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 ~~March~~June 3130, 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)

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 ~~May~~August 2119, 2024, the registrant had 1314,~~565~~008,~~342~~675 shares of ~~common~~Common ~~stock~~Stock issued and outstanding.

Nano Magic Inc.

INDEX

		Page
Part I. Financial Information		~~F-1~~
Item 1. Financial Statements (Unaudited)		F-1
Statements of Income—Three months Ended March 31, 2024 and 2023		F-1
Condensed Statements of Operations—Three and Six Months Ended June 30, 2024 and 2023		F-1
Balance Sheets—March 31, 2024 and December 31, 2023		F-2
Condensed Balance Sheets—June 30, 2024 and December 31, 2023		F-2
Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023		F-3
Condensed Statements of Changes in Stockholders’ (Deficit) Equity for the Three Months Ended June 30, 2024 and 2023		F-3
Statements of Cash Flows—Three months Ended March 31, 2024 and 2023		F-4
Condensed Statements of Changes in Stockholders’ (Deficit) Equity for the Six Months Ended June 30, 2024 and 2023		F-4
Notes to Unaudited Financial Statements		F-5
Condensed Statements of Cash Flows—Six Months Ended June 30, 2024 and 2023		F-5
Notes to Unaudited Condensed 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		67
Item 4. Controls and Procedures		67
Part II. Other Information		7
Item 1. Legal Proceedings		78
Item 1A. Risk Factors		78
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		78
Item 3. Defaults Upon Senior Securities		78
Item 4. Mine Safety Disclosures		78
Item 5. Other Information		78
Item 6. Exhibits		79
Signatures		810

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 ~~INCOME~~ OPERATIONS

(unaudited)

	2024			2023			2024			2023
	For the Three Months Ended March 31,
	For the Three Months Ended						For the Six Months Ended
	2024			2023
	June 30,						June 30,
NET REVENUES	$	580,112		$	697,029
	2024			2023			2024			2023
COST OF SALES		511,369			622,279
NET REVENUES	$	616,623		$	709,293		$	1,196,735		$	1,406,322
GROSS PROFIT		68,743			74,750
COST OF SALES		662,583			507,155			1,173,952			1,129,434
OPERATING EXPENSES:
GROSS PROFIT		(45,960	)		202,138			22,783			276,888
Selling and marketing expenses		82,726			59,424
OTHER OPERATING INCOME		-			11,420			-			11,420
Salaries, wages and related benefits		202,549			278,576
OPERATING EXPENSES:
Stock compensation expense		8,500			30,144
Selling and marketing expenses		49,076			54,018			131,802			113,442
Research and development		20,295			5,904
Salaries, wages and related benefits		230,916			189,986			433,465			468,562
Professional fees		218,119			189,459
Stock compensation expense		7,835			260,249			16,335			290,393
General and administrative expenses		271,428			189,006
Research and development		21,623			6,371			41,918			12,275
Total Operating Expense		803,617			752,513
Professional fees		176,331			112,762			394,450			302,221
LOSS FROM OPERATIONS		(734,874	)		(677,763	)
General and administrative expenses		256,291			258,508			527,719			447,514
OTHER (EXPENSE) INCOME
Total Operating Expense		742,072			881,894			1,545,689			1,634,407
Income from investment in subsidiary		10,123			32,156
LOSS FROM OPERATIONS		(788,032	)		(668,336	)		(1,522,906	)		(1,346,099	)
Loss from sale of note receivable		(15,000	)		-
OTHER (EXPENSE) INCOME
Interest expense		(12,437	)		(14,368	)
Income from investment in subsidiary		-			8,782			10,123			40,938
Interest income		5,981			6,938
Loss from sale of note receivable		(26,782	)		-			(41,782	)		-
Total Other (Expense) Income		(11,333	)		24,726
Interest expense		(13,028	)		(7,575	)		(25,465	)		(21,943	)
NET LOSS	$	(746,207	)	$	(653,037	)
Interest and other income		3,177			16,264			9,158			23,202
NET LOSS PER COMMON SHARE
Total Other (Expense) Income		(36,633	)		17,471			(47,966	)		42,197
Basic	$	(0.06	)	$	(0.06	)
NET LOSS		(824,665	)		(650,865	)		(1,570,872	)		(1,303,902	)
Diluted	$	(0.06	)	$	(0.06	)
NET LOSS PER COMMON SHARE
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	$	(0.06	)	$	(0.06	)	$	(0.12	)	$	(0.12	)
Basic		13,439,713			10,738,962
Diluted	$	(0.06	)	$	(0.06	)	$	(0.12	)	$	(0.12	)
Diluted		13,439,713			10,738,962
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		13,565,122			10,963,268			13,502,764			10,907,579
Diluted		13,565,122			10,963,268			13,502,764			10,907,579

See accompanying notes to financial statements.

F-1

NANO MAGIC INC.

CONDENSED BALANCE SHEETS

(unaudited)

	2024			2023
	March 31			December 31
	June 30			December 31
	2024			2023
ASSETS
CURRENT ASSETS:
Cash	$	~~189~~71,~~133~~869		$	527,462
Accounts receivable, net of allowance for credit losses of $189,734 and $150,300 at March 31, 2024 and December 31, 2023, respectively		142,949			209,057
Accounts receivable, net of allowance for credit losses of $248,919 and $150,300 at June 30, 2024 and December 31, 2023, respectively		100,425			209,057
Inventory, net		~~779~~751,~~991~~158			849,764
Prepaid expenses		4917,~~583~~957			63,538
Current portion of related party note receivable		33,000			50,000
Current portion of note receivable		-			50,000
Total Current Assets		1941,~~194,656~~409			1,699,821
Operating lease right-of-use assets, net		795,634			845,563
Operating lease right-of-use assets		727,814			845,563
Property, plant and equipment, net		~~409~~385,~~572~~844			424,103
Related party note receivable, non-current		193,782			291,782
Note receivable, non-current		-			291,782
Non-marketable equity investment in subsidiary		263,959			253,835
Total Assets	$	2,~~857~~319,~~603~~026		$	3,515,104
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	~~553~~634,~~705~~663		$	593,338
Accounts payable - related parties		90117,~~550~~627			55,520
Accounts payable		90117,~~550~~627			55,520
Accrued expenses and other current liabilities		~~318~~339,~~945~~728			245,398
Current portion of notes payable		~~347~~400,~~494~~000			121,610
Current portion of notes payable from related party		25,000			-
Current portion of notes payable		25,000			-
Current portion of finance leases		1812,~~368~~396			24,194
Advances from related parties		42,887			42,887
Current portion of operating lease liabilities		~~167~~174,~~095~~181			161,905
Total Current Liabilities		1,~~564~~746,~~044~~482			1,244,852
Notes Payable, net of current portion		~~150~~148,~~000~~378			375,000
Notes Payable - related parties, net of current portion		-			25,000
Notes Payable - net of current portion		-			25,000
Operating lease liabilities, net of current portion		~~516~~456,~~528~~465			560,514
Total Liabilities		2,~~230~~351,~~572~~325			2,205,366
Commitments and Contingencies (See Note 8)		-			-
STOCKHOLDERS’ EQUITY:
STOCKHOLDERS’ (DEFICIT) EQUITY:
Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued and outstanding		-			-
Common stock: $0.0001 par value, 30,000,000 shares authorized; 13,498,676 and 13,425,342 issued and outstanding at March 31, 2024 and December 31, 2023, respectively		1,349			1,342
Common stock: $0.0001 par value, 30,000,000 shares authorized; 13,708,676 and 13,425,342 issued and outstanding at June 30, 2024 and December 31, 2023, respectively		1,371			1,342
Additional paid-in capital		16,~~374~~539,~~361~~674			16,310,868
Accumulated deficit		(1516,~~748~~573,~~679~~344	)		(15,002,472	)
Total Stockholders’ Equity		627,031			1,309,738
Total Stockholders’ (Deficit) Equity		(32,299	)		1,309,738
Total Liabilities and Stockholders’ Equity	$	2,~~857~~319,~~603~~026		$	3,515,104

See accompanying notes to financial statements.

F-2

NANO MAGIC INC.

~~STATEMENTS~~CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY

FOR THE THREE MONTHS ENDED ~~MARCH~~JUNE 3130, 2024 AND 2023

(unaudited)

										Total
	Class A Common Stock				Additional Paid-in		Accumulated			Stockholders’ (Deficit)
	Shares		Amount		Capital		Deficit			Equity
	Class A Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
Balance, March 31, 2024		13,498,676	$	1,349	$	16,374,361	$	(15,748,679	)		627,031
	Shares		Amount		Capital		Deficit			Equity
Common stock issued for cash, net of issuance costs		210,000		22		157,478		-			157,500
Balance, December 31, 2022		10,722,431	$	1,072	$	13,763,143	$	(12,146,753	)	$	1,617,462
Common stock issued for cash, net of issuance costs		74,806		7		93,500		-			93,507
Stock-based compensation		-		-		30,144		-			30,144
Stock issued for services		52,800		5		65,955		-			65,960
Warrants and options on private placement		-		-		1,492		-			1,492
Net loss		-		-		-		(653,037	)		(653,037	)
Balance, March 31, 2023		10,850,037	$	1,084	$	13,954,234	$	(12,799,790	)	$	1,155,528
Balance, December 31, 2023		13,425,342	$	1,342	$	16,310,868	$	(15,002,472	)	$	1,309,738
Balance		13,425,342	$	1,342	$	16,310,868	$	(15,002,472	)		1,309,738
Common stock issued for cash, net of issuance costs		73,334		7		54,993		-			55,000
Restricted stock issued for services		-		-		5,691		-			5,691
Stock-based compensation		-		-		2,~~809~~144		-			2,~~809~~144
Net loss		-		-		-		(~~746~~824,~~207~~665	)		(~~746~~824,~~207~~665	)
Balance, March 31, 2024		13,498,676	$	1,349	$	16,374,361	$	(15,748,679	)	$	627,031
Balance, June 30, 2024		13,708,676		1,371		16,539,674		(16,573,344	)		(32,299	)
Balance		13,498,676		1,349		16,374,361		(15,748,679	)		627,031
Balance, March 31, 2023		10,850,037	$	1,084	$	13,954,274	$	(12,799,790	)		1,155,568
Common stock issued for cash, net of issuance costs		253,994		25		346,039		-			346,064
Stock-based compensation		-		-		255,539		-			255,539
Stock issued for services		76,922		8		4,702		-			4,710
Warrants and options on private placement		-		-		9,269		-			9,269
Net loss		-		-		-		(650,865	)		(650,865	)
Balance, June 30, 2023		11,180,953		1,117		14,569,823		(13,450,655	)		1,120,285

See accompanying notes to condensed financial statements.

F-3

NANO MAGIC INC.

~~STATEMENTS~~CONDENSED STATEMENTS OF ~~CASH~~CHANGES ~~FLOWS~~IN STOCKHOLDERS’ (DEFICIT) EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(unaudited)

	2024			2023
												Total
	For the Three Months Ended March 31,
	Class A Common Stock						Additional Paid-in		Accumulated			Stockholders’ (Deficit)
	2024			2023
	Shares			Amount			Capital		Deficit			Equity
CASH FLOWS FROM OPERATING ACTIVITIES
Balance, December 31, 2023		13,425,342		$	1,342		$	16,310,868	$	(15,002,472	)		1,309,738
Net loss	$	(746,207	)	$	(653,037	)
Common stock issued for cash, net of issuance costs		283,334			29			212,471		-			212,500
Adjustments to reconcile net loss to net cash provided by operating activities:
Restricted stock issued for services		-			-			11,382		-			11,382
Change in inventory obsolescence reserve		57,055			4,717
Stock-based compensation		-			-			4,953		-			4,953
Depreciation and amortization expense		26,877			28,301
Net loss		-			-			-		(1,570,872	)		(1,570,872	)
Bad debt expense		49,854			5,645
Balance, June 30, 2024		13,708,676			1,371			16,539,674		(16,573,344	)		(32,299	)
Restricted stock issued for services		5,691			-
Balance, December 31, 2022		10,722,431		$	1,072		$	13,763,143	$	(12,146,753	)		1,617,462
Stock-based compensation		2,809			96,144
Balance		10,722,431		$	1,072		$	13,763,143	$	(12,146,753	)		1,617,462
Income from investment in subsidiary		(10,123	)		(32,156	)
Common stock issued for cash, net of issuance costs		328,800			32			439,539		-			439,571
Change in operating assets and liabilities:
Stock-based compensation		-			-			285,683		-			285,683
Accounts receivable		16,254			(6,475	)
Stock issued for services		52,800			5			65,995		-			66,000
Inventory		12,718			59,576
Restricted stock issued for services		76,922			8			4,702		-			4,710
Prepaid expenses and contract assets		13,955			44,987
Warrants and options on private placement		-			-			10,761		-			10,761
Accounts payable		(24,636	)		15,870
Net loss		-			-			-		(1,303,902	)		(1,303,902	)
Accounts payable - related party		35,030			47,998
Balance, June 30, 2023		11,180,953			1,117			14,569,823		(13,450,655	)		1,120,285
Operating lease liabilities		11,133			12,961
Balance		11,180,953			1,117			14,569,823		(13,450,655	)		1,120,285
Accrued expenses		73,547			72,445
Total adjustments		270,164			350,013
NET CASH USED BY OPERATING ACTIVITIES		(476,043	)		(303,024	)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from note receivable		100,000			20,000
Purchases of property and equipment		(12,344	)		(2,829	)
NET CASH PROVIDED BY INVESTING ACTIVITIES		87,656			17,171
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock and warrants		55,000			95,000
Repayment of bank loans		-			(1,628	)
Repayment of finance leases		(4,942	)		(10,956	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		50,058			82,416
NET DECREASE IN CASH		(338,329	)		(203,437	)
CASH, beginning of period		527,462			259,223
CASH, end of period	$	189,133		$	55,786
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	12,437		$	1,469
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING AND INVESTING ACTIVITIES
Reduction of note receivable from subsidiary for non-cash services	$	984		$	21,348
Reduction of rent payable through issuance of stock	$	-		$	32,948

See accompanying notes to condensed financial statements.

F-4

NANO MAGIC INC.

~~NOTES TO~~CONDENSED ~~FINANCIAL~~ STATEMENTS OF CASH FLOWS

MARCH 31, 2024

(unaudited)

	2024			2023
	For the Six Months Ended
	June 30,
	2024			2023

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,570,872	)	$	(1,303,902	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Change in inventory obsolescence reserve		80,279			(3,680	)
Depreciation and amortization expense		53,817			56,265
Bad debt expense		98,619			47,997
Stock issued for services		11,382			70,710
Stock-based compensation		4,953			285,683
Income from investment in subsidiary		(10,123	)		(40,938	)
Change in operating assets and liabilities:
Accounts receivable		10,014			(53,181	)
Inventory		18,327			74,190
Prepaid expenses and contract assets		45,581			109,794
Accounts payable		83,104			(47,650	)
Accounts payable - related party		62,107			13,498
Operating lease liabilities		25,977			14,190
Accrued expenses		94,330			51,629
Total adjustments		578,367			578,507
					-
NET CASH USED BY OPERATING ACTIVITIES		(992,505	)		(725,395	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from note receivable		300,000			20,000
Purchases of property and equipment		(15,558	)		(2,829	)

NET CASH PROVIDED BY INVESTING ACTIVITIES		284,442			17,171

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock and warrants		212,500			445,000
Proceeds from issuance of convertible debt and warrants		50,000			50,000
Repayment of bank loans		-			(1,630	)
Repayment of finance leases		(10,030	)		(24,556	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		252,470			468,814

NET DECREASE IN CASH		(455,593	)		(239,410	)

CASH, beginning of period		527,462			259,223

CASH, end of period	$	71,869		$	19,813

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	1,012		$	21,943

See accompanying notes to condensed financial statements.

F-5

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.

We develop, manufacture and sell consumer and institutional products using nanotechnology to deliver unique performance attributes at the surfaces of a wide variety of substrates. These products are marketed internationally primarily to customers in the optical industry.

Basis of Presentation

The accompanying unaudited 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 ~~March~~June 3130, 2024 and for the three and six months ended ~~March~~June 3130, 2024 and 2023. The results of operations for the three and six months ended ~~March~~June 3130, 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 $~~734~~1,~~874~~522,906 and $992,505 for the six months ended June 30, 2024 and a loss from operations of $~~476~~1,~~043~~346,099 and net cash used by operations of $725,395 for the ~~three~~six months ended ~~March~~June 3130, 2023. Moreover, at June 30, 2024, ~~respectively~~the Company had a working capital deficit of $(805,072) as ~~and~~compared ~~negative~~to positive working capital of $~~369~~454,~~388~~969 at December 31, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern within ~~one~~ one year after the date that these unaudited financial statements are issued. Management cannot provide assurance that the Company ~~will~~ 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 ~~March~~June 3130, 2024 and December 31, 2023, inventory consisted of the following:

SCHEDULE OF INVENTORY

	March 31, 2024			December 31, 2023
	June 30, 2024			December 31, 2023
Raw materials	$	~~669~~677,~~416~~239		$	648,537
Work-in-progress		~~228~~219,~~243~~856			235,811
Finished goods		~~270~~265,~~892~~847			296,921
Inventory, gross		1,~~168~~162,~~551~~942			1,181,269
Less: reserve for obsolescence		(~~388~~411,~~560~~784	)		(331,505	)
Inventory, net	$	~~779~~751,~~991~~158		$	849,764

F-6

NOTE 3 – INVESTMENT IN SUBSIDIARY

~~The~~For ~~Company~~the ~~holds~~three- aand ~~note~~six-month ~~receivable~~periods ~~from~~ended ~~its~~June ~~subsidiary ANI. On March 15~~30, 2024, we sold ~~$115,000~~portions of the note receivable from ANI ~~note~~to various parties for total cash proceeds of $100,000 and $300, ~~reducing~~000, ~~the~~respectively, ~~balance~~incurring ~~owed~~a toloss on the ~~Company.~~sale ~~The~~of ~~loss~~the note of $15,000 ~~was~~and $41,782, respectively. The losses were recorded in Other Expense in the statement of operations. As a result, at ~~March~~June 3130, 2024, the note receivable had a balance of $~~226,782 as~~0 as compared to $341,782 at at December 31, 2023.; $~~33,000 was~~0 was included in current assets at ~~March~~June 3130, 2024 with $50,000 included in current assets at December 31, 2023.

The Company ~~accounts~~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 ~~March~~June 3130, 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 ~~March~~June 3130, 2024 ~~and March 31~~, ~~2023,~~ the Company recorded income from the investment in the subsidiary of $0 and $10,123 respectively. For the three and ~~$32~~six-month periods ended June 30,~~156~~ 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 ~~LEASES~~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.

F-5

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 ~~issuance~~ issuances for a total value of $5,333. The balance at ~~March~~June 3130, 2024 and December 31, 2023 of the debt discount was $21,~~506~~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.

AtOn ~~March~~June 3110, 2024, ~~and~~the atCompany ~~December~~issued ~~31,~~a ~~2023~~$50,000 wepromissory ~~had~~note ~~outstanding~~to ~~convertible~~an ~~notes~~investor. ~~aggregating~~The ~~$525,000~~note inbears ~~principal~~interest ~~amount.~~at ~~The~~1% ~~convertible~~per month and all principal ~~promissory~~and ~~notes~~interest ~~have~~is ~~not~~payable ~~been~~120 ~~included~~days infrom ~~diluted~~the ~~earnings~~date ~~per~~of ~~share~~issuance. asThe ~~they~~note ~~would~~is besecured ~~anti-dilutive~~by two purchase orders from a large customer.

~~Finance~~At ~~Leases~~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.

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 December 31, 2023 the balance on the lease was $24,194, and as of March 31, 2024, the balance on the lease was $18,368, all of which was included in current liabilities.F-7

~~F-6~~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~~ the date of adoption using the IBR as of that date. The ROU Asset was $~~795~~727,~~634~~814 at ~~March~~June 3130, 2024 and $845,563 at December 31, 2023. The ~~operating~~ operating lease liability was $~~683~~630,~~623~~646 at ~~March~~June 3130, 2024 and $722,419 at December 31, 2023.

NOTE 6 – RELATED PARTY TRANSACTIONS

~~For~~At ~~the~~June ~~three-month period ended March 31~~30, 2024 and ~~the~~at ~~three-months~~December ~~ended March~~ 31, 2023, weaccounts ~~accrued~~payable ~~$6,000 in~~– ~~fees~~related ~~for~~parties ~~each~~totaled ~~of the directors, totaling~~ $36117,~~000 for~~627 ~~the period ended March 31, 2024~~ and $4255,~~000 for the same period in 2023. For the period ended March 31~~520, ~~2024 we paid $24~~respectively,~~000 in~~ ~~consulting fees to director Ronald J. Berman. For the three-month period ended March 31, 2023, we accrued consulting~~ and ~~legal~~ ~~fees~~advances tofrom ~~him~~related ofparties ~~$30,000. At~~totaled ~~March 31, 2024, the Company owed~~ $842,~~000~~887 inon ~~related~~both ~~parties accounts payable to this director~~dates. ~~During~~These ~~the~~balances ~~three-month~~are ~~period~~presented ~~ended March~~separately ~~31,~~in ~~2024,~~current weliabilities ~~paid~~on ~~director and our President and CEO, Tom Berman, salary in~~ the ~~amount~~accompanying ofbalance ~~$56,250~~sheets. ~~For~~These ~~the~~balances ~~three-month~~consist ~~period~~of ~~ended~~amounts ~~March~~owed ~~31,~~to ~~2023,~~directors ~~we paid him $30,000 in salary,~~ and weofficers ~~accrued~~as ~~additional~~well ~~salary~~as ofto ~~$30,000 for~~ the ~~period~~landlord ~~which~~controlled ~~was subsequently paid~~ by ~~the~~two ~~issuance~~ of ~~30,000 options with an exercise price of $0.65. At March 31 2024~~ the Company ~~had $8,759 in payroll expenses payable to Mr. Berman included in related party accounts payable, which was paid in April of 2024. Additionally, $5,000 was payable to the Company~~’s ~~CFO at March 31, 2024, also included~~ ~~in related parties accounts payable and paid in April of 2024~~directors.

At March 31, 2024 and at December 31, 2023, aggregate advances from Scott & Jeanne Rickert were $42,887, which is included in advances from related parties on the balance sheet. On both those dates, accrued payroll for the Rickerts was an aggregate of $16,000, which is included in related parties accounts payable on the balance sheet.F-8

~~Mr.~~See ~~Ron~~Note ~~Berman~~9, ~~and~~Subsequent ~~Mr. Tom Berman are the managers of the limited liability company that is the manager of PEN Comeback~~Events, ~~LLC,~~regarding ~~PEN~~options ~~Comeback 2,~~granted ~~LLC~~to, ~~Magic~~among ~~Growth~~others, ~~LLP,~~officers ~~Magic Growth 2 LLC~~ and ~~Magic~~certain ~~Growth 3 LLC~~directors. ~~These five limited liability companies purchased shares of common stock and warrants from us in 2018, 2019, 2020, 2021 and 2022.~~

~~In addition,~~ Mr. Ron ~~Tom~~ Berman and Mr. ~~Ron~~Tom Berman are ~~two of three individuals who share voting power of~~ the ~~sole~~managers ~~manager~~ of the limited liability company that is ~~our~~the ~~landlord~~manager inof ~~Michigan.~~PEN ~~Together~~Comeback, ~~Tom~~LLC, ~~and~~PEN ~~Ron Berman~~Comeback ~~hold~~2, ~~in the aggregate~~LLC, aMagic ~~5% economic interest in the landlord entity. Another director~~Growth, ~~Miles Gatland~~LLP, ~~owns~~Magic aGrowth ~~12.5%~~2 ~~interest~~LLC ~~in the Michigan landlord~~ and heMagic isGrowth a3 ~~co-guarantor~~LLC. onThese ~~the~~five ~~debt of that~~ limited liability ~~company.~~companies ~~See~~purchased ~~Note~~shares ~~6, Stockholder’s Equity regarding the issuance~~ of common stock inand ~~partial~~derivative ~~satisfaction~~securities offrom ~~unpaid~~us ~~rent. Rent~~ in ~~the~~2018, ~~amount of $52~~2019,~~791~~ ~~and $30~~2020,~~141~~ ~~was~~2021 ~~accrued~~ and ~~unpaid at March 31, 2024 and December 31, 2023, respectively, which is included in related parties accounts payable on the balance sheet~~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. ~~The~~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.

~~F-7~~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 ~~March~~June 3130, ~~2023~~2024, the Company sold 74210,~~806~~000 shares of common stock for proceeds of $93157,~~507~~500. ~~and~~During the ~~74,626~~six-months ~~warrants~~ended ~~for~~June ~~proceeds~~30, ~~of $1~~2024,~~492.~~ ~~The warrants are exercisable at any time during~~ the ~~four~~ ~~years~~Company ~~after~~sold ~~date~~283,334 shares of ~~issue~~common atstock afor ~~warrant~~proceeds ~~exercise price~~ of $2212,500.~~25.~~

~~During the quarter ended March 31, 2024, the Company sold 73,334 shares of common stock for proceeds of $55,000.~~F-9

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

NoStock options ~~were~~to ~~granted~~purchase orcommon ~~exercised~~stock ~~during~~outstanding ~~the~~at ~~period~~June ~~ended March 31~~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

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding December 31, 2023		2,270,483		$	0.67		2.72	$	76,725
Exercised		-			-		-		-
Forfeited or expired		(55,297	)	$	0.65		-		-
Issued		-			-		-		-
Granted		-			-		-		-
Expired & forfeited		(55,297	)	$	0.65		-		-
Balance Outstanding, March 31, 2024		2,215,186		$	0.67		2.54	$	19,332
Outstanding June 30, 2024		2,215,186		$	0.67		3.41	$	348,088
Exercisable March 31, 2024		2,199,122		$	0.67		2.54	$	19,332
Exercisable June 30, 2024		2,201,545		$	0.67		3.41	$	346,276

	March 31, 2024		December 31, 2023
	June 30, 2024		December 31, 2023
Stock options		2,215,186		2,270,483
Stock warrants		7,525,265		7,525,265
Total		9,740,451		9,795,748
Convertible debt (on an as-converted basis)		362,738		349,824
Total		10,103,189		10,145,572

Warrants

As of ~~March~~June 3130, 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 3734.7 months. As of ~~March 31~~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.

F-8

2021 Equity Incentive Plan

On March 2, 2021, our Board adopted the 2021 Nano Magic 2021 Equity Incentive Plan (the “Plan”) to allow equity compensation for those who provide services to the Company and to encourage ownership in the Company by personnel whose service to the Company is important to its continued progress, to encourage recipients to act as owners and thereby in the stockholders’ interest and to enable recipients to share in the Company’s success. Initially, 85,000 shares were available for issuance under the Plan and that number of options were also granted to employees on March 2, 2021. On April 8, 2021 the number of shares under the Plan was increased by 2,500, and an additional 2,500 options were granted. On June 21, 2021 an additional 200,000 shares were made available for issuance under the Plan and options for 100,000 shares were granted, but subsequently forfeited. In February 2022, we granted 130,700 options with an exercise price of $0.80 and weighted average fair value on the grant date of $0.60. In August 2022, we granted 15,000 options with an exercise price of $0.80 and weighted average fair value on the grant date of $0.60.

On April 12, 2023, the Company granted 47,610 options under the 2021 Equity Plan. The options were granted to individuals in lieu of cash for a portion of their salary for the period from December 31, 2022 through March 31, 2023. All options are at an exercise price of $0.65 per share for a four-year term and were fully vested on date of grant. On May 30, 2023, the ~~Company~~Board granted an additional 175,071 options under the 2021 Equity Plan. ~~The~~to ~~options~~employees ~~were~~and ~~granted~~a toconsultant. ~~employees~~All ~~and~~options ~~consultants~~are at an exercise price of $0.65 ~~per share~~.

NoSee ~~options~~Note ~~were~~9, ~~granted~~Subsequent inEvents, ~~the~~regarding ~~three-month~~additional ~~period~~options ~~ending~~granted onunder ~~March 31, 2024 or~~ the ~~three-month~~2021 ~~period~~Equity ~~ending on March 31, 2023~~Plan.

F-10

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 ~~March~~June 3130, 2024, we were not a defendant in any proceedings. Our policy is to accrue costs for contingent liabilities, including legal proceedings or unasserted claims that may result in legal proceedings, when a liability is probable and the amount can be reasonably estimated. As of ~~March~~June 3130, 2024 and December 31, 2023, the Company has not accrued any amount for litigation contingencies.

NOTE 9 – SUBSEQUENT EVENTS

On ~~April~~July 1718, 2024, the Company sold ~~33,333~~an aggregate of 166,666 shares of common stock for proceeds of $25125,000. ~~On April 24, 2024, the Company sold 33,333 shares of common stock~~ to ~~another~~two ~~investor~~different ~~for proceeds of $25,000~~investors.

On ~~April~~July 2529, 2024, the ~~Company~~Board ~~sold~~authorized ~~another~~the sale of a portion of the ~~note~~Company’s ~~receivable~~interest ~~from~~in ~~ANI~~Applied Nanotech, ~~reducing~~Inc. ~~the~~The ~~balance~~sale ~~owed~~was toconsummated on the same day; the Company byreceived ~~another~~ $56100,~~444.30~~000 in ~~exchange~~cash ~~for~~and ~~aggregate~~its ~~proceeds~~interest ofin ~~$50,000~~Applied Nanotech was reduced from 30% to 25%.

~~F-9~~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.

F-11

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 ~~March~~June 3130, 2024 and 2023.

Comparison of Results of Operations for the ~~three~~Three ~~months~~and Six Months ended ~~March~~June 3130, 2024 and 2023

Revenues:

For the three and six months ended ~~March~~June 3130, 2024 and 2023, revenues from operations ~~were~~ $580,112 and $697,029, respectively. For the three months ended March 31, 2024, revenue decreased by $116,917 or 17% as compared to the three months ended March 31, 2023. The decrease for the three-month period was due primarily to delays in programs and product roll-outs with customers.were:

	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net revenues	$	616,623	$	709,293	$	1,196,735	$	1,406,322

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, ~~and~~periodic ~~overhead~~changes ~~and~~in ~~shipping and handling costs incurred. For~~ the ~~three~~inventory ~~months ended March 31~~reserve, ~~2024~~ and ~~2023,~~allocated ~~cost~~overheads ofand ~~sales~~shipping ~~was $511,369~~ and ~~$622,279,~~handling ~~respectively.~~costs ~~For the three months ended March 31, 2024, cost of sales decreased by $110,910 or 18% as compared to the three months ended March 31, 2023~~incurred. ~~The decrease for the period was due primarily to lower sales volume.~~

Gross profit and gross margin

	Three Months ended June 30,				Six Months ended June 30,
	2024		2023		2024		2023
Cost of sales:	$	662,583	$	507,155	$	1,173,952	$	1,129,434

For the three months ended ~~March~~June 3130, 2024, ~~gross~~cost ~~profit~~of ~~was~~revenues increased by $68155,~~473~~428 or 31% as compared to ~~$74~~the three months ended June 30,~~750~~ 2023. ~~for~~For the ~~prior~~six ~~year~~months ended June 30, a2024, ~~change~~cost of revenues increased by $644,~~007~~518 or 84%~~. For~~ as compared to the ~~three~~six months ended ~~March 31~~June 30, ~~2024,~~2023. ~~gross~~Cost ~~margin~~of ~~was~~sales ~~11.8%~~increased as ~~compared~~sales revenue decreased due to ~~10.7%~~a significant increase in the ~~prior~~reserve ~~year.~~for ~~The~~slow-moving ~~improvement~~and excess inventory in ~~gross~~2024 ~~margin~~ as compared to 2023. Management is ~~largely~~currently ~~due~~focusing toefforts ~~changes~~on inreducing ~~customer~~this inventory by way of new programs and ~~product~~incentives ~~mix~~with customers.

Operating expenses

For the three months ended March 31, 2024, operating expenses increased by $51,104 or 7% compared to the three months ended March 31, 2023. For the three months ended March 31, 2024 and 2023, operating expenses consisted of the following:

	Three Months Ended March 31,
	2024		2023
Selling and marketing expenses	$	82,726	$	59,424
Salaries, wages and related benefits		202,549		278,576
Stock compensation expense		8,500		30,144
Research and development		20,295		5,904
Professional fees		218,119		189,459
General and administrative expenses		271,428		189,006
Total	$	803,617	$	752,513

	●	For the three months ended March 31, 2024, selling and marketing expenses increased by $23,302 or 39% as compared to the three months ended March 31, 2023, due to additional trade show expenses in 2024.
	●	For the three months ended March 31, 2024, salaries, wages and related benefits decreased by $76,027 or 27%, as compared to the three months ended March 31, 2023. These decreases were due to a general reduction in workforce as part of the company’s continuing effort to manage costs and to reach profitability.

● For the three months ended March 31, 2024, stock compensation expense decreased by $21,644 or 72%, as compared to the three months ended March 31, 2023. The decrease was due, primarily, to vesting of certain outstanding options that was completed in 2023.Gross profit

● For the three months ended ~~March~~June 3130, 2024, ~~research~~gross ~~and~~profit ~~development~~was ~~costs increased by~~ $14(45,~~391~~960) ~~or 244%,~~ as compared to ~~the~~gross ~~three~~profit ~~months~~of ~~ended March 31~~$202,138 ~~2023.~~for ~~The~~the ~~increase~~prior ~~was~~year, ~~due~~a decrease ~~primarily~~of to$248,098 ~~increased~~or ~~consultant expense~~123%. ● For the ~~three~~six months ended ~~March~~June 3130, 2024, ~~professional~~gross ~~fees~~profit ~~increased~~was by $2822,~~660~~783 ~~or 15%,~~ as compared to ~~the three months ended March 31~~$276,888 ~~2023.~~for ~~This change reflects primarily consulting cost increases associated with outsourcing after workforce reductions. ● For~~ the ~~three~~prior ~~months ended March 31~~year, ~~2024,~~a decrease ~~general~~of ~~and administrative expenses increased by~~ $82254,~~422~~105 or 4492%. asFor ~~compared to~~ the three- ~~months~~and ~~ended~~six-month ~~March~~periods ~~31,~~the ~~2023.~~decreases ~~Costs increases~~ were ~~primarily~~ due to ~~increases~~lower insales ~~bad~~volumes ~~debt~~and ~~reserve~~higher ~~due~~inventory toreserves ~~aging~~year ofover ~~accounts receivable, increased travel expense for conferences and increased software expense~~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:

	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Selling and marketing expenses	$	49,076	$	54,018	$	131,802	$	113,442
Salaries, wages and related benefits		230,916		189,896		433,465		468,562
Stock compensation expense		7,835		260,249		16,335		290,393
Research and development		21,623		6,371		41,918		12,275
Professional fees		176,331		112,762		394,450		302,221
General and administrative expenses		256,291		258,508		527,719		447,514
Total	$	742,072	$	881,894	$	1,545,689	$	1,634,407

●	For the three months ended June 30, 2024, selling and marketing expenses decreased by $4,942 or 9% as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, selling and marketing expenses increased by $18,360 or 16% as compared to the six months ended June 30, 2023. The year-to-date change in 2024 as compared to 2023 is driven by an increase in promotional and trade show expenses, while the quarter-to-date change in 2024 as compared to 2023 is mostly timing related.

●	For the three months ended June 30, 2024, salaries, wages and related benefits increased by $40,930 or 22%, as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, salaries, wages and related benefits decreased by $35,097 or 7%, as compared to the six-months ended June 30, 2023. On a year-over-year basis, the year-to-date change reflects a decrease in costs related to medical benefits, while the quarter-to-date change is mostly related to increased commissions and timing of costs incurred.

●	For the three months ended June 30, 2024, stock compensation expense decreased by $252,414 or 97%. For the six months ended June 30, 2024, stock compensation expense decreased $274,058 or 94%. The decrease was primarily due to the lack of any option grants in the three- and six-month periods in 2024.

●	For the three months ended June 30, 2024, research and development costs increased by $15,252 or 239%, as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, research and development costs increased by $29,643 or 241%, as compared to the six months ended June 30, 2023. The increases were primarily due to the use of outside consultants for new product development in 2024.

●	For the three months ended June 30, 2024, professional fees increased by $63,569 or 56%, as compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, professional fees increased by $92,229 or 31%, as compared to the six months ended June 30, 2023. The changes were primarily due to increased audit fees and reliance on outside consultants for business development, offset by a decrease in legal fees overall for the company.

●	For the three months ended June 30, 2024, general and administrative expenses decreased by $2,217 or 1% as compared to the three months ended June 30, 2023, essentially flat. For the six months ended June 30, 2024, general and administrative expenses increased by $80,205 or 18% as compared to the six months ended June 30, 2023. The year-over-year change in the six month period was primarily driven by an increased allowance for credit losses as well as increased travel expenses.

Loss from operations

As a result of the factors described above, for the three months ended ~~March~~June 3130, 2024, loss from operations amounted to $~~734~~788,~~874~~032 as ~~compared~~ compared to a loss of $~~677~~668,~~763~~336 for the three months ended ~~March~~June 3130, 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 ~~change~~loss of $571,~~111~~346,099 for the six months ended June 30, 2023, an increase of $176,807 or 813%.

Income from investment in subsidiary

As a result of the sale of a 70% interest in ANI ~~on May 31~~, ~~2022,~~ we now report our 30% share of ANI’s income or loss as an investment in a subsidiary. For the three and six months ended ~~March~~June 3130, 2024, ~~that~~there was income of $0 and $10,123, asrespectively. ~~compared~~For tothe ~~income~~three ofand ~~$32~~six-month periods ended June 30,~~156~~ in2023, ~~the~~we ~~three months~~recorded ~~ended~~income ~~March~~of 31$8,782 ~~2023~~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 ~~March~~June 3130, 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 $1225,~~437~~465 as compared to $1421,~~368~~943 in the prior year. ~~The~~In ~~decrease~~2024, ~~was~~the increases were due to ~~maturing~~ ofhigher ~~financing~~interest ~~leases~~charges inassociated ~~2023~~with the company’s issuance of convertible promissory notes.

Interest and other income

For the three months ended ~~March~~June 3130, 2024, interest and other income was $53,~~981~~178 as compared to $616,~~938~~264 in the prior year, and for the ~~three~~six months ended ~~March~~June 3130, ~~2023.~~2024 ~~The decrease~~interest and other income was ~~due~~$9,158 as compared to a$23,202 ~~sale~~in ofthe prior year. In 2024, the decreases were due to a ~~portion~~decreased ofbalance on the ANI note ~~from~~receivable ~~ANI~~resulting in lower interest income for the Company.

~~Loss~~Other (expense) ~~on sale of note receivable~~income

For the three and six months ended ~~March~~June 3130, 2024, aother ~~loss~~expense onamounted ~~the~~to ~~sale~~$(36,632), and $(47,966), respectively, as compared to other income of $17,471 and $42,197 for the ~~note~~three ~~receivable~~and ~~from~~six ~~ANI~~months ~~was~~ended ~~$15~~June 30,~~000~~ 2023. The changes were due to the above factors.

Net loss

As a result of the foregoing, we reported a net loss of $~~746~~824,~~207~~665 for the three-month period ended ~~March~~June 3130, 2024 and a net loss of $~~653~~650,~~037~~ 865 for the three-month period in the prior year, aan ~~change~~increase of $93173,~~170~~800 or 1427%. 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 $(~~369~~805,~~388~~072) and $~~189~~71,~~133~~869 of unrestricted cash as of ~~March~~June 3130, 2024 and working capital of $454,969, including $527,462 of cash as of December 31, 2023.

The following table sets forth a summary of changes in our working capital from December 31, 2023 to ~~March~~June 3130, 2024:

						December 31, 2023 to March 31, 2024
						December 31, 2023 to June 30, 2024
	March 31, 2024			December 31, 2023		Change in Working Capital			Percentage Change
	June 30, 2024			December 31, 2023		Change in Working Capital			Percentage Change
Working capital:
Total current assets	$	1941,~~194,656~~409		$	1,699,821	$	(~~505~~758,~~165~~412	)		(2944.7262	)%
Total current liabilities		1,~~564~~746,~~044~~482			1,244,852		~~319~~501,~~192~~630			2540.6430	%
Working capital:	$	(~~369~~805,~~388~~072	)	$	454,969	$	(~~824~~1,~~357~~260,041	)		(~~181~~276.1995	)%

The decrease in current assets iswas ~~primarily~~a ~~attributable~~combination toof a ~~decrease~~reduction in cash, net inventory and prepaid expenses, as well as ~~decreases~~the insale ~~inventory,~~of ~~accounts~~the note receivable ~~and~~. aThe ~~smaller~~increase in current ~~portion~~liabilities onwas ~~the~~a ~~note~~combination ~~receivable~~of ~~from~~an ~~ANI.~~increase ~~Additionally~~in accounts payable, accrued expenses, and the current ~~increase~~portion inof ~~reserves~~notes ~~for~~payable. ~~inventory~~The ~~and~~current ~~accounts~~portion ~~receivable~~of ~~also~~notes ~~contributed~~payable toincludes ~~the~~a ~~decrease~~note in ~~current~~ ~~assets~~the principal amount of $50,000 that is past its maturity date.

Net cash used by operating activities was $(~~476~~992,~~043~~505) for the ~~three~~six months ended ~~March~~June 3130, 2024 as compared to net cash used by operating activities of $(~~303~~725,~~024~~395) for the ~~three~~six months ended ~~March~~June 3130, 2023, a net change of $(~~173~~267,~~019~~110) or 5737%. Net cash used by operating ~~activities~~ activities for the ~~three~~six months ended ~~March~~June 3130, 2024 primarily resulted from a net loss ~~from operations~~ of $~~(746~~1,~~207)~~ 570,872 adjusted for add-backs of $~~132~~238,~~163~~ 927 and changes in operating assets and liabilities of $~~138~~339,~~001~~440.

Net cash provided by investing activities was $87284,~~656~~442 for the ~~three~~six months ended ~~March~~June 3130, 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 ~~proceeds~~the ~~from~~sale ~~the~~of the note receivable ~~in March of 2024~~.

Net cash provided by financing activities was $50252,~~058~~470 for the ~~three~~six months ended ~~March~~June 3130, 2024 reflecting $55262,~~000~~500 in proceeds from sales of common stock and convertible debt, as compared to net cash provided by financing activities of $82468,~~416~~814 for the same period in 2023,. ~~reflecting~~The ~~$95,000~~ reduction in 2024 was primarily due to a decrease in proceeds from ~~sales~~the sale of common stock and ~~warrants~~convertible debt.

Future Liquidity and Capital Needs.

~~The~~Our ~~factors~~principal ~~above~~future ~~raise~~uses ~~substantial~~of ~~doubt~~cash ~~about the Company’s ability to continue as a going concern within one year after the date that these unaudited financial statements~~ are ~~issued.~~for ~~Management~~working ~~cannot~~capital ~~provide assurance that the Company will ultimately achieve profitable operations~~requirements, ~~become~~including ~~cash~~working ~~flow positive or raise additional~~ capital. ~~The~~to ~~accompanying~~support ~~financial~~increased ~~statements~~product ~~have been prepared assuming~~sales, ~~that~~sales ~~the~~and ~~Company~~marketing ~~will~~expenses ~~continue~~and asreduction ~~a going concern, which contemplates the realization~~ of ~~assets~~accounts payable and ~~satisfaction~~accrued of liabilities. inApplication ~~the normal course~~ of ~~business.~~funds ~~They~~among dothese ~~not~~uses ~~include~~will depend ~~any~~on ~~adjustments~~numerous ~~related~~factors toincluding ~~the~~our ~~recoverability~~sales and~~/or~~ ~~classification~~other ofrevenues ~~the recorded asset amounts~~ and~~/or~~ ~~the~~our ~~classification~~ability ~~of the liabilities that might be necessary should the Company be unable~~ to ~~continue~~control ~~as a going concern~~costs.

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

Equipment Financing and Loans

See ~~note~~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”). ~~Based~~This ~~upon this~~ evaluation, ~~our~~included ~~principal~~consideration ~~executive officer and principal financial officer concluded that we do not have sufficient resources in our accounting function to have segregation~~ of ~~duties~~past sopractices, ~~that~~new ~~the initiation of transactions~~resources, ~~the~~and implementation ~~custody~~ of ~~assets~~ ~~and~~a ~~the~~new ~~recording~~payables ofsystem ~~transactions~~recently ~~are~~adopted ~~performed~~in ~~by separate individuals~~2024. ~~However,~~Based toupon ~~the~~this ~~extent possible~~evaluation, ~~these~~we ~~tasks~~do ~~are~~not ~~performed by~~believe ~~separate~~we ~~individuals. Management evaluated our failure to~~ have ~~segregation~~a ofmaterial weakness ~~duties~~in onthe ~~our~~Company’s ~~assessment~~internal ~~of our disclosure~~ controls ~~and~~ ~~procedures~~ and ~~has concluded that the control deficiency that resulted represented a material weakness~~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 ~~March~~June 3130, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 1A. RISK FACTORS

Not required of smaller reporting companies.

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

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

~~The~~On ~~sales~~June ~~and~~12, ~~issuances~~2024, the Company sold 36,667 shares of common stock ~~and~~for ~~other~~proceeds ~~securities~~of ~~were~~$27,500. ~~exempt~~On ~~from~~June ~~registration~~13, ~~under~~2024, ~~Section~~the ~~4(2)~~Company ofsold ~~the~~26,667 ~~Securities~~shares for ~~Act~~$20,000. ~~Cash~~On ~~proceeds were~~June ~~used~~25, 2024, the Company sold 13,333 shares for ~~general~~$10,000. ~~corporate~~On ~~purposes~~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

Exhibit No.		Description
31.1*		Rule 13a-14(a)/15d-14(a) Certificate of Principal Executive Officer

31.2*		Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer

32.1*		Section 1350 Certificate of Principal Executive Officer and Chief Financial Officer

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation

101.DEF		Inline XBRL Taxonomy Extension Definition

101.LAB		Inline XBRL Taxonomy Extension Labels

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*		Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	Nano Magic Inc.
	Nano Magic Inc. (Registrant)
	(Registrant)
Date: August 19, 2024	/s/ Tom J. Berman
Date: May 21, 2024	/s/ Tom J. Berman
	Tom J. Berman,
	President and Chief Executive Officer
Date: May 21, 2024	/s/ Leandro Vera
Date: August 19, 2024	/s/ Leandro Vera
	Leandro Vera
	Chief Financial Officer

810

Filing Compare · Nano Magic Inc.