SEC Info - Nano Magic Inc. - ‘10-Q’ for 3/31/23

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		Alternative Formats (Word, et al.) Condensed Consolidated Balance Sheets-March 31, 2023 and December 31, 2022 Condensed Consolidated Statements of Cash Flows-Three months Ended March 31, 2023 and 2022 Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2023 and 2022 Condensed Consolidated Statements of Operations-Three months Ended March 31, 2023 and 2022 Controls and Procedures Defaults Upon Senior Securities Exhibits Financial Statements (Unaudited) Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Mine Safety Disclosures Notes to Unaudited Condensed Consolidated Financial Statements Other Information Part I. Financial Information Part II. Other Information Quantitative and Qualitative Disclosures about Market Risk Risk Factors Signatures Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Part I. Financial Information
"	Item 1. Financial Statements (Unaudited)
"	Condensed Consolidated Statements of Operations-Three months Ended March 31, 2023 and 2022
"	Condensed Consolidated Balance Sheets-March 31, 2023 and December 31, 2022
"	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2023 and 2022
"	Condensed Consolidated Statements of Cash Flows-Three months Ended March 31, 2023 and 2022
"	Notes to Unaudited Condensed Consolidated Financial Statements
"	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 3. Quantitative and Qualitative Disclosures about Market Risk
"	Item 4. Controls and Procedures
"	Part II. Other Information
"	Item 1. Legal Proceedings
"	Item 1A. Risk Factors
"	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
"	Item 3. Defaults Upon Senior Securities
"	Item 4. Mine Safety Disclosures
"	Item 5. Other Information
"	Item 6. Exhibits
"	Signatures

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i ☒ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

i ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ i No.

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.

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.

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.

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.

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 months ended March 31, 2023 and 2022.

Comparison of Results of Continuing Operations for the Three months ended March 31, 2023 and 2022

For the three months ended March 31, 2023 and 2022, revenues from continuing operations were:

For the three months ended March 31, 2023, sales from continuing operations increased by $177,886 or 34% as compared to the three months ended March 31, 2022. The increase for the three-month period was due primarily to growth in the company’s e-commerce sales channel. Going-forward, the company wants to grow sales in channels that have lower costs to improve margin.

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.

For the three months ended March 31, 2023, cost of revenues increased by $89,715 or 17% as compared to the three months ended March 31, 2022. The increase for the period was due primarily to increased sales volume overall. As a percentage of sales, e-commerce transaction fees and customer acquisition costs were a significant contributor.

For the three months ended March 31, 2023, gross profit was $74,750 as compared to a loss of $13,421 for the prior year, a change of $88,171 or 657%. For the three months ended March 31, 2023, gross margin was 10.7% as compared to (2.6)% in the prior year. The improvement in gross margin is largely attributed to an increase in sales volume enabling the company to cover fixed costs. Efforts to reduce costs also resulted in a reduction in production overhead expenses that improved margin.

For the three months ended March 31, 2023, operating expenses decreased by $303,504 or 29% compared to the three months ended March 31, 2022. For the three months ended March 31, 2023 and 2022, operating expenses consisted of the following:

As a result of the factors described above, for the three months ended March 31, 2023, loss from operations amounted to $677,763 as compared to a loss of $1,069,438 for the three months ended March 31, 2022, a change of $391,675 or 37%.

As a result of the sale of a 70% interest in ANI on May 31, 2022, we now report our 30% share of ANI’s income or loss as an investment in a subsidiary. For the three months ended March 31, 2023, that was income of $32,156 as compared to $0 in the three months ended March 31, 2022.

For the three months ended March 31, 2023, interest expense was $14,368 as compared to $8,559 in the prior year. The increase was due to interest expense for convertible notes issued in 2022 and 2023.

For the three months ended March 31, 2023, other income was $6,938 as compared to other expense of $0 for the three months ended March 31, 2022. The increase was due to interest income from a note receivable from the subsidiary in which we sold our controlling interest in May 2022.

As a result of the foregoing, we reported a loss from continuing operations of $653,037 for the three-month period ended March 31, 2023 and a loss of $1,077,997 for the three-month period in the prior year, an improvement of $424,960 or 39%.

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. On a continuing basis, we no longer recognize income from this operation in the statement of operations, while in the comparative period for the three months ended March 31, 2022, we recognized income of $14,345.

For the three months ended March 31, 2023, net loss was $653,037 as compared to a net loss of $1,063,652 for the three months ended March 31, 2022.

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 $99,508 and $55,786 of unrestricted cash as of March 31, 2023 and working capital of $524,389 and $259,223 of unrestricted cash as of December 31, 2022.

The decrease in current assets is primarily attributable to a decrease in inventory and cash.

Net cash used by operating activities was $(303,024) for the three months ended March 31, 2023 as compared to net cash used by operating activities of $(752,515) for the three months ended March 31, 2022, a net change of $(449,491) or 60%. Net cash used by operating activities for the three months ended March 31, 2023 primarily resulted from net loss from continuing operations of $(653,037) adjusted for add-backs of $102,651 and changes in operating assets and liabilities of $247,362.

Net cash provided by continuing investing activities was $17,171 for the three months ended March 31, 2023, as compared to net cash used by continuing investing activities of $(4,910) for the same period in 2022.

Net cash provided by continuing financing activities was $82,416 for the three months ended March 31, 2023 reflecting $95,000 in proceeds from sales of common stock and warrants, as compared to net cash provided by continuing financing activities of $818,325 for the same period in 2022, reflecting proceeds of $675,000 from sales of common stock and proceeds of $200,000 from the issuance of convertible debt, offset by $36,065 in repayments of related party advances.

Our principal future uses of cash are for working capital requirements, including working capital to pay down accounts payable, and support increased product sales, and sales and marketing expenses. Application of funds among these uses will depend on numerous factors including our sales and other revenues and our ability to control costs.

See note 5 to our unaudited condensed consolidated financial statements regarding our equipment loan and financing leases.

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.

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.

There were no changes identified in connection with our internal control over financial reporting during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For the three months ended March 31, 2023, the Company sold 74,806 shares of common stock for proceeds of $93,507. Additionally, 74,626 warrants were sold for $1,492. 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 12, 2023, the Company granted 47,610 options under the 2021 Equity Plan and an additional 30,000 in options to Tom J. Berman our President. The options were granted to individuals in lieu of cash for a portion of their salary for the period from December 31, 2022 through March 31, 2023. All options are at an exercise price of $0.65 per share for a four-year term and were fully vested on date of grant.

On April 14, 2023, the Company sold 196,851 shares of common stock to an accredited investor for proceeds of $246,064 and sold to that investor warrants to purchase up to 196,813 shares of common stock for proceeds of $3,936. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $1.75.

On May 8, 2023, as part of a settlement agreement entered into on April 27, 2023, the Company sold to the counterparty 57,143 shares of common stock for proceeds of $100,000 at a price of $1.75 per share.

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.

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.

i Delaware		i 47-1598792
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Title of each class		Trading Symbol		Name of Each Exchange on Which Registered
i Common Stock, $0.0001 par value		i NMGX		OTC Markets

Large accelerated filer ☐	Accelerated filer ☐

i Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company i ☒

	2023			2022
	For the Three Months Ended
	March 31,
	2023			2022

NET REVENUES	$	i 697,029		$	i 519,143

COST OF SALES		i 622,279			i 532,564

GROSS PROFIT (LOSS)		i 74,750			( i 13,421	)

OPERATING EXPENSES:
Selling and marketing expenses		i 59,424			i 79,529
Salaries, wages and related benefits		i 308,720			i 463,222
Research and development		i 5,904			i 7,489
Professional fees		i 189,459			i 253,979
General and administrative expenses		i 189,006			i 251,798

Total Operating Expense		i 752,513			i 1,056,017

LOSS FROM OPERATIONS		( i 677,763	)		( i 1,069,438	)

OTHER INCOME (EXPENSE)
Income from investment in subsidiary		i 32,156			-
Interest expense		( i 14,368	)		( i 8,559	)
Other income		i 6,938			-
Total Other Income (Expense)		i 24,726			( i 8,559	)

LOSS FROM CONTINUING OPERATIONS		( i 653,037	)		( i 1,077,997	)

INCOME FROM DISCONTINUED OPERATIONS		-			i 14,345

NET LOSS	$	( i 653,037	)	$	( i 1,063,652	)

NET LOSS PER SHARE - BASIC:
Continuing operations	$	( i 0.06	)	$	( i 0.11	)
Discontinued operations		-			-
NET LOSS PER SHARE - BASIC:	$	( i 0.06	)	$	( i 0.11	)

NET LOSS PER SHARE - DILUTED:
Continuing operations	$	( i 0.06	)	$	( i 0.11	)
Discontinued operations		-			-
NET LOSS PER SHARE - DILUTED:	$	( i 0.06	)	$	( i 0.11	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		i 10,738,962			i 9,945,658
Diluted		i 10,738,962			i 9,945,658

	March 31,			December 31,
	2023			2022
ASSETS

CURRENT ASSETS:
Cash	$	i 55,786		$	i 259,223
Accounts receivable, net		i 349,395			i 348,565
Inventory, net		i 1,055,780			i 1,120,073
Prepaid expenses		i 88,010			i 132,997
Current portion of note receivable		i 40,000			i 40,000
Total Current Assets		i 1,588,971			i 1,900,858
Operating lease right-of-use assets		i 990,775			i 1,037,749
Property, plant and equipment, net		i 500,337			i 525,809
Note receivable, non-current		i 334,636			i 375,983
Non-marketable equity investment in subsidiary		i 282,302			i 250,146
Total Assets	$	i 3,697,021		$	i 4,090,545

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	i 757,051		$	i 762,524
Accounts payable - related parties		i 177,117			i 87,119
Accounts payable		i 177,117			i 87,119
Accrued expenses and other current liabilities		i 307,749			i 276,132
Current portion of notes payable		i 25,000			i 26,629
Current portion of finance leases		i 32,702			i 39,005
Advances from related parties		i 42,887			i 42,887
Current portion of operating lease liabilities		i 146,957			i 142,173
Total Current Liabilities		i 1,489,463			i 1,376,469
Notes Payable, net of current portion		i 350,000			i 350,000
Finance leases, net of current portion		i 18,367			i 24,194
Operating lease liabilities, net of current portion		i 683,623			i 722,420
Total Liabilities		i 2,541,453			i 2,473,083

Commitments and Contingencies (See Note 8)		-			-

STOCKHOLDERS’ EQUITY:
Preferred stock, $ i i 0.0001 / par value, i i 100,000 / shares authorized; i i i i no / / / shares issued and outstanding		-			-
Common stock: $ i i 0.0001 / par value, i i 30,000,000 / shares authorized; i i 10,850,037 / and i i 10,722,431 / issued and outstanding at March 31, 2023 and December 31, 2022, respectively		i 1,084			i 1,072
Additional paid-in capital		i 13,954,274			i 13,763,143
Accumulated deficit		( i 12,799,790	)		( i 12,146,753	)
Total Stockholders’ Equity		i 1,155,568			i 1,617,462
Total Liabilities and Stockholders’ Equity	$	i 3,697,021		$	i 4,090,545

Nano Magic Inc. – ‘10-Q’ for 3/31/23

On: Monday, 5/15/23, at 12:29pm ET · For: 3/31/23 · Accession #: 1493152-23-17092 · File #: 1-11602

Previous ‘10-Q’: ‘10-Q’ on 11/14/22 for 9/30/22 · Next: ‘10-Q’ on 8/14/23 for 6/30/23 · Latest: ‘10-Q’ on 11/14/23 for 9/30/23

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

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Dates Referenced Herein and Documents Incorporated by Reference

		Page
Part I. Financial Information

Item 1. Financial Statements (Unaudited)		F-1

Condensed Consolidated Statements of Operations—Three months Ended March 31, 2023 and 2022		F-1

Condensed Consolidated Balance Sheets—March 31, 2023 and December 31, 2022		F-2

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022		F-3

Condensed Consolidated Statements of Cash Flows—Three months Ended March 31, 2023 and 2022		F-4

Notes to Unaudited Condensed Consolidated Financial Statements		F-5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		4

Item 3. Quantitative and Qualitative Disclosures about Market Risk		7

Item 4. Controls and Procedures		7

Part II. Other Information		8

Item 1. Legal Proceedings		8

Item 1A. Risk Factors		8

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		8

Item 3. Defaults Upon Senior Securities		8

Item 4. Mine Safety Disclosures		8

Item 5. Other Information		8

Item 6. Exhibits		9

Signatures		10

		March 31, 2023		December 31, 2022
	March 31, 2023			December 31, 2022
Raw materials	$	i 688,043		$	i 695,774
Work-in-progress		i 243,284			i 256,095
Finished goods		i 314,048			i 353,082
Inventory, gross		i 1,245,375			i 1,304,951
Less: reserve for obsolescence		( i 189,595	)		( i 184,878	)
Inventory, net	$	i 1,055,780		$	i 1,120,073

	March 31, 2023		December 31, 2022
Stock options		i 2,760,615		i 2,760,991
Stock warrants		i 7,515,265		i 7,440,639
Total		i 10,275,880		i 10,201,630

	Three Months ended March 31,
	2023		2022
Cost of sales:	$	622,279	$	532,564

					December 31, 2022 to March 31, 2023
	March 31, 2023		December 31, 2022		Change in Working Capital			Percentage Change
Working capital:
Total current assets	$	1,588,971	$	1,900,858	$	(311,887	)		(16.41	)%
Total current liabilities		1,489,463		1,376,469		112,994			8.21	%
Working capital:	$	99,508	$	524,389	$	(424,881	)		(81.02	)%

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.

	Nano Magic Holdings Inc. (Registrant)

Date: May 15, 2023	/s/ Tom J. Berman
	Tom J. Berman,
	President and Chief Executive Officer

Date: May 15, 2023	/s/ Leandro Vera
	Leandro Vera
	Chief Financial Officer

This ‘10-Q’ Filing	Date	Other Filings

	12/31/29
	3/31/26
	3/31/25
	12/31/23
	10/31/23
Filed on:	5/15/23
	5/8/23
	4/27/23
	4/14/23
	4/12/23
	4/11/23	10-K
For Period end:	3/31/23
	12/31/22	10-K, 8-K, NT 10-K
	12/18/22
	12/10/22
	10/26/22
	8/22/22	10-Q
	7/27/22
	5/31/22	4, SC 13D/A
	5/26/22	3, 4
	5/2/22
	4/10/22
	3/31/22	10-Q
	1/31/22
	1/26/22
	1/7/22
	12/31/21	10-K
	6/21/21
	4/8/21
	3/2/21	4, 8-K
	9/24/20
	8/11/20
	6/10/20
	6/18/19
	2/10/15
		List all Filings