x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act):

As of ~~September 30, 2020, we have 6,334,308~~ August 15, 2022, the Company has 12,817,189 shares ~~of common stock issued and~~ outstanding.


~~Item 6.~~	~~Exhibits~~	39

~~Signatures~~		412

PART I

Item 1. Financial Statements

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

September 30,
2020 December 31,
2019
(Unaudited)
Assets
Current Assets
Cash $ 5,897,441 $ 1,029,936
Vendor deposit 146,278 104,517
Accounts receivable, net of allowance for doubtful accounts 734,086 2,227,792
Inventory 189,755 99,543
Loan to shareholder - 4,225
Prepaid expense and other current assets 44,000 30,639
Total Current Assets 7,011,560 3,496,652

Machinery and equipment, net of accumulated depreciation 120,536 34,371
Right of use asset 515,324 614,522
Other assets 114,458 623,842

Total Assets $ 7,761,878 $ 4,769,387

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 513,156 $ 1,238,822
Income tax payable 106,861 106,861
Capital lease obligations-current portion 6,380 6,380
Lease liability-current 138,173 133,097
Payroll protection plan loan 69,297 -
Notes payable 30,000 37,500
Deferred revenue 746,936 1,245,300
Total Current Liabilities 1,610,803 2,767,960

Long-term Liabilities
Capital lease obligations - less current portion 10,881 15,212
Note payable-less current portion 90,000 120,000
Lease liability-less current portion 377,151 481,425
Payroll protection plan loan 227,530 -

Total Long-Term Liabilities 705,562 616,637

Total Liabilities 2,316,365 3,384,597

Stockholders' Equity
Common stock $.0001 par value, 150,000,000 shares authorized; 6,334,308 shares issued and outstanding, respectively as of September 30, 2020 and 5,001,250 shares issued and outstanding as of December 31, 2019 633 500
Series A voting preferred stock $.0001 par value, 1,000,000 shares authorized; 2,000 shares issued and outstanding 1 1
Additional paid-in capital 5,270,288 -
Retained earnings 174,591 1,384,289

Total Stockholders' Equity 5,445,513 1,384,790

Total Liabilities and Stockholders' Equity $ 7,761,878 $ 4,769,387

As of June 30, 2022 and December 31, 2021

~~(The~~


	2022			2021
Assets
Current Assets
Cash and cash equivalents	$	3,122,761		$	7,922,906
Restricted cash		120,750			845,250
Accounts receivable, net of allowance for doubtful accounts		1,970,542			986,253
Costs and estimated earnings in excess of billings		443,572			—
Inventory, net		4,677,894			1,646,238
Vendor deposits		497,154			992,042
Prepaid expense and other current assets		482,310			419,710
Total Current Assets		11,314,983			12,812,399

Property and equipment, net of accumulated depreciation		1,228,127			196,611
Goodwill		3,722,077			4,809,811
Other intangible assets, net of accumulated amortization		18,093,270			18,976,556
Right of use asset		2,648,441			1,730,615
Total Assets	$	37,006,898		$	38,525,992

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses	$	2,410,980		$	1,642,108
Contingent consideration		—			1,460,000
Billings in excess of costs and earnings on uncompleted contracts		772,363			—
Deferred revenue		1,476,270			788,776
Due to landlord (Note 2)		201,640			—
Warrant liability		56,546			68,263
Financing lease obligations		4,178			7,671
Operating lease liability		1,528,886			389,486
Note Payable		97,500			97,500
Total Current Liabilities		6,548,363			4,453,804
Long-term Liabilities
Due to landlord-less current portion (Note 2)		514,740			—
Note payable- less current portion		60,000			60,000
Operating lease liability-less current portion		1,138,298			1,346,428
Total Long-Term Liabilities		1,713,038			1,406,428
Total Liabilities		8,261,401			5,860,232

Stockholders' Equity
Preferred stock, Series A Cumulative Perpetual, $0.0001 par value, 19,990,000 shares authorized, 552,000 shares issued and outstanding as of both June 30, 2022 and December 31, 2021		55			55
Preferred stock, Series X, $0.0001 par value, 10,000 shares authorized, 2,000 shares issued and outstanding as of both June 30, 2022 and December 31, 2021		1			1
Common stock $.0001 par value, 150,000,000 shares authorized; 12,930,674 shares issued and 12,817,189 shares outstanding as of June 30, 2022, and 12,775,674 shares issued and outstanding as of December 31, 2021		1,294			1,278
Treasury stock at cost, 113,485 shares as of June 30, 2022 and 0 shares as of December 31, 2021		(149,686	)		—
Additional paid-in capital		44,370,056			42,877,622
Accumulated deficit		(15,476,223	)		(10,213,196	)
Total Stockholders' Equity		28,745,497			32,665,760
Total Liabilities and Stockholders' Equity	$	37,006,898		$	38,525,992

See accompanying notes ~~are an integral part of these~~to the unaudited condensed consolidated financial ~~statements)~~statements.

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Interim Consolidated Statements of Operations

~~(Unaudited)~~For the Three and Six Months Ended June 30, 2022 and 2021

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Net Sales $ 1,560,633 $ 2,775,848 $ 4,493,061 $ 6,379,259
��
Cost of Goods Sold 1,482,455 1,600,287 3,825,037 4,315,095

Gross Profit 78,178 1,175,561 668,024 2,064,164

Operating Expenses
Research and development 48,037 - 65,037 -
Stock based compensation 279,707 - 381,314 -
Selling. General and Administrative Expenses 645,401 740,038 1,443,276 1,377,104
Total Operating Expenses 973,145 740,038 1,889,627 1,377,104

Operating (Loss) Income (894,967 ) 435,523 (1,221,603 ) 687,060

Other Income
Gain on settlement - - - 1,520,398
Other Income 235 850 11,905 850
Total Other Income 235 850 11,905 1,521,248

(Loss) Income Before Provision for Income Taxes (894,732 ) 436,373 (1,209,698 ) 2,208,308

Provision for Income Taxes - - - 63,259

Net (Loss) Income (894,732 ) 436,373 (1,209,698 ) 2,145,049

Basic and Diluted (Loss) Earnings Per Common Share $ (0.14 ) $ 0.09 $ (0.19 ) $ 0.43


	Three Months Ended June 30,							Six Months Ended June 30,
	2022				2021			2022			2021
Net Sales	$	5,907,646			$	1,884,320		$	9,263,736		$	4,196,935
Cost of Goods Sold		4,603,854				1,351,091			6,810,845			2,739,440
Gross Profit		1,303,792				533,229			2,452,891			1,457,495

Operating Expenses
Research and development		82,049				9,763			141,363			53,408
Selling. general and administrative expenses		4,031,215				2,698,482			7,132,441			4,299,999
Loss on impairment of goodwill		—				—			1,138,203			—
Total Operating Expenses		4,113,264				2,708,245			8,412,007			4,353,407

Operating Loss		(2,809,472	)			(2,175,016	)		(5,959,116	)		(2,895,912	)

Other Income (Expense)
Change in Fair Market Value of Warrant Liability		(32,111	)			10,948			11,717			(300,452	)
Interest expense		(49,020	)			—			(53,076	)		—
Loss on change in Fair Market Value of Contingent Consideration		—				—			(240,000	)		—
Gain on Settlement of Contingent Consideration (Note 2)		—				—			1,700,000			—
Other Income		1,948				25,837			1,948			25,182
Total Other Income (Expense)		(79,183	)	��		36,785			1,420,589			(275,270	)

Loss Before Provision for Income Taxes		(2,888,655	)			(2,138,231	)		(4,538,527	)		(3,171,182	)
Provision from Income Taxes		—				—			—			—
Net Loss	$	(2,888,655	)		$	(2,138,231	)	$	(4,538,527	)	$	(3,171,182	)

Net Loss attributable to common stockholders:
Dividends to preferred shareholders		(362,250	)			—			(724,500	)		—
Net Loss attributable to common stockholders		(3,250,905	)			(2,138,231	)		(5,263,027	)		(3,171,182	)
Basic and Diluted Loss Per Common Share	$	(0.26	)		$	(0.23	)	$	(0.41	)	$	(0.35	)
Weighted Average Shares Outstanding - basic and diluted		12,665,385				9,407,367			12,799,783			9,102,677

~~(The~~See accompanying notes ~~are an integral part of these~~to the unaudited condensed consolidated financial ~~statements)~~statements.

Applied UV, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity ~~(Deficit)~~

~~(Unaudited)~~For the Three and Six Months Ended June 30, 2022and 2021

Preferred Stock Additional Total
Series A Voting Common Stock Paid-In Retained Stockholders
Shares Amount Shares Amount Capital Earnings Equity
Balance, January 1, 2019 2,000 $ 1 5,001,250 $ 500 $ - $ (1,417,117 ) $ (1,416,616 )

Net income - - - - - 2,145,049 2,145,049

Balance, September 30, 2019 2,000 $ 1 5,001,250 $ 500 $ - $ 727,932 $ 728,433

Balance, January 1, 2020 2,000 $ 1 5,001,250 $ 500 $ - $ 1,384,289 $ 1,384,790

Common stock issued in public offering, net of costs - - 1,150,000 115 4,080,006 - 4,080,121

Shares issued to Carmel, Milazzo & Feil LLP - - 161,794 16 808,970 - 808,986

Stock-based compensation - - 21,264 2 381,312 - 381,314

Net loss - - - - - (1,209,698 ) (1,209,698 )

Balance, September 30, 2020 2,000 $ 1 6,334,308 $ 633 $ 5,270,288 $ 174,591 $ 5,445,513


	Preferred Stock Series A Cumulative			Preferred Stock Series X			Common Stock					Treasury Stock					Additional Pain-In Capital			Retained Earnings			Total Stockholders Equity
Balance, January 1, 2021	—	$	—	2,000	$	1	7,945,034		$	795		—	$	—		$	11,973,051		$	(2,219,091	)	$	9,754,756
Shares granted to settle previously recorded liability	—		—	—		—	3,000			—		—		—			21,420			—			21,420
Warrant liability recognized in connection with initial issuance of November offering (See Note 7)	—		—	—		—	—			—		—		—			(135,125	)		—			(135,125	)
Exercise of warrants	—		—	—		—	17,135			2		—		—			1,155			—			1,157
Common stock issued for acquisition	—		—	—		—	1,375,000			137		—		—			7,122,363			—			7,122,500
Stock-based compensation	—		—	—		—	62,500			6		—		—			210,735			—			210,741
Net loss	—		—	—		—	—			—		—		—			—			(1,032,951	)		(1,032,951	)
Balance, March 31, 2021	—		—	2,000		1	9,402,669			940		—		—			19,193,599			(3,252,042	)		15,942,498
Exercise of warrants	—		—	—		—	717			—		—		—			—			—			—
Stock-based compensation	—		—	—		—	12,000			2		—		—			465,598			—			465,600
Net loss	—		—	—		—	—			—		—		—			—			(2,138,232	)		(2,138,232	)
Balance, June 30, 2021	—	$	—	2,000	$	1	9,415,386		$	942		—	$	—		$	19,659,197		$	(5,390,274	)	$	14,269,866
Balance, January 1, 2022	552,000		55	2,000		1	12,775,674			1,278		—		—			42,877,622			(10,213,196	)		32,665,760
Settlement of stock in connection with prior acquisition (note 2)	—		—	—		—	(400,000	)		(40	)	—		—			40			—			—
Common stock issued in public offering (over-allotment), net of costs	—		—	—		—	400,000			40		—		—			1,091,960			—			1,092,000
Stock-based compensation	—		—	—		—	112,500			11		—		—			287,988			—			287,999
Dividends paid to preferred shareholders	—		—	—		—	—			—		—		—			—			(362,250	)		(362,250	)
Net loss	—		—	—		—	—			—		—		—			—			(1,649,872	)		(1,649,872	)
Balance, March 31, 2022	552,000		55	2,000		1	12,888,174			1,289		—		—			44,257,610			(12,225,318	)		32,033,637
Cancellation of restricted shares	—		—	—		—	(52,500	)		(5	)	—		—			5			—			—
Stock-based compensation	—		—	—		—	95,000			10		—		—			112,441			—			112,451
Treasury shares repurchased	—		—	—		—	—			—		113,485		(149,686	)		—			—			(149,686	)
Net Loss	—		—	—		—	—			—		—		—			—			(2,888,655	)		(2,888,655	)
Dividends paid to preferred shareholders	—		—	—		—	—			—		—		—			—			(362,250	)		(362,250	)
Balance, June 30, 2022	552,000	$	55	2,000	$	1	12,930,674		$	1,294		113,485	$	(149,686	)	$	44,370,056		$	(15,476,223	)	$	28,745,497

~~(The~~See accompanying notes ~~are an integral part of these~~to the unaudited condensed consolidated financial ~~statements)~~statements.

Applied UV, Inc. and Subsidiaries

~~Consolidated~~Condensed Interim Consolidated Statements of Cash Flows

~~(Unaudited)~~For the Six Months Ended June 30, 2022 and 2021

For the Nine Months Ended
September 30,
2020 2019
Cash flows from Operating Activities
Net (Loss) Income $ (1,209,698 ) $ 2,145,049
Adjustments to Reconcile Net (Loss) Income to Net Cash (Used In) Provided by Operating Activities
Stock based compensation 381,314 85,000
Bad debt expense 50,000 -
Gain on settlement - (1,520,399 )
Depreciation and amortization 13,528 6,519
Changes in Assets and Liabilities
Decrease (Increase) in accounts receivable 1,443,706 (660,436 )
(Increase) in inventories (90,212 ) (50,189 )
(Increase) in vendor deposits (41,761 ) (190,234 )
(Increase) in prepaid expenses (22,398 ) (79,947 )
Increase in income taxes payable - 63,259
(Decrease) increase in accounts payable and accrued expenses (152,864 ) (63,670 )
(Decrease) Increase in deferred revenue (498,364 ) 809,556
Total Adjustments 1,082,949 (1,600,541 )
Net Cash (Used in) Provided by Operating Activities (126,749 ) 544,508

Cash Flows From Investing Activities
Purchase of machinery and equipment (98,244 ) (12,999 )
Cash paid for patent costs (55,814 ) -
Net Cash Used in Investing Activities (154,058 ) (12,999 )

Cash Flows From Financing Activities
Payments on capital leases (4,331 ) -
(Decrease) in liabilities subject to compromise - (531,511 )
Loan from officer 4,225 117,987
Payments on loans payable (37,500 ) (83,000 )
Proceeds for equity raise, net 4,889,091 -
Proceeds from payroll protection plan loan 296,827 -
Net Cash Provided by (Used In) Financing Activities 5,148,312 (496,524 )

Net Increase in Cash and equivalents 4,867,505 34,985
Cash and equivalents at January 1, 1,029,936 793,766
Cash and equivalents at September 30, $ 5,897,441 $ 828,751

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,204 $ 9,146
Supplemental Non-Cash Items
Reclassification from liabilities to be settled in stock to additional paid in capital for shares granted during the period $ 808,986 $ -


	2022			2021
Cash flows from Operating Activities
Net Loss	$	(4,538,527	)	$	(3,171,182	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities
Stock based compensation		400,450			676,341
Bad debt expense (recovery)		55,226			(70,004	)
Change in fair market value of warrant liability		(11,717	)		300,452
Gain on settlement of loan payable		—			(20,000	)
Loss on change in fair market value of contingent consideration (Note 2)		240,000			—
Gain on settlement of contingent consideration		(1,700,000	)		—
Loss on impairment of goodwill		1,138,203			—
Amortization of right-of-use asset		462,832			—
Depreciation and amortization		978,495			312,319
Amortization of debt discount		53,646			—
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(402,965	)		151,574
Cost and estimated earnings excess of billings		(262,420	)		—
Inventory		(2,855,073	)		(224,721	)
Vendor deposits		494,888			(1,148,564	)
Prepaid expenses and other current assets		(62,600	)		201,537
Income taxes payable		—			(173,716	)
Accounts payable and accrued expenses		768,872			(644,665	)
Billings in excess of costs and earnings on uncompleted contracts		(616,475	)		—
Deferred revenue		687,494			412,086
Due to landlord		(93,172	)		—
Operating lease payments		(449,388	)		—
Total Adjustments		(1,173,704	)		(227,361	)
Net Cash Used in Operating Activities		(5,712,231	)		(3,398,543	)

Cash Flows From Investing Activities
Cash paid for patent costs		(682	)		(14,435	)
Purchase of machinery and equipment		(26,043	)		—
Acquisitions, net of cash acquired (Note 2)		(10	)		(760,293	)
Note receivable, related party		—			(500,000	)
Net Cash Used in Investing Activities		(26,735	)		(1,274,728	)

Cash Flows From Financing Activities
Payments on financing leases		(3,493	)		(3,258	)
Proceeds from warrant exercise		—			1,157
Shares repurchased		(149,686	)		—
Dividends to preferred shareholders		(724,500	)		—
Settlement of loan payable		—			(65,000	)
Proceeds from equity raises, net		1,092,000			—
Net Cash Provided by (Used in) Financing Activities		214,321			(67,101	)

Net Decrease in Cash and equivalents		(5,524,645	)		(4,740,372	)
Cash, restricted cash, and cash equivalents beginning		8,768,156			11,757,930
Cash, restricted cash, and cash equivalents ending	$	3,243,511		$	7,017,558

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest	$	4,102		$	1,022
Income taxes	$	—		$	185,105
Supplemental Non-Cash Items
Initial recognition of warrant liability	$	—		$	135,125
Reclassification from liability to be settled in stock to additional paid in capital	$	—		$	21,420
Recognition of right of use asset-operating lease	$	1,380,658		$	—

~~(The~~See accompanying notes ~~are an integral part of these~~to the unaudited condensed consolidated financial ~~statements)~~statements.

Applied UV, Inc. and Subsidiaries

Notes to the ~~Unaudited Interim~~ Condensed Consolidated Financial Statements

~~September 30, 2020~~

~~(Unaudited)~~

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

~~In March 2019,~~ Applied UV, Inc. (the ~~"Company"~~"Parent") was formed and incorporated in the State of Delaware for the intended purpose of ~~creating a legal~~ holding ~~company structure for SteriLumen, Inc. and Munn Works, LLC and any future potential mergers or acquisitions. The then-existing shareholders and members~~the equity of SteriLumen, Inc. (“SteriLumen”) and ~~Munn Works,~~MunnWorks, LLC (“MunnWorks”), together “the Subsidiaries”, and other companies acquired or created by the Parent in the future. The Parent acquired the Subsidiaries pursuant to share exchanges whereby the equity holders of the Subsidiaries exchanged all of their ~~interest~~equity interests in the Subsidiaries for shares of ~~Applied UV, Inc. with substantially similar economic~~ voting ~~interests for each shareholder immediately before and after~~stock of the ~~share exchange.~~Parent. As a result of the share ~~exchange, SteriLumen, Inc.~~exchanges, each Subsidiary became a wholly-owned subsidiary of the Parent. The Parent and ~~Munn Works, LLC became wholly-owned subsidiaries of Applied UV, Inc and,~~each Subsidiary are collectively referred to herein as (the "Company"). The combination met the criteria outlined in ASC 850 to be accounted for as a transaction between entities under common control and therefore the financial statements are being presented as if the transfer happened at the beginning of the period and prior year financial information has been retrospectively adjusted to furnish comparative information.

SteriLumen ~~Inc.~~ is engaged in the design, manufacture, assembly and distribution of (i) automated disinfecting mirror systems for use in hospitals and other healthcare ~~facilities. The Company was incorporated in~~facilities and (ii) air purification systems through its purchase of substantially all of the ~~State~~assets and certain liabilities of ~~New York in November of 2012~~Akida Holdings, LLC, KES Science & Technology, and ~~is headquartered in Mount Vernon, New York. Munn Works,~~Scientific Air Management LLC, as described below. MunnWorks, LLC is engaged in the manufacture of fine mirrors and custom furniture specifically for the hospitality ~~industry.~~and retail industries.

In February of 2021, the Company acquired all the assets and assumed certain liabilities of Akida Holdings, LLC (“Akida”). At the time of this acquisition, Akida owned the Airocide™ system of air purification technologies, originally developed for NASA, with assistance from the University of Wisconsin at Madison, that uses a combination of UVC and a proprietary, titanium dioxide based photocatalyst (“PCO”) to eliminate airborne bacteria, mold, fungi, viruses, volatile organic compounds, and many odors without producing any harmful by-products, with applications in the hospitality, hotel, healthcare, nursing homes, grocer, wine, commercial buildings and retail sectors. The Airocide™ system has been used by brands and organizations such as NASA, Whole Foods, Dole, Chiquita, Opus One, Sub-Zero Refrigerators and Robert Mondavi Wines. Akida contracted KES 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.

On September 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 throughout the United States, Canada, and Europe.

On October 13, 2021, the Company acquired all the assets and assumed certain liabilities of Scientific Air Management LLC, ("SciAir"). SciAir is a provider of whole-room, aerosol chamber and laboratory certified air disinfection machines. SciAir is a provider of whole-room, aerosol chamber and laboratory certified air disinfection machines that use a combination of UVC and a proprietary, patented system to eliminate airborne bacteria, mold, fungi, viruses, volatile organic compounds, and many odors without producing any harmful by-products. The units are well suited for larger spaces within a facility and are mobile with industrial grade casters allowing for movement throughout a facility to address increased bio burden from larger meetings or increased human traffic.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Principles of Consolidation

The consolidated financial statements include the accounts of Applied UV, Inc., Munnworks, LLC and SteriLumen, Inc. All significant intercompany transactions and balances are eliminated in consolidation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) set forth in Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These financial statements should be read along with the Annual Report filed of the Company for the annual period ended December 31, ~~2019.~~2021. The consolidated balance sheet as of December 31, ~~2019~~2021 was derived from the audited consolidated financial statements as of and for the year then ended.

Use of Estimates

The preparation of consolidated financial statements ~~include~~in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the ~~accounts~~reported amounts of ~~Applied UV, Inc., Munn Works, LLC~~assets and ~~SteriLumen, Inc. All significant intercompany transactions~~liabilities, and ~~balances are eliminated in consolidation.~~

~~Revenue~~disclosure of contingent assets and ~~Cost Recognition~~

On January 1, 2018, the Company adopted accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments using the modified retrospective method for all customer contracts not yet completedliabilities, as of the ~~adoption date.~~date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation and accounting for equity awards related to warrants and stock-based compensation, determination of fair value for derivative instruments, the accounting for business combinations and allocating purchase price and estimating the useful life of intangible assets.

Cash, Restricted Cash and Cash Equivalents

Cash and equivalents include highly liquid investments that have original maturities less than 90 days at the time of their purchase. These investments are carried at cost, which approximates market value because of their short maturities. As of June 30, 2022 and December 31, 2021, the Company had $352,820and $1,076,664, respectively, in cash equivalents. The ~~adoption~~Company also maintains a restricted cash balance to satisfy its preferred shareholder redemption requirements (Refer to Note 7).

Accounts receivable

An allowance for uncollectible accounts receivable is recorded when management believes the collectability of ~~ASC 606 did not have a significant impact~~the accounts receivable is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance is determined based on ~~our~~management’s review of the debtor’s ability to repay and repayment history, aging history, and estimated value of collateral, if any. The Company had an allowance for doubtful accounts approximating $18,000 and $9,000 as of June 30, 2022 and December 31, 2021, respectively.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial ~~Statements.~~Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventory

Inventories consist of raw materials, work-in-process, and finished goods. Raw materials and finished goods are valued at the lower of cost or net realizable value, using the first-in, first-out (“FIFO”) valuation method. Work-in-process and finished goods includes the cost of materials, freight and duty, direct labor and overhead. The Company writes down inventory for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. The company had a reserve for inventory approximating $146,000 and $140,000 as of June 30, 2022 and December 31, 2021, respectively.

Property and Equipment

Property and equipment are recorded at cost. Depreciation of furniture and fixtures is provided using the straight-line method, generally over the terms of the lease. Repairs and maintenance expenditures, which do not extend the useful lives of the related assets, are expensed as incurred. Depreciation of machinery and equipment is based on the estimated useful lives of the assets.

Schedule of estimated useful lives
Machinery and equipment	5 to 7 years
Leasehold improvements	Lesser of term of lease or useful life
Furniture and fixtures	5 to 7 years

Business Acquisition Accounting

The Company applies the acquisition method of accounting for those that meet the criteria of a business combination. The Company allocates the purchase price of its business acquisitions based on the fair value of identifiable tangible and intangible assets. The difference between the total cost of the acquisition and the sum of the fair values of acquired tangible and identifiable intangible assets less liabilities is recorded as goodwill. Transaction costs are expensed as incurred in general and administrative expenses.

Goodwill and Intangible Assets

The Company has recorded intangible assets, including goodwill, in connection with business combinations. Estimated useful lives of amortizable intangible assets are determined by management based on an assessment of the period over which the asset is expected to contribute to future cash flows.

In accordance with U.S. GAAP for goodwill and other indefinite-lived intangibles, the Company tests these assets for impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred. For the purposes of that assessment, the Company has determined to assign assets acquired in business combinations to a single reporting unit including all goodwill and indefinite-lived intangible assets acquired in business combinations.

Income Taxes

The Company files income tax returns using the cash basis of accounting. Income taxes are accounted for under the asset and liability method. Current income taxes are based on the year's income taxable for federal and state tax reporting purposes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be recovered.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Derivative Instruments

The Company evaluates its warrants to determine if those contracts or embedded components of those contracts qualify as derivatives. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The Company has concluded that there are no such reclassifications required to be made as of and for the periods ended June 30, 2022 and December 31, 2021.

The Company utilizes the Black-Scholes valuation model to value the derivative warrants as stipulated in the agreement for the warrant holders to receive cash based on that value.

Fair Value of Financial Instruments

The carrying amounts reported in the unaudited condensed consolidated balance sheets for loans payable approximate fair value because of the immediate or short-term maturity of the financial instruments. The Company's financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.

Loss Per Share

Basic loss per share is computed by dividing net loss attributable to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.

The following table sets forth the number of potential shares of common stock that have been excluded from diluted net loss per share because their effect was anti-dilutive:

Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share
	As of June 30,
	2022		2021
Common stock options		819,278		579,314
Common stock warrants		192,419		192,419
Total		1,011,697		771,733

Stock-Based Compensation

The Company accounts for its stock-based compensation awards in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 718 ("ASC"), Compensation-Stock Compensation ("ASC 718"). ASC 718 requires all stock-based payments to employees, including grants of employee stock options and restricted stock and modifications to existing stock options, to be recognized in the statements of operations based on their fair values over the requisite service period.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Research and Development

The Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, research and development costs are expensed as incurred.

Revenue Recognition

The Company recognizes revenue when the performance obligations in the client contract has been achieved. A performance obligation is a contractual promise to transfer ~~a distinct service~~product to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Under ASC 606, revenue is recognized when a customer obtains control of ~~promised services~~goods in an amount that reflects the consideration ~~we expect~~the Company expects to receive in exchange for those ~~services.~~

~~Applied UV, Inc. and Subsidiaries~~

~~Notes to the Unaudited Interim Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

~~NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~

~~Revenue and Cost Recognition (Continued)~~

goods. To achieve this core ~~principal,~~principle, the Company applies the following five steps:

Identify the contract with a ~~customer~~customer.

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party's rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer's intent and ability to pay the promised consideration. The Company applies judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including the customer's historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

Identify the performance obligations in the ~~contract~~contract.

Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation. The Company promises to design, manufacture and sell custom mirrors through contractual arrangements. It was determined that most services within a contract are substantially the same and have the same pattern of transfer to the customer over the term of the agreement and are therefore highly interdependent upon each other. As such, the Company determined that the services within a contract are not separately identifiable in the context of the contract and should therefore be bundled into a single performance obligation.

Determine the transaction ~~price~~price.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. We evaluate whether a significant financing component exists when we recognize revenue in advance of customer payments that occur over time. We do not adjust the transaction price for the effects of financing if, at contract inception, the period between the transfer of control to a customer and final payment is expected to be one year or less. The Company establishes pricing for contracts with customers based on a fixed price for a fixed fee. Contracts do not provide for a discount or refund to customers and historically, no discounts or refunds have been given.

Allocate the transaction price to performance obligations in the ~~contract~~contract.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price based on management's judgment. The identified promises are considered to be bundled in arriving at the overall promise within the contract. This promise therefore results in one performance obligation, to design, manufacture and sell custom mirrors to our customer, therefore, allocation of the transaction price is not necessary.

~~Applied UV, Inc. and Subsidiaries~~

~~Notes to the Unaudited Interim Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

~~NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~

~~Revenue and Cost Recognition (continued)~~

Recognize revenue when or as the Company satisfies a performance ~~obligation~~obligation.

~~Revenue is comprised of~~MunnWorks projects, ~~that~~including those from the VisionMark acquisition, are completed within ~~our own facility or from a third-party vendor (direct sales).~~the Company’s facilities. For these projects, ~~that are completed within our own facility,~~ the ~~Company satisfies performance obligations at over time. For projects that are completed from a third-party vendor, the performance obligation is recognized at a point in time.~~

~~As of September 30, 2020~~company designs, manufactures and December 31, 2019, total deferred revenue was $746,936 and $1,245,300. As of September 30, 2020, deferred revenue was comprised of work generated from our own Mount Vernon facility of $437,552 and work performed at the third party manufacturer of $309,384. At January 1, 2020, deferred revenue was $1,245,300 which the entire amount was recognized as revenue during the nine months ended September 30, 2020. As of December 31, 2019, deferred revenue was comprised of work generated from our own Mount Vernon facility of $844,331, work performed at the third party manufacturer of $363,940 and billings made upfront of $37,029.

~~For projects, that are completed within our own facility, we design, manufacture and sell~~sells custom mirrors and furniture for ~~hotels~~the hospitality and ~~hospitals~~retail industries through contractual agreements. These sales require usthe company to deliver ~~our~~the products within three to ~~six~~nine months from commencement of order acceptance. ~~We recognize~~Deferred revenue over time by using the input method based on costs incurred as it depicts our progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations. Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process as required by the project’s engineering design. Cost based input methods of revenue recognition require us to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known and can be reasonably estimated. Deferred Revenue represents amounts billed in excess of revenues ~~and profits~~ recognized. ~~Total deferred revenue from the input method of accounting was $368,007 and $844,331 as of September 30, 2020 and December 31, 2019, respectively.~~ Revenues ~~and profits~~ recognized in excess of amounts billed typically does not occur as wethe Company will not perform any work in excess of the amount ~~we bill~~the company bills to ~~our~~its customers. If work is performed in excess of amounts billed, the Company will record an unbilled receivable.

~~Each product~~Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition (Continued)

The company applied the five-step model to the sales of Akida’s and KES’s Airocide™ and misting system products, and SciAir’s whole-room aerosol chamber and laboratory certified air disinfection machines. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service ~~delivered~~is distinct. The Company sells Airocide™ air sterilization units, misting systems, and whole-room aerosol chamber and laboratory certified disinfection machines to both consumer and commercial customers. These products are sold both domestically and internationally. The cycle from contract inception to shipment of products is typically one day to three months. The Company’s contracts for both its consumer and commercial customers each contain a ~~third-party customer that~~single performance obligation (delivery of Airocide™, KES, and SciAir products), as the promise to transfer the individual goods or services is ~~manufactured by~~not separately identifiable from other promises in the contracts and, therefore, not distinct. As a ~~third-party vendor~~result, the entire transaction price is ~~considered~~allocated to ~~satisfy a~~this single performance obligation. ~~Performance obligations generally occur~~The Company recognizes revenues at a point in time ~~and are satisfied~~ when the customer obtains control of the ~~goods passes~~Company’s product, which typically occurs upon shipment of the product by the Company or upon customer pick-up via third party common carrier.

Revenue recognized over time and revenue recognized at a point in time for the three months ended:

Schedule of revenue:

Schedule of revenue
	June 30,
	2022		2021
Recognized over time	$	2,883,912	$	331,600
Recognized at a point in time		3,023,734		1,552,720
	$	5,907,646	$	1,884,320

Revenue recognized over time and revenue recognized at a point in time for the six months ended:

Schedule of revenue:

	June 30,
	2022		2021
Recognized over time	$	3,413,149	$	775,137
Recognized at a point in time		5,850,587		3,421,798
	$	9,263,736	$	4,196,935

Deferred revenue was comprised of the following as of:

	June 30,		December 31,
	2022		2021
Recognized over time	$	707,343	$	94,867
Recognized at a point in time		768,927		693,909
	$	1,476,270	$	788,776

The Company recognized $309,477of deferred revenue as of December 31, 2021 as revenue during the three months ended June 30, 2022. The Company recognized $738,595 of deferred revenue as of December 31, 2021 as revenue during the six months ended June 30, 2022.

Applied UV, Inc. and Subsidiaries

Notes to the ~~customer. These~~Condensed Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Advertising

Advertising costs consist primarily of online search advertising and placement, trade shows, advertising fees, and other promotional expenses. Advertising costs are expensed as incurred and are included in sales ~~are shipped from~~and marketing on the ~~manufacturer~~consolidated statements of operations. Advertising expense for the three months ended June 30, 2022 and 2021 was $348,377 and $281,258. Advertising expense for the six months ended June 30, 2022 and 2021 was $546,372 and $309,434.

Vendor deposits

Vendor payments to the customer without our taking physical inventory possession. We report direct sales on a gross basis, that is, the amounts billed to our customers are recorded as "Sales," and inventory purchased from manufacturers are recorded as Cost of Sales. We are the principal of direct sales because we control the inventory before it is transferred to our customers. Our control is evidenced by us being primarily responsible for fulfilling the promise to our customers, taking on inventory risk of returned product, and having discretion in establishing pricing. We typically pay our vendors a portion of the total cost up front and the remaining balance is accrued for and paid within 30 to 60 days of when the products are shipped from the third-party warehouse. Vendor paymentsthird manufactures are capitalized until completion of the project and are recorded as vendor deposits. As of ~~September~~June 30, ~~2020~~2022 and December 31, ~~2019,~~2021, the vendor deposit balance was ~~$146,278~~ $497,154and ~~$104,517,~~$992,042, respectively.

Patent Costs

The Company capitalizes costs consisting principally of outside legal costs and filing fees related to obtaining and maintaining patents. The Company amortizes patent costs over the useful life of the patent which is typically 20 years, beginning with the date the patent is filed with the U.S. Patent and Trademark Office, or foreign equivalent. As of June 30, 2022 and December 31, 2021, capitalized patent costs net of accumulated amortization was $1,643,774and $1,693,124, respectively. For the three months ended June 30, 2022 and 2021, the Company recorded $25,016 and $2,463, respectively, of amortization expense for these patents. For the six months ended June 30, 2022 and 2021, the Company recorded $50,032 and $4,927, respectively, of amortization expense for these patents.

Applied UV, Inc. and Subsidiaries

Notes to the ~~Unaudited Interim~~ Condensed Consolidated Financial Statements

~~September 30, 2020~~

~~(Unaudited)~~

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently adopted accounting standards

~~Revenue and Cost Recognition (continued)~~

~~Recognize revenue when or as the Company satisfies a performance obligation (continued)~~

~~Losses expected~~From time to ~~be incurred on contracts in progress~~time, new accounting pronouncements are ~~charged to operations in~~issued by the ~~period such losses are determined. Deferred revenue from these projects~~FASB or other standard setting bodies that the Company adopts as of ~~September 30, 2020 and December 31, 2019 was $378,929 and $363,942, respectively. At September 30, 2020 and December 31, 2019, there were no losses charged to expense.~~

~~There~~the specified effective date. The Company does not believe that the impact of recently issued standards that are times that we bill upfront where no work is performed until 30 to 60 days after the deposit is received from our customer. Accordingly, no revenue is recognized and the amounts are deferred. As of September 30, 2020 and December 31, 2019, deferred revenue balances related to these invoices were $- and $37,029, respectively.

For the nine months ended September 30, 2020, the Company generated revenues of $2,981,651 at a point in time and $1,511,410 over time. For the nine months ended September 30, 2019, the Company generated revenues of $4,472,038 at a point in time and $1,907,221 over time.

~~Stock Based Compensation~~

Share based compensation cost is measured at grant date, based on the estimated fair value of the award using a Black Scholes option pricing model for options with service or performance-based conditions. Stock based compensation cost is recognized as expense, over the requisite service period on a straight-line basis for service-based awards. The Black-Scholes model incorporate several variables, including expected term, expected volatility, expected dividend yield and a risk-free interest rate. We estimate the expected term of the options granted based on anticipated exercises in future periods based on historical activity. The expected stock price volatility for the Company’s stock options is calculated based on the historical volatility of the Company’s common stock. The expected dividend yield reflects our current and expected future policy for dividends on our common stock. To determine the risk-free interest rate, we utilize the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of our awards. We have elected to account for forfeitures as they occur.

~~Recent Accounting Pronouncements~~

~~Recently Adopted~~

In February 2016, the Financial Accounting Standards Board, or the FASB, issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize right-of-use, or ROU, assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. We adopted ASC 842 on January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach did not require any transition accounting for leases that expired before the earliest comparative period presented. The adoption of this standard resulted in the recording of ROU assets and lease liabilities for all our lease agreements with original terms of greater than one year. The adoption of ASC 842 did not have a significant impact on our statements of income or cash flows.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies and adds various disclosure requirements related to fair value disclosures. Disclosures related to transfers between fair value hierarchy levelsyet effective will be removed and further detail around changes in unrealized gains and losses for the period and unobservable inputs used in determining level 3 fair value measurements will be added, among other changes. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The adoption of this standard did not have a material impact on ~~our~~the Company’s financial ~~statements.~~position or results of operations upon adoption.

NOTE 2 – BUSINESS ACQUISITION

The Company accounted for its acquisitions as business combinations using the purchase method of accounting as prescribed in Accounting Standards Codification 805, Business Combinations (“ASC 805”) and ASC 820 – Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 805 and ASC 820, the Company used its best estimates and assumptions to accurately assign fair value to the tangible assets acquired, identifiable intangible assets and liabilities assumed as of the acquisition dates. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed. The results of operations of the acquired businesses since the date of acquisition are included in the consolidated financial statements of the Company for the three and six months ended June 30, 2022 and 2021. The total purchase consideration was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition, as determined by management. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed has been recorded as goodwill. The value of the goodwill from the acquisitions described below can be attributed to a number of business factors including, but not limited to, cost synergies expected to be realized, the intellectual property acquired, and a trained technical workforce.

Applied UV, Inc. and Subsidiaries

Notes to the ~~Unaudited Interim~~ Condensed Consolidated Financial Statements

~~September 30, 2020~~

~~(Unaudited)~~

~~NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~

~~Recent Accounting Pronouncements (Continued)~~

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment methodology for financial assets with a methodology that reflects expected credit losses. The new credit losses model must be applied to loans, accounts receivable, and other financial assets. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. The adoption of this standard did not have a material impact on our financial statements.

~~We currently believe that all other issued and not yet effective accounting standards are not relevant to our financial statements.~~

NOTE 2 – ~~INVENTORY~~BUSINESS ACQUISITION (CONTINUED)

In conjunction with acquisitions noted below, we used various valuation techniques to determine fair value of the assets acquired, with the primary techniques being discounted cash flow analysis, relief-from-royalty, a form of the multi-period excess earnings and the with-and-without valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Inputs to these valuation approaches require significant judgment including: (i) forecasted sales, growth rates and customer attrition rates, (ii) forecasted operating margins, (iii) royalty rates and discount rates used to present value future cash flows, (iv) the amount of synergies expected from the acquisition, (v) the economic useful life of assets and (vi) the evaluation of historical tax positions. In certain acquisitions, historical data is limited, therefore, we base our estimates and assumptions on budgets, business plans, economic projections, anticipated future cash flows and marketplace data.

Akida Holdings LLC

On February 8, 2021 Applied UV, Inc. (the “Company”), entered into an asset purchase agreement (the “APA”) by and among the Company, SteriLumen, Inc., a New York corporation and wholly-owned subsidiary of the Company (the “Purchaser”) and Akida Holdings LLC, a Florida limited liability company (the “Seller”) pursuant to which the Purchaser acquired substantially all of the assets of the Seller and assumed certain of its current liabilities and contract obligations, as set forth in the APA (the “Acquisition”). In the Acquisition, the Purchaser acquired all the Seller’s assets and was assigned its contracts related to the manufacturer and sale of the Airocide™ system, originally developed for NASA with assistance from the University of Wisconsin at Madison, that uses a combination of UV-C and a proprietary, titanium dioxide-based photocatalyst that has applications in the hospitality, hotel, healthcare, nursing homes, grocer, wine, commercial buildings, and retail sectors.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 2 – BUSINESS ACQUISITION (CONTINUED)

The purchase price and purchase price allocation as of the acquisition completion date follows.

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
Purchase Price:
Cash	$	760,293
Fair market value of common stock issued (1,375,000 shares)		7,122,500
Total Purchase Price, Net of Cash Acquired		7,882,793

Assets Acquired:
Accounts receivable		233,241
Inventory		211,105
Prepaid expenses		285,490
Machinery and equipment		168,721
Customer relationships		539,000
Trade names		1,156,000
Technology and know how		3,468,000
Total Assets Acquired:		6,061,557

Liabilities Assumed:
Accounts payable		(415,341	)
Deferred revenue		(491,702	)
Total Liabilities Assumed		(907,043	)
Net Assets Acquired		5,154,514
Excess Purchase Price "Goodwill"	$	2,728,279

The excess purchase price has been recorded as goodwill in the amount of approximately $2,728,279. The estimated useful life of the identifiable intangible assets (see note 5) is seven to ten years. The goodwill is amortizable for tax purposes.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 2 – BUSINESS ACQUISITION (CONTINUED)

KES Science & Technology, Inc.

On September 28, 2021, SteriLumen, Inc. completed an Asset Purchase Agreement with KES Science & Technology, Inc. (“KES”), a Georgia corporation.

The purchase price and purchase price allocation as of the acquisition completion date follows.

Purchase Price:
Cash	$	4,299,900
Fair market value of common stock issued (300,000 shares)		1,959,001
Total Purchase Price, Net of Cash Acquired		6,258,901

Assets Acquired:
Accounts receivable		392,367
Inventory		602,746
Prepaid expenses		10,995
Machinery and equipment		36,146

Trade names		914,000
Technology and know how		3,656,000
Total Assets Acquired:		5,612,254

Liabilities Assumed:
Accounts payable		(296,681	)

Total Liabilities Assumed		(296,681	)
Net Assets Acquired		5,315,573
Excess Purchase Price "Goodwill"	$	943,328

The excess purchase price has been recorded as goodwill in the amount of $943,328. The estimated useful life of the identifiable intangible assets is ten years (see note 5). The goodwill is amortizable for tax purposes.

Old SAM Partners (Scientific Air)

On October 13, 2021, the Company entered into an asset purchase agreement by and among the Company, SteriLumen, Inc., a New York corporation and wholly-owned subsidiary of the Company (the “Purchaser”) and Old SAM Partners, LLC, a Florida limited liability company (the “Seller”), pursuant to which the Purchaser acquired substantially all of the assets of the Seller, including the assignment of an exclusive distribution agreement. On October 13, 2021 the Seller received, as consideration for the Acquisition (i) $9,500,000 in cash; and (ii) 200,000 shares of the Company’s common stock and (iii) 200,000 unvested shares of the Company’s common stock, which are subject to cancellation if the earnout is not met. On the date of acquisition, the fair market value of the 200,000 vested shares was $5.57 for a total value of $1,114,000. An additional liability was recorded for $886,000 as a result of the agreement calling for additional cash consideration to the extent the share price is below $10 on the free trading date, as defined in the agreement. On December 31, 2021, the share price of our common stock was $2.70 per share and a loss on contingent consideration of $574,000 was recorded in the consolidated statements of operations and increased the liability to $1,460,000.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 2 – BUSINESS ACQUISITION (CONTINUED)

The purchase price and purchase price allocation as of the acquisition completion date follows.

Purchase Price:
Cash	$	9,500,000
Fair market value of common stock issued		1,114,000
Contingent consideration based on stock price		886,000
Total Purchase Price, net of cash acquired		11,500,000

Assets Acquired:
Accounts receivable		129,845
Inventory		369,970
Machinery and equipment		1,982
Customer relationships		6,784,000
Patents		1,533,000
Technology and know how		1,217,000
Trade names		326,000
Total Assets Acquired:		10,361,797

Assets Acquired		10,361,797
Excess Purchase Price "Goodwill"	$	1,138,203

The excess purchase price has been recorded as goodwill in the amount of approximately $1,138,203. The estimated useful life of the identifiable intangible assets (see note 5) is ten years. The goodwill is amortizable for tax purposes.

On March 31, 2022, there was a settlement of a dispute that arose during the first quarter of 2022 between both parties regarding certain representations and warranties in the purchase agreement which resulted in a settlement and mutual release agreement where the seller agreed to relinquish any right, title, and interest in the previously issued 400,000 shares. During the three months ended March 31, 2022, the company recorded a loss on change in fair market value of contingent consideration of $240,000 and, as a result of the settlement agreement, the company recorded a gain on settlement of contingent consideration of $1,700,000 .The Company also determined that a triggering event had occurred as a result of the settlement agreement. A quantitative impairment test on the goodwill determined that the fair value was below the carrying value and as a result the Company recorded a full goodwill impairment charge of $1,138,203 on the Unaudited Condensed Consolidated Statements of Operations during the six months ended June 30, 2022. There was 0impairment of goodwill recorded during the six months ended June 30, 2022.

On March 25, 2022, the Company entered into an asset purchase agreement by and among the Company, Munnworks, LLC., a New York Limited Liability Company and wholly-owned subsidiary of the Company (the “Purchaser”) and VisionMark LLC, a New York limited liability company (the “Seller”), pursuant to which the Purchaser acquired substantially all of the assets of the Seller in exchange for the assumption of obligations of buyer under the sublease and sublease guarantee.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 2 – BUSINESS ACQUISITION (CONTINUED)

The purchase price and purchase price allocation as of the acquisition completion date follows.

Purchase Price:
Cash paid at closing	$	10
Due to landlord		755,906
Total Purchase Price, net of cash acquired		755,916

Assets Acquired:
Accounts receivable, net		636,550
Inventory		176,583
Contract asset		181,152
Machinery and equipment		1,100,000
Total Assets Acquired:		2,094,285

Liabilities Assumed:
Contract liability		(1,388,838	)
Total Liabilities Assumed		(1,388,838	)
Net Assets Acquired		705,447
Excess Purchase Price "Goodwill"	$	50,469

The excess purchase price has been recorded as goodwill in the amount of approximately $50,469. The goodwill is amortizable for tax purposes.

In connection with the VisionMark LLC acquisition, the Company is obligated to repay $31,057 of past due lease payments per month for the next 36 months commencing on April 1, 2022. The Company recognized a discount and related liability equal to the present value of the past due lease liability, and amortizes the difference between such present value and the liability through interest expense using the effective interest rate method over the repayment period.

At June 30, 2022, the future maturities of past due lease payments are as follows:

Schedule of future maturity of the lease liability
For Years Ended December 31,
2022 (6 months)	$	186,348
2023		372,684
2024		372,684
2025		93,174
Total		1,024,890
Less: Unamortized discount		(308,510	)
Total amount due to landlord		716,380
Less: current portion of amount due to landlord, net of discount		(201,640	)
Total long-term portion of amount due to landlord	$	514,740

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 3 – INVENTORY

Inventory consists of ~~raw materials of $189,755 and $99,543 at September 30, 2020 and December 31, 2019, respectively.~~the following as of:

Schedule of Inventory
	June 30,			December 31,
	2022			2021
Raw materials	$	1,140,770		$	356,759
Work-in-Process		690,449			—
Finished goods		2,992,853			1,429,479
Inventory at cost	$	4,824,072		$	1,786,238
Less: Reserve		(146,178	)		(140,000	)
Inventory	$	4,677,894		$	1,646,238

NOTE 34 – PROPERTY AND EQUIPMENT

Property and equipment (including machinery and equipment under capital leases) are summarized by major classifications as follows:

Schedule of property and equipment
	September 30,			December 31,			June 30,			December 31,
	2020			2019			2022			2021
Machinery and Equipment	$	61,083		$	39,583		$	1,231,514		$	254,685
Leasehold improvements								67,549			67,549
Furniture and Fixtures		33,385			16,864			203,255			54,041
Leasehold improvements		60,223			-
		154,691			56,447			1,502,318			376,275
Less: Accumulated Depreciation		(34,155	)		(22,076	)		(274,191	)		(179,664	)
	$	120,536		$	34,371		$	1,228,127		$	196,611

Depreciation expense, including amortization of assets under ~~capital~~Financing leases, ~~and patent cost,~~ for the ~~nine~~three months ended ~~September~~June 30, ~~2020~~2022 and ~~2019~~2021 was $~~13,528~~ 68,765 and ~~$6,519,~~$74,896, respectively.

Depreciation expense, including amortization of assets under Financing leases, for the six months ended June 30, 2022 and 2021 was $94,527 and $82,642, respectively.

NOTE 45 – ~~DUE TO AND FROM SHAREHOLDER~~INTANGIBLE ASSETS

AsIntangible assets as of ~~September~~June 30, ~~2020~~2022 and December 31, ~~2019~~2021 consist of the Company loaned its majority shareholder noninterest-bearing advances, which are due upon demand. As of September 30, 2020 and December 31, 2019, amounts owed from the Company's majority shareholder was $- and $4,225, respectively. The loans were repaid during the period.following:

Schedule of Intangible Assets
	June 30,			December 31,
	2022			2021
Intangible assets subject to amortization
Customer Relationship	$	7,323,000		$	7,323,000
Trade Names		2,396,000			2,396,000
Patents		1,730,771			1,730,089
Technology and Know How		8,341,000			8,341,000
		19,790,771			19,790,089
Less: Accumulated Amortization		(1,697,501	)		(813,533	)
	$	18,093,270		$	18,976,556

Applied UV, Inc. and Subsidiaries

Notes to the ~~Unaudited Interim~~ Condensed Consolidated Financial Statements

~~September 30, 2020~~

~~(Unaudited)~~

NOTE 5 – ~~CAPITAL LEASE OBLIGATION~~INTANGIBLE ASSETS (CONTINUED)

During the three months ended June 30, 2022 and 2021, the Company recorded total amortization expense related to intangible assets of $441,985 and $134,850, respectively. During the six months ended June 30, 2022 and 2021, the Company recorded total amortization expense related to intangible assets of $883,969and $224,750, respectively.

The ~~Company's machinery under a capital lease, which~~useful lives of tradenames range from 5 to 10 years, technology is ~~included in machinery~~10 years, customer relationships ranges from 7 to 14 years, and ~~equipment~~patents range from 17 to 20 years.

Future amortization of intangible assets is ~~summarized~~ as follows:

Future amortization of intangible assets
For the year ending December 31,
2022 (6 months)	$	881,613
2023		1,767,181
2024		1,767,181
2025		1,767,181
2026		1,750,881
Thereafter		10,159,233
Total	$	18,093,270

Machinery and Equipment $ 61,083
Less: Accumulated Depreciation (25,685 )
$ 35,398

~~Future minimum principal and interest payments under the capital lease agreements as of September 30, 2020, are as follows:~~

2020 $ 2,949
2021 7,280
2022 7,280
2023 1,489
Less: Amount representing interest (1,737 )
Present value of future minimum lease payments 17,261
Less: current portion (6,380 )
$ 10,881

NOTE 6 – LOANS PAYABLE

In December of 2012, the Company received $260,000 from Seagrace Partners that accrued interest at 5% annually with no maturity date and no stated terms of repayment. As of December 31, 2019 and 2018, the note had an outstanding principal balance of $0 and $131,336, respectively. Interest expense related to this note for the year ended December 31, 2019 and 2018 was $5,902 and $7,656, respectively. The ~~outstanding principal balance of $132,390 was reclassed to liabilities subject to compromise (note payable- pre-petition). In 2019, the~~ Company entered into a ~~settlement~~loan agreement in ~~relation to the Company's Chapter 11 Bankruptcy (as further described in Note 10~~April of ~~the financial statements) with the note holder~~2019 where the Company would pay $80,000 over the next 90 days, in four equal installments of $20,000. The entire $80,000 was repaid prior to December 31, 2019. In addition, the Company will provide the third party lender 8,000 shares of common stock in the Company (subject to certain transfer restrictions), in an amount which will have a public trading value within 24 months of at least $85,000. If the value of the stock does not reach $85,000 at the end of 24 months, the shareholders of the Company will provide the third party lender make-up stock to reach the value of $85,000 with a maximum amount of shares to be issued of 17,000 shares. This repayment would constitute as full and final payment of any and all obligations to the lender. On the date of the settlement, the Company recorded a loss on extinguishments in the amount of $34,610.

In June of 2018 and June of 2016, the Company received advances from On Deck Capital in the amounts of $150,000 and $100,000, respectively. The June 2016 note matured in one year from the date of issuance and required 52 weekly payments of $2,346. As of December 31, 2019 and 2018, the balance of this note was $0 and interest expense of $3,981 was recorded during the year ended December 31, 2018. The June 2018 note matured in one year from the date of issuance and required 52 weekly payments of $3,605. As of December 31, 2018, the company made no repayments on this note and has an outstanding principal balance of $150,000. As part of the Chapter 11 Bankruptcy, the outstanding principal balance of $150,000 was reclassed to liabilities subject to compromise (note payable- pre-petition) as further described in Note 10 of the financial statements. Accrued interest on this note as of December 31, 2018 was $17,360 and an additional $20,140 was accrued for based on the proof of claim submitted by the note holder. These amounts were also reclassed to liabilities subject to compromise (accounts payable and accrued expenses- pre-petition) as further described in Note 10 of the financial statements. In 2019, the Company paid $18,750, which was 10% of the allowed proof of claim in the Chapter 11 Bankruptcy of $187,500. In addition, the Company was required to pay ~~$157,500~~ $157,500 in a five payments in the amount of ~~$30,000~~ $30,000 per year, with an additional ~~$7,500~~$7,500, representing interest, in year ~~two. The Company recognized~~two to a ~~gain on extinguishments of $11,250 in relation to the settlement in the year ended December 31, 2019.~~loan holder. As of ~~September~~June 30, ~~2020 and December 31, 2019,~~2022, the company ~~had~~has an outstanding balance of ~~$120,000~~$157,500, and ~~$157,500, respectively.~~no payments have been made as of August 15, 2022.

~~Applied UV, Inc. and Subsidiaries~~

~~Notes to the Unaudited Interim Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

~~NOTE 6 – LOANS PAYABLE (continued)~~

Minimum obligations under this loan agreement isare as follows:

Schedule of minimum obligations under loan agreement
For the year ending December 31,
2022	$	97,500
2023		30,000
2024		30,000
Total	$	157,500

As of September 30,
2021 $ 30,000
2022 30,000
2023 30,000
2024 30,000
$ 120,000

~~In October of 2017, June of 2017,~~Applied UV, Inc. and September of 2016, the Company received advances from LG Funding, LLC in the amounts of $150,971, $150,990, and $125,990, respectively, in exchange for notes in the amounts of $182,679, $187,228, and $156,228, respectively. On the initial date of the note, the Company accounted for the notes at face value less a discount for the difference between the face value and advances received. The discounts were amortized to interest expense in proportionSubsidiaries

Notes to the repayments over the total amount loaned. For the nine months ended September 30, 2020 and 2019, the Company recorded $0 in interest expense in relation to these notes. The Company recognized a gain of $81,000 in 2019 as a result of the Chapter 11 Bankruptcy Case and all remaining outstanding balances were settled in full. There were no outstanding balances on this note as of September 30, 2020 and December 31, 2019.Condensed Consolidated Financial Statements

NOTE 7 – STOCKHOLDERS' EQUITY

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

~~Liquidation Preference~~

In Certificate of Designations and changed the ~~event~~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 ~~any voluntary or involuntary liquidation, dissolution or winding up~~Designation of Series A Preferred Stock. There are 2,000 Series X Super Voting Preferred Shares issued and outstanding as of June 30, 2022. On July 11, 2022, the Board of Directors approved the reissuance of 8,000 shares of the ~~Corporation, holders~~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 June 30, 2022, the Company has a total 113,485of treasury shares, all of which were purchased during the 3 months ended June 30, 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, 2021, the Company had 10,000 preferred shares designated as Series X Preferred Stock and 19,990,000shares of preferred stock designated as 10.5% Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”). There are 552,000 shares of Series A Preferred Stock ~~shall not be entitled~~issued and outstanding as of June 30, 2022. Upon certain events, the Company may, subject to ~~any liquidation preference.~~

~~Voting~~

~~On any matters presented to~~certain conditions, at the ~~stockholders of~~Company’s option, redeem the ~~corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of~~ Series A Preferred ~~Stock shall be entitled to vote in an amount equal to 200 votes per share.~~Stock. See below for a further description of the Series A Preferred ~~Stock shall vote as a single class and such voting rights shall be identical in all respects.~~Stock:

~~Conversion~~

The holders of the shares of Series A Preferred Stock shall not have any rights hereunder to convert such shares into, or exchange such shares for, shares of any other series or class of capital stock of the Corporation or of any other person.

~~Common stock~~Dividends:

~~The holders of our common stock~~Holders are entitled to receive, cumulative cash dividends at the ~~following rights:~~

~~Voting~~

~~Each~~annual rate of 10.5% on $25.00 liquidation preference per share of ~~our~~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 $120,750 and $845,250 as restricted cash as of June 30, 2022 and December 31, 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 ~~entitles its holder to one vote per share on all matters to be voted~~price of the Delisting Event or ~~consented upon by~~Change of Control (as defined) or $5.353319 (Share Cap). Effectively, the ~~stockholders. Holders of our~~Share Cap limits the common stock ~~are not entitled~~price to ~~cumulative voting rights with respect to the election of directors.~~no lower than $4.67.

Applied UV, Inc. and Subsidiaries

Notes to the ~~Unaudited Interim~~ Condensed Consolidated Financial Statements

~~September 30, 2020~~

~~(Unaudited)~~

NOTE 7 – STOCKHOLDERS' EQUITY (continued)

~~Common stock (continued)~~

~~Dividend~~

Subject to limitations under Delaware law and preferences that may apply to any shares of preferred stock that we may decide to issue in the future, holders of our common stock are entitled to receive ratably such dividends or other distributions, if any, as may be declared by our Board out of funds legally available.

~~Liquidation~~

In the event of the liquidation, dissolution, or winding up of our business, the holders of our common stock are entitled to share ratably in the assets available for distribution after the payment of all of our debts and other liabilities, subject to the prior rights of the holders of our preferred stock.

~~Other Matters~~

The holders of our common stock have no subscription, redemption, or conversion privileges. Our common stock does not entitle its holders to preemptive rights. All of the outstanding shares of our common stock are fully paid and non-assessable. The rights, preferences and privileges of the holders of our common stock are subject to the rights of the holders of shares of any series of preferred stock which we may issue in the future.

~~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. 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, wethe 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 usthe 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 1,680,722 shares available for future grants under the plan.

~~Applied UV, Inc. and Subsidiaries~~

~~Notes to the Unaudited Interim Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

~~NOTE 7 – STOCKHOLDERS' EQUITY (continued)~~

~~2020 Incentive Plan (Continued)~~

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

Schedule of the Company's option activity
	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		—
Options forfeited		(95,000	)		4.96		3.73				—
Options exercised		—			—		—				—
Balances, December 31, 2021		644,314		$	7.11	$	5.03		8.47	$	—
Options granted		444,000			1.60		1.10		10		—
Options forfeited		(269,036	)		7.28		4.72				—
Options exercised		—			—		—				—
Balances, June 30, 2022		819,278		$	4.07	$	2.94		9.33	$	—
Vested and Exercisable		220,989		$	6.78					$	—

Number of
Shares Option Price
Per Share Weighted-Average
Exercise Price
Options Outstanding at January 1, 2020 - $ - $ -
Granted 12,500 $ 5.00 $ 5.00
Expired/cancelled (750 )

Options Outstanding, September 30, 2020 11,750 $ 5.00 $ 5.00

Options exercisable, September 30, 2020 375 $ 5.00 $ 5.00

~~Share-b~~a~~sed~~Share-based compensation expense for options totaling ~~$6,738~~ $108,178 and $176,374 was recognized ~~in our results~~ for the ~~nine-months~~three months ended ~~September~~June 30, ~~2020~~2022 and 2021, respectively, based on ~~awards vested.~~requisite service periods.

Share-based compensation expense for options totaling $330,240 and $196,890 was recognized for the six months ended June 30, 2022 and 2021, respectively, based on requisite service periods.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 7 – STOCKHOLDERS' EQUITY (continued)

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 ~~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 ~~September~~June 30, ~~2020,~~2022 there was ~~$17,844~~$1,163,293 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 year.~~2.6 years.

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the ~~year~~six months ended ~~September~~June 30, ~~2020~~2022 and 2021 are set forth in the table below.

		~~2020~~
~~Weighted average fair value of options granted~~		~~$5.00~~
~~Risk-free interest rate~~		~~0.31-0.37%~~
~~Volatility~~		~~41.4-46.7%~~
~~Expected life (years)~~		~~5.50~~
~~Dividend yield~~		~~0.00%~~

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions
	2022			2021
Risk-free interest rate		1.26% to 2.82%			1.23% to 1.54%
Volatility		78.95% to 81.22%			75.04% to 85%
Expected life (years)		5.75-6.08			6.08-10
Dividend yield		0.00	%		0.00	%

~~Applied UV, Inc. and Subsidiaries~~

~~Notes to the Unaudited Interim Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

~~NOTE 7 – STOCKHOLDERS' EQUITY (continued)~~

Common Stock Warrants

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

Number of
Shares Option Price
Per Share Weighted-Average
Exercise Price
Warrants Outstanding at January 1, 2020 - $ - $ -
Granted 85,000 $ 5.00 $ 5.00
Expired -

Warrants Outstanding, September 30, 2020 85,000 $ 5.00 $ 5.00

Warrants exercisable, September 30, 2020 85,000 $ 5.00 $ 5.00

~~Share-based compensation expense for warrants totaling $100,896 was recognized in our results for the nine-months ended September 30, 2020 based on awards vested.~~

The valuation methodology used to determine the fair value of the warrants 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 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 September 30, 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 year ended September 30, 2020 are set forth in the table below.~~

Schedule of the Company's warrant activity
	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, June 30, 2022		192,419		$	5.84

At June 30, 2022
Vested and Exercisable		192,419		$	5.84

		~~2020~~
~~Weighted average fair value of options granted~~		~~$5.00~~
~~Risk-free interest rate~~		~~0.37-0.89%~~
~~Volatility~~		~~36.5-41.4%~~
~~Expected life (years)~~		~~2.50~~
~~Dividend yield~~		~~0.00%~~24

Applied UV, Inc. and Subsidiaries

Notes to the ~~Unaudited Interim~~ Condensed Consolidated Financial Statements

~~September~~NOTE 7– STOCKHOLDERS' EQUITY (continued)

For the three months ended June 30, ~~2020~~2022 and 2021, the Company recorded a gain (loss) on the change in fair value of warrant liability in the amount of ($32,111) and $10,948, respectively. For the six months ended June 30, 2022 and 2021, the Company recorded a gain (loss) on the change in fair value of warrant liability in the amount of $11,717 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, 2022: (a) exercise price of $6.5625, (b) volatility rate of 85.32%, (c) risk free rate of 3.09%, (d) term of 3.37 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 $6.5625, (b) volatility rate of 77.34%, (c) risk free rate of 0.98%, (d) term of 3.86 years, and (e) dividend rate of 0%.

Preferred Stock Offering

~~(Unaudited)~~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.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 7 – STOCKHOLDERS' EQUITY (continued)

Common Stock Offering

On ~~August 31, 2020,~~December 28, 2021, the Company closed ~~its~~a common stock offering ~~(the “August Offering”)~~ in which it ~~sold 1,000,000~~ issued 2,666,667 common shares at a public offering price of ~~$5.00~~ $3.00 per share. In connection with the Offering, the Company (i) received ~~$5,750,000,~~ $8,000,000 less underwriting fees of ~~$517,000~~ $560,000 and ~~write-off of capitalized IPO~~offering Costs in the amount of ~~$343,000,~~$440,073, resulting in net proceeds of ~~$4,889,000. Addionally, the Company issued 167,794 shares to Ross Carmel of Carmel, Milazzo & Feil LLP for the Offering. In addition,~~$6,999,928.

On January 5, 2022, the underwriters ~~were granted a 45-day~~fully exercised their over-allotment 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.

~~NOTE 8 – RELATED PARTY~~

In February of 2019, the Company engaged Carmel, Milazzo & Feil LLP (the "Firm") to represent and assist the company with all general corporate legal matters including the preparation and filing with the Securities and Exchange Commission of a registration statement on Form S-1 through the Company's intended initial public offering. Ross Carmel, a board member of Applied UV, is a partner at the firm. The firm will perform services in exchange for three percent of the outstanding shares of the Company's common stock, issued as follows: 1.) One percent due upon execution of the agreement 2.) One percent due up the filing of the Form S-1; and 3.) One percent due upon the SEC declaring the Form S-1 effective. As of September 30, 2020 and December 31, 2019, the company was liable to issue 102,066 400,000 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. Restricted stock awards granted typically have an initial annual cliff vest and then vest quarterly over the remaining service period, which is generally one to four years.

The following table presents the restricted stock unit activity from January 1, 2021 through June 30, 2022

Schedule of Unvested Restricted Stock Units Activity
	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		(76,667	)		—
Forfeited/Cancelled		(252,500	)		—
Unvested shares, June 30, 2022		170,833		$	2.11

Vested as of June 30, 2022		282,371		$	5.01

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 firm. These shares have previously not been issued and have been recorded as a liability to be settled in stock for an amount of $507,805 as of December 31, 2019, however, the shares were subsequently issued in June of 2020, and the liability has been reclassed to additional paid in capital. Pursuant to the offering in August of 2020, the company issued an additional 59,728 common shares to the firm. The amount of $298,640 was recorded to additional paid in capital with a net effect of nill as the shares were issued inCompany.

In connection with the ~~offering.~~grant of restricted shares, the Company recognized $4,271 and $289,225 of compensation expense within its statements of operations for the three months ended June 30, 2022 and 2021, respectively.

In connection with the grant of restricted shares, the Company recognized $70,209 and $479,451 of compensation expense within its statements of operations for the six months ended June 30, 2022 and 2021, respectively.

The unvested shares as of June 30, 2022 represent $312,313 in unrecognized stock based compensation which will be recognized over a weighted average period of 2.53 years.

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE ~~9 –~~ 8 - LEASING ARRANGEMENTS

The Company adopted ASU 2016-02 prospectively as of January 1, 2019, the date of initial application, and therefore prior comparative periods were not adjusted. As part of the adoption, the Company elected the “package of expedients”, which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification and initial direct costs. The Company did not elect the use-of hindsight or the practical expedient pertaining to land easements, the latter not being applicable to the Company. The Company has lease arrangements which are classified as short-term in nature. The Company has elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize Right of Use ("ROU") assets or lease liabilities.

The Company determines whether an arrangement isqualifies as a lease under ASC 842 at inception. The Company has operating leases for office space and office equipment. The Company’s leases have remaining lease terms of one year to seven years, some of which include options to extend the lease term for up to five years. The Company considered these options to extend in determining the lease term used to establish the Company’s right-of use assets and lease liabilities once reasonably certain of exercise. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The operating lease ROU asset also includes any lease payments made in advance of lease commencement and excludes lease incentives. The lease terms used in the calculations of the operating ROU assets and operating lease liabilities include options to extend or terminate the lease when the Company is reasonably certain that it will exercise those options. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate of 5%7.6% based on the information available at commencement date in determining the present value of lease payments.

Munnworks, LLC entered into a lease agreement in Mount Vernon, New York for a term that commenced on April 1, 2019 and will expire on the 31st day of March 2024 at a monthly rate of $13,400. In March of 2021, the Company obtained additional lease space and the agreement was amended to increase rent expense to $15,000 per month. On July 1, 2021, the Company again obtained additional lease space and rent expense was increased to $27,500 per month through July 1, 2024 and $29,150 per month from July 1, 2024 through July 1, 2026.

On September 28, 2021, the Company entered into a lease agreement in Kennesaw, Georgia for office and production space for a term that commenced on September 29, 2021 and will expire on October 1, 2024, with monthly payments ranging from approximately $14,700 to $15,600 per month.

On April 1, 2022, the Company entered into a lease agreement in Brooklyn, New York for office and production space that commenced on April 1, 2022 and will expire on June 1, 2023, with monthly payments ranging from approximately $94,500 to $97,400 per month.

Rent expense for the three months ended June 30, 2022 and 2021 was $427,222 and $43,400, respectively. Rent expense for the six months ended June 30, 2022 and 2021 was $529,021 and $46,800, respectively.

Schedule maturities of operating lease liabilities outstanding as of June 30, 2022 are as follows:

Schedule of maturities of operating lease liabilities
Years Ended December 31,
2022 (6 months)	$	838,888
2023		1,097,603
2024		470,532
2025		349,800
Thereafter...		174,900
Total lease payments		2,931,723
Less: Imputed Interest		(264,539	)
Present value of future minimum lease payments	$	2,667,184

Consistent with ASC 842-20-50-4, the Company calculated its total lease cost based solely on its monthly rent obligation. The Company had no cash flows arising from its lease, no finance lease cost, short term lease cost, or variable lease costs. ~~Our~~The Company’s lease does not produce any sublease income, or any net gain or loss recognized from sale and leaseback transactions. As a result, the Company did not need to segregate amounts between finance and operating leases for cash paid for amounts included in the measurement of lease liabilities, segregated between operating and financing cash flows; supplemental non-cash information on lease liabilities arising from obtaining right-of-use assets; weighted-average calculations for the remaining lease term; or the weighted-average discount rate.

Applied UV, Inc. and Subsidiaries

Notes to the ~~Unaudited Interim~~ Condensed Consolidated Financial Statements

~~September 30, 2020~~

~~(Unaudited)~~

NOTE 9 ~~– LEASING ARRANGEMENTS (Continued)~~- PAYROLL PROTECTION PROGRAM

In April of 2020, the Company submitted a Paycheck Protection Program (“PPP”) application to Chase Bank for a loan amount equal to $296,827. The amount was approved, and the Company has received the funds. The PPP Loan, which is in the form of a PPP promissory note and agreement, matures in April of 2025 and bears interest at a rate of 1.00% per annum. The Lender will have 90 days to review borrower’s forgiveness application and the SBA will have an additional 60 days to review the Lender’s decision as to whether the borrower’s loan may be forgiven. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered utilities, and certain covered mortgage interest payments during the twenty-four-week period beginning on the date of first disbursement of the PPP Loan. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee earning more than $100,000, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. The loan was forgiven in July of 2021 and in accordance with ASC 470, the amount was recorded as other income.

OnNOTE 10- NOTE RECEIVABLE- RELATED PARTY

The company contemplated an acquisition with an entity where certain board members of the Company were also board members of the potential acquiree. In February ~~7, 2014,~~of 2021, the Company entered into a ~~lease~~non-interest bearing note receivable agreement ~~in Mount Vernon, New York on a month~~ whereby the Company loaned $500,000 to ~~month basis.~~the entity. The ~~monthly rent under this arrangement from January 1, 2018 through November 30, 2018~~note receivable was ~~$10,000 per month, from December 2018 through February 2019 was $11,150 per month.~~recorded at cost basis which approximates fair value because of the short-term maturity of the instrument. The ~~company did not record an ROU asset or corresponding liability as the lease arrangement was month to month. The Company then amended the lease for a term that commenced on April 1, 2019 and expire~~loan matures on the ~~31st day~~earlier of ~~March 2024 at a monthly rate of $13,400. On April 1, 2019~~ (i) 180 days from the ~~company recorded an ROU asset and a corresponding lease liability in~~issuance date or (ii) the ~~amount of $710,075.~~ ~~Rent expense for the nine months ended September 30, 2020 and 2019 was $127,800 and $116,350, respectively. As of September 30, 2020 and December 31, 2019, the balance~~closing of the ~~ROU asset was $515,324 and $614,522, respectively. The lease can be cancelled by either party with 150 days of written notice.~~

~~Schedule maturities of operating lease liabilities outstanding as of September 30, 2020 are as follows:~~

2021 $ 160,800
2022 160,800
2023 160,800
2024 93,800
Total lease payments 576,200
Less: Imputed Interest (60,876 )
Present value of future minimum lease payments $ 515,324

~~NOTE 10 - COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS~~

~~Costs and estimated earnings on contracts~~transactions set forth in ~~progress, net of progress billings, are as follows as of September 30, 2020 and December 31, 2019:~~

Costs incurred on contracts in progress $ 498,190 $ 240,732
Estimated net earnings thereon 541,728 42,403
Total costs and estimated earnings 1,039,918 283,135

Billings to date (1,407,925 ) (1,127,466 )
Net overbilled $ (368,007 ) $ (844,331 )

Contract Assets $ - $ -
Contract Liabilities (Deferred Revenue) (368,007 ) (844,331 )
$ (368,007 ) $ (844,331 )

~~Contract assets represent amounts earned under contracts in progress but not yet billed under~~a definitive acquisition entered into between the terms of those contracts. These amounts become billable according to the contract terms, which usually consider passage of time, achievement of certain milestones or completion of the project. Substantially all costs and estimated earnings in excess of billings on contracts in progress are expected to be billed and collected in the following year.

~~Contract liabilities represent billings to customers in excess of costs and earnings on contracts in progress. Substantially all such amounts are expected to be earned in the following year.~~

~~Applied UV, Inc. and Subsidiaries~~

~~Notes to the Unaudited Interim Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

~~NOTE 11 – SHARE EXCHANGE~~

~~On July 31, 2019, March 27, 2019 and March 26, 2019, we~~lender and the ~~shareholder of SteriLumen, Inc. and~~borrower. In the ~~sole member of Munn Works, LLC, completed~~event the transactions contemplated by three Share Exchange Agreements. Pursuant to the applicable Share Exchange Agreements, SteriLumen, Inc. and Munn Works, LLC transferred to us all assets and liabilities. The shareholders of SteriLumen, Inc. exchanged all of their shares in SteriLumen for 2,000 preferred and 2,001,250 common shares of Applied UV, Inc. The sole member of Munn Works, LLC exchanged all of its membership interest in Munn Works, LLC for 3,000,000 common shares of Applied UV, Inc. As the Share Exchanges were transactions between entities that are under common control, accounting rules require that our Consolidated Financial Statements include the results of the Transferred Businesses for all periods presented, including periods prior to the completion of the Share Exchanges.

~~NOTE 12 - LEGAL~~

APF Management filed and served a complaint in 2013 New York state court against Munn Works, LLC, Max Munn and various other parties seeking recovery of damages and was awarded various damages on behalf of APF.

On June 25, 2018, Munn Works, LLC. entered Chapter 11 bankruptcy in order to facilitate an appeal and a resolution to this matter. As part of the Chapter 11 bankruptcy, APF management filed a claim in the amount of $1,474,505. All of the parties agreed to resolve the disputes whereby, APF would receive $400,000 payable by the Company. The amount was settled andloan is paid in full ~~in 2019.~~

~~Administration of Chapter 11 Case~~

In June of 2018, Munn Works, LLC received Bankruptcy court approval of certain "first-day" motions, which preserved the Company's ability to continue operations without interruption in Chapter 11. As part of the "first-day" motions, the Company received approval to pay or otherwise honor certain pre-petition obligations generally designed to support the Company's operations. Additionally, the Bankruptcy Court confirmed the Company's authority to pay for goods and services received post-petition in the ordinary course of business.

As part of the chapter 11 case, the Company has retained, pursuant to Bankruptcy Court authorization, legal and other professionals to advise the Company in connection with the administration of its chapter 11 case and its litigation with APF management, and certain other professionals to provide services and advice in the ordinary course business. As a result of the chapter 11 filing, the payment of pre-petition liabilities is generally subject to compromise pursuant to a plan of reorganization. Generally, under the Bankruptcy Code, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Company authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. Among other things, the Bankruptcy Court has authorized the Company to pay certain pre-petition claims relating to employees and critical vendors.

On June 25, 2018. the Company filed schedules of assets and liabilities and statement of financial affairs (the "Schedules") with the Bankruptcy Court. The Bankruptcy Court has entered an order setting October 26, 2018 as the deadline for filing proofs of claim (the "Bar Date"). The Bar Date is the date by which claims against the Company relating to the period prior to the commencement of the Company's chapter 11 case must be filed if such claims are not listed in liquidated, non-contingent and undisputed amounts in the Schedules, or if the claimant disagrees with the amount, characterization or classification of its claim as reflected in the Schedules. Claims that are subject to the Bar Date and which are not filed on or prior to the Bar Date, may be barred from participating in any distribution that may be made under a plan of reorganization in the Company's chapter 11 case.

~~Applied UV, Inc. and Subsidiaries~~

~~Notes to the Unaudited Interim Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

~~NOTE 12 – LEGAL (CONTINUED)~~

The Company applied Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 852, Reorganizations, which is applicable to companies under bankruptcy protection, and requires amendments to the presentation of key financial statement line items. It requires that the financial statements for periods subsequent to the chapter 11 filing distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the consolidated statements of operations. The balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be subject to a plan of reorganization must be reported at the amounts expected to be allowed in the Company's chapter 11 case, even if they may be settled for lesser amounts as a result of the plan of reorganization or negotiations with creditors. In addition, cash used by reorganization items are disclosed separately in the consolidated statements of cash flow.

~~Liabilities Subject to Compromise~~

Pre-petition liabilities that are subject to compromise are required to be reported at the amounts expected to be allowed in the Company's chapter 11 case, even if they may be settled for lesser amounts. The amounts classified as Liabilities Subject to Compromise as of December 31, 2018 may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of the secured status of certain claims, if any, the value of any collateral securing such claims, or other events. The Company cannot reasonably estimate the value of the claims that will ultimately be allowed in its chapter 11 case until its evaluation, investigation and reconciliation of all filed claims has been completed. The amount of liabilities subject to compromise represents the Company's estimate, where an estimate is determinable, of known or potential pre-petition claims to be addressed in connection with its chapter 11 case. Such liabilities are reported at the Company's current estimate, where an estimate is determinable, of the allowed claim amount, even though they may be settled for lesser amounts. These claims remain subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of the secured status of certain claims, if any, the value of any collateral securing such claims, or other events.

~~As of December 31, 2018, Liabilities subject to Compromise consist of the following (note: all liabilities were settled in 2019, therefore no balances remain as of December 31, 2019):~~

2018
Accounts payable and accrued expenses- pre-petition $ 492,014
Notes payable- pre-petition 370,390
Expectation damages accrual- APF Management 1,474,505
Total $ 2,336,909

Pursuant to Bankruptcy Court Order dated May 31, 2019, the Debtor’s Second Amended Chapter 11 Plan dated April 29, 2019 (the “Plan”) was approved and confirmed. The Plan provided treatment for five (5) classes of claims, with the general unsecured claims composing Class 4 Claimants. Under the Plan, Class 4 Claimants, would receive 10% of their Allowed Claim on the Effective Date. As a result of the bankruptcy claim, APF received and settled for $400,000 where a gain on settlement of $1,074,505 was recorded. As described in Note 6 of the financial statements, the Company recorded a total net gain from settlement of debt in the amount of $57,640. Other various pre-petition creditors received and settled for a total of $103,761, resulting in a gain on settlement in the amount of $388,253. The entire amount was escrowed on or before ~~May 23, 2019 and paid~~the maturity date, there shall be no interest accrued or payable on the outstanding principal amount. If an acquisition occurs, the $500,000 will be applied against the total acquisition price. If the company decides not to execute a definitive agreement within 15180 days from the issuance date, the maturity date shall be the one-year anniversary of the ~~effective~~issuance date. The maturity date ofhas since been extended to November 30, 2021. The acquisition did not occur and the ~~stipulation. As a result of the transaction, the Company recorded a total gain on settlement of $1,520,398.~~

~~Applied UV, Inc. and Subsidiaries~~

~~Notes to the Unaudited Interim Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

~~NOTE 13 - MOUNT SINAI AGREEMENT~~

On April 20, 2020 SteriLumen entered into the Mount Sinai Agreement pursuant to which Mount Sinai has agreed to conduct a study of the effectiveness of the SteriLumen Disinfecting System in 17 patient bathrooms at Mount Sinai St. Luke’s Hospital in New York, NY. SteriLumen will be responsible for funding the direct and indirect costs of Mount Sinai’s research in thefull amount of $160,000 plus all of the cost of microbiological testing. To the extent any intellectual property resulting from the research is conceived by Mount Sinai it will be the intellectual property of Mount Sinai and to the extent it is conceived by SteriLumen it will be the intellectual property of SteriLumen. As of the date of the financial statements are available to be issued, the company has not incurred any costs in relation to this agreement. The company paid $40,000 of prepayments and the amount has been recorded as prepayments and other current assets. SteriLumen has a 60-day exclusive option to negotiate a license for Mount Sinai’s resulting patent rights if such patent $500,000was obtained at SteriLumen’s request and SteriLumen has paid for all the costs in obtaining the patent. If the results of the study contained in Mount Sinai’s final report are used by SteriLumen in a successful regulatory filing or a successful fundraising effort, the Sponsor will be obligated to pay Mount Sinai a fee of $30,000.repaid on November 30, 2021.

NOTE 1411 - SEGMENT REPORTING

FASB Codification Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has two reportable segments: the design, manufacture, assembly and distribution of ~~automated~~ disinfecting ~~mirror~~ systems for use in ~~hospitals~~healthcare, hospitality, and ~~other healthcare facilities~~commercial municipal and residential markets (disinfectant ~~mirror~~ segment) and the manufacture of fine mirrors and custom furniture specifically for the hospitality ~~industry~~and retail industries (hospitality segment). The segments are determined based on several factors, including the nature of products and services, the nature of production processes, customer base, delivery channels and similar economic characteristics.

An operating segment’s performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, ~~and~~ segment selling, general and administrative expenses, research and development costs and stock-based compensation. It does not include ~~amortization of intangibles, stock-based compensation,~~ other charges (income), net and interest and other, net.

All net sales, cost of goods sold, and other income (expense) was generated or incurred from the hospitality segment of our business. For the nine months ended September 30, 2020 and 2019, the hospitality segment of our business incurred $1,371,531 and $1,335,583, respectively, of selling, general and administrative expenses. For the nine months ended September 30, 2020 and 2019, the disinfectant mirror segment of our business incurred $110,483 and $41,521, respectively, of selling, general and administrative expenses. For the nine months ended September 30, 2020 and 2019, the disinfectant mirror segment of our business incurred $65,037 and $0, respectively, of research and development expenses

As of September 30, 2020 and December 31, 2019 assets from the hospitality segment of our business amounted to $7,495,572 and $4,706,535, respectively. As of September 30, 2020 and December 31, 2019, total assets from the disinfectant mirror segment of our business amounted to $266,306 and $62,852, respectively.

As of September 30, 2020 and December 31, 2019, total liabilities from the hospitality segment of our business amounted to $2,178,425 and $3,347,120, respectively. As of September 30, 2020 and December 31, 2019, total liabilities from the disinfectant mirror segment of our business amounted to $137,941 and $37,477, respectively.

Applied UV, Inc. and Subsidiaries

Notes to the ~~Unaudited Interim~~ Condensed Consolidated Financial Statements

NOTE 11 - SEGMENT REPORTING (continued)

Schedule of segment reporting
	Hospitality		Disinfectant		Corporate		Total
Balance sheet at June 30, 2022
Assets	$	7,302,345	$	26,979,356	$	2,725,197	$	37,006,898
Liabilities	$	6,158,065	$	1,721,894	$	381,442	$	8,261,401
Balance sheet at December 31, 2021
Assets	$	2,158,789	$	27,851,691	$	8,515,512	$	38,525,992
Liabilities	$	2,481,186	$	1,528,706	$	1,850,341	$	5,860,233

	Hospitality		Disinfectant		Corporate		Total
Income Statement for the three months ended June 30, 2022:
Net Sales	$	4,169,112	$	1,738,534	$	—	$	5,907,646
Cost of Goods Sold	$	3,695,267	$	908,587	$	—	$	4,603,854
Research and development	$	—	$	82,049	$	—	$	82,049
Selling, General and Administrative expenses	$	1,225,609	$	2,070,874	$	734,732	$	4,031,215

Income Statement for the three months ended June 30, 2021:
Net Sales	$	964,618	$	919,702	$	—	$	1,884,320
Cost of Goods Sold	$	746,451	$	604,640	$	—	$	1,351,091
Research and development	$	—	$	9,763	$	—	$	9,763
Selling, General and Administrative expenses	$	907,359	$	1,791,123	$	—	$	2,698,482

	Hospitality		Disinfectant		Corporate		Total
Income Statement for the six months ended June 30, 2022:
Net Sales	$	5,578,362	$	3,685,374	$	—	$	9,263,736
Cost of Goods Sold	$	4,853,911	$	1,956,934	$	—	$	6,810,845
Research and development	$	—	$	141,363	$	—	$	141,363
Selling, General and Administrative expenses	$	1,970,708	$	3,878,370	$	1,283,363	$	7,132,441
Loss on impairment of goodwill	$	—	$	1,138,203	$	—	$	1,138,203

Income Statement for the six months ended June 30, 2021:
Net Sales	$	2,532,469	$	1,664,466	$	—	$	4,196,935
Cost of Goods Sold	$	1,817,775	$	921,665	$	—	$	2,739,440
Research and development	$	—	$	53,408	$	—	$	53,408
Selling, General and Administrative expenses	$	1,563,360	$	2,736,639	$	—	$	4,299,999

Applied UV, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

NOTE 12 – PROFORMA FINANCIAL STATEMENTS (UNAUDITED)

Unaudited Supplemental Pro Forma Data

Unaudited pro forma results of operations for the three and six months ended June 30, 2022 and 2021 as though the company acquired Akida, KES, Visionmark, and SciAir (the “Acquired Companies”) on January 1, 2021 is set forth below.

Business Acquisition, Pro Forma Information
	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Net Sales	$	5,907,646		$	4,244,035		$	9,263,736		$	10,255,681
Net Loss	$	(2,888,655	)	$	(2,309,018	)	$	(4,538,527	)	$	(3,552,238	)

Net Loss attributable to common stockholders:
Dividends to preferred shareholders		(362,250	)		—			(724,500	)		—
Net Loss attributable to common stockholders		(3,250,905	)		2,309,018			(5,263,027	)		(3,552,238	)
Basic and Diluted Loss Per Common Share	$	(0.26	)	$	(0.24	)	$	(0.41	)	$	(0.36	)
Weighted Average Shares Outstanding - basic and diluted		12,665,385			9,726,644			12,799,783			9,747,104

~~September 30, 2020~~NOTE 13 – SUBSEQUENT EVENTS

On July 1, 2022, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission to register and aggregate $50,000,000 of securities which may be issued in the form of common stock, preferred stock, warrants, debt securities, rights or units. Such securities will be offered pursuant to the base prospectus contained in the shelf registration statement and a prospectus supplement that will be prepared and filed at the time of any offering. Also, included in the registration statement was a second prospectus which provides for the issuance of $9,000,000 of the Company’s common stock in at-the-market transactions pursuant to an equity distribution agreement dated July 1, 2022 between the Company and Maxim Group LLC, as sales agent. The shelf registration statement will expire on July 12, 2025.

~~(Unaudited)~~

~~NOTE 15 - PAYROLL PROTECTION PLAN LOAN~~

In April of 2020, the Company submitted a Paycheck Protection Program application to Chase Bank for a loan amount equal to $296,827. The amount was approved and the Company has received the funds. The Lender will have 90 days to review borrower’s forgiveness application and the SBA will have an additional 60 days to review the Lender’s decision as to whether the borrower’s loan may be forgiven. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered utilities, and certain covered mortgage interest payments during the twenty four-week period beginning on the date of first disbursement of the PPP Loan. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee earning more than $100,000, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. Although the Company currently believes that its use of the PPP Loan will meet the conditions for forgiveness of the PPP Loan, the Company cannot assure that the PPP Loan will be forgiven, in whole or in part.

~~Future maturities of the loan payable, if not forgiven, are as follows:~~

Twelve months ending September 30,
2021 $ 69,927
2022 69,927
2023 69,927
2024 69,927
2025 17,119
$ 296,827

~~NOTE 16 - SUBSEQUENT EVENT~~

Management has evaluated subsequent events through November 15, 2020, the date the financial statements were available to be issued. As a result of the spread of the COVID-19 Coronavirus and the resulting stay-at-home orders issued by the state and local municipalities in which the Company operates, the Company is experiencing reduced sales. The duration of the reduction in sales may be only temporary. However, the related financial impact and duration cannot be reasonably estimated at this time.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 prospectus 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” and in other parts of this prospectus. Our fiscal year ends on December 31.

Overview

~~Overview~~

Applied UV is focused on the development and acquisition of technology that addresses infection control in the healthcare, hospitality, government, food and beverage, education, cannabis, entertainment and consumer markets. The Company ~~was formed on February 26, 2019~~has two wholly owned subsidiaries - SteriLumen, Inc. (“SteriLumen”) and MunnWorks, LLC (“MunnWorks”).

SteriLumen’s connected platform for Data Driven Disinfection™ applies the ~~purpose~~power of ~~acquiring all~~ultraviolet light (UVC) to destroy pathogens safely, thoroughly, and automatically, addressing the challenge of the equity of SteriLumen and Munn Works. 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 in the Company. The Company acquired all of the equity of Munn Works 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 Munn Works.

~~SteriLumen was formed to engage in the design, manufacture, assembly and distribution of the SteriLumen Disinfecting System~~healthcare-acquired infections ("HAIs"). Targeted for use in facilities that have high customer turnover such as hospitals, hotels, commercial facilities, and other ~~healthcare facilities. The Company has received several patent approvals for~~public spaces, the SteriLumen Disinfecting System from the United States and the European Union and is in the process of receiving approval from various countries including China, Japan, Taiwan, South Korea and the Gulf Cooperation Council. The technology of the SteriLumen Disinfecting SystemCompany’s Lumicide™ platform uses UVC ~~LED embedded~~LEDs in ~~various bathroom fixtures as an~~several patented designs for infection ~~prevention apparatus for use~~control in ~~inhabited facilities for~~and around high-traffic areas, including sinks and restrooms, killing ~~airborne~~ bacteria, ~~and other pathogens as well as killing bacteria~~viruses, and other pathogens residing on hard surfaces within the devices’ proximity. The Company’s patented in-drain disinfection device, Lumicide™ Drain, is the only product on the market that addresses this critical pathogen-intensive location.

SteriLumen’s Airocide™ air purification devices are research backed, clinically proven and developed for NASA with assistance from the University of Wisconsin. Airocide™ is listed as an FDA Class II Medical device, utilizes a proprietary photocatalytic (PCO) bioconversion technology that draws air into a reaction chamber that converts damaging molds, microorganisms, dangerous airborne pathogens, destructive VOCs, allergens, odors and biological gasses into harmless water vapor and green carbon dioxide without producing ozone or other harmful byproducts. Airocide™ applications include healthcare, hospitality, food preservation, wineries, dairy, commercial real estate, education, dental offices, post-harvest, grocery, food processing, transportation, correctional facilities, cannabis, and consumer.

SteriLumen’s Scientific Air product was developed initially for healthcare facilities and is helping hospitals across the country address the growing need for effective and safe airborne infection prevention. Utilizing Scientific Air systems, hospitals report significant reductions in ~~proximity~~viable airborne pathogens as well as significant declines in non-viable particulates including elimination of odor and VOC's. Scientific Air products produce no harmful by-products, provide rapid, portable, whole-room disinfection via a patented 3-phase design, are safe and fast-acting in occupied spaces, and have been proven and tested in facilities with EPA and FDA guidance compliance.

According to Resource and Markets, the UV Disinfection market is expected to reach $9 billion by 2026 as technology continues to improve and the focus on stopping the spread of contagious diseases increases. The Center for Disease Control states that 1 in 25 patients have at least one Hospital Associated Infection (HAI) annually and that 3 million serious infections occur every year in long-term care facilities. Scientists globally have been advocating improving air quality post pandemic, significantly boosting global adoption to control airborne pathogen transmission. Governments globally mandating health agencies to address air quality via grants and mechanisms to ease visitation and protect facilities against future pathogens (Centers for Medicare and Medicaid Services – CMS) February 2022 Long-term Care Initiative.

Indoor air quality has become an even more important issue as world economies start the recovery process. In 2021, 39 scientists reiterated the need for a "paradigm shift" and called for improvements in, "how we view and address the transmission of respiratory infections to protect against unnecessary suffering and economic losses."

In addition to this, the global air purifier market size is set to grow exponentially. It was valued at $9.24 billion in 2021 and is predicted to grow to approximately $22.84 billion by 2030. According to Precedence Research, the immense demand for air purification and sterilization in the US will be driven by the commercial sector.

SteriLumen’s product portfolio is one of the only research-backed, clinically proven pure-play air and surface disinfection technology companies with international distribution and globally recognized end users, with product developed for NASA. In addition to the ~~apparatus.~~numerous recognized research institutions and globally recognized names who published the reports that were completed by the acquired companies, Airocide™ was independently proven to kill SARS, MRSA and Anthrax, in addition to removing damaging molds, microorganisms, destructive VOC’s, allergens, odors, and biological gases. Also, SteriLumen’s air purification (Airocide™) and surface disinfection Lumicide™) were independently tested and proven to kill both Candida Auris (Resinnova Laboratories) and SARS CoV-2 (COVID-19) (MRIGlobal).

~~Munn Works~~

SteriLumen’s product portfolio is used by globally recognized names including: Walmart, Whole Foods, SuperValue, Delmonte, Esmeralda, Joel Gott Wines, Opus One, Athena Healthcare, NYC Health and Hospitals, Kaiser Permanente, Advent Health, University Rochester Medical Center and Baptist Health South Florida. This past year, the SteriLumen product portfolio expanded its reach and deployed its air purification products into Boston Red Sox Fenway Park and Jet Blue Park, The Palace Versaille , Uruguayan School Systems, Tennessee Department of Corrections, Armed Forces Research Institute of Medical Sciences (AFRIMS), US Army Aberdeen Proving Grounds and Schools throughout South Korea.

The Company works with a global base of distributors to sell both SteriLumen air purification and disinfection products and the MunnWorks product lines. The past year, the Company has signed distribution agreements covering Africa (360BioPharma), US Healthcare (Axis), Lootah Batta Water and Environment Sign Exclusive Distribution Agreement for Airocide™ Air Purification Systems for the United Arab Emirates, and Plandent a wholly owned subsidiary of Planmeca Oy (Scandinavia). SteriLumen plans to continue to expand its global distribution base of significant breadth and scale to introduce the entire SteriLumen’s air purification product lines to new markets, including building management, commercial real estate, retail, healthcare, cannabis and environmental health and safety, leveraging the networks of the recent acquisitions described above.

MunnWorks is a manufacturer of custom designed fine mirrors and furniture specifically for the hospitality industry with one manufacturing facility in Mount Vernon, New York and, with the acquisition of the assets of VisionMark, another manufacturing facility in Brooklyn, New York. Our goal is to contribute to the creation of what our design industry clients seek: manufacturing better framed mirrors and customized furniture on budget and on time. As part of our long-term strategy, ~~we have~~the Company has instituted multi-site production for high-value items, complicated designs and finishes. Our headquarters in Mount Vernon, NY serves as the center for multi-country manufacturing. ~~We work~~The Company works with a satellite network of artisans and craftsmen, including gilders, carvers, and old-world finishers.

Acquisitions

In ~~addition to our domestic partners, we maintain overseas production capability~~February of 2021, the Company acquired all the assets and assumed certain liabilities of Akida Holdings, LLC (“Akida”). At the time of the acquisition, Akida owned the Airocide™ system of air purification technologies, originally developed for NASA with ~~on-site Munn Works employees. Moreover, as company policy, we conduct on-site factory visits for all in-process and outgoing orders, which are observed and checked by~~assistance from the University of Wisconsin at Madison, that uses a ~~project manager from our home office in Mount Vernon, NY before they leave our overseas partners’ facilities. The~~ combination of ~~quality, innovative, stylish merchandise,~~UVC and ~~value pricing~~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 ~~led us~~been used by brands and organizations such as NASA, Whole Foods, Dole, Chiquita, Opus One, Sub-Zero Refrigerators and Robert Mondavi Wines. Akida had contracted KES Science & Technology, Inc. (“KES”) to ~~develop~~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.

On October 13, 2021, we acquired substantially all of the assets of Old SAM Partners, LLC F/K/A Scientific Air Management, LLC, which owned a ~~loyal customer base.~~line of air purification technologies (“Scientific Air’). Scientific Air is a provider of whole-room, aerosol chamber and laboratory certified air disinfection machines that use a combination of UVC and a proprietary, patented system to eliminate airborne bacteria, mold, fungi, viruses, volatile organic compounds, and many odors without producing any harmful by-products. The units are well suited for larger spaces within a facility and are mobile with industrial grade casters allowing for movement throughout a facility to address increased bio burden from larger meetings or increased human traffic.

On March 25, 2022, the Company acquired the assets and assumed certain liabilities of VisionMark, LLC, ("Visionmark"). Visionmark is engaged in the business of manufacturing custom furniture using wood and metal components for the hospitality and retail industries. This acquisition is synergistic with our legacy MunnWorks operations, and allows for further market expansion and business diversification, as well as improvement in cost and onshore manufacturing efficiencies.

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

~~• 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 Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019~~

Nine Months
Ended September
30, 2020 Nine Months
Ended September
30, 2019
Net Sales $ 4,493,061 $ 6,379,259
Cost of Goods Sold 3,825,037 85.1 % 4,315,095 67.6 %
Gross Profit 668,024 14.9 % 2,064,164 32.4 %

Stock based compensation 381,314 8.5 % - 0.0 %
Research and development 65,037 1.7 % - 0.0 %
Selling. General and Administrative Expenses 1,443,276 32.1 % 1,377,104 21.6 %
Total Operating expenses 1,889,627 42.1 % 1,377,104 21.6 %
Operating Income (Loss) (1,221,603 ) -27.2 % 687,060 10.8 %
Other Income (Expense)
Gain on settlement - 0.0 % 1,520,398 23.8 %
Other income 11,905 0.3 % 850 0.0 %
Total Other Expense 11,905 0.3 % 1,521,248 23.8 %
Income (Loss) Before Provision for Income Taxes (1,209,698 ) -26.9 % 2,208,308 34.6 %
Provision for Income Taxes $ - 0.0 % $ 63,259 1.0 %
Net (Loss) Income (1,209,698 ) -26.9 % 2,145,049 33.6 %

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 ended September 30, 2020 decreased by 29.6% to $4,493,061 from $6,379,259 in the nine months ended 2019. All net sales for all periods presented were generated entirely from our Munn Works subsidiary. The declining performance in the hospitality industry from the COVID-19 pandemic has caused a decline in our revenues. As the economy improves from the COVID-19 decline, we believe that the recovery will drive our revenues back to our normal operating levels.

Accordingly, gross profit expressed as a percentage of net sales can be influenced by many factors including overall sales performance. For nine months ended September 30, 2020, gross profit decreased to $668,024 from $2,064,164 for nine months ended 2019. Gross profit as a percentage of net sales decreased to 14.9% for nine months ended September 30, 2020 from 32.4% in the nine months ended September 30, 2019, primarily driven by lower sales volume and less frequent materials purchases, coupled with the Company retaining direct labor employees (to comply with payroll protection plan loan forgiveness criteria). Employee and compensation levels are expected to be maintained; however, it is not certain at this time whether the loan will be forgiven. In addition, there is a decrease in percentage of sales generated from our third-party warehouses in China which is historically more profitable for our business. Margins from period to period and can vary based on the profitability of each individual job. In 2020, the Company worked on several large contracts that were less profitable than the previous year. Major components and cost drivers of our cost of sales is influenced by the cost of materials, shipping, overhead, and labor costs.

Stock based compensation has increased due to the company’s adoption of its incentive plan and issuance of options and warrants during the quarter. 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.

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 the majority 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 and property and equipment and impairment of long-lived assets. Operating expenses can also include certain costs that are of a one-time or non-recurring nature. For nine months ended September 30, 2020 , Selling, General and Administrative expenses increased to $1,443,276 from $1,377,104 in the nine months ended September 30, 2019. The increase was attributable to an increase in professional and consulting fees to assist the Company in financial reporting. In addition, the company increased its bad debt allowance during the nine months ended September 30, 2020 by $50,000.

Selling, General and Administrative expenses expressed as a percentage of net sales can be influenced by many factors including overall sales performance. For nine months ended September 30, 2020 , selling, general and administrative expenses as a percentage of net sales increased 12% to 32.1% in the nine months ended September 30, 2020 from the 21.6% in the nine months ended September 30, 2019. The company incurred an increase in professional fees and bad debt expense of $50,000 in 2020 and generated significantly less revenues from the impact of COVID-19.

We recorded net loss of $1,209,698 in the nine months ended September 30, 2020, compared to net income of $2,145,049 in the nine months ended September 30, 2019. The significant net loss in 2020 was from a decline in revenues and margins due to the impact of COVID-19, an increase in stock-based compensation, an increase in bad debt expense, and an increase in professional fees. In addition, the company reported a gain on legal settlement in the amount of $1,520,398 during the nine months ended September 30, 2019.

Three Months Ended ~~September~~June 30, ~~2020~~2022 Compared to the Three Months Ended ~~September~~June 30, ~~2019~~2021

	Three Months Ended June 30, 2022												Three Months Ended June 30, 2021
	Hospitality			Disinfection			Corporate			Total			Hospitality			Disinfection			Corporate		Total
Net Sales	$	4,169,112		$	1,738,534		$	—		$	5,907,646		$	964,618		$	919,702		$	—	$	1,884,320
Cost of Goods Sold		3,695,267			908,587			—			4,603,854			746,451			604,640			—		1,351,091
Gross Profit		473,845			829,947			—			1,303,792			218,167			315,062			—		533,229
Research and development		—			82,049			—			82,049			—			9,763			—		9,763
Loss on impairment of goodwill		—			—			—			—			—			—			—		—
Selling, General and Administrative		1,225,609			2,070,874			734,732			4,031,215			907,359			1,791,123			—		2,698,482
Total Operating expenses		1,225,609			2,152,923			734,732			4,113,264			907,359			1,800,886			—		2,708,245
Operating Loss		(751,764	)		(1,322,976	)		(734,732	)		(2,809,472	)		(689,192	)		(1,485,824	)		—		(2,175,016	)
Other Income
Change in Fair Market Value of Warrant Liability		—			—			(32,111	)		(32,111	)		—			—			10,948		10,948
Loss on change in contingent consideration		—			—			—			—			—			—			—		—
Gain on settlement of contingent consideration		—			—			—			—			—			—			—		—
Other income (expense)		(47,072	)		—			—			(47,072	)		—			25,837			—		25,837
Total Other Income (Expense)		(47,072	)		—			(32,111	)		(79,183	)		—			25,837			10,948		36,785
Loss Before Provision for Income Taxes		(798,836	)		(1,322,976	)		(766,843	)		(2,888,655	)		(689,192	)		(1,459,987	)		10,948		(2,138,231	)
Provision for Income Taxes		—			—			—			—			—			—			—		—
Net Loss	$	(798,836	)	$	(1,322,976	)	$	(766,843	)	$	(2,888,655	)	$	(689,192	)	$	(1,459,987	)	$	10,948	$	(2,138,231	)
Non-GAAP Financial Measures
Adjusted EBITDA
Operating Loss	$	(751,764	)	$	(1,322,976	)	$	(734,732	)	$	(2,809,472	)	$	(689,192	)	$	(1,485,824	)	$	—	$	(2,175,016	)
Depreciation and Amortization		55,173			455,576			—			510,749			15,490			204,465			—		219,955
Loss on impairment of goodwill		—			—			—			—			—			—			—		—
Stock based compensation		30,149			37,800			44,502			112,451			237,144			228,456			—		465,600
Adjusted EBITDA	$	(666,442	)	$	(829,600	)	$	(690,230	)	$	(2,186,272	)	$	(436,558	)	$	(1,052,903	)	$	—	$	(1,489,461	)

Three Months Ended
September 30, 2020 Three Months Ended
September 30, 2019
Net Sales $ 1,560,633 $ 2,775,848
Cost of Goods Sold 1,482,455 95.0 % 1,600,287 57.7 %
Gross Profit 78,178 5.0 % 1,175,561 42.3 %

Stock based compensation 279,707 17.9 % - 0.0 %
Research and development 48,307 3.3 % - 0.0 %
Selling. General and Administrative Expenses 645,131 41.3 % 740,038 26.7 %
Total Operating expenses 973,145 62.4 % 740,038 26.7 %
Operating Income (894,967 ) -57.3 % 435,523 15.7 %
Other Income (Expense)
Gain on settlement - 0.0 % - 0.0 %
Other income 235 0.0 % 850 0.0 %
Total Other Expense 235 0.0 % 850 0.0 %
Income Before Provision for Income Taxes (894,732 ) -57.3 % 436,373 15.7 %
Provision for Income Taxes $ - 0.0 % $ - 0.0 %
Net Income (894,732 ) -57.3 % 436,373 15.7 %

~~Net sales~~The Company utilizes Adjusted EBITDA, a non-GAAP financial measure, to assist in analyzing our segment operating performance by removing the impact of certain key items that management believes do not directly reflect our underlying operations. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and ~~gross profit are the most significant drivers of~~investors evaluating our operating ~~performance. Net sales consist~~performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity, and management of ~~all sales~~assets. This information can assist investors in assessing our financial performance and measures our ability to ~~customers,~~generate capital. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenues, operating income, net income (loss), earnings (loss) per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. Adjusted EBITDA is defined as Operating Profit (Loss), excluding Depreciation and Amortization, and excluding Stock Based Compensation and Loss on Impairment of ~~returns. Our net sales~~Goodwill. Adjusted EBITDA was a loss of ($2,186,272) for the three months ended ~~2020 decreased by 43.8%~~June 30, 2022, which was an increase of ($696,811) as compared to ~~$1,560,633 from $2,775,848 in~~ the three months ended ~~2019. All net sales~~June 30, 2021. Adjusted EBITDA loss by segment: Hospitality increased ($229,884), Disinfection decreased $223,303 and Corporate increased ($690,230).

Segments

The Company has three reportable segments: the design, manufacture, assembly and distribution of disinfecting systems for ~~all periods presented were generated entirely from our Munn Works subsidiary. The declining performance~~use in healthcare, hospitality, and commercial municipal and residential markets (Disinfection segment); the manufacture of fine mirrors and custom furniture specifically for the hospitality ~~industry from~~and retail industries (Hospitality segment); and the ~~COVID-19 pandemic has caused a decline in our revenues. As the economy improves from the COVID-19 decline, we believe that the recovery will drive our revenues back~~Corporate Segment, which includes expenses primarily related to ~~our normal operating levels.~~corporate governance, such as board fees, legal expenses, audit fees, executive management, and listing costs. See NOTE 11 – Segment Reporting.

~~Accordingly, gross profit expressed as a percentage~~Net Sales

Net sales of ~~net sales can be influenced by many factors including overall sales performance. For~~$5,907,646 for the three months ended ~~2020, gross profit decreased~~June 30, 2022 as compared to ~~$78,178 from $1,175,561~~net sales of $1,884,320 for the three months ended ~~2019.~~ June 30, 2021 represented an increase of $4,023,326, or 213.5%. This increase was attributable to both the Disinfection segment, which increased $818,832, largely as a result of the strategic acquisitions of KES and Scientific Air in Q3 and Q4 of 2021, respectively, and the Hospitality segment, which increased $3,204,494, primarily as a result of the fulfilment of orders that were delayed from Q1 plus the addition of the orders fulfilled from the VisionMark acquisition.

Gross Profit

Gross profit increased $770,563 for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, driven by volume growth from both the Disinfection segment and the Hospitality segment. However, gross profit as a percentage of ~~net~~ sales decreased (6.2%) from 28.3% in Q1 of 2021 to ~~5.0% for three months ended 2020 from 41.3%~~22.1% in ~~three months ended 2019,~~Q1 of 2022, driven primarily ~~driven~~ by the initial costs required to complete projects in process and to integrate and absorb the VisionMark operations. As the Company ~~retaining direct labor employees (to comply with payroll protection plan loan forgiveness criteria) Employee and compensation levels are expected~~continues to ~~be maintained, however, it is not certain at this time whether or not~~integrate our strategic acquisitions, the ~~loan~~focus will be ~~forgiven. Fixed overhead costs remained consistent; however, revenue was significantly down for~~on realizing cost synergies from the quarter, causing a negative impact to our margins. In addition, there is a decrease in percentage of sales generated from our third-party warehouses in China which is historically more profitable for our business. Margins from period to periodconsolidation and can vary based on the profitability of each individual job. In 2020, the Company worked on several large contracts that were less profitable than the previous year. Major components and cost drivers of our cost of sales is influenced by the cost of materials, shipping, overhead, and labor costs.

Stock based compensation has increased due to the company’s adoption of its incentive plan and issuance of options, shares, and warrants during the nine months ended September 30, 2020. 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 termsstreamlining 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~~manufacturing and ~~Other Awards.~~distribution operations.

Operating Expenses

Selling, General, and Administrative ~~expenses, including the~~ – S,G&A costs of operating our corporate office, are also an important component of our operating performance. Compensation and benefits comprise the majority 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 and property and equipment and impairment of long-lived assets. Operating expenses can also include certain costs that are of a one-time or non-recurring nature. For three months ended September 30, 2020, Selling, General and Administrative expenses decreased to $645,401 from $740,038 in three months ended September 30, 2019. The decrease was attributable to the company incurring an increase in advertising costs and certain one-time non-recurring expenses in the prior nine months ended September 30, 2019.

Selling, General and Administrative expenses expressed as a percentage of net sales can be influenced by many factors including overall sales performance. For the three months ended September 30, 2020, selling, general and administrative expenses as a percentage of net sales increased 17.8% from 26.7% for the three months ended ~~September~~June 30, ~~2019~~2022, increased to ~~44.4%~~$4,031,215 as compared to $2,698,482 for the three months ended ~~September~~June 30, ~~2020.~~2021. This increase of $1,332,733 was driven primarily by the expansion of the Disinfection segment with the additional acquisitions of KES and SciAir; the expansion of the Hospitality segment with the addition of the VisionMark acquisition; and Corporate segment expenses due to increased consulting, legal, accounting, and infrastructure costs related to the initial integration of the operations of our strategic acquisitions. The ~~company~~Company incurred ~~an increase~~one-time costs of approximately $739,000 related primarily to the integration of VisionMark operations and the establishment of strategic marketing programs. We anticipate efficiency gains in ~~professional fees~~the coming year as we fully integrate our acquisitions and ~~bad debt expense of $50,000 in 2020 and generated significantly less revenues from the impact of COVID-19.~~leverage synergies where practical.

Net Loss

WeThe Company recorded a net loss of ~~($894,732) in~~$2,888,655 for the three months ended ~~September~~June 30, ~~2020,~~2022, compared to a net ~~income~~loss of ~~$436,373 in~~$2,138,231 for the three months ended ~~September~~June 30, ~~2019.~~2021. The ~~significant~~increase of $750,424 in the net loss ~~in 2020~~ was ~~from a decline in revenues and margins~~mainly due to the increase is S, G&A costs incurred in support of the business acquisitions and expansion of the both the Disinfection and Hospitality segments.

	Six Months Ended June 30, 2022												Six Months Ended June 30, 2021
	Hospitality			Disinfection			Corporate			Total			Hospitality			Disinfection			Corporate			Total
Net Sales	$	5,578,362		$	3,685,374		$	—		$	9,263,736		$	2,532,469		$	1,664,466		$	—		$	4,196,935
Cost of Goods Sold		4,853,911			1,956,934			—			6,810,845			1,817,775			921,665			—			2,739,440
Gross Profit		724,451			1,728,440			—			2,452,891			714,694			742,801			—			1,457,495
Research and development		—			141,363			—			141,363			—			53,408			—			53,408
Stock based compensation		116,160			60,086			224,204			400,450			343,130			333,211			—			676,341
Loss on impairment of goodwill		—			1,138,203			—			1,138,203			—			—			—			—
Selling, General and Administrative		1,854,548			3,818,284			1,059,159			6,731,991			1,220,230			2,403,428			—			3,623,658
Total Operating expenses		1,970,708			5,157,936			1,283,363			8,412,007			1,563,360			2,790,047			—			4,353,407
Operating Loss		(1,246,257	)		(3,429,496	)		(1,283,363	)		(5,959,116	)		(848,666	)		(2,047,246	)		—			(2,895,912	)
Other Income
Change in Fair Market Value of Warrant Liability		—			—			11,717			11,717			—			—			(300,452	)		(300,452	)
Loss on change in contingent consideration		—			(240,000	)		—			(240,000	)		—			—			—			—
Gain on settlement of contingent consideration		—��			1,700,000			—			1,700,000			—			—			—			—
Other income (expense)		(51,128	)		—			—			(51,128	)		—			25,182			—			25,182
Total Other Income (Expense)		(51,128	)		1,460,000			11,717			1,420,589			—			25,182			(300,452	)		(275,270	)
Loss Before Provision for Income Taxes		(1,297,385	)		(1,969,496	)		(1,271,646	)		(4,538,527	)		(848,666	)		(2,022,064	)		(300,452	)		(3,171,182	)
Provision for Income Taxes		—			—			—			—			—			—			—			—
Net Loss	$	(1,297,385	)	$	(1,969,496	)	$	(1,271,646	)	$	(4,538,527	)	$	(848,666	)	$	(2,022,064	)	$	(300,452	)	$	(3,171,182	)
Non-GAAP Financial Measures
Adjusted EBITDA
Operating Loss	$	(1,246,257	)	$	(3,429,496	)	$	(1,283,363	)	$	(5,959,116	)	$	(848,666	)	$	(2,047,246	)	$	—		$	(2,895,912	)
Depreciation and Amortization		63,148			915,347			—			978,495			23,235			289,084			—			312,319
Loss on impairment of goodwill		—			1,138,203			—			1,138,203			—			—			—			—
Stock based compensation		116,160			60,086			224,204			400,450			343,130			333,211			—			676,341
Adjusted EBITDA	$	(1,066,949	)	$	(1,315,860	)	$	(1,059,159	)	$	(3,441,968	)	$	(482,301	)	$	(1,424,951	)	$	—		$	(1,907,252	)

The Company utilizes Adjusted EBITDA, a non-GAAP financial measure, to assist in analyzing our segment operating performance by removing the impact of ~~COVID-19,~~certain key items that management believes do not directly reflect our underlying operations. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity, and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenues, operating income, net income (loss), earnings (loss) per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. Adjusted EBITDA is defined as Operating Profit (Loss), excluding Depreciation and Amortization, and excluding Stock Based Compensation and Loss on Impairment of Goodwill. Adjusted EBITDA was a loss of ($3,441,968) for the six months ended June 30, 2022, which was an increase of ($1,534,716) as compared to the six ended June 30, 2021. Adjusted EBITDA loss by segment: Hospitality increased ($584,648), Disinfection decreased $109,091, and Corporate increased ($1,059,159).

Segments

The Company has three reportable segments: the design, manufacture, assembly and distribution of disinfecting systems for use in ~~stock-based compensation,~~healthcare, hospitality, and commercial municipal and residential markets (Disinfection segment); the manufacture of fine mirrors and custom furniture specifically for the hospitality and retail industries (Hospitality segment); and the Corporate Segment, which includes expenses primarily related to corporate governance, such as board fees, legal expenses, audit fees, executive management, and listing costs. See NOTE 11 – Segment Reporting.

Net Sales

Net sales of $9,263,736 for the six months ended June 30, 2022 as compared to net sales of $4,196,935 for the six months ended June 30, 2021 represented an increase of $5,066,801, or 120.7%. This increase was attributable to both the Disinfection segment, which increased $2,020,908, largely as a result of the strategic acquisitions of KES and Scientific Air in ~~bad debt expense,~~Q3 and anQ4 of 2021, respectively, and the Hospitality segment, which increased $3,045,893, primarily due to orders that were delayed from Q1 and fulfilled in Q2, and from the fulfillment of orders related to the VisionMark acquisition.

Gross Profit

Gross profit increased $995,396 for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, driven by volume growth from both the Disinfection and Hospitality segments. However, gross profit as a percentage of sales decreased (8.2%) from 34.7% for the six months ended June 30, 2021 to 26.5% for the six months ended June 30, 2022, driven primarily by the initial costs necessary to integrate and absorb the VisionMark operations. As the Company continues to integrate our strategic acquisitions, the focus will be on realizing cost synergies from the consolidation and streamlining of the manufacturing and distribution operations.

Operating Expenses

Selling, General, and Administrative – S,G&A costs for the six months ended June 30, 2022, increased to $7,132,441 as compared to $4,299,999 for the six months ended June 30, 2021. This increase of $2,832,442 was driven primarily by the expansion of both the Disinfection segment, with the additional acquisitions of KES and SciAir, and the Hospitality segment, with the addition of the VisionMark acquisition, and Corporate segment expenses due to increased consulting, legal, accounting, and infrastructure costs related to the initial integration of the operations of our strategic acquisitions. We anticipate efficiency gains in ~~professional fees.~~the coming year as we fully integrate our acquisitions and leverage synergies where practical.

Loss on Impairment of Goodwill - The Company determined that a triggering event had occurred as a result of a settlement agreement with Scientific Air (“Old SAM Partners”) - see explanation of Other Income/Expense below. A quantitative impairment test on the goodwill determined that the fair value was below the carrying value and as a result the Company recorded a full goodwill impairment charge of $1,138,203 on the Condensed Consolidated Statements of Operations during the six months ended June 30, 2022.

Other Income/Expense

On March 31, 2022, there was a dispute between the Company and Scientific Air (“Old SAM Partners”) regarding certain representations and warranties in the purchase agreement which resulted in a settlement and mutual release agreement where Old Sam Partners agreed to relinquish such Partner’s right, title, and interest in the previously issued 400,000 shares that were part of the original asset acquisition transaction. The Company recorded a loss on change in fair market value of contingent consideration of $240,000, and as a result of the settlement, the company recorded a gain on settlement of $1,700,000 during the six months ended June 30, 2022.

Net Loss

The Company recorded a net loss of $4,538,527 for the six months ended June 30, 2022, compared to a net loss of $3,171,182 for the six months ended June 30, 2021. The increase of $1,367,345 in the net loss was mainly due to the increase is S,G&A costs incurred in support of the business acquisitions and expansion of both the Disinfection and Hospitality segments.

Liquidity and Capital Resources

~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2022 Compared to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2021

Net Cash Used in Operating Activities	$	(5,712,231	)	$	(3,398,543	)
Net Cash Used in Investing Activities		(26,735	)		(1,274,728	)
Net Cash Provided by (Used In) Financing Activities		214,321			(67,101	)
Net decrease in cash and cash equivalents		(5,524,645	)		(4,740,372	)
Cash and equivalents at beginning of period		8,768,156			11,757,930
Cash and equivalents at end of period		3,243,511			7,017,558

Net Cash Provided by (Used in) Operating Activities $ (126,749 ) $ 542,335
Net Cash Provided by (Used in) Investing Activities (154,058 ) (10,826 )
Net Cash Provided by (Used in) Financing Activities 5,148,312 (496,524 )
Net increase in cash and cash equivalents and restricted cash 4,867,505 34,985
Cash and cash equivalents at beginning of year 1,029,936 793,766
Cash and cash equivalents at end of year 5,897,441 828,751

~~For~~In the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2022, net cash used in operating activities was ($~~126,749)~~5,712,231), as compared ~~with~~to ($3,398,543) in the six months ended June 30, 2021. The increase in net cash ~~provided by operating activities of $542,335~~used was due mainly to the increase in net loss to ($4,538,527) for the ~~nine~~six months ended ~~September~~June 30, ~~2019. Our operating cash inflows include cash received primarily from sales~~2022, as compared to a net loss of ~~our product and collections of our accounts receivable. These cash inflows are offset~~($3,171,182) for the six months ended June 30, 2021. Working capital was largely impacted by ~~cash paid primarily~~an increase in inventory for the six months ended June 30,2022 as the Company prepares to ~~our suppliers for production materials and parts used in our manufacturing process, operation expenses, and employee compensation. The major operating activities that reduced cash~~launch targeted marketing initiatives in the ~~nine~~2^nd half of 2022 and has secured parts in advance of production to mitigate supply chain disruptions.

In the six months ended ~~September~~June 30, 2020 was a decrease of accounts payable and accrued expenses of $152,864, increase in prepaid expenses of $22,398, and a decrease of deferred revenue of $498,364. The major operating activity that provided cash for the nine months ended September 30, 2020 was from a decrease of accounts receivable of $1,443,706.

~~In the nine months ended September 30, 2020 ,~~2022, net cash used in investing activities ~~was~~decreased to ($~~154,058)~~26,735) as compared to ~~cash used in investing activities of~~ ($~~10,826)~~1,274,728) in the ~~nine~~six months ended ~~September~~June 30, ~~2019. The increase in~~2021, primarily due to net cash ~~used was mainly attributable~~paid for the acquisition of Akida on February 8, 2021 ($760,293), and a loan made to ~~purchases of machinery and equipment to improve our domestic facility.~~a related party on February 17, 2021 ($500,000) (see Note 10).

In the ~~nine~~six months ended ~~September~~June 30, ~~2020 ,~~2022, cash provided by financing activities was ~~$5,148,312,~~$214,321, as compared to cash used in financing activities of ~~($496,524)~~(67,101) in the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~ 2021, primarily due to the full exercise of the common stock offering over-allotment, which was $1.092,000 net, offset by dividends to preferred shareholders of ($724,500).

The ~~major financing activities that provided cash~~Company believes our sources of liquidity and capital will be sufficient to finance our continued operations and growth strategy. On July 1, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission to register and aggregate $50,000,000 of securities which may be issued in ~~nine months ended September 30, 2020 were proceeds received from~~ the ~~application~~form of ~~a payroll protection plan loan and proceeds received from~~common stock, preferred stock, warrants, debt securities, rights or units. Such securities will be offered pursuant to the ~~equity offering that occurred during~~base prospectus contained in the ~~quarter.~~

~~Working Capital.~~ We had a working capital of $5,400,756 at September 30, 2020, an increase of $4,672,064 from a working capital of $728,692 as of December 31, 2019. The increase in working capital is attributable from an increase in cash of $4,867,505, an increase of inventory of $90,212, a decrease of deferred revenue of $498,364shelf registration statement and a ~~decrease~~prospectus supplement that will be prepared and filed at the time of ~~accounts payable~~any offering. Also, included in the registration statement was a second prospectus which provides for the issuance of $9,000,000 of the Company’s common stock in at-the-market transactions pursuant to an equity distribution agreement dated July 1, 2022 between the Company and ~~accrued expenses of $725,665 offset by a decrease in accounts receivable of $1,493,706, and an increase of payroll protection plan loan of $296,827.~~Maxim Group LLC, as sales agent. The shelf registration statement will expire on July 12, 2025.

Contractual Obligations and Other Commitments

	Payment due by period
	Total		2022		2023-2025		2026-2027		Thereafter
Financing lease obligations	$	4,178	$	4,178	$	—	$	—	$	—
Operating lease obligations (1)		1,598,343		89,698		1,333,745		174,900		—
Notes payable (2)		157,500		97,500		60,000		—		—
Assumed lease liability (3)		1,024,890		186,348		838,542		—		—
Total	$	2,785,911	$	377,724	$	2,232,287	$	174,900	$	—

(1)

The Company entered into a lease agreement in Mount Vernon, New York for a term that commenced on April 1, 2019 and expires on the 31st day of March 2024 at a monthly rate of $15,000. On July 1, 2021, the Company obtained additional lease space and rent expense was increased to $27,500 per month through July 1, 2024 and $29,150 per month from Jul 1, 2024 through July 1, 2026. On September 28, 2021, the Company entered into a lease agreement in Kennesaw, Georgia for a term that commenced on September 29, 2021 and will expire on October 1, 2024, with a monthly rate of $14,729 for this first 12 months, $15,171 from months 13-24, and $15,626 from months 25-36.

(2)

In March 2020, as part of the On-Deck Capital settlement, the Company issued a promissory note for the principal amount of $157,500 due within the next 5 years. The Company is required to pay $157,500 in five payments in the amount of $30,000 per year, with an additional $7,500 in year two.

(3)

In connection with the VisionMark LLC acquisition, the Company is obligated to repay $31,057 of prior lease payments per month for the next 36 months commencing on April 1, 2022.

Payment due by period
Total 2020 2021-2023 2024-2025 Thereafter
Capital lease obligations (1) $ 17,261 1,212 7,280 7,280 1,489
Operation lease obligations 515,000 72,800 160,800 160,800 120,600
Notes payable (2) 120,000 30,000 30,000 30,000 30,000
Total 652,261 104,012 198,080 198,080 152,089

~~(1) The Company entered into a lease agreement in Mount Vernon, New York for a term that commenced on April 1, 2019 and expires on the 31st day of March 2024 at a monthly rate of $13,400.~~

(2) In March 2020, as part of the On-Deck Capital settlement, the Company issued a promissory note for the principal amount of $157,500 due within the next 5 years. The Company is required to pay $157,500 in five payments in the amount of $30,000 per year, with an additional $7,500 in year two. In June of 2020, the Company made its first required payment in the amount of $37,500.

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.

~~Critical Accounting Policies~~

The following discussion relates to critical accounting policies for our company. The preparation of financial statements in conformity with GAAP requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:

~~Revenue and Cost Recognition.~~ On January 1, 2018, the Company adopted accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments using the modified retrospective method for all customer contracts not yet completed as of the adoption date. The adoption of ASC 606 did not have a significant impact on our Consolidated Financial Statements.

The Company recognizes revenue when the performance obligations in the client contract has been achieved. A performance obligation is a contractual promise to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Under ASC 606, revenue is recognized when a customer obtains control of promised services in an amount that reflects the consideration we expect to receive in exchange for those services. To achieve this core principal, the Company applies the following five steps:

1) ~~Identify the contract with a customer.~~ A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

2) ~~Identify the performance obligations in the contract.~~ Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation. The Company promises to design, manufacture and sell custom mirrors through contractual arrangements. It was determined that most services within a contract are substantially the same and have the same pattern of transfer to the customer over the term of the agreement and are therefore highly interdependent upon each other. As such, the Company determined that the services within a contract are not separately identifiable in the context of the contract and should therefore be bundled into a single performance obligation.

3) ~~Determine the transaction price.~~ The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. We evaluate whether a significant financing component exists when we recognize revenue in advance of customer payments that occur over time. We do not adjust the transaction price for the effects of financing if, at contract inception, the period between the transfer of control to a customer and final payment is expected to be one year or less. The Company establishes pricing for contracts with customers based on a fixed price for a fixed fee. Contracts do not provide for a discount or refund to customers and historically, no discounts or refunds have been given.

4) ~~Allocate the transaction price to performance obligations in the contract.~~ If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price based on management’s judgment. The identified promises are considered to be bundled in arriving at the overall promise within the contract. This promise therefore results in one performance obligation, to design, manufacture and sell custom mirrors to our customer, therefore, allocation of the transaction price is not necessary.

5) ~~Recognize revenue when or as the Company satisfies a performance obligation.~~ Revenue is comprised of projects that are completed within our own facility or from a third-party vendor (Direct Sales). For projects that are completed within our own facility, the Company satisfies performance obligations at over time. For projects that are completed from a third-party vendor, the performance obligation is recognized at a point in time.

For projects that are completed within our own facility, we design, manufacture and sell custom mirrors for hotels and hospitals through contractual agreements. These sales require us to deliver our products within three to six months from commencement of order acceptance. We recognize revenue over time by using the input method based on costs incurred as it depicts our progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations. Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process as required by the project’s engineering design. Cost based input methods of revenue recognition require us to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known and can be reasonably estimated. Deferred Revenue represents amounts billed in excess of revenues and profits recognized. Revenues and profits recognized in excess of amounts billed typically does not occur as we will not perform any work in excess of the amount we bill to our customers.

Each product or service delivered to a third-party customer that is manufactured by a third-party vendor is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. These sales are shipped from the manufacturer to the customer without our taking physical inventory possession. We report direct sales on a gross basis, that is, the amounts billed to our customers are recorded as “Sales,” and inventory purchased from manufacturers are recorded as Cost of Sales. We are the principal of direct sales because we control the inventory before it is transferred to our customers. Our control is evidenced by us being primarily responsible for fulfilling the promise to our customers, taking on inventory risk of returned product, and having discretion in establishing pricing. We typically pay our vendors a portion of the total cost up front and the remaining balance is accrued for and paid within 30-90 days of when the products are shipped from the third-party warehouse. Vendor payments are capitalized until completion of the project and are recorded as vendor deposits.

~~Accounts Receivable.~~ Accounts receivables are non-collateralized customer obligations due under normal trade terms generally requiring payment within 30-90 days from the invoice date. The carrying amounts of accounts receivable is reduced by an allowance for doubtful accounts that reflects management’s best estimate of the amounts that will not be collected. The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in its overall allowance for doubtful accounts. Management reviews accounts receivable on a monthly basis to determine if any receivables will be potentially uncollectible. Historical bad debts and current economic trends are used in evaluating the allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, the Company believes an allowance for doubtful accounts of $100,000 and $50,000 as of September 30, 2020 and December 31, 2019, respectively is adequate.

~~Inventory.~~ Inventories are valued at the lower of cost or net realizable value using the first-in, first-out method. Inventory is comprised of raw materials that are purchased on the initial start date of a specific project and are capitalized using the percentage of completion method of accounting. We amortize these costs to the associated contract proportion with our percentage of completion on the contract, calculated using a cost-based input method. Capitalized costs are considered impaired when the net contract cost asset plus future costs to complete the contract are less than the remaining revenue to be recognized under the contract. When capitalized costs are impaired, we record a charge to the impairment, impairment charges cannot be reversed. As of September 30, 2020 and December 31, 2019 no impairment charges were recorded and management has determined that an excess and obsolete reserve is not required.

~~Property and Equipment.~~ Property and equipment are recorded at cost. Depreciation of furniture and fixtures is provided using the straight-line method, generally over the terms of the lease. Repairs and maintenance expenditures, which do not extend the useful lives of the related assets, are expensed as incurred. Depreciation of machinery and equipment is based on the estimated useful lives of the assets. Machinery and equipment have an estimated useful life of the lesser of term of lease or useful life. Furnitures and fixtures are based the estimated useful life of 7 years.

An asset is disposed of or retired when no future economic benefits are expected to arise from continued use of the asset. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset.

~~Fair Value of Financial Instruments.~~ ~~The Company records the fair value of assets and liabilities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820,~~ ~~Fair Value Measurement~~. FASB ASC 820 establishes a framework for measuring fair value under accounting principles generally accepted in the United States. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. the three levels of the fair value hierarchy under FASB ASC 820 are as follows:

~~- Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.~~

~~- Level 2 - Valuations based generally on observable inputs for similar assets and liabilities, or identical or similar assets and liabilities in inactive markets.~~

- Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Valuation techniques could include the use of discounted cash flow models and other similar techniques

The carrying amounts reported in the consolidated balance sheets as of September 30, 2020 and December 31, 2019 for cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair value due to the immediate or short-term maturity of these financial instruments. The fair value of capital lease obligations approximates their carrying value because these financial instruments bear interest at rates that approximate current market rates for loans with similar maturities and credit quality.

~~Recent Accounting Pronouncements~~

~~Recently Adopted.~~ In February 2016, FASB, issued in Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize right-of-use, or ROU, assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. We adopted ASC 842 on January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach did not require any transition accounting for leases that expired before the earliest comparative period presented. The adoption of this standard resulted in the recording of ROU assets and lease liabilities for all our lease agreements with original terms of greater than one year. The adoption of ASC 842 did not have a significant impact on our statements of income or cash flows.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718, Compensation — Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Under the new standard, most of the guidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. This standard became effective for our company on January 1, 2019. The adoption of this standard did not have a material impact on our financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies and adds various disclosure requirements related to fair value disclosures. Disclosures related to transfers between fair value hierarchy levels will be removed and further detail around changes in unrealized gains and losses for the period and unobservable inputs used in determining level 3 fair value measurements will be added, among other changes. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The adoption of this standard did not have a material impact on our financial statements.

~~We currently believe that all other issued and not yet effective accounting standards are not relevant to our financial statements.~~

~~Recent Developments~~

~~Acquisition of SteriLumen and Munn Works.~~ The Company acquired all of the issued and outstanding common shares of SteriLumen pursuant to an Exchange Agreement dated March 26, 2019 among the Company, SteriLumen and the shareholders of SteriLumen in which the SteriLumen shareholders exchanged their SteriLumen common shares for 201,252 shares of Company common stock, of which Laurie Munn, the spouse of our President and a director of the Company received 200,000 shares. The Company acquired all of the issued and outstanding preferred shares of SteriLumen pursuant to an Exchange Agreement dated March 27, 2019 among the Company, SteriLumen and Laurie Munn in which Ms. Munn exchanged all of her SteriLumen Series A preferred shares for 1,800,000 shares of Company common stock and 2,000 shares of Company Series A preferred stock. Upon consummation of this exchange the Company owned 100% of the capital shares of SteriLumen. The Company acquired all of the membership interests in Munn Works pursuant to an Exchange Agreement dated July 1, 2019 among the Company, Munn Works and Laurie Munn in which Laurie Munn exchange her membership interests in Munn Works for 600,000 shares of Company common stock. All of the equity in the Company owned by Laurie Munn has been transferred to The Munn Family 2020 Irrevocable Trust, of which Laurie Munn is the trustee.

~~Effects of Coronavirus Outbreak.~~ In December 2019, a novel strain of Coronavirus was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countries and every state in the United States. On January 30, 2020, the World Health Organization declared the outbreak of COVID-19 a “Public Health Emergency of International Concern.” On March 11, 2020, the World Health Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency.

Most states and cities have reacted by instituting quarantines, restrictions on travel, “stay at home” and “social distancing” rules and restrictions on the types of businesses that may continue to operate, as well as guidance in response to the pandemic and the need to contain it. On March 20, 2020, the Governor of New York announced a stay at home order to go into effect on March 22, 2020 that has been extended to at least June 6, 2020, unless regions in the state can meet certain criteria related to the Coronavirus. Pursuant to this order, non-essential businesses were forced to close. However, as of the date of this prospectus, our Mount Vernon office is open with most of our employees working from home.

We have taken steps to take care of our employees, including providing the ability for employees to work remotely and implementing strategies to support appropriate social distancing techniques for those employees who are not able to work remotely. We have also taken precautions with regard to employee, facility and office hygiene as well as implementing significant travel restrictions. We are also assessing our business continuity plans for all business units in the context of the pandemic. This is a rapidly evolving situation, and we will continue to monitor and mitigate developments affecting our workforce, our suppliers, our customers, and the public at large to the extent we are able to do so. We have and will continue to carefully review all rules, regulations, and orders and responding accordingly.

We are dependent upon suppliers to provide us with all of the raw materials for products that we manufacture and sell and we are currently dependent on out-sourced manufactures in China to manufacture the SteriLumen Disinfecting System. The pandemic has impacted and may continue to impact suppliers of materials for and manufacturers of certain of our products. As a result, we have faced and may continue to face delays or difficulty manufacturing certain products, which could negatively affect our business and financial results. Even if we are able to find alternate sources for materials and manufacturing, they may cost more, which could adversely impact our profitability and financial condition.

If the current pace of the pandemic cannot be slowed and the spread of the virus is not contained, our business operations could be further delayed or interrupted. We expect that government and health authorities may announce new or extend existing restrictions, which could require us to make further adjustments to our operations in order to comply with any such restrictions. We may also experience limitations in employee resources. In addition, our operations could be disrupted if any of our employees were suspected of having the virus, which could require quarantine of some or all such employees or closure of our facilities for disinfection. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs.

Although it is difficult to predict the effect and ultimate impact of the Coronavirus outbreak on our business, it is likely that the impact of Coronavirus will adversely affect our results of operations, financial condition and cash flows in fiscal year 2020. See “Risk Factors—Our Business and Operations—Effect of the Coronavirus pandemic.”

~~Applied UV, Inc. 2020 Omnibus Incentive Plan.~~ On May 4, 2020, we adopted the Plan. Under the Plan, the Company may grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and other awards. Awards of up to 600,000 shares of common stock to Company employees, officers, directors, consultants and advisors are available under the Plan. The type of grant, vesting provisions, exercise price and expiration dates are to be established by the Board at the date of grant.

~~Board Options.~~ On February 18, 2020, the Board approved the grant to each member of the Board, on a quarterly basis, of options to purchase 500 shares of the Company’s common stock at an exercise price equal to the greater of $2.50 and the market value per share of the Company’s common stock on the date of the grant. Market value will be determined by an independent valuation company engaged by the Company; provided, however if on the date of grant the Company common stock is listed on a national exchange or quoted on an established quotation system, then market value shall equal the closing price of the Company common stock listed on such exchange or quoted on such quotation system on the trading day immediately prior to the date of the grant. On April 1, 2020, we issued options to purchase 2,000 shares of Company common stock to the Board, of which 1,250 have been cancelled. The options are subject to equal quarterly vesting over a one-year period. On July 1, 2020 we issued an additional 1,000 options to certain Board members. To date 375 of these options have vested. On July 9, 2020, the Board cancelled any further issuance of these quarterly option grants.

~~Mount Sinai Agreement~~. On April 20, 2020, SteriLumen entered into the Mount Sinai Agreement pursuant to which Mount Sinai has agreed to conduct a study of the effectiveness of the SteriLumen Disinfecting System in 17 patient bathrooms at Mount Sinai St. Luke’s Hospital in New York, NY. SteriLumen will be responsible for funding the direct and indirect costs of Mount Sinai’s research in the amount of $160,000 plus all of the cost of microbiological testing. To the extent any intellectual property resulting from the research is conceived by Mount Sinai it will be the intellectual property of Mount Sinai and to the extent it is conceived by SteriLumen it will be the intellectual property of SteriLumen. SteriLumen has a 60-day exclusive option to negotiate a license for Mount Sinai’s resulting patent rights if such patent was obtained at SteriLumen’s request and SteriLumen has paid for all the costs in obtaining the patent. If the results of the study contained in Mount Sinai’s final report are used by SteriLumen in a successful regulatory filing or a successful fundraising effort, the Sponsor will be obligated to pay Mount Sinai a fee of $30,000.

~~Second ResInnova Report~~. In April 2020, the Company submitted the SteriLumen Disinfecting System to ResInnova for testing on its effectiveness in killing the Coronavirus. ResInnova tested the SteriLumen mirror and drain product lines against OC43. In a Report dated June 30, 2020, ResInnova found the SteriLumen mirror and drain to be greater than 97% and 99.99%, respectively, effective in killing the OC43 human coronavirus in the bathroom sink area. According to ResInnova, it is expected that the Coronavirus will be killed in a similar manner to OC43 since they both are in the Beta genre of coronaviruses. See “Business—Second ResInnova Report” and “Risk Factors—Certain ResInnova Testing Limitations.”

~~Paycheck Protection Program Loan.~~ On May 4, 2020, Munn Works received $296,287 in net proceeds from a PPP Loan from JP Morgan Chase Bank under the PPP, which was established under the CARES Act and administered by the U.S. Small Business Administration. The proceeds from the PPP Loan will be used in accordance with the terms of the CARES Act program, as described further below.

The term of the PPP Loan is two years with an interest rate of 1.00% per annum, which shall be deferred for the first six months of the term of the loan. Pursuant to the terms of the CARES Act, the proceeds of the PPP Loan may be used for payroll costs, mortgage interest, rent or utility costs for up to an 8-week period after loan origination. Under the terms of the CARES Act, Munn Works can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act, as described above, during the 8-week period after loan origination and the maintenance or achievement of certain employee levels. No assurance is provided that Munn Works will obtain forgiveness under the PPP Loan in whole or in part.

~~Reverse Stock Splits.~~ On June 17, 2020 and June 23, 2020, the Company effected a 1 for 5 reverse stock split of its issued and outstanding Common Stock and effected a 1 for 5 reverse stock split of its issued and outstanding preferred stock, respectively (each a “Reverse Stock Split”) by filing on each date an amendment of the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. No fractional shares were issued as a result of a Reverse Stock Split. Any fractional shares that would have resulted from a Reverse Stock Split were rounded up to the nearest whole share. The authorized common stock and preferred stock of the Company was not impacted by the Reverse Stock Splits. Immediately following the Reverse Stock Splits, the Company had outstanding 5,103,319 shares of Common Stock and 2,000 shares of preferred stock. The Company has retrospectively adjusted the 2018, 2019 financial statements for profit per share and share amounts as a result of the reverse stock splits.

~~Appointment of Executive Officers~~. ~~On June 30, 2020, the Company entered into employment agreements and appointed the Company’s Chief Executive Officer and Chief Operations Officer.~~

~~Non-Employee Director Compensation~~. On July 9, 2020, the Board approved a compensation package for non-employee directors of the Board. The compensation for non-employee directors include; (i) for each newly appointed director, a one-time issuance of 10,000 shares of restricted common stock which vests evenly on an annual basis over a four year period beginning on January 1 of the next calendar year from the date of issuance; (ii) the annual issuance of 7,500 shares of restricted common stock to each such director which vests in full on January 1 of the next calendar year from the date of issuance; (iii) quarterly cash payments of $6,250 to each such director, commencing November 1, 2020; (iv) the annual issuance of 10,000 shares of restricted common stock to the Chairman of the Board, which vests in full on January 1 of the next calendar year from the date of issuance and (v) the annual issuance of 5,000 shares of restricted common stock to each chairman of the Audit, Nominating, Compensation and Corporate Governance Committees, which vests in full on January 1 of the next calendar year from the date of issuance.

~~Medical Advisory Board Options.~~ On July 9, 2020, the Board approved the grant to each member of the Medical Advisory Board, on an annual basis, of options to purchase 5,000 shares (10,000 shares to the chairman) of the Company’s common stock at an exercise price of $5.00 per share. The options are subject to equal quarterly vesting over a one-year period. Currently, the Medical Advisory Board consists of two members and does not have a chairman.

~~Initial Public Offering~~. On September 2, 2020 the Company completed its initial public offering of 1,000,000 shares of its common at $5.00 per share and on September 3, 2020, the representative of the underwriters exercised its full overallotment option to purchase an additional 150,000 shares of the Company’s common stock at $5.00 per share. The Company received offering proceeds of $4,889,091 which were net of underwriting discounts and expenses. The Company’s common stock is listed on the Nasdaq Capital Market under the symbol “AUVI.”

~~Public Offering~~. On November 13, 2020 the Company completed its public offering of 1,219,048 shares of its common stock at $5.25 per share and on the same date the underwriter exercised its full overallotment option to purchase an additional 182,857 shares of the Company’s common stock at $5.25 per share. The Company received offering proceeds of $6,575,801.13 which were net of underwriting discounts, fees and expenses.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2022. Based on that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have concluded that as of June 30, 2022, due to the existence of the material weakness in the Company’s internal control over financial reporting described below, the Company’s disclosure controls and procedures were not effective.

Evaluation of Disclosure Controls and Procedures

Our ~~management~~Chief Financial Officer is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our Board, ~~of Directors,~~senior management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with ~~generally accepted accounting principles.~~U.S. GAAP.

The Company maintains “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) and 15d-15(e) of the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We continue to review our internal control over financial reporting and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

~~Our~~Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of ~~the Company’s~~our internal control over financial reporting based on the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the control deficiencies identified during this evaluation and set forth below, our senior management has concluded that ~~our~~we did not maintain effective internal control over financial reporting ~~was not effective at September~~as of June 30, ~~2020 because~~2022 due to the existence of a material weakness in internal control over financial reporting as described below.

As set forth below, management will continue to take steps to remediate the control deficiencies identified below. Notwithstanding the control deficiencies described below, we have performed additional analyses and other procedures to enable management to conclude that our consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our financial condition and results of operations as of and for the three and six months ended June 30, 2022.

A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The Company’s management has developed a remediation plan to address the material ~~weaknesses described below.~~weakness and as of January 1, 2021 began using a new cloud-based software which tracks the progress of jobs and more accurately reflects the percentage of job completeness ensure such revenue is recognized in the appropriate period. In addition, the Company intends to further remediate the deficiency by performing the following:

•

design and implement additional internal controls and policies to ensure that we routinely review and document our application of established significant accounting policies; and

•

implement additional systems and technologies to enhance the timeliness and reliability of financial data within the organization.

•

continue to engage third-party subject matter experts to aid in identifying and applying US GAAP rules related to complex financial instruments as well as to enhance the financial reporting function.

Limitations on Effectiveness of Controls and Procedures

~~There is inadequate segregation~~In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of ~~duties consistent with~~achieving the desired control objectives. Our Company’s management is comprised of a very small number of individuals resulting in a situation where limitations of segregation of duties exist. In order to remedy this situation, we would need to hire additional staff to provide greater segregation of duties. In addition, ~~management has concluded~~the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are ~~ineffective monitoring~~resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls ~~related~~and procedures relative to ~~the~~their costs.

Changes in Internal Control Over Financial Feporting

There have been no changes in internal controls over financial ~~close and~~ reporting ~~process, including management’s risk assessment process and its identification, evaluation, and timely remediation of control deficiencies.~~since December 31, 2021.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

~~None.~~

Item 1A. Risk Factors

The Company is a smaller reporting company and therefore not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

~~On July 1, 2020, the Company issued 127,583 shares of restricted common stock to executive officers of the Company pursuant to employment agreements. Their shares will vest over an 18-month period.~~

Only July 9, 2020, the Company issued 10,000 shares of restricted common stock to each to four newly elected directors. In each case, the shares will evenly vest on an annual basis over a period of four (4) years, with the first vesting to occur on January 1, 2021.

~~On July 9, 2020, the Company issued 37,500 shares of restricted common stock to its non-employee directors, which vest on January 1, 2021.~~

~~On July 9, 2020, the Company issued 10,000 shares of restricted common stock to the Chairman of the Board. The shares will vest on January 1, 2021.~~

On July 9, 2020, Company issued 5,000 shares of restricted common stock to each of the Chairman of the Audit Committee and the Chairman the Compensation Committee. The shares will vest on January 1, 2021.

~~On August 28, 2020, the Company issued 59,727 shares of common stock to Carmel, Milazzo & Feil LLP as part of compensation for legal services.~~

The issuance of the common stock listed above were deemed exempt from registration under Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder in that the issuance of securities were made to an accredited investor and did not involve a public offering. The recipient of such securities represented its intention to acquire the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof.

Item 3. Defaults Upon Senior Securities.

None

~~None~~

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None

~~None~~

Item 6. Exhibits

~~No.~~				Exhibit No.	Description
~~3.1~~1.1	Equity Distribution Agreement, dated July 1, 2022 between the Registrant and Maxim Group LLC (incorporated by reference to Exhibit 1.2 of the Registrant’s Registration Statement on Form S-3 (File No. 333-266015).
3.1			Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.2				Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.3				Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.4				Certificate of Designation, Preferences and Rights of Series A Preferred Stock (incorporated by reference to Exhibit 3.4 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.5				Certificate of Amendment of Certificate of Incorporation filed on June 17, 2020 (incorporated by reference to Exhibit 3.5 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.6				Certificate of Amendment of Certificate of Incorporation filed on June 23, 2020 (incorporated by reference to Exhibit 3.6 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
3.7				Certificate of Amendment of Certificate of Incorporation filed July 14, 2020 (incorporated by reference to Exhibit 3.7 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
~~10.1~~3.8				~~Exchange Agreement, dated March 26, 2019, by and among the Registrant, SteriLumen, Inc. and each~~Certificate of ~~the stockholders~~Amendment to Certificate of ~~SteriLumen, Inc.~~Designation of Series A Preferred Stock, filed on June 17, 2021 (incorporated by reference to Exhibit ~~10.1~~3.1 of the Registrant’s Current Report on Form 8-K, filed on July 19, 2021).
3.9			Certificate of Designation, Preferences and Rights of 10.5% Series A Cumulative Perpetual Preferred Stock (incorporated by reference to Exhibit 3.9 of the Registrant’s Registration Statement on Form S-1 (File No. ~~333-239892)~~333-257197) filed with the SEC as of ~~July 16, 2020)~~June 25, 2021).
~~10.2~~3.10				~~Exchange Agreement, dated March 27, 2019, by~~Certificate of Amendment to the Amended and ~~among the Registrant, SteriLumen, Inc. and Laurie Munn (incorporated by reference to Exhibit 10.2~~Restated Certificate of ~~the Registrant’s Registration Statement~~Incorporation, filed on ~~Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).~~October 7, 2021
~~10.3~~3.11				~~Exchange Agreement, dated July 1, 2019, by and among~~Certificate of Amendment to the ~~Registrant, Munn Works, LLC and Laurie Munn (incorporated by reference to Exhibit 10.3~~Certificate of ~~the Registrant’s Registration Statement~~Designation of Series A Preferred Stock, filed on ~~Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).~~December 8, 2021
~~10.4~~10.1				Warrant, dated April 1, 2020 issued to Max Munn (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
~~10.5~~10.2				~~the~~The Registrant’s 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.5 of the Registrant’s Registration Statement on Form S-1 (333-239892) filed with the SEC as of July 16, 2020).
~~10.6~~10.3				Form of Option Agreement and Grant issued under February 18, 2020 Board Approval (incorporated by reference to Exhibit 10.6 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
~~10.7~~10.4				Agreement, dated April 20, 2020 ~~by and~~ between Icahn School of Medicine at Mount Sinai and SteriLumen, Inc. (incorporated by reference to Exhibit 10.7 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
~~10.8~~		Employment Agreement, dated June 30, 2020, by and between the Registrant and Keyoumars Saeed (incorporated by reference to Exhibit 10.8 of the Registrant’s Registration Statement on Form S-1 (File no. 333-239892) filed with the SEC as of July 16, 2020).

~~10.9~~		Employment Agreement, dated June 30, 2020, by and between the Registrant and James L. Doyle III (incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
~~10.10~~			10.5	Common Stock Purchase Warrant, dated July 1, 2020 (incorporated by reference to Exhibit 10.10 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
~~10.11~~		Common Stock Purchase Warrant, dated July 1, 2020 (incorporated by reference to Exhibit 10.11 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
~~10.12~~		Form of Option issued to Medical Advisory Board members (incorporated by reference to Exhibit 10.12 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
~~10.13~~			10.6	~~CFO Consulting Agreement, dated July 15, 2020, by and between the Registrant and Joseph Himy~~Employment Offer to Michael Riccio (incorporated by reference to Exhibit ~~10.13~~10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC as of April 20, 2021).
10.7			Employment Agreement, dated June 30, 2020 between the Registrant and Max Munn (incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1 (File No. 333-239892) filed with the SEC as of July 16, 2020).
~~21.1~~10.8				~~List of subsidiaries of~~Employment Agreement, dated April 11, 2022 between the Registrant and John F. Andrews (incorporated by reference to Exhibit ~~21.1 of~~10.1 the Registrant’s ~~Registration Statement~~Current Report on Form ~~S-1 (File No. 333-239892)~~8-K filed with the SEC on April 8, 2022)
10.9	Sublease, dated as of ~~July 16, 2020)~~March 29, 2022 between VisionMark, LLC, Munn Works, LLC and Randolph Associates and Randolph Associates (incorporated by reference to Exhibit 10.1 the Registrant’s Current Report on Form 8-K filed with the SEC on March 31, 2022).
~~31.1~~10.10	Guaranty of Sublease dated as of March 29, 2022 made by Applied UV, Inc. in favor of VisionMark, LLC (incorporated by reference to Exhibit 10.2 the Registrant’s Current Report on Form 8-K filed with the SEC on March 31, 2022).
31.1			Certification of the ~~Chief~~Principal Executive Officer pursuant to ~~Section 302 of the Sarbanes-Oxley Act of 2002~~ Rule 13a-14(a)
31.2				Certification of ~~the~~ Principal Financial Officer pursuant to ~~Section 302 of the Sarbanes-Oxley Act of 2002 .~~Rule 13a-14(a)
32.1				Certification ~~by the Chief~~of Principal Executive Officer ~~pursuant~~Pursuant to 18 U.S.C. Section 1350, as ~~adopted pursuant~~Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.
32.2				Certification of Principal Financial Officer ~~pursuant~~Pursuant to 18 U.S.C. Section 1350, as ~~adopted pursuant~~Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.
104			Cover Page Interactive Data File (embedded within the Inline XBRL document)

*XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	APPLIED UV, INC.
	(Registrant)

Date:August 15, 2022	By:	/s/ John Andrews
		John Andrews
		Chief Executive Officer

Date: August 15, 2022	By:	/s/ Michael Riccio
		Michael Riccio
		Chief Financial Officer

	~~APPLIED UV, INC.~~
	~~(Registrant)~~
	40
~~Date: November 16, 2020~~	~~By:~~	~~/s/ Keyoumars Saeed~~
		~~Keyoumars Saeed~~
		~~Chief Executive Officer~~

~~Date: November 16, 2020~~	~~By:~~	~~/s/ Joseph Himy~~
		~~Joseph Himy~~
		~~Interim Chief Financial Officer~~

Delaware		84-4373308
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

Large accelerated filer	¨☐	Accelerated filer	¨☐
Non-accelerated ~~filer~~Filer	x☐
Smaller reporting company	x☒	Emerging Growth Company	x☒

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	AUVI	The Nasdaq Stock Market LLC
10.5% Series A Cumulative Perpetual Preferred Stock, $0.0001 par value per share	AUVIP	The Nasdaq Stock Market LLC

		Page #
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
~~Item 1.~~	~~Financial Statements~~

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2020 (unaudited)~~2022 and December 31, ~~2019~~2021		1	3

	Condensed Interim Consolidated Statements of Operations for the Three and ~~Nine months~~Six Months Ended ~~September~~June 30, ~~2020~~2022 and ~~2019 (unaudited)~~2021		2	4

	Condensed Consolidated Statements of Stockholders’ Equity for the ~~Nine months~~Three and Six Months Ended ~~September~~June 30, ~~2020~~2022 and ~~2019 (unaudited)~~2021		3	5

	Condensed Interim Consolidated Statements of Cash Flows for the ~~Nine~~Six months Ended ~~September~~June 30, ~~2020~~2022 and ~~2019 (unaudited)~~2021		4	6

	Notes to Condensed Consolidated Financial Statements		5	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		21	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		36	37

Item 4.	Controls and Procedures		36	37

PART II - OTHER INFORMATION
Item 1. Legal Proceedings			39
Item 1.1A. Risk Factors	~~Legal Proceedings~~		37	39

~~Item 1A.~~	~~Risk Factors~~		37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3. Defaults Upon Senior Securities	3739
Item 4. Mine Safety Disclosures	39
Item 5.Other Information	39
Item 6. Exhibits	39
Signatures	40

	September 30, 2020		December 31, 2019
	(Unaudited)
Assets
Current Assets
Cash	$	5,897,441	$	1,029,936
Vendor deposit		146,278		104,517
Accounts receivable, net of allowance for doubtful accounts		734,086		2,227,792
Inventory		189,755		99,543
Loan to shareholder		-		4,225
Prepaid expense and other current assets		44,000		30,639
Total Current Assets		7,011,560		3,496,652

Machinery and equipment, net of accumulated depreciation		120,536		34,371
Right of use asset		515,324		614,522
Other assets		114,458		623,842

Total Assets	$	7,761,878	$	4,769,387

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses	$	513,156	$	1,238,822
Income tax payable		106,861		106,861
Capital lease obligations-current portion		6,380		6,380
Lease liability-current		138,173		133,097
Payroll protection plan loan		69,297		-
Notes payable		30,000		37,500
Deferred revenue		746,936		1,245,300
Total Current Liabilities		1,610,803		2,767,960

Long-term Liabilities
Capital lease obligations - less current portion		10,881		15,212
Note payable-less current portion		90,000		120,000
Lease liability-less current portion		377,151		481,425
Payroll protection plan loan		227,530		-

Total Long-Term Liabilities		705,562		616,637

Total Liabilities		2,316,365		3,384,597

Stockholders' Equity
Common stock $.0001 par value, 150,000,000 shares authorized; 6,334,308 shares issued and outstanding, respectively as of September 30, 2020 and 5,001,250 shares issued and outstanding as of December 31, 2019		633		500
Series A voting preferred stock $.0001 par value, 1,000,000 shares authorized; 2,000 shares issued and outstanding		1		1
Additional paid-in capital		5,270,288		-
Retained earnings		174,591		1,384,289

Total Stockholders' Equity		5,445,513		1,384,790

Total Liabilities and Stockholders' Equity	$	7,761,878	$	4,769,387

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
Net Sales	$	1,560,633		$	2,775,848	$	4,493,061		$	6,379,259
				��
Cost of Goods Sold		1,482,455			1,600,287		3,825,037			4,315,095

Gross Profit		78,178			1,175,561		668,024			2,064,164

Operating Expenses
Research and development		48,037			-		65,037			-
Stock based compensation		279,707			-		381,314			-
Selling. General and Administrative Expenses		645,401			740,038		1,443,276			1,377,104
Total Operating Expenses		973,145			740,038		1,889,627			1,377,104

Operating (Loss) Income		(894,967	)		435,523		(1,221,603	)		687,060

Other Income
Gain on settlement		-			-		-			1,520,398
Other Income		235			850		11,905			850
Total Other Income		235			850		11,905			1,521,248

(Loss) Income Before Provision for Income Taxes		(894,732	)		436,373		(1,209,698	)		2,208,308

Provision for Income Taxes		-			-		-			63,259

Net (Loss) Income		(894,732	)		436,373		(1,209,698	)		2,145,049

Basic and Diluted (Loss) Earnings Per Common Share	$	(0.14	)	$	0.09	$	(0.19	)	$	0.43

	Preferred Stock								Additional					Total
	Series A Voting				Common Stock				Paid-In		Retained			Stockholders
	Shares		Amount		Shares		Amount		Capital		Earnings			Equity
Balance, January 1, 2019		2,000	$	1		5,001,250	$	500	$	-	$	(1,417,117	)	$	(1,416,616	)

Net income		-		-		-		-		-		2,145,049			2,145,049

Balance, September 30, 2019		2,000	$	1		5,001,250	$	500	$	-	$	727,932		$	728,433

Balance, January 1, 2020		2,000	$	1		5,001,250	$	500	$	-	$	1,384,289		$	1,384,790

Common stock issued in public offering, net of costs		-		-		1,150,000		115		4,080,006		-			4,080,121

Shares issued to Carmel, Milazzo & Feil LLP		-		-		161,794		16		808,970		-			808,986

Stock-based compensation		-		-		21,264		2		381,312		-			381,314

Net loss		-		-		-		-		-		(1,209,698	)		(1,209,698	)

Balance, September 30, 2020		2,000	$	1		6,334,308	$	633	$	5,270,288	$	174,591		$	5,445,513

	For the Nine Months Ended September 30,
	2020			2019
Cash flows from Operating Activities
Net (Loss) Income	$	(1,209,698	)	$	2,145,049
Adjustments to Reconcile Net (Loss) Income to Net Cash (Used In) Provided by Operating Activities
Stock based compensation		381,314			85,000
Bad debt expense		50,000			-
Gain on settlement		-			(1,520,399	)
Depreciation and amortization		13,528			6,519
Changes in Assets and Liabilities
Decrease (Increase) in accounts receivable		1,443,706			(660,436	)
(Increase) in inventories		(90,212	)		(50,189	)
(Increase) in vendor deposits		(41,761	)		(190,234	)
(Increase) in prepaid expenses		(22,398	)		(79,947	)
Increase in income taxes payable		-			63,259
(Decrease) increase in accounts payable and accrued expenses		(152,864	)		(63,670	)
(Decrease) Increase in deferred revenue		(498,364	)		809,556
Total Adjustments		1,082,949			(1,600,541	)
Net Cash (Used in) Provided by Operating Activities		(126,749	)		544,508

Cash Flows From Investing Activities
Purchase of machinery and equipment		(98,244	)		(12,999	)
Cash paid for patent costs		(55,814	)		-
Net Cash Used in Investing Activities		(154,058	)		(12,999	)

Cash Flows From Financing Activities
Payments on capital leases		(4,331	)		-
(Decrease) in liabilities subject to compromise		-			(531,511	)
Loan from officer		4,225			117,987
Payments on loans payable		(37,500	)		(83,000	)
Proceeds for equity raise, net		4,889,091			-
Proceeds from payroll protection plan loan		296,827			-
Net Cash Provided by (Used In) Financing Activities		5,148,312			(496,524	)

Net Increase in Cash and equivalents		4,867,505			34,985
Cash and equivalents at January 1,		1,029,936			793,766
Cash and equivalents at September 30,	$	5,897,441		$	828,751

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	1,204		$	9,146
Supplemental Non-Cash Items
Reclassification from liabilities to be settled in stock to additional paid in capital for shares granted during the period	$	808,986		$	-

2020	$	2,949
2021		7,280
2022		7,280
2023		1,489
Less: Amount representing interest		(1,737	)
Present value of future minimum lease payments		17,261
Less: current portion		(6,380	)
	$	10,881

As of September 30,
2021	$	30,000
2022		30,000
2023		30,000
2024		30,000
	$	120,000

	Number of Shares			Option Price Per Share		Weighted-Average Exercise Price
Options Outstanding at January 1, 2020		-		$	-	$	-
Granted		12,500		$	5.00	$	5.00
Expired/cancelled		(750	)

Options Outstanding, September 30, 2020		11,750		$	5.00	$	5.00

Options exercisable, September 30, 2020		375		$	5.00	$	5.00

2021	$	160,800
2022		160,800
2023		160,800
2024		93,800
Total lease payments		576,200
Less: Imputed Interest		(60,876	)
Present value of future minimum lease payments	$	515,324

Costs incurred on contracts in progress	$	498,190		$	240,732
Estimated net earnings thereon		541,728			42,403
Total costs and estimated earnings		1,039,918			283,135

Billings to date		(1,407,925	)		(1,127,466	)
Net overbilled	$	(368,007	)	$	(844,331	)

Contract Assets	$	-		$	-
Contract Liabilities (Deferred Revenue)		(368,007	)		(844,331	)
	$	(368,007	)	$	(844,331	)

~~Delaware~~		~~84-4373308~~

	2018
Accounts payable and accrued expenses- pre-petition	$	492,014
Notes payable- pre-petition		370,390
Expectation damages accrual- APF Management		1,474,505
Total	$	2,336,909

Twelve months ending September 30,
2021	$	69,927
2022		69,927
2023		69,927
2024		69,927
2025		17,119
	$	296,827

	Nine Months Ended September 30, 2020					Nine Months Ended September 30, 2019
Net Sales	$	4,493,061				$	6,379,259
Cost of Goods Sold		3,825,037		85.1	%		4,315,095	67.6	%
Gross Profit		668,024		14.9	%		2,064,164	32.4	%

Stock based compensation		381,314		8.5	%		-	0.0	%
Research and development		65,037		1.7	%		-	0.0	%
Selling. General and Administrative Expenses		1,443,276		32.1	%		1,377,104	21.6	%
Total Operating expenses		1,889,627		42.1	%		1,377,104	21.6	%
Operating Income (Loss)		(1,221,603	)	-27.2	%		687,060	10.8	%
Other Income (Expense)
Gain on settlement		-		0.0	%		1,520,398	23.8	%
Other income		11,905		0.3	%		850	0.0	%
Total Other Expense		11,905		0.3	%		1,521,248	23.8	%
Income (Loss) Before Provision for Income Taxes		(1,209,698	)	-26.9	%		2,208,308	34.6	%
Provision for Income Taxes	$	-		0.0	%	$	63,259	1.0	%
Net (Loss) Income		(1,209,698	)	-26.9	%		2,145,049	33.6	%

	Three Months Ended September 30, 2020					Three Months Ended September 30, 2019
Net Sales	$	1,560,633				$	2,775,848
Cost of Goods Sold		1,482,455		95.0	%		1,600,287	57.7	%
Gross Profit		78,178		5.0	%		1,175,561	42.3	%

Stock based compensation		279,707		17.9	%		-	0.0	%
Research and development		48,307		3.3	%		-	0.0	%
Selling. General and Administrative Expenses		645,131		41.3	%		740,038	26.7	%
Total Operating expenses		973,145		62.4	%		740,038	26.7	%
Operating Income		(894,967	)	-57.3	%		435,523	15.7	%
Other Income (Expense)
Gain on settlement		-		0.0	%		-	0.0	%
Other income		235		0.0	%		850	0.0	%
Total Other Expense		235		0.0	%		850	0.0	%
Income Before Provision for Income Taxes		(894,732	)	-57.3	%		436,373	15.7	%
Provision for Income Taxes	$	-		0.0	%	$	-	0.0	%
Net Income		(894,732	)	-57.3	%		436,373	15.7	%

Net Cash Provided by (Used in) Operating Activities	$	(126,749	)	$	542,335
Net Cash Provided by (Used in) Investing Activities		(154,058	)		(10,826	)
Net Cash Provided by (Used in) Financing Activities		5,148,312			(496,524	)
Net increase in cash and cash equivalents and restricted cash		4,867,505			34,985
Cash and cash equivalents at beginning of year		1,029,936			793,766
Cash and cash equivalents at end of year		5,897,441			828,751