-----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, B/o6nsd067gbVuMbDNnEqEhtvO+i6QyggotzIZ7bh8WbUCW6iQxe3HC8KF/lfUjZ YL2WAEw/eN6ttbqJbw8VQA== 0000950115-99-000792.txt : 19990623 0000950115-99-000792.hdr.sgml : 19990623 ACCESSION NUMBER: 0000950115-99-000792 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990524 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: 99633211 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, 1999. [ ] 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 May 1, 1999: Common stock, par value $.01 per share 33,627,332 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, 1999 And March 31, 1998 Balance Sheet 2 March 31, 1999 Statements of Cash Flows 3 Three Months Ended March 31, 1999 And March 31, 1998. Notes to Financial Statements 4 Item 2. Management's Discussion and Analysis 5-8 Of Financial Condition and Results of Operations Part II. OTHER INFORMATION 9 Signatures 10 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Nocopi Technologies, Inc. Statements of Operations (unaudited)
Three Months ended March 31 1999 1998 ------------ ------------ Revenues Licenses, royalties and fees $ 388,000 $ 450,600 Product and other sales 198,100 95,400 ------------ ------------ 586,100 546,000 Cost of sales Licenses, royalties and fees 105,900 100,000 Product and other sales 156,600 84,700 ------------ ------------ 262,500 184,700 ------------ ------------ Gross profit 323,600 361,300 Operating expenses Research and development 66,300 106,600 Sales and marketing 212,500 201,200 General and administrative 347,800 217,500 ------------ ------------ 626,600 525,300 ------------ ------------ Loss from operations (303,000) (164,000) Other income (expenses) Amortization of debt issuance costs (6,300) Interest income 12,800 34,500 Interest and bank charges (4,200) (18,000) Equity in net loss of unconsolidated affiliate (11,500) (21,000) ------------ ------------ (2,900) (10,800) ------------ ------------ Net loss ($ 305,900) ($ 174,800) ============ ============ Basic and diluted loss per common ($.01) ($.01) share Average common shares outstanding 33,587,332 33,587,332
See notes to financial statements. 1 Nocopi Technologies, Inc. Balance Sheet (unaudited) March 31 1999 ------------ Assets Current assets Cash and cash equivalents $ 1,175,000 Accounts receivable less allowances 164,000 Prepaid and other 48,500 ------------ Total current assets 1,387,500 Fixed assets Leasehold improvements 39,500 Furniture, fixtures and equipment 456,500 ------------ 496,000 Less: accumulated depreciation 389,400 ------------ 106,600 Other assets Investment in and advances to unconsolidated affiliate 246,500 Patents, net of accumulated amortization 521,600 Other 6,200 ------------ 774,300 ------------ Total assets $ 2,268,400 ============ Liabilities and Stockholders' Equity Current liabilities Current debt obligations $ 125,000 Accounts payable 241,700 Accrued expenses 161,000 Accrued commissions 135,800 Accrued severance 135,700 Deferred revenue 129,500 ------------ Total current liabilities 928,700 Stockholders' equity Common stock, $.01 par value Authorized - 75,000,000 shares Issued and outstanding - 33,587,332 shares 335,900 Paid-in capital 10,407,200 Accumulated other comprehensive loss (25,000) Accumulated deficit (9,378,400) ------------ 1,339,700 ------------ Total liabilities and stockholders' equity $ 2,268,400 ============ See notes to financial statements. 2 Nocopi Technologies, Inc. Statements of Cash Flows (unaudited)
Three Months ended March 31 1999 1998 ----------- ----------- Operating Activities Net loss ($ 305,900) ($ 174,800) Adjustments to reconcile net loss to cash used in operating activities Depreciation 15,600 21,900 Amortization 16,500 22,200 Equity in net loss of unconsolidated affiliate 11,500 21,000 Stock option compensation 1,000 ----------- ----------- (261,300) (109,700) (Increase) decrease in assets Accounts receivable (33,200) (59,500) Prepaid and other 3,900 (16,300) Increase (decrease) in liabilities Accounts payable and accrued expenses 185,400 (2,900) Deferred revenue 7,200 10,700 ----------- ----------- 163,300 (68,000) ----------- ----------- Cash (used in) operating activities (98,000) (177,700) Investing Activities Additions to fixed assets (17,500) (7,400) Additions to patents (18,300) (7,600) Advances to affiliate, net (64,100) (91,000) ----------- ----------- Cash (used in) investing activities (99,900) (106,000) ----------- ----------- Decrease in cash and cash equivalents (197,900) (283,700) Cash and cash equivalents - beginning of period 1,372,900 2,714,600 ----------- ----------- Cash and cash equivalents - end of period $ 1,175,000 $ 2,430,900 =========== ===========
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 1998 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 1998 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 (Loss) In accordance with SFAS No. 130, Reporting Comprehensive Income, comprehensive loss is as follows: Three Months Ended March 31 1999 1998 --------- --------- Net loss ($305,900) ($174,800) Currency translation adjustment ( 12,100) ( 3,500) --------- --------- Comprehensive loss ($318,000) ($178,300) ========= ========= Note 3.Accrued Severance Includes accrual of $150,000 related to the resignation of the Company's President and Chief Executive Officer, payable in installments of approximately $15,000 per month commencing March 1, 1999. 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 1999 were $586,100 compared to $546,000 in the first quarter of 1998, an increase of 7%. Licenses, royalties and fees declined by $62,600 due in part to lower volume-related royalties in the first quarter of 1999 compared to the first quarter of 1998 and the termination of license agreements with three licensees. Product sales increased $102,700 to $198,100 in the first quarter of 1999 from $95,400 in the first quarter of 1998 primarily as the result of the $92,000 sale of an inkjet printing system during the quarter. The Company's gross profit declined to $323,600 in the first quarter of 1999 or 55% of revenues from $361,300 or 66% of revenues in the first quarter of 1998. Licenses, royalties and fees carry a substantially higher gross margin than product sales, which generally consist of manufactured products which 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 margin than licenses, royalties and fees. The lower gross margin in absolute dollars as well as percentage of revenues, in the first quarter of 1999 compared to the first quarter of 1998 results both from lower licenses, royalties and fees as well as the change in revenue mix in favor of product sales. 5 Research and development expenses declined to $66,300 in the first quarter of 1999 from $106,600 in the first quarter of 1998. The reduction is due primarily to lower compensation expense resulting from modifications to compensation arrangements with certain individuals as well as lower travel expense during the quarter. Sales and marketing expenses were to $212,500 in the first quarter of 1999 compared to $201,200 in the first quarter of 1998. The $11,300 increase relates primarily to higher sales promotion expenses in the first quarter of 1999 compared to the first quarter of 1998. General and administrative expenses increased $130,300 to $347,800 in the first quarter of 1999 from $217,500 in the first quarter of 1998. The increase results from the resignation of the Company's President and Chief Executive Officer in February 1999 whereby $150,000 in severance obligations was charged to expense during the first quarter of 1999. Other income (expense) includes interest on the $125,000 Series B 9% Subordinated Convertible Promissory Notes due March 31, 2000. The decline in interest income in the first quarter of 1999 compared to the first quarter of 1998 relates to lower levels of cash invested as cash was utilized during 1998 to fund operations and to repay $825,000 of debt. 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 increased to $305,900 in the first quarter of 1999 from $174,800 in the first quarter of 1998. As explained above, the increase relates primarily to the accrual of severance obligations in 1999. Liquidity and Capital Resources The Company's cash and cash equivalents declined to $1,175,000 at March 31, 1999 from $1,372,900 at December 31, 1998. The cash was used primarily to fund operations over the three-month period including reimbursable expenditures on behalf of its European affiliate. 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. These potential problems exist because many computer software applications use two digits to designate a year. Any computer hardware and programs that have date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. The inability to properly process dates beyond 1999 may cause computer systems to process information incorrectly or not at all. 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 the end of the third quarter of 1999. The Company has determined that the vendor's upgrade software is available and is Year 2000 compliant. The Company estimates the costs to purchase and install the upgrades at less than $10,000. The Company continues to communicate with vendors, financial institutions and others to assure their compliance to Year 2000 issues. However, there can be no 6 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 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 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 7 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. 8 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 The Company has postponed its annual meeting of shareholders scheduled to be held on June 30, 1999. The Company plans to hold its annual meeting during the third quarter of 1999 and will make a public announcement of the date. The Company is in the process of engaging independent legal and securities counsel, which will advise the Company in matters related to corporate governance and securities law as well as assist in the preparation of the proxy statement and other required documents and provide guidance on the Company's long-term strategic direction. 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, 1999. 9 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 24, 1999 /s/ Jack H. Halperin ---------------------------------------- Jack H. Halperin Interim Chairman of the Board DATE: May 24, 1999 /s/ Rudolph A. Lutterschmidt ---------------------------------------- Rudolph A. Lutterschmidt Vice President & Chief Financial Officer 10 EX-27 2 FDS --
5 NOCOPI TECHNOLOGIES, INC. EXHIBIT 27 MARCH 31, 1999 3-MOS DEC-31-1999 MAR-31-1999 1,175,000 0 219,500 55,500 9,200 1,387,500 496,000 389,400 2,268,400 928,700 0 0 0 335,900 1,003,800 2,268,400 586,100 586,100 262,500 262,500 0 0 12,800 (305,900) 0 (305,900) 0 0 0 (305,900) (0.01) (0.01)
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