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 from discontinued operations:
SCHEDULE
OF INCOME (LOSS) FROM DISCONTINUED OPERATIONS
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Net Revenues | |
$ | - | | |
$ | 146,202 | | |
$ | 258,444 | | |
$ | 698,197 | |
Cost of Sales | |
| - | | |
| 137,551 | | |
| 211,029 | | |
| 517,634 | |
Gross Profit | |
| - | | |
| 8,651 | | |
| 47,415 | | |
| 180,563 | |
| |
| | | |
| | | |
| | | |
| | |
Salaries, wages and related benefits | |
| - | | |
| 21,054 | | |
| 23,573 | | |
| 63,843 | |
General and administrative expenses | |
| - | | |
| 8,116 | | |
| 21,961 | | |
| 47,869 | |
Professional fees | |
| - | | |
| 13,090 | | |
| - | | |
| 14,715 | |
Other income | |
| - | | |
| (79,305 | ) | |
| | | |
| (79,305 | ) |
Interest and other expense | |
| - | | |
| 93 | | |
| 581 | | |
| 758 | |
Income on discontinued operations | |
| - | | |
| 45,603 | | |
| 1,300 | | |
| 132,683 | |
Gain on sale of discontinued operations | |
| - | | |
| - | | |
| 1,148,225 | | |
| - | |
Net income from discontinued operations | |
$ | - | | |
$ | 45,603 | | |
$ | 1,149,525 | | |
$ | 132,683 | |
NOTE
3 – INVENTORY
At
September 30, 2022 and December 31, 2021, inventory consisted of the following:
SCHEDULE OF INVENTORY
| |
| 1 | | |
| 1 | |
| |
September 30, 2022 | | |
December 31, 2021 | |
Raw materials | |
$ | 703,093 | | |
$ | 673,518 | |
Work-in-progress | |
| 303,774 | | |
| 314,461 | |
Finished goods | |
| 380,615 | | |
| 456,768 | |
Inventory, gross | |
| 1,387,482 | | |
| 1,444,747 | |
Less: reserve for obsolescence | |
| (62,854 | ) | |
| (65,742 | ) |
Inventory, net | |
$ | 1,324,628 | | |
$ | 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. As of
June 30, 2022, the investment was $189,696. For the three-month period ended September 30, 2022, the Company recorded income from the investment of $19,203
increasing the balance to $208,899 on September 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 nine-month periods ended September
30, 2022. Costs associated with this program were $1,451 and $10,511 for the three-month and nine-month periods ended September 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 September 30, 2022, the principal amount due under the Equipment Note amounted to
$14,421 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 September 30, 2022, the balance on the lease was $18,806 and is current.
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 September 30, 2022, the balance on the lease was $4,977 and is current.
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 September 30, 2022, the balance on the lease was $51,258; the current and non-current
portions were $21,380 and $29,878, respectively.
In
January and February of 2022, the company issued three convertible promissory notes for $200,000.
In the three months ended September 30, 2022, three additional notes were issued aggregating $100,000.
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 March 31, 2026, and all 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 nine-month periods ended September 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
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three Months ended
September 30, | | |
Nine Months ended
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Ronald J. Berman | |
$ | 30,000 | | |
$ | 30,000 | | |
$ | 114,150 | | |
$ | 137,693 | |
Tom J. Berman | |
$ | 30,000 | | |
$ | 35,207 | | |
$ | 145,900 | | |
$ | 304,704 | |
Related party debt | |
$ | 30,000 | | |
$ | 35,207 | | |
$ | 145,900 | | |
$ | 304,704 | |
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
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.
On
August 29, 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.
In
total for the nine months ended September 30, 2022, 727,780
shares of common stock were sold and issued for $1,273,615.
Additionally, 727,700
warrants were sold for $36,385
and six convertible notes were issued for $300,000.
Stock
Options
Stock
options to purchase common stock outstanding at September 30, 2022 include the 130,700
options granted in February 2022 and 15,000 options granted in August 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 | |
| 145,700 | | |
$ | 0.80 | | |
| - | | |
| - | |
Expired & forfeited | |
| (143,163 | ) | |
$ | 1.76 | | |
| - | | |
| - | |
Outstanding September 30, 2022 | |
| 2,136,239 | | |
$ | 0.71 | | |
| 2.73 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable September 30, 2022 | |
| 1,168,329 | | |
$ | 0.68 | | |
| 2.58 | | |
$ | - | |
SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
| |
September 30, 2022 | | |
December 31, 2021 | |
Stock options | |
| 2,136,239 | | |
| 2,133,702 | |
Stock warrants | |
| 7,324,878 | | |
| 6,597,178 | |
Total | |
| 9,461,117 | | |
| 8,730,880 | |
Warrants
As
of September 30, 2022, there were outstanding and exercisable warrants to purchase 7,324,878 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 61.3 months. As of September 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. In August 2022, we granted 15,000 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 September 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 September 30, 2022, the Company has not accrued any amount for litigation contingencies.
NOTE
10 – SUBSEQUENT EVENTS
On October 26, 2022, the Company received $25,000
for a convertible promissory note with a one-year maturity and 8% interest rate.