-----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, CUll/XeJ36L9LaZ95xrjUK+ZI+Ix0ZrJhKmCvP7ZortsLrgRI5+yXkTVncJc7/nN 6Rm0sJUqc48R3oGU4FfItw== 0000950115-98-000982.txt : 19980518 0000950115-98-000982.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950115-98-000982 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-20333 FILM NUMBER: 98625436 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 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, 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 (10 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, 1998: Common stock, par value $.01 per share 33,587,332 shares. Transitional Small Business Disclosure Format (check one): Yes ____ No __X__ NOCOPI TECHNOLOGIES, INC. INDEX Part I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Statements of Operations 1 Three Months Ended March 31, 1998 and March 31, 1997 Balance Sheet 2 March 31, 1998 Statements of Cash Flows 3 Three Months Ended March 31, 1998 and March 31, 1997. Notes to Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 - 7 Part II. OTHER INFORMATION 8 Signatures 9 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Nocopi Technologies, Inc. Statements of Operations (unaudited) Three Months ended March 31 1998 1997 ------------ ------------ Revenues Licenses, royalties and fees $ 450,600 $ 637,100 Product and other sales 95,400 30,700 ------------ ------------ 546,000 667,800 Cost of sales Licenses, royalties and fees 100,000 184,900 Product and other sales 84,700 26,600 ------------ ------------ 184,700 211,500 ------------ ------------ Gross profit 361,300 456,300 Operating expenses Research and development 106,600 120,500 Sales and marketing 201,200 182,500 General and administrative 217,500 235,400 ------------ ------------ 525,300 538,400 ------------ ------------ Loss from operations (164,000) (82,100) Other income (expenses) Amortization of debt issuance costs (6,300) (6,300) Interest income 34,500 4,300 Interest and bank charges (18,000) (17,400) Equity in net loss of affiliate (21,000) (20,300) ------------ ------------ (10,800) (39,700) ------------ ------------ Net loss ($174,800) ($121,800) ============ ============ Basic and dilutive loss per common share ($.01) ($.01) Average common shares outstanding 33,587,332 14,080,654 See notes to financial statements. 1 Nocopi Technologies, Inc. Balance Sheet (unaudited) March 31 1998 ------------- Assets Current assets Cash and cash equivalents $ 2,430,900 Accounts receivable less allowances 226,900 Inventory 10,700 Prepaid and other 60,300 ------------ Total current assets 2,728,800 Fixed assets Leasehold improvements 50,900 Furniture, fixtures and equipment 424,700 ------------ 475,600 Less: accumulated depreciation 376,300 ------------ 99,300 Other assets Investment in and advances to affiliate 275,600 Patents, net of accumulated amortization 529,500 Other 9,900 ------------ 815,000 ------------ Total assets $ 3,643,100 ============ Liabilities and Stockholders' Equity Current liabilities Current debt obligations $ 825,000 Accounts payable 308,600 Accrued expenses 183,700 Accrued commissions 115,300 Deferred revenue 79,300 ------------ Total current liabilities 1,511,900 Long-term notes payable 125,000 Stockholders' equity Common stock, $.01 par value Authorized - 50,000,000 shares Issued and outstanding 33,587,332 shares 335,900 Paid-in capital 10,396,200 Currency translation adjustment (27,400) Accumulated deficit (8,698,500) ------------ 2,006,200 ------------ Total liabilities and stockholders' equity $ 3,643,100 ============ See notes to financial statements. 2 Nocopi Technologies, Inc. Statements of Cash Flows (unaudited)
Three Months ended March 31 1998 1997 ----------- ----------- Operating Activities Net loss ($ 174,800) ($ 121,800) Adjustments to reconcile net loss to cash provided (used) in operating activities Depreciation 21,900 21,900 Amortization 22,200 20,800 Allowance for doubtful accounts -- 6,300 Equity in net loss of affiliate 21,000 20,300 ----------- ----------- (109,700) (52,500) Changes in working capital Accounts receivable (59,500) 90,100 Inventory (5,200) (3,200) Prepaid and other (11,100) 3,500 Accounts payable and accrued expenses (2,900) 83,600 Deferred revenue 10,700 (20,500) ----------- ----------- (68,000) 153,500 ----------- ----------- Cash provided (used) in operating activities (177,700) 101,000 Investing Activities Additions to fixed assets (7,400) (6,400) Additions to patents (7,600) (35,600) Cash of Euro, beginning of year -- (1,641,200) Advances to affiliate, net (91,000) (36,900) ----------- ----------- Cash used in investing activities (106,000) (1,720,100) ----------- ----------- Decrease in cash and cash equivalents (283,700) (1,619,100) Cash and cash equivalents - beginning of period 2,714,600 2,229,200 ----------- ----------- Cash and cash equivalents - end of period $ 2,430,900 $ 610,100 =========== ===========
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. 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. Total comprehensive loss is as follows: Three Months Ended March 31 1998 1997 ------------------------ Net loss ($174,800) ($121,800) Currency translation adjustment (3,500) (62,500) ---------- --------- Comprehensive loss ($178,300) ($184,300) ---------- --------- 4 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 first quarter of 1998 declined 18% to $546,000 from $667,800 in the first quarter of 1997. Licenses, royalties and fees declined by $186,500 due in part to lower minimum license fees from certain U.S. customers resulting principally from a renegotiated contract with 3M Corporation. The contract with 3M has been mutually terminated effective April 30, 1998. Product and other sales increased by $64,700 in the first quarter of 1998 compared to the first quarter of 1997 as a result of higher sales of pressure-sensitive labels during the quarter. The Company's gross profit declined to $361,300 or 66% of revenues in the first quarter of 1998 from $456,300 or 68% of revenues in the first quarter of 1997. The decline in both absolute dollars and as a percentage of revenues is due to lower licenses, royalties and fees. Research and development expenses declined to $106,600 in the first quarter of 1998 from $120,500 in the first quarter of 1997. The decline relates primarily to a cost containment program, including staff reductions, implemented during 1997. 5 Sales and marketing expenses increased to $201,200 in the first quarter of 1998 from $182,500 in the first quarter 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. 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, including travel. General and administrative expenses declined to $217,500 in the first quarter of 1998 from $235,400 in the first quarter of 1997. The decline reflects lower professional expenses in the first quarter of 1998. 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 invested increased in the first quarter of 1998 compared to the first quarter of 1997 due to the investment of funds raised in the private placement completed in late 1997. Equity in net loss of affiliate represents the proportionate share in the loss of Euro-Nocopi attributable to the Company's approximate 18% ownership share of Euro-Nocopi. The net loss increased in the first quarter of 1998 to $174,800 from $121,800 in the first quarter of 1997. The increase in the net loss is attributable primarily to lower revenues realized in the first quarter of 1998 from licensees and increased sales and marketing expenses offset in part by higher interest income in the first quarter of 1998. Liquidity and Capital Resources The Company's cash and cash equivalents declined to $2,430,900 at March 31, 1998 from $2,714,600 at December 31, 1997. The cash was used primarily to fund operations over the three-month period including reimbursable expenditures on behalf of its European affiliate. In early April 1998, the Company repaid $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 chares 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 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 Discussion and Analysis. In each case, 6 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 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. 7 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, 1998. 8 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/ Richard A. Check ---------------------------------- Richard A. Check President & Chief Executive Officer DATE: May 14, 1998 /s/ Rudolph A. Lutterschmidt ---------------------------------- Rudolph A. Lutterschmidt Vice President & Chief Financial Officer 9 EX-27 2 FDS
5 3-MOS DEC-31-1998 MAR-31-1998 2,430,900 0 271,000 44,100 10,700 2,728,800 475,600 376,300 3,643,100 1,511,900 125,000 0 0 335,900 1,670,300 3,643,100 546,000 546,000 184,700 184,700 0 0 18,000 (174,800) 0 (174,800) 0 0 0 (174,800) (0.01) (0.01)
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