Nano Magic (NMGX) 10-Q2024 Q2 Quarterly report

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, 2024

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

COMMISSION FILE NO. 1-11602

NANO MAGIC INC.

(Exact name of registrant as specified in its charter)

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:

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.

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 August 19, 2024, the registrant had 14,008,675 shares of Common Stock issued and outstanding.

Nano Magic Inc.

INDEX

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.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NANO MAGIC INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

See accompanying notes to financial statements.

NANO MAGIC INC.

CONDENSED BALANCE SHEETS

(unaudited)

See accompanying notes to financial statements.

NANO MAGIC INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

(unaudited)

See accompanying notes to condensed financial statements.

NANO MAGIC INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(unaudited)

See accompanying notes to condensed financial statements.

NANO MAGIC INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

See accompanying notes to condensed financial statements.

NANO MAGIC INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2024

(unaudited)

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization

Nano Magic Inc. (“we”, “us”, “our”, “Nano Magic” or the “Company”), a Delaware corporation, develops and sells a portfolio of nano-layer coatings, nano-based cleaners, and nano-composite products based on its proprietary technology.

Basis of Presentation

The accompanying unaudited condensed 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 financial statements of the Company as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the operating results for the full year ending December 31, 2024 or any other period. The balance sheet at December 31, 2023 has been derived from the audited financial statement at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and related disclosures of the Company as of December 31, 2023 and for the year then ended, which were filed with the Securities and Exchange Commission on Form 10-K on April 3, 2024.

Going Concern

These unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the unaudited financial statements, the Company had losses from operations and net cash used by operations of $1,522,906 and $992,505 for the six months ended June 30, 2024 and a loss from operations of $1,346,099 and net cash used by operations of $725,395 for the six months ended June 30, 2023. Moreover, at June 30, 2024, the Company had a working capital deficit of $(805,072) as compared to positive working capital of $454,969 at December 31, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these unaudited financial statements are issued. Management cannot provide assurance that the Company will ultimately achieve profitable operations, become cash flow positive or raise additional capital. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. They do not include any adjustments related to the recoverability and/or classification of the recorded asset amounts and/or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Reclassifications

Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period. These reclassifications had no effect on the previously reported net loss.

NOTE 2 – INVENTORY

At June 30, 2024 and December 31, 2023, inventory consisted of the following:

 SCHEDULE OF INVENTORY

NOTE 3 – INVESTMENT IN SUBSIDIARY

For the three- and six-month periods ended June 30, 2024, we sold portions of the note receivable from ANI to various parties for total cash proceeds of $100,000 and $300,000, respectively, incurring a loss on the sale of the note of $15,000 and $41,782, respectively. The losses were recorded in Other Expense in the statement of operations. As a result, at June 30, 2024, the note receivable had a balance of $0 as compared to $341,782 at December 31, 2023; $0 was included in current assets at June 30, 2024 with $50,000 included in current assets at December 31, 2023.

The Company is accounting for its 30% ownership interest in ANI by the equity method of accounting under which the Company’s share of the net income (loss) of ANI is recognized as income (loss) in the Company’s statement of operations. Any dividends received from ANI as well as periodic losses for the Company’s 30% share will be treated as a reduction of the investment account. Periodic income will be treated as an increase in the investment account. At June 30, 2024 and December 31, 2023, the non-marketable investment in subsidiary was $263,959 and $253,835, included in non-current assets. For the three- and six-month periods ended June 30, 2024, the Company recorded income from the investment in the subsidiary of $0 and $10,123 respectively. For the three and six-month periods ended June 30, 2023, the Company recorded income of $8,782 and $40,938, respectively. See Note 9, Subsequent Events, describing the sale of a part of our interest in ANI.

NOTE 4 – NOTES PAYABLE AND FINANCE LEASE

Notes Payable

On January 7, 2022, the Company sold to one investor a $100,000 convertible note due March 31, 2025. On January 26, 2022, and January 31, 2022, the Company sold two $50,000 convertible notes to two different investors. The $50,000 notes are due March 31, 2025 and March 31, 2026. All three notes were issued at face value, and bear interest at 8% per annum, payable semi-annually in cash. The notes are convertible at any time at the option of the holder into shares of common stock at a conversion price of $1.75 per share.

On July 27, 2022, the Company sold two convertible notes, one for $50,000 and one for $25,000, both due on March 31, 2025. The $25,000 note is to Mr. Ron Berman, a Related Party. On August 22, 2022, the Company sold a $25,000 convertible promissory note due March 31, 2026. All three notes were issued at face value, and bear interest at 8% per annum, payable semi-annually in cash. The notes are convertible at any time at the option of the holder into shares of common stock at a conversion price of $1.75 per share.

On October 26, 2022, the Company sold to an investor a $25,000 convertible promissory note due October 31, 2023. Issued at face value, the note bears interest at 8% per annum, payable semi-annually in cash. The note is convertible at any time at the option of the holder into shares of common stock at a conversion price of $1.75 per share. On October 18, 2023, the Company and the holder extended the maturity date of the note to October 31, 2024.

On December 18, 2022, the Company issued a convertible promissory note for $50,000 that is secured by certain payroll tax credits the Company is entitled to receive under the Employee Retention Tax Credit program. The note was issued at face value and bears interest at 8% per annum, payable at maturity on June 18, 2024. The note can be converted to common stock at any time at the option of the holders at a conversion price of $1.75 per share at which point accrued interest will be paid in cash. At June 30, 2024, the note remains unpaid.

On June 14, 2023, the Company issued a convertible, secured note and warrants to purchase 10,000 shares of the Company’s common stock for $50,000 with the same terms as the one issued on December 18, 2022. The warrants were recorded as a debt discount on the date of issuances for a total value of $5,333. The balance at June 30, 2024 and December 31, 2023 of the debt discount was $1,622 and $3,390, respectively.

On July 24, 2023, the Company issued at face value a convertible note in the original principal amount of $50,000. The note is due on July 24, 2025, bears interest at 8% per annum and is convertible at $1.25 per share.

On November 2, 2023, the Company issued at face value a convertible note in the original principal amount of $50,000. The note is due on November 2, 2025, bears interest at 8% per annum and is convertible at $1.25 per share.

On June 10, 2024, the Company issued a $50,000 promissory note to an investor. The note bears interest at 1% per month and all principal and interest is payable 120 days from the date of issuance. The note is secured by two purchase orders from a large customer.

At June 30, 2024 and at December 31, 2023, we had outstanding convertible notes aggregating $575,000 and $525,000 in principal amount. The convertible promissory notes have not been included in diluted earnings per share as they would be anti-dilutive.

Finance Lease

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. At June 30, 2024 and December 31, 2024, the balances on the finance lease were $12,396 and $24,194, respectively. These balances are included in current liabilities on the balance sheet.

NOTE 5 – OPERATING LEASE

Effective May 31, 2020, we entered into a lease with a related party for a 29,220 square foot building in Madison Heights, Michigan. The occupancy and rent commencement date was October 1, 2020. The lease has an initial term of seven years with a renewal option at the end of the initial term for an additional 3-year term, and a second renewal option thereafter for an additional 5-year term. The renewal term is not included in the calculation of the operating lease liability. As the sole tenant, we are responsible for all taxes, ordinary maintenance, snow removal and other ordinary operating expenses. Rent is $6.50 per square foot, increasing by $0.25 per year. During the first three years we had the right to buy up to a 49% interest in Magic Research LLC for a price equal to 49% of the contributions received from other members. This right has now expired as we did not exercise the option. See Note 7, Stockholders’ Equity, for a description of warrants issued to the owners of Magic Research LLC in connection with this lease. The fair value of these warrants totaling $311,718 were recorded as initial direct costs of obtaining the lease and are included in right-of-use assets on the accompanying balance sheet. See Note 6, Related Party Transactions, for information about roles in management and economic participation by our CEO and several other directors in the landlord.

In February 2023, we reached an agreement with the landlord of our Michigan facility to accept $66,000 worth of our common stock at a price of $1.25 per share as partial payment of rent for the six-month period from October 2022 through March 2023. During that period, we paid cash of $8,056 per month, effectively a cash rent reduction of $10,983 per month. In May 2023, we reached a further agreement with the landlord under which we pay cash each month to cover the cost of the mortgage and the lease for the lighting fixtures, but that will allow us to pay the balance of the rent by issuing shares of our stock valued at $0.75 per share. We have the option to continue to use stock to pay a portion of the rent through 2024.

For operating leases, we calculated ROU assets and lease liabilities based on the present value of the remaining lease payments as of the date of adoption using the IBR as of that date. The ROU Asset was $727,814 at June 30, 2024 and $845,563 at December 31, 2023. The operating lease liability was $630,646 at June 30, 2024 and $722,419 at December 31, 2023.

NOTE 6 – RELATED PARTY TRANSACTIONS

At June 30, 2024 and at December 31, 2023, accounts payable – related parties totaled $117,627 and $55,520, respectively, and advances from related parties totaled $42,887 on both dates. These balances are presented separately in current liabilities on the accompanying balance sheets. These balances consist of amounts owed to directors and officers as well as to the landlord controlled by two of the Company’s directors.

See Note 9, Subsequent Events, regarding options granted to, among others, officers and certain directors.

Mr. Ron Berman and Mr. Tom Berman are the managers of the limited liability company that is the manager of PEN Comeback, LLC, PEN Comeback 2, LLC, Magic Growth, LLP, Magic Growth 2 LLC and Magic Growth 3 LLC. These five limited liability companies purchased shares of common stock and derivative securities from us in 2018, 2019, 2020, 2021 and 2022.

In addition, Mr. Tom Berman and Mr. Ron Berman are two of three individuals who share voting power of the sole manager of the limited liability company that is our landlord in Michigan. Together, Tom and Ron Berman hold, in the aggregate, a 5% economic interest in the landlord entity. Another director, Miles Gatland, owns a 12.5% interest in the Michigan landlord and he is a co-guarantor on the debt of that limited liability company. See Note 7, Stockholder’s Equity regarding the issuance of stock in partial satisfaction of unpaid rent. At June 30, 2024 and at December 31, 2023, rents accrued and unpaid totaled $93,627 and $30,141, respectively, which are included in related parties accounts payable on the balance sheet.

NOTE 7 – STOCKHOLDERS’ EQUITY

Description of Preferred and Common Stock

Preferred Stock

The preferred stock may be issued in one or more series. The Company’s board of directors are authorized to issue the shares of preferred stock in such series and to fix from time to time before issuance thereof the number of shares to be included in any such series and the designation, powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of such series.

Common Stock

The rights of each share of common are the same with respect to dividends, distributions and rights upon liquidation. Holders of common stock each have one vote per share in the election of directors and other matters submitted to a vote of the stockholders.

Issuances of Common Stock

Common Stock Issued for Services

In February 2023, we reached an agreement with the landlord of our Michigan facility to accept 52,800 shares of our common stock at a price of $1.25 per share as partial payment of rent for the six-month period from October 2022 through March 2023. Those shares were issued in March, 2023. In May 2023, we reached a further agreement with the landlord that calls for us to pay cash each month to cover the cost of the mortgage and the lease for the lighting fixtures, but that will allow us to pay the balance of the rent by issuing shares of our stock valued at $0.75 per share. We have the option to continue to use stock to pay a portion of the rent through 2024. The landlord is a Related Party.

On May 30, 2023, the Company issued 76,922 shares of restricted common stock to a consultant as compensation for services. The shares are subject to forfeiture until vested. So long as the consulting services agreement remains in effect 4,273 shares vested in May for prior service, and another 4,273 shares vest at the end of May and each calendar month thereafter, with 4,277 shares vesting in December 2023. During 2024, 3,205 shares will vest at the end of each month, with 3,206 shares vesting at the end of December 2024.

Sales of Common Stock and Derivative Equity Securities

During the quarter ended June 30, 2024, the Company sold 210,000 shares of common stock for proceeds of $157,500. During the six-months ended June 30, 2024, the Company sold 283,334 shares of common stock for proceeds of $212,500.

During the quarter ended June 30, 2023, the Company sold 253,994 shares of common stock for proceeds of $346,064 and warrants to purchase up to 196,813 shares of common stock for proceeds of $4,136. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $1.75. During the six-months ended June 30, 2023, the Company sold 328,800 shares of common stock for proceeds of $439,571 and warrants to purchase up to 271,439 shares of common stock for proceeds of $5,428. The warrants are exercisable at any time during the four years after date of issue at a warrant exercise price of $1.75. Also, during the three-months ended June 30, 2023, the Company sold 10,000 warrants in connection with the issuance of a convertible note payable of $50,000 as disclosed in Note 5. In accordance with ASC 470, 11% of the value of the total convertible note payable was allocated to the warrants.

Stock Options

Stock options to purchase common stock outstanding at June 30, 2024 include those described below. No options were exercised during the period. No options have been included in diluted earnings per share as they would be anti-dilutive.

 SCHEDULE OF STOCK OPTION PLAN ACTIVITY

SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS SHARE

Warrants

As of June 30, 2024, there were outstanding and exercisable warrants to purchase 7,525,265 shares of common stock. The outstanding warrants have a weighted average exercise price of $1.72 per share and a weighted average remaining contractual term of 34.7 months. As of June 30, 2024 and December 31, 2023, there was no intrinsic value for the warrants. No warrants have been included in diluted earnings per share as they would be anti-dilutive.

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.

On April 12, 2023, the Company granted 47,610 options under the 2021 Equity Plan. On May 30, 2023 the Board granted an additional 175,071 options under the 2021 Equity Plan to employees and a consultant. All options are at an exercise price of $0.65.

See Note 9, Subsequent Events, regarding additional options granted under the 2021 Equity Plan.

Other Options

On April 12, 2023, the Company issued an additional 30,000 options to Tom J. Berman, our President. On May 30, 2023, the Board granted 384,228 options to officers and to a consultant who is also a director.

See Note 9, Subsequent Events, regarding options granted to officers and certain directors.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Litigation

The Company may be, from time to time, subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business. As of June 30, 2024 we were not a defendant in any proceedings. Our policy is to accrue costs for contingent liabilities, including legal proceedings or unasserted claims that may result in legal proceedings, when a liability is probable and the amount can be reasonably estimated. As of June 30, 2024 and December 31, 2023, the Company has not accrued any amount for litigation contingencies.

NOTE 9 – SUBSEQUENT EVENTS

On July 18, 2024, the Company sold an aggregate of 166,666 shares of common stock for proceeds of $125,000 to two different investors.

On July 29,2024, the Board authorized the sale of a portion of the Company’s interest in Applied Nanotech, Inc. The sale was consummated on the same day; the Company received $100,000 in cash and its interest in Applied Nanotech was reduced from 30% to 25%.

On July 29, 2024, The Company granted 411,268 options to employees, contractors and consultants under the 2021 Equity Plan and increased amounts available for grant by that number. All options entitle the holder to purchase shares at a strike price of $0.31 and expire five years from date of grant.

On July 29, 2024, the Company also granted options to our President & CEO, Tom Berman: 250,000 vesting on date of grant, 250,000 vesting on December 31,2024, and 1,000,000 that will vest if he earns a Profit Bonus under his contract and the Board elects to pay some or all of that bonus with options. On that same day, the Board granted 60,000 options to our Chief Financial Officer, Leandro Vera, 60,000 options to director Ronald Berman, 30,000 options to director Scott Rickert and 30,000 options to director and Secretary Jeanne Rickert. These options were 50% vested on date of grant and will vest ratably over the remainder of 2024. Options to officers and directors were not issued under the Plan, but these options also entitle the holder to purchase shares at a strike price of $0.31 and expire five years from date of grant.

On August 5, 2024, the Company sold 133,333 shares for proceeds of $100,000.

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 financial statements.

OVERVIEW

Nano Magic develops, commercializes and markets nanotechnology powered consumer and industrial cleaners and coatings to clean, protect, and enhance products for peak performance. Consumer products include lens and screen cleaners and coatings, anti-fog solutions, and household and automobile cleaners and protective coatings sold direct-to-consumer and in big box retail. Nano Magic also sells branded and private label cleaners and coatings into the optical, safety, and industrial channels. Our focus is to expand our direct-to-consumer sales through e-commerce and to grow sales to big box retailers. We continue to sell our consumer products directly to opticians and ophthalmologists and small optical retailers.. Visit www.nanomagic.com for more information.

RESULTS OF OPERATIONS

The following comparative analysis on results of operations was based primarily on the comparative condensed financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the unaudited condensed financial statements and the notes to those statements that are included elsewhere in this report. The results discussed below are for the three and six months ended June 30, 2024 and 2023.

Comparison of Results of Operations for the Three and Six Months ended June 30, 2024 and 2023

Revenues:

For the three and six months ended June 30, 2024 and 2023, revenues from operations were:

For the three months ended June 30, 2024, revenues from operations decreased by $92,670 or 13% as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024 revenues decreased by $209,587 or 15%, as compared to the six months ended June 30, 2023. The decreases were due to a slowdown in purchasing from key customers and changes in product mix.

Cost of sales

Cost of sales includes inventory costs, materials and supplies costs, internal labor and related benefits, subcontractor costs, depreciation, periodic changes in the inventory reserve, and allocated overheads and shipping and handling costs incurred.

For the three months ended June 30, 2024, cost of revenues increased by $155,428 or 31% as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, cost of revenues increased by $44,518 or 4% as compared to the six months ended June 30, 2023. Cost of sales increased as sales revenue decreased due to a significant increase in the reserve for slow-moving and excess inventory in 2024 as compared to 2023. Management is currently focusing efforts on reducing this inventory by way of new programs and incentives with customers.

Gross profit

For the three months ended June 30, 2024, gross profit was $(45,960) as compared to gross profit of $202,138 for the prior year, a decrease of $248,098 or 123%. For the six months ended June 30, 2024, gross profit was $22,783 as compared to $276,888 for the prior year, a decrease of $254,105 or 92%. For the three- and six-month periods the decreases were due to lower sales volumes and higher inventory reserves year over year.

Operating expenses

For the three months ended June 30, 2024, operating expenses decreased by $139,822 or 16% compared to the three months ended June 30, 2023. For the six-month period ended June 20, 2024, operating expenses decreased by $88,718 or 5% as compared to the six months ended June 30, 2023. For the three and six months ended June 30, 2024 and 2023, operating expenses consisted of the following:

Loss from operations

As a result of the factors described above, for the three months ended June 30, 2024, loss from operations amounted to $788,032 as compared to a loss of $668,336 for the three months ended June 30, 2023, an increase of $119,696 or 18%. For the six months ended June 30, 2024, loss from operations amounted to $1,522,906 as compared to a loss of $1,346,099 for the six months ended June 30, 2023, an increase of $176,807 or 13%.

Income from investment in subsidiary

As a result of the sale of a 70% interest in ANI , we now report our 30% share of ANI’s income or loss as an investment in a subsidiary. For the three and six months ended June 30, 2024 there was income of $0 and $10,123, respectively. For the three and six-month periods ended June 30, 2023, we recorded income of $8,782 and $40,938, respectively.

Loss from sale of note receivable

In 2024 we sold our note receivable from ANI, realizing cash, but recording a loss. For the three- and six-month periods ending June 30, 2024, the loss was $26,782, and $41,782.

Interest expense

For the three months ended June 30, 2024 interest expense was $13,028 as compared to $7,575 in the prior year, and for the six months ended June 30, 2024 interest expense was $25,465 as compared to $21,943 in the prior year. In 2024, the increases were due to higher interest charges associated with the company’s issuance of convertible promissory notes.

Interest and other income

For the three months ended June 30, 2024 interest and other income was $3,178 as compared to $16,264 in the prior year, and for the six months ended June 30, 2024 interest and other income was $9,158 as compared to $23,202 in the prior year. In 2024, the decreases were due to a decreased balance on the ANI note receivable resulting in lower interest income for the Company.

Other (expense) income

For the three and six months ended June 30, 2024, other expense amounted to $(36,632), and $(47,966), respectively, as compared to other income of $17,471 and $42,197 for the three and six months ended June 30, 2023. The changes were due to the above factors.

Net loss

As a result of the foregoing, we reported a net loss of $824,665 for the three-month period ended June 30, 2024 and a net loss of $650,865 for the three-month period in the prior year, an increase of $173,800 or 27%. For the six-month period ended June 30, 2024 our net loss was $1,570,872 as compared to $1,303,902 for the six-month period ended June 30, 2023, an increase of $266,970 or 20%.

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 $(805,072) and $71,869 of unrestricted cash as of June 30, 2024 and working capital of $454,969, including $527,462 of cash as of December 31, 2023.

The following table sets forth a summary of changes in our working capital from December 31, 2023 to June 30, 2024:

The decrease in current assets was a combination of a reduction in cash, net inventory and prepaid expenses, as well as the sale of the note receivable. The increase in current liabilities was a combination of an increase in accounts payable, accrued expenses, and the current portion of notes payable. The current portion of notes payable includes a note in the principal amount of $50,000 that is past its maturity date.

Net cash used by operating activities was $(992,505) for the six months ended June 30, 2024 as compared to net cash used by operating activities of $(725,395) for the six months ended June 30, 2023, a net change of $(267,110) or 37%. Net cash used by operating activities for the six months ended June 30, 2024 primarily resulted from a net loss of $1,570,872 adjusted for add-backs of $238,927 and changes in operating assets and liabilities of $339,440.

Net cash provided by investing activities was $284,442 for the six months ended June 30, 2024, as compared to net cash provided by investing activities of $17,171 for the same period in 2023. The change was primarily due to the sale of the note receivable.

Net cash provided by financing activities was $252,470 for the six months ended June 30, 2024 reflecting $262,500 in proceeds from sales of common stock and convertible debt, as compared to net cash provided by financing activities of $468,814 for the same period in 2023. The reduction in 2024 was primarily due to a decrease in proceeds from the sale of common stock and convertible debt.

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 accounts payable and 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

See notes 4 and 5 to our unaudited condensed financial statements regarding our equipment loan and financing leases.

Off-Balance Sheet Arrangements

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

ITEM 3. Quantitative and Qualitative disclosures about market risk

Not applicable to smaller reporting companies.

ITEM 4. Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report (the “Evaluation Date”). This evaluation included consideration of past practices, new resources, and implementation of a new payables system recently adopted in 2024. Based upon this evaluation, we do not believe we have a material weakness in the Company’s internal controls and procedures.

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, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 1A. RISK FACTORS

Not required of smaller reporting companies.

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

On April 17, 2024, the Company sold 33,333 shares of common stock for proceeds of $25,000. On April 24, 2024, the Company sold 33,333 shares of common stock to another investor for proceeds of $25,000.

On June 12, 2024, the Company sold 36,667 shares of common stock for proceeds of $27,500. On June 13, 2024, the Company sold 26,667 shares for $20,000. On June 25, 2024, the Company sold 13,333 shares for $10,000. On June 27, 2024, the Company sold 66,667 shares for $50,000.

On July 18, 2024, the Company sold an aggregate of 166,666 shares of common stock for proceeds of $125,000.

On July 29, 2024, The Company granted 411,268 options to employees, contractors and consultants under the 2021 Equity Plan and increased amounts available for grant by that number. A total of 37,288 of those options were 25% vested on date of grant, and will vest ratably over the rest of 2024 and all of 2025. A total of 322,000 of the options granted under the 2021 Equity Plan were vested 50% on date of grant and will vest ratably over the remainder of 2024. The remaining 51,980 options were fully vested on date of grant. All options entitle the holder to purchase 1 share per option at a strike price of $.031 and expire five years from date of grant.

On July 29, 2024, the Company also granted options to our President & CEO, Tom Berman: 250,000 vesting on date of grant, 250,000 vesting on December 31,2024, and 1,000,000 that will vest if he earns a Profit Bonus under his contract and the Board elects to pay some or all of that bonus with options. On that same day the Board granted 60,000 options to our Chief Financial Officer, Leandro Vera, 60,000 options to director Ronald Berman, 30,000 options to director Scott Rickert and 30,000 options to director and Secretary Jeanne Rickert. These options were 50% vested on date of grant and will vest ratably over the remainder of 2024. Options to officers and directors were not issued under the Plan, but these options also entitle the holder to purchase 1 share per option at a strike price of $.031 and expire five years from date of grant.

On August 5, 2024, the Company sold 133,333 shares for proceeds of $100,000.

Grants under the 2021 Equity Plan were exempt under Rule 701. The sales and issuances of stock and other securities were exempt from registration under Section 4(a)(2) of the Securities Act. Cash proceeds were used for general corporate purposes.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

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.