SCHEDULE OF DISPOSAL GROUPS ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS SUMMARIZED
| |
December
31 | |
| |
2021 | |
ASSETS | |
| |
CURRENT
ASSETS: | |
| | |
Cash
and investments | |
$ | 55,258 | |
Accounts
receivable, net | |
| 19,115 | |
Total
Current Assets | |
| 74,373 | |
Operating
lease right-of-use assets | |
| 90,852 | |
Property,
plant and equipment, net | |
| 945 | |
Other
assets | |
| 5,890 | |
Total
Assets | |
$ | 172,060 | |
| |
| | |
LIABILITIES
AND STOCKHOLDERS’ EQUITY | |
| | |
CURRENT
LIABILITIES: | |
| | |
Accounts
payable | |
$ | 475,283 | |
Accrued
expenses and other current liabilities | |
| 12,434 | |
Current
portion of lease liabilities | |
| 42,291 | |
Contract
liabilities | |
| 45,762 | |
Total
Current Liabilities | |
| 575,770 | |
Notes
Payable, net of current portion | |
| 54,883 | |
Lease
liabilities, net of current portion | |
| 56,724 | |
Total
Liabilities | |
$ | 687,377 | |
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 | |
$ | 91,329 | | |
$ | 311,915 | | |
$ | 258,444 | | |
$ | 551,995 | |
Cost of Sales | |
| 76,947 | | |
| 204,959 | | |
| 211,029 | | |
| 380,083 | |
Gross Profit | |
| 14,382 | | |
| 106,956 | | |
| 47,415 | | |
| 171,912 | |
| |
| | | |
| | | |
| | | |
| | |
Salaries, wages and related benefits | |
| 17,684 | | |
| 21,438 | | |
| 23,573 | | |
| 42,789 | |
General and administrative expenses | |
| 9,514 | | |
| 12,920 | | |
| 21,961 | | |
| 26,663 | |
Professional fees | |
| - | | |
| 6,951 | | |
| - | | |
| 14,715 | |
Interest and other expense | |
| 229 | | |
| 663 | | |
| 581 | | |
| 665 | |
Net income (loss) on discontinued operations | |
$ | (13,045 | ) | |
$ | 64,984 | | |
$ | 1,300 | | |
$ | 87,080 | |
NOTE
3 – INVENTORY
At
June 30, 2022 and December 31, 2021, inventory consisted of the following:
SCHEDULE OF INVENTORY
| |
June 30, 2022 | | |
December 31, 2021 | |
Raw materials | |
$ | 617,910 | | |
$ | 673,518 | |
Work-in-progress | |
| 315,470 | | |
| 314,461 | |
Finished goods | |
| 459,201 | | |
| 456,768 | |
Inventory, gross | |
| 1,392,581 | | |
| 1,444,747 | |
Less: reserve for obsolescence | |
| (68,073 | ) | |
| (65,742 | ) |
Inventory, net | |
$ | 1,324,508 | | |
$ | 1,379,005 | |
NOTE
4 – INVESTMENT IN SUBSIDIARY
The
Company is accounting for its 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 30% share will be treated as a reduction of the investment account. 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.
NOTE
5 – FACTORING
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 no
costs associated with this program for the three-month and six-month periods ended June 30, 2022. Costs associated with this program were $5,593 and $9,057 for the three-month and six-month periods ended June 30,
2021, respectively.
NOTE
6 – DEBT AND EQUIPMENT FINANCING
On
February 10, 2015, Nano Magic entered into a $373,000 promissory note (the “Equipment Note”) with KeyBank, N.A. (the “Bank”).
The unpaid principal balance of this Equipment Note is payable in 60 equal monthly instalments payments of principal and interest through
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 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 April 10, 2022, the interest rate was raised to
6.29% per year, and the monthly payments were reduced to $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 December 10, 2022. The interest rate remains the same at 6.29% per year and
the monthly payments remain at $4,053 per month. At June 30, 2022, the principal amount due under the Equipment Note amounted to $26,223
and is current.
On
August 11, 2020, the company entered into a finance lease for furniture. We financed $60,684 over a period of 36 months with monthly
payments of $1,972 during that time. As of June 30, 2022, the balance on the lease was $24,136; the current and non-current portions
were $22,181 and $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
$14,250. The lease term is 36 months with monthly payments of $425. As of June 30, 2022, the balance on the lease was $6,184; the current
and non-current portions were $4,918 and $1,266, respectively.
In
December 2020, the company entered into a finance lease for production equipment. We financed $85,000 over a period of 48 months with
monthly payments of $2,135 during that time. As of June 30, 2022, the balance on the lease was $56,280; the current and non-current portions
were $20,858 and $35,422, respectively.
In
January and February of 2022, the company issued three convertible promissory notes for $200,000.
The notes bear interest at a rate of 8%
per annum and accrue during the term of the loan, payable semi-annually. The notes mature on March
31, 2025 and can be converted to common stock at any time at the option of the holders at a conversion price of $1.75
per share. The convertible promissory notes have not been included in diluted earnings per share as they would be anti-dilutive.
NOTE
7 – RELATED PARTY TRANSACTIONS
For
the three month and six-month periods ended June 30, 2022, we accrued $6,000 each period in fees for each of the directors. Other compensation
paid to directors was:
SCHEDULE
OF RELATED PARTY TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months ended June 30, |
|
|
Six
Months ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Ronald
J. Berman |
|
$ |
30,000 |
+ |
|
$ |
45,094 |
+
|
|
$ |
84,150 |
+ |
|
$ |
107,694 |
|
Tom
J. Berman |
|
$ |
60,300 |
* |
|
$ |
93,546 |
* |
|
$ |
115,600 |
* |
|
$ |
266,499 |
* |
Scott
E. Rickert |
|
$ |
15,000 |
++ |
|
$ |
12,000 |
++ |
|
$ |
30,000 |
++ |
|
$ |
22,500 |
++ |
Related
party debt |
|
$ |
15,000 |
++ |
|
$ |
12,000 |
++ |
|
$ |
30,000 |
++ |
|
$ |
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 5% economic interest in the landlord
entity. Another director, Miles Gatland, owns a 12.5% interest in the Michigan landlord and he is a co-guarantor on the debt of that
limited liability company. 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.
NOTE
8 – 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 and Stock Appreciation Rights
On
March 2, 2021, we 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.
Sales
of Common Stock and Derivative Equity Securities
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 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 $19,260. 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.
In
total for the six months ended June 30, 2022, 658,335 shares of common stock were sold and issued for $1,152,086. Additionally, 658,275
warrants were sold for $32,914 and three convertible notes were issued for $200,000.
Stock
Options
Stock
options to purchase common stock outstanding at June 30, 2022 include the 130,700 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.
SCHEDULE OF STOCK OPTION PLAN ACTIVITY
| |
Number of
Options | | |
Weighted
Average
Exercise
Price | | |
Weighted
Average
Remaining
Contractual Term (Years) | | |
Aggregate
Intrinsic
Value | |
Outstanding December 31, 2021 | |
| 2,133,702 | | |
$ | 0.77 | | |
| 4.93 | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Issued | |
| 130,700 | | |
$ | 0.80 | | |
| - | | |
| - | |
Expired & forfeited | |
| (128,264 | ) | |
| 1.87 | | |
| - | | |
| - | |
Outstanding June 30, 2022 | |
| 2,136,138 | | |
$ | 0.71 | | |
| 2.98 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable June 30, 2022 | |
| 1,139,196 | | |
$ | 0.68 | | |
| 2.78 | | |
$ | - | |
SCHEDULE OF STOCK OPTIONS AND WARRANTS
| |
|
June 30, 2022 | | |
|
December 31, 2021 | |
Stock options | |
| 2,136,138 | | |
| 2,133,702 | |
Stock warrants | |
| 7,255,453 | | |
| 6,597,178 | |
Total | |
| 9,391,591 | | |
| 8,730,880 | |
Total Stock options and stock warrants | |
| 9,391,591 | | |
| 8,730,880 | |
Warrants
As
of June 30, 2022, there were outstanding and exercisable warrants to purchase 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 two
years to
the term of each of the 4,052,003
warrants
issued in that period. The outstanding warrants have a weighted average exercise price of $1.72
per
share and a weighted average remaining contractual term of 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
102,500 shares to employees in settlement of accrued salaries totaling $66,615. On January 31, 2020 we granted an option to purchase
100,000 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, 85,000 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 2,500, and an additional 2,500 options were granted. On June 21, 2021 an additional 200,000 shares were made available for issuance
under the Plan and options for 100,000 shares were granted, but subsequently forfeited. In February 2022, we granted 130,700 options
with an exercise price of $0.80 and weighted average fair value on the grant date of $0.60.
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 not accrued any amount for litigation contingencies.
NOTE
10 – SUBSEQUENT EVENTS
On
July 27, 2022, the Company sold two additional convertible notes for an aggregate of $75,000. On August 17, 2022, the Board granted an aggregate of 25,000 options under the 2021 Equity Plan to several employees.