-----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, RWxeqqLIcB1HWotLoxaU0W4jaWvivywWkaPPI8GkVNgfQIyYDYrhmkagJCuxH5Qz iIJI5vlfjYynB0LghyJSOw== 0000950115-00-000707.txt : 20000516 0000950115-00-000707.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950115-00-000707 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 631234 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 March 31, 2000. [ ] 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 or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 537 Apple Street, West 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 May 1, 2000: common stock, par value $.01 per share 33,817,332 shares. Transitional Small Business Disclosure Format (check one): Yes No X --- --- NOCOPI TECHNOLOGIES, INC. INDEX PAGE ---- Part I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Operations 1 Three Months ended March 31, 2000 and March 31, 1999 Balance Sheet 2 March 31, 2000 Statements of Cash Flows 3 Three Months ended March 31, 2000 and March 31, 1999. Notes to Financial Statements 4 - 5 Item 2. Management's Discussion and Analysis of 6 - 9 Financial Condition and Results of Operations 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 2000 1999 ---------- ---------- Revenues Licenses, royalties and fees $ 218,200 $ 388,000 Product and other sales 198,400 198,100 ---------- ---------- 416,600 586,100 Cost of sales Licenses, royalties and fees 82,800 105,900 Product and other sales 178,000 156,600 ---------- ---------- 260,800 262,500 ---------- ---------- Gross profit 155,800 323,600 Operating expenses Research and development 55,400 66,300 Sales and marketing 50,200 212,500 General and administrative 128,500 347,800 ---------- ---------- 234,100 626,600 ---------- ---------- Loss from operations (78,300) (303,000) Other income (expenses) Interest income 6,800 12,800 Interest and bank charges (3,700) (4,200) Equity in net income (loss) of unconsolidated affiliate 2,100 (11,500) ---------- ---------- 5,200 (2,900) ---------- ---------- Net loss $ (73,100) $ (305,900) ========== ========== Basic and diluted loss per common share $ (.00) $ (.01) Weighted average common shares outstanding 33,817,332 33,587,332 See notes to financial statements. 1 Nocopi Technologies, Inc. Balance Sheet (unaudited) March 31 2000 ------------ Assets Current assets Cash and cash equivalents $ 479,100 Accounts receivable less allowances 55,100 Prepaid and other 46,300 ------------ Total current assets 580,500 Fixed assets Leasehold improvements 39,500 Furniture, fixtures and equipment 461,500 ------------ 501,000 Less: accumulated depreciation 436,900 ------------ 64,100 Other assets Investment in and advances to unconsolidated affiliate 265,000 ------------ Total assets $ 909,600 ============ Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 52,600 Accrued expenses 235,500 Accrued severance 128,900 Deferred revenue 178,600 ------------ Total current liabilities 595,600 Stockholders' equity Common stock, $.01 par value Authorized - 75,000,000 shares Issued and outstanding - 33,817,332 shares 338,200 Paid-in capital 10,434,600 Accumulated other comprehensive loss (50,600) Accumulated deficit (10,408,200) ------------ 314,000 ------------ Total liabilities and stockholders' equity $ 909,600 ============ See notes to financial statements. 2 Nocopi Technologies, Inc. Statements of Cash Flows (unaudited)
Three Months ended March 31 2000 1999 --------- ----------- Operating Activities Net loss $ (73,100) $ (305,900) Adjustments to reconcile net loss to cash used in operating activities Depreciation 13,800 15,600 Amortization 16,500 Equity in net (income) loss of unconsolidated affiliate (2,100) 11,500 Stock option compensation 1,000 --------- ---------- (61,400) (261,300) (Increase) decrease in assets Accounts receivable 53,500 (33,200) Prepaid and other 67,600 3,900 Increase (decrease) in liabilities Accounts payable, accrued expenses and accrued severance (224,100) 185,400 Deferred revenue (3,300) 7,200 --------- ---------- (106,300) 163,300 --------- ---------- Cash (used in) operating activities (167,700) (98,000) Investing Activities Additions to fixed assets (17,500) Additions to patents (18,300) Advances (to) from affiliate, net 21,800 (64,100) --------- ---------- Cash provided by (used in) investing activities 21,800 (99,900) Financing Activities Repayment of notes (125,000) --------- ---------- Cash (used in) financing activities (125,000) --------- ---------- Decrease in cash and cash equivalents (270,900) (197,900) Cash and cash equivalents - beginning of period 750,000 1,372,900 --------- ---------- Cash and cash equivalents - end of period $ 479,100 $1,175,000 ========= ==========
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 1999 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 1999 Annual Report should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three months ended March 31, 2000 may not be necessarily indicative of the operating results expected for the full year. Note 2. Comprehensive Income (Loss) In accordance with SFAS No. 130, Reporting Comprehensive Income, comprehensive loss is as follows: Three Months Ended March 31 -------------------------- 2000 1999 -------- --------- Net loss $(73,100) $(305,900) Currency translation adjustment (11,100) (12,100) -------- --------- Comprehensive loss $(84,200) $(318,000) ======== ========= Note 3. Going Concern Since its inception, the Company has incurred significant losses and, as of March 31, 2000, had accumulated losses of $10,408,200. For the years ended December 31, 1999 and 1998, the Company's net losses were $1,262,600 and $548,800, respectively. In addition, the Company had negative working capital of $15,100 at March 31, 2000. The Company may incur further operating losses and experience negative cash flow in the future. Achieving profitability and positive cash flow depends on the Company's ability to generate and sustain significant increases in revenues and gross profits from its traditional business. There can be no assurances that the Company will be able to generate sufficient revenues and 4 gross profits to achieve and sustain profitability and positive cash flow in the future. The Board of Directors of the Company is in the process of reviewing strategic alternatives to provide increased liquidity, improve cash flow and enhance stockholder value. These potential alternatives include an investment in the Company by a strategic partner, the pursuit of strategic alliances and/or acquisitions or the sale of all or part of the business. There can be no assurances that the Company will be successful in accomplishing a strategic transaction or, if it is, that the transaction will have a material positive effect on the Company's business operations and cash flow. 5 Item 2. 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, and equipment used to support the application of the Company's technologies, such as ink-jet printing systems. 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. The addition of a substantial new customer or the loss of a substantial existing customer may also have a substantial effect on the Company's total revenue, revenue mix and operating results. Revenues for the first quarter of 2000 were $416,600 compared to $586,100 in the first quarter of 1999, a 29% decline. Virtually the entire decline in revenues is attributable to a decline in licenses, royalties and fees which declined by $169,800 in the first quarter of 2000 to $218,200 from $388,000 in the first quarter of 1999. The reduction in licenses, royalties and fees is due primarily to the termination of license arrangements with six licensees, including the Company's largest customer, during 1999 offset in part by the addition of two new licensees. Product sales of $198,400 in the first quarter of 2000 approximated the $198,100 realized in the first quarter of 1999. In each quarter, the Company sold and installed an ink-jet printing system. The Company's gross profit declined to $155,800 in the first quarter of 2000 or 37% of revenues from $323,600 or 55% of revenues in the first quarter of 1999. Licenses, royalties and fees carry a substantially higher gross profit than product sales, which generally consist of 6 manufactured products which may incorporate the Company's technologies or equipment used to support the application of its technologies. These items are generally purchased from third-party vendors and resold to the end-user or licensee and carry a significantly lower gross profit than licenses, royalties and fees. The lower gross profit and the decline in gross profit as a percentage of revenues in the first quarter of 2000 compared to the first quarter of 1999 results principally from a decrease in the portion of revenues represented by licenses, royalties and fees. Certain components of cost of sales related to licenses, royalties and fees, such as production labor and rent, are substantially fixed. The variable component of these costs of sales, primarily ink and chemicals, is a small percentage of the related revenues. As these revenues decline, the gross profit is negatively impacted, both in absolute dollars and as a percentage of revenues. The gross profit related to product and other sales also declined in the first quarter of 2000 compared to the first quarter of 1999 as a result of changes in the mix of products sold. Research and development expenses declined to $55,400 in the first quarter of 2000 from $66,300 in the first quarter of 1999. The reduction is due primarily to lower compensation expense resulting from staff reductions during the first quarter of 2000 and lower travel expenses in the first quarter of 2000 compared to the first quarter of 1999. Sales and marketing expenses were $50,200 in the first quarter of 2000 compared to $212,500 in the first quarter of 1999, a reduction of $162,300. The reduction is due primarily to staff reductions in the second half of 1999 as well as lower commissions, travel and sales promotion expenses in the first three months of 2000 compared to the first three months of 1999. General and administrative expenses declined by $219,300 in the first quarter of 2000 to $128,500 from $347,800 in the first quarter of 1999. The first quarter 1999 general and administrative expenses included a $150,000 charge to severance expense resulting from the resignation of the Company's President and Chief Executive Officer in February 1999 in addition to that individual's compensation costs for the first two months of 1999. This, along with other staff reductions during 1999, were the principal factors contributing to the significant reduction in general and administrative expenses in the first three months of 2000 compared to the same period of 1999. The position of President and Chief Executive Officer has been vacant since February 1999. Other income (expense) includes interest on the $125,000 Series B 9% Subordinated Convertible Promissory Notes through their repayment on March 31, 2000. The decline in interest income in the first quarter of 2000 compared to the first quarter of 1999 relates to lower levels of cash invested as cash was utilized during 1999 and the first three months of 2000 to fund operations. Equity in net income (loss) of unconsolidated affiliate represents the proportionate share in the net income or loss of Euro-Nocopi, S.A. attributable to the Company's approximate 18% ownership share of Euro-Nocopi, S.A. The net loss declined to $73,100 in the first quarter of 2000 from $305,900 in the first quarter of 1999 for the reasons explained above. 7 Liquidity and Capital Resources The Company's cash and cash equivalents declined to $479,100 at March 31, 2000 from $750,000 at December 31, 1999. The cash was used primarily to make severance payments of $136,100 in accordance with an agreement negotiated in February 2000, repay the Company's $125,000 principal amount Series B Subordinated Notes due on March 31, 2000 and fund operations over the three-month period. The loss of a number of customers during 1998 and 1999 including, in 1999, the Company's largest customer, has had a material adverse effect on the Company's results of operations and upon its liquidity and capital resources. The Company believes that the conditions arising from these circumstances raise substantial doubts about the Company's ability to continue as a going concern. The Board of Directors of the Company is currently reviewing strategic alternatives to provide increased liquidity, improve cash flow and enhance stockholder value. These potential alternatives include an investment in the Company by a strategic partner, the pursuit of strategic alliances and/or acquisitions or the sale of all or part of the business. There can be no assurances that the Company will be successful in accomplishing a strategic transaction or, if so achieved, that the transaction will have a material positive effect on the Company's business operations and cash flow. The Company, in response to the adverse liquidity situation, has instituted a cost reduction program including staff reductions and curtailment of discretionary research and development and sales and marketing expenses. 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 and reduced research and development resources may be unable to develop new technologies that it believes will enhance and expand its position in the anti-counterfeiting and anti-diversion marketplace that it serves. 8 There can be no assurances 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 assurances that the Company will be able to protect the basis of its technologies from discovery by unauthorized third parties or to preclude unauthorized persons from conducting activities which infringe on the Company's rights. In either event, the Company's customer and licensee relationships could be adversely affected. 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 do securities analysts and traders extensively follow it. 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. Adverse Liquidity. As a result of the loss of a number of customers during 1998 and 1999 including, in 1999, the Company's largest customer, the Company is experiencing a period of adverse liquidity during which it has been and will continue to be required to reduce expenses while the Company's Board of Directors explores options to restructure the Company's operations, including seeking a potential business combination. The requirement to conserve cash has caused the Company to limit its discretionary research and development and sales and marketing expenditures, thus impeding the Company's ability to develop new technologies and markets. These factors may negatively impact the Company's efforts to increase its customer base and revenues. Forward-Looking Information The foregoing contains forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve certain risks and uncertainties including the particular factors described in this Management 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. 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 27 - Financial Data Schedule (b) No Current Reports on Form 8-K have been filed by the Registrant during the quarter ended March 31, 2000. 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 15, 2000 /s/ Michael A Feinstein, M.D. ---------------------------------------- Michael A Feinstein, M.D. Chairman of the Board DATE: May 15, 2000 /s/ Rudolph A. Lutterschmidt ---------------------------------------- Rudolph A. Lutterschmidt Vice President & Chief Financial Officer EX-27 2 FDS --
5 3-MOS DEC-31-2000 MAR-31-2000 479,100 0 102,600 47,500 7,700 580,500 501,000 436,900 909,600 595,600 0 0 0 338,200 (24,200) 909,600 416,600 416,600 260,800 260,800 0 0 3,700 (73,100) 0 (73,100) 0 0 0 (73,100) (0.00) (0.00)
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