Nano Magic (NMGX) Risk Factors

We use cloud-based computer systems for our communications (e-mail, voice, data exchange, etc.), for other aspects of our operations and for our business and financial records. Any security breach, data loss, or other compromise, including those resulting from a cybersecurity attack, phishing attack, or any unauthorized access, unauthorized usage, virus or similar breach or disruption could result in the loss or destruction of or unauthorized access to, or use, alteration, disclosure, or acquisition of, data, business disruptions and delays as well as damage to our reputation, litigation, regulatory investigations, or other liabilities. Our website and technology infrastructure also may experience performance issues due to a variety of factors, including infrastructure changes, human or software errors, hosting disruptions, capacity constraints, technical failures, natural disasters, or fraud. We also rely on cloud technologies from third parties in order to operate critical functions of our business, including financial management services, relationship management services, and aspects of our manufacturing and sales functions. If our service agreements are terminated, or there is a lapse of service, elimination of services or features that we utilize, interruption of internet service provider connectivity or damage to our providers' facilities, we could experience business interruptions as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our cloud-based offerings for deployment on a different cloud infrastructure service provider, which could adversely affect our business, financial condition and results of operations. Our vendors and service providers may also be the targets of cyberattacks, malicious software, phishing schemes, and fraud. Any of the foregoing could have a material adverse effect on our business, including our financial condition, results of operations and reputation. Our facilities, as well as the facilities of third-parties that provide or maintain, or have access to our data or network infrastructure, are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures and similar events. In the event that our or any third-party provider's systems or service abilities are hindered by any of the events discussed above, our ability to operate may be impaired. A third party's decision to close facilities or terminate services without adequate notice, or other unanticipated problems, could adversely impact our operations. If business continuity and disaster recovery plans of ours or of a third-party provider prove to be inadequate in preventing the loss of data or service interruptions, this could cause further disruptions to our operations or damages to important systems or facilities or damage to our computer hardware or systems or those of our employees, or customers. Our systems have been the target of cyber-attacks. Although we have taken and continue to take steps to enhance our cybersecurity posture, we cannot assure that future cyber incidents will not occur or that our systems will not be targeted or breached in the future.

Nano Magic has a limited line of products; retail chains and big-box stores may only want suppliers that offer a more extensive product line. Nano Magic has fewer resources than many of its competitors to devote to extending product lines, and to new products and packaging. Its inability to devote the required resources to adapt to the demands of consumers or to meet competitive product offerings may limit Nano Magic's ability to execute on its business plan and hurt its revenue.

Nano Magic has placed a number of Nano Magic branded products in pharmacies and big box retailers. Developing customer loyalty and brand awareness takes time. The time frame could be shortened if Nano Magic had greater resources for marketing and advertising. Consumer confidence and spending habits have been affected by the COVID-19 pandemic and its after effects, but what that means and how this will affect sales of Nano Magic products remains unknown.

Nano Magic's President and CEO, Tom Berman, is under contract through the end of 2023. His vision and leadership are very important to the execution of the Nano Magic business plan, and loss of his services would adversely affect Nano Magic's results of operations and the value of its stock. Other executives and employees are at-will employees, so they may terminate their employment relationship at any time. Loss of experienced personnel and their knowledge of Nano Magic's business and industry would be extremely difficult to replace. Moreover, because of Nano Magic's small size, it would be very difficult for remaining personnel to perform the duties fulfilled by the loss of personnel.

Disruption in the supply chain has caused some higher prices and longer lead times. To assure supply, Nano Magic must order materials further in advance, increasing the time between its payments to vendors and the time when Nano Magic can realize a sale. Increased order volume and increased sales will also require that Nano Magic buy larger quantities of raw material inventory and packaging materials. Sales growth will increase our working capital needs, as Nano Magic must pay for the materials before it can see the increased revenue from customers. Similarly, labor must be paid for before the revenue is realized. This can create a greater need for growth capital when funds are already curtailed by Nano Magic's operating losses.

The COVID-19 pandemic coupled with government orders and regulations designed to address the effects of the pandemic disrupted the U.S. and global economies. The duration of the disruption and the short and long-term effects of new and changing requirements and new consumer and business behaviors are impossible to predict. Nano Magic experienced increased demand for its anti-fog product as a result of the pandemic which attracted new entrants to that market segment. That demand has fallen as mask mandates and mask wearing has declined. The staying power of new entrants who took advantage of the demand is unknown. Labor shortages, inflation, and a variety of government regulations continue to affect Nano Magic customers – both consumer and retail stores – and the continuing impact on customers, the supply chain, raw materials supply and pricing, and the distribution of Nano Magic products, cannot be foreseen.