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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2021

 

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

 

COMMISSION FILE NO. 1-11602

 

NANO MAGIC HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

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

 

31601 Research Park Drive, Madison Heights, MI 48071

(Address of principal executive office, including Zip Code)

 

Registrant’s telephone number, including area code: (844) 273-6462

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

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

 

Securities registered pursuant to Section 12(g) of the Exchange Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes ☒ 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  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
   
Non-accelerated filer ☐ (Do not check if a smaller reporting company) 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 ☒ No.

 

As of October 15, 2021, the registrant had 9,657,347 shares of Common Stock issued and outstanding.

 

 

 

 
 

 

Nano Magic Holdings Inc.

 

INDEX

 

    Page
Part I. Financial Information  
     
  Item 1. Financial Statements (Unaudited) F-1
     
  Condensed Consolidated Statements of Operations—Three and Six Months Ended June 30, 2021 and 2020 F-1
     
  Condensed Consolidated Balance Sheets—June 30, 2021 and December 31, 2020 F-2
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended June 30, 2021 and 2020 F-3
     
  Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2021 and 2020 (unaudited) F-4
     
  Condensed Consolidated Statements of Cash Flows—Six Months Ended June 30, 2021 and 2020 F-5
     
  Notes to Unaudited Condensed Consolidated Financial Statements F-6
     
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
     
  Item 3. Quantitative and Qualitative Disclosures about Market Risk 8
     
  Item 4. Controls and Procedures 9
     
Part II. Other Information  
     
  Item 1. Legal Proceedings 9
     
  Item 1A. Risk Factors 9
     
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 9
     
  Item 3. Defaults Upon Senior Securities 10
     
  Item 4. Mine Safety Disclosures 10
     
  Item 5. Other Information 10
     
  Item 6. Exhibits 10
     
Signatures 11

 

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 HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

      1       2       3       4  
    For the Three Months Ended     For the Six Months Ended  
    June 30,     June 30,  
    2021     2020     2021     2020  
                 
REVENUES:                                
Products   $ 1,130,397     $ 908,062     $ 3,312,843     $ 1,149,779  
Contract services     238,171       244,422       366,900       450,879  
                                 
Total Revenues     1,368,568       1,152,484       3,679,743       1,600,658  
                                 
COST OF REVENUES:                                
Products     499,173       600,781       1,630,941       823,599  
Contract services     180,250       155,004       332,680       321,903  
                                 
Total Cost of Revenues     679,423       755,785       1,963,621       1,145,502  
                                 
GROSS PROFIT     689,145       396,699       1,716,122       455,156  
                                 
OPERATING EXPENSES:                                
Selling and marketing expenses     40,324       4,826       77,220       15,883  
Salaries, wages and related benefits     781,602       163,831       1,333,332       308,465  
Research and development     7,437       14,383       9,313       31,035  
Professional fees     198,419       359,420       410,525       484,172  
General and administrative expenses     294,238       136,234       478,820       273,304  
Other operating income     (164,521 )     -       (500,538 )     -  
                                 
Total Operating Expense, net     1,157,499       678,694       1,808,672       1,112,859  
                                 
LOSS FROM OPERATIONS     (468,354 )     (281,995 )     (92,550 )     (657,703 )
                                 
OTHER (EXPENSE) INCOME:                                
Interest expense     (4,868 )     (519 )     (10,275 )     (2,627 )
Miscellaneous (Expense) Income, net     (375 )     237       (375 )     237  
                                 
Total Other (Expense) Income     (5,243 )     (282 )     (10,650 )     (2,390 )
                                 
NET (LOSS)   $ (473,597 )   $ (282,277 )   $ (103,200 )   $ (660,093 )
                                 
NET (LOSS) PER COMMON SHARE:                                
Basic   $ (0.05 )   $ (0.04 )   $ (0.01 )   $ (0.10 )
Diluted   $ (0.05 )   $ (0.04 )   $ (0.01 )   $ (0.10 )
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                                
Basic     9,657,347       7,199,942       9,285,956       6,850,643  
Diluted     9,657,347       7,199,942       9,285,956       6,850,643  

 

See accompanying notes to condensed consolidated financial statements.

 

F-1
 

 

NANO MAGIC HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

    June 30     December 31  
    2021     2020  
         
ASSETS                
                 
CURRENT ASSETS:                
Cash   $ 1,694,347     $ 288,134  
Investments     10,716       10,473  
Accounts receivable, net     549,269       1,235,069  
Accounts receivable - related party     1,390       -  
Inventory     1,232,688       841,694  
Prepaid expenses and contract assets     500,828       278,461  
Total Current Assets     3,989,238       2,653,831  
Operating lease right-of-use assets     1,415,581       1,518,308  
Property, plant and equipment, net     629,538       613,471  
Other assets     5,890       5,890  
Total Assets   $ 6,040,247     $ 4,791,500  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
CURRENT LIABILITIES:                
Accounts payable   $ 933,962     $ 1,136,756  
Accounts payable - related parties     -       12,000  
Accrued expenses and other current liabilities     236,042       351,075  
Customer deposits     25,508       -  
Current portion of debt     317,830       97,581  
Advances from related parties     122,887       145,387  
Current portion of operating lease liabilities     155,336       186,898  
Contract liabilities     -       90,562  
Total Current Liabilities     1,791,565       2,020,259  
Debt, net of current portion     145,764       178,300  
Operating Lease liabilities, net of current portion     1,007,181       1,195,521  
Total Liabilities     2,944,510       3,394,080  
                 
Commitments and Contingencies (See Note 7)     -       -  
                 
STOCKHOLDERS’ EQUITY:                
Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued and outstanding     -       -  
Class A common stock: $0.0001 par value, 30,000,000 shares authorized; 9,657,347 issued and outstanding at June 30, 2021 and December 31, 2020, respectively     965       846  
Additional paid-in capital     11,668,572       9,867,174  
Accumulated deficit     (8,573,800 )     (8,470,600 )
Total Stockholders’ Equity     3,095,737       1,397,420  
Total Liabilities and Stockholders’ Equity   $ 6,040,247     $ 4,791,500  

 

See accompanying notes to condensed consolidated financial statements.

 

F-2
 

 

NANO MAGIC HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2020

(unaudited)

 

              1       2       3       4  
                Additional           Total  
    Class A Common Stock     Paid-in     Accumulated     Stockholders’  
    Shares     Amount     Capital     Deficit     Equity  
                               
Balance, March 31, 2021     9,657,347     $ 965     $ 11,435,286     $ (8,100,203 )   $    3,336,048  
                                         
Stock-based compensation     -       -       233,286       -       233,286  
                                         
Net loss     -       -       -       (473,597 )     (473,597 )
                                         
Balance, June 30, 2021     9,657,347     $ 965     $ 11,668,572     $ (8,573,800 )   $ 3,095,737  
                                         
Balance, March 31, 2020     7,119,942     $ 720     $ 8,118,444     $ (8,067,361 )   $ 51,803  
                                         
Stock based compensation     -       -       28,767       -       28,767  
                                         
Common stock issued for services     -       -       -       -       -  
                                         
Warrants issued in connection with building lease     -       -       311,718       -       311,718  
                                         
Net loss     -       -       -       (282,277 )     (282,277 )
                                         
Balance, June 30, 2020     7,199,942     $ 720     $ 8,458,929     $ (8,349,638 )   $ 110,011  

 

See accompanying notes to condensed consolidated financial statements.

 

F-3
 

 

NANO MAGIC HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

(unaudited)

 

                Additional           Total  
    Class A Common Stock     Paid-in     Accumulated     Stockholders’  
    Shares     Amount     Capital     Deficit     Equity  
                               
Balance, December 31, 2020     8,459,995     $ 846     $ 9,867,174     $ (8,470,600 )   $ 1,397,420  
                                         
Common stock issued for cash, net of issuance costs     1,154,462       115       1,442,962       -       1,443,077  
                                         
Common stock issued for services     42,890       4       40,996       -       41,000  
                                         
Warrants, options, and warrant options on private placement     -       -       57,723       -       57,723  
                                         
Stock based compensation     -       -       259,717       -       259,717  
                                         
Net Loss     -       -       -       (103,200 )     (103,200 )
                                         
Balance, June 30, 2021     9,657,347     $ 965     $ 11,668,572     $ (8,573,800 )   $ 3,095,737  
                                         
Balance, December 31, 2019     6,222,881     $ 622     $ 7,242,067     $ (7,689,545 )   $ (446,856 )
                                         
Common stock issued for cash, net of issuance costs     956,013       96       621,313       -       621,409  
                                         
Common stock issued for services     21,048       2       11,998       -       12,000  
                                         
Stock based compensation     -       -       53,242               53,242  
                                         
Warrants, options, and warrant options on private placement     -       -       37,058       -       37,058  
                                         
Warrants issued in connection with building lease     -       -       311,718               311,718  
                                         
Stock subscription payable     -       -       181,533               181,533  
                                         
Net loss     -       -       -       (660,093 )     (660,093 )
                                         
Balance, June 30, 2020     7,199,942     $

720

    $ 8,458,929     $ (8,349,638 )   $ 110,011

 

See accompanying notes to condensed consolidated financial statements.

 

F-4
 

 

NANO MAGIC HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

      1       2  
    For the Six Months Ended  
    June 30,  
    2021     2020  
         
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (103,200 )   $ (660,093 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Change in inventory obsolescence reserve     75,000       86,121  
Depreciation and amortization expense     51,290       8,062  
Bad debt expense     -       4,000  
Stock-based compensation     300,836       65,242  
Change in operating assets and liabilities:                
Accounts receivable     685,800       (381,180 )
Accounts receivable - related party     (1,390 )     -  
Inventory     (465,993 )     (7,523 )
Prepaid expenses and contract assets     (222,367 )     (152,636 )
Accounts payable     (323,222 )     228,207  
Operating lease liabilities     32,809     78  
Customer deposits     24,748       5,701  
Accrued expenses     (6,485 )     21,393  
Contract liabilities     (90,562 )     (162,123 )
                 
NET CASH USED BY OPERATING ACTIVITIES     (42,736 )     (944,751 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Net activity on CD investments     (243 )     (237 )
Capitalized lease cost    

-

      (311,718 )
Purchases of property, plant and equipment     (62,640 )     (4,596 )
                 
NET CASH USED BY INVESTING ACTIVITIES     (62,883 )     (316,551 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Repayment of bank lines of credit     -       (10,378 )
Advances from related parties     (22,500 )     -  
Proceeds from bank loans    

79,305

      130,900  
Proceeds from sale of common stock and warrants     1,500,800       1,151,718  
Repayment of debt     (45,773 )     (4,000 )
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES    

1,511,832

      1,268,240  
                 
NET INCREASE IN CASH     1,406,213       6,938  
                 
CASH, beginning of year     288,134       216,801  
                 
CASH, end of period   $ 1,694,347     $ 223,739  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                
Cash paid during the period for interest                
Interest   $ 10,275     $ 2,627  

 

See accompanying notes to condensed consolidated financial statements.

 

F-5
 

 

NANO MAGIC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2021

(unaudited)

 

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

 

Organization

 

Nano Magic Holdings Inc. (“we”, “us”, “our”, “Nano Magic” or the “Company”), a Delaware corporation, develops and sells a portfolio of nano-layer coatings, nano-based cleaners, and nano-composite products based on its proprietary technology, and performs nanotechnology product research and development generating revenues through performing contract services. On March 3, 2020, we changed our name from PEN Inc. to Nano Magic Inc. and on March 2, 2021 we changed our name to Nano Magic Holdings Inc.

 

Through the Company’s wholly-owned subsidiary, Nano Magic LLC, formerly known as PEN Brands LLC, we develop, manufacture and sell consumer and institutional products using nanotechnology to deliver unique performance attributes at the surfaces of a wide variety of substrates. These products are marketed internationally directly to consumers and also to retailers and other institutional customers. On March 31, 2020, PEN Brands LLC changed its name to Nano Magic LLC.

 

Through the Company’s wholly-owned subsidiary, Applied Nanotech, Inc., we primarily perform contract research services for the Company and for governmental and private customers.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information. Accordingly, they do not include all the information and disclosures required by US GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the operating results for the full year ending December 31, 2021 or any other period. The balance sheet at December 31, 2020 has been derived from the audited financial statement at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures of the Company as of December 31, 2020 and for the year then ended, which were filed with the Securities and Exchange Commission on Form 10-K on May 28, 2021.

 

F-6
 

 

Going Concern Matters and Management’s Plan

 

As indicated in the accompanying condensed consolidated financial statements, the company has positive working capital on June 30, 2021 and at December 31, 2020, including $1,694,347 and $288,134 of cash at June 30, 2021 and December 31, 2020, respectively. The company had cash used by operations of $42,736 for the six-months ended June 30, 2021, and a net loss of $103,200 for the period and a net loss of $781,055 and negative cash flows from operations of $2,001,044 for the year ended December 31, 2020. The consolidated statement of operations also reflects an increase in Product sales of $2,163,064 or 188% for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Management has considered whether there is substantial doubt about its ability to continue as a going concern in light of the operating losses and historical negative cash flows from operations. Considering the increased sales generating increased revenue, the cash flow for the first two quarters of 2021 and the positive working capital at June 30, 2021 and December 31, 2020, the Company believes that its capital resources are sufficient to maintain its business operations for the next twelve months. Moreover, the Company is implementing a marketing plan under which management projects sales to increase in 2021 and 2022 as compared to 2020 that are expected to contribute additional funds to maintain operations.

 

The accompanying condensed consolidated 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.

 

NOTE 2 – INVENTORY

 

At June 30, 2021 and December 31, 2020, inventory consisted of the following:

 

    June 30, 2021     December 31, 2020  
Raw materials   $ 994,224     $ 632,055  
Work-in-progress     76,788       176,392  
Finished goods     351,341       147,913  
Inventory, gross    

1,422,353

      956,360  
Less: reserve for obsolescence     (189,665 )     (114,666 )
Inventory, net   $ 1,232,688     $ 841,694  

 

NOTE 3 – 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. 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 4 – DEBT

 

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. At June 30, 2021, the principal amount due under the Equipment Note amounted to $64,042 and is current.

 

F-7
 

 

On May 8, 2020, Nano Magic LLC obtained a loan from Fifth Third Bank for $130,900 under the Small Business Administration Paycheck Protection Program. The loan bears interest at 1.00% and is payable in monthly instalments of principal and interest in the amount of $7,330. As of June 30, 2021, the balance on the loan was the full principal amount 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, 2021, the balance on the lease was $44,116; the current and non-current portions were $19,980 and $24,136 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, 2021, the balance on the lease was $10,493; the current and non-current portions were $4,709 and $5,784, 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, 2021, the balance on the lease was $75,174; the current and non-current portions were $18,894 and $56,280, respectively.

 

On February 1, 2021, our subsidiary Applied Nanotech obtained a loan from Amegy Bank of Texas for $79,305 under the Small Business Administration Paycheck Protection Program. The loan bears interest at 1.00%. As of June 30, 2021, the balance on the loan was the full principal amount and is current

 

Other Applied Nanotech long term debt was $54,893 as of June 30, 2021.

 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

For the three month and six-month periods ended June 30, 2021, we accrued $12,000 each period in fees for each of the directors. In August, pursuant to authorization granted by the Board in May, we entered into indemnification agreements with our directors.

 

Other compensation paid to directors was:

 SCHEDULE OF OTHER COMPENSATION

    Three Months ended June 30,     Six Months ended June 30,  
    2021     2020     2021     2020  
Ronald J. Berman   $ 45,094     $ 47,700     $ 107,694     $ 139,700  
Tom J. Berman   $ 93,546 *   $ 45,000     $ 266,499 +   $ 92,000 *
Jeanne M Rickert   $ -     $ 3,000     $ -     $ 6,000  
Scott E. Rickert   $ 12,000 ++   $ 3,000     $ 22,500 ++   $ 6,000  

 

+ Salary and bonus paid under employment agreement.
* Indicates amount paid as salary
++ Repayment of advances made to the Company

 

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 and Magic Growth 2 LLC. These four limited liability companies purchased shares of common stock and derivative securities from us in 2018, 2019, 2020, and 2021. See the subsection on Sales of Stock under Issuances of Common Stock in Note 6.

 

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. 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.

 

F-8
 

 

NOTE 6 - STOCKHOLDERS’ EQUITY

 

Description of Preferred and Common Stock

 

On July 2, 2020, we amended and restated our certification of incorporation to eliminate the Company’s Class B common stock and Class Z common stock and rename as “common stock” the Company’s Class A Common Stock. As part of the amendment, we increased the number of authorized shares of common stock from 7,200,000 to 30,000,000. The par value of the common stock remained the same at $0.0001 per common share. The Company is also authorized to issue 100,000 shares of Preferred Stock, par value $0.0001 per share.

 

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

 

Pursuant to the agreement entered into on October 20, 2020, with the holder of substantially all the outstanding stock appreciation rights, on March 2, 2021, we issued 5,000 shares of common stock at value of $1.00 in partial settlement of that holder’s stock appreciation rights.

 

On March 2, 2021, 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.

 

In total for the six months ended June 30, 2021, 1,154,462 shares of common stock were sold and issued for $1,443,077. Additionally, 1,154,450 warrants were sold for $57,723.

 

F-9
 

 

Stock Options

 

In connection with the three-year extension of the contract with our President and Chief Executive Officer, he was granted an option on March 3, 2021 to purchase up to 2,350,000 shares of common stock at an exercise price of $0.75. Vesting is as follows:

 

The right to purchase:   Consisting of:   Is vested on:
Tranche 1   150,000 Option Shares   June 30, 2021
Tranche 2   150,000 Option Shares   December 31, 2021
Tranche 3   150,000 Option Shares   June 30, 2022
Tranche 4   150,000 Option Shares   December 31, 2022
Tranche 5   150,000 Option Shares   June 30, 2023
Tranche 6   150,000 Option Shares   December 31, 2023
Tranche 7   Up to 150,000 Option Shares   If the aggregate sales bonus payable for 2021 exceeds $240,000
Tranche 8   Up to 150,000 Option Shares   If the aggregate sales bonus payable for 2022 exceeds $260,000
Tranche 9   Up to 150,000 Option Shares   If the aggregate sales bonus payable for 2023 exceeds $300,000
Tranche 10   Up to 1 million Option Shares   If a profit bonus is payable under the employment contract and the Board determines to pay some or all of it with options, the number vested as determined by the Board

 

On March 2, 2021, we granted an option to Ronald J. Berman as part of his consulting contract entered into on that day. Under the consulting agreement, Mr. Berman oversees sales and marketing for Nano Magic LLC and will work on special projects as requested by the President & CEO. His cash compensation is $10,000 per month, with bonuses from 1% to 3% on certain sales. He was also granted an option to purchase up to 100,000 shares at an exercise price of $0.75. Vesting for 75,000 shares is based on sales by Nano Magic LLC in 2021; 12,500 if sales in 2021 are $4 million, with additional tranches of 12,500 shares for each additional $1 million in sales. Vesting for the remaining 25,000 shares will occur if the Company realizes $1 million in EBITDA for 2021. Mr. Berman is a director and is the father of our President, Tom J. Berman.

 

On March 2, 2021, our Board adopted the 2021 Nano Magic 2021 Equity Incentive Plan described below.

 

Stock options to purchase common stock outstanding at June 30, 2021 include the 87,500 options granted under the 2021 Equity Incentive Plan, and the expiration of 1,022 options. No options were exercised during the period. No options have been included in diluted earnings per share as they would be anti-dilutive.

 

    Number of Options     Weighted Average Exercise Price     Weighted Average Remaining Contractual Term (Years)     Aggregate Intrinsic Value  
Outstanding December 31, 2020     502,892     $ 0.89       3.23       220,000  
Exercised     -       -       -       -  
Issued     2,637,500     $ 0.75       -       -  
Expired & forfeited     (1,022 )     80.21       -       -  
Outstanding June 30, 2021     3,139,370     $ 0.75       5.48     $ -  
                               
Exercisable June 30, 2021     679,449     $ 0.74       3.21     $ -  

 

 

    June 30, 2021     December 31, 2020  
Stock options     3,139,370       502,892  
Stock warrants     6,597,890       5,443,440  
Total     9,737,260       5,946,332  

 

F-10
 

 

Warrants

 

As of June 30, 2021, there were outstanding and exercisable warrants to purchase 6,597,890 shares of common stock with a weighted average exercise price of $1.66 per share and a weighted average remaining contractual term of 31 months. As of June 30, 2021, 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.

 

NOTE 7 - 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. On May 28, 2021, we entered into a settlement and release with a former consultant under which we will pay $15,000 in three monthly installments commencing on June 1, 2021.

 

As of June 30, 2021 we were not a defendant in any proceedings. See Note 9, Subsequent Events, regarding a collection suit previously reported that is settled. 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, 2021, the Company has not accrued any amount for litigation contingencies.

 

NOTE 8 – SEGMENT REPORTING

 

The Company’s principal operating segments coincide with the types of products to be sold. The products from which revenues are derived are consistent with the reporting structure of the Company’s internal organization. The Company’s two reportable segments for the three months ended June 30, 2021 and 2020 were the Product segment and the Contract services segment. The Company’s chief operating decision-maker has been identified as the Chairman and CEO, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Segment information is presented based upon the Company’s management organization structure as of June 30, 2021 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to the reportable segments disclosed. There are no inter-segment revenue transactions and, therefore, revenues are only to external customers. As the Company primarily generates its revenues from customers in the United States, no geographical segments are presented.

 

F-11
 

 

Segment operating profit is determined based upon internal performance measures used by the chief operating decision-maker. The Company derives the segment results from its internal management reporting system. The accounting policies the Company uses to derive reportable segment results are the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics, including net revenues, gross profit and operating loss. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. The Company manages certain operating expenses separately at the corporate level and does not allocate such expenses to the segments. Segment income from operations excludes interest income/expense and other income or expenses and income taxes according to how a particular reportable segment’s management is measured. Management does not consider impairment charges, and unallocated costs in measuring the performance of the reportable segments.

 

Segment information available with respect to these reportable business segments for the three and six months ended June 30, 2021 and 2020 was as follows:

 

    2021     2020     2021     2020  
    Three Months Ended June 30,     Six Months Ended June 30,  
    2021     2020     2021     2020  
Revenues:                        
Product segment   $ 1,130,397     $ 908,062     $ 3,312,843     $ 1,149,779  
Contract services segment     238,171       244,422       366,900       450,879  
Total segment and consolidated revenues   $ 1,368,568     $ 1,152,484     $ 3,679,743     $ 1,600,658  
Cost of revenues:                                
Products   $ 499,173     $ 600,781     $ 1,630,941     $ 823,599  
Contract services segment     180,250       155,004       332,680       321,903  
Total segment and consolidated cost of revenues   $ 679,423     $ 755,785     $ 1,963,621     $ 1,145,502  
                                 
Gross profit:                                
Product segment   $ 631,224     $ 307,281     $ 1,681,902     $ 326,180  
Contract services segment     57,921     89,418       34,220     128,976  
Total segment and consolidated gross profit   $ 689,145     $ 396,699     $ 1,716,122     $ 455,156  
Gross margin:                                
Product segment     55.8 %     33.8 %     50.8 %     28.4 %
Contract services segment     24.3 %     36.6 %     9.3 %     28.6 %
Total gross margin     50.4 %     34.4 %     46.6 %     28.4 %
Segment operating expenses:                                
Product segment   $ 1,108,667     $ 645,570     $ 1,724,747     $ 1,034,755  
Contract services segment     48,832       32,124       83,924       78,104  
Total segment operating expenses   $ 1,157,499     $ 678,694     $ 1,808,672     $ 1,112,859  
                                 
(Loss) income from operations:                                
Product segment   $ (477,443 )   $ (339,289 )   $

(42,845

)   $ (708,575 )
Contract services segment    

9,089

    57,294       (49,705 )     50,872  
Total segment (loss) income     (468,354 )     (281,995 )     (92,550 )     (657,703 )
Total consolidated (loss) income from operations   $ (468,354 )   $ (281,995 )   $ (92,550 )   $ (657,703 )
                                 
Depreciation and amortization:                                
Product segment   $ 26,417     $ 12,488     $ 50,460     $ 7,228  
Contract services segment     415     415       830       834  
Total segment depreciation and amortization     26,832       12,903       51,290       8,062  
Unallocated depreciation     -       -       -       -  
Total consolidated depreciation and amortization   $ 26,832     $ 12,903     $ 51,290     $ 8,062  
                                 
Capital additions:                                
Product segment   $ 39,678     $ 3,121     $ 62,640     $ 4,596  
Contract services segment     -       -       -       -  
Total segment capital additions     49,678       3,121       62,640       4,596  
Unallocated capital additions     -       -       -       -  
Total consolidated capital additions   $ 39,678     $ 3,121     $ 62,640     $ 4,596  

 

    June 30, 2021     June 30, 2020  
Segment total assets:                
Product segment   $ 4,584,061     $ 1,792,175  
Contract services segment     1,456,186       218,789  
Total consolidated total assets   $ 6,040,247     $ 2,010,964  

 

NOTE 9 - SUBSEQUENT EVENTS

 

The reduction in mask wearing as a result of the waning of the COVID-19- restrictions as well as the ability for more of the population to be outside during the summer months, drove a drop in sales of anti-fog products that continued into the third quarter. Other effects of the pandemic that affect business generally, for example, labor shortages, also affect us, making it harder for us to hire for both production and salaried positions. Supply chain disruptions also continue, leading to continued long lead times to get materials as well as on-going cost increases.

 

On August 3, 2021, we were notified of a collection suit for approximately $23,000 plus financing charges. We agreed to a negotiated settlement of the matter in August and the case was dismissed with prejudice on September 1, 2021.

 

On August 6, 2021 we completed the loan forgiveness application with Fifth Third Bank for the Paycheck Protection Plan loan we received through that bank. On August 11, 2021 we were notified by Amegy Bank that the Small Business Administration had reviewed our loan forgiveness application filed earlier and that the entire amount of the loan to Applied Nanotech Inc. was forgiven.

 

On August 10, 2021 we issued the option to purchase up to 100,000 shares that had been approved by the Board in May, 2021 in connection with a consulting agreement.

 

F-12
 

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying unaudited condensed consolidated financial statements.

 

OVERVIEW

 

Nano Magic develops, commercializes, and markets consumer and industrial products enabled by nanotechnology that solve everyday problems for customers in the optical, transportation, military, sports and safety industries. Our primary business is the formulation, marketing and sale of products enabled by nanotechnology including the ULTRA CLARITY brand eyeglass cleaner, CLARITY DEFOGIT brand defogging products and CLARITY ULTRASEAL nanocoating products for glass and ceramics. We also sell an environmentally friendly surface protector, fortifier, and cleaner. Our design center conducts development services for us and for government and private customers and develops and sells printable inks and pastes, thermal management materials, and graphene foils and windows.

 

Our principal operating segments coincide with our different business activities and types of products sold. This is consistent with our internal reporting structure. Our two reportable segments for the three and six months ended June 30, 2021 were (i) the Product Segment and (ii) the Contract services Segment. For the three and six months ended June 30, 2020, the Company operated the same two segments.

 

4
 

 

RESULTS OF OPERATIONS

 

The following comparative analysis on results of operations was based primarily on the comparative condensed consolidated financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. The results discussed below are for the three months ended June 30, 2021 and 2020.

 

Comparison of Results of Operations for the Three Months ended June 30, 2021 and 2020

 

Revenues:

 

For the three and six months ended June 30, 2021 and 2020, revenues consisted of the following:

 

    Three Months Ended June 30,     Six Months Ended June 30,  
    2021     2020     2021     2020  
Revenue:                        
Product segment   $ 1,130,397     $ 908,062     $ 3,312,843     $ 1,149,779  
Contract services segment     238,171       244,422       366,900       450,879  
Total consolidated revenue   $ 1,368,568     $ 1,152,484     $ 3,679,743     $ 1,600,658  

 

For the three months ended June 30, 2021, sales from the Product segment increased by $222,335 or 24% as compared to the three months ended June 30, 2020. For the six months ended June 30, 2021 revenue from the Product segment increased by $2,163,064 or 188%, as compared to the six months ended June 30, 2020. The increases were due to increased sales to new customers added in 2020, increased internet sales and new retail customers.

 

For the three months ended June 30, 2021, sales from the Contract services segment decreased by $6,251 or 3% as compared to the three months ended June 30, 2020 primarily due to less funding under government research contracts. For the six months ended June 30, 2021 revenue from the Contract services segment decreased by $83,979 or 19%, as compared to the six months ended June 30, 2020.

 

Cost of revenues

 

Cost of revenues includes inventory costs, materials and supplies costs, internal labor and related benefits, subcontractor costs, depreciation, overhead and shipping and handling costs incurred and costs related to government and private research contracts in our Contract services segment.

 

For the three months ended June 30, 2021, cost of revenues decreased by $76,362 or 10% as compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, cost of revenues increased by $818,119 or 71% as compared to the three months ended June 30, 2020. These changes are reflected in the chart that follows. We have seen some price increases and shortages for some of our raw materials and packaging as a result of the COVID-19 pandemic, but thus far we have been able to obtain adequate supply.

 

    Three Months ended June 30,     Six Months ended June 30,  
    2021     2020     2021     2020  
Cost of revenues:                                
Product segment   $ 499,173     $ 600,781     $ 1,630,941     $ 823,599  
Contract services segment     180,250       155,004       332,680       321,903  
Total segment and consolidated cost of revenues   $ 679,423     $ 755,785     $ 1,963,621     $ 1,145,502  

 

5
 

 

Gross profit and gross margin

 

For the three months ended June 30, 2021, gross profit increased by $292,446 or 74%. For the six months ended June 30, 2021, gross profit increased by $1,260,966 or 277%. Gross profit and gross margin by segment are as follows:

 

    Three Months Ended June 30,     Six Months Ended June 30,  
    2021     %     2020     %     2021     %     2020     %  
Gross profit:                                                                
Product segment *   $ 631,224       55.8 %     307,281       33.8 %   $ 1,681,902       50.8 %     326,180       28.4 %
Contract services segment *   $ 57,921       24.3 %     89,418       36.6 %   $ 34,220     9.3 %     128,976       28.6 %
Total gross profit   $ 689,145       50.4 %     396,699       34.4 %     1,716,122       46.6 %     455,156       28.4 %

 

* Gross margin   % based on respective segments revenues.

 

For the three months ended June 30, 2021, as compared to the comparable 2020 period, the gross profit in the Product segment increased by $323,943 or 105%. Similarly, for the six months period gross profit increased $1,355,722 or 416% for the period ended June 30, 2021, as compared to the six months ended June 30, 2020. For the three- and six-month periods the increases were due to product mix, pricing changes and changes in product formulations that improved margin. The gross profit for the Contract research segment for the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020 decreased by $31,497 and $94,756, or 35% and 73%, respectively. The changes in the Contract research segment were primarily due to completion of government contracts without new or renewal research contracts.

 

Operating expenses

 

For the three months ended June 30, 2021, operating expenses increased by $478,805 or 71% compared to the three months ended June 30, 2020. Similarly, for the six months period operating expenses increased by $685,813 or 61% for the period ended June 30, 2021, as compared to the six months ended June 30, 2020. For the three and six months ended June 30, 2021 and 2020, operating expenses consisted of the following:

 

    Three Months Ended June 30,     Six Months Ended June 30,  
    2021     2020     2021     2020  
Selling and marketing expenses   $ 40,324     $ 4,826     $ 77,220     $ 15,883  
Salaries, wages and related benefits     781,602       163,831       1,333,332       308,464  
Research and development     7,437       14,383       9,313       31,035  
Professional fees     198,419       359,420       410,525       484,172  
General and administrative expenses     294,238       136,234       478,820       273,304  
Other income, net     (164,521 )     -       (500,538 )     -  
Total   $ 1,157,499     $ 678,694     $ 1,808,672     $ 1,122,859  

 

For the three months ended June 30, 2021, selling and marketing expenses increased by $35,498 or 736% as compared to the three months ended June 30, 2020, due to increased advertising, sales consultants and trade show expenses. For the six months ended June 30, 2021, selling and marketing expenses increased by $61,337 or 386% as compared to the six months ended June 30, 2020, due to the foregoing factors.
   
For the three months ended June 30, 2021, salaries, wages and related benefits increased by $617,771 or 377%, as compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, salaries, wages and related benefits increased by $1,024,867 or 332%, as compared to the six-months ended June 30, 2020. These increases for the six-month period were $259,717 for equity compensation expenses, and the balance was higher management and personnel costs.

 

6
 

 

For the three months ended June 30, 2021, research and development costs decreased by $6,946 or 48%, as compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, research and development costs decreased by $21,722 or 70%, as compared to the six months ended June 30, 2020. For the three-month and six-month periods, the changes were due to reduced use of outside contractors in 2021.
   
For the three months ended June 30, 2021, professional fees decreased by $161,001 or 45%, as compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, professional fees decreased by $73,647 or 15%, as compared to the six months ended June 30, 2020. The changes for both the three-month and six-month periods were due to significant outside legal expenses incurred in 2020.
   

For the three months ended June 30, 2021, general and administrative expenses increased by $158,004 or 116% as compared to the three months ended June 30, 2020, For the six months ended June 30, 2021, general and administrative expenses increased by $205,516 or 75% as compared to the six months ended June 30, 2020, reflecting subscriptions for new software tools, consulting fees for software implementation and increased general overhead to support the larger business operation.

 

Other operating income for the period ended June 30, 2021 reflects payments received under a settlement agreement based on the counterparty’s sales to certain customers.

 

Loss (income) from operations

 

As a result of the factors described above, for the three months ended June 30, 2021, loss from operations amounted to $468,354 as compared to a loss of $281,995 for the three months ended June 30, 2020, a change of $186,077 or 66%. For the six months ended June 30, 2021, loss from operations amounted to $92,550 as compared to a loss of $657,703 for the six months ended June 30, 2020, an improvement of $556,153 or 84%.

 

Other non-operating expense (income)

 

For the three months ended June 30, 2021, other expense was $5,243 as compared to $282 for the three months ended June 30, 2020, an increase of $4,961 or 1,759%. For the six months ended June 30, 2021, other expense was $10,650 as compared to $2,390 for the six months ended June 30, 2020, an increase of $8,260 or 346%. The change was primarily due to increased interest expense for financing leases.

 

Net loss (income)

 

For the three months ended June 30, 2021, net loss amounted to $473,597 as compared to a loss of $282,277 for the three months ended June 30, 2020. For the six months ended June 30, 2021, net loss amounted to $103,200 as compared to a loss of $660,093 for the six months ended June 30, 2020. For the three-month period and the six-month period, the change was $(191,320) or 68% and $556,893 or 84%, respectively.

 

For the three months ended June 30, 2021 and June 30, 2020, net loss amounted to $(0.05) per common share (basic and diluted), and $(0.04), respectively. For the six months ended June 30, 2021 and June 30, 2020, net (loss) amounted to $(0.01) per common share (basic and diluted), and $(0.10), respectively.

 

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 $2,197,673 and $1,694,347 of unrestricted cash as of June 30, 2021 and working capital of $633,572 and $288,134 of unrestricted cash as of December 31, 2020.

 

The following table sets forth a summary of changes in our working capital from December 31, 2020 to June 30, 2021:

 

               

December 31, 2020 to

June 30, 2021

 
    June 30, 2021     December 31, 2020    

Change in

Working

Capital

   

Percentage

Change

 
Working capital:                                
Total current assets   $ 3,989,238     $ 2,653,831     $ 1,335,407       50.32 %
Total current liabilities     1,791,565       2,020,259       (228,694 )     (11.32 )%
Working capital:   $ 2,197,673     $ 633,572     $ 1,564,101       246.87 %

 

7
 

 

The increase in current assets was due in substantial part to an increase in cash as a result of the sale of equity securities. The decrease in current liabilities was due to a reduction in accrued expenses and other current liabilities and to a reduction in the current portion of lease payments.

 

Net cash used by operating activities was $(42,736) for the six months ended June 30, 2021 as compared to net cash used in operating activities of $(944,751) for the six months ended June 30, 2020, a net change of $902,015 or 95%. Net cash used by operating activities for the six months ended June 30, 2021 primarily resulted from net loss of $(103,200) adjusted for add-backs of $427,126 and changes in operating assets and liabilities of $(366,662).

 

Net cash flow used by investing activities was $(62,883) for the six months ended June 30, 2021 and $(316,551) for the six months ended June 30, 2020.

 

Net cash provided by financing activities was $1,511,832 for the six months ended June 30, 2021 reflecting $1,500,800 in proceeds from sales of common stock and warrants, as compared to net cash provided of $1,268,240 for the same period in 2020.

 

Future Liquidity and Capital Needs.

 

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

 

Equipment Financing and Loans

 

On February 10, 2015, Nano Magic entered 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. At June 30, 2021, the principal amount due under the Equipment Note amounted to $64,042.

 

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.

 

During the year ended December 31, 2020, we received $105,000 in net proceeds from equipment loans and the bank loan under the Paycheck Protection Program, offset by repayments on loans

 

Off-Balance Sheet Arrangements

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated unaudited financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

 

ITEM 3. Quantitative and Qualitative disclosures about market risk

 

Not applicable to smaller reporting companies.

 

8
 

 

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 as of the Evaluation Date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission (“SEC”) reports was recorded, but we lacked the staff or cash to purchase outside resources to process, summarize, and report within the time periods specified in SEC rules and forms.

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

 

Changes in Internal Control

 

There were no changes identified in connection with our internal control over financial reporting during the three months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The material weaknesses identified at December 31, 2020 are still in the process of being addressed as of June 30, 2021.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On August 3, 2021, we were notified of a collection suit for approximately $23,000 plus financing charges. We agreed to a negotiated settlement of the matter in August and the case was dismissed with prejudice on September 1, 2021.

 

ITEM 1A. RISK FACTORS

 

Not required of smaller reporting companies.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Pursuant to the agreement entered into on October 20, 2020, with the holder of substantially all the outstanding stock appreciation rights, on March 2, 2021, we issued 5,000 shares of common stock at value of $1.00 in partial settlement of that holder’s stock appreciation rights.

 

On March 2, 2021, the Company sold to Magic Growth 2 LLC, 769,231 shares of common stock for proceeds of $961,539 and warrants to purchase up to 769,225 shares of common stock for proceeds of $38,461. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $2.00 per share. PEN Comeback Management, LLC, owned by Tom J. Berman and Ronald J. Berman, is the sole voting member of Magic Growth 2 LLC.

 

On March 2, 2021, we also issued an aggregate of 37,890 shares of common stock to our directors as compensation to them for service on our Board. These shares were valued on that date at $0.95 per share based on the quoted price of the stock for a total value of $36,000.

 

On March 17, 2021, the Company sold to Magic Growth 2 LLC, 385,231 shares of common stock for proceeds of $481,539 and warrants to purchase up to 385,225 shares of common stock for proceeds of $19,261. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $2.00 per share.

 

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.

 

9
 

 

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
10.1*   Form of Indemnification and Advancement Agreement with directors
     
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.

 

10
 

 

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 Holdings Inc.

(Registrant)

   
Date: October 28, 2021 /s/ Tom J. Berman
  Tom J. Berman,
  President and Chief Executive Officer
   
Date: October 28, 2021 /s/ Leandro Vera
  Leandro Vera
  Chief Financial Officer

 

11

 

Exhibit 10.1

 

INDEMNIFICATION AND ADVANCEMENT AGREEMENT

 

This Indemnification and Advancement Agreement (“Agreement”) is made as of May 13, 2021 by and between Nano Magic Holdings Inc., a Delaware corporation (the “Company”), and ___, a member of the Board of Directors of the Company (“Indemnitee”).

 

Background

 

A. The Board of Directors of the Company (the “Board”) believes that capable individuals have become reluctant to serve publicly-held corporations as directors unless they are provided with adequate protection through insurance or adequate indemnification and advancement of expenses against risks of claims and actions against them arising out of their service to and activities on behalf of the corporation.

 

B. Directors in service to business enterprises are increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the business enterprise itself. The Certificate of Incorporation of the Company requires indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification under the General Corporation Law of the State of Delaware (the “DGCL”). The Certificate of Incorporation and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification and advancement of expenses.

 

C. The uncertainties and expense regarding the availability of insurance for the protection of officers and directors supplemental to the Company’s commitment(s) related to indemnification and to advancement of expenses may increase the difficulty of attracting and retaining capable and qualified individuals to serve on the Board.

 

D. The Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company and its stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future.

 

E. It is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, its directors to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified.

 

F. This Agreement is a supplement to and in furtherance of the Certificate of Incorporation and any resolutions adopted pursuant thereto, and is not a substitute therefor, nor diminishes or abrogates any rights of Indemnitee thereunder.

 

Agreement

 

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

 

Section 1. Services to the Company. Indemnitee agrees to serve as a director of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law). This Agreement does not create any obligation on the Company to continue Indemnitee in such position.

 

Section 2. Definitions. As used in this Agreement:

 

(a) “Agent” means any person who is authorized by the Company or an Enterprise to act for or represent the interests of the Company or an Enterprise, respectively.

 

Indemnification Agreement

Page 1 of 8

 

 

 

(b) A “Change in Control” occurs upon the earliest to occur after the date of this Agreement of any of the following events:

 

i. Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company’s then outstanding securities unless the change in relative beneficial ownership of the Company’s securities by any Person is approved in advance by a majority of the Board in advance of the acquisition that results in ownership above 11% or results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors;

 

ii. Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a Change of Control transaction described in Sections 2(b)(i), 2(b)(iii) or 2(b)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;

 

iii. Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;

 

iv. Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and

 

v. Certain Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.

 

vi. For purposes of this Section 2(b), the following terms have the following meanings:

 

  1 Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.
     
  2 Person” has the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person excludes (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
     
  3 Beneficial Owner” has the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner excludes any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

 

(c) “Corporate Status” means the status of a person who is or was acting as a director, officer, employee, fiduciary, or Agent of the Company or an Enterprise.

 

(d) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

 

(e) “Enterprise” means any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other entity for which Indemnitee is or was serving at the request of the Company as a director, officer, employee, or Agent.

 

Indemnification Agreement

Page 2 of 8

 

 

 

(f) “Expenses” means all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts and other professionals, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. Expenses, however, do not include amounts paid in settlement by Indemnitee or judgments or fines against Indemnitee.

 

(g) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past three years has been, representing: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any adverse party to the Proceeding giving rise to a claim for indemnification hereunder.

 

(h) “Proceeding” means any threatened, pending or completed action, suit, claim, counterclaim, cross claim, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, legislative, or investigative (formal or informal) nature, including any appeal therefrom, in which Indemnitee was, is or will be involved as a party, potential party, non-party witness or otherwise by reason of Indemnitee’s Corporate Status or by reason of any action taken by Indemnitee (or a failure to take action by Indemnitee) or of any action (or failure to act) on Indemnitee’s part while acting under Indemnitee’s Corporate Status, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification, reimbursement, or advancement of Expenses can be provided under this Agreement.

 

Section 3. Indemnity in Third-Party Proceedings. The Company will indemnify Indemnitee under this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Under this Section 3, the Company will indemnify Indemnitee to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal Proceeding had no reasonable cause to believe that Indemnitee’s conduct was unlawful.

 

Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company will indemnify Indemnitee under this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Under this Section 4, the Company will indemnify Indemnitee to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. The Company will not indemnify Indemnitee for Expenses under this Section 4 related to any claim, issue or matter in a Proceeding for which Indemnitee has been finally adjudged by a court to be liable to the Company, unless, and only to the extent that, the Delaware Court of Chancery or any court in which the Proceeding was brought determines upon application by Indemnitee that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

 

Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. To the fullest extent permitted by applicable law, the Company will indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee in connection with any Proceeding the extent that Indemnitee is successful, on the merits or otherwise. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company will indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with or related to each successfully resolved claim, issue or matter to the fullest extent permitted by law. For purposes of this Section 5 and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, will be deemed to be a successful result as to such claim, issue or matter.

 

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Section 6. Indemnification for Expenses of a Witness. To the fullest extent permitted by applicable law, the Company will indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with any Proceeding to which Indemnitee is not a party but to which Indemnitee is a witness, deponent, interviewee, or otherwise asked to participate.

 

Section 7. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company will indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

 

Section 8. Exclusions. Notwithstanding any provision in this Agreement, the Company is not obligated under this Agreement to make any indemnification payment or advancement to Indemnitee in connection with any Proceeding:

 

(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or

 

(b) if the action or omission of the Indemnitee was undertaken with deliberate intent to cause injury to the Company or Enterprise or undertaken with reckless disregard for the best interests of the Company or Enterprise; or

 

(c) for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 14(b) of the Exchange Act (as defined in Section 2(b)) or similar provisions of state statutory law or common law, (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company under Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act) or (iii) any reimbursement of the Company by Indemnitee of any compensation under any compensation recoupment or clawback policy adopted by the Board or the compensation committee of the Board, including but not limited to any such policy adopted to comply with stock exchange listing requirements implementing Section 10D of the Exchange Act; or

 

(d) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Proceeding or part of any Proceeding is to enforce Indemnitee’s rights to indemnification or advancement, of Expenses, (ii) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (iii) the Company provides the indemnification, in its sole discretion, under the powers vested in the Company under applicable law.

 

Section 9. Advances of Expenses.

 

(a) The Company will advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding (or any part of any Proceeding) not initiated by Indemnitee or any Proceeding (or any part of any Proceeding) initiated by Indemnitee if (i) the Proceeding or part of any Proceeding is to enforce Indemnitee’s rights to obtain indemnification or advancement of Expenses from the Company or Enterprise, (ii) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation. The Company will advance the Expenses within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding.

 

(b) Advances will be unsecured and interest free unless and until it may be determined that Indemnitee is obligated to repay some or all of the amounts advanced. Indemnitee undertakes to repay the amounts advanced (without interest) to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, thus Indemnitee qualifies for advances upon the execution of this Agreement and delivery to the Company. No other form of undertaking is required other than the execution of this Agreement. The Company will make advances without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement.

 

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Section 10. Procedure for Notification of Claim for Indemnification or Advancement.

 

(a) Indemnitee will notify the Company in writing of any Proceeding with respect to which Indemnitee intends to seek indemnification or advancement of Expenses hereunder as soon as reasonably practicable. Indemnitee will include in the written notification to the Company a description of the nature of the Proceeding and the facts underlying the Proceeding and provide such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of such Proceeding. Indemnitee’s failure to notify the Company will not relieve the Company from any obligation it may have to Indemnitee under this Agreement, and any delay in so notifying the Company will not constitute a waiver by Indemnitee of any rights under this Agreement. The Secretary of the Company will, promptly upon receipt of such a request for indemnification or advancement, advise the Board in writing that Indemnitee has requested indemnification or advancement.

 

(b) The Company will be entitled to participate in the Proceeding at its own expense.

 

Section 11. Procedure Upon Application for Indemnification.

 

(a) Unless a Change of Control has occurred, the determination of Indemnitee’s entitlement to indemnification will be made:

 

i. by a majority vote of the Disinterested Directors, even though less than a quorum of the Board;

 

ii. by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board;

 

iii. if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by written opinion provided by Independent Counsel selected by the Board; or

 

iv. if so directed by the Board, by the stockholders of the Company.

 

(b) If a Change in Control has occurred, the determination of Indemnitee’s entitlement to indemnification will be made by written opinion provided by Independent Counsel selected by Indemnitee (unless Indemnitee requests such selection be made by the Board)

 

(c) The party selecting Independent Counsel under subsection (a)(iii) or (b) of this Section 11 will provide written notice of the selection to the other party. The notified party may, within ten (10) days after receiving written notice of the selection of Independent Counsel, deliver to the selecting party a written objection to such selection; except, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2, and the objection will set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected will act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within thirty (30) days after the later of submission by Indemnitee of a written request for indemnification under Section 10(a) and the final disposition of the Proceeding, Independent Counsel has not been selected or, if selected, any objection to has not been resolved, either the Company or Indemnitee may petition the Delaware Court for the appointment as Independent Counsel of a person selected by such court or by such other person as such court designates.

 

(d) Indemnitee will cooperate with the person, persons or entity making the determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. The Company will advance and pay any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making the indemnification determination irrespective of the determination as to Indemnitee’s entitlement to indemnification and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. The Company promptly will advise Indemnitee in writing of the determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied.

 

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(e) If it is determined that Indemnitee is entitled to indemnification, the Company will make payment to Indemnitee within thirty (30) days after such determination.

 

Section 12. Non-exclusivity; Survival of Rights; Insurance; Subrogation.

 

(a) The indemnification and advancement of Expenses provided by this Agreement are not exclusive of any other rights to which Indemnitee may at any time be entitled. The indemnification and advancement of Expenses provided by this Agreement may not be limited or restricted by any amendment, alteration or repeal of this Agreement with respect to any action taken or omitted by Indemnitee in Indemnitee’s Corporate Status occurring prior to the amendment, alteration or repeal of this Agreement. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Certificate of Incorporation, or this Agreement, it is the intent of the parties hereto that Indemnitee enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy is cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.

 

(b) Except as stated in Section 12(d), the Company is the indemnitor of first resort with respect to any request for indemnification or advancement of Expenses made under this Agreement concerning any Proceeding;

 

(c) If and to the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company, the Company will obtain a policy or policies covering Indemnitee to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies, including coverage in the event the Company does not or cannot, for any reason, indemnify or advance Expenses to Indemnitee as required by this Agreement. If, at the time of the receipt of a notice of a claim under this Agreement, the Company has director and officer liability insurance in effect, the Company will give prompt notice of such claim or of the commencement of a Proceeding, as the case may be, to the insurers in accordance with the procedures set forth in the respective policies. Indemnitee agrees to assist the Company efforts to cause the insurers to pay such amounts and will comply with the terms of such policies, including selection of approved panel counsel, if required.

 

(d) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee for any Proceeding concerning Indemnitee’s Corporate Status with an Enterprise will be reduced by any amount Indemnitee has actually received as indemnification or advancement of Expenses from the Enterprise. The Company and Indemnitee intend that any such Enterprise (and its insurers) be the indemnitor of first resort with respect to indemnification and advancement of Expenses for any Proceeding related to or arising from Indemnitee’s Corporate Status with such Enterprise. The Company’s obligation to indemnify and advance Expenses to Indemnitee is secondary to the obligations the Enterprise or its insurers owe to Indemnitee. Indemnitee agrees to take all reasonably necessary and desirable action to obtain from an Enterprise indemnification and advancement of Expenses for any Proceeding related to or arising from Indemnitee’s Corporate Status with such Enterprise.

 

(e) In the event of any payment made by the Company under this Agreement, the Company will be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee from any Enterprise or insurance carrier. Indemnitee will execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

Section 13. Duration of Agreement. This Agreement continues until and terminates five (5) years after the date that Indemnitee ceases to have a Corporate Status. The rights provided by or granted under this Agreement are binding upon and be enforceable by the parties hereto and their successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise, and inure to the benefit of Indemnitee and Indemnitee’s spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

 

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Section 14. Severability. If any provision or provisions of this Agreement is held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement will not in any way be affected or impaired thereby and remain enforceable to the fullest extent permitted by law; (b) such provision or provisions will be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, this Agreement will be construed so as to give effect to the intent manifested thereby.

 

Section 15. Enforcement.

 

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving or continuing to serve as a director or officer of the Company.

 

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Certificate of Incorporation and applicable law, and is not a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

 

Section 16. Modification and Waiver. No supplement, modification or amendment of this Agreement is binding unless executed in writing by the parties hereto. No waiver under this Agreement will be deemed or constitute a waiver of any other provisions of this Agreement nor will any waiver constitute a continuing waiver.

 

Section 17. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon becoming aware of any circumstance that may give rise to a Proceeding covered by this Agreement or upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company does not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise.

 

Section 18. Notices. All notices, requests, demands and other communications under this Agreement will be in writing and will be deemed to have been duly given if (a) delivered by hand to the other party, (b) sent by reputable overnight courier to the other party or (c) sent by facsimile transmission or electronic mail, with confirmation that such communication has been received:

 

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or to another address as Indemnitee communicates to the Company.

 

(b) If to the Company to:

 

  Name: Nano Magic Holdings Inc.
     
  Address: 31601 Research Park Drive
    Madison Heights, Michigan
    Attention: Chief Executive Officer
     
  E-mail: __ with a copy to __

 

or to another address as the Company communicates to Indemnitee.

 

Section 19. Contribution. To the fullest extent permissible under applicable law, if indemnification provided under this Agreement is unavailable to Indemnitee, the Company, in lieu of indemnifying Indemnitee, will contribute to the amount paid by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in the proportion that is fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

 

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Section 20. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties are governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Any action or Proceeding arising out of or in connection with this Agreement may be brought only in the Delaware Court of Chancery. The parties consent to submit to the exclusive jurisdiction of the Delaware Court, waive any objection to the laying of venue of any such action or Proceeding in the Delaware Court, and waive, and agree not to plead or to make, any claim that any such action or Proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

 

Section 21. Counterparts and Signatures. This Agreement may be executed in one or more counterparts, each of which will for all purposes be deemed to be an original but all of which together constitutes one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. Electronic signatures or original signatures transmitted by facsimile or other electronic transmission shall be acceptable and shall have the same effect as originals.

 

IN WITNESS WHEREOF, the parties have signed this Agreement as of the day and year first above written.

 

NANO MAGIC HOLDINGS INC.   INDEMNITEE
     
     
By: Tom Berman   Name:
Its: CEO   Address:
     
    Email:   

 

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Exhibit 31.1

 

Certificate of Principal Executive Officer

Pursuant to Rule 13a-14(a)/15d-14(a)

 

I, Tom J. Berman, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2021 of Nano Magic Holdings Inc. (the “registrant”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting) as defined in the Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: October 28, 2021 /s/ Tom J. Berman
 

Tom J. Berman

President and Chief Executive Officer

 

 

 

Exhibit 31.2

 

Certificate of Principal Financial Officer

Pursuant to Rule 13a-14(a)/15d-14(a)

 

I, Leandro Vera, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2021 of Nano Magic Holdings Inc. (the “registrant”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting) as defined in the Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: October 28, 2021 /s/ Leandro Vera
  Leandro Vera
  Chief Financial Officer

 

 

 

EXHIBIT 32.1

 

Section 1350 Certification of Principal Executive Officer

 

In connection with the quarterly report of Nano Magic Holdings Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tom J. Berman, President of the Company, and I, Leandro Vera, Chief Financial Officer, certify to the best of our knowledge:

 

1. The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: October 28, 2021 /s/ Tom J. Berman
  Tom J. Berman
  President and Chief Executive Officer
   
Date: October 28, 2021 /s/ Leandro Vera
  Leandro Vera
  Chief Financial Officer