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 May 21, 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.
STATEMENTS OF INCOME
(unaudited)
For the Three Months Ended March 31, | ||||||||
2024 | 2023 | |||||||
NET REVENUES | $ | $ | ||||||
COST OF SALES | ||||||||
GROSS PROFIT | ||||||||
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 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.
BALANCE SHEETS
(unaudited)
March 31 | December 31 | |||||||
2024 | 2023 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | $ | ||||||
Accounts receivable, net of allowance for credit losses of $ | ||||||||
Inventory, net | ||||||||
Prepaid expenses | ||||||||
Current portion of related party note receivable | ||||||||
Total Current Assets | ||||||||
Operating lease right-of-use assets, net | ||||||||
Property, plant and equipment, net | ||||||||
Related party 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’ EQUITY: | ||||||||
Preferred stock, $ | par value, shares authorized; shares issued and outstanding||||||||
Common stock: $ | par value, shares authorized; and issued and outstanding at March 31, 2024 and December 31, 2023, respectively||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Stockholders’ Equity | ||||||||
Total Liabilities and Stockholders’ Equity | $ | $ |
See accompanying notes to financial statements.
F-2 |
NANO MAGIC INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(unaudited)
Class A Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
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, March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
Common stock issued for cash, net of issuance costs | ||||||||||||||||||||
Restricted stock issued for services | - | |||||||||||||||||||
Stock-based compensation | - | |||||||||||||||||||
Net loss | - | ( | ) | ( | ) | |||||||||||||||
Balance, March 31, 2024 | $ | $ | $ | ( | ) | $ |
See accompanying notes to financial statements.
F-3 |
NANO MAGIC INC.
STATEMENTS OF CASH FLOWS
(unaudited)
For the Three Months Ended March 31, | ||||||||
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 | ||||||||
Restricted 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 | ||||||||
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 | $ | $ | ||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING AND INVESTING ACTIVITIES | ||||||||
Reduction of note receivable from subsidiary for non-cash services | $ | $ | ||||||
Reduction of rent payable through issuance of stock | $ | $ |
See accompanying notes to financial statements.
F-4 |
NANO MAGIC INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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.
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 primarily to customers in the optical industry.
Basis of Presentation
The accompanying unaudited 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 financial statements of the Company as of March 31, 2024 and for the three months ended March 31, 2024 and 2023. The results of operations for the three months ended March 31, 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 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 $
NOTE 2 – INVENTORY
At March 31, 2024 and December 31, 2023, inventory consisted of the following:
March 31, 2024 | December 31, 2023 | |||||||
Raw materials | $ | $ | ||||||
Work-in-progress | ||||||||
Finished goods | ||||||||
Less: reserve for obsolescence | ( | ) | ( | ) | ||||
Inventory, net | $ | $ |
NOTE 3 – INVESTMENT IN SUBSIDIARY
The
Company holds a note receivable from its subsidiary ANI. On March 15, 2024 we sold $
The Company accounts for its
NOTE 4 – NOTES PAYABLE AND FINANCE LEASES
Notes Payable
On
January 7, 2022, the Company sold to one investor a $
F-5 |
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 $
At
March 31, 2024 and at December 31, 2023, we had outstanding convertible notes aggregating $
Finance Leases
In December 2020, the company entered into a finance lease for production
equipment. We financed $
F-6 |
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 $
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
For
the three-month period ended March 31, 2024 and the three-months ended March 31, 2023, we accrued $
At
March 31, 2024 and at December 31, 2023, aggregate advances from Scott & Jeanne Rickert were $
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 warrants 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 5% economic interest in the landlord entity. Another director, Miles Gatland, owns 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
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
In
February 2023, we reached an agreement with the landlord of our Michigan facility to accept
F-7 |
Sales of Common Stock
During the quarter ended March 31, 2023, the Company sold
During
the quarter ended March 31, 2024, the Company sold
Stock Options
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding December 31, 2023 | $ | $ | ||||||||||||||
Exercised | ||||||||||||||||
Forfeited or expired | ( | ) | $ | - | - | |||||||||||
Granted | - | - | ||||||||||||||
Balance Outstanding, March 31, 2024 | $ | $ | ||||||||||||||
Exercisable March 31, 2024 | $ | $ |
March 31, 2024 | December 31, 2023 | |||||||
Stock options | ||||||||
Stock warrants | ||||||||
Total |
Warrants
As
of March 31, 2024, there were outstanding and exercisable warrants to purchase
F-8 |
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 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 $ . In August 2022, we granted options with an exercise price of $ and weighted average fair value on the grant date of $ .
On April 12, 2023, the Company granted options under the 2021 Equity Plan. 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 $ per share for a four-year term and were fully vested on date of grant. On May 30, 2023, the Company granted options under the 2021 Equity Plan. The options were granted to employees and consultants at an exercise price of $ per share.
No options were granted in the three-month period ending on March 31, 2024 or the three-month period ending on March 31, 2023.
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 March 31, 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 March 31, 2024, the Company has not accrued any amount for litigation contingencies.
NOTE 9 – SUBSEQUENT EVENTS
On
April 17, 2024, the Company sold
On
April 25, 2024, the Company sold another portion of the note receivable from ANI, reducing the balance owed to the Company by another
$
F-9 |
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 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.
RESULTS OF OPERATIONS
The following comparative analysis on results of operations was based primarily on the comparative financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the unaudited 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, 2024 and 2023.
Comparison of Results of Operations for the three months ended March 31, 2024 and 2023
Revenues:
For the three months ended March 31, 2024 and 2023, revenues from operations were $580,112 and $697,029, respectively. For the three months ended March 31, 2024, revenue decreased by $116,917 or 17% as compared to the three months ended March 31, 2023. The decrease for the three-month period was due primarily to delays in programs and product roll-outs with customers.
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. For the three months ended March 31, 2024 and 2023, cost of sales was $511,369 and $622,279, respectively. For the three months ended March 31, 2024, cost of sales decreased by $110,910 or 18% as compared to the three months ended March 31, 2023. The decrease for the period was due primarily to lower sales volume.
Gross profit and gross margin
For the three months ended March 31, 2024, gross profit was $68,473 as compared to $74,750 for the prior year, a change of $6,007 or 8%. For the three months ended March 31, 2024, gross margin was 11.8% as compared to 10.7% in the prior year. The improvement in gross margin is largely due to changes in customer and product mix.
Operating expenses
For the three months ended March 31, 2024, operating expenses increased by $51,104 or 7% compared to the three months ended March 31, 2023. For the three months ended March 31, 2024 and 2023, operating expenses consisted of the following:
Three Months Ended March 31, | ||||||||
2024 | 2023 | |||||||
Selling and marketing expenses | $ | 82,726 | $ | 59,424 | ||||
Salaries, wages and related benefits | 202,549 | 278,576 | ||||||
Stock compensation expense | 8,500 | 30,144 | ||||||
Research and development | 20,295 | 5,904 | ||||||
Professional fees | 218,119 | 189,459 | ||||||
General and administrative expenses | 271,428 | 189,006 | ||||||
Total | $ | 803,617 | $ | 752,513 |
● | For the three months ended March 31, 2024, selling and marketing expenses increased by $23,302 or 39% as compared to the three months ended March 31, 2023, due to additional trade show expenses in 2024. | |
● | For the three months ended March 31, 2024, salaries, wages and related benefits decreased by $76,027 or 27%, as compared to the three months ended March 31, 2023. These decreases were due to a general reduction in workforce as part of the company’s continuing effort to manage costs and to reach profitability. |
4 |
● | For the three months ended March 31, 2024, stock compensation expense decreased by $21,644 or 72%, as compared to the three months ended March 31, 2023. The decrease was due, primarily, to vesting of certain outstanding options that was completed in 2023. |
● | For the three months ended March 31, 2024, research and development costs increased by $14,391 or 244%, as compared to the three months ended March 31, 2023. The increase was due primarily to increased consultant expense. | |
● | For the three months ended March 31, 2024, professional fees increased by $28,660 or 15%, as compared to the three months ended March 31, 2023. This change reflects primarily consulting cost increases associated with outsourcing after workforce reductions. | |
● | For the three months ended March 31, 2024, general and administrative expenses increased by $82,422 or 44% as compared to the three months ended March 31, 2023. Costs increases were primarily due to increases in bad debt reserve due to aging of accounts receivable, increased travel expense for conferences and increased software expense. |
Loss from operations
As a result of the factors described above, for the three months ended March 31, 2024, loss from operations amounted to $734,874 as compared to a loss of $677,763 for the three months ended March 31, 2023, a change of $57,111 or 8%.
Income from investment in subsidiary
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, 2024, that was income of $10,123 as compared to income of $32,156 in the three months ended March 31, 2023.
Interest expense
For the three months ended March 31, 2024, interest expense was $12,437 as compared to $14,368 in the prior year. The decrease was due to maturing of financing leases in 2023.
Interest income
For the three months ended March 31, 2024, interest income was $5,981 as compared to $6,938 for the three months ended March 31, 2023. The decrease was due to a sale of a portion of the note from ANI.
Loss on sale of note receivable
For the three months ended March 31, 2024, a loss on the sale of the note receivable from ANI was $15,000.
Net loss
As a result of the foregoing, we reported a net loss of $746,207 for the three-month period ended March 31, 2024 and a loss of $653,037 for the three-month period in the prior year, a change of $93,170 or 14%.
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 $(369,388) and $189,133 of unrestricted cash as of March 31, 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 March 31, 2024:
December 31, 2023 to March 31, 2024 | ||||||||||||||||
March 31, 2024 | December 31, 2023 | Change in Working Capital | Percentage Change | |||||||||||||
Working capital: | ||||||||||||||||
Total current assets | $ | 1,194,656 | $ | 1,699,821 | $ | (505,165 | ) | (29.72 | )% | |||||||
Total current liabilities | 1,564,044 | 1,244,852 | 319,192 | 25.64 | % | |||||||||||
Working capital: | $ | (369,388 | ) | $ | 454,969 | $ | (824,357 | ) | (181.19 | )% |
5 |
The decrease in current assets is primarily attributable to a decrease in cash, as well as decreases in inventory, accounts receivable and a smaller current portion on the note receivable from ANI. Additionally, the increase in reserves for inventory and accounts receivable also contributed to the decrease in current assets.
Net cash used by operating activities was $(476,043) for the three months ended March 31, 2024 as compared to net cash used by operating activities of $(303,024) for the three months ended March 31, 2023, a net change of $(173,019) or 57%. Net cash used by operating activities for the three months ended March 31, 2024 primarily resulted from net loss from operations of $(746,207) adjusted for add-backs of $132,163 and changes in operating assets and liabilities of $138,001.
Net cash provided by investing activities was $87,656 for the three months ended March 31, 2024, as compared to $17,171 for the same period in 2023, primarily due to proceeds from the note receivable in March of 2024.
Net cash provided by financing activities was $50,058 for the three months ended March 31, 2024 reflecting $55,000 in proceeds from sales of common stock, as compared to net cash provided by financing activities of $82,416 for the same period in 2023, reflecting $95,000 in proceeds from sales of common stock and warrants.
Future Liquidity and Capital Needs.
The factors above raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these unaudited 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.
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.
Equipment Financing and Loans
See note 4 to our unaudited 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”). 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.
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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 March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
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.
ITEM 5. OTHER INFORMATION
None.
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: May 21, 2024 | /s/ Tom J. Berman |
Tom J. Berman, | |
President and Chief Executive Officer | |
Date: May 21, 2024 | /s/ Leandro Vera |
Leandro Vera | |
Chief Financial Officer |
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