-----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, FztE4Um4q9QLYiLs0y6BoOLfQFfeqZleXpSW65xtmpBTu/N5isehSSpMoTwYRyX9 9BKgr3rIgiUldPQOlY7Y9g== 0000950115-98-001416.txt : 19980817 0000950115-98-001416.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950115-98-001416 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-20333 FILM NUMBER: 98688067 BUSINESS ADDRESS: STREET 1: 537 APPLE ST CITY: WEST CONSHOHOCKEN STATE: PA ZIP: 19428-2903 BUSINESS PHONE: 6108349600 MAIL ADDRESS: STREET 1: 537 APPLE ST CITY: WEST CONSHOHOCKEN STATE: PA ZIP: 19428-2903 10QSB 1 QUARTERLY REPORT U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934. For the quarterly period ended June 30, 1998. [ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from _________________ to ______________ Commission file number 0-20333 NOCOPI TECHNOLOGIES, INC. (Exact name of small business issuer as specified in its charter) MARYLAND 87-0406496 --------------------------------- --------------------------------- (State of other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 537 Apple Street, W. Conshohocken, PA 19428 - -------------------------------------------------------------------------------- (Address of principal executive offices) (610) 834-9600 - -------------------------------------------------------------------------------- (Issuer's telephone number) Check whether the issuer has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ---- ---- State the number of shares outstanding of each of the issuer's classes of common equity, as of August 1, 1998: Common stock, par value $.01 per share 33,587,332 shares. Transitional Small Business Disclosure Format (check one): Yes X No ---- ---- NOCOPI TECHNOLOGIES, INC. INDEX Part I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Statements of Operations 1 Three Months and Six Months Ended June 30, 1998 and June 30, 1997 Balance Sheet 2 June 30, 1998 Statements of Cash Flows 3 Six Months Ended June 30, 1998 and June 30, 1997. 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 10-11 Signatures 12 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Nocopi Technologies, Inc. Statements of Operations (unaudited)
Three Months ended June 30 Six Months ended June 30 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenues Licenses, royalties and fees $454,300 $ 479,700 $ 904,900 $1,116,800 Product and other sales 341,900 753,000 437,300 783,700 ----------- ----------- ----------- ----------- 796,200 1,232,700 1,342,200 1,900,500 Cost of sales Licenses, royalties and fees 100,700 217,000 200,700 401,900 Product and other sales 331,600 745,000 416,300 771,600 ----------- ----------- ----------- ----------- 432,300 962,000 617,000 1,173,500 ----------- ----------- ----------- ----------- Gross profit 363,900 270,700 725,200 727,000 Operating expenses Research and development 108,200 121,900 214,800 242,400 Sales and marketing 207,600 145,500 408,800 328,000 General and administrative 246,500 264,200 464,000 499,600 ----------- ----------- ----------- ----------- 562,300 531,600 1,087,600 1,070,000 ----------- ----------- ----------- ----------- Loss from operations (198,400) (260,900) (362,400) (343,000) Other income (expenses) Amortization 0 (6,400) (6,300) (12,700) Interest income 26,700 6,700 61,200 11,000 Interest and bank charges (4,200) (17,800) (22,200) (35,200) Equity in net income (loss) of affiliate 0 11,800 (21,000) (8,500) ----------- ----------- ----------- ----------- 22,500 (5,700) 11,700 (45,400) ----------- ----------- ----------- ----------- Net loss ($175,900) ($266,600) ($350,700) ($388,400) =========== =========== =========== =========== Loss per common share ($.01) ($.02) ($.01) ($.03) Average common shares outstanding 33,587,332 14,080,654 33,587,332 14,080,654
See notes to financial statements. 1 Nocopi Technologies, Inc. Balance Sheet (unaudited) June 30 1998 ----------- Assets Current assets Cash and cash equivalents $ 1,560,200 Accounts receivable less allowance 237,100 Inventory 6,000 Prepaid and other 62,300 ----------- Total current assets 1,865,600 Fixed assets Leasehold improvements 52,900 Furniture, fixtures and equipment 429,400 ----------- 482,300 Less: accumulated depreciation 398,200 ----------- 84,100 Other assets Investment in and advances to affiliate 381,100 Patents, net of accumulated amortization 520,300 Other 8,900 ----------- 910,300 ----------- Total assets $ 2,860,000 =========== Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 496,200 Accrued expenses 126,900 Accrued commissions 116,600 Deferred revenue 156,700 ----------- Total current liabilities 896,400 Long-term notes payable 125,000 Stockholders' equity Common stock, $.01 par value Authorized - 75,000,000 shares Issued and outstanding 33,587,332 shares 335,900 Paid-in capital 10,399,200 Currency translation adjustment (22,100) Accumulated deficit (8,874,400) ----------- 1,838,600 ----------- Total liabilities and stockholders' equity $ 2,860,000 =========== See notes to financial statements. 2 Nocopi Technologies, Inc. Statements of Cash Flows (unaudited) Six Months ended June 30 1998 1997 ----------- ----------- Operating Activities Net loss ($350,700) ($388,400) Adjustments to reconcile net loss to cash from operating activities Depreciation 43,800 43,800 Amortization 38,100 41,400 Allowance for doubtful accounts 6,000 12,000 Equity in net loss of affiliate 21,000 8,500 Other 3,000 0 ----------- ----------- (238,800) (282,700) Changes in working capital Accounts receivable (75,700) (564,500) Inventory (500) 1,500 Prepaid and other (13,100) 99,300 Accounts payable and accrued expenses 129,200 509,200 Deferred revenue 88,100 35,000 ----------- ----------- 128,000 80,500 ----------- ----------- Cash used by operating activities (110,800) (202,200) Investing Activities Additions to fixed assets (14,100) (6,800) Additions to patents (13,300) (48,400) Cash of Euro, beginning of year 0 (1,641,200) Advances to affiliate, net (191,200) (80,600) ----------- ----------- Cash used by investing activities (218,600) (1,777,000) Financing Activities Repayment of notes (825,000) 0 ----------- ----------- Cash used by financing activities (825,000) 0 ----------- ----------- Decrease in cash and cash equivalents (1,154,400) (1,979,200) Cash and cash equivalents - beginning of period 2,714,600 2,229,200 ----------- ----------- Cash and cash equivalents - end of period $ 1,560,200 $ 250,000 =========== =========== 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 1997 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 1997 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. The Statements of Operations for the three and six months ended June 30, 1997 and the Statement of Cash Flows for the six months ended June 30, 1997 have been restated on a basis consistent with the Form 10Q/A for the quarter ended March 31, 1997. The 10Q/A amended the previously filed 10-Q which included the accounts of the Company and Euro-Nocopi S.A., the European affiliate of the Company on a consolidated basis. Events occurring during 1997, subsequent to the filing of the 10-Q for the quarter ended March 31, 1997, required the Company to cease consolidating effective January 1, 1997 and to apply the equity method. Note 2. Comprehensive Income The Company adopted SFAS No. 130, Reporting Comprehensive Income, which requires that all components of comprehensive income and total comprehensive income be reported on one of the following: a statement of income and comprehensive income, a statement of comprehensive income or a statement of stockholders' equity. Comprehensive income is comprised of net income and all changes to stockholders' equity, except those due to investments by owners (changes in paid-in capital) and distributions to owners (dividends). For interim reporting purposes, SFAS 130 requires disclosure of total comprehensive income. 4 Total comprehensive loss is as follows: Three Months Ended June 30 1998 1997 ---- ---- Net loss ($175,900) ($266,600) Currency translation adjustment 5,300 ( 6,100) --------- --------- Comprehensive loss ($170,600) ($272,700) ========= ========= Six Months Ended June 30 1998 1997 ---- ---- Net loss ($350,700) ($388,400) Currency translation adjustment 1,800 (68,600) --------- --------- Comprehensive loss ($348,900) ($457,000) ========= ========= 5 Item 2. NOCOPI TECHNOLOGIES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operation Results of Operations The Company's revenues are derived from royalties paid by licensees of the Company's technologies, fees for the provision of technical services to licensees and from the direct sale of products incorporating the Company's technologies, such as pressure sensitive labels. Royalties consist of guaranteed minimum royalties payable by the Company's licensees in certain cases and additional royalties which typically vary with the licensee's sales or production of products incorporating the licensed technology. Service fee and sales revenues vary directly with the number of units of service or product provided. Because the Company has a relatively high level of fixed costs, its operating results are substantially dependent on revenue levels. Because revenues derived from licenses and royalties carry a much higher gross profit margin than other revenues, operating results are also substantially affected by changes in revenue mix. Both the absolute amounts of the Company's revenues and the mix among the various sources of revenue are subject to substantial fluctuation. The Company has a relatively small number of substantial customers rather than a large number of small customers. Accordingly, changes in the revenue received from a significant customer can have a substantial effect on the Company's total revenue and on its revenue mix and overall financial performance. Such changes may result from a customer's product development delays, engineering changes, changes in product marketing strategies and the like. In addition, certain customers have, from time to time, sought to renegotiate certain provisions of their license agreements and, when the Company agrees to revise terms, revenues from the customer may be affected. Revenues for the second quarter of 1998 were $796,200 compared to $1,232,700 in the second quarter of 1997, a 35% decline. Licenses, royalties and fees were $454,300 in the second quarter of 1998, a decline of $25,400 from the second quarter of 1997 due in part to lower volume based royalties during the quarter. Product and other sales were $341,900 in the second quarter of 1998 compared to $753,000 in the second quarter of 1997. The decline of $411,100, or 55%, is due primarily to lower sales of pressure-sensitive labels during the second quarter of 1998 compared to the second quarter of 1997 and a one-time sale of inkjet equipment valued at $138,200 in the second quarter of 1997. For the first six months of 1998, revenues were $1,342,200, 29% lower than revenues of $1,900,500 in the first six months of 1997. Licenses, royalties and fees declined by $211,900 due in part to lower license fees and royalties from certain U.S. customers resulting principally from the renegotiation in early 1997 of an exclusive license with 3M Corporation. The license was mutually terminated effective April 30, 1998. Product and other sales decreased to $437,300 in the first half of 1998 from $783,700 in the first half of 1997. The $346,400 decline is principally attributable to lower sales of pressure-sensitive labels in the first half of 1998 and the one-time sale of inkjet equipment in the first half of 1997. 6 The gross profit increased 34% to $363,900, or 46% of revenues, in the second quarter of 1998 from $270,700, or 22% of revenues, in the second quarter of 1997. The increase in absolute dollars and as a percentage of revenues relates primarily to the settlement of a dispute with Euro-Nocopi, its affiliate, whereby, in the second quarter of 1997, the Company agreed to credit Euro-Nocopi $154,500 as its share of certain minimum royalties under a worldwide agreement with a manufacturer who distributed products incorporating the Company's technologies. The gross profit for the first half of 1998 was $725,200, or 54% of revenues compared to $727,000 or 38% of revenues in the first half of 1997. The gross profit was negatively affected by the $211,900 decline in licenses, royalties and fees in the first six months of 1998 compared to the first six months of 1997. As the non-recurring settlement with Euro-Nocopi occurred in the first half of 1997, the resulting improvement in the first half of 1998 was offset by the gross profit decline attributable to lower licenses, royalties and fees. Research and development expenses declined to $108,200 and $214,800 in the second quarter and first half of 1998, respectively, from $121,900 and $242,400 in the comparable periods of 1997. The declines relate primarily to a cost containment program, including staff reductions, implemented during 1997. Sales and marketing expenses increased to $207,600 in the second quarter of 1998 from $145,500 to the second quarter of 1997. For the first half of 1998, sales and marketing expenses were $408,800 compared to $328,000 in the first half of 1997. During 1997, the Company reduced its sales and marketing expenses through staff reductions and lower discretionary sales promotion expenses as the Company sought to conserve cash during a period of adverse liquidity. The increase in 1998 reflects the Company's commitment to develop markets for its technologies, particularly its recently developed inkjet computer printer technologies. These market development activities have required higher sales and marketing expenditures. General and administrative expenses declined to $246,500 in the second quarter of 1998 from $264,200 in the second quarter of 1997. For the first six months, general and administrative expenses declined to $464,000 in 1998 from $499,600 in 1997. The decline for both periods results primarily from lower professional expenses. 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. The reduction in interest expense in the second quarter and first half of 1998 compared to the comparable periods of 1997 reflects the repayment of $825,000 principal amount of notes in early April 1998. The $125,000 balance was extended for a period of two years at an interest rate of 9%. Interest income increased in the second quarter and first half of 1998 compared to the second quarter and first half of 1997 due to the investment of funds raised in the private placement completed in late 1997. Equity in net income (loss) of affiliate represents the proportionate share in the income or loss of Euro-Nocopi attributable to the Company's approximate 18% ownership share of Euro-Nocopi. The net loss for the three months ended June 30, 1998 was $175,900 compared to $266,600 in the three months ended June 30, 1997. The first half 1998 net loss was $350,700 compared to $388,400 in the first half of 1997. The decrease in the net loss for the second quarter of 1997 relates primarily to the non-recurring settlement with Euro-Nocopi recorded in the second quarter of 1997. 7 The positive effect of this settlement is offset in part by a lower gross profit resulting from lower revenues for the first half of 1998 compared to the first half of 1997. Liquidity and Capital Resources The Company's cash and cash equivalents declined to $1,560,200 at June 30, 1998 from $2,714,600 at December 31, 1997. The cash was used primarily to fund operations over the six-month period including reimbursable expenditures on behalf of its European affiliate and, in early April 1998, repay $825,000 principal amount of its Series B 7% Subordinated Convertible Promissory Notes due March 31, 1998. The $125,000 remaining notes were extended to March 31, 2000. Under the extension arrangement, these notes bear interest at 9% and are convertible into 625,000 shares of the Company's common stock. In the first quarter of 1998, the Company relocated its Corporate headquarters to a new location and plans to relocate its research facilities to this location by the third quarter of 1998. The Company does not anticipate significant capital spending as a result of this relocation. The Company believes that it has sufficient working capital to support its operations and debt service requirements over the next twelve months. The Company is aware of Year 2000 potential problems. As its internal information systems consist primarily of third party software systems, the Company intends to purchase and install available Year 2000 compliant upgrade versions by early 1999. The Company has, and will continue to communicate with vendors, financial institutions and others to assure their compliance to Year 2000 issues. The Company plans to devote the necessary resources to resolve Year 2000 issues in a timely manner and does not believe the costs will have a material adverse effect on its business, financial condition or results of operations. However, there can be no assurance that the systems of other companies on which the Company relies will be converted in a timely manner. The foregoing contains forward-looking information within the meaning of the Private Securities Litigation act of 1995. Such forward-looking statements involve certain risks and uncertainties including the particular factors described in this Management's Discussion and Analysis. In each case, actual results may differ materially from such forward-looking statements. The Company does not undertake to publicly update or revise its forward looking statements even if experience or future changes make it clear that any projected results (expressed or implied) will not be realized. 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 8 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, the Company receives limited publicity 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 The Registrant's 1998 Annual Meeting of Shareholders was held on June 8, 1998. At such meeting, Registrant's shareholders elected five (5) persons nominated by management to serve as directors of Registrant, approved an Amendment to the Articles of Incorporation to increase the Registrant's authorized shares of Common Stock from 50,000,000 shares to 75,000,000 shares, and ratified the selection of BDO Seidman, LLP as Registrant's independent public accountants. The following table shows the votes cast for and against each person nominated to serve as a director, as well as all abstentions, authority withheld and broker non-votes:
Votes Against or Name of Nominee Authority Broker Non-Votes Votes For Withheld Abstentions Jack H. Halperin 25,243,012 65,716 0 0 Susan Cox 25,235,562 73,166 0 0 Neal J. Sroka 25,234,562 74,166 0 0 Richard A. Check 25,225,444 83,284 0 0 Dr. A. Gundjian 23,492,176 1,816,552 0 0
The voting on the proposal to approve an Amendment to the Articles of Incorporation to increase the Registrant's authorized shares of common stock from 50,000,000 shares to 75,000,000 shares was as follows: 23,702,256 For; 978,588 Against; 627,884 Abstentions; and 0 Broker Non-Votes. The voting on the proposal to ratify the selection of BDO Seidman, LLP as Registrant's independent public accountants was as follows: 25,155,403 For; 67,565 Against; 85,760 Abstentions; and -0- Broker Non-Votes. 10 Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a). Exhibit 27 - Financial Data Schedule (b). The Registrant filed the following Current Report on Form 8-K during the quarter ended June 30, 1998. June 22, 1998 - Change in Control of Registrant. 11 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: August 13, 1998 /s/ Richard A. Check -------------------- Richard A. Check President & Chief Executive Officer DATE: August 13, 1998 /s/ Rudolph A. Lutterschmidt --------------------------- Rudolph A. Lutterschmidt Vice President & Chief Financial Officer 12 EX-27 2 FDS --
5 6-MOS DEC-31-1998 JUN-30-1998 1,560,200 0 287,200 50,100 6,000 1,865,600 482,300 398,200 2,860,000 896,400 125,000 0 0 335,900 1,502,700 2,860,000 1,342,200 1,342,200 617,000 617,000 0 0 22,200 (350,700) 0 (350,700) 0 0 0 (350,700) (0.01) (0.01)
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