10-K: Nano Magic Inc. Reports Increased Revenue and Improved Gross Profit in 2023 Annual Results

Sentiment:

Annual Report 3 April 2024 3:28 PM

Nano Magic Inc. saw an 8% increase in revenue and a significant improvement in gross profit for the year ended December 31, 2023, despite ongoing challenges.

Capital raiseThe company sold common stock and warrants to accredited investors throughout 2022 and 2023.The company issued convertible promissory notes to several investors in 2022 and 2023.The company issued shares of common stock to its landlord in partial payment of rent.The company issued shares of common stock to directors as compensation for service on the Board.The company issued options to employees and consultants as compensation for services.

Worse than expectedThe company's net loss increased by 36% despite improvements in revenue and gross profit, indicating that the company's overall financial performance was worse than the previous year.

Summary

Nano Magic Inc., a nanotechnology company, reported its annual results for the fiscal year ended December 31, 2023.
The company's revenue increased by 8% to $2,782,390, compared to $2,577,332 in 2022, driven by growth in optical, e-commerce, and retail sales.
Gross profit saw a substantial increase of 278%, reaching $363,869 in 2023, up from $96,222 in 2022, due to cost containment and reduced headcount.
Gross margin improved significantly to 13.1% in 2023 from 3.7% in 2022.
Operating expenses decreased by 9% to $3,216,221 in 2023, compared to $3,545,620 in 2022, due to reduced selling and marketing expenses and lower salaries.
The company's net loss increased by 36% to $2,855,719 in 2023, compared to $2,101,589 in 2022, primarily due to the absence of a gain from discontinued operations.
The company had a working capital balance of $454,969 and unrestricted cash of $527,462 as of December 31, 2023.
Net cash used by operating activities decreased by 10% to $1,537,468 in 2023, compared to $1,708,365 in 2022.
The company raised $1,770,059 through financing activities in 2023.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there are positive signs like increased revenue and improved gross profit, the company's net loss increased, and there are significant risks and challenges. The company's financial position is still precarious, and there are material weaknesses in internal controls. The sentiment is neutral to slightly negative.

Positives

Revenue increased by 8% year-over-year, indicating growth in sales.
Gross profit saw a substantial increase of 278%, demonstrating improved profitability.
Gross margin improved significantly from 3.7% to 13.1%, reflecting better cost management.
Operating expenses decreased by 9%, showing effective cost control measures.
Net cash used by operating activities decreased by 10%, indicating improved cash flow management.
The company successfully raised $1,770,059 through financing activities.

Negatives

The company's net loss increased by 36% to $2,855,719, primarily due to the absence of a gain from discontinued operations.
The company continues to experience recurring losses from operations and negative cash flow from operations.
The company has identified material weaknesses in its internal controls over financial reporting.
The company is dependent on a limited number of key customers, with one customer accounting for 41% of revenue in 2023.
The company's common stock is thinly traded, which can lead to price volatility.

Risks

The company faces ongoing challenges from the COVID-19 pandemic, including supply chain disruptions and changing consumer behavior.
The company has limited resources, which can hamper its ability to execute its business plan.
The company is dependent on key executives, and the loss of its President and CEO could adversely affect its operations.
The company's products may infringe on the intellectual property rights of third parties.
The company may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
The company's common stock is thinly traded, which can lead to price volatility and difficulty in raising capital.
The company has reported material weaknesses in its internal controls over financial reporting.
The company is subject to the risks associated with being a public company, including significant costs and management attention.
The company's operations are subject to governmental safety standards and regulations, including those related to PFASs.

Future Outlook

The company intends to expand direct-to-consumer sales through e-commerce and grow sales to big box retailers. They also plan to continue selling consumer products directly to opticians and ophthalmologists.

Management Comments

Management is focused on expanding direct-to-consumer sales through e-commerce and growing sales to big box retailers.
Management is working to reduce costs and conserve cash.
Management believes that the company's financial statements fairly present the company's financial position, results of operations, and cash flows.

Industry Context

The company operates in the competitive consumer and industrial cleaning and coating products market, with a focus on nanotechnology. The company faces competition from both established players and new entrants, particularly in the anti-fog product line. The company's products are known to be benchmark products in the optical segment.

Comparison to Industry Standards

The company's products are considered benchmark products in the optical segment, outperforming competitors.
The company competes with privately-held U.S. packaging or catalog companies such as Hilco Accessories, OptiSource, and Amcon Laboratories, which primarily sell to opticians and optical stores.
Carl Zeiss is a competitor that sells branded optical products in big box retail.
The company is not aware of any competitive products that match its product performance or processing characteristics in the nano-coating and anti-fog product lines.
The company's gross margin of 13.1% is relatively low compared to industry standards for established consumer product companies, but represents a significant improvement from the previous year.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Audit Committee	The Board created an audit committee in February 2016, charged with overseeing financial reporting, compliance, and the performance of the independent auditor.	2016-02-01	The audit committee provides oversight of the company's financial reporting and internal controls.

Related Party Transactions

The company has accounts payable to related parties, including payroll and reimbursements due to officers and directors, and accounts payable due to the landlord.
The company has advances from related parties, comprised of amounts due to the Rickerts for working capital advances made in 2018.
The company paid legal and consulting fees to director Mr. Ron Berman in 2022.
Mr. Ron Berman and Mr. Tom Berman are the managers of the limited liability company that is the manager of several entities that purchased shares of common stock and derivative securities from the company.
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 the company's landlord in Michigan.

Stakeholder Impact

Shareholders may be concerned about the increased net loss and the material weaknesses in internal controls.
Employees may be affected by the company's cost-cutting measures and the use of stock options in lieu of cash for some employees.
Customers may be affected by supply chain disruptions and changes in product availability.
Suppliers may be affected by the company's efforts to reduce costs and conserve cash.
Creditors may be concerned about the company's recurring losses and negative cash flow.

Next Steps

The company plans to expand direct-to-consumer sales through e-commerce.
The company plans to grow sales to big box retailers.
The company plans to continue selling consumer products directly to opticians and ophthalmologists.
The company will continue to work to reduce costs and conserve cash.
The company will continue to monitor and address the material weaknesses in its internal controls over financial reporting.

Key Dates

Date	Description
2015-02-10	Date of original equipment note with KeyBank.
2019-06-18	Amendment to equipment note with KeyBank.
2020-08-11	Date of finance lease for furniture used in the Michigan facility.
2020-09-24	Date of finance lease with Raymond Leasing Corporation for a forklift.
2020-12-31	Date of finance lease for production equipment.
2022-01-07	Sale of convertible promissory notes to several investors.
2022-01-11	Sale of common stock and warrants to Magic Growth 3 LLC.
2022-01-26	Sale of convertible promissory notes to several investors.
2022-01-31	Sale of convertible promissory notes to several investors.
2022-02-14	Sale of convertible promissory notes to several investors.
2022-02-22	Sale of common stock and warrants to Magic Growth 3 LLC.
2022-04-14	Sale of common stock and warrants to Magic Growth 3 LLC.
2022-05-02	Amendment to equipment note with KeyBank.
2022-05-27	Sale of common stock and warrants to Magic Growth 3 LLC.
2022-05-31	Sale of 70% interest in Applied Nanotech, Inc.
2022-07-27	Sale of convertible promissory notes to several investors.
2022-08-22	Sale of convertible promissory notes to several investors.
2022-08-29	Sale of common stock and warrants to Magic Growth 3 LLC.
2022-10-26	Sale of convertible promissory note to an investor.
2022-10-31	Sale of common stock and warrants to Magic Growth 3 LLC.
2022-12-06	Issuance of common stock to directors as compensation.
2022-12-18	Sale of convertible promissory note to an investor.
2022-12-19	Sale of common stock and warrants to accredited investors.
2022-12-22	Sale of common stock and warrants to accredited investors.
2022-12-31	Merger of Nano Magic LLC into the parent company and name change to Nano Magic Inc.
2023-01-01	Start of fiscal year 2023.
2023-01-01	Sale of common stock and warrants to an individual, accredited investor.
2023-02-01	Agreement with landlord to accept stock for partial rent payment.
2023-03-23	Sale of common stock and warrants to an individual, accredited investor.
2023-03-27	Sale of common stock and warrants to an accredited investor.
2023-04-08	Sale of common stock to accredited investors.
2023-04-27	Sale of common stock to accredited investors.
2023-05-30	Issuance of restricted common stock to a consultant.
2023-06-14	Issuance of a convertible, secured note and warrants.
2023-07-24	Sale of convertible note at face value.
2023-07-25	Sale of common stock to accredited investors.
2023-08-23	Sale of common stock to accredited investors.
2023-08-24	Sale of common stock to accredited investors.
2023-08-31	Sale of common stock to accredited investors.
2023-09-19	Sale of common stock to accredited investors.
2023-10-16	Sale of common stock to accredited investors and issuance of common stock to landlord.
2023-10-18	Extension of maturity date of convertible promissory note.
2023-10-26	Sale of common stock to accredited investors.
2023-11-02	Sale of convertible note at face value.
2023-11-06	Sale of common stock to accredited investors.
2023-11-07	Sale of common stock to accredited investors.
2023-11-16	Sale of common stock to accredited investors.
2023-11-21	Sale of common stock to accredited investors.
2023-11-24	Sale of common stock to accredited investors.
2023-12-05	Issuance of common stock to directors for service during 2023.
2023-12-31	End of fiscal year 2023.
2024-03-07	Sale of common stock to an individual, accredited investor.
2024-03-14	Sale of common stock to an individual, accredited investor.
2024-03-15	Sale of note payable from ANI.
2024-03-29	Closing sale price for common stock reported on OTCQB system.
2024-04-03	Date of report, shares of common stock issued and outstanding.

Keywords

nanotechnology, surface cleaning, anti-fog, coatings, consumer products, industrial products, e-commerce, retail, financial results, revenue, gross profit, operating expenses, net loss, working capital, intellectual property, risk factors

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