UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
For
the quarterly period ended
COMMISSION
FILE NO.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive office, including Zip Code)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| OTC Markets |
Securities registered pursuant to Section 12(g) of the Exchange Act: None
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 and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted 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 and post such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company |
Emerging
growth company
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
As of August 19, 2024, the registrant had shares of Common Stock issued and outstanding.
Nano Magic Inc.
INDEX
| 2 |
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements that we believe are within the meaning of the federal securities laws. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements, including the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our strategy, future operations, future expectations or future estimates, financial position and objectives of management. Those statements in this Form 10-Q containing the words “believes,” “anticipates,” “plans,” “expects” and similar expressions constitute forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and are subject to a number of risks, uncertainties and assumptions relating to our operations, results of operations, competitive factors, shifts in market demand and other risks and uncertainties.
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and actual results may differ from those indicated by the forward-looking statements included in this Form 10-Q. In light of the significant uncertainties inherent in the forward-looking statements included in this Form 10-Q, you should not consider the inclusion of such information as a representation by us or anyone else that we will achieve such results. Moreover, we assume no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.
| 3 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NANO MAGIC INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| NET REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF SALES | ||||||||||||||||
| GROSS PROFIT | ( | ) | ||||||||||||||
| OTHER OPERATING INCOME | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling and marketing expenses | ||||||||||||||||
| Salaries, wages and related benefits | ||||||||||||||||
| Stock compensation expense | ||||||||||||||||
| Research and development | ||||||||||||||||
| Professional fees | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expense | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER (EXPENSE) INCOME | ||||||||||||||||
| Income from investment in subsidiary | ||||||||||||||||
| Loss from sale of note receivable | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest and other income | ||||||||||||||||
| Total Other (Expense) Income | ( | ) | ( | ) | ||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS PER COMMON SHARE | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to financial statements.
| F-1 |
NANO MAGIC INC.
CONDENSED BALANCE SHEETS
(unaudited)
| June 30 | December 31 | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts
receivable, net of allowance for credit losses of $ | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses | ||||||||
| Current portion of note receivable | ||||||||
| Total Current Assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Note receivable, non-current | ||||||||
| Non-marketable equity investment in subsidiary | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - related parties | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Current portion of notes payable | ||||||||
| Current portion of notes payable from related party | ||||||||
| Current portion of finance leases | ||||||||
| Advances from related parties | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Notes Payable, net of current portion | ||||||||
| Notes Payable - related parties, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (See Note 8) | ||||||||
| STOCKHOLDERS’ (DEFICIT) EQUITY: | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Common stock: $ par value, shares authorized; and issued and outstanding at June 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ (Deficit) Equity | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to financial statements.
| F-2 |
NANO MAGIC INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023
(unaudited)
| Total | ||||||||||||||||||||
| Class A Common Stock | Additional Paid-in | Accumulated | Stockholders’ (Deficit) | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | ) | |||||||||||||||
| Common stock issued for cash, net of issuance costs | ||||||||||||||||||||
| Restricted stock issued for services | - | |||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | |||||||||||||||
| Common stock issued for cash, net of issuance costs | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||
| Warrants and options on private placement | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2023 | ( | ) | ||||||||||||||||||
See accompanying notes to condensed financial statements.
| F-3 |
NANO MAGIC INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(unaudited)
| Total | ||||||||||||||||||||
| Class A Common Stock | Additional Paid-in | Accumulated | Stockholders’ (Deficit) | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | |||||||||||||||
| Common stock issued for cash, net of issuance costs | ||||||||||||||||||||
| Restricted stock issued for services | - | |||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | |||||||||||||||
| Common stock issued for cash, net of issuance costs | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||
| Restricted stock issued for services | ||||||||||||||||||||
| Warrants and options on private placement | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2023 | ( | ) | ||||||||||||||||||
See accompanying notes to condensed financial statements.
| F-4 |
NANO MAGIC INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Change in inventory obsolescence reserve | ( | ) | ||||||
| Depreciation and amortization expense | ||||||||
| Bad debt expense | ||||||||
| Stock issued for services | | |||||||
| Stock-based compensation | ||||||||
| Income from investment in subsidiary | ( | ) | ( | ) | ||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ||||||||
| Prepaid expenses and contract assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Accounts payable - related party | ||||||||
| Operating lease liabilities | ||||||||
| Accrued expenses | ||||||||
| Total adjustments | ||||||||
| - | ||||||||
| NET CASH USED BY OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from note receivable | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY INVESTING ACTIVITIES | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of common stock and warrants | ||||||||
| Proceeds from issuance of convertible debt and warrants | ||||||||
| Repayment of bank loans | ( | ) | ||||||
| Repayment of finance leases | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH, beginning of period | ||||||||
| CASH, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
See accompanying notes to condensed financial statements.
| F-5 |
NANO MAGIC INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2024
(unaudited)
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Organization
Nano Magic Inc. (“we”, “us”, “our”, “Nano Magic” or the “Company”), a Delaware corporation, develops and sells a portfolio of nano-layer coatings, nano-based cleaners, and nano-composite products based on its proprietary technology.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information. Accordingly, they do not include all the information and disclosures required by US GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed financial statements of the Company as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the operating results for the full year ending December 31, 2024 or any other period. The balance sheet at December 31, 2023 has been derived from the audited financial statement at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and related disclosures of the Company as of December 31, 2023 and for the year then ended, which were filed with the Securities and Exchange Commission on Form 10-K on April 3, 2024.
Going Concern
These
unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. As reflected in the unaudited financial statements, the
Company had losses from operations and net cash used by operations of $
Reclassifications
Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period. These reclassifications had no effect on the previously reported net loss.
NOTE 2 – INVENTORY
At June 30, 2024 and December 31, 2023, inventory consisted of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-progress | ||||||||
| Finished goods | ||||||||
| Less: reserve for obsolescence | ( | ) | ( | ) | ||||
| Inventory, net | $ | $ | ||||||
| F-6 |
NOTE 3 – INVESTMENT IN SUBSIDIARY
For
the three- and six-month periods ended June 30, 2024, we sold portions of the note receivable from ANI to various parties for total
cash proceeds of $
The
Company is accounting for its
NOTE 4 – NOTES PAYABLE AND FINANCE LEASE
Notes Payable
On
January 7, 2022, the Company sold to one investor a $
On
July 27, 2022, the Company sold two convertible notes, one for $
On
October 26, 2022, the Company sold to an investor a $
On
December 18, 2022, the Company issued a convertible promissory note for $
On
June 14, 2023, the Company issued a convertible, secured note and warrants to purchase
On
July 24, 2023, the Company issued at face value a convertible note in the original principal amount of $
On
November 2, 2023, the Company issued at face value a convertible note in the original principal amount of $
On
June 10, 2024, the Company issued a $
At
June 30, 2024 and at December 31, 2023, we had outstanding convertible notes aggregating $
| F-7 |
Finance Lease
In
December 2020, the company entered into a finance lease for production equipment. We financed $
NOTE 5 – OPERATING LEASE
Effective
May 31, 2020, we entered into a lease with a related party for a
In
February 2023, we reached an agreement with the landlord of our Michigan facility to accept $ worth of our common stock at a price
of $ per share as partial payment of rent for the six-month period from October 2022 through March 2023. During that period, we paid
cash of $
For
operating leases, we calculated ROU assets and lease liabilities based on the present value of the remaining lease payments as of the
date of adoption using the IBR as of that date. The ROU Asset was $
NOTE 6 – RELATED PARTY TRANSACTIONS
At
June 30, 2024 and at December 31, 2023, accounts payable – related parties totaled $
| F-8 |
See Note 9, Subsequent Events, regarding options granted to, among others, officers and certain directors.
Mr. Ron Berman and Mr. Tom Berman are the managers of the limited liability company that is the manager of PEN Comeback, LLC, PEN Comeback 2, LLC, Magic Growth, LLP, Magic Growth 2 LLC and Magic Growth 3 LLC. These five limited liability companies purchased shares of common stock and derivative securities from us in 2018, 2019, 2020, 2021 and 2022.
In
addition, Mr. Tom Berman and Mr. Ron Berman are two of three individuals who share voting power of the sole manager of the limited
liability company that is our landlord in Michigan. Together, Tom and Ron Berman hold, in the aggregate, a
NOTE 7 – STOCKHOLDERS’ EQUITY
Description of Preferred and Common Stock
Preferred Stock
The preferred stock may be issued in one or more series. The Company’s board of directors are authorized to issue the shares of preferred stock in such series and to fix from time to time before issuance thereof the number of shares to be included in any such series and the designation, powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of such series.
Common Stock
Issuances of Common Stock
Common Stock Issued for Services
In
February 2023, we reached an agreement with the landlord of our Michigan facility to accept shares of our common stock at a price
of $ per share as
On May 30, 2023, the Company issued shares of restricted common stock to a consultant as compensation for services. The shares are subject to forfeiture until vested. So long as the consulting services agreement remains in effect shares vested in May for prior service, and another shares vest at the end of May and each calendar month thereafter, with shares vesting in December 2023. During 2024, shares will vest at the end of each month, with shares vesting at the end of December 2024.
Sales of Common Stock and Derivative Equity Securities
During
the quarter ended June 30, 2024, the Company sold shares
of common stock for proceeds of $
| F-9 |
During
the quarter ended June 30, 2023, the Company sold shares of common stock for proceeds of $
Stock Options
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding December 31, 2023 | $ | $ | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Issued | - | - | ||||||||||||||
| Expired & forfeited | ( | ) | $ | - | - | |||||||||||
| Outstanding June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable June 30, 2024 | $ | $ | ||||||||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| Stock options | ||||||||
| Stock warrants | ||||||||
Convertible debt (on an as-converted basis) | ||||||||
| Total | ||||||||
Warrants
As
of June 30, 2024, there were outstanding and exercisable warrants to purchase
2021 Equity Incentive Plan
On March 2, 2021, our Board adopted the 2021 Nano Magic 2021 Equity Incentive Plan (the “Plan”) to allow equity compensation for those who provide services to the Company and to encourage ownership in the Company by personnel whose service to the Company is important to its continued progress, to encourage recipients to act as owners and thereby in the stockholders’ interest and to enable recipients to share in the Company’s success.
On April 12, 2023, the Company granted options under the 2021 Equity Plan. On May 30, 2023 the Board granted an additional options under the 2021 Equity Plan to employees and a consultant. All options are at an exercise price of $.
See Note 9, Subsequent Events, regarding additional options granted under the 2021 Equity Plan.
| F-10 |
Other Options
On April 12, 2023, the Company issued an additional options to Tom J. Berman, our President. On May 30, 2023, the Board granted options to officers and to a consultant who is also a director.
See Note 9, Subsequent Events, regarding options granted to officers and certain directors.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Litigation
The Company may be, from time to time, subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business. As of June 30, 2024 we were not a defendant in any proceedings. Our policy is to accrue costs for contingent liabilities, including legal proceedings or unasserted claims that may result in legal proceedings, when a liability is probable and the amount can be reasonably estimated. As of June 30, 2024 and December 31, 2023, the Company has not accrued any amount for litigation contingencies.
NOTE 9 – SUBSEQUENT EVENTS
On
July 18, 2024, the Company sold an aggregate of
shares of common stock for proceeds of $
On
July 29,2024, the Board authorized the sale of a portion of the Company’s interest in Applied Nanotech, Inc. The sale was consummated
on the same day; the Company received $
On July 29, 2024, The Company granted options to employees, contractors and consultants under the 2021 Equity Plan and increased amounts available for grant by that number. All options entitle the holder to purchase shares at a strike price of $and expire from date of grant.
On July 29, 2024, the Company also granted options to our President & CEO, Tom Berman: vesting on date of grant, vesting on December 31,2024, and that will vest if he earns a Profit Bonus under his contract and the Board elects to pay some or all of that bonus with options. On that same day, the Board granted options to our Chief Financial Officer, Leandro Vera, options to director Ronald Berman, options to director Scott Rickert and options to director and Secretary Jeanne Rickert. These options were % vested on date of grant and will vest ratably over the remainder of 2024. Options to officers and directors were not issued under the Plan, but these options also entitle the holder to purchase shares at a strike price of $ and expire from date of grant.
On
August 5, 2024, the Company sold shares for proceeds of $
| F-11 |
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying unaudited condensed financial statements.
OVERVIEW
Nano Magic develops, commercializes and markets nanotechnology powered consumer and industrial cleaners and coatings to clean, protect, and enhance products for peak performance. Consumer products include lens and screen cleaners and coatings, anti-fog solutions, and household and automobile cleaners and protective coatings sold direct-to-consumer and in big box retail. Nano Magic also sells branded and private label cleaners and coatings into the optical, safety, and industrial channels. Our focus is to expand our direct-to-consumer sales through e-commerce and to grow sales to big box retailers. We continue to sell our consumer products directly to opticians and ophthalmologists and small optical retailers.. Visit www.nanomagic.com for more information.
RESULTS OF OPERATIONS
The following comparative analysis on results of operations was based primarily on the comparative condensed financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the unaudited condensed financial statements and the notes to those statements that are included elsewhere in this report. The results discussed below are for the three and six months ended June 30, 2024 and 2023.
Comparison of Results of Operations for the Three and Six Months ended June 30, 2024 and 2023
Revenues:
For the three and six months ended June 30, 2024 and 2023, revenues from operations were:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net revenues | $ | 616,623 | $ | 709,293 | $ | 1,196,735 | $ | 1,406,322 | ||||||||
For the three months ended June 30, 2024, revenues from operations decreased by $92,670 or 13% as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024 revenues decreased by $209,587 or 15%, as compared to the six months ended June 30, 2023. The decreases were due to a slowdown in purchasing from key customers and changes in product mix.
Cost of sales
Cost of sales includes inventory costs, materials and supplies costs, internal labor and related benefits, subcontractor costs, depreciation, periodic changes in the inventory reserve, and allocated overheads and shipping and handling costs incurred.
| Three Months ended June 30, | Six Months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Cost of sales: | $ | 662,583 | $ | 507,155 | $ | 1,173,952 | $ | 1,129,434 | ||||||||
For the three months ended June 30, 2024, cost of revenues increased by $155,428 or 31% as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, cost of revenues increased by $44,518 or 4% as compared to the six months ended June 30, 2023. Cost of sales increased as sales revenue decreased due to a significant increase in the reserve for slow-moving and excess inventory in 2024 as compared to 2023. Management is currently focusing efforts on reducing this inventory by way of new programs and incentives with customers.
| 4 |
Gross profit
For the three months ended June 30, 2024, gross profit was $(45,960) as compared to gross profit of $202,138 for the prior year, a decrease of $248,098 or 123%. For the six months ended June 30, 2024, gross profit was $22,783 as compared to $276,888 for the prior year, a decrease of $254,105 or 92%. For the three- and six-month periods the decreases were due to lower sales volumes and higher inventory reserves year over year.
Operating expenses
For the three months ended June 30, 2024, operating expenses decreased by $139,822 or 16% compared to the three months ended June 30, 2023. For the six-month period ended June 20, 2024, operating expenses decreased by $88,718 or 5% as compared to the six months ended June 30, 2023. For the three and six months ended June 30, 2024 and 2023, operating expenses consisted of the following:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Selling and marketing expenses | $ | 49,076 | $ | 54,018 | $ | 131,802 | $ | 113,442 | ||||||||
| Salaries, wages and related benefits | 230,916 | 189,896 | 433,465 | 468,562 | ||||||||||||
| Stock compensation expense | 7,835 | 260,249 | 16,335 | 290,393 | ||||||||||||
| Research and development | 21,623 | 6,371 | 41,918 | 12,275 | ||||||||||||
| Professional fees | 176,331 | 112,762 | 394,450 | 302,221 | ||||||||||||
| General and administrative expenses | 256,291 | 258,508 | 527,719 | 447,514 | ||||||||||||
| Total | $ | 742,072 | $ | 881,894 | $ | 1,545,689 | $ | 1,634,407 | ||||||||
| ● | For the three months ended June 30, 2024, selling and marketing expenses decreased by $4,942 or 9% as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, selling and marketing expenses increased by $18,360 or 16% as compared to the six months ended June 30, 2023. The year-to-date change in 2024 as compared to 2023 is driven by an increase in promotional and trade show expenses, while the quarter-to-date change in 2024 as compared to 2023 is mostly timing related. |
| ● | For the three months ended June 30, 2024, salaries, wages and related benefits increased by $40,930 or 22%, as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, salaries, wages and related benefits decreased by $35,097 or 7%, as compared to the six-months ended June 30, 2023. On a year-over-year basis, the year-to-date change reflects a decrease in costs related to medical benefits, while the quarter-to-date change is mostly related to increased commissions and timing of costs incurred. |
| ● | For the three months ended June 30, 2024, stock compensation expense decreased by $252,414 or 97%. For the six months ended June 30, 2024, stock compensation expense decreased $274,058 or 94%. The decrease was primarily due to the lack of any option grants in the three- and six-month periods in 2024. |
| ● | For the three months ended June 30, 2024, research and development costs increased by $15,252 or 239%, as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, research and development costs increased by $29,643 or 241%, as compared to the six months ended June 30, 2023. The increases were primarily due to the use of outside consultants for new product development in 2024. |
| ● | For the three months ended June 30, 2024, professional fees increased by $63,569 or 56%, as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, professional fees increased by $92,229 or 31%, as compared to the six months ended June 30, 2023. The changes were primarily due to increased audit fees and reliance on outside consultants for business development, offset by a decrease in legal fees overall for the company. |
| ● | For the three months ended June 30, 2024, general and administrative expenses decreased by $2,217 or 1% as compared to the three months ended June 30, 2023, essentially flat. For the six months ended June 30, 2024, general and administrative expenses increased by $80,205 or 18% as compared to the six months ended June 30, 2023. The year-over-year change in the six month period was primarily driven by an increased allowance for credit losses as well as increased travel expenses. |
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Loss from operations
As a result of the factors described above, for the three months ended June 30, 2024, loss from operations amounted to $788,032 as compared to a loss of $668,336 for the three months ended June 30, 2023, an increase of $119,696 or 18%. For the six months ended June 30, 2024, loss from operations amounted to $1,522,906 as compared to a loss of $1,346,099 for the six months ended June 30, 2023, an increase of $176,807 or 13%.
Income from investment in subsidiary
As a result of the sale of a 70% interest in ANI , we now report our 30% share of ANI’s income or loss as an investment in a subsidiary. For the three and six months ended June 30, 2024 there was income of $0 and $10,123, respectively. For the three and six-month periods ended June 30, 2023, we recorded income of $8,782 and $40,938, respectively.
Loss from sale of note receivable
In 2024 we sold our note receivable from ANI, realizing cash, but recording a loss. For the three- and six-month periods ending June 30, 2024, the loss was $26,782, and $41,782.
Interest expense
For the three months ended June 30, 2024 interest expense was $13,028 as compared to $7,575 in the prior year, and for the six months ended June 30, 2024 interest expense was $25,465 as compared to $21,943 in the prior year. In 2024, the increases were due to higher interest charges associated with the company’s issuance of convertible promissory notes.
Interest and other income
For the three months ended June 30, 2024 interest and other income was $3,178 as compared to $16,264 in the prior year, and for the six months ended June 30, 2024 interest and other income was $9,158 as compared to $23,202 in the prior year. In 2024, the decreases were due to a decreased balance on the ANI note receivable resulting in lower interest income for the Company.
Other (expense) income
For the three and six months ended June 30, 2024, other expense amounted to $(36,632), and $(47,966), respectively, as compared to other income of $17,471 and $42,197 for the three and six months ended June 30, 2023. The changes were due to the above factors.
Net loss
As a result of the foregoing, we reported a net loss of $824,665 for the three-month period ended June 30, 2024 and a net loss of $650,865 for the three-month period in the prior year, an increase of $173,800 or 27%. For the six-month period ended June 30, 2024 our net loss was $1,570,872 as compared to $1,303,902 for the six-month period ended June 30, 2023, an increase of $266,970 or 20%.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had working capital of $(805,072) and $71,869 of unrestricted cash as of June 30, 2024 and working capital of $454,969, including $527,462 of cash as of December 31, 2023.
The following table sets forth a summary of changes in our working capital from December 31, 2023 to June 30, 2024:
December 31, 2023 to June 30, 2024 | ||||||||||||||||
| June 30, 2024 | December 31, 2023 | Change in Working Capital | Percentage Change | |||||||||||||
| Working capital: | ||||||||||||||||
| Total current assets | $ | 941,409 | $ | 1,699,821 | $ | (758,412 | ) | (44.62 | )% | |||||||
| Total current liabilities | 1,746,482 | 1,244,852 | 501,630 | 40.30 | % | |||||||||||
| Working capital: | $ | (805,072 | ) | $ | 454,969 | $ | (1,260,041 | ) | (276.95 | )% | ||||||
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The decrease in current assets was a combination of a reduction in cash, net inventory and prepaid expenses, as well as the sale of the note receivable. The increase in current liabilities was a combination of an increase in accounts payable, accrued expenses, and the current portion of notes payable. The current portion of notes payable includes a note in the principal amount of $50,000 that is past its maturity date.
Net cash used by operating activities was $(992,505) for the six months ended June 30, 2024 as compared to net cash used by operating activities of $(725,395) for the six months ended June 30, 2023, a net change of $(267,110) or 37%. Net cash used by operating activities for the six months ended June 30, 2024 primarily resulted from a net loss of $1,570,872 adjusted for add-backs of $238,927 and changes in operating assets and liabilities of $339,440.
Net cash provided by investing activities was $284,442 for the six months ended June 30, 2024, as compared to net cash provided by investing activities of $17,171 for the same period in 2023. The change was primarily due to the sale of the note receivable.
Net cash provided by financing activities was $252,470 for the six months ended June 30, 2024 reflecting $262,500 in proceeds from sales of common stock and convertible debt, as compared to net cash provided by financing activities of $468,814 for the same period in 2023. The reduction in 2024 was primarily due to a decrease in proceeds from the sale of common stock and convertible debt.
Future Liquidity and Capital Needs.
Our principal future uses of cash are for working capital requirements, including working capital to support increased product sales, sales and marketing expenses and reduction of accounts payable and accrued liabilities. Application of funds among these uses will depend on numerous factors including our sales and other revenues and our ability to control costs.
Equipment Financing and Loans
See notes 4 and 5 to our unaudited condensed financial statements regarding our equipment loan and financing leases.
Off-Balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our unaudited financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
ITEM 3. Quantitative and Qualitative disclosures about market risk
Not applicable to smaller reporting companies.
ITEM 4. Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report (the “Evaluation Date”). This evaluation included consideration of past practices, new resources, and implementation of a new payables system recently adopted in 2024. Based upon this evaluation, we do not believe we have a material weakness in the Company’s internal controls and procedures.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
Changes in Internal Control
There were no changes identified in connection with our internal control over financial reporting during the three months ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 1A. RISK FACTORS
Not required of smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 17, 2024, the Company sold 33,333 shares of common stock for proceeds of $25,000. On April 24, 2024, the Company sold 33,333 shares of common stock to another investor for proceeds of $25,000.
On June 12, 2024, the Company sold 36,667 shares of common stock for proceeds of $27,500. On June 13, 2024, the Company sold 26,667 shares for $20,000. On June 25, 2024, the Company sold 13,333 shares for $10,000. On June 27, 2024, the Company sold 66,667 shares for $50,000.
On July 18, 2024, the Company sold an aggregate of 166,666 shares of common stock for proceeds of $125,000.
On July 29, 2024, The Company granted 411,268 options to employees, contractors and consultants under the 2021 Equity Plan and increased amounts available for grant by that number. A total of 37,288 of those options were 25% vested on date of grant, and will vest ratably over the rest of 2024 and all of 2025. A total of 322,000 of the options granted under the 2021 Equity Plan were vested 50% on date of grant and will vest ratably over the remainder of 2024. The remaining 51,980 options were fully vested on date of grant. All options entitle the holder to purchase 1 share per option at a strike price of $.031 and expire five years from date of grant.
On July 29, 2024, the Company also granted options to our President & CEO, Tom Berman: 250,000 vesting on date of grant, 250,000 vesting on December 31,2024, and 1,000,000 that will vest if he earns a Profit Bonus under his contract and the Board elects to pay some or all of that bonus with options. On that same day the Board granted 60,000 options to our Chief Financial Officer, Leandro Vera, 60,000 options to director Ronald Berman, 30,000 options to director Scott Rickert and 30,000 options to director and Secretary Jeanne Rickert. These options were 50% vested on date of grant and will vest ratably over the remainder of 2024. Options to officers and directors were not issued under the Plan, but these options also entitle the holder to purchase 1 share per option at a strike price of $.031 and expire five years from date of grant.
On August 5, 2024, the Company sold 133,333 shares for proceeds of $100,000.
Grants under the 2021 Equity Plan were exempt under Rule 701. The sales and issuances of stock and other securities were exempt from registration under Section 4(a)(2) of the Securities Act. Cash proceeds were used for general corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| Exhibit
No. |
Description | |
| 31.1* | Rule 13a-14(a)/15d-14(a) Certificate of Principal Executive Officer | |
| 31.2* | Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer | |
| 32.1* | Section 1350 Certificate of Principal Executive Officer and Chief Financial Officer | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition | |
| 101.LAB | Inline XBRL Taxonomy Extension Labels | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
| * | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Nano Magic Inc. (Registrant) | |
| Date: August 19, 2024 | /s/ Tom J. Berman |
| Tom J. Berman, | |
| President and Chief Executive Officer | |
| Date: August 19, 2024 | /s/ Leandro Vera |
| Leandro Vera | |
| Chief Financial Officer |
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