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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/22/22 Nano Magic Holdings Inc. 10-Q 6/30/22 52:3.6M M2 Compliance LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 657K
2: EX-4.1 Instrument Defining the Rights of Security Holders HTML 19K
3: EX-10.1 Material Contract HTML 53K
4: EX-10.2 Material Contract HTML 27K
5: EX-31.1 Certification -- §302 - SOA'02 HTML 19K
6: EX-31.2 Certification -- §302 - SOA'02 HTML 19K
7: EX-32.1 Certification -- §906 - SOA'02 HTML 17K
13: R1 Cover HTML 66K
14: R2 Condensed Consolidated Statements of Operations HTML 143K
(Unaudited)
15: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 131K
16: R4 Condensed Consolidated Balance Sheets (Unaudited) HTML 33K
(Parenthetical)
17: R5 Condensed Consolidated Statements of Changes in HTML 58K
Stockholders' Equity (Unaudited)
18: R6 Condensed Consolidated Statements of Cash Flows HTML 120K
(Unaudited)
19: R7 Organization and Basis of Presentation HTML 27K
20: R8 Discontinued Operations HTML 62K
21: R9 Inventory HTML 23K
22: R10 Investment in Subsidiary HTML 20K
23: R11 Factoring HTML 19K
24: R12 Debt and Equipment Financing HTML 39K
25: R13 Related Party Transactions HTML 43K
26: R14 Stockholders? Equity HTML 83K
27: R15 Commitments and Contingencies HTML 20K
28: R16 Subsequent Events HTML 19K
29: R17 Discontinued Operations (Tables) HTML 58K
30: R18 Inventory (Tables) HTML 23K
31: R19 Related Party Transactions (Tables) HTML 37K
32: R20 Stockholders? Equity (Tables) HTML 41K
33: R21 Organization and Basis of Presentation (Details HTML 35K
Narrative)
34: R22 Schedule of Disposal Groups Assets and Liabilities HTML 61K
of Discontinued Operations Summarized (Details)
35: R23 Schedule of Income (Loss) From Discontinued HTML 35K
Operations (Details)
36: R24 Discontinued Operations (Details Narrative) HTML 38K
37: R25 Schedule of Inventory (Details) HTML 28K
38: R26 Investment in Subsidiary (Details Narrative) HTML 21K
39: R27 Factoring (Details Narrative) HTML 19K
40: R28 Debt and Equipment Financing (Details Narrative) HTML 72K
41: R29 Schedule of Related Party Transactions (Details) HTML 27K
42: R30 Related Party Transactions (Details Narrative) HTML 31K
43: R31 Schedule of Stock Option Plan Activity (Details) HTML 60K
44: R32 Schedule of Stock Options and Warrants (Details) HTML 23K
45: R33 Stockholders? Equity (Details Narrative) HTML 110K
46: R34 Commitments and Contingencies (Details Narrative) HTML 17K
47: R35 Subsequent Events (Details Narrative) HTML 23K
50: XML IDEA XML File -- Filing Summary XML 83K
48: XML XBRL Instance -- form10-q_htm XML 721K
49: EXCEL IDEA Workbook of Financial Reports XLSX 74K
9: EX-101.CAL Inline XBRL Taxonomy Extension Calculation XML 165K
Linkbase Document -- nmgx-20220630_cal
10: EX-101.DEF Inline XBRL Taxonomy Extension Definition Linkbase XML 246K
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Linkbase Document -- nmgx-20220630_pre
8: EX-101.SCH Inline XBRL Taxonomy Extension Schema Document -- XSD 94K
nmgx-20220630
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52: ZIP XBRL Zipped Folder -- 0001493152-22-023706-xbrl Zip 173K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
i ☒ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended i June 30, i 2022 /
i ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
COMMISSION FILE NO. i 1-11602
(Exact name of registrant as specified in its charter)
| i Delaware | i 47-1598792 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
i 31601 Research Park Drive, i Madison Heights, i MI i 48071
(Address of principal executive office, including Zip Code)
Registrant’s telephone number, including area code: i (844) i 273-6462
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| i Common Stock, $0.0001 par value | i NMGX | 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. ☐ Yes ☒ i No
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). ☐ Yes ☒ i No
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 ☐ |
| i Non-accelerated filer ☐ (Do not check if a smaller reporting company) | Smaller reporting company i ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ i No.
As of August 15, 2022, the registrant had shares of Common Stock issued and outstanding.
C:
Nano Magic Holdings Inc.
INDEX
C:
| C: 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.
C:
| 3 |
NANO MAGIC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| NET REVENUES | $ | i 493,782 | $ | i 1,056,653 | $ | i 1,012,925 | $ | i 3,127,748 | ||||||||
| COST OF SALES | i 458,330 | i 474,466 | i 990,894 | i 1,583,538 | ||||||||||||
| GROSS PROFIT | i 35,452 | i 582,187 | i 22,031 | i 1,544,210 | ||||||||||||
| OTHER OPERATING INCOME | - | i 164,520 | - | i 500,537 | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling and marketing expenses | i 96,301 | i 40,324 | i 175,830 | i 77,220 | ||||||||||||
| Salaries, wages and related benefits | i 356,118 | i 760,164 | i 819,339 | i 1,290,543 | ||||||||||||
| Research and development | i 3,211 | i 7,437 | i 10,700 | i 9,313 | ||||||||||||
| Professional fees | i 188,794 | i 202,934 | i 442,773 | i 408,900 | ||||||||||||
| General and administrative expenses | i 211,463 | i 269,851 | i 463,261 | i 439,066 | ||||||||||||
| Total Operating Expense | i 855,887 | i 1,280,710 | i 1,911,903 | i 2,225,042 | ||||||||||||
| LOSS FROM OPERATIONS | ( i 820,435 | ) | ( i 534,003 | ) | ( i 1,889,872 | ) | ( i 180,295 | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Loss on investment in subsidiary | ( i 3,161 | ) | - | ( i 3,161 | ) | - | ||||||||||
| Interest expense | ( i 8,337 | ) | ( i 4,588 | ) | ( i 15,635 | ) | ( i 9,995 | ) | ||||||||
| Other income | i 3,886 | i 10 | i 2,625 | i 10 | ||||||||||||
| Total Other Income (Expense) | ( i 7,612 | ) | ( i 4,578 | ) | ( i 16,171 | ) | ( i 9,985 | ) | ||||||||
| LOSS FROM CONTINUING OPERATIONS | ( i 828,047 | ) | ( i 538,581 | ) | ( i 1,906,043 | ) | ( i 190,280 | ) | ||||||||
| INCOME (LOSS) FROM DISCONTINUED OPERATIONS | ||||||||||||||||
| Income (loss) from discontinued operations | ( i 13,045 | ) | i 64,984 | i 1,300 | i 87,080 | |||||||||||
| Gain on sale of discontinued operations | i 1,148,225 | - | i 1,148,225 | - | ||||||||||||
| NET INCOME FROM DISCONTINUED OPERATIONS | i 1,135,180 | i 64,984 | i 1,149,525 | i 87,080 | ||||||||||||
| NET INCOME (LOSS) | $ | i 307,133 | $ | ( i 473,597 | ) | $ | ( i 756,518 | ) | $ | ( i 103,200 | ) | |||||
| NET INCOME (LOSS) PER SHARE – BASIC: | ||||||||||||||||
| Continuing operations | $ | ( i 0.08 | ) | $ | ( i 0.06 | ) | $ | ( i 0.19 | ) | $ | ( i 0.02 | ) | ||||
| Discontinued operations | $ | i 0.11 | $ | i 0.01 | $ | i 0.11 | $ | i 0.01 | ||||||||
| NET INCOME (LOSS) PER SHARE – BASIC: | $ | i 0.03 | $ | ( i 0.05 | ) | $ | ( i 0.08 | ) | $ | ( i 0.01 | ) | |||||
| NET INCOME (LOSS) PER SHARE – DILUTED: | ||||||||||||||||
| Continuing operations | $ | ( i 0.08 | ) | $ | ( i 0.06 | ) | $ | ( i 0.19 | ) | $ | ( i 0.02 | ) | ||||
| Discontinued operations | $ | i 0.11 | $ | i 0.01 | $ | i 0.11 | $ | i 0.01 | ||||||||
| NET INCOME (LOSS) PER SHARE – DILUTED: | $ | i 0.03 | $ | ( i 0.05 | ) | $ | ( i 0.08 | ) | $ | ( i 0.01 | ) | |||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic | i 10,084,334 | i 9,657,347 | i 10,082,511 | i 9,285,956 | ||||||||||||
| Diluted | i 10,084,334 | i 9,657,347 | i 10,082,511 | i 9,285,956 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
C:
| F-1 |
NANO MAGIC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| June 30 | December 31 | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | i 392,530 | $ | i 197,932 | ||||
| Accounts receivable, net | i 239,478 | i 293,229 | ||||||
| Inventory, net | i 1,324,508 | i 1,379,005 | ||||||
| Prepaid expenses and contract assets | i 181,491 | i 212,127 | ||||||
| Current portion of note receivable | i 40,000 | - | ||||||
| Current assets of discontinued operations | - | i 74,373 | ||||||
| Total Current Assets | i 2,178,007 | i 2,156,666 | ||||||
| Operating lease right-of-use assets | i 1,129,660 | i 1,219,061 | ||||||
| Property, plant and equipment, net | i 581,941 | i 633,187 | ||||||
| Note receivable, non-current | i 410,000 | - | ||||||
| Non-marketable equity investment in subsidiary | i 189,696 | - | ||||||
| Non-current assets of discontinued operations | - | i 97,687 | ||||||
| Total Assets | $ | i 4,489,304 | $ | i 4,106,601 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | i 423,496 | $ | i 174,156 | ||||
| Accounts payable – related parties | i 15,000 | i 21,066 | ||||||
| Accrued expenses and other current liabilities | i 135,731 | i 57,040 | ||||||
| Current portion of notes payable | i 74,180 | i 87,567 | ||||||
| Advances from related parties | i 62,887 | i 113,952 | ||||||
| Current portion of lease liabilities | i 132,896 | i 123,988 | ||||||
| Contract liabilities | i 159,688 | - | ||||||
| Current liabilities of discontinued operations | - | i 575,770 | ||||||
| Total Current Liabilities | i 1,003,878 | i 1,153,539 | ||||||
| Notes payable, net of current portion | i 238,643 | i 61,045 | ||||||
| Lease liabilities, net of current portion | i 795,864 | i 864,593 | ||||||
| Non-current liabilities of discontinued operations | - | i 111,607 | ||||||
| Total Liabilities | i 2,038,385 | i 2,190,784 | ||||||
| Commitments and Contingencies (See Note 9) | - | |||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding | - | - | ||||||
| Common stock: $ par value, shares authorized; and issued and outstanding at June 30, 2022 and December 31, 2021, respectively | i 1,036 | i 970 | ||||||
| Additional paid-in capital | i 13,251,565 | i 11,960,011 | ||||||
| Accumulated deficit | ( i 10,801,682 | ) | ( i 10,045,164 | ) | ||||
| Total Stockholders’ Equity | i 2,450,919 | i 1,915,817 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | i 4,489,304 | $ | i 4,106,601 | ||||
See accompanying notes to consolidated financial statements.
C:
| F-2 |
NANO MAGIC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
(unaudited)
| Additional | Total | |||||||||||||||||||
| Class A Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, March 31, 2022 | i 10,077,681 | $ | i 1,008 | $ | i 12,702,228 | $ | ( i 11,108,815 | ) | $ | i 1,594,421 | ||||||||||
| Common stock issued for cash, net of issuance costs | i 283,334 | i 28 | i 495,806 | - | i 495,834 | |||||||||||||||
| Warrants on private placement | - | - | i 14,165 | - | i 14,165 | |||||||||||||||
| Stock-based compensation | - | - | i 39,366 | - | i 39,366 | |||||||||||||||
| Net income | i 307,133 | i 307,133 | ||||||||||||||||||
| Balance, June 30, 2022 | i 10,361,015 | i 1,036 | i 13,251,565 | ( i 10,801,682 | ) | i 2,450,919 | ||||||||||||||
| Balance, March 31, 2021 | $ | i 9,657,347 | $ | i 965 | $ | i 11,435,286 | $ | ( i 8,100,203 | ) | $ | i 3,336,048 | |||||||||
| Stock-based compensation | - | - | i 233,286 | - | i 233,286 | |||||||||||||||
| Net loss | - | - | - | ( i 473,597 | ) | ( i 473,597 | ) | |||||||||||||
| Balance, June 30, 2021 | i 9,657,347 | i 965 | i 11,668,572 | ( i 8,573,800 | ) | i 3,095,737 | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
C:
| F-3 |
NANO MAGIC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(unaudited)
| Additional | Total | |||||||||||||||||||
| Class A Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2021 | i 9,702,680 | $ | i 970 | $ | i 11,960,011 | $ | ( i 10,045,164 | ) | $ | i 1,915,817 | ||||||||||
| Common stock issued for cash, net of issuance costs | i 658,335 | i 66 | i 1,152,020 | - | i 1,152,086 | |||||||||||||||
| Warrants on private placement | - | - | i 32,913 | - | i 32,913 | |||||||||||||||
| Stock-based compensation | - | - | i 106,621 | - | i 106,621 | |||||||||||||||
| Net loss | - | - | - | ( i 756,518 | ) | ( i 756,518 | ) | |||||||||||||
| Balance, June 30, 2022 | i 10,361,015 | i 1,036 | i 13,251,565 | ( i 10,801,682 | ) | i 2,450,919 | ||||||||||||||
| Balance, December 31, 2020 | $ | i 8,459,995 | $ | i 846 | $ | i 9,867,174 | $ | ( i 8,470,600 | ) | $ | i 1,397,420 | |||||||||
| Common stock issued for cash, net of issuance costs | i 1,154,462 | i 115 | i 1,442,962 | - | i 1,443,077 | |||||||||||||||
| Common stock issued for services | i 42,890 | i 4 | i 40,996 | - | i 41,000 | |||||||||||||||
| Warrants on private placement | - | - | i 57,723 | - | i 57,723 | |||||||||||||||
| Stock-based compensation | - | - | i 259,717 | - | i 259,717 | |||||||||||||||
| Net loss | - | - | - | ( i 103,200 | ) | ( i 103,200 | ) | |||||||||||||
| Balance, June 30, 2021 | i 9,657,347 | i 965 | i 11,668,572 | ( i 8,573,800 | ) | i 3,095,737 | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
C:
| F-4 |
NANO MAGIC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss from continuing operations | $ | ( i 1,906,043 | ) | $ | ( i 190,280 | ) | ||
| Net income from discontinued operations | i 1,149,525 | i 87,080 | ||||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Change in inventory obsolescence reserve | i 2,331 | i 75,000 | ||||||
| Depreciation and amortization expense | i 56,159 | i 50,460 | ||||||
| Bad debt expense | i 30,629 | - | ||||||
| Stock-based compensation | i 106,621 | i 300,717 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | i 23,121 | i 706,507 | ||||||
| Accounts receivable - related party | - | ( i 1,390 | ) | |||||
| Inventory | i 52,166 | ( i 465,997 | ) | |||||
| Prepaid expenses and contract assets | i 30,636 | ( i 121,030 | ) | |||||
| Accounts payable | i 249,340 | ( i 319,441 | ) | |||||
| Accounts payable - related party | ( i 6,065 | ) | ( i 12,000 | ) | ||||
| Operating lease liabilities | i 29,575 | i 33,228 | ||||||
| Customer deposits | - | i 25,508 | ||||||
| Accrued expenses | i 79,607 | ( i 14,927 | ) | |||||
| Contract liabilities | i 159,688 | - | ||||||
| Total adjustments | i 813,808 | i 256,635 | ||||||
| Net cash (used by) provided by continuing operating activities | ( i 1,092,235 | ) | i 66,355 | |||||
| Net cash used by discontinued operating activities | ( i 70,945 | ) | ( i 109,091 | ) | ||||
| NET CASH USED BY OPERATING ACTIVITIES | ( i 1,163,180 | ) | ( i 42,736 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property and equipment | ( i 4,910 | ) | ( i 62,640 | ) | ||||
| Net cash used by continuing investing activities | ( i 4,910 | ) | ( i 62,640 | ) | ||||
Net cash used by discontinued investing activities | - | ( i 243 | ) | |||||
| NET CASH USED BY INVESTING ACTIVITIES | ( i 4,910 | ) | ( i 62,883 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of common stock and warrants | i 1,184,999 | i 1,500,800 | ||||||
| Proceeds from issuance of convertible debt | i 200,000 | - | ||||||
| Repayment of bank loans | ( i 15,454 | ) | ( i 21,898 | ) | ||||
| Repayment of finance leases | ( i 20,334 | ) | ( i 20,875 | ) | ||||
| Repayment of advances from related parties | ( i 51,065 | ) | ( i 22,500 | ) | ||||
| Net cash provided by continuing financing activities | i 1,298,146 | i 1,435,527 | ||||||
| Net cash provided by discontinued financing activities | i 20,000 | i 76,305 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | i 1,318,146 | i 1,511,832 | ||||||
| NET INCREASE (DECREASE) IN CASH | i 150,056 | i 1,406,213 | ||||||
| CASH in continuing operations, beginning of year | i 197,932 | i 260,143 | ||||||
| CASH in discontinued operations, beginning of year | i 44,542 | i 27,991 | ||||||
| CASH, end of period | $ | i 392,530 | $ | i 1,694,347 | ||||
| Less: CASH in discontinued operations, end of period | $ | - | $ | i 18,032 | ||||
| CASH in continuing operations, end of period | $ | i 392,530 | $ | i 1,676,315 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for interest | $ | i 15,635 | $ | i 9,995 | ||||
See accompanying notes to condensed consolidated financial statements.
C:
| F-5 |
NANO MAGIC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
i
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Organization
Nano Magic Holdings 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. On March 3, 2020, we changed our name from PEN Inc. to Nano Magic Inc. and on March 2, 2021 we changed our name to Nano Magic Holdings Inc.
Through the Company’s wholly-owned subsidiary, Nano Magic LLC, formerly known as PEN Brands LLC, we develop, manufacture and sell consumer and institutional products using nanotechnology to deliver unique performance attributes at the surfaces of a wide variety of substrates. These products are marketed internationally directly to consumers and also to retailers and other institutional customers. On March 31, 2020, PEN Brands LLC changed its name to Nano Magic LLC.
Effective May 31, 2022, we sold a i 70% interest in our subsidiary, Applied Nanotech, Inc. (“ANI”). The contract research services performed by ANI for governmental and private customers was previously reported as our Contract research segment. As a result of this sale, the Company has deconsolidated ANI from its financial reporting, and we will report as only one segment. We retain a i 30% interest in ANI that is now recorded as an equity investment.
Basis of Presentation
The accompanying unaudited condensed consolidated 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 consolidated financial statements of the Company as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the operating results for the full year ending December 31, 2022 or any other period. The balance sheet at December 31, 2021 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures of the Company as of December 31, 2021 and for the year then ended, which were filed with the Securities and Exchange Commission on Form 10-K on March 30, 2022.
Going Concern
These unaudited consolidated 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 consolidated financial statements, the Company had losses from continuing operations and net cash used by continuing operations of $ i 1,906,043 and $ i 1,092,235 for the six months ended June 30, 2022 and a loss of $ i 190,280 and cash provided by continuing operations $ i 66,355 for the six months ended June 30, 2021. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these unaudited consolidated financial statements are issued. Management cannot provide assurance that the Company will ultimately achieve profitable operations, become cash flow positive or raise additional capital. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. They do not include any adjustments related to the recoverability and/or classification of the recorded asset amounts and/or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
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| F-6 |
/ i
NOTE 2 – DISCONTINUED OPERATIONS
Effective May 31, 2022, we sold a i 70% interest in our subsidiary ANI to two of its officers and long-term employees in exchange for a promissory note in the face amount of $ i 450,000. The note bears interest at i 7% and has semi-annual payments of principal initially in the amount of $ i 20,000, increasing to $ i 25,000 in May 2024 and to $ i 30,000 in May 2026, with a final balloon payment of $ i 80,000 due on December 31, 2029. The note is secured by a stock pledge, described below. In conjunction with the sale, we recognized a one-time gain of $ i 1,148,225.
In connection with the sale, the capital structure of Applied Nanotech was changed to give us, as the holder of Class B common stock of Applied Nanotech, a i 30% economic interest, certain information rights, special consent rights, and tag-along rights, as well as the obligation to sell our stock under certain circumstances if other stockholders are selling. The Class A stock acquired by the buyers was pledged to secure the promissory note given in payment of the purchase price.
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The following includes the detail of major classes of assets and liabilities of discontinued operations summarized on the accompanying unaudited consolidated financial statements:
SCHEDULE OF DISPOSAL GROUPS ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS SUMMARIZED
| December 31 | ||||
| 2021 | ||||
| ASSETS | ||||
| CURRENT ASSETS: | ||||
| Cash and investments | $ | i 55,258 | ||
| Accounts receivable, net | i 19,115 | |||
| Total Current Assets | i 74,373 | |||
| Operating lease right-of-use assets | i 90,852 | |||
| Property, plant and equipment, net | i 945 | |||
| Other assets | i 5,890 | |||
| Total Assets | $ | i 172,060 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
| CURRENT LIABILITIES: | ||||
| Accounts payable | $ | i 475,283 | ||
| Accrued expenses and other current liabilities | i 12,434 | |||
| Current portion of lease liabilities | i 42,291 | |||
| Contract liabilities | i 45,762 | |||
| Total Current Liabilities | i 575,770 | |||
| Notes Payable, net of current portion | i 54,883 | |||
| Lease liabilities, net of current portion | i 56,724 | |||
| Total Liabilities | $ | i 687,377 | ||
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The following is the detail of major line items that constitute income (loss) from discontinued operations:
SCHEDULE OF INCOME (LOSS) FROM DISCONTINUED OPERATIONS
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net Revenues | $ | i 91,329 | $ | i 311,915 | $ | i 258,444 | $ | i 551,995 | ||||||||
| Cost of Sales | i 76,947 | i 204,959 | i 211,029 | i 380,083 | ||||||||||||
| Gross Profit | i 14,382 | i 106,956 | i 47,415 | i 171,912 | ||||||||||||
| Salaries, wages and related benefits | i 17,684 | i 21,438 | i 23,573 | i 42,789 | ||||||||||||
| General and administrative expenses | i 9,514 | i 12,920 | i 21,961 | i 26,663 | ||||||||||||
| Professional fees | - | i 6,951 | - | i 14,715 | ||||||||||||
| Interest and other expense | i 229 | i 663 | i 581 | i 665 | ||||||||||||
| Net income (loss) on discontinued operations | $ | ( i 13,045 | ) | $ | i 64,984 | $ | i 1,300 | $ | i 87,080 | |||||||
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At June 30, 2022 and December 31, 2021, inventory consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | i 617,910 | $ | i 673,518 | ||||
| Work-in-progress | i 315,470 | i 314,461 | ||||||
| Finished goods | i 459,201 | i 456,768 | ||||||
| Inventory, gross | i 1,392,581 | i 1,444,747 | ||||||
| Less: reserve for obsolescence | ( i 68,073 | ) | ( i 65,742 | ) | ||||
| Inventory, net | $ | i 1,324,508 | $ | i 1,379,005 | ||||
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NOTE 4 – INVESTMENT IN SUBSIDIARY
The Company is accounting for its i 30% ownership interest in ANI by the equity method of accounting under which the Company’s share of the net income (loss) of ANI is recognized as income (loss) in the Company’s statement of operations. Any dividends received from ANI as well as periodic losses for the Company’s i 30% share will be treated as a reduction of the investment account. i Upon the sale on May 31, 2022, the Company recorded an investment in this subsidiary of $192,857. For the one-month period ended June 30, 2022, the Company recorded a loss of $3,161, reducing the balance to $189,696 on June 30, 2022.
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Since September 1, 2020, The Company has participated in a factoring program with NOWaccount ® Network Corporation (“NOW”). At the time of a sale, NOW buys the receivables at a discount, based on the due date and other terms. The Company has not been using this program in 2022, and there were i i no / costs associated with this program for the three-month and six-month periods ended June 30, 2022. Costs associated with this program were $ i 5,593 and $ i 9,057 for the three-month and six-month periods ended June 30, 2021, respectively.
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NOTE 6 – DEBT AND EQUIPMENT FINANCING
On February 10, 2015, Nano Magic entered into a $ i 373,000 promissory note (the “Equipment Note”) with KeyBank, N.A. (the “Bank”). The unpaid principal balance of this i Equipment Note is payable in 60 equal monthly instalments payments of principal and interest through i June 10, 2020. The Equipment Note is secured by certain equipment, as defined in the Equipment Note, and bears interest computed at a rate of interest of i 4.35% per annum based on a year of 360 days. On June 18, 2019, Nano Magic entered into an Amendment to the Equipment Note with the Bank. By the amendment, the maturity date of the note was extended until i April 10, 2022, the interest rate was raised to i 6.29% per year, and the monthly payments were reduced to $ i 4,053 per month, including interest. On May 2, 2022, we amended the Equipment Note with Key Bank to extend the due date on the note until i December 10, 2022. The interest rate remains the same at i 6.29% per year and the monthly payments remain at $ i 4,053 per month. At June 30, 2022, the principal amount due under the Equipment Note amounted to $ i 26,223 and is current.
On August 11, 2020, the company entered into a finance lease for furniture. We financed $ i 60,684 over a period of i 36 months with monthly payments of $ i 1,972 during that time. As of June 30, 2022, the balance on the lease was $ i 24,136; the current and non-current portions were $ i 22,181 and $ i 1,955 respectively.
On September 24, 2020, the company entered into a finance lease with Raymond Leasing Corporation for a forklift. Nano Magic LLC financed $ i 14,250. The lease term is i 36 months with monthly payments of $ i 425. As of June 30, 2022, the balance on the lease was $ i 6,184; the current and non-current portions were $ i 4,918 and $ i 1,266, respectively.
In December 2020, the company entered into a finance lease for production equipment. We financed $ i 85,000 over a period of i 48 months with monthly payments of $ i 2,135 during that time. As of June 30, 2022, the balance on the lease was $ i 56,280; the current and non-current portions were $ i 20,858 and $ i 35,422, respectively.
In January and February of 2022, the company issued three convertible promissory notes for $ i 200,000. The notes bear interest at a rate of i 8% per annum and accrue during the term of the loan, payable semi-annually. The notes mature on i March 31, 2025 and can be converted to common stock at any time at the option of the holders at a conversion price of $ i 1.75 per share. The convertible promissory notes have not been included in diluted earnings per share as they would be anti-dilutive.
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NOTE 7 – RELATED PARTY TRANSACTIONS
For the three month and six-month periods ended June 30, 2022, we accrued $ i i 6,000 / each period in fees for each of the directors. Other compensation paid to directors was:
iSCHEDULE OF RELATED PARTY TRANSACTIONS
| Three Months ended June 30, | Six Months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Ronald J. Berman | $ | i 30,000 | + | $ | i 45,094 | + | $ | i 84,150 | + | $ | i 107,694 | |||||
| Tom J. Berman | $ | i 60,300 | * | $ | i 93,546 | * | $ | i 115,600 | * | $ | i 266,499 | * | ||||
| Scott E. Rickert | $ | i 15,000 | ++ | $ | i 12,000 | ++ | $ | i 30,000 | ++ | $ | i 22,500 | ++ | ||||
| Related party debt | $ | i 15,000 | ++ | $ | i 12,000 | ++ | $ | i 30,000 | ++ | $ | i 22,500 | ++ | ||||
| + | Legal and consulting fees and in 2021 incudes commission paid under consulting agreement. |
| * | Indicates amount paid as salary and in 2021 includes bonus under employment agreement. |
| ++ | Repayment of advances previously made to the Company |
One of the purchasers of the 70% interest in Applied Nanotech was Richard Fink who was one of our named executive officers until that sale.
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. See the subsection on Sales of Stock under Issuances of Common Stock in Note 8.
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 i 5% economic interest in the landlord entity. Another director, Miles Gatland, owns a i 12.5% interest in the Michigan landlord and he is a co-guarantor on the debt of that limited liability company. i The lease for the Michigan facility gives us the right, during the first three years of the lease, to buy up to a 49% interest in the landlord for a price equal to 49% of the contributions received from other members.
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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
i The rights of each share of common are the same with respect to dividends, distributions and rights upon liquidation. Holders of common stock each have one vote per share in the election of directors and other matters submitted to a vote of the stockholders.
Issuances of Common Stock
Common Stock Issued for Services and Stock Appreciation Rights
On March 2, 2021, we issued an aggregate of shares of common stock to our directors as compensation to them for service on our Board. These shares were valued on that date at $ per share based on the quoted price of the stock for a total value of $ i 36,000.
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Sales of Common Stock and Derivative Equity Securities
On March 2, 2021, the Company sold to Magic Growth 2 LLC, shares of common stock for proceeds of $ i 961,539 and warrants to purchase up to i 769,225 shares of common stock for proceeds of $ i 38,461. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $ i 2.00 per share. PEN Comeback Management, LLC, owned by Tom J. Berman and Ronald J. Berman, is the sole voting member of Magic Growth 2 LLC.
On March 17, 2021, the Company sold to Magic Growth 2 LLC, shares of common stock for proceeds of $ i 481,539 and warrants to purchase up to i 385,225 shares of common stock for proceeds of $ i 19,260. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $ i 2.00 per share.
On January 7, 2022, and again on February 14, 2022, the Company sold to several investors an aggregate of $ i i 200,000 / convertible promissory notes due i i March 31, 2025 / . Issued at face value, the notes bear interest at i i 8 / % per annum, payable quarterly in cash. The notes are convertible at any time at the option of the holder into shares of common stock at a conversion price of $ i i 1.75 / per share.
On January 11, 2022, the Company sold to Magic Growth 3 LLC shares of common stock for proceeds of $ i 388,890 and warrants to purchase up to i 222,195 shares of common stock for proceeds of $ i 11,110. The warrants are exercisable at any time during the i four years after date of issue at a warrant exercise price of $ i 2.25.
On February 22, 2022, the Company sold to Magic Growth 3 LLC shares of common stock for proceeds of $ i 267,362 and warrants to purchase up to i 152,770 shares of common stock for proceeds of $ i 7,638. The warrants are exercisable at any time during the i four years after date of issue at a warrant exercise price of $ i 2.25.
On April 14, 2022, the Company sold to Magic Growth 3 LLC shares of common stock for proceeds of $ i 121,529 and warrants to purchase up to i 69,425 shares of common stock for proceeds of $ i 3,471. The warrants are exercisable at any time during the i four years after date of issue at a warrant exercise price of $ i 2.25.
On May 27, 2022, the Company sold to Magic Growth 3 LLC shares of common stock for proceeds of $ i 374,305 and warrants to purchase up to i 213,885 shares of common stock for proceeds of $ i 10,694. The warrants are exercisable at any time during the i four years after date of issue at a warrant exercise price of $ i 2.25.
In total for the six months ended June 30, 2022, shares of common stock were sold and issued for $ i 1,152,086. Additionally, i 658,275 warrants were sold for $ i 32,914 and three convertible notes were issued for $ i 200,000.
Stock Options
Stock options to purchase common stock outstanding at June 30, 2022 include the options granted in February 2022 under the 2021 Equity Incentive Plan. No options were exercised during the period. No options have been included in diluted earnings per share as they would be anti-dilutive.
iNumber of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding December 31, 2021 | i 2,133,702 | $ | ||||||||||||||
| Exercised | - | - | - | |||||||||||||
| Issued | i 130,700 | $ | - | - | ||||||||||||
| Expired & forfeited | ( i 128,264 | ) | - | - | ||||||||||||
| Outstanding June 30, 2022 | i 2,136,138 | $ | $ | - | ||||||||||||
| Exercisable June 30, 2022 | i 1,139,196 | $ | $ | - | ||||||||||||
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SCHEDULE OF STOCK OPTIONS AND WARRANTS
| June 30, 2022 | December 31, 2021 | |||||||
| Stock options | i 2,136,138 | i 2,133,702 | ||||||
| Stock warrants | i 7,255,453 | i 6,597,178 | ||||||
| Total | i 9,391,591 | i 8,730,880 | ||||||
| Total Stock options and stock warrants | i 9,391,591 | i 8,730,880 |
Warrants
As of June 30, 2022, there were outstanding and exercisable warrants to purchase i 7,255,453 shares of common stock. On May 26, 2022, the Board acted to extend the term of warrants that were issued in 2018, 2019, or the first quarter of 2020, adding an additional i two years to the term of each of the i 4,052,003 warrants issued in that period. The outstanding warrants have a weighted average exercise price of $ i 1.72 per share and a weighted average remaining contractual term of i 61.5 months. As of June 30, 2022, there was no intrinsic value for the warrants. No warrants have been included in diluted earnings per share as they would be anti-dilutive.
2015 Equity Incentive Plan
On November 30, 2015, the Board of Directors authorized the 2015 Equity Incentive Plan. On December 31, 2019, we issued an aggregate of shares to employees in settlement of accrued salaries totaling $ i 66,615. On January 31, 2020 we granted an option to purchase shares to a senior member of the sales team with vesting tied directly to 2020 sales goals. On April 8, 2021, the Board terminated the 2015 Equity Incentive Plan.
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. Initially, shares were available for issuance under the Plan and that number of options were also granted to employees on March 2, 2021. On April 8, 2021 the number of shares under the Plan was increased by , and an additional options were granted. On June 21, 2021 an additional 200,000 shares were made available for issuance under the Plan and options for shares were granted, but subsequently forfeited. In February 2022, we granted options with an exercise price of $ and weighted average fair value on the grant date of $.
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NOTE 9 – 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, 2022 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, 2022, the Company has i not accrued any amount for litigation contingencies.
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On July 27, 2022, the Company sold two additional convertible notes for an aggregate of $ i 75,000. On August 17, 2022, the Board granted an aggregate of options under the 2021 Equity Plan to several employees.
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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 consolidated financial statements.
OVERVIEW
Nano Magic develops, commercializes, and markets consumer and industrial products enabled by nanotechnology that solve everyday problems for customers in the optical, transportation, military, sports and safety industries. Our primary business is the formulation, marketing and sale of products enabled by nanotechnology including the ULTRA CLARITY brand eyeglass cleaner, CLARITY DEFOGIT brand defogging products and CLARITY ULTRASEAL nanocoating products for glass and ceramics. We also sell an environmentally friendly surface protector, fortifier, and cleaner.
Effective May 31, 2022, we sold a majority interest in our subsidiary, Applied Nanotech, Inc. (“ANI”). ANI performs contract research services for the Company and for governmental and private customers and that work was previously reported as our Contract research segment. We retain a 30% interest in ANI that is now recorded as an equity investment.
RESULTS OF OPERATIONS
The following comparative analysis on results of operations was based primarily on the comparative condensed consolidated financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the unaudited condensed consolidated 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, 2022 and 2021.
Comparison of Results of Continuing Operations for the Three and Six Months ended June 30, 2022 and 2021
Revenues:
For the three and six months ended June 30, 2022 and 2021, revenues from continuing operations were:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Total revenue | $ | 493,782 | $ | 1,056,653 | $ | 1,012,925 | $ | 3,127,748 | ||||||||
For the three months ended June 30, 2022, sales from continuing operations decreased by $562,871 or 53% as compared to the three months ended June 30, 2021. For the six months ended June 30, 2022 revenues decreased by $2,114,823 or 68%, as compared to the six months ended June 30, 2021. The decreases were due to the high sales of anti-fog products during the first half of 2021 when masks were required in many situations due to the COVID-19 pandemic.
Cost of sales
Cost of sales includes inventory costs, materials and supplies costs, internal labor and related benefits, subcontractor costs, depreciation, and overhead and shipping and handling costs incurred.
| Three Months ended June 30, | Six Months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cost of sales: | $ | 458,330 | $ | 474,466 | $ | 990,894 | $ | 1,583,538 | ||||||||
For the three months ended June 30, 2022, cost of revenues decreased by $16,136 or 3% as compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, cost of revenues decreased by $592,644 or 37% as compared to the six months ended June 30, 2021. Cost of sales decreased as sales volume dropped, but did not reduce proportionately because of overhead and other fixed production costs. We saw some price increases and shortages for some of our raw materials and packaging during the COVID-19 pandemic and the ongoing supply chain disruption, but thus far we have been able to obtain adequate supply.
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Gross profit and gross margin
For the three months ended June 30, 2022, gross profit was $35,452 as compared to $582,187 for the prior year, a decrease of $546,735 or 94%. For the three months ended June 30, 2022 gross margin was 7.2% as compared to 55.1% in 2021. For the six months ended June 30, 2022, gross profit was $22,031 as compared to $1,544,210 for the prior year, a decrease of $1,522,179 or 99%. For the six months ended June 30, 2022 gross margin was 2.2% as compared to 49.4% in the prior year. For the three- and six-month periods the decreases were due to lower sales volumes as well as product mix.
Operating expenses
For the three months ended June 30, 2022, operating expenses decreased by $424,823 or 33% compared to the three months ended June 30, 2021. Similarly, for the six months period operating expenses decreased by $313,139 or 14% for the period ended June 30, 2022, as compared to the six months ended June 30, 2021. For the three and six months ended June 30, 2022 and 2021, operating expenses consisted of the following:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Selling and marketing expenses | $ | 96,301 | $ | 40,324 | $ | 175,830 | $ | 77,220 | ||||||||
| Salaries, wages and related benefits | 356,118 | 760,164 | 819,339 | 1,290,543 | ||||||||||||
| Research and development | 3,211 | 7,437 | 10,700 | 9,313 | ||||||||||||
| Professional fees | 188,794 | 202,934 | 442,773 | 408,900 | ||||||||||||
| General and administrative expenses | 211,463 | 269,851 | 463,261 | 439,066 | ||||||||||||
| Total | $ | 855,887 | $ | 1,280,710 | $ | 1,911,903 | $ | 2,225,042 | ||||||||
| ● | For the three months ended June 30, 2022, selling and marketing expenses increased by $55,977 or 139% as compared to the three months ended June 30, 2021, due to increased marketing expenses, sales consultants and trade show expenses. For the six months ended June 30, 2022, selling and marketing expenses increased by $98,610 or 128% as compared to the six months ended June 30, 2021, due to the foregoing factors. |
| ● | For the three months ended June 30, 2022, salaries, wages and related benefits decreased by $404,046 or 53%, as compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, salaries, wages and related benefits decreased by $471,204 or 37%, as compared to the six-months ended June 30, 2021. These decreases were due to lower bonus and equity compensation expenses, and reduced hiring in light of lower sales volumes. |
| ● | For the three months ended June 30, 2022, research and development costs decreased by $4,226 or 57%, as compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, research and development costs increased by $1,387 or 15%, as compared to the six months ended June 30, 2021. The changes were due to the timing of expenses in the course of ongoing work. |
| ● | For the three months ended June 30, 2022, professional fees decreased by $14,140 or 7%, as compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, professional fees increased by $33,873 or 8%, as compared to the six months ended June 30, 2021. The changes were due to ongoing legal expenses related to our challenge to the SEC trading suspension and additional trademark expenses in 2022. |
| ● | For the three months ended June 30, 2022, general and administrative expenses decreased by $58,388 or 22% as compared to the three months ended June 30, 2021 due to efforts to control costs in light of reduced sales. For the six months ended June 30, 2022, general and administrative expenses increased by $24,195 or 6% as compared to the six months ended June 30, 2021. The changes were due to increased costs on recurring expenses. |
Loss (income) from operations
As a result of the factors described above, for the three months ended June 30, 2022, loss from operations amounted to $820,435 as compared to a loss of $534,003 for the three months ended June 30, 2021, a change of $286,432 or 54%. For the six months ended June 30, 2022, loss from operations amounted to $1,889,872 as compared to a loss of $180,295 for the six months ended June 30, 2021, an increase of $1,709,577 or 948%.
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Loss (income) on 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, 2022 that was a loss of $3,161.
Interest expense
For the three months ended June 30, 2022 interest expense was $8,337 as compared to $4,588, and for the six months ended June 30, 2022 interest expense was $15,635 up from $9,995 in the prior year. The increases were due to increased interest expense for financing leases.
Other income
For the three months ended June 30, 2022, other income was $3,886 as compared to $10 for the three months ended June 30, 2021. For the six months ended June 30, 2022, other income was $2,625 as compared to $10 for the six months ended June 30, 2021.
Loss from continuing operations
As a result of the foregoing, we reported a loss from operations of $828,047 for the three-month period ended June 30, 2022 and a loss of $538,581 for the three-month period in the prior year, an increase of $289,465 or 54%. For the six-month period ended June 30, 2022 our loss from continuing operations was $1,906,043 as compared to $190,280 for the six-month period ended June 30, 2021, an increase of $1,715,763 or 902%.
Income (loss) from discontinued operations
Effective May 31, 2022, we sold a 70% interest in our subsidiary ANI to two of its officers and long-time employees in exchange for a promissory note in the face amount of $450,000. We recognized a one-time gain on the sale from this operation of $1,148,255 in the period ended June 30, 2022. On a continuing basis, we recognized a loss on that investment of $13,045 for the three-month period ended June 30, 2022 and on a comparative basis a gain of $64,984 for the three-month period ended June 30, 2021. For the six months ended June 30, 2022 we had income from discontinued operations of $1,300 and income of $87,080 on a comparative basis for the three-month period ended June 30, 2021.
Net loss (income)
For the three months ended June 30, 2022, net income was $(307,133) as compared to a net loss of $473,597 for the three months ended June 30, 2021. For the six months ended June 30, 2022, net loss amounted to $756,518 as compared to a loss of $103,200 for the six months ended June 30, 2021. The difference was primarily attributed to the one-time gain of $1,148,225 recognized on the sale of ANI in the three and six months ended June 30, 2022, offset by higher losses from operations of $286,431 and $1,709,577 in the three and six-months ended June 30, 2022 as compared to the three and six-months ended June 30, 2021.
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 $1,174,129 and $392,530 of unrestricted cash as of June 30, 2022 and working capital of $1,003,127 and $197,932 of unrestricted cash as of December 31, 2021.
The following table sets forth a summary of changes in our working capital from December 31, 2021 to June 30, 2022:
| June 30, 2022 | December 31, 2021 | Change in Working Capital | Percentage Change | |||||||||||||
| Working capital: | ||||||||||||||||
| Total current assets | $ | 2,178,007 | $ | 2,156,666 | $ | 21,341 | 0.99 | % | ||||||||
| Total current liabilities | 1,003,878 | 1,153,539 | (149,661 | ) | (12.97 | )% | ||||||||||
| Working capital: | $ | 1,174,129 | $ | 1,003,127 | $ | 171,002 | 17.05 | % | ||||||||
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Current assets were essentially flat. The decrease in current liabilities was an increase in accounts payable offset by a decrease in advances from related parties and the elimination of the current liabilities of ANI as a result of the sale of a 70% interest in that subsidiary.
Net cash used by operating activities was $(1,163,180) for the six months ended June 30, 2022 as compared to net cash used by operating activities of $(42,736) for the six months ended June 30, 2021, a net change of $(1,205,916) or (2,822)%. Net cash used by operating activities for the six months ended June 30, 2022 primarily resulted from net loss from continuing operations of $(1,906,043) offset by net income from discontinued operations of $1,149,525 adjusted for add-backs of $195,740 and changes in operating assets and liabilities of $618,068.
Net cash used by continuing investing activities was $(4,910) for the six months ended June 30, 2022, as compared to net cash used by continuing investing activities of $(62,640) for the same period in 2021. Net cash used by discontinued investing activities was $0 and $(243) for the six months ended June 30, 2022 and June 30, 2021, respectively.
Net cash provided by continuing financing activities was $1,298,146 for the six months ended June 30, 2022 reflecting $1,385,000 in proceeds from sales of common stock, warrants and convertible notes, as compared to net cash provided by continuing financing activities of $1,435,527 for the same period in 2021. Net cash provided by discontinued financing activities was $20,000 and $76,305 for the six months ended June 30, 2022 and June 30, 2021, respectively.
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 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 note 6 to our unaudited condensed consolidated 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 consolidated 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”). Based upon this evaluation, our principal executive officer and principal financial officer concluded that we do not have sufficient resources in our accounting function to have segregation of duties so that the initiation of transactions, the custody of assets and the recording of transactions are performed by separate individuals. However, to the extent possible, these tasks are performed by separate individuals. Management evaluated our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
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, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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None
Not required of smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Pursuant to the agreement entered into on October 20, 2020, with the holder of substantially all the outstanding stock appreciation rights, on March 2, 2021, we issued 5,000 shares of common stock at value of $1.00 in partial settlement of that holder’s stock appreciation rights.
On March 2, 2021, the Company sold to Magic Growth 2 LLC, 769,231 shares of common stock for proceeds of $961,539 and warrants to purchase up to 769,225 shares of common stock for proceeds of $38,461. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $2.00 per share. PEN Comeback Management, LLC, owned by Tom J. Berman and Ronald J. Berman, is the sole voting member of Magic Growth 2 LLC.
On March 2, 2021, we also issued an aggregate of 37,890 shares of common stock to our directors as compensation to them for service on our Board. These shares were valued on that date at $0.95 per share based on the quoted price of the stock for a total value of $36,000.
On March 17, 2021, the Company sold to Magic Growth 2 LLC, 385,231 shares of common stock for proceeds of $481,539 and warrants to purchase up to 385,225 shares of common stock for proceeds of $19,261. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $2.00 per share.
On January 7, 2022, and again on February 14, 2022, the Company sold to several investors an aggregate of $200,000 convertible promissory notes due March 31, 2025. Issued at face value, the notes bear interest at 8% per annum, payable quarterly in cash. The notes are convertible at any time at the option of the holder into shares of common stock at a conversion price of $1.75 per share.
On January 11, 2022, the Company sold to Magic Growth 3 LLC 222,223 shares of common stock for proceeds of $388,890 and warrants to purchase up to 222,195 shares of common stock for proceeds of $11,110. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $2.25.
On February 22, 2022, the Company sold to Magic Growth 3 LLC 152,778 shares of common stock for proceeds of $267,362 and warrants to purchase up to 152,770 shares of common stock for proceeds of $7,638. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $2.25.
On April 14, 2022, the Company sold to Magic Growth 3 LLC 69,445 shares of common stock for proceeds of $121,529 and warrants to purchase up to 69,425 shares of common stock for proceeds of $3,471. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $2.25.
On May 27, 2022, the Company sold to Magic Growth 3 LLC 213,889 shares of common stock for proceeds of $374,305 and warrants to purchase up to 213,885 shares of common stock for proceeds of $10,694. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $2.25.
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On July 27, 2022, the Company sold two additional convertible notes for an aggregate of $75,000.
The sales and issuances of stock and other securities were exempt from registration under Section 4(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.
None.
| Exhibit No. | Description | |
| 4.1* | From of Amendment to Warrant[s] dated May 26, 2022
| |
| 10.1* |
| |
| 10.2* | Secured Promissory Note dated May 31, 2022 made by Jacqueline M. Soptick and Richard Lee Fink
| |
| 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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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 Holdings Inc. (Registrant) | |
| Date: August 22, 2022 | /s/ Tom J. Berman |
| Tom J. Berman, | |
| President and Chief Executive Officer | |
| Date: August 22, 2022 | /s/ Leandro Vera |
| Leandro Vera | |
| Chief Financial Officer |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/29 | ||||
| 3/31/25 | ||||
| 12/31/22 | ||||
| 12/10/22 | ||||
| Filed on: | 8/22/22 | |||
| 8/17/22 | ||||
| 8/15/22 | ||||
| 7/27/22 | ||||
| For Period end: | 6/30/22 | NT 10-Q | ||
| 5/31/22 | 4, SC 13D/A | |||
| 5/27/22 | 3, 4 | |||
| 5/26/22 | 3, 4 | |||
| 5/2/22 | ||||
| 4/14/22 | ||||
| 4/10/22 | ||||
| 3/31/22 | 10-Q | |||
| 3/30/22 | 10-K | |||
| 2/22/22 | ||||
| 2/14/22 | ||||
| 1/11/22 | ||||
| 1/7/22 | ||||
| 12/31/21 | 10-K | |||
| 6/30/21 | 10-Q | |||
| 6/21/21 | ||||
| 4/8/21 | ||||
| 3/31/21 | 10-Q | |||
| 3/17/21 | 3 | |||
| 3/2/21 | 4, 8-K | |||
| 12/31/20 | 10-K, NT 10-K | |||
| 10/20/20 | ||||
| 9/24/20 | ||||
| 9/1/20 | ||||
| 8/11/20 | ||||
| 6/10/20 | ||||
| 3/31/20 | 10-Q | |||
| 3/3/20 | ||||
| 1/31/20 | ||||
| 12/31/19 | 10-K, 10-K/A | |||
| 6/18/19 | ||||
| 11/30/15 | 4, 4/A | |||
| 2/10/15 | ||||
| List all Filings | ||||