-----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, WNudncaAwGbe7b9n7TRMMsw65nPtk5f6fMJOHaG6CHY48Hyf0jmklnMd4jlP5mni 0AmTpS9UYzlGn5QnfFPGoQ== 0000950115-98-001750.txt : 19981116 0000950115-98-001750.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950115-98-001750 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98746596 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 EXCHANGE ACT OF 1934. For the quarterly period ended September 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 or 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 November 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 and Nine Months Ended September 30, 1998 and September 30, 1997 Balance Sheet 2 September 30, 1998 Statements of Cash Flows 3 Nine Months Ended September 30, 1998 and September 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 Signatures 11 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Nocopi Technologies, Inc. Statements of Operations (unaudited)
Three Months ended Nine Months ended September 30 September 30 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Revenues Licenses, royalties and fees $ 497,300 $ 503,500 $ 1,402,200 $ 1,620,300 Product and other sales 116,400 60,500 553,700 844,200 ------------ ------------ ------------ ------------ 613,700 564,000 1,955,900 2,464,500 Cost of sales Licenses, royalties and fees 83,300 96,400 284,000 498,300 Product and other sales 103,800 59,800 520,100 831,400 ------------ ------------ ------------ ------------ 187,100 156,200 804,100 1,329,700 ------------ ------------ ------------ ------------ Gross profit 426,600 407,800 1,151,800 1,134,800 Operating expenses Research and development 97,200 125,500 312,000 367,900 Sales and marketing 201,200 171,800 610,000 499,800 General and administrative 221,900 235,000 685,900 734,600 ------------ ------------ ------------ ------------ 520,300 532,300 1,607,900 1,602,300 ------------ ------------ ------------ ------------ Loss from operations (93,700) (124,500) (456,100) (467,500) Other income (expenses) Amortization (6,300) (6,300) (19,000) Interest income 16,800 4,300 78,000 15,300 Interest and bank charges (4,100) (18,000) (26,300) (53,200) Equity in net loss of affiliate (15,200) (21,000) (23,700) ------------ ------------ ------------ ------------ 12,700 (35,200) 24,400 (80,600) ------------ ------------ ------------ ------------ Net loss ($ 81,000) ($ 159,700) ($ 431,700) ($ 548,100) ============ ============ ============ ============ Loss per common share ($ .00) ($ .01) ($ .01) ($ .04) 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)
September 30 1998 --------------- Assets Current assets Cash and cash equivalents $ 1,329,100 Accounts receivable less allowance 260,300 Inventory 2,700 Prepaid and other 27,400 ------------ Total current assets 1,619,500 Fixed assets Leasehold improvements 37,000 Furniture, fixtures and equipment 431,700 ------------ 468,700 Less: accumulated depreciation 378,300 ------------ 90,400 Other assets Investment in and advances to affiliate 303,600 Patents, net of accumulated amortization 510,100 Other 8,000 ------------ 821,700 ------------ Total assets $ 2,531,600 ============ Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 221,500 Accrued expenses 148,200 Accrued commissions 132,200 Deferred revenue 131,500 ------------ Total current liabilities 633,400 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 10,403,700 Currency translation adjustment (11,000) Accumulated deficit (8,955,400) ------------ 1,773,200 ------------ Total liabilities and stockholders' equity $ 2,531,600 ============
See notes to financial statements. 2 Nocopi Technologies, Inc. Statements of Cash Flows (unaudited)
Nine Months ended September 30 1998 1997 ----------- ----------- Operating Activities Net loss ($ 431,700) ($ 548,100) Adjustments to reconcile net loss to cash used in operating activities Depreciation 65,700 65,700 Amortization 54,000 62,300 Allowance for doubtful accounts 5,400 17,300 Equity in net loss of affiliate 21,000 23,700 Other 7,500 ----------- ----------- (278,100) (379,100) Changes in assets and liabilities Accounts receivable (98,300) 89,100 Inventory 2,800 3,000 Prepaid and other 21,800 (21,900) Accounts payable and accrued expenses (108,600) 135,900 Deferred revenue 62,900 56,200 ----------- ----------- (119,400) 262,300 ----------- ----------- Cash used in operating activities (397,500) (116,800) Investing Activities Additions to fixed assets (42,300) (11,100) Additions to patents (18,100) (71,000) Cash of Euro, beginning of year (1,641,200) Advances (to) from affiliate, net (102,600) 18,600 ----------- ----------- Cash used in investing activities (163,000) (1,704,700) Financing Activities Repayment of notes (825,000) ----------- ----------- Cash used in financing activities (825,000) ----------- ----------- Decrease in cash and cash equivalents (1,385,500) (1,821,500) Cash and cash equivalents - beginning of period 2,714,600 2,229,200 ----------- ----------- Cash and cash equivalents - end of period $ 1,329,100 $ 407,700 =========== ===========
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 nine months ended September 30, 1997 and the Statement of Cash Flows for the nine months ended September 30, 1997 have been restated on a basis consistent with the Form 10-Q/A for the quarter ended March 31, 1997. The 10-Q/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 September 30 1998 1997 ---- ----- Net loss ($ 81,000) ($159,700) Currency translation adjustment 11,100 (6,200) --------- -------- Comprehensive loss ($ 69,900) ($165,900) ======== ======== Nine Months Ended September 30 1998 1997 ---- ---- Net loss ($431,700) ($548,100) Currency translation adjustment 12,900 (74,800) -------- -------- Comprehensive loss ($418,800) ($622,900) ======= ========
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 third quarter of 1998 were $613,700 compared to $564,000 in the third quarter of 1997, an increase of 9%. Licenses, royalties and fees were $497,300 in the third quarter of 1998 compared to $503,500 in the third quarter of 1997. Product and other sales increased to $116,400 in the third quarter of 1998 from $60,500 in the third quarter of 1997 due to higher pressure-sensitive label sales in the quarter and sales of inkjet anti-diversion hardware and systems. For the first nine months of 1998, revenues were $1,955,900 compared to $2,464,500, a decrease of 21%. Licenses, royalties and fees declined by $218,100, or 13%, due in part to lower license fees and royalties from certain U.S. customers resulting principally from the re-negotiation in early 1997 of an exclusive license with 3M Corporation. The license was mutually terminated effective April 30, 1998. Product and other sales declined to $553,700 in the first nine months of 1998 from $844,200 in the first nine months of 1997. The decline of $290,500 resulted from lower sales of pressure-sensitive labels and inkjet equipment in the first nine months of 1998. Gross profit increased to $426,600, or 70% of revenues in 1998 from $407,800, or 72%, of revenues in the third quarter of 1997. The 5% increase in absolute dollars is attributable primarily to the 9% revenue increase. 6 The gross profit for the first nine months of 1998 was $1,151,800, or 59% of revenues compared to $1,134,800, or 46% of revenues in the first nine months of 1997. The gross profit was negatively affected by the $218,100 decline in licenses, royalties and fees in the first nine months of 1998 compared to the first nine months of 1997. The gross profit decline was offset by a non-recurring settlement with Euro-Nocopi S.A., the Company's affiliate, which occurred during the first half of 1997. The settlement involved a dispute with Euro-Nocopi 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. Research and development expenses declined to $97,200 and $312,000 in the third quarter and first nine months of 1998, respectively, from $125,500 and $367,900 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 $201,200 in the third quarter of 1998 from $171,800 to the third quarter of 1997. For the first nine months of 1998, sales and marketing expenses were $610,000 compared to $499,800 in the first nine months 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, including its inkjet computer printer technologies. These market development activities have required higher sales and marketing expenditures. General and administrative expenses declined to $221,900 in the third quarter of 1998 from $235,000 in the third quarter of 1997. For the first nine months, general and administrative expenses declined to $685,900 in 1998 from $734,600 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 third quarter and first nine months 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 to March 31, 2000 at an interest rate of 9%. Interest income increased in the third quarter and first nine months of 1998 compared to the third quarter and first nine months 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 income of Euro-Nocopi attributable to the Company's approximate 18% ownership share of Euro-Nocopi. The net loss for the three months ended September 30, 1998 was $81,000 compared to $159,700 in the three months ended September 30, 1997. The nine month 1998 net loss was $431,700 compared to $548,100 in the first nine months of 1997. The decrease in the net loss for the third quarter of 1998 compared to the third quarter of 1997 is attributable to higher revenues as well as higher interest income and lower interest expense. For the first nine months of 1998, the positive effect of the first half 1997 settlement with Euro-Nocopi S.A. is offset in part by a lower gross profit resulting from lower revenues for the first nine months of 1998 compared to the same period of 1997. 7 Liquidity and Capital Resources The Company's cash and cash equivalents declined to $1,329,100 at September 30, 1998 from $2,714,600 at December 31, 1997. The cash was used primarily to fund operations over the nine-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 relocated its research facilities to this location in August 1998. The Company has invested approximately $40,000 in leasehold improvements at this location in which it conducts all of its business operations. 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 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 September 30, 1998. 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: November 12, 1998 /s/ Richard A. Check ---------------------------------------- Richard A. Check President & Chief Executive Officer DATE: November 12, 1998 /s/ Rudolph A. Lutterschmidt ---------------------------------------- Rudolph A. Lutterschmidt Vice President & Chief Financial Officer 11 EX-27 2 FDS
5 3-Mos Dec-31-1998 Sep-30-1998 1,329,100 0 309,800 49,500 2,700 1,619,500 468,700 378,300 2,531,600 633,400 125,000 0 0 335,900 1,437,300 2,531,600 1,955,900 1,955,900 804,100 804,100 0 12,000 26,300 (431,700) 0 (431,700) 0 0 0 (431,700) (0.01) (0.01)
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