NOTE 8 – STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2021

Equity [Abstract]

NOTE 8 – STOCKHOLDERS' EQUITY

NOTE 8 – STOCKHOLDERS' EQUITY 

Preferred Stock Series X

On June 17, 2021, the Company filed an amendment of the certificate of designation of Series A Preferred Stock. The Board of Directors, by unanimous written consent, duly adopted resolutions to amend the Series A Preferred Stock Certificate of Designations and changed the name from “Series A Preferred Stock” to “Series X Super Voting Preferred Stock”. All dividend, liquidation preference, voting, conversion, and redemption rights, did not change from the originally filed Certificate of Designation of Series A Preferred Stock.

Reverse Stock Split

In June of 2020, the Company 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 (post-split adjusted) 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, the Company 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 the company 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 330,250 shares available for future grants under the plan. The Company also granted an additional 309,564 options outside of the plan during the six months ended June 30, 2021.

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

	Shares Available for Grant			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, 2020		—			—		$	—	$	—			$	—
Options granted		462,500			137,500			4.96		2.27		10		—
Options forfeited/cancelled		750			(750	)		5.00		—				—
Options exercised		—			—			—		—				—
Balances, December 31, 2020		463,250			136,750			4.96		2.27		9.95		—
Options granted outside of the plan		—			309,564			7.80		5.06		10		—
Options granted		(158,000	)		158,000			9.73		6.54		10		—
Options forfeited/cancelled		25,000			(25,000	)		9.79		—				—
Options exercised		—			—			—		—				—
Balances, June 30, 2021		330,250			579,314		$	7.57	$	—		9.67	$	1,297,698

As of June 30, 2021, 10,357 options were vested at $7.33 per share for an intrinsic value of $25,717. 

Share-based compensation expense for options totaling $176,374 and $196,890 was recognized for the three and six months ended June 30, 2021, respectively, based on awards vested. Share-based compensation expense for options totaling $711 and $711 was recognized in our results for the three and six months ended June 30, 2020 based on awards vested.

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.

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 June 30, 2021, there was $1,814,191 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 six months ended June 30, 2021 and year ended December 31, 2020 are set forth in the table below.

	2021			2020
Weighted average fair value of options granted	$	6.54		$	2.27
Risk-free interest rate		1.23% to 1.54%			0.31% to 0.37%
Volatility		75.04% to 85%			41.4% to 51.45%
Expected life (years)		6.08-10			5.5
Dividend yield		0.00	%		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, 2020		—			—
Granted		235,095		$	5
Warrants Outstanding at December 31, 2020		235,095		$	5
Granted				$	6.40
Exercised		(42,676	)
Warrants Outstanding and exercisable, June 30, 2021		192,419		$	5.84

Share-based compensation expense of $100,896 for warrants granted was recognized for the six months ended June 30, 2020 based on awards vested. There was no compensation expense related to warrants during the six months ended June 30, 2021. The warrants granted in 2020 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 $435,577 as of June 30, 2021. In connection with the preparation of our consolidated financial statements for the three months ended March 31, 2021, we identified an error relating to the recognition of the initial warrant liability in November of 2020. The error caused additional paid in capital to be overstated by approximately $135,000, warrant liability to be understated by approximately $110,000, and net loss to be overstated by approximately $25,000 as of and for the year ended December 31, 2020. We concluded the impact on the interim financial statements was immaterial and corrected the balances as of June 30, 2021. For the three and six months ended June 30, 2021, the Company recorded a gain (loss) on the change in fair value of warrant liability in the amount of $10,948 and ($300,452), respectively. 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 50.39%, (c) risk free 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 June 30, 2021: (a) exercise price of $6.5625, (b) volatility rate of 71.69%, (c) risk free rate of 0.65%, (d) term of 4.37 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 a number of 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 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 six months ended June 30, 2021 are set forth in the table below.

Weighted average fair value of warrants granted	$	1.87
Risk-free interest rate		0.26	%
Volatility		50.13-50.39%
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 of 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 Ross Carmel of Carmel, Milazzo & Feil LLP for the Offering. 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 previously related capilatlized IPO Costs in the amount of $316,246, resulting in net proceeds of $6,418,155. 

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 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 June 30, 2021, 85,055 of these restricted stock awards were vested. The fair market value of these awards was $5 per share and the company expensed $106,319 and $212,638 of stock-based compensation related to these awards during the three and six months ended June 30, 2021, respectively.

On July 9, 2020, 62,500 restricted stock awards were granted. The restricted stock awards vest in full on January 1, 2021. As of June 30, 2021, 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 and six months ended June 30, 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 June 30, 2021, 5,000 of these restricted stock awards were vested. The fair market value of these awards was $5 per share and the company expensed $12,500 and $25,000 of stock-based compensation related to these awards during the three and six months ended June 30, 2021, respectively.

On January 1, 2021, 62,500 restricted stock awards were granted. The restricted stock awards vest in full on January 1, 2022. As of June 30, 2021, none of the restricted stock awards were vested. The fair market value of these awards was $4.57 per share. The company recorded $71,406 and $142,813 of compensation expense related to these awards during the three and six months ended June 30, 2021, respectively.