STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2021

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' EQUITY

NOTE 8 – STOCKHOLDERS' EQUITY

Reverse Stock Split

In June of 2020, we effected a 5:1 reverse stock split (the “Reverse Stock Split”) by filing an amendment to the Company’s Amended and Restated Certificate Incorporation with the Delaware Secretary of State. The Reverse Stock Split combined every five shares of Common Stock issued and outstanding immediately prior to effecting the Reverse Stock Split into one share of Common Stock. As a result, the number of issued and outstanding shares of Common Stock was retroactively adjusted in the consolidated financial statements.

2020 Incentive Plan

On March 31, 2020, the Company adopted the Applied 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. The objectives of the Plan are to optimize the profitability and growth of the Company through incentives that are consistent with the Company’s goals and that link the personal interests of Participants to those of the Company’s stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract and retain the services of Participants who make or are expected to make significant contributions to the Company’s success and to allow Participants to share in the success of the Company. From time to time, we may issue Incentive Awards pursuant to the Plan. Each of the awards will be evidenced by and issued under a written agreement.

If an incentive award granted under the Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for future awards under the Plan. The number of shares subject to the Plan, and the number of shares and terms of any Incentive Award may be adjusted in the event of any change in our outstanding common stock by reason of any stock dividend, spin-off, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares, or similar transaction.

There are 463,250 shares available for future grants under the plans. The Company also granted an additional 309,564 options outside of the plan during the three months ended March 31, 2021.

A summary of the Company’s option activity and related information follows:

	Number of Shares		Weighted-Average Exercise Price
Options Outstanding at January 1, 2021		136,750	$	4.97
Granted		309,564	$	7.80
Expired/cancelled		—
Options Outstanding, March 31, 2021		446,314	$	6.93
Options exercisable, March 31, 2021		44,099	$	5.52

Share-based compensation expense for options totaling $20,516 was recognized in our results for the three months ended March 31, 2021 based on awards vested. There was no option activity during the three months ended March 31, 2020. As of March 31, 2021, the weighted average remaining life of the options outstanding was 9.91 years.

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 several assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options.

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options.

Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation of estimated volatility is based on historical stock prices of these 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 March 31, 2021, there was $1,220,467 of total unrecognized compensation expense related to unvested employee options granted under the Company’s share-based compensation plans that is expected to be recognized over a weighted average period of approximately 3.2 year.

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the three months ended March 31, 2021 are set forth in the table below.

	2021
Weighted average fair value of options granted	$	7.80
Risk-free interest rate		1.54	%
Volatility		85	%
Expected life (years)		10
Dividend yield		0.00	%

Common Stock Warrants

A summary of the Company’s warrant activity and related information follows:

	Number of Shares			Weighted-Average Exercise Price
Warrants Outstanding at January 1, 2021		85,000		$	5.00
Granted		150,095		$	6.40
Exercised		(41,926	)
Warrants Outstanding, March 31, 2021		193,169		$	5.80
Warrants exercisable, March 31, 2021		193,169		$	5.80

No Share-based compensation expense for warrants was recognized in our results for the three months ended March 31, 2021 based on awards vested. The warrants granted in 2021 were issued in connection with the August and November offerings. The warrants issued in connection with the November offering contained a cash settlement feature which resulted in a warrant liability of $446,525 as of March 31, 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. For the three months ended March 31, 2021, the Company recorded a loss on the change in fair value of warrant liability in the amount of $311,400. The Company valued the warrant using the Black-Scholes option pricing model with the following terms on date of grant of: (a) exercise price of $6.5625, (b) volatility rate of 49.5%, (c) discount rate of 0.26%, (d) term of five years, and (e) dividend rate of 0%. The Company valued the warrant using the Black-Scholes option pricing model with the following terms on March 31, 2021: (a) exercise price of $6.5625, (b) volatility rate of 68.89%, (c) discount rate of 0.36%, (d) term of 4.62 years, and (e) dividend rate of 0%.

The valuation methodology used to determine the fair value of the warrants issued during the periods was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of several assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the warrants.

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 warrants.

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 these 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, 2020, there was no unrecognized compensation expense related to unvested warrants granted under the Company’s share-based compensation plans.

The weighted average fair value of warrants granted, and the assumptions used in the Black-Scholes model during the three months ended March 31, 2021 are set forth in the table below.

	2021
Weighted average fair value of options granted	$	1.87
Risk-free interest rate		0.26	%
Volatility		49.43-50.12%
Expected life (years)		5
Dividend yield		0.00	%

On August 31, 2020, the Company closed its offering (the “August Offering”) in which it sold 1,000,000 common shares at a public offering price of $5.00 per share. In connection with the Offering, the Company (i) received $5,750,000 less underwriting fees of $517,500 and write-off capitalized IPO Costs in the amount of $341,145, resulting in net proceeds of $4,891,355. Additionally, the Company issued 167,794 shares to Carmel, Milazzo & Feil LLP for the 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. In addition, the underwriters were granted a 45-day option to purchase up to an additional 150,000 shares of Common Stock or any combination thereof, to cover over-allotments, if any (the “Over-Allotment Option”). The shares were offered and sold to the public pursuant to the Company’s registration statement on Form S-1, filed by the Company with the Securities and Exchange Commission on August 26, 2020, as amended, which became effective on August 28, 2020.

On November 13, 2020, the Company closed its second offering (the “November Offering”) in which it sold 1,401,905 common shares at a public offering price of $5.25 per share. In connection with the Offering, the Company (i) received $7,360,000 less underwriting fees of $625,600 and write-off of IPO Costs in the amount of $316,246, resulting in net proceeds of $6,418,155.

Restricted Stock Awards

We record compensation expense for restricted stock awards based on the quoted market price of our stock at the grant date and amortize the expense over the vesting period. 

In July of 2020, the company granted 230,083 restricted stock awards. Of these awards, 127,583 vests quarterly over an 18-month period with the first date of vesting being September 30, 2020. As of March 31, 2021, 63,792 of these restricted stock awards were vested. The fair market value of these awards was $5 per share and the company expensed $106,319 of stock-based compensation related to these awards during the three months ended March 31, 2021.

On July 9, 2020, 62,500 restricted stock awards were granted. The restricted stock awards vest in full on January 1, 2021. As of March 31, 2020, all the restricted stock awards were vested. The fair market value of these awards was $5 per share. No expense was recorded related to these awards during the three months ended March 31, 2021.

On July 9, 2020, 40,000 restricted stock awards were granted. The restricted stock awards vest evenly over a four-year period with the first vesting to occur on January 1, 2021. As of March 31, 2021, 2,500 of these restricted stock awards were vested. The fair market value of these awards was $5 per share and the company expensed $12,500 of stock-based compensation related to these awards during the three months ended March 31, 2021.

On January 1, 2021, 62,500 restricted stock awards were granted. The restricted stock awards vest in full on January 1, 2022. As of March 31, 2020, none of the restricted stock awards were vested. The fair market value of these awards was $4.57 per share. $71,406 of expense was recorded related to these awards during the three months ended March 31, 2021.