STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2023

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 160,962 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 September 30, 2023, an additional 363,642 shares have been sold for gross proceeds of $2,342,084, and the compensation paid by the Company to the Sales Agent was $70,262, leaving a 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

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.

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

All historical share and per share amounts in these financial statements have been retroactively adjusted to reflect the reverse stock split.

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) 4,730,000 shares of its common stock, at a public offering price of $1.00 per share and (ii) pre-funded warrants to purchase 270,000 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 750,000 shares of Common Stock at the public offering price per security, less underwriting discounts, and commissions, of which was 200,000 shares were purchased. As a result of the offering, the Company received gross proceeds of $5,200,000 and incurred $816,000 of deal related costs. 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. On August 14, 2023, the Company entered into a settlement and release agreement with Maxim Group LLC related to the June Public Offering whereby the company issued 50,000 common shares valued at $0.78 per share.

Amendment of the Certificate of Designation

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. The Company has a total 22,697 of treasury shares as of September 30, 2023, all of which were purchased during April 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, 1,250,000 shares of preferred stock designated as 10.5% Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”), and 18,740,000 shares undesignated. As of September 30, 2023 the Company had 1,250,000 preferred shares designated as Series B Preferred Stock, 2,500,000 preferred shares designated as Series C Preferred Stock, 10,000 preferred shares designated as Series X Preferred Stock, 1,250,000 shares designated as 10.5% Series A Cumulative Perpetual Preferred Stock, and 14,990,000 shares undesignated.

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. 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.

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.

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		128,863		$	35.55	$	25.15		8.47	$	—
Options granted outside of the plan		127,800			8.30		5.30		10.00		—
Options forfeited		(56,657	)		35.10		—				—
Options exercised		—			—		—				—
Balances, December 31, 2022		200,006		$	18.05	$	—		9.03	$	—
Options granted outside of the plan		96,000			10.00		4.37		10.0		—
Options forfeited		(41,750	)		9.02		—				—
Options exercised		—			—		—				—
Balances, September 30, 2023		254,256		$	16.50	$	—		8.90	$	—
Vested and Exercisable		99,418		$	23.46					$	—

Share-based compensation expense for options totaling $161,465 and $118,030 was recognized for the three months ended September 30, 2023 and 2022, respectively, based on requisite service periods.

Share-based compensation expense for options totaling $483,527 and $448,270 was recognized for the nine months ended September 30, 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.

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 September 30, 2023, there was $978,721 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 1.80 years.

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the nine months ended September 30, 2023 and 2022 are set forth in the table below.

	2023			2022
Risk-free interest rate		3.53% to 3.60%			1.26% to 3.46%
Volatility		90.27% to 91.01%			78.95% to 88.41%
Expected life (years)		5.83-6.06			5.75-6.08
Dividend yield		0.00	%		0.00	%

Common Stock Warrants

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

	Number of Warrants		Weighted-Average Exercise Price
Balances, January 1, 2022		38,484	$	29.20
Granted		—		—
Exercised		—		—
Balances, March 31, 2022		38,484	$	29.20
Granted		—		—
Exercised		—		—
Balances, June 30, 2022		38,484	$	29.20
Granted		—		—
Exercised		—		—
Balances, September 30, 2022		38,484	$	29.20
Balances, January 1, 2023		38,484	$	29.20
Granted		—		—
Exercised		—		—
Balances, March 31, 2023		38,484	$	29.20
Pre-funded warrants		270,000	$	1.00
Exercised		—		—
Balances, June 30, 2023		308,484	$	4.52
Granted		—		—
Exercised		—		—
Balances, September 30, 2023		308,484	$	4.52
At September 30, 2023
Vested and Exercisable		308,484	$	4.52

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.

The following table presents the restricted stock units activity from January 1, 2022 through September 30, 2023

	Number of Shares			Weighted-Average Fair Market Value
Unvested shares at January 1, 2022		58,500		$	23.55
Granted and unvested		41,500			10.50
Vested		(20,193	)		19.40
Forfeited/Cancelled		(62,307	)	$	22.25
Unvested shares at December 31, 2022		17,500		$	11.90
Granted and unvested		11,000			5.05
Vested		(6,833	)		14.15
Forfeited/Cancelled		(3,000	)		5.80
Unvested shares, March 31, 2023		18,667		$	6.80
Vested		(833	)	$	13.50
Unvested shares, June 30, 2023		17,834		$	6.85
Vested		(833	)		13.50
Unvested shares, September 30, 2023		17,001		$	8.71
Vested as of September 30, 2023		69,834		$	22.04

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 $31,390 and $41,500 of compensation expense within its statements of operations for the three months ended September 30, 2023 and 2022, respectively.

In connection with the grant of restricted shares, the Company recognized $89,835 and $111,708 of compensation expense within its statements of operations for the nine months ended September 30, 2023 and 2022, respectively.