-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QXhrIGYmoMldJDWdCuEg1m6qu2Pd4HtDgjNJ8jep0owbgZDultQEiwejoXi08GNx WIDmH1ZeLGHv5gRg8nP14A== 0000950115-98-000983.txt : 19980518 0000950115-98-000983.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950115-98-000983 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19980515 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOCOPI TECHNOLOGIES INC/MD/ CENTRAL INDEX KEY: 0000888981 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SERVICES, NEC [8900] IRS NUMBER: 870406496 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-20333 FILM NUMBER: 98625449 BUSINESS ADDRESS: STREET 1: 230 SUGARTOWN RD STREET 2: STE 100 CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 6106872000 MAIL ADDRESS: STREET 1: NOCOPI TECHNOLOGIES INC STREET 2: 230 SUGARTOWN RD STE 100 CITY: WAYNE STATE: PA ZIP: 19087 10-Q/A 1 AMENDED QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarter Ended March 31, 1997 Commission File No. 0-20333 NOCOPI TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) MARYLAND 87-0406496 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 230 Sugartown Road, Suite 100, Wayne, PA 19087 (Address of principal executive offices) Registrant's telephone number, including area code: 610-687-2000 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 |X| NO | | Number of shares of common stock outstanding: Title of each class Shares outstanding Common stock, par value at May 1, 1997 $.01 per share 14,080,654 NOCOPI TECHNOLOGIES, INC. INDEX Part I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Statements of Operations 1 Three Months Ended March 31, 1997 and March 31, 1996 Balance Sheets 2 March 31, 1997 and December 31, 1996 Statements of Cash Flows 3 Three Months Ended March 31, 1997 and March 31, 1996. Notes to Financial Statements 4 - 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 - 9 Part II. OTHER INFORMATION 10 Signatures 11 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Nocopi Technologies, Inc. Statements of Operations (unaudited) Three Months ended March 31 1997 1996 ---- ---- Revenues Licenses, royalties and fees $637,100 $832,600 Product and other sales 30,700 42,900 -------- -------- 667,800 875,500 Cost of sales Licenses, royalties and fees 184,900 131,000 Product and other sales 26,600 39,200 -------- -------- 211,500 170,200 -------- -------- Gross profit 456,300 705,300 Operating expenses Research and development 120,500 205,000 Sales and marketing 182,500 371,900 General and administrative 235,400 239,600 -------- -------- 538,400 816,500 -------- -------- Loss from operations (82,100) (111,200) Other income (expenses) Amortization of debt issuance costs (6,300) (6,300) Interest income 4,300 37,100 Interest and bank charges (17,400) (17,500) Equity in net loss of affiliate (20,300) Ownership interest of others in net loss of consolidated entity 87,100 -------- -------- (39,700) 100,400 -------- -------- Net loss ($121,800) ($10,800) ========= ======== Loss per common share ($.01) ($.00) Average common shares outstanding 14,080,654 14,044,166 See notes to financial statements. 1 Nocopi Technologies, Inc. Balance Sheets (unaudited) March 31 December 31 1997 1996 ---- ---- Assets Current assets Cash and cash equivalents $610,100 $2,229,200 Accounts receivable less allowances 265,600 513,400 Inventory 8,300 5,100 Prepaid and other 48,300 105,300 ---------- ---------- Total current assets 932,300 2,853,000 Fixed assets Leasehold improvements 45,600 43,200 Furniture, fixtures and equipment 413,800 435,000 ---------- ---------- 459,400 478,200 Less: accumulated depreciation 304,300 296,600 ---------- ---------- 155,100 181,600 Other assets Investment in and advances to affiliate 332,100 Patents, net of accumulated amortization 474,100 452,000 Debt issue costs, net of accumulated amortization 25,300 31,600 Other 13,300 14,300 ---------- ---------- 844,800 497,900 ---------- ---------- Total assets $1,932,200 $3,532,500 ========== ========== Liabilities and Shareholders' Equity Current liabilities Current debt obligations $950,000 Accounts payable 244,000 $539,800 Accrued expenses 149,200 139,900 Accrued commissions 169,100 118,100 Deferred revenue 54,700 164,200 ---------- ---------- Total current liabilities 1,567,000 962,000 Long-term notes payable 950,000 Ownership interest of others in consolidated entity 1,448,300 Shareholders' equity Common stock, $.01 par value Authorized - 50,000,000 shares Issued and outstanding 14,080,654 shares 140,800 140,800 Paid-in capital 8,028,300 7,651,000 Currency translation adjustment (5,400) 57,100 Accumulated deficit (7,798,500) (7,676,700) ---------- ---------- 365,200 172,200 ---------- ---------- Total liabilities and shareholders' equity $1,932,200 $3,532,500 ========== ========== See notes to financial statements. 2 Nocopi Technologies, Inc. Statements of Cash Flows (unaudited) Months ended March 31 1997 1996 ---- ---- Operating Activities Net loss ($121,800) ($10,800) Adjustments to reconcile net loss to cash from operating activities Depreciation 21,900 20,200 Amortization 20,800 19,500 Allowance for doubtful accounts 6,300 3,000 Equity in net loss of affiliate 20,300 Ownership interest of others in net loss of consolidated entity (87,100) ---------- ---------- (52,500) (55,200) Changes in working capital Accounts receivable 90,100 150,900 Inventory (3,200) 14,500 Prepaid and other 3,500 (10,600) Accounts payable and accrued expenses 83,600 (256,700) Deferred revenue (20,500) 96,100 ---------- ---------- 153,500 (5,800) ---------- ---------- Cash provided (used) by operating activities 101,000 (61,000) Investing Activities Additions to fixed assets (6,400) (14,100) Additions to patents (35,600) (6,700) Cash of Euro, beginning of year (1,641,200) Advances to affiliate, net (36,900) ---------- ---------- Cash used by investing activities (1,720,100) (20,800) Effect of exchange rate changes on cash (64,500) ---------- ---------- Decrease in cash and cash equivalents (1,619,100) (146,300) Cash and cash equivalents - beginning of period 2,229,200 2,982,100 ---------- ---------- Cash and cash equivalents - end of period $610,100 $2,835,800 ========== ========== See notes to financial statements. 3 NOCOPI TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 1. Financial Statements The accompanying interim financial statements have been prepared by the Company without audit. These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in the summary of Accounting Policies included in the Company's 1996 Annual Report. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Notes to Financial Statements included in the 1996 Annual Report should be read in conjunction with the accompanying interim financial statements. The interim operating results are not necessarily indicative of the operating results expected for the full year. Note 2. Basis of Presentation The Form 10-Q which is being amended included the accounts of the Company and Euro-Nocopi S.A. (Euro), the European affiliate of the Company on a consolidated basis. Events occurring subsequent to the filing date required the Company to cease consolidating effective January 1, 1997 and to apply the equity method. Prior to January 1, 1997, the financial statements included the accounts of the Company and Euro-Nocopi S.A., the European affiliate of the Company, on a consolidated basis. Consolidation was appropriate due to the operational and financial control the Company exercised over Euro. Additionally, the Company held approximately an 18% interest in Euro and warrants permitting it to increase its interest in Euro to 55%. During the second quarter of 1997, the Company ceased to exercise effective control over Euro. The cessation of effective control resulted from a dispute which arose in April 1997 between the Company and Euro under the license agreement between the Company and Euro concerning Euro's contention that it was entitled to a share of certain minimum royalties under a worldwide agreement with a manufacturer which distributes products incorporating the Company's technologies. In an agreement negotiated during the second quarter of 1997 and concluded in July 1997, the Company agreed to credit Euro $154,500 as Euro's share of previously collected minimum royalties, the $154,500 to be applied to license fee payments due the Company by Euro through the first quarter of 1998. The Company also agreed to pay Euro 35% of future guaranteed royalties from this manufacturer. The $154,500 settlement has been charged to cost of sales and was included in the results of operations for the six months ended June 30, 1997. The Company also agreed to modify its warrant by extending its term through December 2001 but making it exercisable beginning the earlier of 1) January 1, 2001; 2) in the event of a sale of all or part of Euro; or 3) in the event of a public listing of Euro's shares on a stock market. In addition, the Company agreed to defer to January 1, 2001 its right to acquire, under certain conditions, all remaining shares of Euro for shares of the Company. This call right expires December 31, 2001. 4 Additionally, the licensing agreement between the two companies was amended relative to the negotiation of future worldwide licensing contracts, the five directors of Euro who were also Nocopi directors resigned from Euro's Board, and the Company ceased to exercise effective control of Euro. During the fourth quarter of 1997, a Nocopi director was elected to Euro's Board of Directors and the Chief Operating Officer of Euro was appointed to the Company's Board of Directors. Additionally, Euro is dependent on the Company for the technology it licenses from the Company and markets in Europe. Accordingly, the Company ceased consolidating effective January 1, 1997, applied the equity method, and recorded an adjustment to paid-in capital of $377,300 to record its 18% share of Euro's net equity at January 1, 1997 resulting primarily from the expiration in 1997 of certain liquidation privileges on the 82% of Euro's stock not owned by the Company. Note 3. Recently Issued Accounting Standards In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per share." This Statement establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. This Statement is effective for financial statements issued for periods ending after December 15, 1997 (earlier application is not permitted). This Statement requires restatement of all prior-period EPS data presented. The Company is currently evaluating the impact, if any, adoption of SFAS No. 128 will have on its financial statements. 5 Item 2. NOCOPI TECHNOLOGIES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations Basis of Presentation The Form 10-Q which is being amended included the accounts of the Company and Euro-Nocopi S.A. (Euro), the European affiliate of the Company, on a consolidated basis. Events occurring subsequent to the filing date required the Company to cease consolidating effective January 1, 1997 and to apply the equity method. Prior to January 1, 1997, the financial statements included the accounts of the Company and Euro-Nocopi S.A., the European affiliate of the Company, on a consolidated basis. Consolidation was appropriate due to the operational and financial control the Company exercised over Euro. Additionally, the Company held approximately an 18% interest in Euro and warrants permitting it to increase its interest in Euro to 55%. During the second quarter of 1997, the Company ceased to exercise effective control over Euro. The cessation of effective control resulted from a dispute which arose in April 1997 between the Company and Euro under the license agreement between the Company and Euro concerning Euro's contention that it was entitled to a share of certain minimum royalties under a worldwide agreement with a manufacturer which distributes products incorporating the Company's technologies. In an agreement negotiated during the second quarter of 1997 and concluded in July 1997, the Company agreed to credit Euro $154,500 as Euro's share of previously collected minimum royalties, the $154,500 to be applied to license fee payments due the Company by Euro through the first quarter of 1998. The Company also agreed to pay Euro 35% of future guaranteed royalties from this manufacturer. The $154,500 settlement has been charged to cost of sales and was included in the results of operations for the six months ended June 30, 1997. The Company also agreed to modify its warrant by extending its term through December 2001 but making it exercisable beginning the earlier of 1) January 1, 2001; 2) in the event of a sale of all or part of Euro; or 3) in the event of a public listing of Euro's shares on a stock market. In addition, the Company agreed to defer to January 1, 2001 its right to acquire, under certain conditions, all remaining shares of Euro for shares of the Company. This call right expires December 31, 2001. Additionally, the licensing agreement between the two companies was amended relative to the negotiation of future worldwide licensing contracts, the five directors of Euro who were also Nocopi directors resigned from Euro's Board, and the Company ceased to exercise effective control of Euro. During the fourth quarter of 1997, a Nocopi director was elected to Euro's Board of Directors and the Chief Operating Officer of Euro was appointed to the Company's Board of Directors. Additionally, Euro is dependent on the Company for the technology it licenses from the Company and markets in Europe. Accordingly, the Company ceased consolidating effective January 1, 1997, applied the equity method, and recorded an adjustment to paid-in capital of $377,300 to record its 18% share of Euro's net equity at January 1, 1997 resulting primarily from the expiration in 1997 of certain liquidation privileges on the 82% of Euro's stock not owned by the Company. 6 Results of Operations Revenues for the first quarter of 1997 declined 24% to $667,800 from $875,500 in the first quarter of 1996. The decline of $207,700 is due primarily to the change in accounting for Euro whose revenues are not included in 1997. The Company's first quarter 1996 results included revenues of $81,500 attributable to Euro. Revenues were also negatively affected by the re-negotiation of the Georgia-Pacific license in the second half of 1996. The loss of these revenues in the first quarter of 1997 were not sufficiently offset by revenue gains from new and existing customers. The Company's gross profit declined to $456,300, or 68% of revenues in the first quarter of 1997, from $705,300 or 81% of revenues in the first quarter of 1996. The decline in gross profit, in both absolute dollars and as a percentage of revenues, is due to the lower level of revenues in the first quarter of 1997 and a change in revenue mix in the first quarter of 1997 toward certain services carrying a higher level of direct costs than in the first quarter of 1996. Research and development expenses decreased to $120,500 in the first quarter of 1997 from $205,000 in the first quarter of 1996. The reduction in 1997 results primarily from the exclusion of Euro's costs from the statement of operations. Sales and marketing expenses declined in the first quarter of 1997 to $182,500 from $371,900 in the first quarter of 1996. The exclusion of Euro's sales and marketing expenses in 1997 is the principal reason for the decrease. Euro's first quarter 1996 sales and marketing expenses were $143,300. Also contributing to the decrease are lower commission and sales promotion expenses incurred in the first quarter of 1997 compared to the first quarter of 1996. General and administrative expenses were $235,400 in the first quarter compared to $239,600 in the first quarter of 1996. The decline in 1997 is attributable to the exclusion of the general and administrative expense of Euro offset in part by increases in legal and other professional expenses as well as costs associated with the Company's international parent activities. Other income (expenses) include interest on the series B 7% Subordinated Convertible Promissory Notes issued in May 1993 and amortization of debt issue costs related to the Notes. Interest income includes interest on funds invested in the U.S. as well as the investment of funds held by Euro during the periods that its accounts were included in the Company's financial statements. Equity in loss of affiliate represents the proportionate share in the loss of Euro attributable to the Company's approximate 18% ownership share from January 1, 1997, the date on which the Company began applying the equity method. Ownership interest of others in consolidated entity represents the proportionate share in the loss of Euro attributable to the 82% ownership interest of the outside shareholders of that company for the periods that its accounts were included in the Company's financial statements on a consolidated basis. 7 The consolidated net loss increased in the first quarter of 1997 to $121,800 from $10,800 in the first quarter of 1996. The increase in the net loss is attributable primarily to lower revenues realized in the first quarter of 1997 from Georgia-Pacific compared to the first quarter of 1996 and increased direct costs resulting from the revenue mix. Liquidity and Capital Resources The Company's cash and cash equivalents decreased to $610,100 at March 31, 1997. The Company's consolidated cash and cash equivalent position at December 31, 1996 was $2,229,200 of which $1,641,200 was held by Euro and $588,000 was held by the Company. The amount held by Euro was available primarily to fund Euro's operations. Because the financial statements of the Company can no longer be consolidated with those of Euro, the cash position declined by the $1,641,200 held by Euro at December 31, 1996. The Company's domestic cash position increased marginally to $610,100 at March 31, 1997 from $588,000 at December 31, 1996. Current debt obligations represent the classification of the Company's $950,000 Series B 7% Subordinated Convertible Promissory Notes due March 31, 1998 into current liabilities. The Company's ability to support its consolidated operations and debt service requirements over the next twelve months may be dependent on a number of factors beyond the Company's control. These include: Growth in Company Revenues. The adequacy of the Company's cash resources is dependent on the Company's revenues continuing to grow. The Company's revenues are dependent on many factors outside the Company's control including those identified below under the heading "Factors that May Affect the Company's Growth and Stock Price." Renegotiation or Conversion of Series B Notes. The Company currently has outstanding $950,000 aggregate principal amount of Series B Promissory Notes maturing March 31, 1998. The adequacy of the Company's cash resources is dependent on securing a refinancing of such Notes. Such refinancing may consist of an extension of the maturity of such Notes, the conversion of the principal balance thereof into equity, or the refunding of such Notes with new indebtedness. The Company has not secured any commitment from any party providing for the refinancing of such Notes, and there can be no assurances that such refinancing an be obtained. Continued Availability of Line of Credit. The Company has a $1 million line of credit with a bank, which is secured by a pledge of certain securities, including equity securities, made by certain directors of the Company. Borrowings under the line of credit may be limited based on the value of the equity securities pledged. The adequacy of the Company's cash resources is dependent on the continued availability of this line of credit. There can be no assurances that such line of credit will continue to be available to its $1 million maximum. There have been no borrowings under this line of credit. 8 Factors That May Affect Future Growth and Stock Price The Company's operating results and stock price are dependent upon a number of factors, some of which are beyond the Company's control. These include: Uneven Pattern of Quarterly and Annual Operating Results. The Company's revenues, which are derived primarily from licensing and royalties, are difficult to forecast due to the long sales cycle for the Company's technologies, the potential for customer delay or deferral of implementation of the Company's technologies, the size and timing of inception of individual license agreements, the success of the Company's licensees and strategic partners in exploiting the market for the licensed products, modifications of customer budgets, and uneven patterns of royalty revenue and product orders. As the Company's revenue base is not substantial, delays in finalizing license contracts, implementing the technology to initiate the revenue stream and customer ordering decisions can have a material adverse effect on the Company's quarterly and annual revenue expectations and, as the Company's operating expenses are substantially fixed, income expectations will be subject to a similar adverse outcome. New Business Opportunities. The Company, with limited research and development resources, is compelled to develop new technologies which it believes will enhance and expand its position in the anti-counterfeiting and anti-diversion marketplace it serves. There can be no assurance that the resources expended in this effort will generate significant revenues for the Company. Intellectual Property. The Company relies on a combination of protections provided under applicable international patent, trademark and trade secret laws. It also relies on confidentiality, non-analysis and licensing agreements to establish and protect its rights in its proprietary technologies. While the Company actively attempts to protect these rights, the Company's technologies could possibly be compromised through reverse engineering or other means. There can be no assurance that the Company will be able to protect the basis of its technologies from discovery by unauthorized third parties, thus adversely affecting its customer and licensee relationships. Volatility of Stock Price. The market price for the Company's common stock has historically experienced significant fluctuations and may continue to do so. The Company has, since its inception, operated at a loss and has not produced revenue levels traditionally associated with publicly traded companies. The Company's common stock is not listed on a national or regional securities exchange and, consequently, receives limited public notice regarding its business achievements and prospects nor is it extensively followed by securities analysts and traders. The market price may be affected by announcements of new relationships or modifications to existing relationships. The stock prices of many developing public companies, particularly those with small capitalizations have experienced wide fluctuations not necessarily related to operating performance. Such fluctuations may adversely affect the market price of the Company's common stock. 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a). Exhibit 11 - Computation of loss per common share. (b). Exhibit 27 - Financial Data Schedule (c). No Current Reports on Form 8-K have been filed by Registrant during the quarter ended March 31, 1997. 10 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NOCOPI TECHNOLOGIES, INC. DATE: May 14, 1998 /s/ Norman A. Gardner ----------------------------- Norman A. Gardner President & Chief Executive Officer DATE: May 14, 1998 /s/ Rudolph A. Lutterschmidt ------------------------------ Rudolph A. Lutterschmidt Vice President & Chief Financial Officer EX-11 2 COMPUTATION OF LOSS PER COMMON SHARE NOCOPI TECHNOLOGIES, INC. COMPUTATION OF LOSS PER COMMON SHARE EXHIBIT 11 Three Months ended March 31 1997 1996 ---- ---- Primary Net loss applicable to common shares ...... ($ 121,800) ($ 10,800) ============ ============ Weighted average common shares outstanding .............................. 14,080,654 14,044,166 Dilutive shares - based on the treasury stock method using the average market price (1) ................. 308 33,271 ------------ ------------ 14,080,962 14,077,437 ============ ============ Per share amount applicable to net loss .................................. ($.01) ($.00) Three Months ended March 31 1997 1996 ---- ---- Fully diluted Net loss .................................. ($ 121,800) ($ 10,800) Add interest on Series B notes ............ 16,600 16,600 Deduct ownership interest of others in Euro-Nocopi S.A ................ (95,800) (87,100) ------------ ------------ Net loss applicable to common shares ...... ($ 201,000) ($ 81,300) ============ ============ Weighted average common shares outstanding .............................. 14,080,654 14,044,166 Dilutive shares - based on the treasury stock method using the greater of the period-end market price or the average market price (2) .... 1,293,014 1,325,977 ------------ ------------ 15,373,668 15,370,143 ============ ============ Per share amount applicable to net loss .................................. ($.01) ($.01) (1) represents shares resulting from stock options and warrants. (2) represents shares resulting from stock options, warrants and the assumed conversion of the convertible notes and Euro-Nocopi S.A. stock. EX-27 3 FDS
5 3-MOS DEC-31-1997 MAR-31-1997 610,100 0 309,000 43,400 8,300 932,300 459,400 304,300 1,932,200 1,567,000 0 0 0 140,800 224,400 1,932,200 667,800 667,800 211,500 211,500 0 6,300 17,400 (121,800) 0 (121,800) 0 0 0 (121,800) (0.01) (0.01)
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