STOCKHOLDERS’ EQUITY

12 Months Ended

Dec. 31, 2022

Equity [Abstract]

STOCKHOLDERS’ EQUITY

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 804,811 ATM shares through the sales agent with gross proceeds of $964,083. In connection with the sale of these ATM Shares, the compensation paid by the Company to the Sales Agent was $28,922. As of March 31, 2023, an additional 1,764,311 shares have been sold for gross proceeds of $2,314,860, leaving a balance of $5,721,057 on the ATM facility. The shelf registration statement will expire on July 12, 2025.

Amendment of the Certificate of Designation

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. 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, 2022, the Company has a total 113,485 of treasury shares, all of which have been purchased as of December 31, 2022.

Pursuant to the Company’s amended and restated certificate of incorporation, as amended, the Company is authorized to designate and issue up to 20,000,000 shares of preferred stock, par value $0.0001 per share, in one or more classes or series. During the year ended December 31, 2022, the Company had 10,000 preferred shares designated as Series X Preferred Stock and 19,990,000 shares of preferred stock designated as 10.5% Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”). Upon certain events, the Company may, subject to certain conditions, at the Company’s option, redeem the Series A Preferred Stock. See below for a further description of the Series A Preferred Stock:

Dividends: 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 classified $0 and $845,250 as restricted cash as of December 31, 2022 and 2021, respectively, as a reserve to pay the remaining required dividends for the first year.

Redemption: 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.

Voting Rights: 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.

Conversion Rights: 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.

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. On May 17, 2022, the shareholders of the Company approved an amendment to the Plan, increasing the shares available for issuance to 2,500,000. 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 1,605,000 shares available for future grants under the plan.

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, 2021		136,750		$	4.96	$	2.27		9.95	$	—
Options granted		602,564			7.81		5.43		10.00		—
Options forfeited		(95,000	)		4.96		3.73		—		—
Options exercised		—			—		—		—		—
Balances, December 31, 2021		644,314		$	7.11	$	5.03		8.47	$	—
Options granted		639,000			1.66		1.06		10.00		—
Options forfeited		(283,286	)		7.02		—		—		—
Options exercised		—			—		—		—		—
Balances, December 31, 2022		1,000,028		$	3.61	$	—		9.03	$	—
Vested		320,109		$	5.69					$	—

Share-based compensation expense for options totaling $567,194 and $721,783 was recognized for the years ended December 31, 2022 and 2021, 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.

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, 2022 there was $1,090,364 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 2.19 years.

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the years ended December 31, 2022 and 2021 are set forth in the table below.

	2022			2021
Stock Price		$0.90 - $2.70			$4.16 - $9.79
Exercise Price		$1.07 - $2.70			$4.16 - $9.79
Dividend Yield		0	%		0	%
Volatility		78.95% - 92.96%			75.04% - 89.96%
Risk-Free Rate		1.26% - 3.46%			1.02% - 1.40%
Expected Life (in years)		5.31 - 6.08			5.36 - 6.25

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, 2021		235,095		$	5.89
Granted		—			—
Exercised		(42,676	)		—
Balances, December 31, 2021		192,419		$	5.84
Granted		—			—
Exercised		—			—
Balances, December 31, 2022		192,419		$	5.84
Vested		192,419		$	5.84

For the years ended December 31, 2022 and 2021, the Company recorded a gain on the change in fair value of warrant liability in the amount of $58,276 and $66,862, respectively. The Company valued the warrant using the Black-Scholes option pricing model with the following terms on December 31, 2022: (a) exercise price of $6.56, (b) volatility rate of 94.55%, (c) risk free rate of 4.22%, (d) term of 2.86 years, and (e) dividend rate of 0%. The Company valued the warrant using the Black-Scholes option pricing model with the following terms on December 31, 2021: (a) exercise price of $6.56, (b) volatility rate of 82.08%, (c) risk free rate of 0.98%, (d) term of 3.86 years, and (e) dividend rate of 0%.

Preferred Stock Offering

On July 13, 2021, Applied UV, Inc. (the “Company”) entered into an underwriting agreement (the “Underwriting Agreement”) with Ladenburg Thalmann & Co. Inc. as representative (“Representative”) of the underwriters (“Underwriters”), related to the offering of 480,000 shares (the “Shares”) of the Company’s 10.5% Series A Cumulative Perpetual Preferred Stock [non-convertible], par value $0.0001 per share (“Series A Preferred Stock”), at a public offering price of $25.00 per share, which excludes 72,000 shares of Series A Cumulative Perpetual Preferred Stock that may be purchased by the Underwriters pursuant to their overallotment option granted to the Underwriters under the terms of the Underwriting Agreement. The Shares were offered and sold by the Company pursuant to the terms of the Underwriting Agreement and registered pursuant to the Company’s registration statement on (i) Form S-1 (File No. 333-257197), as amended, which was filed with the SEC and declared effective by the Commission on July 12, 2021 and (ii) the Company’s registration statement on Form S-1 (File No. 333-257862), which was filed with the Commission on July 13, 2021 and declared effective upon filing. The closing of the offering for the Shares took place on July 16, 2021 and were approved for listing on Nasdaq under the trading symbol “AUVIP”. On July 29, 2021, in connection with its offering of its 10.5% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share, the Company closed the exercise of the underwriter’s overallotment option of 72,000 shares at $25.00 per share. Aggregate gross proceeds including the exercise of the underwriter’s overallotment option was $12,272,440 after deducting underwriting discounts and commissions and fees and other offering expenses.

Common Stock Offering

On December 28, 2021, the Company closed a common stock offering in which it issued 2,666,667 common shares at a public offering price of $3.00 per share. In connection with the Offering, the Company (i) received $8,000,000 less underwriting fees of $560,000 and offering Costs in the amount of $440,073, resulting in net proceeds of $6,999,928.

On January 5, 2022, the underwriters fully exercised their over-allotment option to purchase an additional 400,000 shares of common stock at the public offering price of $3.00 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.

The following table presents the restricted stock units activity for the years ended December 31, 2021 and 2022:

	Number of Shares			Weighted-Average Fair Market Value
Unvested shares at January 1, 2021		187,555		$	5.00
Granted and unvested		274,500			5.16
Vested		(163,176	)		5.24
Forfeited/Cancelled		(6,379	)		5.00
Unvested shares, December 31, 2021		292,500			4.71
Granted and unvested		207,500			2.10
Vested		(100,966	)		3.88
Forfeited/Cancelled		(311,535	)		4.45
Unvested shares, December 31, 2022		87,499		$	2.38
Vested as of December 31, 2022		306,670		$	4.76

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 $153,208 and $550,138 of compensation expense within its statements of operations for the years ended December 31, 2022 and 2021, respectively.

The unvested shares as of December 31, 2022 represent $149,438 in unrecognized stock based compensation which will be recognized over a weighted average period of 2.10 years.