the IAQ measures recommended by the EPA. PURO boast a strong domestic sales network with reps in 43 states, and distribution in all 50 states. Their product offerings encompass a range of innovative solutions, including UVC systems for air handling, in-room continuous disinfection using cutting-edge Far-UVC technology, and specialized surface disinfection solutions designed specifically for the healthcare industry.
The PURO Acquisition further positions the Company to address a growing air disinfection market trend that aligns with the White House “Clean Air Initiatives” implemented during the height of the COVID 19 Pandemic designed to protect consumers and businesses against existing and future airborne pathogens allowing economies globally to remain open. The merged entities have proven applications that can now be included in improving indoor air quality (IAQ) at the facility level including HVAV systems in public, government, municipal, retail spaces and buildings. The PURO Acquisition positions Applied UV to be one of the only companies in the world to offer a complete air and surface disinfection platform that includes consumer, fixed and mobile, and commercial applications that are research backed, clinically tested and that are used by global Fortune 100 end users in multiple verticals.
LED Supply Company
Founded in 2009, LED Supply Company is a national, Colorado-based company that provides design, distribution, and implementation services for lighting, controls and smart building technologies. LED Supply Co continues to expand its market reach with a focus on new types of energy efficiency and sustainable technologies. Along with its robust e-commerce component, LED Supply Company has recently taken the next step in revenue growth by repositioning itself as a preferred supplier for not only the latest in LED technologies, but the source for emerging technologies and product categories that the construction and retrofit market need; from electric vehicle charging to smart home technology, emergency and safety equipment, and much more.
We see synergies across our entire air and surface disinfection portfolio. First, we look to leverage Airocide™’s global distribution capabilities to facilitate the sale of Scientific Air’s™ and PURO’s offerings internationally. Second, we look to leverage PURO’s strength in healthcare to pull through existing Airocide™ units, creating a broad healthcare product line, from small clinics, patient rooms and doctor’s offices to larger spaces such as nursing stations, waiting rooms and cafeterias. Third, we look to leverage the national MunnWorks hospitality reach with leading luxury hotel chain operators to pull through our entire air and surface disinfection portfolio (Airocide™ and Lumicide™) as well as PURO’s offerings into future hotel, condo and other renovation, upgrade and remodeling projects. Fourth, the Company will look to work with Canon Virginias’ (CVI) extensive field support team to promote the sale of the Companys’ products as well as service capabilities. Finally, we look to incorporate the PUROAir, PUROHealth and PURONet (a powerful suite of products used in healthcare that incorporates UV Lighting and a HVAC monitoring software platform) into our IoT integration plans via the Teralumen App across our entire platform connecting all our units, thereby creating a leading smart asset management, reporting, and control system tool that can be incorporated across all enterprises.
Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following factors:
| ● | our ability to acquire new customers or retain existing customers. |
| ● | our ability to offer competitive product pricing. |
| ● | our ability to broaden product offerings. |
| ● | industry demand and competition; and |
| ● | market conditions and our market positions |
Results of Operations
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022
| Year Ended December 31, 2023 | Year Ended December 31, 2022 | |||||||||||||||||||||||||||||||
| Hospitality | Disinfection/
Healthy Building Technologies |
Corporate | Total | Hospitality | Disinfection/ Healthy Building Technologies |
Corporate | Total | |||||||||||||||||||||||||
| Net Sales | $ | 21,016,762 | $ | 19,701,426 | $ | - | $ | 40,718,188 | $ | 13,639,370 | $ | 6,500,479 | $ | - | $ | 20,139,849 | ||||||||||||||||
| Cost of Goods Sold | 17,086,385 | 15,805,303 | - | 32,891,688 | 12,375,645 | 3,725,910 | - | 16,101,555 | ||||||||||||||||||||||||
| Gross Profit | 3,930,377 | 3,896,123 | - | 7,826,500 | 1,263,725 | 2,774,569 | - | 4,038,294 | ||||||||||||||||||||||||
| Research and development | - | 552,220 | - | 552,220 | - | 319,167 | - | 319,167 | ||||||||||||||||||||||||
| Loss on impairment of goodwill | - | 6,473,310 | - | 6,473,310 | - | 6,993,075 | - | 6,993,075 | ||||||||||||||||||||||||
| Selling, General and Administrative | 4,729,820 | 12,512,485 | 3,127,505 | 20,369,810 | 4,351,932 | 7,680,551 | 2,771,585 | 14,804,068 | ||||||||||||||||||||||||
| Total Operating expenses | 4,729,820 | 19,538,015 | 3,127,505 | 27,395,340 | 4,351,932 | 14,992,793 | 2,771,585 | 22,116,310 | ||||||||||||||||||||||||
| Operating Loss | (799,443 | ) | (15,641,892 | ) | (3,127,505 | ) | (19,568,840 | ) | (3,088,207 | ) | (12,218,224 | ) | (2,771,585 | ) | (18,078,016 | ) | ||||||||||||||||
| Other Income | ||||||||||||||||||||||||||||||||
| Change in Fair Market Value of Warrant Liability | - | - | 2,738 | 2,738 | - | - | 58,276 | 58,276 | ||||||||||||||||||||||||
| Interest expense | (168,235 | ) | (372,046 | ) | (1,201,695 | ) | (1,741,976 | ) | - | - | (290,341 | ) | (290,341 | ) | ||||||||||||||||||
| Gain on settlement of contingent consideration | - | - | 7,045,936 | 7,045,936 | - | - | 1,700,000 | 1,700,000 | ||||||||||||||||||||||||
| Loss on change in contingent consideration | - | - | - | - | - | - | (240,000 | ) | (240,000 | ) | ||||||||||||||||||||||
| Forgiveness of paycheck protection program loan | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Other income (expense) | (6,537 | ) | 268,376 | 796,451 | 1,058,290 | - | - | 274,764 | 274,764 | |||||||||||||||||||||||
| Total Other Income (Expense) | (174,772 | ) | (103,670 | ) | 6,643,430 | 6,364,988 | - | - | 1,502,699 | 1,502,699 | ||||||||||||||||||||||
| Loss Before Provision for Income Taxes | (974,215 | ) | (15,745,562 | ) | 3,515,925 | (13,203,852 | ) | (3,088,207 | ) | (12,218,224 | ) | (1,268,886 | ) | (16,575,317 | ) | |||||||||||||||||
| Provision for Income Taxes | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Net Loss | $ | (974,215 | ) | $ | (15,745,562 | ) | $ | 3,515,925 | $ | (13,203,852 | ) | $ | (3,088,207 | ) | $ | (12,218,224 | ) | $ | (1,268,886 | ) | $ | (16,575,317 | ) | |||||||||
| Non-GAAP Financial Measures | ||||||||||||||||||||||||||||||||
| Adjusted EBITDA | ||||||||||||||||||||||||||||||||
| Operating Loss | $ | (799,443 | ) | $ | (15,641,893 | ) | $ | (3,127,505 | ) | $ | (19,568,841 | ) | $ | (3,088,207 | ) | $ | (12,218,224 | ) | $ | (2,771,585 | ) | $ | (18,078,016 | ) | ||||||||
| Depreciation and Amortization | 291,923 | 2,683,021 | - | 2,974,944 | 321,973 | 1,815,868 | 77,600 | 2,215,441 | ||||||||||||||||||||||||
| Loss on impairment of goodwill | - | 6,473,310 | - | 6,473,310 | - | 6,993,075 | - | 6,993,075 | ||||||||||||||||||||||||
| Stock based compensation | 208,168 | 114,469 | 395,912 | 718,549 | 194,458 | 133,012 | 392,932 | 720,402 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | (299,352 | ) | $ | (6,371,093 | ) | $ | (2,731,593 | ) | $ | (9,402,038 | ) | $ | (2,571,776 | ) | $ | (3,276,269 | ) | $ | (2,301,053 | ) | $ | (8,149,098 | ) | ||||||||
Adjusted EBITDA
The Company utilizes Adjusted EBITDA, a non-GAAP financial measure, to assist in analyzing our segment operating performance by removing the impact of certain key items that management believes do not directly reflect our underlying operations. In addition, we consider certain non-GAAP (or “adjusted”) measures to be useful to management and investors evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity, and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenues, operating income, net income (loss), earnings (loss) per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP.
Adjusted EBITDA is defined as Operating Profit (Loss), excluding Depreciation and Amortization, and excluding Stock Based Compensation and Loss on Impairment of Goodwill/Intangible Assets. Adjusted EBITDA was a loss of $9.4 million for the year ended December 31, 2023, which was a decrease of $1.3 million as compared to the year ended December 31, 2022. By segment, Hospitality increased $2.2 million primarily due to improved gross profit and higher sales volume; Disinfection/Healthy Building Technologies decreased $3.1 million primarily due to unfavorable product mix; and Corporate decreased $0.4 million primarily due to an increase in legal and professional fees. Refer to detailed explanations below.
Segments
The Company has three reportable segments: the design, manufacture, assembly and distribution of disinfecting pathogen elimination systems for use in food preservation, healthcare, hospitality, education and public spaces, cannabis, correctional facilities, and commercial, municipal and residential markets (Disinfection/Healthy Building Technologies segment); the manufacture of fine mirrors and custom furniture specifically for the hospitality industry (Hospitality segment); and the Corporate Segment, which includes expenses primarily related to corporate governance, such as board fees, legal expenses, audit fees, executive management, and listing costs. See Note 14 – Segment Reporting.
Net Sales
Net sales of $40.7 million represented an increase of $20.6 million, or 102.5% for the year ended December 31, 2023 as compared to net sales of $20.1 million for the year ended December 31, 2022. This increase was primarily attributable to the Disinfection/Healthy Building Technologies segment, with sales of $19.7 million, representing an increase of $13.2 million or 203.1% as compared to 2022. This was largely due to the revenue synergies from the integration of the acquisitions of Puro Lighting and LED Supply Co. The Hospitality segment had sales of $21.0 million in 2023, which represented an increase of $7.4 million, or 54.4% as compared to 2022 driven mainly by organic growth as a result of the rebound in the markets it serves as hotels have been resuming their scheduled upgrades, remodels, and repairs and maintenance programs.
Gross Profit
Gross profit was $7.8 million, or 19.2% of sales for the year ended December 31, 2023 as compared to $4.0 million, or 20.1% of sales for the year ended December 31, 2022. The increase of $3.8 million is largely due to the increase in the Hospitality segment’s gross profit margins, in addition to the increased sales of the Disinfection/Healthy Building Technologies segment described above. The Hospitality segment’s gross profit as a percentage of sales increased to 18.6%, as compared to 9.6% for the year ended December 31, 2022, largely as a result of the newer projects that the Company entered into and the Company’s continued focus to streamline both their manufacturing and distribution operations across both segments.
Operating Expenses
Selling, General, and Administrative – S,G&A costs were $20.4 million for the year ended December 31, 2023, which represented an increase of $5.6 million as compared to the year ended December 31, 2022. This increase was driven primarily by the acquisitions of Puro Lighting and LED Supply Co. in the Disinfection/Healthy Building Technologies segment in Q1 2023. The Company anticipates efficiency gains in the coming year as the operations have been realigned to further integrate Puro Lighting and LED Supply Co. and leverage cost synergies by eliminating redundant processes and procedures.
Loss on Impairment of Goodwill and Intangibles – In December of 2023, management determined that the performance of Puro Lighting is significantly lower than projected during the business acquisition process. This discrepancy was primarily due to the realization by the Company that a substantial portion of the government funding, which was expected to benefit Puro Lighting, had already been allocated to specific projects. Consequently, Puro Lighting and other enterprises have not been able to fully benefit from the expected government funding; therefore leading to lower-than-anticipated sales projections. The reduction in the sales projections triggered an assessment for impairment which resulted in the Company recording a loss on impairment of Puro Lighting goodwill and intangible assets of $6.5 million and a gain on settlement of contingent consideration of $7.0 million (see Gain on Settlement of Contingent Consideration below). The loss on impairment was comprised of a loss on tradenames of $0.5 million, technology/know-how of $0.8 million, customer relationships of $2.2 million, patented technology of $0.7 million, and loss on goodwill of $2.3 million.
Other Income (Expense)
Gain on Settlement of Contingent Consideration - As a result of the Loss on Impairment described above, there were revisions of certain considerations transferred and the Company and the seller agreed to modify the purchase price terms for both Puro Lighting and LED Supply Co., pursuant to the December 11, 2023 Acquisition Payment Restructuring Agreements (“Restructuring Agreements”) for Puro Lighting and LED Supply Co. (Note 2):
PURO:
(i) The contingent consideration make whole reserve has been reduced to $0.
(ii) Previously issued common stock have been clawed back in exchange for new options.
(iii) The contingent consideration earnout components for both Year 2022 and future periods would be impacted as well.
LED:
While LED's business is not adversely affected by the already allocated government funding, the uncertain economic climate has prompted the seller (now part of the Company's management team) to make concessions on the purchase price. The concessions comprised of the following:
(i) The contingent consideration make whole reserve has been reduced to $0.
(ii) Previously issued common stock have been clawed back in exchange for new options.
(iii) The contingent consideration earnout components for both Year 2022 and future periods would be impacted as well.
The impairment of Puro goodwill and intangible assets of $6.5 million was offset by a net gain on settlement of contingent consideration of $7.0 million. The net gain on settlement of contingent consideration was comprised of an adjustment to the make whole provision of $3.7 million and gain on settlement of the earnout reserve of $3.8 million, offset by a loss of $0.5 million on the exchange of stock options for the clawback of common shares as per the December 11, 2023 Restructuring Agreements (Note 9).
In addition, certain assumed liabilities were reduced in agreement with the sellers which resulted in a gain of $0.3 million, which was recorded as Other Income.
Other Income also includes a gain of $0.8 million as a result of a payoff settlement agreement with Streeterville Capital regarding both Streeterville notes payable (see Note 7).
Net Loss
The Company recorded a net loss of $13.0 million for the year ended December 31, 2023, compared to a net loss of $16.6 million for the year ended December 31, 2022. The decrease of $3.6 million in the net loss was largely due to the increase in gross profit of $3.8 million and the increase in other income of $4.9 million, offset by an increase in S,G&A of $5.6 million.
Liquidity and Capital Resources
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022
| Net cash used in operating activities | $ | (8,217,365 | ) | $ | (8,736,350 | ) | ||
| Net cash used in investing activities | (4,841,612 | ) | (176,280 | ) | ||||
| Net cash provided by financing activities | 11,455,439 | 2,878,959 | ||||||
| Net decrease in cash and cash equivalents | (1,603,538 | ) | (6,033,671 | ) | ||||
| Cash and cash equivalents at beginning of year | 2,734,485 | 8,768,156 | ||||||
| Cash, restricted cash, and cash equivalents at end of year | 1,130,947 | 2,734,485 |
In the year ended December 31, 2023, net cash used in operating activities decreased $0.5 million to $8.2 million, as compared to $8.7 million in the year ended December 31, 2022.
In the year ended December 31, 2023, net cash used in investing activities was $4.8 million as compared to $0.2 million in the year ended December 31, 2022. The increase of $4.6 million was due primarily to the acquisitions of Puro Lighting and LED Supply Co. made in Q1 2023 (Note 2).
In the year ended December 31, 2023, cash provided by financing activities was $11.5 million as compared to $2.9 million in the year ended December 31, 2022. The major financing activities that provided cash for the year ended December 31, 2023 was cash received from the net proceeds from the June 16, 2023 public offering and the November 14, 2023 public offering (Note 9).
We have incurred substantial operating losses since our inception. As reflected in our consolidated financial statements included in this Annual Report for the year ended December 31, 2023, we had an accumulated deficit of approximately $43.1 million at December 31, 2023, a net loss of approximately $13.2 million, and approximately $8.2 million of net cash used in operating activities for the year ended December 31, 2023. The consolidated financial statements included in this prospectus were prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We anticipate incurring additional losses until such time, if ever, that we will be able to effectively market our products. As such, it is likely that additional financing will be needed by us to fund our operations. These factors raise substantial doubt about our ability to continue as a going concern. Our revenues for the year ended December 31, 2023 were $40.7 million, compared to $20.1 million for the same period in 2022, an increase of $20.6 million, or 102.5%. We will seek to obtain additional capital through the sale of debt or equity financings or other arrangements to fund operations; however, there can be no assurance that we will be able to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of common stock. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. If we are unable to obtain such additional financing, future operations would need to be scaled back or discontinued
In an effort to alleviate these conditions, the Company pursued various funding solutions in order to improve liquidity.
Management believes that the actions already taken, and additional actions that it can take to manage operating expenditures, will enable the Company to meet its obligations for a period of at least one year from the date of issuance of these audited consolidated financial statements.
At the Market Sales Agreement
On July 1, 2022, the Company filed a $50,000,000 mixed use shelf registration (Form S-3) and entered into an At The Market sales agreement ("ATM") with Maxim Group, LLC for a total of $9,000,000, as a readily available source of funding if needed. During the year ended December 31, 2022 the Company sold 6,438 ATM shares through the sales agent with net proceeds of $929,736. During 2023, an additional 14,546 shares have been sold for net proceeds of $2,246,802, leaving a gross balance of $5,693,833 on the ATM facility. The ATM facility expired July 1, 2023. The shelf registration statement will expire on July 12, 2025.
Pinnacle Note
In December 2022, the Company entered into a Loan and Security Agreement, or (the “Loan Agreement”), with Pinnacle Bank, which provides for a $5,000,000 secured revolving credit facility (the “Loan Facility”). The facility was later amended and increased to $6,000,000 on May 23, 2023. The loan is subject to a maximum advance amount of up to 85% of net face amount of eligible accounts, plus the lessor a) of the sum of 20% of the aggregate eligible inventory value of raw materials and 35% of the aggregate eligible inventory value of finished goods, b) $1 million, c) 80% of the net orderly liquidation value of raw materials and finished goods, or d) 100% of the aggregate outstanding principal amount of advances. In no event shall the aggregate amount of the outstanding advances under the Loan Facility be greater than $6 million. The loan matures on January 25, 2025. The principal amount of outstanding revolving loan, together with accrued and unpaid interest, is due on the maturity date.
On February 8, 2024, Applied UV, Inc. (the “Company”), SteriLumen, Inc. and MunnWorks, LLC (together with SteriLumen, Inc., the “Subsidiaries”) entered into that certain Business Loan and Security Agreement (the “First Loan Agreement”) with Cedar Advance LLC (the “Lender”).
Pursuant to the First Loan Agreement, the Company borrowed a total of $515,000 from the Lender at an annual interest rate of 29% for a term of a total of 40 weeks (the “First Loan”). In the Event of Default, and if not cured within three (3) business days, the Company will grant to the Lender a continuing interest, subject to the first priority security interest granted to Pinnacle Bank, in and to any and all amounts owing to the Company now or in the future and all other tangible and intangible personal property. In the Event of Default, the Lender may, among other things, debit amounts due from the Company’s checking account and accelerate the total principal amount, including any accrued interest, immediately. In the event of acceleration, interest thereafter will accrue on the total amount due at 24% per annum. The First Loan may be prepaid at any without penalty.
On March 10, 2024, the Company and the Subsidiaries entered into another Business Loan and Security Agreement (the “Second Loan Agreement” and, together with the First Loan Agreement, the “Loan Agreements”) with the Lender.
Pursuant to the Second Loan Agreement, the Company borrowed a total of $772,500 from the Lender at an annual interest rate of 28% for a term of a total of 40 weeks (the “Second Loan”). In the Event of Default, and if not cured within three (3) business days, the Company will grant to the Lender a continuing interest, subject to the first priority security interest granted to Pinnacle Bank, in and to any and all amounts owing to the Company now or in the future and all other tangible and intangible personal property. In the Event of Default, the Lender may, among other things, debit amounts due from the Company’s checking account and accelerate the total principal amount, including any accrued interest, immediately. In the event of acceleration, interest thereafter will accrue on the total amount due at 24% per annum. The Second Loan may be prepaid at any without penalty.
The Loan Agreements contain customary representations and warranties and customary affirmative and negative covenants applicable to the Company and the Subsidiaries, including, without limitation, restrictions on liens and transfer or disposal of assets. The Company intends to use the net proceeds from the Loan Agreements for general corporate purposes, including working capital.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
Item 8. Financial Statements and Supplementary Data.
Applied UV, Inc. and Subsidiaries
Index to the Consolidated Financial Statements
December 31, 2023 and 2022
F-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Applied UV, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Applied UV, Inc. and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, redeemable preferred stock and changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant operating losses and negative cash flows. The Company also has an accumulated deficit and a working capital deficiency of approximately $43.1 million and $10.8 million at December 31, 2023, respectively. The Company is dependent on obtaining additional working capital funding from the sale of equity and/or debt securities to execute its development plans and continue operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Mazars USA LLP
We have served as the Company’s auditor since 2021.
Fort Washington, PA
April 16, 2024
F-
Applied UV, Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2023 and 2022
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 1,130,947 | $ | 2,734,485 | ||||
| Accounts receivable, net of allowance for credit losses | 3,895,177 | 1,508,239 | ||||||
| Costs and estimated earnings in excess of billings | 3,291,875 | 1,306,762 | ||||||
| Inventory, net | 7,170,766 | 5,508,086 | ||||||
| Vendor deposits | 451,989 | 75,548 | ||||||
| Prepaid expense and other current assets | 1,083,172 | 1,187,223 | ||||||
| Total Current Assets | 17,023,926 | 12,320,343 | ||||||
| Property and equipment, net of accumulated depreciation | 1,377,273 | 1,133,468 | ||||||
| Other assets | 61,500 | 153,000 | ||||||
| Goodwill | 14,654,067 | 3,722,077 | ||||||
| Other intangible assets, net of accumulated amortization | 22,291,654 | 11,354,430 | ||||||
| Right of use assets | 2,977,811 | 4,044,109 | ||||||
| Total Assets | $ | 58,386,231 | $ | 32,727,427 | ||||
F-
Applied UV, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
As of December 31, 2023 and 2022
Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 9,157,841 | $ | 2,982,760 | ||||
| Contingent consideration | 9,757,969 | - | ||||||
| Deferred revenue | 6,371,570 | 4,730,299 | ||||||
| Due to landlord (Note 2) | 302,372 | 229,234 | ||||||
| Warrant liability | 7,249 | 9,987 | ||||||
| Financing lease obligations | 42,445 | 33,712 | ||||||
| Operating lease liability | 1,741,472 | 1,437,308 | ||||||
| Officer loan | 200,000 | - | ||||||
| Notes payable, net | 290,505 | 2,098,685 | ||||||
| Total Current Liabilities | 27,871,423 | 11,521,985 | ||||||
| Long-Term Liabilities | ||||||||
| Due to landlord - less current portion (Note 2) | 90,857 | 393,230 | ||||||
| Notes payable, net - less current portion | 4,095,093 | 765,144 | ||||||
| Financing lease obligations - less current portion | 133,189 | 158,070 | ||||||
| Operating lease liability - less current portion | 1,312,050 | 2,655,103 | ||||||
| Total Long-Term Liabilities | 5,631,189 | 3,971,547 | ||||||
| Total Liabilities | 33,502,612 | 15,493,532 | ||||||
| Redeemable Preferred Stock | ||||||||
| Preferred Stock, Series B Cumulative Perpetual, $0.0001 par value, 1,250,000 shares authorized, 1,250,000 shares issued and outstanding as of September 30, 2023 and no shares issued and outstanding as of December 31, 2022 | 3,712,500 | - | ||||||
| Preferred Stock, Series C Cumulative Perpetual, $0.0001 par value, 2,500,000 shares authorized, 399,996 shares issued and outstanding as of September 30, 2023 and no shares issued and outstanding as of December 31, 2022 | 1,063,989 | - | ||||||
| Total Redeemable Preferred Stock | 4,776,489 | - | ||||||
| Equity | ||||||||
| Preferred Stock, Series A Cumulative Perpetual, $0.0001 par value, 1,250,000 shares authorized, 552,000 shares issued and outstanding as of December 31, 2023 and 2022, respectively | 55 | 55 | ||||||
| Preferred Stock, Series X, $0.0001 par value, 10,000 shares authorized, 10,000 shares issued and outstanding as of December 31, 2023 and 2022, respectively | 1 | 1 | ||||||
| Common Stock $0.0001 par value, 26,000,000 shares authorized 1,678,855 shares issued and 1,677,947 outstanding as of December 31, 2023 and 109,411 shares issued and 108,503 outstanding as of December 31, 2022, respectively | 168 | 11 | ||||||
| Additional paid-in capital | 63,316,938 | 45,621,027 | ||||||
| Treasury stock at cost, 908 shares, as of December 31 2023 and 2022 | (149,686 | ) | (149,686 | ) | ||||
| Accumulated deficit | (43,060,346 | ) | (28,237,513 | ) | ||||
| Total Equity | 20,107,130 | 17,233,895 | ||||||
| Total Liabilities, Redeemable Preferred Stock and Stockholders’ Equity | $ | 58,386,231 | $ | 32,727,427 | ||||
The accompanying notes are an integral part of these audited consolidated financial statements
F-
Applied UV, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 2023 and 2022
| 2023 | 2022 | |||||||
| Net Sales | $ | 40,718,188 | $ | 20,139,849 | ||||
| Cost of Goods Sold | 32,891,688 | 16,101,555 | ||||||
| Gross Profit | 7,826,500 | 4,038,294 | ||||||
| Operating Expenses | ||||||||
| Research and development | 552,220 | 319,167 | ||||||
| Selling general and administrative | 20,369,810 | 14,804,068 | ||||||
| Loss on impairment of goodwill and intangible assets | 6,473,310 | 6,993,075 | ||||||
| Total Operating Expenses | 27,395,340 | 22,116,310 | ||||||
| Operating Loss | (19,568,840 | ) | (18,078,016 | ) | ||||
| Other Income (Expense) | ||||||||
| Change in Fair Market Value of Warrant Liability | 2,738 | 58,276 | ||||||
| Interest expense | (1,741,976 | ) | (290,341 | ) | ||||
| Loss on change in Fair Market Value of Contingent Consideration | (240,000 | ) | ||||||
| Gain on Settlement of Contingent Consideration (Note 2) | 7,045,936 | 1,700,000 | ||||||
| Other Income | 261,840 | 274,764 | ||||||
| Gain on settlement of debt | 796,450 | |||||||
| Total Other Income (Expense) | 6,364,988 | 1,502,699 | ||||||
| Loss Before Provision for Income Taxes | (13,203,852 | ) | (16,575,317 | ) | ||||
| Benefit from Income Taxes | ||||||||
| Net Loss | (13,203,852 | ) | (16,575,317 | ) | ||||
| Net Loss attributable to common stockholders: | ||||||||
| Dividends to preferred shareholders | (1,618,981 | ) | (1,449,000 | ) | ||||
| Net Loss attributable to common stockholders | $ | (14,822,833 | ) | $ | (18,024,317 | ) | ||
| $ | (40.00 | ) | $ | (176.64 | ) | |||
| 370,571 | 102,040 | |||||||
The accompanying notes are an integral part of these audited consolidated financial statements
F-
Applied UV, Inc. and Subsidiaries
Consolidated Statements of Redeemable Preferred Stock and Changes in Stockholders’ Equity
For the Years Ended December 31, 2023 and 2022
| Preferred
Stock Series B |
Preferred
Stock Series C |
Preferred
Stock Series A |
Preferred
Stock Series X |
Common Stock | Treasury Stock | Additional
Pain-In Capital |
Accumulated
Deficit |
Total
Stockholders Equity |
||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | - | - | - | - | 552,000 | $ | 55 | 2,000 | $ | 1 | 102,205 | $ | 10 | - | $ | - | $ | 42,878,890 | $ | (10,213,196 | ) | $ | 32,665,760 | |||||||||||||||||||||||||||||||||||||
| Settlement of stock in connection with prior acquisition (Note 2) | - | - | - | - | - | - | - | - | (3,200 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Common shares repurchased | - | - | - | - | - | - | - | - | - | - | 908 | (149,686 | ) | - | - | (149,686 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Reissuance of preferred stock | - | - | - | - | - | - | 8,000 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for in public offering (over-allotment), net of costs | - | - | - | - | - | - | - | - | 3,200 | - | - | - | 1,092,000 | - | 1,092,000 | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for in public offering (ATM), net of costs | - | - | - | - | - | - | - | - | 6,438 | 1 | - | - | 929,735 | - | 929,736 | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | 1,660 | - | - | - | 720,402 | - | 720,402 | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to preferred shareholders | - | - | - | - | - | - | - | - | - | - | - | - | - | (1,449,000 | ) | (1,449,000 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Cancellation of restricted stock | - | - | - | - | - | - | - | - | (892 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (16,575,317 | ) | (16,575,317 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | - | - | - | - | 552,000 | $ | 55 | -10,000 | $ | 1 | 109,411 | $ | 11 | 908 | $ | (149,686 | ) | $ | 45,621,027 | $ | (28,237,513 | ) | $ | 17,233,895 | ||||||||||||||||||||||||||||||||||||
| Common stock issued in public offering, net of costs | - | - | - | - | - | - | - | - | 262,534 | 27 | - | - | 9,417,246 | - | 9,417,273 | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued in public offering (ATM), net of costs | - | - | - | - | - | - | - | - | 14,546 | 1 | - | - | 2,246,801 | - | 2,246,802 | |||||||||||||||||||||||||||||||||||||||||||||
| Common and Preferred stock issued for acquisitions (Note 2) acquisition | 1,250,000 | 3,712,500 | 399,996 | 1,063,989 | - | - | - | - | 31,000 | 3 | - | - | 4,029,997 | - | 4,030,000 | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued in settlement | - | - | - | - | - | - | - | - | 2,000 | - | - | - | 39,000 | - | 39,000 | |||||||||||||||||||||||||||||||||||||||||||||
| Common
stock issued in connection for conversion of debt |
- | - | - | - | - | - | - | - | 40,161 | 4 | - | - | 767,496 | - | 767,500 | |||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of restricted shares per agreement | - | - | - | - | - | - | - | - | (31,002 | ) | (3 | ) | - | - | 515,945 | - | 515,942 | |||||||||||||||||||||||||||||||||||||||||||
| Exercise of prefunded warrants | - | - | - | - | - | - | - | - | 1,234,468 | 125 | - | - | (125 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | 15,737 | - | - | - | 679,551 | - | 679,551 | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to preferred shareholder | - | - | - | - | - | - | - | - | - | - | - | - | - | (1,618,981 | ) | (1,618,981 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (13,203,852 | ) | (13,203,852 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | 1,250,000 | 3,712,500 | 399,996 | 1,063,989 | 552,000 | $ | 55 | 10,000 | $ | 1 | 1,678,855 | $ | 168 | 908 | $ | (149,686 | ) | $ | 63,316,938 | $ | (43,060,346 | ) | $ | 20,107,130 | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements
F-
Applied UV, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2023 and 2022
| 2023 | 2022 | |||||||
| Cash flows from Operating Activities | ||||||||
| Net Loss | $ | (13,203,852 | ) | $ | (16,575,317 | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities | ||||||||
| Stock based compensation | 718,549 | 720,402 | ||||||
| Credit losses | 439,161 | 94,714 | ||||||
| Gain on settlement of assumed liabilities | - | |||||||
| Change in fair market value of warrant liability | (2,738 | ) | (58,276 | ) | ||||
| Loss on change in fair market value of contingent consideration (Note 2) | - | 240,000 | ||||||
| Gain on settlement of debt | (796,450 | ) | - | |||||
| Gain on settlement of accounts payable | (268,376 | ) | - | |||||
| Gain on settlement of contingent consideration | (7,045,936 | ) | (1,700,000 | ) | ||||
| Loss on impairment of goodwill and intangible assets | 6,473,310 | 6,993,075 | ||||||
| Change in reserve for Obsolescence in Inventory | 451,197 | (52,208 | ) | |||||
| Amortization of right-of-use asset | 1,066,298 | 1,213,949 | ||||||
| Depreciation and amortization | 2,974,944 | 1,991,798 | ||||||
| Amortization of debt discount | 896,297 | 223,643 | ||||||
| Changes in operating assets and liabilities, net of effects of acquisitions: | ||||||||
| Accounts receivable | (1,090,064 | ) | 19,850 | |||||
| Cost and estimated earnings excess of billings | (1,451,475 | ) | (1,125,610 | ) | ||||
| Inventory | 1,897,320 | (3,633,057 | ) | |||||
| Vendor deposits | (769 | ) | 916,494 | |||||
| Prepaid expenses and other current assets | 951,720 | (448,680 | ) | |||||
| Accounts payable and accrued expenses | 1,842,003 | 1,340,655 | ||||||
| Billings in excess of costs and earnings on uncompleted contracts | - | (1,388,838 | ) | |||||
| Deferred revenue | (656,928 | ) | 3,941,523 | |||||
| Due to landlord | (372,687 | ) | (279,518 | ) | ||||
| Operating lease payments | (1,038,889 | ) | (1,170,949 | ) | ||||
| Net Cash Used in Operating Activities | (8,217,365 | ) | (8,736,350 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Cash paid for patent costs | (76,753 | ) | (682 | ) | ||||
| Purchase of machinery and equipment | (482,888 | ) | (23,017 | ) | ||||
| Acquisitions, net of cash acquired (Note 2) | (4,115,709 | ) | (10 | ) | ||||
| Payments on note payable | (166,262 | ) | (152,571 | ) | ||||
| Net Cash Used in Investing Activities | (4,841,612 | ) | (176,280 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Payments on financing leases | (41,379 | ) | (6,591 | ) | ||||
| Proceeds from officer loan | 200,000 | - | ||||||
| Shares repurchased | - | (149,686 | ) | |||||
| Dividends to preferred shareholders | (769,481 | ) | (1,449,000 | ) | ||||
| Proceeds from equity raises, net | 11,625,180 | 2,021,736 | ||||||
| Proceeds from note payable, net | 441,119 | 2,462,500 | ||||||
| Net Cash Provided by Financing Activities | 11,455,439 | 2,878,959 | ||||||
| Net Decrease in Cash and equivalents | (1,603,538 | ) | (6,033,671 | ) | ||||
| Cash, restricted cash, and cash equivalents at January 1, | 2,734,485 | 8,768,156 | ||||||
| Cash, restricted cash, and cash equivalents at December 31, | $ | 1,130,947 | $ | 2,734,485 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 816,265 | $ | 57,534 | ||||
| Supplemental Schedule of Non-Cash Financing and Investing Activities | ||||||||
| Conversion of debt into common stock | $ | 767,500 | $ | - | ||||
| Recognition of right of use asset and corresponding liability | $ | 563,315 | $ | 3,527,443 | ||||
| Accrued dividends | $ | 849,500 | $ | - | ||||
| Issuance of Note Payable for payment of prepaid expense | $ | 279,347 | $ | 318,833 | ||||
The accompanying notes are an integral part of these audited consolidated financial statements
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Applied UV, Inc. (the “Parent”) was formed and incorporated in the State of Delaware for the intended purpose of holding the equity of Sterilumen, Inc. (“Sterilumen”), MunnWorks, LLC (“MunnWorks” and together with Sterilumen, the “Subsidiaries”) and other companies acquired or created by the Parent in the future. The Parent acquired the Subsidiaries pursuant to three share exchanges whereby the equity holders of the Subsidiaries exchanged all of their equity interests in the Subsidiaries for shares of voting stock of the Parent. As a result of the share exchanges, each Subsidiary became a wholly-owned subsidiary of the Parent. The Parent and each Subsidiary are collectively referred to herein as (the “Company”).
The Parent was subsequently re-incorporated in the State of Nevada, effective October 25, 2023.
Sterilumen is engaged in the design, manufacture, assembly and distribution of (i) automated disinfecting mirror systems for use in hospitals and other healthcare facilities and (ii) air purification systems through its purchase of substantially all of the assets and certain liabilities of Akida Holdings, LLC, KES Science & Technology, and Scientific Air Management LLC, as described below. MunnWorks, LLC is engaged in the manufacture of fine mirrors and custom furniture specifically for the hospitality and retail industries.
On March 25, 2022, the Company acquired the assets and assumed certain liabilities of VisionMark, LLC, (“VisionMark”). VisionMark is engaged in the business of manufacturing furniture using wood and metal components for the hospitality and retail industries.
On January 26, 2023, we closed on the merger agreement with PURO Lighting LLC and LED Supply Co. LLC along with its operating subsidiaries (“PURO merger”). PURO and LED Supply Co. own a powerful suite of products used in education, government, and healthcare that incorporates UV Lighting and a HVAC monitoring software platform; LED Supply Co. provides design, distribution, and implementation services for lighting, controls and smart building technologies.
Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these audited consolidated financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the audited consolidated financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The Company’s revenues continue to increase, and for the year ended December 31, 2023 were $40.7 million, compared to $20.1 million for the same period in 2022, an increase of $20.6 million, or 102.5%. However, the Company has incurred substantial operating losses since our inception. As reflected in the Company’s consolidated financial statements included in this Annual Report for the year ended December 31, 2023, the Company had an accumulated deficit of approximately $43.1 million at December 31, 2023, a net loss of approximately $13.2 million, and approximately $8.2 million of net cash used in operating activities for the year ended December 31, 2023. The consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company anticipates incurring additional losses until such time, if ever, that the Company will be able to effectively market our products. As such, it is likely that additional financing will be needed to fund operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company will seek to obtain additional capital through the sale of debt or equity financings or other arrangements to fund operations; however, there can be no assurance that the Company will be able to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of common stock. Issued debt securities may contain covenants and limit the Company’s ability to pay dividends or make other distributions to stockholders. If the Company is unable to obtain such additional financing, future operations would need to be scaled back or discontinued.
In connection with the above, the Company pursued various funding solutions in order to improve liquidity.
Principles of Consolidation
The consolidated financial statements include the accounts of Applied UV, Inc., Munnworks, LLC, Sterilumen, Inc., Puro Lighting, LLC, and LED Supply Co. LLC. All significant intercompany transactions and balances are eliminated in consolidation.
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 December 31, 2023 the Company was approximately $850,000 in excess of FDIC insured limits. The Company provides credit in the normal course of business.
For the years ended December 31, 2023 and 2022, the Company had no major suppliers that accounted for over 10% of supplies and materials used by the Company.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation and accounting for equity awards related to warrants and stock-based compensation, determination of fair value for derivative instruments, the accounting for business combinations and allocating purchase price and estimating the useful life of intangible assets.
Cash, 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 December 31, 2023 and 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. Credit losses 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. As of December 31, 2023 and 2022, the Company had credit losses of $439,061 and $94,714, respectively. Included in these losses, based on the Company’s current and historical collection experience, the Company recorded an allowance for credit losses of approximately $333,000 and $35,000 as of December 31, 2023 and 2022, respectively.
Inventory
Inventories consist of raw materials, work-in-process, and finished goods. Raw materials and finished goods are valued at the lower of cost or net realizable value, using the first-in, first-out (“FIFO”) valuation method. Work-in-process and finished goods includes the cost of materials, freight and duty, direct labor and overhead. The Company writes down inventory for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. The company had a reserve for inventory approximating $808,000 and $88,000 as of December 31, 2023 and 2022, respectively.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and Equipment
Property and equipment are recorded at cost. Depreciation of furniture and fixtures is provided using the straight-line method, generally over the terms of the lease. Repairs and maintenance expenditures, which do not extend the useful lives of the related assets, are expensed as incurred. Depreciation of machinery and equipment is based on the estimated useful lives of the assets.
| 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. During the years ended December 31, 2023 and 2022, we evaluated potential triggering events that might be indicators that our goodwill and definite lived intangibles were impaired. As a result of our evaluation, we determined that the fair value of our goodwill and certain intangible assets were less than the carrying amount as of December 31, 2023 and 2022. This resulted in a total impairment charge of $6,473,310 and $6,993,075, respectively. See Note 2 for further information related to the impairment.
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.
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Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative Instruments
The Company evaluates its warrants to determine if those contracts or embedded components of those contracts qualify as derivatives. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The Company has concluded that there are no such reclassifications required to be made as of and for the periods ended December 31, 2023 and 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 consolidated balance sheets for loans payable approximate fair value because of the immediate or short-term maturity of the financial instruments. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.
Loss Per Share
Basic loss per share is computed by dividing net loss attributable to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.
The following table sets forth the number of potential shares of common stock that have been excluded from diluted net loss per share because their effect was anti-dilutive:
Schedule of Anti-dilutive Securities Excluded from Computation of Loss Per Share:
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Common stock options | 4,627 | 8,000 | ||||||
| Common stock options issued as per the December 11, 2023 Puro-LED deal restructuring agreement – see Note 2 and Note 9. | 490,000 | |||||||
| Series B Preferred Stock | 1,250,000 | - | ||||||
| Series C Preferred Stock | 399,996 | - | ||||||
| Common stock warrants | 419,205 | 1,539 | ||||||
| Total | 2,563,828 | 9,539 | ||||||
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.
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Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reverse Stock Split
On May 30, 2023, Applied UV, Inc. (the “Company”) filed a Certificate of Amendment to the Company’s Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Certificate of Amendment”) to effect a 1-for-5 reverse stock split (the “reverse stock split”) of the shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”). The Certificate of Amendment has no effect on the number of authorized shares of Common Stock or their par value. No fractional shares will be issued in connection with the reverse stock split and stockholders will receive cash in lieu of fractional shares.
On December 12, 2023, Applied UV, Inc. (the “Company”) filed a Certificate of Change to the Company’s Articles of Incorporation with the Secretary of State of the State of Nevada (the “Certificate of Change”) to effect a 1-for-25 reverse stock split (the “reverse stock split”) of the shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) and simultaneously decrease the total number of authorized shares of Common Stock at the same ratio as the reverse stock split. The Certificate of Change has no effect on the par value of the Common Stock. No fractional shares were issued in connection with the reverse stock split and stockholders received one share of Common Stock in lieu of a fractional share.
All historical share and per share amounts in these financial statements have been retroactively adjusted to reflect the reverse stock split.
Research and Development
The Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, research and development costs are expensed as incurred.
Revenue Recognition
The Company recognizes revenue when the performance obligations in the client contract has been achieved. A performance obligation is a contractual promise to transfer product to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Under ASC 606, revenue is recognized when a customer obtains control of goods in an amount that reflects the consideration the Company expects to receive in exchange for those goods. To achieve this core principle, the Company applies the following five steps:
| 1) | Identify the contract with a customer. |
| 2) | Identify the performance obligations in the contract. |
| 3) | Determine the transaction price. |
| 4) | Allocate the transaction price to performance obligations in the contract. |
| 5) | Recognize revenue when or as the Company satisfies a performance obligation. |
For MunnWorks projects completed within the Company’s facilities, 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 theproducts 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.
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Applied UV, Inc. and Subsidiaries
Notes to the 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, 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 years ended:
Schedule of revenue:
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Recognized over time | $ | 14,934,031 | $ | 9,419,117 | ||||
| Recognized at a point in time | 25,784,157 | 10,720,732 | ||||||
| $ | 40,718,188 | $ | 20,139,849 | |||||
Deferred revenue was comprised of the following as of:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Recognized over time | $ | 2,935,269 | $ | 3,581,195 | ||||
| Recognized at a point in time | 3,436,301 | 1,149,104 | ||||||
| $ | 6,371,570 | $ | 4,730,299 | |||||
Deferred revenue amounting to $4,714,686 as of December 31, 2022 was recognized as revenue during the year ended December 31, 2023.
Shipping and Handling Charges
The Company reports shipping and handling fees charged to customers as part of net sales and the associated expense as part of cost of sales. Shipping charges amounted to $1,138,697 and $821,448 for the years ended December 31, 2023 and 2022, respectively.
Advertising
Advertising costs consist primarily of online search advertising and placement, trade shows, advertising fees, and other promotional expenses. Advertising costs are expensed as incurred and are included in sales and marketing on the consolidated statements of operations. Advertising expense for the years ended December 31, 2023 and 2022 was $661,833 and $1,109,207, respectively.
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Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Vendor deposits
Vendor payments to third manufactures are capitalized until completion of the project and are recorded as vendor deposits. As of December 31, 2023 and 2022, the vendor deposit balance was $451,989 and $75,548, respectively.
Patent Costs
The Company capitalizes costs consisting principally of outside legal costs and filing fees related to obtaining and maintaining patents. The Company amortizes patent costs over the useful life of the patent which is typically 20 years, beginning with the date the patent is filed with the U.S. Patent and Trademark Office, or foreign equivalent. As of December 31, 2023 and 2022, capitalized patent costs net of accumulated amortization was $1,445,650 and $1,593,741, respectively. For the years ended December 31, 2023 and 2022, the Company recorded $184,045 and $100,065, 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 (eTopic 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 consolidated financial statements.
In December 2023, the FASB issued ASU No 2023-09, Income Taxes (Topic 740) — Improvements to Income Tax Disclosures (“ASU 2023-09”) in order to enhance the transparency and usefulness of income tax disclosures. The guidance is applicable to all entities subject to income tax and it will require disclosure of certain categories within the rate reconciliation to improve consistency as well as disclosure of reconciling items which meet a certain quantitative threshold which will improve transparency. Additionally, entities must disclose the amount of taxes paid to federal, state and foreign municipalities. For public business entities ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company expects to adopt the standard for the fiscal year beginning December 30, 2024. The Company is currently evaluating the impact of its pending adoption of ASU 2023-09 on its consolidated financial statements.
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 years ended December 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.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 2 – BUSINESS ACQUISITION (Continued)
In conjunction with acquisitions noted below, we used various valuation techniques to determine fair value of the assets acquired, with the primary techniques being discounted cash flow analysis, relief-from-royalty, a form of the multi-period excess earnings and the with-and-without valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Inputs to these valuation approaches require significant judgment including: (i) forecasted sales, growth rates and customer attrition rates, (ii) forecasted operating margins, (iii) royalty rates and discount rates used to present value future cash flows, (iv) the amount of synergies expected from the acquisition, (v) the economic useful life of assets and (vi) the evaluation of historical tax positions. In certain acquisitions, historical data is limited, therefore, we base our estimates and assumptions on budgets, business plans, economic projections, anticipated future cash flows and marketplace data.
In relation with the purchase by Sterilumen, Inc., of Old SAM Partners, LLC, on March 31, 2022, there was a settlement of a dispute that arose during the first quarter of 2022 between both parties regarding certain representations and warranties in the purchase agreement which resulted in a settlement and mutual release agreement where the seller agreed to relinquish any right, title, and interest in the previously issued 80,000 shares. During the six months ended June 30, 2022, the company recorded a loss on change in fair market value of contingent consideration of $240,000 and, as a result of the settlement agreement, the company recorded a gain on settlement of contingent consideration of $1,700,000. The Company also determined that a triggering event had occurred as a result of the settlement agreement. A quantitative impairment test on the goodwill and intangible assets determined that the fair value was below the carrying value and as a result the Company recorded a full goodwill impairment charge of $1,138,203 in the first quarter of 2022. As a result of our evaluation, we determined that the fair value of certain intangible assets were less than the carrying amount as of December 31, 2022. The Company recorded an impairment on intangibles of $5,854,872 in the Consolidated Statements of Operations during the year ended December 31, 2022.
On March 25, 2022, the Company entered into an asset purchase agreement by and among the Company, Munnworks, LLC., a New York Limited Liability Company and wholly-owned subsidiary of the Company (the “Purchaser”) and VisionMark LLC, a New York limited liability company (the “Seller”), pursuant to which the Purchaser acquired substantially all of the assets of the Seller in exchange for the assumption of obligations of buyer under the sublease and sublease guarantee.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 2 – BUSINESS ACQUISITION (Continued)
The purchase price and purchase price allocation as of the acquisition completion date follows.
| Purchase Price: | ||||
| Cash paid at closing | $ | 10 | ||
| Due to landlord | 755,906 | |||
| Total Purchase Price, net of cash acquired | 755,916 | |||
| Assets Acquired: | ||||
| Accounts receivable, net | 636,550 | |||
| Inventory | 176,583 | |||
| Costs and estimated earnings in excess of billings | 181,152 | |||
| Machinery and equipment | 1,100,000 | |||
| Total Assets Acquired: | 2,094,285 | |||
| Liabilities Assumed: | ||||
| Billings in excess of costs and earnings on uncompleted contracts | (1,388,838 | ) | ||
| Total Liabilities Assumed | (1,388,838 | ) | ||
| Net Assets Acquired | 705,447 | |||
| Excess Purchase Price “Goodwill” | $ | 50,469 | ||
The excess purchase price has been recorded as goodwill in the amount of approximately $50,469. The goodwill is amortizable for tax purposes.
In connection with the VisionMark LLC acquisition, the Company is obligated to repay $31,057 of past due lease payments per month for the next 36 months commencing on April 1, 2022. The Company recognized a discount and related liability equal to the present value of the past due lease liability, and amortizes the difference between such present value and the liability through interest expense using a rate of 38.7% as per the effective interest rate method over the repayment period. Amortization of discount included in interest expenses was $143,453 and $146,073 for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2023, the future maturity of the lease liability as of December 31, is as follows:
| Years Ended December 31, | ||||
| 2024 | 372,688 | |||
| 2025 | 93,172 | |||
| Total | 465,860 | |||
| Less: Unamortized discount | (72,631 | ) | ||
| Total amount due to landlord | 393,229 | |||
| Less: current portion of amount due to landlord, net of discount | (302,372 | ) | ||
| Total long-term portion of amount due to landlord | $ | 90,857 | ||
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Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 2 – BUSINESS ACQUISITION (Continued)
On January 26, 2023, the Company entered into an asset purchase agreement by the Company (the “Buyer”) and PURO Lighting, LLC, (the “Seller”) a limited liability company under the laws of the State of Colorado, pursuant to which the Purchaser acquired substantially all of the assets of the Seller in exchange for cash, common stock and preferred stock of the buyer. The Company paid or issued, as applicable (i) 19,978 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.
The purchase price and purchase price allocation as of the acquisition completion date follows, which includes an adjustment for changes during the measurement period of ($332,357) in contingent consideration – earnout, resulting in a corresponding reduction in goodwill.
| Purchase Price: | ||||
| Cash paid at closing, net of cash acquired | $ | 3,828,967 | ||
| Common stock | 2,597,111 | |||
| Series B Preferred Stock | 3,712,500 | |||
| Series C Preferred Stock | 667,947 | |||
| Contingent consideration-Common Stock True Up*** | 2,397,334 | |||
| Contingent consideration-Earnout | 3,713,875 | |||
| Total Purchase Price, net of cash acquired | 16,917,734 | |||
| Assets Acquired: | ||||
| Accounts receivable, net | 274,574 | |||
| Inventory | 2,085,912 | |||
| Other current assets | 415,188 | |||
| Fixed assets, net | 5,075 | |||
| Tradenames/trademarks | 1,228,000 | |||
| Technology/know-how/trade secrets | 1,842,000 | |||
| Patented technology | 1,710,000 | |||
| Customer relationships | 4,705,000 | |||
| Total Assets Acquired: | 12,265,749 | |||
| Liabilities Assumed: | ||||
| Accounts payable and accrued expenses | (936,448 | ) | ||
| Deferred revenue | (18,482 | ) | ||
| Total Liabilities Assumed | (954,930 | ) | ||
| Net Assets Acquired | 11,310,819 | |||
| Excess Purchase Price “Goodwill” | $ | 5,606,915 | ||
| *** | 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). |
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 2 – BUSINESS ACQUISITION (Continued)
The excess purchase price has been recorded as goodwill in the amount of approximately $5,606,915. The goodwill is not amortizable for tax purposes.
On January 26, 2023, the Company entered into an asset purchase agreement by the Company (the “Buyer”) and LED Supply Co, LLC, (the “Seller”), a limited liability company under the laws of the State of Colorado, pursuant to which the Purchaser acquired substantially all of the assets of the Seller in exchange for cash, common stock and preferred stocks of the buyer. The Company paid or issued, as applicable (i) 11,023 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, which includes an adjustment for changes during the measurement period of ($723,468) in contingent consideration – earnout and ($126,000) in assets acquired - customer relationships, resulting in a corresponding reduction in goodwill of ($597,468).
| Purchase Price: | ||||
| Cash paid at closing | $ | 286,742 | ||
| Common stock | 1,432,889 | |||
| Series C Preferred Stock | 396,042 | |||
| Contingent considerations-Common Stock True Up*** | 1,322,665 | |||
| Contingent considerations-Earnout | 9,885,974 | |||
| Total Purchase Price, net of cash acquired | 13,324,312 | |||
| Assets Acquired: | ||||
| Accounts receivable, net | 1,461,461 | |||
| Inventory | 1,925,285 | |||
| Other current assets | 36,815 | |||
| Vendor deposits | 375,672 | |||
| Costs and estimated earnings in excess of billings | 533,638 | |||
| Fixed assets, net | 106,330 | |||
| Trademarks/tradenames | 1,806,000 | |||
| Technology/know-how/trade secrets | 1,169,193 | |||
| Vendor relationships | 1,416,000 | |||
| Rebate program | 1,894,703 | |||
| Customer relationships | 1,962,000 | |||
| Other non-current assets | 24,819 | |||
| Total Assets Acquired: | 12,711,916 | |||
| Liabilities Assumed: | ||||
| Accounts payable | (2,854,509 | ) | ||
| Deferred revenue | (2,279,616 | ) | ||
| Notes payable | (1,778,666 | ) | ||
| Financing lease liability | (25,231 | ) | ||
| Total Liabilities Assumed | (6,938,022 | ) | ||
| Net Assets Acquired | 5,773,894 | |||
| Excess Purchase Price “Goodwill” | $ | 7,550,418 | ||
| *** | 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). |
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Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 2 – BUSINESS ACQUISITION (Continued)
The excess purchase price has been recorded as goodwill in the amount of approximately $7,550,418. The goodwill is not amortizable for tax purposes.
Make Whole Revision and Impairment on Intangibles
In December of 2023, management determined that the revenues of PURO are significantly lower than projected during the business acquisition process. This discrepancy was primarily due to the realization that a substantial portion of the anticipated announced government funding, which was expected to benefit PURO had already been allocated to specific projects. Consequently, PURO and other enterprises have not been able to fully benefit from the expected government funding; therefore leading to lower-than-anticipated sales projections.
Revisions of certain considerations transferred as per the December 11, 2023 Restructuring Agreements: In light of the revised business projections, the Company and the seller have agreed to modify the purchase price terms for both PURO and LED:
PURO:
| (i) | The contingent consideration make-whole reserve has been reduced to $0. |
| (ii) | Previously issued common stock have been clawed back in exchange for new options to be issued in January 2024. |
| (iii) | The contingent consideration earnout components for both Year 2022 and Years 2023-2025 would be impacted as well. |
LED:
While LED’s business is not adversely affected by the already allocated government funding, the uncertain economic climate has prompted the seller (now part of the Company’s management team) to make concessions on the purchase price. The concessions comprised of the following:
| (i) | The contingent consideration make-whole reserve has been reduced to $0. |
| (ii) | Previously issued common stock have been clawed back in exchange for new options to be issued in January 2024. |
| (iii) | The contingent consideration earnout components for both Year 2022 and Years 2023-2025 would be impacted as well. |
The reduction in purchase price triggered an assessment for impairment which resulted in the Company recording a loss on impairment of PURO goodwill and intangible assets of $6,473,310 and a gain on settlement of contingent consideration of $7,045,936.
The loss on impairment of goodwill and intangibles was comprised of the following:
| December 31, | ||||
| 2023 | ||||
| Tradenames | $ | 473,415 | ||
| Technology/know-how | 817,122 | |||
| Customer relationships | 2,221,410 | |||
| Patented technology | 736,020 | |||
| Goodwill | 2,225,343 | |||
| $ | 6,473,310 | |||
The gain on settlement of contingent consideration was comprised of the following:
| December 31, | ||||
| 2023 | ||||
| Gain on Make-Whole Provision Adjustment | $ | 3,719,997 | ||
| Gain on Settlement of 2022 Earnout Reserve | 751,867 | |||
| Gain on Adjustment of 2023-2025 Earnout Reserves | 3,090,014 | |||
| Sub-total | 7,561,878 | |||
| Loss on Exchange of Stock Options for Common Shares clawed-back | (515,942 | ) | ||
| Total | $ | 7,045,936 | ||
In addition, certain assumed liabilities were reduced in agreement with the sellers which resulted in a gain of $268,376.
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Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 3 – INVENTORY
Inventory consists of the following as of:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | 3,433,320 | $ | 3,485,040 | ||||
| Finished goods | 4,545,653 | 2,110,838 | ||||||
| Inventory at cost | $ | 7,978,973 | $ | 5,595,878 | ||||
| Less: Reserve | (808,207 | ) | (87,792 | ) | ||||
| Inventory | $ | 7,170,766 | $ | 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:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Machinery and Equipment | $ | 1,619,343 | $ | 1,266,189 | ||||
| Leasehold improvements | 239,864 | 67,549 | ||||||
| Furniture and Fixtures | 274,326 | 203,256 | ||||||
| 2,133,533 | 1,536,994 | |||||||
| Less: Accumulated Depreciation | (756,260 | ) | (403,526 | ) | ||||
| $ | 1,377,273 | $ | 1,133,468 | |||||
Depreciation expense, including amortization of assets under financing leases, for the year ended December 31, 2023 and 2022 was $350,486 and $223,862, respectively.
NOTE 5 – INTANGIBLE ASSETS
Intangible assets as of December 31, 2023 and 2022 consist of the following:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Intangible assets subject to amortization | ||||||||
| Customer Relationships | $ | 6,101,188 | $ | 1,655,598 | ||||
| Tradenames/trademarks | 4,769,115 | 2,208,530 | ||||||
| Patented technology | 2,740,704 | 1,730,771 | ||||||
| Technology/know-how/trade secrets | 10,575,871 | 8,341,000 | ||||||
| Vendor relationships | 1,416,000 | - | ||||||
| Rebate program | 1,894,703 | - | ||||||
| 27,497,581 | 13,935,899 | |||||||
| Less: Accumulated Amortization | (5,205,927 | ) | (2,581,469 | ) | ||||
| $ | 22,291,654 | $ | 11,354,430 | |||||
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 5 – INTANGIBLE ASSETS (continued)
As of December 31, 2023 and 2022, the Company recorded total amortization expense related to intangible assets of $2,624,458 and $1,767,936, 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.
The Company also recorded an impairment of PURO goodwill and intangible assets of $6,805,667 (Note 2).
Future amortization of intangible assets are as follows:
| For the years ending December 31, | ||||
| 2024 | $ | 2,568,150 | ||
| 2025 | 2,568,150 | |||
| 2026 | 2,550,641 | |||
| 2027 | 2,493,363 | |||
| Thereafter | 12,111,350 | |||
| $ | 22,291,654 | |||
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:
| 2024 | $ | 63,944 | ||
| 2025 | 63,944 | |||
| 2026 | 49,260 | |||
| 2027 | 36,109 | |||
| Total lease payments | 213,257 | |||
| Less: Amount representing interest | (37,623 | ) | ||
| Present value of future minimum lease payments | 175,634 | |||
| Less: current portion | (42,445 | ) | ||
| Financing lease obligations, net of current | $ | 133,189 |
NOTE 7 – NOTES PAYABLE
As of December 31, 2023 and 2022, the Company had the following notes payable outstanding:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Loan Agreement | $ | 157,500 | $ | 157,500 | ||||
| Streeterville Notes | - | 2,807,500 | ||||||
| Directors and Officers Liability Insurance Agreement | 133,005 | 166,262 | ||||||
| Pinnacle Note | 4,095,093 | - | ||||||
| Total | 4,385,598 | 3,131,262 | ||||||
| Less: Unamortized debt discount | - | 267,433 | ||||||
| Total notes payable | 4,385,598 | 2,863,829 | ||||||
| Notes payable, current | (290,505 | ) | (2,098,685 | ) | ||||
| Notes payable, non current | $ | 4,095,093 | $ | 765,144 | ||||
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 7 – NOTES PAYABLE (continued)
Minimum obligations under these loan agreement are as follows:
| 2024 | $ | 290,505 | ||
| 2025 | 4,095,093 | |||
| $ | 4,385,598 |
Loan Agreement
The Company entered into a loan agreement in April of 2019 where the company was required to pay $157,500 in five payments in the amount of $30,000 per year, with an additional $7,500, representing interest, in year two to a loan holder. As of December 31, 2023, the Company has an outstanding balance of $157,500, and no payments have been made as of December 31, 2023.
Streeterville Note #1
On October 7, 2022, the Company entered into a Security Purchase Agreement with Streeterville Capital, LLC whereby the Company issued an 8% unsecured redeemable note in the principal amount of $2,807,500. The Company received net proceeds of $2,462,500, after the deduction of debt issuance costs of $345,000. These fees were recorded as debt discounts, net of the carrying value of the debt, and are being amortized over the life of the loan using the effective interest rate method. The note has a maturity date of April 7, 2024. At any time following the occurrence of any event of default, interest shall accrue on the outstanding balance beginning on the date the applicable event of default occurred at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.
On May 1, 2023, the Company paid an amendment fee of $65,000 which was added to principal and recorded as a debt discount. The amendment was to extend the required principal payments to September of 2023. In May of 2023, the noteholder converted $217,500 of principal in exchange for 4,405 common shares. In August of 2023, the noteholders converted an additional $250,000 of principal in exchange for 16,559 common shares.
The lender has the right at any time 6 months after the effective date, at its election, to redeem all or part of the maximum redemption amount as set forth in the promissory note. Payments of each redemption amount may be made (a) in cash, or (b) in common stock per the following formula: the portion of the applicable Redemption amount being paid in common stock divided by the common stock redemption price, or (c) by any combination of the foregoing. Whereas common stock redemption price means 87.5% multiplied by the Nasdaq minimum price. Whereas Nasdaq minimum price means the lower of: (i) the closing price on the trading day immediately preceding the date the common stock redemption price is measured; or (ii) the average closing price of the common stock for the five trading days immediately preceding the date the common stock redemption price is measured.
The principal amount of the Note may be prepaid in full, or any portion of the outstanding balance earlier than it is due; provided that in the event borrower elects to prepay all or any portion of the outstanding balance it shall pay to lender 120% of the portion of the outstanding balance borrower elects to prepay. The prepayment premium will not apply if borrower repays the Note in full on the anniversary date, which is one year from the purchase price date.
If prior to the anniversary date all redemption amounts are paid as common stock redemptions, then each time after the anniversary date that borrower makes a common stock redemption, $8,333 of the monitoring fee will be deducted from the outstanding balance, not to exceed $50,000. No interest will accrue on the monitoring fee.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 7 – NOTES PAYABLE (continued)
Streeterville Note #1 (continued)
Debt discount related to the note amounts to $345,000 and is being amortized using the effective interest method over the term of the note. The effective interest rate of the note is 21.84%. The Company paid an amendment fee in May of 2023 of $65,000 which was added to debt discount.
On November 15, 2023, the book value of the loan of $2,453,662 was settled in full for $2,125,000 using the proceeds received from an equity offering that took place in December of 2023. Refer to Note 9 of the financial statements for further detail of the equity offering. The net amount of $328,662 was recorded to gain on settlement of debt.
Interest expense recorded in the accompanying Statements of Operations by the Company was $187,323 and $53,301 for the years ended December 31, 2023 and 2022, respectively.
Streeterville Note #2
Debt discount recognized during 2023 related to the note amounts to $344,500 and is being amortized using the effective interest method over the term of the note. The effective interest rate of the note is 22.63%. The Company paid an amendment fee in May of 2023 of $35,000 which was added to debt discount. In August of 2023, the noteholders converted $266,746 of principal and $33,254 of accrued interest in exchange for 19,197 common shares.
On November 15, 2023, the book value of the loan of $2,592,788 was settled in full for $2,125,000 using the proceeds received from an equity offering that took place in December of 2023. Refer to Note 9 of the financial statements for further detail of the equity offering. The net amount of $467,788 was recorded to gain on settlement of debt.
Interest expense recorded in the accompanying Statements of Operations by the Company was $175,767 and $- for the years ended December 31, 2023 and 2022, respectively.
Directors and Officers Liability Insurance Agreement
On August 28, 2022, the Company entered into a one-year Directors and Officers Liability Insurance agreement for $318,833. Under the terms of the agreement, the Company made a down payment of $41,730, with the remaining balance financed over the remaining term at an annual percentage rate of 5.05%. Beginning in September 2022, the Company is making 10 monthly payments of $27,710, with the last payment made in June 2023. As of years ended, December 31, 2023 and 2022, the outstanding balance on the note payable was $0 and $166,262. respectively.
On August 28, 2023, the Company entered into a one-year Directors and Officers Liability Insurance agreement for $279,347. Under the terms of the agreement, the Company made a down payment of $42,115, with the remaining balance financed over the remaining term at an annual percentage rate of 6.28%. Beginning in September 2023, the Company is making 10 monthly payments of $24,411, with the last payment made in June 2024. At December 31, 2023 the outstanding balance on the note payable was $133,005.
Interest expense for the years ended December 31, 2023 and 2022 were immaterial to the consolidated financial statements.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 7 – NOTES PAYABLE (continued)
Pinnacle Note
In December 2022, the Company entered into a Loan and Security Agreement, or (the “Loan Agreement”), with Pinnacle Bank, which provides for a $5,000,000 secured revolving credit facility (the “Loan Facility”). The facility was later amended and increased to $6,000,000 on May 23, 2023. The loan is subject to a maximum advance amount of up to 85% of net face amount of eligible accounts, plus the lessor a) of the sum of 20% of the aggregate eligible inventory value of raw materials and 35% of the aggregate eligible inventory value of finished goods, b) $1 million, c) 80% of the net orderly liquidation value of raw materials and finished goods, or d) 100% of the aggregate outstanding principal amount of advances. In no event shall the aggregate amount of the outstanding advances under the Loan Facility be greater than $6 million. The loan matures on January 25, 2025. The principal amount of outstanding revolving loan, together with accrued and unpaid interest, is due on the maturity date.
The loan accrues interest at a 1.50% margin above the greater of the prime rate or 4.00%. The interest margin is increased to 2.00% in respect to the advances against eligible inventory. If the Company fails to perform any covenant, term or provision of the Loan Agreement, then interest shall accrue at the rate of 6.0% above the interest rate. If after the occurrence of an event of default and the loan is not paid in full by the maturity date, the loan shall bear interest at the rate of 18.0% above the interest rate.
Obligations under the Loan Agreement are secured by all of the Company’s assets. On the effective date the Company paid a loan fee of 2% of the amount of the Loan Facility and will be required to pay a loan fee of 1.5% of the amount of the Loan Facility annually thereafter.
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and the Subsidiaries, including, without limitation, restrictions on liens, indebtedness, fundamental changes, capital expenditures, consignments of inventory and distributions.
The Loan Agreement contains customary events of default, including, without limitation, payment defaults, covenant defaults, breaches of certain representations and warranties, certain events of bankruptcy and insolvency, certain events under ERISA and judgments. If an event of default occurs and is not cured within any applicable grace period or is not waived, the Lender is entitled to take various actions, including, without limitation, the acceleration of amounts due thereunder and termination of commitments under the Loan Facility.
There was a $4,095,093 outstanding balance under the Loan Facility as of December 31, 2023 which has all been classified as long term. Interest expense recorded in the accompanying Statements of Operations by the Company was $506,424 and $-0- for the years ended December 31, 2023 and 2022, respectively.
Chase Credit Facility
In connection with the acquisition of LED Supply Co, LLC, the Company assumed $1,728,474 in principal and $71,724 in accrued interest relating to a credit facility issued by JP Morgan Chase Bank. On March 15, 2023, the Company paid the principle in full and accrued interest of $71,724, for an aggregate payment of $1,800,199, by drawing down on the Company’s credit facility with Pinnacle Bank.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 8 – FAIR VALUE MEASUREMENTS
Accounting guidance on fair value measurements requires that financial assets and liabilities be classified and disclosed in one of the following categories of the fair value hierarchy:
Level 1 – Based on unadjusted quoted prices for identical assets or liabilities in an active market.
Level 2 – Based on observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3– Based on unobservable inputs that reflect the entity’s own assumptions about the assumptions that a market participant would use in pricing the asset or liability.
We did not have any transfers between levels during the periods presented.
The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheets on a recurring basis as of December 31, 2023 and 2022:
| Carrying Amount |
Fair Value | Quoted Priced in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||
| Assets | ||||||||||||||||||||
| Money market funds | $ | 26,828 | $ | 26,828 | $ | 26,828 | $ | - | $ | - | ||||||||||
| Total assets | $ | 26,828 | $ | 26,828 | $ | 26,828 | $ | - | $ | - | ||||||||||
| Liabilities | ||||||||||||||||||||
| Contingent consideration | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Warrant liability | 9,987 | 9,987 | - | - | 9,987 | |||||||||||||||
| Total liabilities | $ | 9,987 | $ | 9,987 | $ | - | $ | - | $ | 9,987 | ||||||||||
| As of December 31, 2023 | ||||||||||||||||||||
| Assets | ||||||||||||||||||||
| Money market funds | $ | 27,153 | $ | 27,153 | $ | 27,153 | $ | - | $ | - | ||||||||||
| Total assets | $ | 27,153 | $ | 27,153 | $ | 27,153 | $ | - | $ | - | ||||||||||
| Liabilities | ||||||||||||||||||||
| Contingent consideration | $ | 9,757,969 | $ | 9,757,969 | $ | - | $ | - | $ | 9,757,969 | ||||||||||
| Warrant liability | 7,249 | 7,249 | - | - | 7,249 | |||||||||||||||
| Total liabilities | $ | 9,765,218 | $ | 9,765,218 | $ | - | $ | - | $ | 9,765,218 | ||||||||||
The carrying amounts of accounts receivable, accounts payable and short-term debt approximated fair values as of December 31, 2023 and 2022 because of the relatively short maturity of these instruments. There were no other level 3 or level 1 assets or liabilities as if December 31, 2023.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 8 – FAIR VALUE MEASUREMENTS (continued)
Money market funds – Cash equivalents of $27,153 and $26,828 as of December 31, 2023 and 2022, respectively, consisted of money market funds. Money market funds are classified as Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.
Contingent consideration – As a result of the merger transaction, the company assumed an Earn-out liability, which is remeasured each reporting period. Given the unobservable nature of the inputs, the fair value measurement of the deferred earn-out is deemed to use Level 3 inputs. The Earn-out liability was accounted for as a liability as of the date of the merger transaction and will be remeasured to fair value until the Earnout Triggering Events are met.
Warrant liability – The fair value of the warrant liability is derived through the Black Scholes method and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.
Other Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, GAAP requires that, under certain circumstances, we also record assets and liabilities at fair value on a nonrecurring basis.
In connection with the acquisitions of SciAir, KES, and Akida during 2021 and VisionMark in 2022, as discussed in Note 2, we used various valuation techniques to determine fair value, with the primary techniques being discounted cash flow analysis and the relief-from-royalty, a form of the multi-period excess earnings, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy.
NOTE 9 – STOCKHOLDERS’ EQUITY
At the Market Sales Agreement
On July 1, 2022, the Company filed a $50,000,000 mixed use shelf registration (Form S-3) and entered into an At The Market sales agreement (“ATM”) with Maxim Group, LLC for a total of $9,000,000, as a readily available source of funding if needed. During the year ended December 31, 2022 the Company sold 6,438 ATM shares through the sales agent with net proceeds of $929,736. During 2023, an additional 14,546 shares have been sold for net proceeds of $2,246,802, leaving a gross balance of $5,693,833 on the ATM facility. The ATM facility expired July 1, 2023. The shelf registration statement will expire on July 12, 2025.
Reverse Stock Split
May 31, 2023
Applied UV, Inc. (the “Company”) filed a Certificate of Amendment to the Company’s Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Certificate of Amendment”) to effect a 1-for-5 reverse stock split (the “reverse stock split”) of the shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), on May 30, 2023. The Certificate of Amendment has no effect on the number of authorized shares of Common Stock or their par value. No fractional shares will be issued in connection with the reverse stock split and stockholders will receive cash in lieu of fractional shares.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
Reverse Stock Split (continued)
The Common Stock began trading on a reverse stock split-adjusted basis on the Nasdaq Capital Market when the market opened on May 31, 2023. The trading symbol for the Common Stock will remain “AUVI.” The Common Stock was assigned a new CUSIP number (03828V402) following the reverse stock split. The Company has adjusted the number of shares available for future grant under its equity incentive plan as well as the number of outstanding awards, the exercise price per share of outstanding stock options and other terms of outstanding awards issued to reflect the effects of the reverse stock split.
December 12, 2023
Applied UV, Inc. (the “Company”) filed a Certificate of Change to the Company’s Articles of Incorporation with the Secretary of State of the State of Nevada (the “Certificate of Change”) to effect a 1-for-25 reverse stock split (the “reverse stock split”) of the shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), on December 12, 2023, and simultaneously decrease the total number of authorized shares of Common Stock at the same ratio as the reverse stock split. The Certificate of Change has no effect on the par value of the Common Stock. No fractional shares were issued in connection with the reverse stock split and stockholders received one share of Common Stock in lieu of a fractional share.
The Common Stock began trading on a reverse stock split-adjusted basis on The Nasdaq Capital Market when the market opened on December 12, 2023. The trading symbol for the Common Stock remains “AUVI.” The Common Stock was assigned a new CUSIP number (037988300) following the reverse stock split.
All historical share and per share amounts in these financial statements have been retroactively adjusted to reflect both of the reverse stock splits.
June Public Offering
On June 16, 2023, the Company entered into an underwriting agreement, pursuant to which the Company agreed to sell to the Underwriters, an aggregate of (i) 189,200 shares of its common stock, at a public offering price of $1.00 per share and (ii) pre-funded warrants to purchase 10,800 shares of Common Stock at a price of $1 per share, minus $0.001. In addition, the Company granted the Underwriters a 45 day over allotment option to purchase up to an additional 30,000 shares of Common Stock at the public offering price per security, less underwriting discounts, and commissions, of which was 8,000 shares were purchased. The net proceeds to the Company from the Offering were $4,383,997, after deducting underwriting discounts and commissions and the payment of other offering expenses associated with the Offering that were payable by the Company. Each pre-funded warrant is exercisable for one share of our common stock, with an exercise price equal to $0.001 per share, at any time that the pre-funded warrant is outstanding. There is no expiration date for the pre-funded warrants. The holder of a pre-funded warrant will not be deemed a holder of our underlying common stock until the pre-funded warrant is exercised.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
November Public Offering
On November 14, 2023, the Company closed a public offering, selling 1,706,667 units at $3.75 each. Each Unit consisted of (i) either a share of common stock or a pre-funded warrant to purchase one share of common stock, (ii) 1/10th of a Series A warrant, and (iii) 1/10th of a Series B warrant. The total number of shares and pre-funded warrants issued were 65,334 and 1,641,333, respectively. Following the adjustments made to the strike price and number of shares underlying the Series A and Series B warrants, the total number of shares underlying the Series A warrants and Series B warrants is 4,191.858 and 8,383,707, respectively. In addition, the Company granted the underwriter a 45-day over-allotment option to purchase up to 256,000 shares of Common Stock and/or 256,000 pre-funded warrants and/or 25,600 Series A warrants and/or 25,600 Series B warrants. On November 16, 2023, the underwriter partially exercised its over-allotment option with respect to 12,079 pre-funded warrants. Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $0.00001 per share. The pre-funded warrants are immediately exercisable and may be exercised at any time until all of the pre-funded warrants are exercised in full at an exercise price equal to $0.00025 per share. The Series A warrants and Series B warrants are exercisable at an exercise price of $1.58 per share of common stock and expire five years from the closing date of the offering. Note that the strike prices of the Series A warrants and Series B warrants were adjusted pursuant to the Share Combination Event Adjustment clauses in the Series A warrants and Series B warrants.”
The net proceeds to the Company from the Offering were $5,033,276, after deducting underwriting discounts and commissions and the payment of other offering expenses associated with the Offering that were payable by the Company. A portion of the proceeds were used to payoff the net book value of the Streeterville notes in full in the amount of $4,250,000.
Amendment of the Certificate of Designation
On July 11, 2022, the Board of Directors approved the reissuance of 8,000 shares of the Company’s Series X Super Voting Preferred Shares, which represent the remainder of the designated but unissued shares of Super Voting Preferred Stock.
On March 9, 2022, the Board of Directors approved a resolution that authorized the senior management of the Company to purchase up to and limited to one million shares of common stock between March 10, 2022 and September 30, 2022. As of December 31, 2023, the Company has a total 908 of treasury shares.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
Preferred Stock, Series A Cumulative Perpetual
Holders are entitled to receive, cumulative cash dividends at the annual rate of 10.5% on $25.00 liquidation preference per share of the Series A Perpetual Preferred Stock. Dividends accrue and are payable in arrears beginning August 15, 2021, regardless of whether declared or there are sufficient earnings or funds available for payment. Sufficient net proceeds from the offering must be set aside to pay dividends for the first twelve months from issuance. The Company has an optional redemption right beginning July 16, 2022, which redemption price declines annually. The initial redemption price after year 1 is $30 and decreases annually over 5 years to $25 per share. The Company also has a special optional redemption right upon the occurrence of a Delisting Event or Change of Control, as defined, at $25 per share plus accrued and unpaid dividends. The holders have no voting rights, except for voting on certain corporate decisions, or upon default in payment of dividends for any twelve periods, in which case the holders would have voting rights to elect two additional directors to serve on the Board of Directors. Such shares are not convertible unless and until the occurrence of a Delisting Event or Change of Control and when the Company has not exercised its special optional redemption right. The conversion price would be the lesser of the amount converted based on the $25.00 liquidation preference plus accrued dividends divided by the common stock price of the Delisting Event or Change of Control (as defined) or $5.353319 (Share Cap). Effectively, the Share Cap limits the common stock price to no lower than $4.67.
Preferred Stock, Series B Cumulative Perpetual
On January 25, 2023, the Company filed the Certificate of Designations, Rights, and Preferences for the Series B Preferred Stock with the Secretary of State of the State of Delaware, which became effective upon acceptance for record. On January 26, 2023, the Company filed the Amendment to the Series B Certificate of Designation (together with the Certificate of Designations, Rights, and Preferences for the Series B Preferred Stock, the “Series B Certificate of Designation”), which became effective upon acceptance for record. The Series B Certificate of Designation classified a total of 1,250,000 shares of the Company’s authorized shares of preferred stock, $0.0001 par value per share, as Series B Preferred Stock. As set forth in the Series B Certificate of Designation, the Series B Preferred Stock ranks, as to dividend rights and rights upon the Company’s liquidation, dissolution or winding up: (i) senior to all classes or series of Common Stock and to all other equity securities issued by the Company expressly designated as ranking junior to the Series B Preferred Stock; (ii) on parity with the Company’s 10.5% Series A Cumulative Perpetual Preferred Stock; (iii) at least on parity with any future class or series of the Company’s equity securities designated on or after January 25, 2023, including the Company’s 5% Series C Cumulative Perpetual Preferred Stock; and (iv) effectively junior to all the Company’s existing and future indebtedness (including indebtedness convertible into Common Stock or preferred stock) and to the indebtedness and other liabilities of the Company’s existing or future subsidiaries. Holders of Series B Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 2% of the $6 per share liquidation preference per year (equivalent to $0.12 per share per year). Dividends will be payable quarterly in arrears, on or about the 15th day after the end of a quarterly period, beginning on April 15, 2023.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
Preferred Stock, Series B Cumulative Perpetual (continued)
The holders of Series B Preferred Stock, at his, her, or its option, can require the Company to redeem all or a portion of the Series B Preferred Stock at any time and from time to time held by such holder after 30 months from the original issue date at a redemption price of $2.00 per share, plus any accrued and unpaid dividends (whether or not authorized or declared), up to but not including the date fixed for redemption, without interest, to the extent the Company has funds legally available therefore; provided that if a holder requires the Company to redeem all or a portion of the Series B Preferred Stock at any time and from time to time held by such holder on or after the five (5) year anniversary of the original issue date, the redemption price will be $6.00 per share, plus any accrued and unpaid dividends (whether or not authorized or declared), up to but not including the date fixed for redemption, without interest, to the extent the Company has funds legally available therefore. The Series B Certificate of Designation provides for a special optional redemption by the Company upon a change of control, in whole or in part, for $6.00 per share, plus accrued but unpaid dividends to, but not including the redemption date. The holders of Series B Preferred Stock neither have voting nor preemptive rights. Each share of Series B Preferred Stock is convertible, at any time and from time to time from and after the original issue date, at the option of the holder, into one share of Common Stock. The Series B Preferred Stock has no stated maturity and will not be subject to any sinking fund for the payment of the redemption price or mandatory redemption. The Series B Preferred Stock has been classified as temporary equity, outside of permanent equity, as they are redeemable at the option of the holder.
Preferred Stock, Series C Cumulative Perpetual
On January 25, 2023, the Company filed the Certificate of Designations, Rights, and Preferences for the Series C Preferred Stock with the Secretary of State of the State of Delaware, which became effective upon acceptance for record. On January 26, 2023, the Company filed the Amendment to the Series C Certificate of Designation (together with the Certificate of Designations, Rights, and Preferences for the Series C Preferred Stock, the “Series C Certificate of Designation”), which became effective upon acceptance for record. The Series C Certificate of Designation classified a total of 2,500,000 shares of the Company’s authorized shares of preferred stock, $0.0001 par value per share, as Series C Preferred Stock. As set forth in the Series C Certificate of Designation, the Series C Preferred Stock will rank, as to dividend rights and rights upon the Company’s liquidation, dissolution or winding up: (i) senior to all classes or series of Common Stock and to all other equity securities issued by the Company expressly designated as ranking junior to the Series C Preferred Stock; (ii) on parity with any future class or series of the Company’s equity securities expressly designated as ranking on parity with the Series C Preferred Stock; (iii) junior to all equity securities issued by the Company with terms specifically providing that those equity securities rank senior to the Series C Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up; and (iv) effectively junior to all the Company’s existing and future indebtedness (including indebtedness convertible into Common Stock or preferred stock) and to the indebtedness and other liabilities of the Company’s existing or future subsidiaries. Holders of Series C Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 5% of the $5.00 per share liquidation preference per year (equivalent to $0.25 per share per year). Dividends will be payable quarterly in arrears, on or about the 15th day after the end of a quarterly period, beginning on April 15, 2023. The Company, to the extent it has legally available funds, must redeem all shares of Series C Preferred Stock on the date that is three years from January 26, 2023. The Series C Certificate of Designation provides for a special optional redemption by the Company upon a change of control, in whole or in part, for $5.00 per share, plus accrued but unpaid dividends to, but not including the redemption date.The holders of Series C Preferred Stock neither have voting nor preemptive rights. Each share of Series C Preferred Stock will be convertible, at any time and from time to time from and after January 26, 2023, at the option of the holder, into one share of Common Stock. The Series C Preferred Stock has no stated maturity and will not be subject to any sinking fund for the payment of the redemption price or mandatory redemption. The Series C Preferred Stock shall be classified as temporary equity, outside of permanent equity, as they are redeemable at a fixed or determinable price on a fixed or determinable date.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
Suspension of Preferred Dividends
On June 19, 2023, the Board of Directors of Applied UV, Inc (“Applied UV” or the “Company”) temporarily suspended the Company’s: (i) monthly $0.21875 dividend on its 10.5% Series A Cumulative Perpetual Preferred Stock (“Series A Preferred Stock”), commencing with the July dividend, that would have been paid on July 17, 2023; (ii) quarterly $0.03 dividend on its 2% Series B Cumulative Perpetual Preferred Stock (“Series B Preferred Stock”), commencing with the dividend for the quarter ending June 30, 2023, that would have been paid on July 17, 2023; and (iii) quarterly $0.0625 dividend on its 5% Series C Cumulative Perpetual Preferred Stock (“Series C Preferred Stock”), commencing with the dividend for the quarter ending June 30, 2023, that that would have been paid on July 17, 2023. The dividends on each Series cited above have been suspended by the Board for the next eleven (11) months, or until the month of May 2024 for the Series A Preferred Stock or the quarter ending March 31, 2024 for the Series B and C Preferred Stock but may be re-instated at any time in the Board’s discretion (the “Suspension Period”). The suspension of these dividends will defer approximately $1.5 million in cash dividend payments until after the Suspension Period.
Notwithstanding anything contained herein to the contrary, dividends on the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends, and whether or not such dividends are authorized or declared. No interest is payable in respect of any dividend payment or payments on the Series A, B or C Preferred Stock which may be in arrears.
The Company previously paid a monthly cash dividend of $0.21875 per share on the Series A Preferred Stock having a record date of June 2, 2023, a quarterly cash dividend of $0.03 per share on the Series B Preferred Stock having a record date of March 31, 2023, and a quarterly cash dividend of $0.0625 on the Series C Preferred Stock having a record date of March 31, 2023. At December 31, 2023, the Company has accrued dividends payable of $849,500.
A summary of the Company’s option activity and related information follows:
| Number
of Options |
Weighted-Average Exercise Price |
Weighted-Average Grant Date Fair Value |
Weighted-Average Remaining Contractual Life (in years) |
Aggregate intrinsic value |
||||||||||||||||
| Balances, January 1, 2022 | 5,155 | $ | 888.75 | $ | - | 9.95 | $ | - | ||||||||||||
| Options granted | 5,112 | 207.50 | 207.50 | 10.00 | - | |||||||||||||||
| Options forfeited | (2,267 | ) | 877.50 | - | - | - | ||||||||||||||
| Options exercised | - | - | - | - | - | |||||||||||||||
| Balances, December 31, 2022 | 8,000 | $ | 451.25 | $ | - | 9.03 | $ | - | ||||||||||||
| Options granted | 3,840 | 250.00 | 109.35 | 10.00 | - | |||||||||||||||
| Options forfeited | (7,214 | ) | 253.45 | - | - | - | ||||||||||||||
| Options exercised | - | - | - | - | - | |||||||||||||||
| Balances, December 31, 2023 | 4,626 | $ | 543.01 | $ | - | 8.04 | $ | - | ||||||||||||
| Vested and Exercisable | 4,626 | $ | 543.01 | $ | - | $ | - | $ | - | |||||||||||
Share-based compensation expense for options totaling $554,026 and $567,194 was recognized for the years ended December 31, 2023 and 2022, respectively, based on requisite service periods.
The valuation methodology used to determine the fair value of the options issued during the year was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options.
Exchange of Stock Options for the claw-back of Common Shares and Settlement of the 2022 Earnout
Pursuant to the December 11, 2023 Restructuring Agreements with the sellers of Puro Lighting and LED Supply Co., the Company issued a total of 490,000 options to purchase common stock; 380,000 in exchange for the cancellation of the Company’s common stock previously issued as per the respective Merger Agreements, and 110,000 for settlement of the 2022 contingent earnout liability (Note 2). The options have a 5-year life with immediate vesting and an exercise price of $1.81.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
Exchange of Stock Options for the claw-back of Common Shares and Settlement of the 2022 Earnout (continued)
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options.
Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation of estimated volatility is based on historical stock prices of peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.
As of December 31, 2023, there was no unrecognized compensation expense related to unvested employee options granted under the Company’s share-based compensation plans.
The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the years ended December 31, 2023 and 2022 are set forth in the table below.
| 2023 | 2022 | |||
| Dividend Yield | 0% | 0% | ||
| Volatility | 90.27% to 91.01% | 78.95% – 92.96% | ||
| Risk-Free Rate | 3.53% to 3.60% | 1.26% – 3.46% | ||
| Expected Life (in years) | 5.83–6.06 | 5.31 – 6.08 |
Common Stock Warrants
A summary of the Company’s warrant activity and related information follows:
| Number
of Shares |
Weighted-Average Exercise Price |
|||||||
| Balances, January 1, 2022 | 1,539 | $ | 730.00 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Balances, December 31, 2022 | 1,539 | $ | 730.00 | |||||
| Balances, January 1, 2023 | 1,539 | $ | 730.00 | |||||
| Granted- Prefunded warrants | 1,652,134 | 0.00025 | ||||||
| Exercised- Prefunded warrants | (1,234,468 | ) | 0.00025 | |||||
| Granted – A & B warrants | 12,575,565 | 1.58 | ||||||
| Exercised – A & B Warrants | - | 1.58 | ||||||
| Balances, December 31, 2023 | 12,994,770 | $ | 1.62 | |||||
| Vested | 12,994,770 | $ | 1.62 | |||||
The total number of shares underlying the Series A warrants and Series B warrants is 4,191.858 and 8,383,707, respectively, with an exercise price of $1.58 per share.
In relation to the common stock offering that was closed last December 28, 2021, On January 5, 2022, the underwriters fully exercised their over-allotment option to purchase an additional 80,000 shares of common stock at the public offering price of $15.00 per share. The Company received gross proceeds of $1,200,000 for the over-allotment, which resulted in net proceeds to us of $1,092,000, after deducting underwriting discounts and commissions of $108,000.
Restricted Stock Awards
The Company records compensation expense for restricted stock awards based on the quoted market price of our stock at the grant date and the expense is amortized over the vesting period. These restricted stock awards are subject to time-based vesting conditions based on the continued service of the restricted stock award holder.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
Restricted Stock Awards (continued)
The following table presents the restricted stock units activity from January 1, 2022 through December 31, 2023
| Number
of Shares |
Weighted-Average Fair Market Value |
|||||||
| Unvested shares at January 1, 2022 | 2,340 | $ | 588.75 | |||||
| Granted and unvested | 1,660 | 262.50 | ||||||
| Vested | (808 | ) | 485.00 | |||||
| Forfeited/Cancelled | (2,492 | ) | $ | 556.25 | ||||
| Unvested shares at December 31, 2022 | 700 | $ | 297.50 | |||||
| Granted and unvested | 440 | 126.25 | ||||||
| Vested | (373 | ) | 353.75 | |||||
| Forfeited/Cancelled | (120 | ) | 145.00 | |||||
| Unvested shares, December 31, 2023 | 647 | $ | - | |||||
| Vested as of December 31, 2023 | 2,827 | $ | 571.25 | |||||
Upon vesting, the restricted stock units are converted to common shares. Based on the terms of the restricted share and restricted stock unit grants, all forfeited shares revert back to the Company.
In connection with the grant of restricted shares, the Company recognized $121,225 and $153,208 of compensation expense within its statements of operations for the years ended December 31, 2023 and 2022, respectively.
On August 11, 2023, the Company issued 2,000 shares of common stock at $19.50/share, or a total of $39,000, as compensation per a settlement agreement with Maxim Group, LLC.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 10 – LEASING ARRANGEMENTS
The Company determines whether an arrangement qualifies as a lease under ASC 842 at inception. The Company has operating leases for office space and office equipment. The Company’s leases have remaining lease terms of one year to seven years, some of which include options to extend the lease term for up to five years. The Company considered these options to extend in determining the lease term used to establish the Company’s right-of use assets and lease liabilities once reasonably certain of exercise. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The operating lease ROU asset also includes any lease payments made in advance of lease commencement and excludes lease incentives. The lease terms used in the calculations of the operating ROU assets and operating lease liabilities include options to extend or terminate the lease when the Company is reasonably certain that it will exercise those options. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate of 7.6% based on the information available at commencement date in determining the present value of lease payments.
Munnworks, LLC entered into a lease agreement in Mount Vernon, New York for a term that commenced on April 1, 2019 and will expire on the 31st day of March 2024 at a monthly rate of $13,400. In March of 2021, the Company obtained additional lease space and the agreement was amended to increase rent expense to $15,000 per month. On July 1, 2021, the Company again obtained additional lease space and rent expense was increased to $27,500 per month through July 1, 2024 and $29,150 per month from July 1, 2024 through July 1, 2026.
On September 28, 2021, the Company entered into a lease agreement in Kennesaw, Georgia for office and production space for a term that commenced on September 29, 2021 and will expire on October 1, 2024, with a rate ranging from $14,729 to $15,626 per month.
On April 1, 2022, the Company entered into a lease agreement in Brooklyn, New York for office and production space that commenced on April 1, 2022 and will expire on June 1, 2023, with a rate ranging from $94,529 to $103,295 per month. On December 31, 2022, the Company exercised its option to renew the first renewal term, commencing on July 1, 2023 and ending on June 30, 2025. As a result of the extension of the lease, the Company recorded an additional $2,146,785 of ROU asset and liability on the balance sheet on December 31, 2023.
On January 26, 2023, the Company entered into a lease agreement in Lakewood, Colorado for office and production space that commenced on January 27, 2023 and will expire on January 27, 2026, with a rate ranging from $17,000 to $18,387 per month.
Rent expense for the years ended December 31, 2023 and 2022 was $1,903,318 and $1,375,848, respectively.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 10 – LEASING ARRANGEMENTS (continued)
Schedule maturities of operating lease liabilities outstanding as of December 31, 2023 are as follows:
| Years Ending: | ||||
| 2024 | 1,914,173 | |||
| 2025 | 1,190,213 | |||
| 2026 | 174,900 | |||
| Total lease payments | 3,279,286 | |||
| Less: Imputed Interest | (225,764 | ) | ||
| Present value of future minimum lease payments | $ | 3,053,522 |
Consistent with ASC 842-20-50-4, the Company calculated its total lease cost based solely on its monthly rent obligation. The Company had no cash flows arising from its lease, no finance lease cost, short term lease cost, or variable lease costs. The Company’s lease does not produce any sublease income, or any net gain or loss recognized from sale and leaseback transactions. As a result, the Company did not need to segregate amounts between finance and operating leases for cash paid for amounts included in the measurement of lease liabilities, segregated between operating and financing cash flows; supplemental non-cash information on lease liabilities arising from obtaining right-of-use assets; weighted-average calculations for the remaining lease term; or the weighted-average discount rate.
NOTE 11 – OFFICER LOAN
In December of 2023, an officer of the Company loaned $200,000 to the Company. The loan payable is due on demand, is unsecured, and is non-interest bearing. As of December 31, 2023, the outstanding balance remained at $200,000.
NOTE 12 – PAYROLL PROTECTION PROGRAM
In April of 2020, the Company submitted a Paycheck Protection Program (“PPP”) application to Chase Bank for a loan amount equal to $296,827. The amount was approved, and the Company has received the funds. The PPP Loan, which is in the form of a PPP promissory note and agreement, matures in April of 2025 and bears interest at a rate of 1.00% per annum. The Lender will have 90 days to review borrower’s forgiveness application and the SBA will have an additional 60 days to review the Lender’s decision as to whether the borrower’s loan may be forgiven. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered utilities, and certain covered mortgage interest payments during the twenty-four-week period beginning on the date of first disbursement of the PPP Loan. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee earning more than $100,000, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. The loan was forgiven in July of 2021 and in accordance with ASC 470, the amount was recorded as other income.
Under the CARES Act, further economic relief was provided through the Employee Retention Tax Credit (ERTC). In the year ended December 31, 2022, the Company recorded non-operating income of $205,052 related to the ERTC as a component of Other Income.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 13 – INCOME TAXES
The provision for federal and state income taxes for the years ended is as follows:
| 2023 | 2022 | ||||||
| Current provision: | |||||||
| Federal | $ | $ | |||||
| State | |||||||
| Deferred provision (benefit): | |||||||
| Federal | |||||||
| State | |||||||
| Total Deferred | |||||||
| Total provision for income taxes | $ | $ |
Realization of future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. Management has considered these factors in reaching conclusion as to the valuation allowance for financial reporting purposes and has recorded a full valuation allowance against the deferred tax asset.
The income tax effect of temporary differences comprising the deferred tax assets and deferred tax liabilities is a result of the following at December 31:
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss | $ | 4,803,000 | $ | 3,170,457 | ||||
| Fixed assets | (98,000 | ) | (51,573 | ) | ||||
| Lease | 18,000 | 52,340 | ||||||
| Loss on contingency | (218,000 | ) | (193,398 | ) | ||||
| Intangible assets | (1,630,000 | ) | 1,663,044 | |||||
| Research and Development | 178,000 | 64,189 | ||||||
| Stock based compensation | 2,000 | 95,908 | ||||||
| Donations | 5,000 | - | ||||||
| Accrual to cash conversion | 2,578,000 | 1,099,403 | ||||||
| Total | 5,638,000 | 5,900,370 | ||||||
| Valuation allowance | (5,638,000 | ) | (5,900,370 | ) | ||||
| Net | $ | - | $ | - | ||||
The income tax provision differs from the expense that would result from applying federal statutory rates to income before income taxes because the Company is subject to state income taxes, deferred income taxes are based on average tax rates and a portion of gifts and meals and entertainment are not tax deductible. A valuation allowance has been provided to reduce deferred tax assets to an amount that is more likely than not to be realized.
Prior to the share exchange, Munn Works, LLC was taxed as a single member Limited Liability Company for federal and state income tax purposes. As such, the Company will not pay income taxes for earnings prior to the share exchange, as any income or loss will be included in the tax returns of the individual member. Accordingly, no provision is made for income taxes in the financial statements prior to the share exchange.
Effective tax rates differ from the federal statutory rate of 21% applied to income before provision for income taxes due to the following:
| 2023 | 2022 | |||||||
| Federal statutory rate times financial statement income | $ | (2,580,406 | ) | $ | (3,551,627 | ) | ||
| Permanent tax basis differences | (987,636 | ) | (2,268 | ) | ||||
| Deferred true up | 352,315 | 159,849 | ||||||
| State taxes, net | (498,676 | ) | (158,480 | ) | ||||
| Change in Valuation allowance | (675,416 | ) | 3,519,246 | |||||
| Intangibles acquired | 4,433,135 | - | ||||||
| Other | (43,316 | ) | 33,280 | |||||
| Total provision for income taxes | $ | - | $ | - | ||||
The Company has available net operating loss approximately $28,790,347 for tax purposes to offset future taxable income. Pursuant to the Tax Reform Act of 1986, annual utilization of the Company’s net operating loss and contribution carryforwards may be limited if a cumulative change in ownership of more than 50% is deemed to occur within any three-year period. The tax years 2019 through 2022 remain open to examination by federal agencies and other jurisdictions in which it operates.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 14 – SEGMENT REPORTING
FASB Codification Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has three reportable segments: the design, manufacture, assembly and distribution of a suite of air (fixed and mobile) and surface disinfecting systems for use in healthcare, hospitality, food, wine, and commercial municipal and residential markets (Disinfectant segment); the manufacture of fine mirrors and custom furniture specifically for the hospitality and retail industries (Hospitality segment); and the Corporate segment, which includes expenses primarily related to corporate governance, such as board fees, legal expenses, audit fees, executive management, and listing costs. The segments are determined based on several factors, including the nature of products and services, the nature of production processes, customer base, delivery channels and similar economic characteristics.
An operating segment’s performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, segment selling, general and administrative expenses, research and development costs and stock-based compensation. It does not include other charges (income), or interest.
| Hospitality | Disinfectant | Corporate | Total | |||||||||||||
| Balance sheet at December 31, 2023 | ||||||||||||||||
| Assets | $ | 11,038,438 | $ | 12,029,837 | $ | 35,317,956 | $ | 58,386,231 | ||||||||
| Liabilities | 10,579,244 | 9,326,715 | 13,596,653 | 33,502,612 | ||||||||||||
| Balance sheet at December 31, 2022 | ||||||||||||||||
| Assets | $ | 9,638,828 | $ | 19,831,097 | $ | 3,257,502 | $ | 32,727,427 | ||||||||
| Liabilities | 10,666,643 | 1,545,217 | 3,281,672 | 15,493,532 | ||||||||||||
| Hospitality | Disinfectant | Corporate | Total | |||||||||||||
| Income Statement for the year ended December 31, 2023 | ||||||||||||||||
| Net Sales | $ | 21,016,762 | $ | 19,701,426 | $ | - | $ | 40,718,188 | ||||||||
| Cost of Goods Sold | 17,086,385 | 15,805,303 | - | 32,891,688 | ||||||||||||
| Research and development | - | 552,220 | - | 552,220 | ||||||||||||
| Loss on impairment of goodwill and intangibles | - | 6,473,310 | - | 6,473,310 | ||||||||||||
| Selling, General and Administrative expenses | 4,729,820 | 12,512,485 | 3,127,505 | 20,369,810 | ||||||||||||
| Income Statement for the year ended December 31, 2022 | ||||||||||||||||
| Net Sales | $ | 13,639,370 | $ | 6,500,479 | $ | - | $ | 20,139,849 | ||||||||
| Cost of Goods Sold | 12,375,645 | 3,725,910 | - | 16,101,555 | ||||||||||||
| Research and development | - | 319,167 | - | 319,167 | ||||||||||||
| Loss on impairment of goodwill and intangibles | - | 6,993,075 | - | 6,993,075 | ||||||||||||
| Selling, General and Administrative expenses | 4,351,932 | 7,680,551 | 2,771,585 | 14,804,068 | ||||||||||||
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 15 – PROFORMA FINANCIAL STATEMENTS (UNAUDITED)
Unaudited Supplemental Pro Forma Data
Unaudited pro forma results of operations for the years ended December 31, 2023 and 2022 as though the company acquired Akida, KES, Visionmark, SciAir, PURO, and LED (the “Acquired Companies”) on January 1, 2022 is set forth below.
| Year Ended December 31, |
Year Ended December 31, |
|||||||
| 2023 | 2022 | |||||||
| Net Sales | $ | 41,429,708 | $ | 40,796,175 | ||||
| Net Loss | (13,550,570 | ) | (18,999,098 | ) | ||||
| Net Loss attributable to common stockholders: | ||||||||
| Dividends to preferred shareholders | (1,618,981 | ) | (1,449,000 | ) | ||||
| Net Loss attributable to common stockholders | (15,169,551 | ) | (20,448,098 | ) | ||||
| Basic and Diluted Loss Per Common Share | $ | (40.69 | ) | $ | (153.70 | ) | ||
| Weighted Average Shares Outstanding - basic and diluted | 372,779 | 133,040 | ||||||
NOTE 16 – SUBSEQUENT EVENTS
On January 16, 2024, the Company filed a certificate of Amendment with the state of Nevada to increase the number of authorized common shares to 150,000,000.
On February 8, 2024, Applied UV, Inc. (the “Company”), SteriLumen, Inc. and MunnWorks, LLC (together with SteriLumen, Inc., the “Subsidiaries”) entered into that certain Business Loan and Security Agreement (the “First Loan Agreement”) with Cedar Advance LLC (the “Lender”).
Pursuant to the First Loan Agreement, the Company borrowed a total of $515,000 from the Lender at an annual interest rate of 29% for a term of a total of 40 weeks (the “First Loan”). In the Event of Default, and if not cured within three (3) business days, the Company will grant to the Lender a continuing interest, subject to the first priority security interest granted to Pinnacle Bank, in and to any and all amounts owing to the Company now or in the future and all other tangible and intangible personal property. In the Event of Default, the Lender may, among other things, debit amounts due from the Company’s checking account and accelerate the total principal amount, including any accrued interest, immediately. In the event of acceleration, interest thereafter will accrue on the total amount due at 24% per annum. The First Loan may be prepaid at any without penalty.
F-
Applied UV, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
NOTE 16 – SUBSEQUENT EVENTS (continued)
On March 10, 2024, the Company and the Subsidiaries entered into another Business Loan and Security Agreement (the “Second Loan Agreement” and, together with the First Loan Agreement, the “Loan Agreements”) with the Lender.
Pursuant to the Second Loan Agreement, the Company borrowed a total of $772,500 from the Lender at an annual interest rate of 28% for a term of a total of 40 weeks (the “Second Loan”). In the Event of Default, and if not cured within three (3) business days, the Company will grant to the Lender a continuing interest, subject to the first priority security interest granted to Pinnacle Bank, in and to any and all amounts owing to the Company now or in the future and all other tangible and intangible personal property. In the Event of Default, the Lender may, among other things, debit amounts due from the Company’s checking account and accelerate the total principal amount, including any accrued interest, immediately. In the event of acceleration, interest thereafter will accrue on the total amount due at 24% per annum. The Second Loan may be prepaid at any without penalty.
The Loan Agreements contain customary representations and warranties and customary affirmative and negative covenants applicable to the Company and the Subsidiaries, including, without limitation, restrictions on liens and transfer or disposal of assets. The Company intends to use the net proceeds from the Loan Agreements for general corporate purposes, including working capital.
Pursuant to the terms of the November 2023 Offering (Note 9), from January 1, 2024 through April 16, 2024, 840,627 Series A warrants and 86,363 Series B warrants have been exercised for a total of 926,990 shares at an exercise price of $1.58 for a total of $1,464,644. Additionally, during this same time period, a total of 417,621 pre-funded warrants have been exercised.
On January 2,2024, a total of 50,000 shares of the Company’s common stock were issued to TraDigital Marketing Group as compensation for services rendered.
On March 27, 2024, Applied UV, Inc., a Nevada corporation (the “Company”), entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain institutional investors (the “Purchasers”) pursuant to which the Company sold, in a registered direct offering, an aggregate of (i) 538,000 shares (the “Shares”) of common stock, par value $0.0001 per share, of the Company (“Common Stock”); and (ii) 1,188,875 pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 1,188,875 shares of Common Stock (the “Pre-Funded Warrant Shares”). The offering price per Share was $1.60 and the offering price per Pre-Funded Warrant was $1.5999.
Each Pre-Funded Warrant is exercisable for one share of Common Stock for $0.0001 immediately upon issuance until all of the Pre-Funded Warrants are exercised in full. The number of Pre-Funded Warrant Shares are subject to adjustments for stock splits, recapitalizations and reorganizations.
The Shares, Pre-Funded Warrants and Pre-Funded Warrants Shares were offered pursuant to a “shelf” registration statement on Form S-3 (Registration No. 333-266015), which was declared effective by the Securities and Exchange Commission (the “SEC”) on July 12, 2022, as supplemented by a prospectus supplement and accompanying base prospectus dated as of March 27, 2024 filed with the SEC on March 29, 2024 pursuant to Rule 424(b)(5) promulgated under the Securities Act of 1933, as amended (the “Securities Act”).
In a concurrent private placement, the Company also issued to the Purchasers unregistered warrants (the “Warrants”) to purchase up to an aggregate of 518,065 shares (the “Warrant Shares”) of Common Stock at an exercise price of $16.00 per share, subject to adjustment for reverse stock splits, recapitalizations and reorganizations. The Warrants are immediately exercisable until the date that is five (5) years from April 1, 2024.
Pursuant to this offering, 538,000 common shares were issued, and 675,437 pre-funded warrants were exercised from April 1, 2024 through April 16, 2024.
F-
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are the controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the principal executive and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
We have carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of December 31, 2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have identified a material weakness in our disclosure controls and procedures due to lack of segregation of duties and have therefore concluded that our disclosure controls and procedures are not effective at the reasonable assurance level.
A material weakness is a deficiency, or combination of deficiencies, in our internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis.
Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties. Therefore, it is difficult to effectively segregate accounting duties which comprises a material weakness in internal controls. This lack of segregation of duties leads management to conclude that the Company’s disclosure controls and procedures are not effective to give reasonable assurance that the information required to be disclosed in reports that the Company files under the Exchange Act is recorded, processed, summarized and reported as and when required.
To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate controls over our Exchange Act reporting disclosures.
Management’s Report on Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management utilized the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to conduct an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have identified a material weakness in our disclosure controls and procedures due to lack of segregation of duties and have therefore concluded that our internal controls over financial reporting are not effective at the reasonable assurance level. A material weakness is a deficiency, or combination of deficiencies, in our internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis.
Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties. Therefore, it is difficult to effectively segregate accounting duties which comprises a material weakness in internal controls. To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate controls over our Exchange Act reporting disclosures.
As an emerging growth company, management’s assessment of internal control over financial reporting was not subject to attestation by our independent registered public accounting firm.
Changes in Internal Controls over Financial Reporting
No change in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following are our executive officers and directors and their respective ages and positions as of April 16, 2024.
| Name | Age | Position | ||
| Max Munn | 80 | President, Chief Executive Officer and Director | ||
| Michael Riccio | 65 | Senior Vice President and Chief Financial Officer | ||
| Eugene E. Burleson | 83 | Chairman | ||
| Dallas C. Hack | 71 | Director | ||
| Joseph Luhukay | 77 | Director | ||
| Brian Stern | 39 | Director | ||
| Christopher Kochuba | 61 | Director |
Max Munn is the President, Chief Executive Officer and a director of the Company and is also the Chief Executive Officer of Munn Works, LLC, our subsidiary focused on the hospitality market. Mr. Munn has held this position at Munn Works for over 20 years. Mr. Munn is also Co-chairman of Dieu Donne Inc., a not-for-profit and a leading, world recognized atelier wherein dimensional, handmade paper is utilized in the making of art. Mr. Munn attended MIT from 1961-1966, majored in chemistry and architecture; and received a Bachelor of Architecture degree. Mr. Munn also attended Columbia University for post graduate studies from 1966-1968, working toward a Ph.D. in architectural history. The Board concluded that Mr. Munn’s background and leadership experiences in the hospitality industry qualify him to be a member of the Board.
Michael Riccio is a Senior Vice President and our Chief Financial Officer. Mr. Riccio joins Applied UV with more than 25 years of broad experience in leadership roles in corporate and operational finance, including corporate merger and acquisition planning and integration. From September 1986 to March 2021 Mr. Riccio was Chief Financial Officer and Treasurer of Panasonic Corporation of North America. At Panasonic Mr. Riccio lead the finance organization that supports the principal North American subsidiary of Osaka, Japan-based Panasonic Corporation. Prior to Panasonic, Mr. Riccio was the Corporate Accounting Manager for Sealed Air Corporation (SEE on NYSE), and prior to Sealed Air he began his career at CohnReznick, where he was a Senior Auditor. Mr. Riccio is a Certified Public Accountant (CPA) and holds a B.A. in accounting from Rutgers University and an MBA in finance from Rutgers Business School.
Eugene E. Burleson is a Director of the Company. He is a private investor, currently a director and Chairman of the Compensation Committee of Sunlink Health Systems, Inc. (NYSE American: SSY), an investor in healthcare facilities and related businesses located in the Southeast, and a director and the Chairman of the Compensation Committee of HealthNow New York, a private health insurance company. He was Chairman of PET DRx Corporation from June 2005 to July 1, 2010, and its Chief Executive Officer from October 2008 until its acquisition by VCA Antech in July 2010. Mr. Burleson was a director of HealthMont Inc. from September 2000 until its acquisition by SunLink in October 2003. Mr. Burleson served as Chairman of the Board of Directors of Mariner Post-Acute Network, Inc. from January 2000 to June 2002. Mr. Burleson also served as Chairman of the Board of Directors of Alterra Healthcare Inc. a developer and operator of assisted living facilities and is on the Board of Deckers Outdoor Corporation Inc. Mr. Burleson served as Chairman of the Board and Chief Executive Officer of GranCare Inc. from October 1988 to November 2000. Additionally, Mr. Burleson served as President and Chief Executive Officer of GranCare Inc. from December 1990 to February 1997. Upon completion of the merger of GranCare’s pharmacy operations with Vitalink Pharmacy Services Inc. in February 1997, he became Chief Executive Officer and a Director of Vitalink Pharmacy Services Inc. Mr. Burleson resigned as Chief Executive Officer and Director of Vitalink Pharmacy Services in August 1997. From June 1986 to March 1989, Mr. Burleson served as President, Chief Operating Officer and a Director of American Medical International Inc. (“AMI”), an owner and operator of acute care hospitals. Based in London from May 1981 to June 1986, Mr. Burleson served as Managing Director of AMI’s international operations. Mr. Burleson received his early management training at Eastman Kodak from 1963 to 1974. He graduated from East Tennessee State University with a Bachelor of Science Degree in accounting and earned an MBA degree in 1972. The Board concluded that Mr. Burleson’s background and leadership experiences in the healthcare industry qualify him to be a member of the Board.
Dallas C. Hack, M.D., M.P.H. is a Director of the Company. He is board certified in General Preventive Medicine and Public Health and a Fellow in the American College of Military Public Health. Since July 2018, he has been the Chief Medical Officer of Virtech Bio, Inc., a private company that sells a ready-to-use oxygen-carrying plasma expander to restore circulatory system parameters and since 2015 has been a consultant to numerous biotech and non-profit companies to advance medical research and transition the progress to improved clinical practice. From June 2018 to March 2020, he was a director, member of the Audit and Product Development Committees and the interim Chief Executive Officer and Chief Financial Officer of CVR Medical Corp. (OTC: CRRVF), a publicly traded med-tech company dedicated to the development and advancement of revolutionary technology at work within the healthcare sector. He directed trauma research for the military from 2008 to 2014, with responsibility for more than $2 billion in grant funding. He held numerous military medical leadership positions including Commander of the NATO Headquarters Healthcare Facility, and Command Surgeon at the strategic level during Operations Enduring Freedom and Iraqi Freedom. COL.(R) Hack, who served for 28 years, received numerous military awards including the Bronze Star, two Legion of Merit awards, and was inducted as a Distinguished Member of the Military Order of Medical Merit. He has a BA from Andrews University (1972), an MPH from Johns Hopkins University (1995), a MD from Loma Linda University (1976), an MSS from the US Army War College (2004), and a CPE from the Certifying Commission in Medical Management (1997). He was recognized as the Distinguished Alumnus of the Year by Loma Linda University in May 2015. Dr. Hack has an appointment from the School of Medicine, University of Pittsburgh as Adjunct Professor of Neurosurgery and from Virginia Commonwealth University as an Associate Clinical Professor, Department of Physical Medicine and Rehabilitation. The Board concluded that Mr. Hack’s background and leadership experiences in the healthcare industry qualify him to be a member of the Board.
Joseph (Jos) Luhukay is a seasoned international banking Executive with over 40 years of experience leading many of Indonesia’s leading financial institutions and a former Ernst and Young Partner who led the business advisory and risk consulting practice which provided services in corporate governance, risk management, information systems audit and advisory, internal audit and policy and operational process development. Jos Luhukay’s distinguished career brings Applied UV a strong track record in delivering profitable growth for internationally recognized bank and investment banking companies including: Chief Operating Officer of Bank Niaga, Bahana Pembinaan Usaha Indonesia, a main Indonesian Government-owned investment Bank, Chief Operating Officer & Executive Director of the Jakarta Initiative Task Force (set up by the Ministry of Finance) where he managed a $65B portfolio and restructured over 20% of it in less than 2 years, President Director of Bank Lippo, where he was awarded “CEO of the Year” in 2006 by SWA Magazine (the largest business magazine in Indonesia), Deputy President of Temasek-owned Bank Danamon and his most recent role as President Director of Rabobank International Indonesia, a 30 year old Dutch owned Commercial Bank in Indonesia. Jos Luhukay holds an engineering degree in electrical engineering from the University of Indonesia, a Master’s and PhD in Computer Science from the University of Illinois at Urbana-Champaign. The Board concluded that Mr. Luhukay’s background and leadership experiences in the accounting and financial industry qualify him to be a member of the Board.
Brian A. Stern is a Director of the Company. He currently serves as President of PURO Lighting, a division of Applied UV Inc. Mr. Stern co-founded LED Supply Co LLC in 2009, and co-founded PURO Lighting LLC in 2019. He served as the CEO of both LED Supply Co LLC and PURO Lighting LLC until the acquisition by Applied UV Inc in January of 2023. He graduated from University of Denver with a Bachelor of Science in business management in 2007. The Board concluded that Mr. Stern’s background and leadership experiences in the healthcare industry qualify him to be a member of the Board.
Christopher Kochuba is a member of the board of directors for the company with a focus on enhancing the company’s strategic direction and industry engagement in hospitality. With a career spanning over twenty-five years, Mr. Kochuba has been a visionary in brand development, planning, design, project management and capital expenditures for the most elite hotel brands worldwide. His notable tenure as Vice-President for Starwood Hotels and SH Hotels and Resorts, a unit of Starwood Capital, he oversaw the evolution of luxury, sustainable, and lifestyle brands. Mr. Kochuba will lead AUVI’s sales of our patented, industry disruptive LED Fighter Flex devices for installation into HVAC new-build and retro-fit systems for the hospitality and muti-family verticals. Mr. Kochuba will also focus on our unique domestic manufacturing capabilities for case goods and other furnishings for full-service and luxury hotels and resorts. Mr. Kochuba holds a Bachelor of Architectural Engineering from The Pennsylvania State University. The Board concluded that Mr. Kochuba’s background and leadership experiences in the hospitality industry qualify him to be a member of the Board.
Board of Directors
Our business and affairs are managed under the direction of our Board. Our Board consists of five (6) directors, four (4) of whom qualify as “independent” under the listing standards of Nasdaq.
Directors serve until the next annual meeting and until their successors are elected and qualified. Officers are appointed to serve for one year until the meeting of the Board following the annual meeting of shareholders and until their successors have been elected and qualified.
Board Leadership Structure and Risk Oversight
The Board oversees our business and considers the risks associated with our business strategy and decisions. The Board currently implements its risk oversight function as a whole. Each of the Board committees, as set forth below, will also provide risk oversight in respect of its areas of concentration and reports material risks to the board for further consideration.
Director Independence
Our board of directors are composed of a majority of “independent directors” as defined under the rules of Nasdaq. Nasdaq Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Under such definition, our Board has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment and affiliations, our Board has determined that Eugene Burleson, Dr. Dallas Hack, and Joseph Luhukay are all independent directors of the Company.
Board Committees
Our board of directors has established three standing committees: audit committee, compensation committee and nominating and corporate governance committee, each of which operate under a charter that has been approved by our board of directors. We have appointed persons to the board of directors and committees of the board of directors as required meeting the corporate governance requirements of the Nasdaq Listing Rules.
Audit Committee
We have established an audit committee consisting of Eugene Burleson, Joseph Luhukay and Dallas Hack. Eugene Burleson is the Chairman of the audit committee. In addition, our Board has determined that Eugene Burleson is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act of 1933, as amended, or the Securities Act. The audit committee’s duties, which are specified in our Audit Committee Charter, include, but are not limited to:
| ● | reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the board whether the audited financial statements should be included in our annual disclosure report; |
| ● | discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements; |
| ● | discussing with management major risk assessment and risk management policies; |
| ● | monitoring the independence of the independent auditor; |
| ● | verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law; |
| ● | reviewing and approving all related-party transactions; |
| ● | inquiring and discussing with management our compliance with applicable laws and regulations; |
| ● | pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed; |
| ● | appointing or replacing the independent auditor; |
| ● | determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; |
| ● | establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and |
| ● | approving reimbursement of expenses incurred by our management team in identifying potential target businesses. |
The audit committee is composed exclusively of “independent directors” who are “financially literate” as defined under the Nasdaq listing standards. The Nasdaq listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.
Compensation Committee
We have established a compensation committee of the board of directors to consist of Dallas Hack, Joseph Luhukay, and Eugene Burleson, each of whom is an independent director. Dallas Hack is Chairman of the compensation committee. Each member of our compensation committee is also a non-employee director, as defined under Rule 16b-3 promulgated under the Exchange Act, and an outside director, as defined pursuant to Section 162(m) of the Code. The compensation committee’s duties, which are specified in our Compensation Committee Charter, include, but are not limited to:
| ● | reviews, approves and determines, or makes recommendations to our board of directors regarding, the compensation of our executive officers; |
| ● | administers our equity compensation plans; |
| ● | reviews and approves, or makes recommendations to our board of directors, regarding incentive compensation and equity compensation plans; and |
| ● | establishes and reviews general policies relating to compensation and benefits of our employees. |
Nominating and Corporate Governance Committee
We have established a nominating and corporate governance committee consisting of Eugene Burleson, Joseph Luhukay, and Dallas Hack. Joseph Luhukay is Chairman of the nominating and corporate governance committee. The nominating and corporate governance committee’s duties, which are specified in our Nominating and Corporate Governance Audit Committee Charter, include, but are not limited to:
| ● | identifying, reviewing and evaluating candidates to serve on our board of directors consistent with criteria approved by our board of directors; |
| ● | evaluating director performance on our board of directors and applicable committees of our board of directors and determining whether continued service on our board of directors is appropriate |
| ● | evaluating nominations by stockholders of candidates for election to our board of directors; and |
| ● | corporate governance matters |
Code of Ethics
Our Board has adopted a written code of business conduct and ethics (“Code”) that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. The Code is applicable to all of our directors, officers and employees and is available on our corporate website, www.applieduvinc.com. We intend to disclose any amendments to our code of business conduct and ethics, or waivers of its requirements, on our website or in filings under the Exchange Act to the extent required by applicable rules and exchange requirements.
Family Relationships
There are no family relationships among the officers and directors, nor are there any arrangements or understanding between any of the directors or officers of our Company or any other person pursuant to which any officer or director was or is to be selected as an officer or director.
Involvement in Certain Legal Proceedings
On June 25, 2018, MunnWorks filed a voluntary petition for reorganization pursuant to Chapter 11 of the Bankruptcy Code in order to (i) pursue its appeal of a $1.4 million New York State court judgment arising out of an employment and business dispute with a former employer of Mr. Munn (of which Mr. Munn’s family-owned 50% of the equity) and (ii) preserve its ongoing operations from collection efforts with respect to such judgment. MunnWorks settled the dispute by making a $400,000 cash payment and on June 28, 2019, concluded its Chapter 11 proceedings.
None of our other directors, executive officers, significant employees or control persons have been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.
Insider Trading Policy
All officers, directors and employees of, and consultants and contractors to, us or any of our subsidiaries are subject to our Insider Trading Policy. The Insider Trading Policy prohibits the unauthorized disclosure of any nonpublic information acquired in the workplace and the misuse of material nonpublic information in the trading of our securities. To ensure compliance with the Insider Trading Policy and applicable federal and state securities laws, all officers, directors and employees of, and consultants and contractors to, us or any of our subsidiaries must refrain from the sale or purchase of our securities except in specific designated trading windows or pursuant to 10b5-1 trading plans that were preapproved. Even during a trading window period, certain insiders, including our named executive officers and directors, must comply with our designated pre-clearance policy prior to trading in our securities.
Meetings of the Board of Directors
During our fiscal year ended December 31, 2023, the Board met from time to time informally and acted by written consent on numerous occasions.
Indemnification of Officers and Directors
Chapter 78 of the NRS provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he is not liable pursuant to NRS Section 78.138 or acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. NRS Chapter 78 further provides that a corporation similarly may indemnify any such person serving in any such capacity who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit if he is not liable pursuant to NRS Section 78.138 or acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court or other court of competent jurisdiction in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court or other court of competent jurisdiction shall deem proper.
Our Bylaws provide that we may indemnify our officers, directors, employees, agents and any other persons to the maximum extent permitted by the NRS.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
We maintain a Code of Ethics that applies to all employees and directors. The Code of Ethics incorporates guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws, rules and regulations. The Code of Ethics also incorporates our expectations of our employees that enable us to provide accurate and timely disclosure in our filings with the SEC and other public communications. In addition, the Code of Ethics incorporates guidelines pertaining to topics such as complying with applicable laws, rules and regulations; insider trading; reporting Code of Ethics violations; and maintaining accountability for adherence to the Code of Ethics. The full text of our Code of Ethics is published on our web site at www.applieduvinc.com and is incorporated by reference herein. We intend to disclose future amendments to certain provisions of our Code of Ethics, or waivers of such provisions granted to our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions on our web site. Except as expressly stated herein, the information contained on our website does not constitute a part of this Annual Report and is not incorporated by reference herein.
Board Diversity
We seek diversity in experience, viewpoint, education, skill and other individual qualities and attributes to be represented on our Board. We believe directors should have various qualifications, including individual character and integrity, business experience, leadership ability, strategic planning skills, ability and experience, requisite knowledge of our industry and finance, accounting and legal matters, communications and interpersonal skills and the ability and willingness to devote time to our Company. We also believe the skill sets, backgrounds and qualifications of our directors, taken as a whole, should provide a significant mix of diversity in personal and professional experience, background, viewpoints, perspectives, knowledge and abilities. Nominees are not to be discriminated against on the basis of race, religion, national origin, sex, sexual orientation, disability or any other basis proscribed by law. The assessment of prospective directors is made in the context of the perceived needs of our Board from time to time.
Our Board seeks members from diverse professional backgrounds who combine a solid professional reputation and knowledge of our business and industry with a reputation for integrity. Our Board does not have a formal policy concerning diversity and inclusion but is in the process of establishing a policy on diversity. Diversity of experience, expertise and viewpoints is one of many factors the Nominating and Corporate Governance Committee considers when recommending director nominees to our Board. Further, our Board is committed to actively seeking highly qualified women and individuals from minority groups and the LGBTQ+ community to include in the pool from which new candidates are selected. Our Board also seeks members that have experience in positions with a high degree of responsibility or are, or have been, leaders in the companies or institutions with which they are, or were, affiliated, but may seek other members with different backgrounds, based upon the contributions they can make to our Company.
BOARD DIVERSITY MATRIX
| As of December 31, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||||||||
| Total Number of Directors: | 5 | 5 | ||||||||||||||||||||||||||||||
| Part I: Gender Identity | Female | Male | Non-Binary |
Did Not Disclose Gender |
Female | Male | Non-Binary | Did Not Disclose | ||||||||||||||||||||||||
| Directors | — | 5 | — | — | — | 5 | — | — | ||||||||||||||||||||||||
| Part II: Demographic Background | ||||||||||||||||||||||||||||||||
| African American or Black | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Alaskan Native or American Indian | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Asian | 1 | — | — | — | 1 | — | — | — | ||||||||||||||||||||||||
| Hispanic or Latino | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Native Hawaiian or Pacific Islander | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| White | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Two or More Races or Ethnicities | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| LGBTQ+ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Did Not Disclose Demographic Background | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Item 11. Executive Compensation
Summary Compensation Table
The following summary compensation table provides information regarding the compensation paid during our fiscal years ended December 31, 2023 and 2022 for our Chief Executive Officer (principal executive officer) and our Chief Financial Officer. We refer to these individuals as our “named executive officers.”
| Name and Principal Position | Fiscal
Year Ended |
Salary ($) |
Stock Awards ($) |
Option Awards ($)(1) |
All
Other Compensation ($) |
Total
($) |
||||||||||||||||||
| Max Munn | 2023 | $ | 360,000 | — | $ | 56,713 | (3) | 30,612 | (4) | $ | 447,325 | |||||||||||||
| President and Chief Executive Officer, President and Director(2) | 2022 | 297,692 | — | $ | 27,827 | $ | 30,612 | $ | 356,131 | |||||||||||||||
| Michael Riccio | 2023 | $ | 300,000 | $ | 22,753 | (5) | $ | 322,753 | ||||||||||||||||
| Senior Vice President and Chief Financial Officer | 2022 | 298,077 | 135,000 | 149,404 | 100,000 | 682,481 | ||||||||||||||||||
| John Andrews | 2022 | 276,530 | 106,500 | 183,089 | 566,119 | |||||||||||||||||||
| (1) | See Footnote 9 in the Notes to the Consolidated Financial Statements for a description of all of the assumptions made in the valuation of these options. |
| (2) | Mr. Munn became the acting Chief Executive Officer upon the resignation of Mr. John Andrews as of December 19, 2022, and was appointed Chief Executive Officer by the board on March 3, 2023. |
| (3) | Mr. Munn received options to purchase 2,000 shares of common stock at an exercise price of $250.00. These options vest quarterly beginning January 9, 2023. The unvested options were cancelled effective December 20, 2023. |
| (4) | Auto lease and auto insurance payments the Company provided to Mr. Munn. |
| (5) | Mr. Riccio received options to purchase 800 shares of common stock at an exercise price of $250.00. These options vest quarterly beginning January 9, 2023. The unvested options were cancelled effective December 20, 2023. |
Employment Agreements
Max Munn. On April 18, 2022, Applied UV, Inc. and its wholly-owned subsidiary Munn Works LLC, entered into an amended and restated employment agreement (the “Munn Employment Agreement”) with Mr. Max Munn, pursuant to which Mr. Munn will continue to serve as the Chief Executive Officer of the Company and the Manager and Chief Executive Officer of Munn Works LLC. The Munn Employment Agreement amends and restates Mr. Munn’s prior employment agreement dated March 4, 2021 (the “Original Agreement”). The Munn Employment Agreement is effective as of March 1, 2022 and terminates on February 28, 2024 (the “Term”) and will automatically renew for successive one-year terms unless terminated by the parties as provided under the Munn Employment Agreement. The Munn Employment Agreement amends the terms of the Original Agreement by providing Mr. Munn with a cash annual base salary of $360,000 and cancels 1,653 of the 2,479 options granted to Mr. Munn under the Original Agreement. Also, the Original Agreement terminated on March 4, 2024 while the Munn Employment Agreement is in effect until terminated.
Michael Riccio. The Company has entered into an Employment Agreement (the “Riccio Employment Agreement”) dated January 1, 2022 with Michael Riccio, its current Chief Financial Officer. The Riccio Employment Agreement has a two year term and automatically renews for additional two year terms unless 90 days prior to the prior to the end of the current term the Company or Mr. Riccio provides notice to the other that the term will not be extended or the Riccio Employment Agreement is sooner terminated by the Company with or without cause or by Mr. Riccio with good reason or for no reason, in each case as set forth in the Riccio Employment Agreement. The Riccio Employment Agreement provides Mr. Riccio with a base salary of $300,000, annual performance bonus of up to 100% of base salary based on periodic assessments of Mr. Riccio’s performance as well as the achievement of specific individual and corporate objectives as determined by the Chief Executive Officer in consultation with Mr. Riccio; and equity awards of 400 shares of the Company’s common stock and a 10 year option to purchase 560 shares of the Company’s common stock at an exercise price of $337.50 per share. Each equity award vests quarterly over a three-year period commencing on January 1, 2022 with the first vesting to occur on April 1, 2022. Mr Riccio is also entitled to in the participate the Company-funded healthcare insurance plan and in all other benefits, perquisites, vacation days, benefit plans or programs of the Company which are available generally to office employees and other employees of the Company in accordance with the terms of such plans, benefits or programs.
Severance Agreement
On December 19, 2022, Mr. John Andrews resigned as a member of the Board of Directors of Applied UV, Inc. (the “Company”) and the Chief Executive Officer of the Company. Mr. Andrews tendered his resignations, in connection with the anticipated closing of the acquisitions of PURO Lighting, LLC (“PURO”) and LED Supply Co. LLC (together with PURO, the “Acquired Companies”) by the Company to allow the executives that will be retained from the Acquired Companies to assume a leadership position with the Company. Mr. Andrews agreed to remain as a consultant (subject to his availability) for 10 months if asked by the Company.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning outstanding equity awards held by the certain executives of the Company as of December 31, 2023:
| Option Awards | Stock Awards | |||||||||||||||||||||||||||
| Number of Securities Underlying Unexercised Options | ||||||||||||||||||||||||||||
| Name | Exercisable | Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Options | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | |||||||||||||||||||||
| Max Munn | 1,635 | — | — | $ | (1 | ) | (1 | ) | — | — | ||||||||||||||||||
| Michael Riccio | 1,210 | — | — | $ | (2 | ) | (2 | ) | 234 | $ | 552 | |||||||||||||||||
| John Andrews | — | — | (3 | ) | ||||||||||||||||||||||||
| (1) | Mr. Munn’s options are as follows: 4 exercisable with an exercise price of $625.00 expiring April 1, 2030; 4 exercisable with an exercise price of $625.00 expiring July 1, 2030; 826 exercisable with an exercise price of $975.00 expiring March 4, 2031; 300 exercisable with an exercise price of $250.00 expiring December 31, 2032; 501 exercisable with an exercise price of $250.00 expiring January 9, 2033. All unvested options were cancelled effective December 20, 2023. |
| (2) | Mr. Riccio’s options are as follows: 560 exercisable with an exercise price of $816.25 expiring September 28, 2031; 329 exercisable with an exercise price of $337.50 expiring January 1, 2032; 120 exercisable with an exercise price of $133.75 expiring June 3, 2032; 201 exercisable with an exercise price of $250.00 expiring January 9, 2033. All unvested options were cancelled effective December 20, 2023. |
| (3) | Mr. Andrews resigned as of December 19, 2022 and his exercisable options expired on March 19, 2023. |
Option Exercises: No stock options were exercised by the above named individuals in 2023.
Director Compensation
The annual compensation for each non-employee Director is summarized in the table below.
2023 Director Compensation Table
| Name | Fees
earned or paid in cash ($)(1) |
Stock Awards ($) |
Option Awards ($) |
Total ($) |
||||||||||||
| Eugene Burleson (2) | $ | 25,000 | $ | 21,413 | $ | 0 | $ | 46,413 | ||||||||
| Dallas C Hack (3) | $ | 25,000 | $ | 11,838 | $ | 0 | $ | 36,838 | ||||||||
| Joseph Luhukay(4) | $ | 25,000 | $ | 11,838 | $ | 0 | $ | 36,838 | ||||||||
| Monica Woo(5) | $ | 6,250 | $ | 20,813 | $ | 0 | $ | 27,063 | ||||||||
| (1) | Directors earn $6,250 per quarter |
| (2) | On January 1, 2023, Mr. Burleson was awarded 60 shares of restricted common stock that vest one year from the date of grant for his service as a director and 40 shares of restricted common stock that vest one year from the date of grant for his service as the Chairman of the Audit Committee. On March 3, 2023, Mr. Burleson was elected as Chairman of the Board and received 80 shares of restricted common stock. |
| (3) | On January 1, 2023, Dr. Hack was awarded 60 shares of restricted common stock that vest one year from the date of grant for his service as a director. On March 3, 2023, Dr. Hack was appointed as Chairman of the Compensation Committee and received 40 shares of restricted common stock. |
| (4) | On January 1, 2023, Mr. Luhukay was awarded 60 shares of restricted common stock that vest one year from the date of grant for his service as a director. On March 3, 2023, Mr. Luhukay was appointed as Chairman of the Nominating and Corporate Governance Committee and received 40 shares of restricted common stock. |
| (5) | Ms. Woo resigned from the board as of February 27, 2023.She received board fees of $6,250 for the 1st quarter of 2023. On April 19, 2023, Ms. Woo received 225 shares of restricted common stock as payment for services rendered. |
2023 Equity Incentive Plan
Overview
On August 24, 2023, our Board and stockholders approved the 2023 Plan. The 2023 Plan governs equity awards to our employees, directors, officers, consultants and other eligible participants. Initially, the maximum number of shares of our common stock that may be subject to awards under the 2023 Plan was 100,000 (post-split) subject to adjustments under the 2023 Plan.
The purpose of 2023 Plan is to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants, and to promote the success of our business. The administrator of the 2023 Plan may, in its sole discretion, amend, alter, suspend or terminate the 2023 Plan, or any part thereof, at any time and for any reason. We will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with legal and regulatory requirements relating to the administration of equity-based awards. Unless earlier terminated by the administrator, the 2023 Plan will terminate ten years from the date it is adopted by our Board.
Authorized Shares
Initially, the maximum number of shares of our common stock that may be subject to awards under the 2023 Plan was 100,000. Subject to adjustment upon changes in capitalization of the Company as provided in Section 15 of the 2023 Plan, the number of shares available for issuance under the 2023 Plan will be increased on the first day of each fiscal year beginning with the 2024 fiscal year, in an amount equal to the least of (a) 500,000 shares, (b) a number of shares equal to twenty percent (20%) of the total number of shares of all classes of our common stock outstanding on the last day of the immediately preceding fiscal year less the number of shares allocated to the 2023 Plan, and (c) such number of shares determined by the administrator no later than the last day of the immediately preceding fiscal year. As of January 1, 2024, the maximum number of shares of our common stock that may be subject to awards under the 2023 Plan was 340,000.
Additionally, if any award issued pursuant to the 2023 Plan expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, as provided in the 2023 Plan, or, with respect to restricted stock, restricted stock units, performance units or performance shares, is forfeited to or repurchased by us due to the failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto will become available for future grant or sale under the 2023 Plan (unless the 2023 Plan has terminated). With respect to stock appreciation rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2023 Plan; all remaining shares under stock appreciation rights will remain available for future grant or sale under the 2023 Plan (unless the 2023 Plan has terminated). Shares that have actually been issued under the 2023 Plan under any award will not be returned to the 2023 Plan and will not become available for future distribution under the 2023 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted stock units, performance shares or performance units are repurchased by us or are forfeited to us due to the failure to vest, such shares will become available for future grant under the 2023 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2023 Plan. To the extent an award under the 2023 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2023 Plan. Notwithstanding the foregoing and, subject to adjustment as provided in the 2023 Plan, the maximum number of shares that may be issued upon the exercise of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the Code and regulations promulgated thereunder, any shares that become available for issuance under the 2023 Plan in accordance with the foregoing.
Plan Administration
One or more committees appointed by our Board will administer the 2023 Plan. Initially, the Compensation Committee shall administer the 2023 Plan. In addition, if we determine it is desirable to qualify transactions under the 2023 Plan as exempt under Rule 16b-3 of the Exchange Act, such transactions will be structured with the intent that they satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of the 2023 Plan, the administrator has the power to administer the 2023 Plan and make all determinations deemed necessary or advisable for administering the 2023 Plan, including the power to determine the fair market value of our common stock, select the service providers to whom awards may be granted, determine the number of shares covered by each award, approve forms of award agreements for use under the 2023 Plan, determine the terms and conditions of awards (including the exercise price, the time or times at which the awards may be exercised, any vesting acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award or the shares relating thereto), construe and interpret the terms of the 2023 Plan and awards granted under it, prescribe, amend and rescind rules relating to the 2023 Plan, rules and regulations relating to sub-plans established for the purpose of facilitating compliance with applicable non-U.S. laws, easing the administration of the 2023 Plan and/or for qualifying for favorable tax treatment under applicable non-U.S. laws, in each case as the administrator may deem necessary or advisable and modify or amend each award (subject to the provisions of the 2023 Plan), including the discretionary authority to extend the post-termination exercisability period of awards and to extend the maximum term of an option or stock appreciation right (subject to the provisions of the 2023 Plan), to allow Participants to satisfy withholding tax obligations in a manner permissible under the 2023 Plan, to authorize any person to execute on behalf of us any instrument required to effect the grant of an award previously granted by the administrator and to allow a participant to defer the receipt of payment of cash or the delivery of shares that would otherwise be due to such participant under an award. The administrator also has the authority to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange program by which outstanding awards may be surrendered or cancelled in exchange for awards of the same type which may have a higher or lower exercise price or different terms, awards of a different type or cash, or by which the exercise price of an outstanding award is increased or reduced. The administrator’s decisions, interpretations and other actions are final and binding on all participants.
Eligibility
Awards under the 2023 Plan, other than incentive stock options, may be granted to our employees (including officers and directors) or a parent or subsidiary, members of our Board or consultants engaged to render bona fide services to us or a parent or subsidiary. Incentive stock options may be granted only to our employees or a subsidiary, provided the services (a) are not in connection with the offer or sale of securities in a capital-raising transaction, and (b) do not directly promote or maintain a market for our securities, in each case, within the meaning of Form S-8 promulgated under the Securities Act, and provided further, that a consultant will include only those persons to whom the issuance of Shares may be registered under Form S-8 promulgated under the Securities Act.
Stock Options
Stock options may be granted under the 2023 Plan. The exercise price of options granted under the 2023 Plan generally must at least be equal to the fair market value of our common stock on the date of grant. The term of each option will be as stated in the applicable award agreement; provided, however, that the term may be no more than 10 years from the date of grant. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant, they may exercise their option for the period of time stated in their option agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the option will remain exercisable for six months. In all other cases, in the absence of a specified time in an award agreement, the option will remain exercisable for three months following the termination of service. An option may not be exercised later than the expiration of its term. Subject to the provisions of the 2023 Plan, the administrator determines the other terms of options.
Stock Appreciation Rights
Stock appreciation rights may be granted under the 2023 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. Stock appreciation rights may not have a term exceeding 10 years. After the termination of service of an employee, director or consultant, they may exercise their stock appreciation right for the period of time stated in their stock appreciation right agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for six months. In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for three months following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration of its term. Subject to the provisions of the 2023 Plan, the administrator determines the other terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of our common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant.
Restricted Stock
Restricted stock may be granted under the 2023 Plan. Restricted stock awards are grants of shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director or consultant and, subject to the provisions of the 2023 Plan, will determine the terms and conditions of such awards. The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to us); provided, however, that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.
Restricted Stock Units
RSUs may be granted under the 2023 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of our common stock. Subject to the provisions of the 2023 Plan, the administrator determines the terms and conditions of RSUs, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. The administrator, in its sole discretion, may pay earned RSUs in the form of cash, in shares of our common stock or in some combination thereof. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any vesting requirements will be deemed satisfied.
Performance Awards
Performance awards may be granted under the 2023 Plan. Performance awards are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will set objectives or vesting provisions, that, depending on the extent to which they are met, will determine the value the payout for the performance awards. The administrator may set vesting criteria based on the achievement of company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), or any other basis determined by the administrator in its discretion. Each performance award’s threshold, target, and maximum payout values are established by the administrator on or before the grant date. After the grant of a performance award, the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance award. The administrator, in its sole discretion, may pay earned performance awards in the form of cash, in shares, or in some combination thereof.
Non-Employee Directors
The 2023 Plan provides that all non-employee directors will be eligible to receive all types of awards (except for incentive stock options) under the 2023 Plan. The 2023 Plan includes a maximum limit of $500,000 of equity awards that may be granted to a non-employee director in any fiscal year, increased to $750,000 in connection with his or her initial service. For purposes of this limitation, the value of equity awards is based on the grant date fair value (determined in accordance with accounting principles generally accepted in the United States). Any equity awards granted to a person for their services as an employee, or for their services as a consultant (other than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to the Company’s non-employee directors.
Non-transferability of Awards
Unless the administrator provides otherwise, the 2023 Plan generally does not allow for the transfer of awards other than by will or by the laws of descent and distribution and only the recipient of an award may exercise an award during their lifetime. If the administrator makes an award transferrable, such award will contain such additional terms and conditions as the administrator deems appropriate.
Certain Adjustments
In the event of certain changes in the Company’s capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under the 2023 Plan, the administrator will adjust the number and class of shares that may be delivered under the 2023 Plan or the number, and price of shares covered by each outstanding award and the numerical share limits set forth in the 2023 Plan.
Dissolution or Liquidation
In the event of the Company’s proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation of such proposed transaction.
Merger or Change in Control
The 2023 Plan provides that in the event of the Company’s merger with or into another corporation or entity or a “change in control” (as defined in the 2023 Plan), each outstanding award will be treated as the administrator determines, including, without limitation, that (i) awards will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a participant, that the participant’s awards will terminate upon or immediately prior to the consummation of such merger or change in control; (iii) outstanding awards will vest and become exercisable, realizable or payable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon consummation of such merger or change in control and, to the extent the administrator determines, terminate upon or immediately prior to the effectiveness of such merger or change in control; (iv) (A) the termination of an award in exchange for an amount of cash or property, if any, equal to the amount that would have been attained upon the exercise of such award or realization of the participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the administrator determines in good faith that no amount would have been attained upon the exercise of such award or realization of the participant’s rights, then such award may be terminated by the Company without payment) or (B) the replacement of such award with other rights or property selected by the administrator in its sole discretion; or (v) any combination of the foregoing. The administrator will not be obligated to treat all awards, all awards a participant holds, or all awards of the same type, similarly. In the event that awards (or portion thereof) are not assumed or substituted for in the event of a merger or change in control, the participant will fully vest in and have the right to exercise all of their outstanding options and stock appreciation rights, including shares as to which such awards would not otherwise be vested or exercisable, all restrictions on restricted stock and RSUs or performance awards will lapse and, with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met, in all cases, unless specifically provided otherwise under the applicable award agreement or other written agreement between the participant and the Company or any of the Company’s subsidiaries or parents, as applicable. If an option or stock appreciation right is not assumed or substituted in the event of a merger or change in control, the administrator will notify the participant in writing or electronically that the option or stock appreciation right will be exercisable for a period of time determined by the administrator in its sole discretion and the vested option or stock appreciation right will terminate upon the expiration of such period.
For awards granted to an outside director, the outside director will fully vest in and have the right to exercise options and/or stock appreciation rights as to all of the shares underlying such award, including those shares which would not be vested or exercisable, all restrictions on restricted stock and RSUs will lapse, and, with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met, unless specifically provided otherwise under the applicable award agreement or other written agreement between the participant and the Company or any of its subsidiaries or parents, as applicable.
Clawback
On November 28, 2023, our Board adopted an executive compensation recoupment policy consistent with the requirements of the Exchange Act Rule 10D-1 and the Nasdaq listing standards thereunder, to help ensure that incentive compensation is paid based on accurate financial and operating data, and the correct calculation of performance against incentive targets. Our policy addresses recoupment of amounts from performance-based awards paid to all corporate officers, including awards under our equity incentive plans, in the event of a financial restatement to the extent that the payout for such awards would have been less, or in the event of fraud, or intentional, willful or gross misconduct that contributed to the need for a financial restatement.
Amendment and Termination
The administrator has the authority to amend, suspend or terminate the 2023 Plan provided such action does not impair the existing rights of any participant. The terms of outstanding awards may be amended without shareholder approval to reduce the exercise price of outstanding options or stock appreciation rights, or to cancel outstanding options or stock appreciation rights in exchange for cash, other awards, or options or stock appreciation rights with an exercise price that is less than the exercise price of the original option or stock appreciation right. The 2023 Plan automatically will terminate on August 24, 2033, unless it is terminated sooner.
Policies and Practices for Granting Certain Equity Awards
Our policies and practices regarding the granting of equity awards are carefully designed to ensure compliance with applicable securities laws and to maintain the integrity of our executive compensation program. The Compensation Committee is responsible for the timing and terms of equity awards to executives and other eligible employees.
The timing of equity award grants is determined with consideration to a variety of factors, including but not limited to, the achievement of pre-established performance targets, market conditions and internal milestones. The Company does not follow a predetermined schedule for the granting of equity awards; instead, each grant is considered on a case-by-case basis to align with the Company’s strategic objectives and to ensure the competitiveness of our compensation packages.
In determining the timing and terms of an equity award, the Board or the Compensation Committee may consider material nonpublic information to ensure that such grants are made in compliance with applicable laws and regulations. The Board’s or the Compensation Committee’s procedures to prevent the improper use of material nonpublic information in connection with the granting of equity awards include oversight by legal counsel and, where appropriate, delaying the grant of equity awards until the public disclosure of such material nonpublic information.
The Company is committed to maintaining transparency in its executive compensation practices and to making equity awards in a manner that is not influenced by the timing of the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation. The Company regularly reviews its policies and practices related to equity awards to ensure they meet the evolving standards of corporate governance and continue to serve the best interests of the Company and its shareholders.
Item 12. Security ownership Certain Beneficial Owners and Management and Related Stockholder Matters
The table below sets forth information regarding the beneficial ownership of the common stock by (i) our directors and named executive officers; (ii) all the named executives and directors as a group and (iii) any other person or group that to our knowledge beneficially owns more than five percent of our outstanding shares of common stock.
We have determined beneficial ownership in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or has the right to acquire such powers within 60 days. Shares of common stock subject to options that are currently exercisable or exercisable within 60 days of April 16, 2024, are deemed to be outstanding and beneficially owned by the person holding the options. Shares issuable pursuant to stock options or warrants are deemed outstanding for computing the percentage ownership of the person holding such options or warrants but are not deemed outstanding for computing the percentage ownership of any other person. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below will have sole voting and investment power with respect to all shares of common stock that they will beneficially own, subject to applicable community property laws. The percentage of beneficial ownership is based on 4,285,995 shares of common stock outstanding on April 16, 2024.
| Number
of Shares Beneficially Owned |
Beneficial Ownership Percentages | |||||||||||||||||||
| Name and Address of Beneficial Owner(1) | Common Stock |
Series
X Super Voting Preferred Stock(2) |
Percent
of Common Stock |
Percent
of Series X Super Voting Preferred Stock |
Percent
of Voting Stock(3) |
|||||||||||||||
| Officers and Directors | ||||||||||||||||||||
| Max Munn, Chief Executive Officer, President and Director | 17,435 | (4) | 10,000 | (5) | 0.41 | % | 100 | % | 70.1 | % | ||||||||||
| Michael Riccio, Chief Financial Officer | 1,210 | — | * | — | * | |||||||||||||||
| Brian Stern, Director(6) | — | — | — | — | — | |||||||||||||||
| Eugene Burleson, Director | 560 | — | * | — | * | |||||||||||||||
| Dallas Hack, Director | 360 | — | * | — | * | |||||||||||||||
| Joseph Luhukay, Director | 140 | — | * | — | * | |||||||||||||||
| Officers and Directors as a Group | 19,705 | 10,000 | 0.46 | % | 100 | % | 70.1 | % | ||||||||||||
| 5% Stockholders | ||||||||||||||||||||
| The Munn Family 2020 Irrevocable Trust | 15,000 | 10,000 | 0.35 | % | 100 | % | 70.1 | % | ||||||||||||
| (1) | The principal address of the named officers, directors and 5% stockholders of the Company is c/o Applied UV, Inc. 150 N. Macquesten Parkway Mount Vernon, New York 10550. |
| (2) | Entitles the holder to 1,000 votes per share and votes with the common as a single class. |
| (3) | Represents total ownership percentage with respect to all shares of common stock and Series X Super Voting Preferred Stock, as a single class. |
| (4) | Includes (i) 15,000 shares which are held in the name of The Munn Family 2020 Irrevocable Trust, for which the spouse of Max Munn is the trustee; (ii) 160 shares owned by Mr. Munn directly (iii) 640 shares underlying a warrant issued to Mr. Munn; (iv) 8 vested shares underlying an option granted to Mr. Munn as director compensation; (v) 826 vested shares underlying an option granted to Mr. Munn pursuant to his employment agreement; (vi) 300 vested shares underlying an option granted to Mr. Munn on December 31, 2022; and (vii) 501 vested shares underlying an option granted to Mr. Munn on January 10, 2023. |
| (5) | Held by The Munn Family 2020 Irrevocable Trust. |
| (6) | Mr. Stern was appointed to the board of directors on February 1, 2023. The 14,605 shares previously held by Mr. Stern were returned to the Company as per the December 11, 2023 Restructuring Agreement (Note 2). |
Equity Plan Information
See Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Annual Report.
Changes in Control
There are no arrangements, to our knowledge, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
Item 13. Certain Relationships and Related party Transactions, and Director Independence
In February of 2019, the Company engaged Carmel, Milazzo & Feil LLP (the “Firm”) to represent and assist the company with all general corporate legal matters including the preparation and filing with the Securities and Exchange Commission of a registration statement on Form S-1 in connection with the Company’s initial public offering. Ross Carmel, a former member of the Company’s Board of Directors, who resigned on May 1, 2020, is a partner at the Firm. The Firm performed legal services in exchange for 1,295 shares of the Company’s common stock. The Firm merged with Sichenzia Ross Ference LLP on October 1, 2023.
Item 14. Principal Accounting Fees and Services
Fees For Audit Services: The following table sets forth the aggregate fees for services we have paid to Mazars USA LLP (“Mazars”) our independent registered public accounting firms for the fiscal years ended December 31, 2022 and 2021:
| Years | Audit Fees | Audit Related Fees | Tax Fees | All other Fees | ||||||||||||||
| 2023 | (1) | $ | 520,348 | — | — | — | ||||||||||||
| 2022 | (1) | $ | 371,370 | — | — | — | ||||||||||||
| (1) | Audit fees consist of fees billed for professional services rendered for the audit of our consolidated annual financial statements, review of the interim consolidated financial statements, the issuance of consent and comfort letters in connection with registration statement filings with the SEC and all services that are normally provided by the accounting firm in connection with statutory and regulatory filings or engagements. |
PART IV
Item 15. Exhibits, Financial Statement Schedules.
| (a) | The following documents are filed as part of this Annual Report: |
| (1) | The financial statements are filed as part of this Annual Report under “Item 8. Financial Statements and Supplementary Data.” |
| (2) | The financial statement schedules are omitted because they are either not applicable or the information required is presented in the financial statements and notes thereto under “Item 8. Financial Statements and Supplementary Data.” |
| (3) | The exhibits listed in the following Exhibit Index are filed, furnished or incorporated by reference as part of this Annual Report. |
| (b) | Exhibits |
See the Exhibit Index immediately preceding the signature page of this Annual Report.
Item 16. Form 10-K Summary
None.
EXHIBIT INDEX
| * | Filed herewith |
| ** | Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: April 16, 2024 | APPLIED UV, INC. | |
| By: | /s/ Max Munn | |
| Max Munn | ||
| Chief Executive Officer | ||
POWER OF ATTORNEY
Each individual person whose signature appears below hereby appoints Max Munn as attorneys-in-fact with full power of substitution, severally, to execute in the name and on behalf of each such person, individually and in each capacity stated below, one or more amendments to this annual report which amendments may make such changes in the report as the attorney-in-fact acting in the premises deems appropriate, to file any such amendment to the report with the SEC, and to take all other actions either of them deem necessary or advisable to enable the Company to comply with the rules, regulations and requirements of the SEC.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Max Munn | Chief Executive Officer, President and Director | April 16, 2024 | ||
| Max Munn | ||||
| /s/ Michael Riccio | Chief Financial Officer | April 16, 2024 | ||
| Michael Riccio | (principal financial and accounting officer) | |||
| /s/ Eugene Burleson | Director | April 16, 2024 | ||
| Eugene Burleson | ||||
| /s/ Dr. Dallas C. Hack | Director | April 16, 2024 | ||
| Dr. Dallas C. Hack | ||||
| /s/ Joseph Luhukay | Director | April 16, 2024 | ||
| Joseph Luhukay | ||||
| /s/ Brian Stern | Director | April 16, 2024 | ||
| Brian Stern |
67
Exhibit 4.6
DESCRIPTION OF REGISTRANT’S SECURITIES REGISTERED UNDER SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
The following description sets forth certain material terms and provisions of the common stock and Series A Preferred Shares of Applied UV, Inc., a Nevada corporation which are registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This description also summarizes relevant provisions of the Nevada Revised Statutes (“NRS”). The following description is a summary and does not purport to be complete. It is subject to, and qualified in its entirety by reference to, the relevant provisions of the NRS, and to our Articles of Incorporation, as amended (collectively, the “Articles of Incorporation”), and our Bylaws, which are filed as exhibits to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, of which this Exhibit is a part, and are incorporated by reference herein. We encourage you to read the Company’s Articles of Incorporation and the Bylaws, and the relevant provisions of the NRS for additional information. Unless the context requires otherwise, all references to “we,” “us,” “our” and the “Company” in this Exhibit 4.6 refer solely to Applied, UV, Inc.
Authorized and Outstanding Capital Stock
Our authorized capital stock presently consists of 170,000,000 shares of common stock, par value $0.0001 per share, of which as of April 16, 2024, we had 4,285,995 shares of common stock outstanding, and 20,000,000 shares of “blank check” preferred stock, par value $0.0001 per share, of which 10,000 have been designated Series X Preferred Stock, all of which are issued and outstanding; 1,250,000 have been designated Series A Preferred Stock, of which 522,000 shares are issued and outstanding; 1,250,000 have been designated Series B Preferred Stock, all of which are outstanding; 2,500,000 have been designated Series C Preferred Stock, of which 399,996 shares are outstanding.
Common Stock
Voting
Holders of shares of the common stock are entitled to one vote for each share held of record on matters properly submitted to a vote of our stockholders. Stockholders are not entitled to vote cumulatively for the election of directors.
Dividends
Subject to the dividend rights of the holders of any outstanding series of preferred stock, holders of shares of common stock will be entitled to receive ratably such dividends, if any, when, as, and if declared by our Board of Directors out of the Company’s assets or funds legally available for such dividends or distributions.
Liquidation and Distribution
In the event of any liquidation, dissolution, or winding up of the Company’s affairs, holders of the common stock would be entitled to share ratably in the Company’s assets that are legally available for distribution to its stockholders. If the Company has any preferred stock outstanding at such time, holders of the preferred stock may be entitled to distribution preferences, liquidation preferences, or both. In such case, the Company must pay the applicable distributions to the holders of its preferred stock before it may pay distributions to the holders of common stock.
Conversion, Redemption, and Preemptive Rights
Holders of the common stock have no preemptive, subscription, redemption or conversion rights.
Sinking Fund Provisions
There are no sinking fund provisions applicable to the common stock.
Series A Preferred Stock
Series A Preferred Stock. The following is a summary of the material terms of our Series A Preferred Stock, which is listed on The Nasdaq Capital Market under the trading symbol “AUVIP”:
Ranking. The Series A Preferred Stock, as to dividend rights and rights upon our liquidation, dissolution or winding-up, ranks: (i) senior to all classes or series of our common stock and to all other equity securities issued by us expressly designated as ranking junior to the Series A Preferred Stock; (ii) on parity with any future class or series of our equity securities expressly designated as ranking on parity with the Series A Preferred Stock; (iii) junior to all equity securities issued by us with terms specifically providing that those equity securities rank senior to the Series A Preferred Stock with respect to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up, none of which exists on the date hereof; and (iv) effectively junior to all our existing and future indebtedness (including indebtedness convertible into our common stock or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing or future subsidiaries.
Dividends. Holders of our Series A Preferred Stock are entitled to receive, when and as declared by our Board of Directors, out of funds legally available for the payment of dividends, cumulative cash dividends at the rate of 10.5% of the $25.00 liquidation preference per year (equivalent to $2.625 per year), payable monthly in arrears on the 15th day of each month. Dividends on the Series A Preferred Stock accumulate whether or not we are able to pay such dividends under certain of our agreements or even if such dividends are legally restricted or prohibited. We will not pay or declare and set apart for payment any dividends (other than a dividend paid in common stock or other stock ranking junior to the Series A Preferred Stock) on our common stock or other stock that ranks junior to or on parity with the Series A Preferred Stock unless we also have either paid or declared and set apart for payment full cumulative dividends on the Series A Preferred Stock for all past dividend periods.
In the event we owe accumulated dividends on our Series A Preferred Stock equal to at least twelve full months of dividends (and sufficient cash or securities have not been deposited with a paying agent for the payment of the accumulated dividends), the number of directors constituting our Board of Directors will be increased by the amount of directors (which we refer to as the “New Preferred Directors”) that when added to the then current number of directors will constitute a majority of the Board of Directors. The term of the New Preferred Directors will last for so long as we are in arrears on our dividends. The ability of the holders of Preferred Stock to elect the New Preferred Directors will also terminate, subject to reinstatement, once we have a dividend payment date on which we are no longer in arrears on our dividends to the extent described above. We established a segregated account that we pre-funded for the first twelve (12) monthly dividend payments.
Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of our Series A Preferred Stock are entitled to be paid out of our assets legally available for distribution to our shareholders a liquidation preference of $25.00, plus an amount equal to any accumulated and unpaid dividends to the date of payment, before any distribution or payment may be made to holders of shares of common stock or any other class or series of our equity securities ranking junior to the Series A Preferred Stock.
Optional Redemption. The Series A Preferred Stock is generally not redeemable prior to July 16, 2022, subject to certain exceptions. On and after July 16, 2022, the first anniversary of July 16, 2021, to but excluding the second anniversary, the shares of Series A Preferred Stock will be redeemable at our option, in whole or in part, at a redemption price equal to $30.00 per share, plus any accrued and unpaid dividends. On and after July 16, 2023, the second anniversary of July 16, 2021, to but excluding the third anniversary, the shares of Series A Preferred Stock will be redeemable at our option, in whole or in part, at a redemption price equal to $28.00 per share, plus any accrued and unpaid dividends. On and after July 16, 2024, the third anniversary of July 16, 2021, to but excluding the fourth anniversary, the shares of Series A Preferred Stock will be redeemable at our option, in whole or in part, at a redemption price equal to $27.00, plus any accrued and unpaid dividends. On and after July 16, 2025, the fourth anniversary of July 16, 2021, to but excluding the fifth anniversary, the shares of Series A Preferred Stock will be redeemable at our option, in whole or in part, at a redemption price equal to $26.00, plus any accrued and unpaid dividends. On and after July 16, 2026, the fifth anniversary of July 16, 2021, the shares of Series A Preferred Stock will be redeemable at our option, in whole or in part, at a redemption price equal to $25.00 per share, plus any accrued and unpaid dividends.
Unless full cumulative dividends on all shares of Series A Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment for all past dividend periods, no shares of Series A Preferred Stock shall be redeemed unless all outstanding shares of Series A Preferred Stock are simultaneously redeemed and we shall not purchase or otherwise acquire directly or indirectly any shares of Series A Preferred Stock (except by exchanging it for our capital stock ranking junior to the Series A Preferred Stock as to dividends and upon liquidation); provided, however, that the we will not be prevented from purchasing or acquiring shares of Series A Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Preferred Stock.
Special Optional Redemption and Conversion. If the Series A Preferred Stock is no longer listed on Nasdaq or another national exchange and we are no longer subject to the reporting requirements of the Exchange Act or if a change of control of the Company occurs, we may, at our option (i) redeem the Series A Preferred Stock, in whole or in part, at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends or (ii) convert some or all of the Series A Preferred Stock into a number of shares of our common stock based on a formula contained in the Series A Preferred Stock certificate of designations.
Limited Voting Rights. The holders of our Series A Preferred Stock generally have no voting rights, except on matters that materially and adversely affect the rights of the holders of the Series A Preferred Stock.
Stock Exchange Listing
Our common stock and Series A Preferred Stock are listed on The Nasdaq Capital Market under the symbols “AUVI” and “AUVIP,” respectively.
Transfer Agent and Registrar
Our transfer agent and registrar for all securities registered under Section 12 of the Exchange Act is Vstock Transfer Company, Inc. located at 18 Lafayette Pl, Woodmere, New York 11598. Their telephone number is (212) 828-8436.
Anti-Takeover Effects of Nevada Law and the Articles of Incorporation and Bylaws
Certain provisions of the Articles of Incorporation and Bylaws, and certain provisions of the NRS could make our acquisition by a third party, a change in our incumbent management, or a similar change of control more difficult. These provisions, which are summarized below, are likely to reduce our vulnerability to an unsolicited proposal for the restructuring or sale of all or substantially all of our assets or an unsolicited takeover attempt. The summary of the provisions set forth below does not purport to be complete and is qualified in its entirety by reference to the Articles of Incorporation and the Bylaws and the relevant provisions of the NRS.
Authorized but Unissued Shares
Our authorized but unissued shares of common stock and preferred stock are available for future issuance, subject to any limitations imposed by the listing standards of The Nasdaq Capital Market. These additional shares may be used for a variety of corporate finance transactions, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could make it more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Our authorized capital includes “blank check.” Our Board has the authority to issue preferred stock in one or more class or series and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend rights, of those shares without any further vote or action by stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. The issuance of additional preferred stock, while providing desirable flexibility in connection with possible financings and acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of the voting power of our outstanding voting securities, which could deprive our holders of common stock of a premium that they might otherwise realize in connection with a proposed acquisition of our Company.
Action by Written Consent
Our Bylaws provide that any action required or permitted by law, the Articles of Incorporation, or Bylaws to be taken at a meeting of the stockholders of the Company may be taken without a meeting if a consent or consents in writing, setting forth the action so taken, shall be signed by stockholders holding at least a majority of the voting power; provided that if a different proportion of voting power is required for such an action at a meeting, then that proportion of written consents is required.
Advance Notice Requirements
Stockholders wishing to nominate persons for election to our Board of Directors at a meeting or to propose any business to be considered by our stockholders at a meeting must comply with certain advance notice and other requirements set forth in our Bylaws and Rule 14a-8 of the Exchange Act.
Special Meetings
Our Bylaws provide that special meetings of stockholders may only be called by the President or Chief Executive Officer. Business transacted at all special meetings shall be confined to the purposes stated in the notice of the meeting unless all stockholders entitled to vote are present and consent.
Board Vacancies
Our Bylaws provide that any vacancy on our Board of Directors, howsoever resulting, may be filled by a majority vote of the remaining directors.
Removal of Directors
Our Bylaws provide that any director may be removed either for or without cause at any special meeting of stockholders by the affirmative vote of at least two-thirds of the voting power of the issued and outstanding stock entitled to vote; provided, however, that notice of intention to act upon such matter shall have been given in the notice calling such meeting.
Right to Alter, Amend or Repeal Bylaws
Our Bylaws provide that they may be altered, amended or repealed at any meeting of the Board of Directors at which a quorum is present, by the affirmative vote of a majority of the directors present at such meeting.
Indemnification of Officers and Directors and Insurance
Our Bylaws provide for limitation of liability of our directors and for indemnification of our directors and officers to the fullest extent permitted under Nevada law. Our directors and officers may be liable for a breach or failure to perform their duties in accordance with Nevada law only if their breach or failure to perform constitutes gross negligence, willful misconduct or intentional harm on our Company or our stockholders. Our directors may not be personally liable for monetary damages for action taken or failure to take action as a director except in specific instances established by Nevada law.
In accordance with Nevada law, we may generally indemnify a director or officer against liability incurred in a proceeding if he or she acted in good faith, and believed that his or her conduct was in our best interest and that he or she had no reason to believe his or her conduct was unlawful. We may not indemnify a director or officer if the person was adjudged liable to us or in the event it is adjudicated that the director or officer received an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the U.S. Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Nevada Anti-Takeover Statutes
The NRS contains provisions restricting the ability of a Nevada corporation to engage in business combinations with an interested stockholder. Under the NRS, except under certain circumstances, business combinations with interested stockholders are not permitted for a period of two years following the date such stockholder becomes an interested stockholder. The NRS defines an interested stockholder, generally, as a person who is the beneficial owner, directly or indirectly, of 10% of the outstanding shares of a Nevada corporation. In addition, the NRS generally disallows the exercise of voting rights with respect to “control shares” of an “issuing corporation” held by an “acquiring person,” unless such voting rights are conferred by a majority vote of the disinterested stockholders. “Control shares” are those outstanding voting shares of an issuing corporation which an acquiring person and those persons acting in association with an acquiring person (i) acquire or offer to acquire in an acquisition of a controlling interest and (ii) acquire within 90 days immediately preceding the date when the acquiring person became an acquiring person. An “issuing corporation” is a corporation organized in Nevada which has two hundred or more stockholders, at least one hundred of whom are stockholders of record and residents of Nevada, and which does business in Nevada directly or through an affiliated corporation. The NRS also permits directors to resist a change or potential change in control of the corporation if the directors determine that the change or potential change is opposed to or not in the best interest of the corporation.
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Exhibit 14.1
Exhibit F
CODE OF CONDUCT OF
APPLIED UV, INC.
Adopted by the Board of Directors on July 9, 2020
I. Covered Persons and Purpose
This code of conduct (this “Code”) for Applied UV, Inc., a Delaware Corporation (the “Company”), applies to the Company’s directors, officers, controllers, consultants and employees (collectively, the “Covered Persons”) and shall be publicly available for the purpose of promoting:
| ● | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| ● | full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission (“SEC”) and the Nasdaq Capital Market (“NASDAQ”) and in other public communications made by the Company; |
| ● | compliance with applicable laws and governmental rules and regulations; |
| ● | the prompt internal reporting of violations of this Code to an appropriate person or persons identified in this Code; and |
| ● | accountability for adherence to this Code. |
Each Covered Person should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. This Code is intended to comply with the requirements of SEC Regulation S-K, Item 406 as well as SEC Rule 10A-3(b)(3) and NASDAQ Listing Rule 5610.
II. Compliance with Law
The Company requires that all Covered Persons strictly adhere to all applicable local, state, and federal laws. If a Covered Person has questions about what laws we are subject to, or about how to comply with certain laws, it is important that such Covered Person shall alert an officer of the Company to regarding such question. The Company relies on Covered Persons not only to act ethically, but also to assist fellow Covered Persons in following the law.
When appropriate, the Company will provide information and training to promote compliance with laws, rules and regulations, including insider-trading laws.
III. Conflicts of Interest
The Company’s Covered Persons are expected to make or participate in business decisions and actions based on the best interests of the Company as a whole, and not based on personal relationships or personal gain. A “conflict of interest” exists when a person’s private interest interferes in any way with the interest of the Company, or even when a private interest creates an appearance of impropriety. A conflict situation can arise when Covered Persons have interests that make it difficult for Covered Persons to perform their work objectively, or when a Covered Person receives improper personal benefits as a result of his or her position with the Company.
| ● | It is almost always a conflict of interest for a Covered Person to work simultaneously for a competitor, customer, or supplier. |
| ● | It is also almost always a conflict of interest for a full-time Company employee to have a second job elsewhere, whether or not with a competitor, customer or supplier unless you have notified the president of Company of the second job, and the president approves. |
Covered Persons should avoid any relationship that would cause a conflict of interest with their duties and responsibilities at the Company. All Covered Persons are expected to disclose to management any situations that may involve inappropriate or improper conflicts of interests affecting them personally or affecting other Covered Persons.
Members of the Company’s Board of Directors have a special responsibility to the Company and the Stockholders. To avoid conflicts of interest, directors are required to disclose to their fellow directors any personal interest they may have in a transaction being considered by the Board of Directors and, when appropriate, to recuse themselves from any decision involving a conflict of interest. Unless and until such responsibility is delegated to a committee of the Board of Directors, the Board of Directors as a whole is charged with reviewing and approving all related party transactions and potential conflict of interest situations. Waivers of a conflict of interest or this Code involving executive officers and directors require approval by the Board of Directors. Any such waiver will be disclosed to our stockholders within four business days, along with the reasons for the waiver, through the filing of a Form 8-K.
Each Covered Person must not:
| ● | use his personal influence or personal relationships improperly to influence decisions or financial reporting by the Company whereby the Covered Person would benefit personally to the detriment of the Company; |
| ● | cause the Company to take action, or fail to take action, for the individual personal benefit of the Covered Person rather than for the benefit of the Company; or |
| ● | use material non-public knowledge to trade personally, or cause others to trade personally, in contemplation of the market effect of such non-public knowledge. |
Covered Persons should be aware that conflicts are also likely to exist where a member of his or her family engages in an act or has a relationship that would present a conflict for such Covered Person.
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Any discovery of a potential or existing conflict of interest should be immediately disclosed to management.
IV. Disclosure and Compliance
Each Covered Person:
| ● | should be familiar with the disclosure requirements generally applicable to the Company; |
| ● | should not knowingly misrepresent, or cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company’s directors and auditors, and to governmental regulators, and self- regulatory organizations; |
| ● | should, to the extent appropriate within his/her area of responsibility, consult with other officers and employees of the Company and the Company’s investment adviser or sub-adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Company files with, or submits to, the SEC or NASDAQ and in other public communications made by the Company; and |
| ● | has the responsibility to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. |
Each Covered Person must:
| ● | upon adoption of this Code (or thereafter as applicable, upon becoming a Covered Person), affirm in writing to the Board of Directors that he/she has received, read, and understands this Code; |
| ● | annually thereafter affirm in writing to the Board of Directors that he/she has complied with the requirements of this Code; |
| ● | not retaliate against any of the Company’s or its Service Providers’ employees or any other Covered Person or their affiliated persons for reports of potential violations of this Code that are made in good faith; |
| ● | notify the Audit committeepromptly if he/she knows or learns of any violation of this Code. Failure to do so is itself a violation of this Code; and |
| ● | report promptly any change in his/her affiliations. |
The audit committee of the Board of Directors (the “Committee”) is responsible for granting waivers and determining sanctions, as appropriate, provided that any approvals, interpretations or waivers sought by the Company’s principal executive officers or directors will be considered by the Board of Directors.
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The Company will follow these procedures in investigating and enforcing this Code:
| ● | the audit committee will take any action it considers appropriate to investigate any actual or potential violations reported to it; |
| ● | if, after such investigation, the audit committee believes that no violation has occurred, the audit committee shall meet with or contact the person reporting the violation for the purposes of informing such person of the reason for not taking action; |
| ● | any matter that the audit committee concludes is a violation will be reported to the Board of Directors. If the committee concludes that a violation has occurred, it will inform and make a recommendation to the full Board of Directors, which will consider appropriate action, which may include review of, and appropriate modifications to: applicable policies and procedures; notification to appropriate personnel, Covered Person, or a third party; a recommendation to a third party to dismiss the Covered Person; or dismissal of the Covered Person as an officer of the Company; |
| ● | the audit committee will be responsible for granting waivers, as appropriate; and |
| ● | any changes to, or waivers of, this Code will, to the extent required, be disclosed as provided by SEC rules. |
The audit committee, in determining whether waivers should be granted and whether violations have occurred, and the Board of Directors, in rendering decisions and interpretations and in conducting investigations of potential violations under this Code, may, at their discretion, consult with such other persons as they may determine to be appropriate, including a senior legal officer of the Company or its investment adviser, counsel to the Company, independent auditors or other consultants, subject to any requirement to seek pre-approval from the Committee for the retention of independent auditors to perform permissible non-audit services.
V. Waivers
A Covered Person may request a waiver of any of the provisions of this Code by submitting a written request for such waiver to the Committee setting forth the basis for such request and explaining how the waiver would be consistent with the standards of conduct described herein. The committee shall review such request and make a determination thereon in writing, which shall be binding, and shall inform the Board of Directors of the granting of any waiver.
In determining whether to waive any provisions of this Code, the Committee shall consider whether the proposed waiver is consistent with honest and ethical conduct.
The audit committee shall submit an annual report to the Board of Directors regarding waivers granted.
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VI. Other Policies and Procedures
This Code shall be the sole “code of ethics” adopted by the Company for purposes of Section 406 of the Sarbanes-Oxley Act of 2002, as amended, and the rules and forms applicable to it thereunder and the sole “code of conduct” adopted by the Company under Rule 5610 of the NASDAQ listing rules. Insofar as other policies or procedures of the Company govern or purport to govern the behavior or activities of the Covered Persons who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code.
Any amendments to this Code must be approved or ratified by a majority vote of the Board of Directors, including a majority of independent directors.
This Code is intended solely for the internal use by the Company and does not constitute an admission, by or on behalf of any person, as to any fact, circumstance or legal conclusion.
VII. Confidentiality
All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law, regulation or this Code, such matters shall not be disclosed to anyone other than the Board of Directors and its counsel or independent auditors, attorneys, or other consultants retained by the Board of Directors.
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Exhibit 19.1
APPLIED UV, INC.
INSIDER TRADING POLICY
Dated: February 10, 2022
Purpose
This Insider Trading Policy (the “Policy”) provides guidelines with respect to transactions in the securities of Applied UV, Inc. (the “Company”) and the handling of confidential information about the Company and the companies with which the Company does business.
The Company’s Board of Directors has adopted this Policy to promote compliance with federal, state and foreign securities laws that prohibit certain persons who are aware of material nonpublic information about a company from: (i) trading in securities of that company; or (ii) providing material nonpublic information to other persons who may trade on the basis of that information.
Persons Subject to the Policy
This Policy applies to all officers of the Company and its subsidiaries, all members of the Company’s Board of Directors and all employees of the Company and its subsidiaries.
The Company may also determine that other persons should be subject to this Policy, such as contractors or consultants who have access to material nonpublic information.
This Policy also applies to family members, other members of a person’s household and entities controlled by a person covered by this Policy, as described below.
Transactions Subject to the Policy
This Policy applies to transactions in the Company’s securities (collectively referred to in this Policy as “Company Securities”), including the Company’s common stock, options to purchase common stock, or any other type of securities that the Company may issue, including (but not limited to) preferred stock, convertible debentures and warrants, as well as derivative securities that are not issued by the Company, such as exchange-traded put or call options or swaps relating to the Company’s Securities.
Individual Responsibility
Persons subject to this Policy have ethical and legal obligations to maintain the confidentiality of information about the Company and to not engage in transactions in Company Securities while in possession of material nonpublic information.
Persons subject to this policy must not engage in illegal trading and must avoid the appearance of improper trading.
Each individual is responsible for making sure that he or she complies with this Policy, and that any family member, household member or entity whose transactions are subject to this Policy, as discussed below, also comply with this Policy.
| Applied UV, Inc. – Insider Trading Policy |
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In all cases, the responsibility for determining whether an individual is in possession of material nonpublic information rests with that individual, and any action on the part of the Company, the Compliance Officer or any other employee or director pursuant to this Policy (or otherwise) does not in any way constitute legal advice or insulate an individual from liability under applicable securities laws.
You could be subject to severe legal penalties and disciplinary action by the Company for any conduct prohibited by this Policy or applicable securities laws, as described below in more detail under the heading “Consequences of Violations.”
Administration of the Policy
Mr. Michael Riccio, CFO, shall serve as the Compliance Officer for the purposes of this Policy. The Compliance Officer is authorized to consult with the Company’s securities counsel without notice and at such times as he may deem necessary or appropriate at the expense of the Company. All determinations and interpretations by the Compliance Officer shall be final and not subject to further review.
Statement of Policy
It is the policy of the Company that no director, officer or other employee of the Company (or any other person designated by this Policy or by the Compliance Officer as subject to this Policy) who is aware of material nonpublic information relating to the Company may, directly, or indirectly through family members or other persons or entities:
1. Engage in transactions in Company Securities, except as otherwise specified in this Policy under the headings “Transactions Under Company Plans,” “Transactions Not Involving a Purchase or Sale” and “Rule 10b5-1 Plans;”
2. Recommend the purchase or sale of any Company Securities;
3. Disclose material nonpublic information to persons within the Company whose jobs do not require them to have that information, or outside of the Company to other persons, including, but not limited to, family, friends, business associates, investors and expert consulting firms, unless any such disclosure is made in accordance with the Company’s policies regarding the protection or authorized external disclosure of information regarding the Company; or,
4. Assist anyone engaged in the above activities.
In addition, it is the policy of the Company that no director, officer or other employee of the Company (or any other person designated as subject to this Policy) who, in the course of working for the Company, learns of material nonpublic information about a company with which the Company does business, including a customer or supplier of the Company, may trade in that company’s securities until the information becomes public or is no longer material.
There are no exceptions to this Policy, except as specifically noted herein. Transactions that may be necessary or justifiable for independent reasons (such as the need to raise money for an emergency expenditure), or small transactions, are not excepted from this Policy. The securities laws do not recognize any mitigating circumstances, and, in any event, even the appearance of an improper transaction must be avoided to preserve the Company’s reputation for adhering to the highest standards of conduct.
| Applied UV, Inc. – Insider Trading Policy |
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Definition of Material Nonpublic Information
Material Information. Information is considered “material” if a reasonable investor would consider that information important in making a decision to buy, hold or sell securities. Any information that could be expected to affect a company’s stock price, whether it is positive or negative, should be considered material. There is no bright-line standard for assessing materiality; rather, materiality is based on an assessment of all of the facts and circumstances and is often evaluated by enforcement authorities with the benefit of hindsight. While it is not possible to define all categories of material information, some examples of information that ordinarily would be regarded as material are:
| ● | Projections of future earnings or losses, or other earnings guidance; |
| ● | Changes to previously announced earnings guidance, or decisions to suspend earnings guidance; |
| ● | A pending or proposed merger, acquisition or tender offer; |
| ● | A pending or proposed acquisition or disposition of a significant asset; |
| ● | A pending or proposed joint venture; |
| ● | A Company restructuring; |
| ● | Significant related party transactions; |
| ● | A change in dividend policy, the declaration of a stock split or an offering of additional securities; |
| ● | Bank borrowings or other financing transactions out of the ordinary course of business; |
| ● | The establishment of a repurchase program for Company Securities; |
| ● | A change in the Company’s pricing or cost structure; |
| ● | Major marketing changes; |
| ● | A change in management; |
| ● | A change in auditors or notification that the auditor’s report may no longer be relied upon; |
| ● | Development of a significant new product, process or service; |
| ● | Pending or threatened significant litigation, or the resolution of such litigation; |
| ● | Impending bankruptcy or the existence of severe liquidity problems; |
| ● | The gain or loss of a significant customer or supplier; |
| ● | The results of clinical trials or testing of the Company’s products or services; |
| ● | A significant cybersecurity incident, such as a data breach, or any other significant disruption in the Company’s operations or loss, potential loss, breach or unauthorized access of its property or assets, whether at its facilities or through its information technology infrastructure; or |
| ● | The imposition of an event-specific restriction on trading in the Company’s Securities or the securities of another company or the extension or termination of such restriction. |
| Applied UV, Inc. – Insider Trading Policy |
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When Information is Considered Public. Information that has not been disclosed to the public is generally considered to be nonpublic information. In order to establish that the information has been disclosed to the public, it may be necessary to demonstrate that the information has been widely disseminated. Information generally would be considered widely disseminated if it has been disclosed through the Dow Jones “broad tape,” newswire services, a broadcast on widely-available radio or television programs, publication in a widely-available newspaper, magazine or news website, or public disclosure documents filed with the SEC that are available on the SEC’s website, or subject to the Compliance Officer’s determination, disclosure on the Company’s website or through a social media.
By contrast, information would likely not be considered widely disseminated if it is available only to the Company’s employees, or if it is only available to a select group of analysts, brokers and institutional investors.
Once information is widely disseminated, it is still necessary to provide the investing public with sufficient time to absorb the information. As a general rule, information should not be considered fully absorbed by the marketplace until after the second business day after the day on which the information is released. If, for example, the Company were to make an announcement on a Monday, you should not trade in Company Securities until Thursday. Depending on the particular circumstances, the Company may determine that a longer or shorter period should apply to the release of specific material nonpublic information. For purposes of this Policy, a “business day” is any day that the Nasdaq Capital Market is open for regular way day trading.
Transactions by Family Members and Others
This Policy applies to your family members who reside with you (including a spouse, a child, a child away at college, stepchildren, grandchildren, parents, stepparents, grandparents, siblings and in-laws), anyone else who lives in your household, and any family members who do not live in your household but whose transactions in Company Securities are directed by you or are subject to your influence or control, such as parents or children who consult with you before they trade in Company Securities (collectively referred to as “Family Members”).
You are responsible for the transactions of these other persons and therefore should make them aware of the need to confer with you before they trade in Company Securities, and you should treat all such transactions for the purposes of this Policy and applicable securities laws as if the transactions were for your own account.
This Policy does not, however, apply to personal securities transactions of Family Members where the purchase or sale decision is made by a third party not controlled by, influenced by or related to you or your Family Members.
Transactions by Entities that You Influence or Control
This Policy applies to any entities that you influence or control, including any corporations, partnerships or trusts (collectively referred to as “Controlled Entities”), and transactions by these Controlled Entities should be treated for the purposes of this Policy and applicable securities laws as if they were for your own account.
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Transactions Under Company Plans
This Policy does not apply in the case of the following transactions, if currently applicable, except as specifically noted:
Stock Option Exercises. This Policy does not apply to the exercise of an employee stock option acquired pursuant to the Company’s plans, or to the exercise of a tax withholding right pursuant to which a person has elected to have the Company withhold shares subject to an option to satisfy tax withholding requirements. This Policy does apply, however, to any sale of stock as part of a broker-assisted cashless exercise of an option, or any other market sale for the purpose of generating the cash needed to pay the exercise price of an option.
Restricted Stock Awards. This Policy does not apply to the vesting of restricted stock, or the exercise of a tax withholding right pursuant to which you elect to have the Company withhold shares of stock to satisfy tax withholding requirements upon the vesting of any restricted stock. The Policy does apply, however, to any market sale of restricted stock.
401(k) Plan. This Policy does not apply to purchases of Company Securities in the Company’s 401(k) plan resulting from your periodic contribution of money to the plan pursuant to your payroll deduction election.
This Policy does apply, however, to certain elections you may make under the 401(k) plan, including: (a) an election to increase or decrease the percentage of your periodic contributions that will be allocated to the Company stock fund; (b) an election to make an intra-plan transfer of an existing account balance into or out of the Company stock fund; (c) an election to borrow money against your 401(k) plan account if the loan will result in a liquidation of some or all of your Company stock fund balance; and (d) an election to pre-pay a plan loan if the pre-payment will result in allocation of loan proceeds to the Company stock fund. It should be noted that sales of Company Securities from a 401(k) account are also subject to Rule 144, and therefore affiliates should ensure that a Form 144 is filed when required.
Employee Stock Purchase Plan. This Policy does not apply to purchases of Company Securities in the employee stock purchase plan resulting from your periodic contribution of money to the plan pursuant to the election you made at the time of your enrollment in the plan. This Policy also does not apply to purchases of Company Securities resulting from lump sum contributions to the plan, provided that you elected to participate by lump sum payment at the beginning of the applicable enrollment period.
This Policy does apply, however, to your election to participate in the plan for any enrollment period, and to your sales of Company Securities purchased pursuant to the plan.
Dividend Reinvestment Plan. This Policy does not apply to purchases of Company Securities under the Company’s dividend reinvestment plan resulting from your reinvestment of dividends paid on Company Securities.
This Policy does apply, however, to voluntary purchases of Company Securities resulting from additional contributions you choose to make to the dividend reinvestment plan, and to your election to participate in the plan or increase your level of participation in the plan. This Policy also applies to your sale of any Company Securities purchased pursuant to the plan.
Other Similar Transactions. Any other purchase of Company Securities from the Company or sales of Company Securities to the Company are not subject to this Policy.
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Transactions Not Involving a Purchase or Sale
Bona fide gifts are not transactions subject to this Policy, unless the person making the gift has reason to believe that the recipient intends to sell the Company Securities while the officer, employee or director is aware of material nonpublic information, or the person making the gift is subject to the trading restrictions specified below under the heading “Additional Procedures” and the sales by the recipient of the Company Securities occur during a blackout period.
Further, transactions in mutual funds that are invested in Company Securities are not transactions subject to this Policy.
Special and Prohibited Transactions
Certain transactions are of concern not only because of insider trading considerations, but also because of the appearance created by the transaction and the potential repercussions that the transaction may have with investors, regulators and others.
Accordingly, the Company has determined that there is a heightened legal risk and/or the appearance of improper or inappropriate conduct if the persons subject to this Policy engage in certain types of transactions. It therefore is the Company’s policy that any persons covered by this Policy may not engage in any of the following transactions, or should otherwise consider the Company’s preferences as described below:
Short-Term Trading. Short-term trading of Company Securities may be distracting to the person and may unduly focus the person on the Company’s short-term stock market performance instead of the Company’s long-term business objectives. For these reasons, any director, officer or other employee of the Company who purchases Company Securities in the open market may not sell any Company Securities of the same class during the six months following the purchase (or vice versa). Directors and officers should note the short term trading restrictions of Section 16(b) of the Securities Exchange Act of 1934 (“Exchange Act”).
Short Sales. Short sales of Company Securities (i.e., the sale of a security that the seller does not own) may evidence an expectation on the part of the seller that the securities will decline in value, and therefore have the potential to signal to the market that the seller lacks confidence in the Company’s prospects. In addition, short sales may reduce a seller’s incentive to seek to improve the Company’s performance. For these reasons, short sales of Company Securities are prohibited. In addition, Section 16(c) of the Exchange Act prohibits officers and directors from engaging in short sales. (Short sales arising from certain types of hedging transactions are governed by the paragraph below captioned “Hedging Transactions.”)
Publicly-Traded Options. Given the relatively short term of publicly-traded options, transactions in options may create the appearance that a director, officer or employee is trading based on material nonpublic information and focus a director’s, officer’s or other employee’s attention on short-term performance at the expense of the Company’s long-term objectives. Accordingly, transactions in put options, call options or other derivative securities, on an exchange or in any other organized market, are prohibited by this Policy. (Option positions arising from certain types of hedging transactions are governed by the next paragraph below.)
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Hedging Transactions. Hedging or monetization transactions can be accomplished through a number of possible mechanisms, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. Such transactions may permit a director, officer or employee to continue to own Company Securities obtained through employee benefit plans or otherwise, but without the full risks and rewards of ownership. When that occurs, the director, officer or employee may no longer have the same objectives as the Company’s other shareholders. Therefore, directors, officers and employees are prohibited from engaging in any such transactions.
Margin Accounts and Pledged Securities. Securities held in a margin account as collateral for a margin loan may be sold by the broker without the customer’s consent if the customer fails to meet a margin call. Similarly, securities pledged (or hypothecated) as collateral for a loan may be sold in foreclosure if the borrower defaults on the loan. Because a margin sale or foreclosure sale may occur at a time when the pledgor is aware of material nonpublic information or otherwise is not permitted to trade in Company Securities, directors, officers and other employees are prohibited from holding Company Securities in a margin account and are strongly discouraged from pledging Company Securities as collateral for a loan. Any person wishing to enter into a legitimate loan pledge arrangement must first submit the proposed transaction in writing for approval by the Compliance Officer at least two weeks prior to the proposed execution of documents evidencing the proposed transaction and must set forth a justification for the proposed transaction and clearly demonstrate the financial capacity to repay the loan without resorting to the pledged securities. The person making the request shall have no other contact with the Compliance Officer on that matter and the Compliance Officer’s decision shall be final and binding. (Pledges of Company Securities arising from certain types of hedging transactions are governed by the paragraph above captioned “Hedging Transactions.”)
Standing and Limit Orders. Standing and limit orders (except standing and limit orders under approved Rule 10b5-1 Plans, as described below) create heightened risks for insider trading violations similar to the use of margin accounts. There is no control over the timing of purchases or sales that result from standing instructions to a broker, and as a result the broker could execute a transaction when a director, officer or other employee is in possession of material nonpublic information. The Company therefore discourages placing standing or limit orders on Company Securities. If a person subject to this Policy determines that they must use a standing order or limit order, the order should be limited to short duration and should otherwise comply with the restrictions and procedures outlined below under the heading “Additional Procedures.”
Additional Procedures
The Company has established additional procedures in order to assist the Company in the administration
of this Policy, to facilitate compliance with laws prohibiting insider trading while in possession of material nonpublic information, and to avoid the appearance of any impropriety. These additional procedures are applicable only to those individuals described below.
Pre-Clearance Procedures. The persons designated by the Compliance Officer as being subject to these procedures, as well as the Family Members and Controlled Entities of such persons, may not engage in any transaction in Company Securities without first obtaining pre-clearance of the transaction from the Compliance Officer.
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A written request for pre-clearance should be submitted to the Compliance Officer at least two business days in advance of the proposed transaction. The Compliance Officer is under no obligation to approve a transaction submitted for pre-clearance, and may determine not to permit the transaction. If a person seeks preclearance and permission to engage in the transaction is denied, then he or she should refrain from initiating any transaction in Company Securities, and should not inform any other person of the restriction.
When a request for pre-clearance is made, the requestor should carefully consider whether he or she may be aware of any material nonpublic information about the Company, and should describe fully those circumstances to the Compliance Officer. The requestor should also indicate whether he or she has effected any non-exempt “opposite-way” transactions within the past six months, and should be prepared to report the proposed transaction on an appropriate Form 4 or Form 5. The requestor should also be prepared to comply with SEC Rule 144 and file Form 144, if necessary, at the time of any sale.
All pre-cleared trades must be effected within five business days of receipt of pre-clearance unless an exception is granted. Transactions not effected within the time limit are subject to pre-clearance again. Within three business days after the execution of the transaction, the requestor shall notify the Compliance Officer of the date and size of the transaction.
Quarterly Trading Restrictions. The persons designated by the Compliance Officer as subject to this restriction, as well as their Family Members or Controlled Entities, may not conduct any transactions involving the Company’s Securities (other than as specified by this Policy), during a “Blackout Period” beginning 21 days prior to the end of each fiscal quarter and ending on the 10th business day following the date of the public release of the Company’s earnings results for that quarter. In other words, these persons may only conduct transactions in Company Securities during the “Window Period” beginning on the 11th business day following the public release of the Company’s quarterly earnings and ending 22 days prior to the close of the next fiscal quarter.
Under certain very limited circumstances, a person subject to this restriction may be permitted to trade during a Blackout Period, but only if the Compliance Officer, with the advice of securities counsel if requested by the Compliance Officer, concludes that the person does not in fact possess material nonpublic information and may otherwise trade. Persons wishing to trade during a Blackout Period must make such request in writing to the Compliance Officer for approval at least three business days in advance of any proposed transaction involving Company Securities. All such trades are subject to the pre-clearance procedures set forth above under “Pre-Clearance Procedures.”
Event-Specific Trading Restriction Periods. From time to time, an event may occur that is material to the Company and is known by only a few directors, officers and/or employees. The involved directors or officers shall promptly notify the Compliance Officer of such event. So long as the event remains material and nonpublic, the persons designated by the Compliance Officer may not trade Company Securities.
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In addition, the Company’s financial results may be sufficiently material in a particular fiscal quarter that, in the judgment of the Compliance Officer, designated persons should refrain from trading in Company Securities even sooner than the typical Blackout Period described above.
In either event, the Compliance Officer may notify these persons that they should not trade in the Company’s Securities, without disclosing the reason for the restriction. The existence of an event-specific trading restriction period or extension of a Blackout Period will not be announced to the Company as a whole, and should not be communicated to any other person. If you know of the event, then even if the Compliance Officer has not designated you as a person who should not trade due to an event-specific restriction, you should not trade while you are aware of material nonpublic information. Exceptions will not be granted during an event-specific trading restriction period.
Exceptions. The quarterly trading restrictions and event-specific trading restrictions do not apply to those transactions to which this Policy does not apply, as described above under the headings “Transactions Under Company Plans” and “Transactions Not Involving a Purchase or Sale.” Further, the requirement for pre-clearance, the quarterly trading restrictions and event-specific trading restrictions do not apply to transactions conducted pursuant to approved Rule 10b5-1 plans, described under the heading “Rule 10b5-1 Plans.”
Rule 10b5-1 Plans
Rule 10b5-1 under the Exchange Act provides a defense from insider trading liability under Rule 10b-5. In order to be eligible to rely on this defense, a person subject to this Policy must enter into a Rule 10b5-1 plan for transactions in Company Securities that meets certain conditions specified in the Rule (a“Rule 10b5-1 Plan”). If the plan meets the requirements of Rule 10b5-1, Company Securities may be purchased or sold without regard to certain insider trading restrictions.
To comply with the Policy, a Rule 10b5-1 Plan must be approved by the Compliance Officer and meet the requirements of Rule 10b5-1 and the Company’s “Guidelines for Rule 10b5-1 Plans,” which may be obtained from the Compliance Officer. In general, a Rule 10b5-1 Plan must be entered into at a time when the person entering into the plan is not aware of material nonpublic information. Once the plan is adopted, the person must not exercise any influence over the amount of securities to be traded, the price at which they are to be traded or the date of the trade. The plan must either specify the amount, pricing and timing of transactions in advance or delegate discretion on these matters to an independent third party.
Any Rule 10b5-1 Plan must be submitted in writing for approval by the Compliance Officer no less than five business days prior to the entry into the Rule 10b5-1 Plan. No further pre-approval of transactions conducted pursuant to the Rule 10b5-1 Plan will be required.
Post-Termination Transactions
This Policy continues to apply to transactions in Company Securities even after termination of service to the Company. If an individual is in possession of material nonpublic information when his or her service terminates, that individual may not trade in Company Securities until that information has become public or is no longer material.
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Consequences of Violations
The purchase or sale of securities while aware of material nonpublic information, or the disclosure of material nonpublic information to others who then trade in the Company’s Securities, is prohibited by the federal and state laws. Insider trading violations are pursued vigorously by the Securities and Exchange Commission (“SEC”), U.S. Attorneys and state enforcement authorities as well as the laws of foreign jurisdictions.
Punishment for insider trading violations is severe, and could include significant fines and imprisonment. While the regulatory authorities concentrate their efforts on the individuals who trade, or who tip inside information to others who trade, the federal securities laws also impose potential liability on companies and other “controlling persons” if they fail to take reasonable steps to prevent insider trading by company personnel.
In addition, an individual’s failure to comply with this Policy may subject the individual to Company-imposed sanctions, including dismissal for cause, whether or not the employee’s failure to comply results in a violation of law. Needless to say, a violation of law, or even an SEC investigation that does not result in prosecution, can tarnish a person’s reputation and irreparably damage a career.
Company Assistance
Any person who has a question about this Policy or its application to any proposed transaction may obtain additional guidance from the Compliance Officer, who can be reached by telephone at 551-482-9204 or via e-mail at mike.riccio@sterilumen.com.
Certification
All persons subject to this Policy must certify their understanding of, and intent to comply with, this Policy. Please complete and sign the accompanying Certification page and return to Mike Riccio at: mike.riccio@sterilumen.com.
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Exhibit 21.1
Subsidiaries of the Registrant
| Legal Name of Subsidiary | Jurisdiction of Organization |
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| Munn Works, LLC | New York | |
| SteriLuman, Inc. | New York | |
| PURO Lighting, LLC | Colorado | |
| LED Supply Co. LLC. | Colorado |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements of Applied UV, Inc. on Form S-1 (File No. 333-274879) and Form S-3 (File No. 333-266015) of our report dated April 16, 2024, as of December 31, 2023 and 2022 and for each of the two years in the period ended December 31, 2023, which appears in the Annual Report on Form 10-K of Applied UV, Inc. for the year ended December 31, 2023. The report for Applied UV, Inc. includes an explanatory paragraph about the existence of substantial doubt concerning its ability to continue as a going concern. We also consent to the reference to our Firm under the caption “Experts” in the Registration Statements.
/s/ Mazars USA LLP
Fort Washington, PA
April 16, 2024
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Max Munn, Chief Executive Officer of Applied UV, Inc. (the “Company”), certify that:
| (1) | I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2023; |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| (3) | Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods represented in this report; |
| (4) | The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| (5) | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and to the Audit Committee of the Board of Directors (or persons fulfilling the equivalent function): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
April 16, 2024
| /s/ Max Munn | |
| Max Munn |
Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Michael Riccio, Chief Financial Officer of Applied UV, Inc. (the “Company”), certify that:
| (1) | I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2023; |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| (3) | Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods represented in this report; |
| (4) | The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| (5) | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and to the Audit Committee of the Board of Directors (or persons fulfilling the equivalent function): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
April 16, 2024
| /s/ Michael Riccio | |
| Michael Riccio | |
| Chief Financial Officer |
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of 60 Applied UV, Inc. (the “Company”) for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Max Munn, Chief Executive Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
April 16, 2024
| /s/ Max Munn | |
| Max Munn | |
| Chief Executive Officer |
(Principal Executive Officer)
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Applied UV, Inc. (the “Company”) for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Michael Riccio, Chief Financial Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
April 16, 2024
| /s/ Michael Riccio | |
| Michael Riccio | |
| Chief Financial Officer |
(Principal Financial Officer)
Exhibit 97.1
APPLIED UV, INC.
CLAWBACK POLICY
Introduction
The Board of Directors (“Board”) of Applied UV, Inc., a Delaware corporation (the “Company”), believes that it is in the best interests of the Company and its stockholders to adopt this policy which provides for the recoupment of certain executive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws (the “Policy”). This Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10D-1 promulgated under the Exchange Act (“Rule 10D-1”), and Listing Rule 5608 of The Nasdaq Stock Market LLC (“Nasdaq”).
Administration
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee of the Board (the “Compensation Committee”) or the Audit Committee of the Board (the “Audit Committee”), or any special committee comprised of members of the Compensation Committee or Audit Committee (the “Administrator”). Any determinations made by the Administrator shall be final and binding on all affected individuals. Subject to any limitation at applicable law, the Administrator may authorize and empower any officer or employee of the Company to take any and all actions necessary or appropriate to carry out the purpose and intent of this Policy (other than with respect to any recovery under this Policy involving such officer or employee).
Covered Executives
This Policy applies to the Company’s current and former executive officers, as determined by the Administrator in accordance with Section 10D of the Exchange Act and the listing standards of the national securities exchange on which the Company’s securities are listed, and such other senior executives/employees who may from time to time be deemed subject to the Policy by the Administrator (each, a “Covered Executive”).
For the purposes of this Policy, “executive officers” shall include persons subject to reporting and short-swing liability provisions of Section 16 under the Exchange Act. This shall include the Company’s president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice president in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company and any person identified under Regulation S-K Item 401(b) in the Company’s annual reports and proxy statements. Executive officers of a parent or subsidiary are deemed executive officers of the listed company if they perform such policy-making functions for the listed company or such parent or subsidiary. The policy-making function is not intended to include policy-making functions that are not significant.
Recoupment; Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period, the Administrator will require, as promptly as it reasonably can, reimbursement or forfeiture of any Incentive Compensation, as defined below, received by any Covered Executive during the three (3) completed fiscal years immediately preceding the date on which the Company is required to prepare an accounting restatement (the “Restatement Date”), so long as the Incentive Compensation received by such Covered Executive is in excess of what would have been awarded or vested after giving effect to the accounting restatement. The amount to be recovered will be the excess of Incentive Compensation paid to the Covered Executive based on the erroneous data in the original financial statements over the Incentive Compensation that would have been paid to the Covered Executive had it been based on the restated results, without respect to any taxes paid.
The Restatement Date is defined as the earlier of (i) the date the Board, a Board committee, or management (if no Board action is required) concludes, or reasonably should have concluded, that the Company is required to prepare an accounting restatement or (ii) the date a court, regulator, or other legally authorized body directs the Company to prepare an accounting restatement.
Incentive Compensation
For purposes of this Policy, “Incentive Compensation” means any of the following; provided that, such compensation is granted, earned, or vested based wholly or in part on the attainment of a financial reporting measure:
| ● | Annual bonuses and other short- and long-term cash incentives. |
| ● | Stock options. |
| ● | Stock appreciation rights. |
| ● | Restricted stock. |
| ● | Restricted stock units. |
| ● | Performance shares. |
| ● | Performance units. |
| ● | Non-equity incentive plan awards. |
Financial reporting measures include any measure that is determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measure that is derived wholly or in-part from such measure. The following examples (and any measures derived therefrom) are non-exhaustive:
| ● | Company stock price. |
| ● | Total shareholder return. |
| ● | Revenues. |
| ● | Net income. |
| ● | Operating income. |
| ● | Earnings before interest, taxes, depreciation, and amortization (EBITDA). |
| ● | Funds from operations and adjusted funds from operations. |
| ● | Liquidity measures such as working capital or operating cash flow. |
| ● | Return measures such as return on invested capital or return on assets. |
| ● | Earnings measures such as earnings per share. |
| ● | Profitability of one or more reportable segments. |
| ● | Financial ratios such as accounts receivable turnover. |
| ● | Cost per employee, where cost is subject to any accounting restatement. |
| ● | Any of such financial reporting measures relative to a peer group, where the Company’s financial reporting measure is subject to an accounting restatement and tax basis income. |
| ● | Capital raised through debt or equity financing. |
| ● | Reductions in accounts receivables. |
For the avoidance of doubt, Incentive Compensation does not include annual salary, compensation awarded based on completion of a specified period of service, or compensation awarded based on subjective standards, strategic measures, or operational measures.
Incentive Compensation includes incentive-based compensation received by a person:
| ● | after beginning service as an executive officer; |
| ● | who serves as an executive officer at any time during the performance period for the incentive-based compensation; |
| ● | who served as an executive officer while the Company has a class of securities listed on a national securities exchange; and |
| ● | who serves as an executive officer during the three (3) fiscal years preceding the Restatement Date. |
For the avoidance of doubt, subsequent changes in a Covered Executive’s employment status, including retirement or termination of employment, do not affect the Company’s rights to recover incentive-based compensation pursuant to this Policy.
Excess Incentive Compensation: Amount Subject to Recovery
The amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data over the Incentive Compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the Administrator. Incentive Compensation is deemed “received” during the fiscal period during which the financial reporting measure specified in the incentive-based compensation award is attained, even if payment or grant of the Incentive Compensation occurs after the end of the period.
If the Administrator cannot determine the amount of excess Incentive Compensation received by the Covered Executive directly from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement.
Method of Recoupment
The Administrator will determine, in its sole discretion, the method for recouping excess Incentive Compensation hereunder, which may include, without limitation:
| ● | requiring reimbursement of cash Incentive Compensation previously paid; |
| ● | seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards; |
| ● | offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive; |
| ● | canceling outstanding vested or unvested equity awards; and/or |
| ● | taking any other remedial and recovery action permitted by law, as determined by the Administrator. |
No Indemnification of Covered Executives
The Company shall not indemnify any current or former Covered Executive against the loss of any incorrectly awarded Incentive Compensation, and shall not pay, or reimburse any Covered Executive for premiums for any insurance policy to fund such executive’s potential recovery obligations.
Indemnification of the Administrator
Any members of the Administrator who assist in the administration of this Policy, shall not be personally liable for any action, determination, or interpretation made with respect to this Policy and shall be fully indemnified by the Company to the fullest extent under applicable law and Company policy with respect to any such action, determination, or interpretation. The foregoing sentence shall not limit any other rights to indemnification of the Administrator under applicable law or Company policy.
Interpretation
The Administrator is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act, Rule 10D-1, Nasdaq Listing Rule 5608, and any other applicable rules or standards adopted by the Securities and Exchange Commission or any national securities exchange on which the Company’s securities are then listed.
Effective Date
This Policy shall be effective as of the date it is adopted by the Administrator (the “Effective Date”) and shall apply to Incentive Compensation that is approved, awarded, or granted to any Covered Executive on or after that date.
Amendment; Termination
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect final regulations adopted by the Securities and Exchange Commission under Section 10D of the Exchange Act, Rule 10D-1, and Nasdaq Listing Rule 5608 and to comply with any other rules or standards adopted by a national securities exchange on which the Company’s securities are then listed. The Board may terminate this Policy at any time.
Other Recoupment Rights
The Administrator intends that this Policy will be applied to the fullest extent of the law. The Administrator may require that any employment agreement, equity award agreement, or similar agreement entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy. Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any employment agreement, equity award agreement, or similar agreement and any other legal remedies available to the Company.
Impracticability
The Administrator shall recover any excess Incentive Compensation in accordance with this Policy unless such recovery would be impracticable, as determined by the Administrator in accordance with Rule 10D-1 of the Exchange Act and the listing standards of the national securities exchange on which the Company’s securities are listed.
Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators, or other legal representatives.
Exhibit Filing Requirement
A copy of this Policy and any amendments thereto shall be posted on the Company’s website and filed as an exhibit to the Company’s Annual Report on Form 10-K.