APPLIED UV, INC. Certain statements made in this prospectus are "forward-looking statements" regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the "Company" to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and therefore, there can be no assurance the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" contained in our latest annual report filed with theSecurities and Exchange Commission . Our fiscal year ends onDecember 31
Overview
The Company was formed onFebruary 26, 2019 for the purpose of acquiring all of the equity of SteriLumen and Munnworks. The Company acquired all of the capital stock of SteriLumen in March of 2019 pursuant to two exchange agreements in which all of the stockholders of SteriLumen exchanged their shares in SteriLumen for shares of common stock and super voting preferred stock in the Company. The Company acquired all of the equity of Munnworks in July of 2019 pursuant to an exchange agreement in exchange for shares of common stock in the Company. The Company conducts all of its operations through SteriLumen and Munnworks. 29 SteriLumen was formed to engage in the design, manufacture, assembly and distribution of the SteriLumen Disinfecting System for use in hospitals and other healthcare facilities. The Company has received several patent approvals for the SteriLumen Disinfecting System fromthe United States and theEuropean Union and is in the process of receiving approval from various countries includingChina ,Japan ,Taiwan ,South Korea and theGulf Cooperation Council . The technology of the SteriLumen Disinfecting System uses UVC LED embedded in various bathroom fixtures or as a stand-alone unit as a disinfection apparatus for use in inhabited facilities for killing airborne bacteria and other pathogens as well as killing bacteria and other pathogens residing on hard surfaces in proximity to the apparatus. Following the Company's initial public offering, product development efforts were accelerated. The system's technology development roadmap, including connected and data-enabled capabilities has been refined and the Clarity D3 application will be launched along with the updated version of the SteriLumen Ribbon (now branded Lumicide™) in the fall of 2021. The Company has also achieved UL certification for both the stand-alone Ribbon, and integrated Drain products, ensuring that the Company meets requirements of commercial customers who rely on the UL mark as evidence of safety, quality, and reliability. The Company works with distributors to sell both SteriLumen and Munnworks product lines, and is in the process of signing up new SteriLumen distributors of significant breadth and scale to introduce the SteriLumen products to new markets, including building management, commercial real estate, and environmental health and safety. Munnworks is a manufacturer of custom designed fine mirrors specifically for the hospitality industry with one manufacturing facility inMount Vernon, New York . Our goal is to contribute to the creation of what our design industry clients seek: manufacturing better framed mirrors 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 inMount 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. In addition to our domestic partners, the Company maintains overseas production capability with on-site Munnworks employees. Moreover, as company policy, the Company conducts on-site factory visits for all in-process and outgoing orders, which are observed and checked by a project manager from our home office inMount Vernon, NY before they leave our overseas partners' facilities. The combination of quality, innovative, stylish merchandise, and value pricing has led us to develop a loyal customer base. In February of 2021, the Company acquired all the assets and assumed certain liabilities ofAkida 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 theUniversity of Wisconsin atMadison , that uses a combination of UVC and a proprietary, titanium dioxide based photocatalyst that may help to accelerate the reopening of the global economy with applications in the hospitality, hotel, healthcare, nursing homes, grocer, wine, commercial buildings and retail sectors. The Airocide™ system has been used by brands such as NASA,Whole Foods , Dole, Chiquita, Opus One,Sub-Zero Refrigerators andRobert Mondavi Wines . Akida had contractedKES 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. OnSeptember 28, 2021 , the Company acquired all the assets and assumed certain liabilities of KES. At the time of the acquisition, KES was principally engaged in the manufacturing and distribution of the Airocide™ system of air purification technologies and misting systems. KES also had the exclusive right to the sale and distribution of the Airocide™ system in certain markets. This acquisition consolidates all of manufacturing, sale and distribution of the Airocide™ system under the SteriLumen brand and expands the Company's market presence in food distribution, post-harvest produce, wineries, and retail sectors. The Company sells its products throughoutthe United States ,Canada , andEurope . 30
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
Nine Months EndedSeptember 30, 2021 Compared to the Nine Months EndedSeptember 30, 2020 (restated) Nine Months Ended Nine Months Ended September 30, 2021 September 30, 2020 (restated) Hospitality Disinfection Corporate Total Hospitality Disinfection Corporate Total Net Sales$ 4,282,696 $ 3,465,803 $ -$ 7,748,499 $ 4,727,631 $ - $ -$ 4,727,631 Cost of Goods Sold 3,269,335 1,961,820 - 5,231,155 3,825,037 - - 3,825,037 Gross Profit 1,013,361 1,503,983 - 2,517,344 902,594 - - 902,594 Research and development - 53,408 - 53,408 - 65,037 - 65,037 Stock based compensation 559,698 542,911 - 1,102,609 192,594 188,720 - 381,314 Selling, General and Administrative 1,791,835 4,097,028 - 5,888,863 1,371,531 71,745 - 1,443,276 Total Operating expenses 2,351,533 4,693,347 - 7,044,880 1,564,125 325,502 - 1,889,627 Operating Loss (1,338,172 ) (3,189,364 ) - (4,527,536 ) (661,531 ) (325,502 ) - (987,033 ) Other (Expense) Income Change in Fair Market Value of Warrant Liability - - (148,882 (148,882 ) - - - - Forgiveness of paycheck protection program loan - - 296,827 296,827 - - - - Other income - - 26,250 26,250 - - 11,905 11,905 Total Other (Expense) Income - - 174,195 174,195 - - 11,905 11,905 Loss Before Provision for Income Taxes (1,338,172 ) (3,189,364 ) 174,195 (4,353,341 ) (661,531 ) (325,502 ) 11,905 (975,128 ) Benefit from Income Taxes - - 101,354 101,354 - - - - Net Loss$ (1,338,172 ) $ (3,189,364 ) $ 275,549 $ (4,251,987 ) (661,531 )$ (325,502 ) $ 11,905 $ (975,128 ) Net sales and gross profit are the most significant drivers of our operating performance. Net sales consist of all sales to customers, net of returns. Our net sales for the nine months endedSeptember 30, 2021 increased by 63.9% to$7,748,499 from$4,727,631 in the nine months endedSeptember 30, 2020 . Net sales of our hospitality sector for the nine months endedSeptember 30, 2021 were$4,282,696 , which is 9.4% below last year, but we continue to see improvement as the year progresses and the hospitality industry rebounds from the COVID-19 impact. Net sales of our disinfection segment contributed$3,465,803 , primarily as a result of ourAkida Holdings acquisition. that closed onFebruary 8, 2021 . We are experiencing some delays in one of our SteriLumen product lines that we anticipate will be resolved in the 4th quarter of this year. 31 Accordingly, gross profit expressed as a percentage of net sales can be influenced by many factors including overall sales performance. For the nine months endedSeptember 30, 2021 , gross profit increased to$2,517,344 from$902,594 for the nine months endedSeptember 30, 2020 . Gross profit as a percentage of net sales increased to 32.5% for the nine months endedJune 30, 2021 from 19.1% in the nine months endedSeptember 30, 2020 , primarily driven by our disinfection segment. For the nine months endedSeptember 30, 2021 , gross profit from our hospitality segment was$1,103,361 , or 23.7% vs. sales, as compared with the gross profit from our disinfection segment of$1,501,983 , or 43.3% vs. sales. Throughout the pandemic the Company continued to retain direct labor employees in its hospitality segment to comply with payroll protection plan loan forgiveness criteria which was forgiven onJuly 7, 2021 , in the amount of$296,827 . Additionally, major components and cost drivers of our cost of sales is influenced by the cost of materials, shipping, overhead, and labor costs, which has become more of a challenge during this current supply chain environment. Stock based compensation has increased due to the company's adoption of its incentive plan and issuance of options and warrants during the quarter. OnMarch 31, 2020 , the Company adopted theApplied UV, Inc. 2020 Omnibus Incentive Plan (the "Plan") with 600,000 shares of common stock available for issuance under the terms of the Plan. The Plan permits the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units and Other Awards. Stock based compensation increased to$1,102,609 for the nine months endedSeptember 30, 2021 , from$381,314 for the nine months endedSeptember 30, 2020 , primarily due to the timing of the hiring of key staff members and the new employment agreement for the President of Applied UV effective Q2 2021. Selling, General and Administrative expenses, including the costs of operating our corporate office, are also an important component of our operating performance. Compensation and benefits comprise most of our operating expenses. Selling, General and Administrative expenses contain fixed and variable costs and managing the operating expense ratio (operating expenses expressed as a percentage of net sales) is an important focus of management as we seek to increase our overall profitability. Operating expenses include cash costs as well as non-cash costs, such as depreciation and amortization associated with corporate property and equipment, and stock compensation expense. Operating expenses can also include certain costs that are of a one-time or non-recurring nature. For the nine months endedSeptember 30, 2021 , Selling, General and Administrative expenses increased to$5,888,863 from$1,443,276 for the nine months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , our hospitality segment and our disinfection segment increased to$1,791,835 and$4,097,028 , respectively, from the nine months endedSeptember 30, 2020 of$1,371,531 and$71,745 , respectively. The increase in our hospitality segment was primarily due to an allocation of corporate executive management salaries and related corporate management expenses. The increase in our disinfection segment was also attributable to an allocation of corporate executive management salaries and related corporate management expenses. Additionally, the disinfection segment incurred costs associated with the establishment of a new line of business, including the hiring of key personnel, consulting, advertising, legal, accounting, etc. The disinfection segment also included the amortization of intangible assets from theAkida Holdings acquisition. The Company recorded a loss on the change in fair value of warrant liability in the amount of$148,882 for the nine months endedSeptember 30, 2021 . Warrants that were issued in connection with theNovember 2020 public offering contained a cash settlement feature which resulted in a warrant liability of$284,007 as ofSeptember 30, 2021 . The fair market value of the warrant liability on the date of grant was$135,125 and was recorded as a reduction of Additional Paid in Capital.
Other Income includes the payroll protection program loan forgiveness of
Benefit from Income Taxes of
We recorded net loss of$4,251,341 in the nine months endedSeptember 30, 2021 , compared to a net loss of$975,128 in the nine months endedSeptember 30, 2020 . The net loss in 2021 was due primarily to an increase in SG&A costs to improve future operations and expand the disinfection segment of our business. 32 Three Months EndedSeptember 30, 2021 Compared to the Three Months EndedSeptember 30, 2020 Three Months Ended Three Months Ended September 30, 2021 September 30, 2020 (restated) Hospitality Disinfection Corporate Total Hospitality Disinfection Corporate Total Net Sales$ 1,750,227 $ 1,801,337 $ -$ 3,551,564 $ 1,560,633 $ - $ -$ 1,560,633
Cost of Goods Sold 1,451,560 1,048,603
- 2,500,163 1,482,455 - - 1,482,455 Gross Profit 298,667 752,734 - 1,051,401 78,178 - - 78,178 Research and - - - - - 65,037 - 65,037 development Stock based 216,568 209,700 - 426,268 141,791 137,916 - 279,707 compensation
Selling, General 571,605 1,685,152 - 2,256,757 604,597 19,631 - 624,228 and Administrative Total Operating 788,173 1,894,852 - 2,683,025 746,388 222,584 - 968,972
expenses
Operating Loss (489,506 ) (1,142,118 ) - (1,631,624 ) (668,210 ) (222,584 )
- (890,794 )
Other Income
Change in Fair
Market Value of - - 151,570 151,570 - - - -
Warrant Liability
Forgiveness of
paycheck - - 296,827 296,827 - - - -
protection program
loan
Other income - - 1,068 1,068 - - 235 235
Total Other - - 449,465 449,465 - - 235 235
(Expense) Income
Loss Before
Provision for (489,506 ) (1,142,118 ) 449,465 (1,182,159 ) (668,210 ) (222,584 ) 235 (890,559 )
Income Taxes
Benefit from - - 101,354 101,354 - - - -
Income Taxes
Net Income (Loss) $ (489,506 ) $ (1,142,118 ) $ 550,819 $ (1,080,805 ) $ (668,210 ) $ (222,584 ) $ 235 $ (890,559 )
Our net sales for the three months ended September 30, 2021 increased by 127.6%
to $3,551,564 from $1,560,633 in the three months ended September 30, 2020 . Due
to the current supply chain/logistics environment, the Company has experienced
delays in fulfilling orders in Q2 that have been pushed into both the 3rd and
4th quarters. The Hospitality segment increased by 12.1% to $1,750,227 in the
three months ended September 30, 2021 from $1,560,633 in the three months ended
September 30, 2020 . The balance of the increase for the three months ended
September 30, 2021 is attributable to our disinfection segment in the amount of
$1,801,337 , primarily as a result of our Akida Holdings acquisition. We will
begin to realize additional revenue in our disinfection segment in the fourth
quarter of 2021 from our acquisitions of KES/JJS and Scientific Air Management.
For the three months ended September 30, 2021 , gross profit increased to
$1,051,401 from $78,178 for the three months ended September 30, 2020 . Gross
profit as a percentage of net sales increased to 29.6% for the three months
ended September 30, 2021 as compared to 5.0% in the three months ended September
30, 2020 . The low gross profit last year was primarily driven by the Company
retaining direct labor employees to comply with payroll protection plan loan
forgiveness criteria combined with lower sales, all in the hospitality segment.
The gross profit of the hospitality segment increased to $298,667 , or 17.1% for
the 3 months ended September 30,2021 , and the disinfection segment contributed
gross profit of $752,734 , or 41.8%.
For the three months ended
The Company recorded a gain on the change in fair value of warrant liability in the amount of$151,570 for the three months endedSeptember 30, 2021 . Warrants that were issued in connection with theNovember 2020 public offering contained a cash settlement feature which resulted in a warrant liability of$284,007 as ofSeptember 30, 2021 . The fair market value of the warrant liability on the date of grant was$135,125 and was recorded as a reduction of Additional Paid in Capital.
Other Income includes the payroll protection program loan forgiveness of
Benefit from Income Taxes of
We recorded net loss of$1,080,805 in the three months endedSeptember 30, 2021 , compared to a net loss of$890,559 in the three months endedSeptember 30, 2020 . The net loss in 2021 was due primarily to the increase in SG&A costs to improve future operations and expand the disinfection segment of our business. 33
Liquidity and Capital Resources
Nine Months Ended
12,954,326 5,897,441
For the nine months ended September 30, 2021 , cash used in operating activities
was ($5,186,564 ) compared with cash used in operating activities of ($126,749 )
for the nine months ended September 30, 2020 . Cash provided by operating
activities was comprised of collections from accounts receivable. Cash provided
by operating activities was offset largely by cash used in operating activities
of cash paid primarily to our suppliers for production materials and parts used
in our manufacturing process, operation expenses, and employee compensation. Our
net loss for the nine months ended September 30, 2021 was ($4,251,987 ) compared
to a net loss of ($975,128 ) for the nine months ended September 30, 2020 .
Additionally, the major operating activities that further reduced cash was an
increase in vendor deposits of ($925,366 ), a decrease in accounts payable and
accrued expenses of ($645,183 ), a decrease in deferred revenue of ($422,793 ),
and an increase in inventory of ($313,994 ), offset primarily by non-cash
expenses of $1,102,609 for stock compensation and $481,040 for depreciation and
amortization.
In the nine months ended September 30, 2021 , net cash used in investing
activities was ($5,579,194 ) as compared to cash used in investing activities of
($154,058 ) in the nine months ended September 30, 2020 . The increase in cash
used was mainly attributable to cash paid in connection with the Akida and
KES/JJS asset acquisitions, net of cash acquired, ($760,293 ) and ($4,299,900 )
respectively, and a loan of ($500,000 ) to a related party in the form of a
secured note receivable.
In the nine months ended September 30, 2021 , cash provided by financing
activities was $11,962,154 , primarily due to the net proceeds from the equity
raise of $12,272,440 , offset by dividends paid to the preferred shareholders of
($241,500 ), and a liability settlement of ($65,000 ), as compared to cash
provided by financing activities of $5,148,312 in the nine months ended
September 30, 2020 , primarily due to the net proceeds from an equity raise of
$4,889,091 and the proceeds received from the Payroll Protection Program of
$296,827 .
As reported in Note 14 - Subsequent Events,
Working Capital. We had working capital of$13,881,351 atSeptember 30, 2021 , an increase of$4,232,255 from a working capital of$9,649,096 as ofDecember 31, 2020 . The increase in working capital is largely attributable to increases in cash of$1,196,396 , vendor deposits of$925,366 , notes receivable-related party of$500,000 , inventories of$1,127,846 , and accounts receivable of$581,645 . The changes in working capital were impacted by the net working capital of Akida acquired onFebruary 8, 2021 , which totaled ($36,225 ), and by the net working capital of KES/JJS acquired onSeptember 28, 2021 , which totaled$682,351 .
34
Contractual Obligations and Other Commitments
Payment due by period
Total 2021 2022-2024 2025-2026 Thereafter
Financing lease obligations $ 27,029 19,819 7,210 - -
Operating lease obligations (1) 2,153,402 126,686 1,502,016
524,700 -
Notes payable (2) 157,500 67,500 90,000 - -
Total $ 2,337,931 214,005 1,599,226 524,700 -
(1) The Company entered into a lease agreement in
term that commenced on
2024 at a monthly rate of
additional lease space and rent expense was increased to
through
2026. On
and will expire on
first 12 months,
(2) In
a promissory note for the principal amount of
years. The Company is required to pay
amount of
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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