-----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, QK6h2OzVG0eAp8I4DkJhif0Gclv4vpzqc/cOqrAM8r7ehRYW8EgOfwAnm8w+UZAH glcpLAzCEVATajB6bAKadw== 0000950116-03-002278.txt : 20030414 0000950116-03-002278.hdr.sgml : 20030414 20030411195025 ACCESSION NUMBER: 0000950116-03-002278 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030414 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20333 FILM NUMBER: 03647823 BUSINESS ADDRESS: STREET 1: 537 APPLE ST STREET 2: STE 100 CITY: WEST CONSHOHOCKEN STATE: PA ZIP: 19428-2903 BUSINESS PHONE: 6108349600 MAIL ADDRESS: STREET 1: 537 APPLE ST STREET 2: 230 SUGARTOWN RD STE 100 CITY: WEST CONSHOHOCKEN STATE: PA ZIP: 19428-2903 10KSB 1 tenksb.txt 10KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB - -------------------------------------------------------------------------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended ___December 31, 2002_______________ [ ] TRANSITION REPORT PURSUANT TO SECTION 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. - -------------------------------------------------------------------------------- (Name of small business issuer in its charter)
Maryland 87-0406496 - ------------------------------------------------------------- ------------------------------------ (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
537 Apple Street, West Conshohocken, PA 19428 - ---------------------------------------- --------- (Address of principal executive offices) (Zip Code) Issuer's telephone number (610) 834-9600 ---------------- Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None Not Applicable Securities registered under section 12(g) of the Exchange Act: Common Stock $.01 par value - -------------------------------------------------------------------------------- (Title of class) - -------------------------------------------------------------------------------- (Title of class) Check whether the issuer (1) 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 _. Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year. $736,800. State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the issuer. $1,450,000 at March 31, 2003. (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 45,972,241 shares of Common Stock, $.01 par value at March 31, 2003. DOCUMENTS INCORPORATED BY REFERENCE None Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] PART I ITEM 1. BUSINESS Background Nocopi Technologies, Inc. (hereinafter "Nocopi", "Registrant" or the "Company") was organized in 1983 to exploit a technology developed by its founders for impeding the reproduction of documents on office copiers. In its early stages of development, Nocopi's business consisted primarily of selling copy resistant paper to protect corporate documents and information. More recently, Registrant has increasingly focused on developing and marketing technologies for document and product authentication which can reduce losses caused by fraudulent document reproduction and by product counterfeiting and/or diversion. Registrant derives revenues by licensing its technologies, both to end-users and to value-added resellers, and by selling products incorporating its technologies and technical support services. The decline in Registrant's financial condition has not stabilized or been reversed. By the end of 2002, this decline had led to a severe working capital deficiency and adverse liquidity that threatened and continues to threaten to require the imminent cessation of Registrant's operations. During 2002, Registrant received new capital investments totaling $411,000 from a variety of sources including existing and new stockholders and received $160,400 in loans from three individuals including the Company's Chairman of the Board. The funds invested have permitted Registrant to continue in operation in the near term. However, Registrant believes that, to continue to conduct business operation in the immediate future, it must obtain additional capital immediately to fund continuing operating deficits. Additional capital is also needed to fund programs and activities designed to increase Registrant's operating revenues to levels that will sustain its operations. Registrant is currently involved in a substantial dispute with Euro-Nocopi, S.A., its former European licensee, the cost of which has contributed substantially to Registrant's continuing losses, working capital deficit and adverse liquidity. Expenses associated with this dispute increased during 2002. It remains highly uncertain whether Registrant can achieve positive cash flow before its adverse liquidity forces it to cease or suspend operations. Registrant's management intends to seek additional capital, if possible, and may continue to explore possible business combination opportunities if such opportunities are presented. Anti-Counterfeiting and Anti-Diversion Technologies and Products Continuing developments in copying and printing technologies have made it ever easier to counterfeit a wide variety of documents. Lottery tickets, gift certificates, event and transportation tickets, travelers' checks and the like are all susceptible to counterfeiting, and Registrant believes that losses from such counterfeiting have increased substantially with improvements in these technologies. Product counterfeiting has long caused losses to manufacturers of brand name products, and Registrant believes these losses have also increased as the counterfeiting of labeling and packaging has become easier. Registrant's document authentication technologies are useful to businesses desiring to authenticate a wide variety of printed materials and products. These include a technology with the ability to print invisibly on certain areas of a document. The invisible printing can be activated or revealed by use of a special highlighter pen when authentication is required. This technology is marketed under the trademark COPIMARK(TM). Other variations of the COPIMARK(TM) technology involve multiple color responses from a common pen, visible marks of one color that turn another color with the pen or visible and invisible marks that turn into a multicolored image. A related technology is Nocopi's RUB & REVEAL(R) system, which permits the invisible printing of an authenticating symbol or code that can be revealed by rubbing a fingernail over the printed area. These technologies provide users with the ability to authenticate documents and detect counterfeit documents. Applications include the authentication of documents having intrinsic value, such as merchandise receipts, checks, travelers' checks, gift certificates and event tickets, and the authentication of product labeling and packaging. When applied to product labels and packaging, such technologies can be used to detect counterfeit products whose labels and packaging would not contain the authenticating marks invisibly printed on the packaging or labels of the legitimate product, as well as to combat product diversion (i.e. sale of legitimate products through unauthorized distribution channels or in unauthorized markets). Registrant's 1 related invisible inkjet technology permits manufacturers and distributors to track the movement of products from production to ultimate consumption when coupled with proprietary software. Management believes that the "track and trace" capability provided by this technology should be attractive to brand owners and marketers. Document Security Products Registrant continues to offer a line of burgundy colored papers that deter photocopying and transmission by facsimile. This colored paper inhibits photocopier reproduction at the cost of loss of easy legibility to the reader. Registrant currently offers its copy resistant papers in three grades, each balancing improved copy resistance against diminished legibility. Registrant also sells user defined, pre-printed forms on which selected areas are colored to inhibit reproduction. An example is a doctor's prescription form with the signature area protected. This product line is called SELECTIVE NOCOPI(TM). Registrant also offers several inks that impede photocopying by color copiers. This technology is called COLORBLOC(R). Since late 1999, Registrant has, in addition to marketing its own technologies and products, acted as a distributor for a line of Pantograph security paper. This patented product, complementary to the Registrant's line of security paper, produces a message, such as "unauthorized copy", when a copy of an original document that was printed or typed on the Pantograph paper, is reproduced on a photocopier. This product line is called COPI-ALERT. The following table illustrates the approximate percentage of Registrant's revenues accounted for by each type of its products for each of the two last fiscal years:
Year Ended December 31, ------------------------- Product Type 2002 2001 - ------------ ---- ---- Anti-Counterfeiting & Anti-Diversion Technologies and Products 79% 83% Document Security Products 21% 17%
Marketing The marketing approach of Registrant is to offer sufficient flexibility in its products and technologies so as to provide cost effective solutions to a wide variety of counterfeiting, diversion and copier fraud problems. As a technology company, Registrant generates revenues primarily by collecting license fees from market-specific manufacturers who incorporate Registrant's technologies into their manufacturing process and their products. Registrant also licenses its technologies directly to end-users. Registrant has identified a number of major markets for its technologies and products, including security printers, manufacturers of labels and packaging materials and distributors of brand name products. Within each market, key potential users have been identified, and several have been licensed. Within North America, sales efforts include direct selling by company personnel to create end user demand and selling through licensee sales forces and sales agents with support from company personnel. Registrant has determined that technical sales support by its personnel is of great importance to increasing its licensees' sales of products incorporating Registrant's technologies and, therefore, seeks to maintain, to the extent permitted by its limited resources, its commitment to providing such support. Since 1999, Registrant's management has refocused the company's marketing efforts somewhat in view of the limited resources available to the Company for marketing and the need to improve the Registrant's cash flow. Current marketing efforts are focused on Registrant's more mature technologies that can be utilized by customers with relatively less development efforts. As continued improvements in color copier and desktop publishing technology make counterfeiting and fraud opportunities less expensive and more available, Registrant intends, to the extent feasible, to maintain an interactive product development and enhancement program with the combined efforts of marketing, applications engineering and research and development. Registrant's objective is to concentrate its efforts on developing market-ready products with the most beneficial ratios of market potential to development time and cost. 2 Except in Europe, Registrant has historically sought to market its technologies through its own employees and through independent sales representatives. In 1994, the Registrant formed a European company, Euro-Nocopi, S.A., to market the Company's technologies in Europe under an exclusive licensing arrangement. The Registrant owns approximately an 18% interest in Euro-Nocopi, S.A. In December 2000, Registrant terminated its licensing arrangement with Euro-Nocopi, S.A. due to its commencement of proceedings to liquidate and dissolve and to its failure to pay license fees and other amounts due to Registrant under the licensing arrangement. Registrant currently is seeking to exploit the European market for its technologies directly and through its association with another licensee. Registrant has taken several steps to improve the marketing of its technologies. These include the implementation of a new web site and online store designed both to more effectively promote the Company's products and to provide for smoother online ordering of certain products, and the establishment of programs to expand its network of authorized dealers and sales agents. Major Customers During 2002, Registrant made sales or obtained revenues equal to 10% or more of Registrant's 2002 total revenues from one non-affiliated customer, Nashua Corporation, which accounted for approximately 16% of 2002 revenues. Outside Sales Agents Registrant has engaged outside sales agents who are paid commissions on sales to various customers of Registrant and may also receive retainers and reimbursement for certain expenses. During 2001 the total payments to outside sales agents was approximately $26,000. No commissions were paid to outside sales agents in 2002. Manufacturing Registrant has a small facility for the manufacture of its security inks. Except for this facility, Registrant does not maintain manufacturing facilities. Registrant presently subcontracts the manufacture of its applications (mainly printing and coating) to third party manufacturers and expects to continue such subcontracting. Because some of the processes that Nocopi uses in its applications are based on relatively common manufacturing technologies, there appears to be no technical or economic reason for Registrant to invest capital in its own manufacturing facilities. Registrant has established a quality control program that currently entails laboratory analysis of developed technologies. When warranted, Registrant's specially trained technicians travel to third party production facilities to install equipment, train client staff and monitor the manufacturing process. Patents Nocopi has received various patents and/or has patents pending in the United States, Canada, South Africa, Saudi Arabia, Australia, New Zealand, Japan, France, the United Kingdom, Belgium, the Netherlands, Germany, Austria, Italy, Sweden, Switzerland, Luxembourg, and Liechtenstein. Patent applications for Registrant's technology (including improvements in the technology) have also been filed in numerous other jurisdictions where commercial usage is foreseen, including other countries in Europe, Japan, Australia, and New Zealand, and the rights under such applications have been assigned to Registrant. Registrant's patent counsel, which conducted the appropriate searches in Canada and the United States, has reviewed the results of searches conducted in Europe and advised management that effective patent protection for Registrant's technology should be obtainable in all countries in which the patent applications have been filed. There can be no assurance, however, that such protection will be obtained. When a new product or process is developed, the developer may seek to preserve for itself the economic benefit of the product or process by applying for a patent in each jurisdiction in which the product or process is likely to be exploited. Generally speaking, in order for a patent to be granted, the product or process must be new and be inventively different from what has been previously patented or otherwise known anywhere in the world. Patents generally 3 have a duration of 17 years from the date of grant or 20 years from the date of application depending on the jurisdiction concerned, after which time any person is free to exploit the product or process covered by a patent. A person who is the owner of a patent has, within the jurisdiction in which the patent is granted, the exclusive right to exploit the patent either directly or through licensees, and is entitled to prevent any person from infringing on the patent. The granting of a patent does not prevent a third party from seeking a judicial determination that the patent is invalid. Such challenges to the validity of a patent are not uncommon and are occasionally successful. There can be no assurance that a challenge will not be filed to one or more of Registrant's patents and that, if filed, such challenge(s) will not be successful. In the United States and Canada, the details of the product or process that is the subject of a patent application are not publicly disclosed until a patent is granted. However, in some other countries, patent applications are automatically published at a specified time after filing. Research and Development Nocopi has been involved in research and development since its inception. Although Registrant's deteriorating financial condition has forced it to reduce funding for research and development in recent years, it intends to continue its research and development activities in three areas, to the extent feasible. First, Registrant will seek to continue to refine its present family of products. Second, Registrant will seek to develop specific customer applications. Finally, Registrant will seek to expand its technology into new areas of implementation. There can be no assurances that Registrant will be able to obtain funds necessary to continue its research and development activities. During the years ended December 31, 2002, and 2001, Nocopi expended approximately $254,100 and $251,600 respectively, on research and development. Competition In the area of document and product authentication and serialization, Registrant is aware of other technologies, both covert and overt surface marking techniques, requiring decoding implements or analytical methods to reveal the relevant information. These technologies are offered by other companies for the same anti-counterfeiting and anti-diversion purposes the Registrant markets its covert technologies. These include, among others, biological DNA codes, microtaggants, thermochronic, UV and infrared inks as well as encryption, 2D symbology and laser engraving. Registrant believes its patented and proprietary technologies provide a unique and cost-effective solution to the problem of counterfeiting and gray marketing in the document and product authentication markets it has traditionally sought to exploit. Registrant knows of one large company that recently began to offer an expanding portfolio of product security solutions, some of which may be competitive with Registrant's authentication technologies. In order both to minimize the adverse effect of this new competition and to participate in the competitor's success, it has entered into a license agreement with this competitor so that products incorporating Registrant's technologies can be offered as part of this portfolio. Registrant is not aware of any competitors that market paper which functions in the same way as Nocopi security papers, although management is aware of a limited number of competitors which are attempting different approaches to the same problems which Registrant's products address. Registrant is aware of a Japanese company that has developed a film overlay that is advertised as providing protection from photocopying. Registrant has examined the film overlay and believes that it has a limited number of applications. Nocopi security paper is also considerably less expensive than the film overlay. Other indirect competitors are marketing products utilizing the hologram and copy void technologies. The hologram, which has been incorporated into credit cards to foil counterfeiting, is considerably more costly than Registrant's technology. Copy void is a security device that has been developed to indicate whether a document has been photocopied. Registrant also markets a product that has similar features to the copy void technology. 4 Registrant currently has extremely limited resources, and there can be no assurance that other businesses with greater resources than Registrant will not enter Registrant's markets and compete successfully with Registrant. Euro-Nocopi, S.A. Registrant formed Euro-Nocopi, S.A. in 1994, to market the Company's technologies in Europe under an exclusive licensing arrangement. Registrant currently owns approximately an 18% interest in Euro-Nocopi, S.A. During 2000, there arose between Registrant and Euro-Nocopi, S.A. a number of areas of conflict and dispute, leading each party to the licensing arrangement to assert informally that the other was in breach of its obligations under that arrangement. The parties initially sought to resolve their differences by negotiating a transaction in which Euro-Nocopi, S.A. would have purchased from Registrant its entire equity interest as well as the paid-up European rights to Registrant's technologies. These negotiations terminated without agreement early in December 2000. Following the termination of the transaction negotiations, Registrant was informed by Euro-Nocopi, S.A. that it had adopted resolutions to liquidate and dissolve. In December 2000, Registrant terminated its license agreement with Euro-Nocopi, S.A. in accordance with its terms and discontinued the provision of support (including the sale of proprietary inks) to Euro Nocopi, S.A. and its customers. Euro-Nocopi S.A. responded by denying that Registrant's termination of the licensing agreement was permissible or effective, and by asserting a claim that, as a result of alleged breaches of the licensing arrangement by Registrant, it was entitled to a royalty-free license to exploit Registrant's technologies in Europe. Promptly thereafter, Euro-Nocopi, S.A. commenced an action before a court in Paris, France in which it sought the entry of an order, in the nature of a preliminary injunction, to compel Registrant to honor the license agreement pending judicial or arbitral resolution of the dispute between the parties under the license agreement. Notably, in the French litigation, Euro-Nocopi S.A. did not seek an adjudication on the merits of the underlying dispute. In March 2001, the Emergency Judge hearing the action issued a decision denying the relief requested by Euro-Nocopi, S.A. and the shareholders. The decision, which does not purport to be a final adjudication of the merits of the controversy but only of Euro-Nocopi's request for preliminary relief, held that Euro-Nocopi S.A. was not entitled to the requested order because Registrant had validly terminated the licensing arrangement in mid-December, and also ordered Euro-Nocopi, S.A. to pay into escrow the approximately $125,000 that Registrant claimed was due and owing under the licensing arrangement. In March 2001, Euro-Nocopi, S.A. commenced an arbitration proceeding before the American Arbitration Association in New York, NY against Registrant. In this proceeding, Euro-Nocopi, S.A. has not asserted a claim for damages but has asserted a claim for an award in the nature of a declaratory judgment to the effect that, because Registrant has (allegedly) breached the license agreement, Euro-Nocopi, S.A. is entitled to a perpetual royalty-free license to exploit Registrant's technologies in Europe. These proceedings are described below under the heading "Legal Proceedings." Following its termination of the licensing arrangement with Euro-Nocopi, S.A., Registrant moved to directly exploit the European marketplace for its technologies. Employees At March 31, 2003, Registrant had four full-time and three part-time employees. Registrant believes that its relations with its employees are good. Financial Information about Foreign and Domestic Operations Certain information concerning Registrant's foreign and domestic operations is contained in Note 9 to Registrant's Financial Statements included elsewhere in this Annual Report on Form 10-KSB. ITEM 2. PROPERTIES Registrant's corporate headquarters, research and ink production facilities are currently located at 537 Apple Street, West Conshohocken, Pennsylvania 19428. Its telephone number at that location is (610) 834-9600. These premises consist of approximately 14,800 square feet of space leased from an unaffiliated third party under a lease that expired in February 2003. Registrant is renting the 5 premises on a month-to-month basis until it relocates to new premises. Registrant currently plans to complete this relocation during the second quarter of 2003. Current monthly rent under this lease is $9,000. Registrant is also responsible for the operating costs of the building. In March 2003 Registrant negotiated a five year lease with an unaffiliated third party, commencing in April 2003, for 5,000 square feet of space in a multi-tenant building at 9 Portland Road, West Conshohocken, Pennsylvania 19428. Initial monthly rent at this location is $2,813 escalating four percent on each anniversary date of the lease. Registrant is also responsible for its pro-rata share of the operating costs of the building. Registrant anticipates that it will incur leasehold improvement expenditures of approximately $20,000 before occupying the space in the second quarter of 2003. Registrant believes that the newly leased space will be adequate for its current needs due to the loss of customers over the past years and the reduction in its number of employees and that its operating expenses will be lowered as a result. ITEM 3. LEGAL PROCEEDINGS Except as set forth below, Registrant is not aware of any material pending litigation (other than ordinary routine litigation incidental to its business where, in management's view, the amount involved is less than 10% of Registrant's current assets) to which Registrant is or may be a party, or to which any of its properties is or may be subject, nor is it aware of any pending or contemplated proceedings against it by any governmental authority. Registrant knows of no material legal proceedings pending or threatened, or judgments entered against, any director or officer of Registrant in his capacity as such. In December 2000, Euro-Nocopi, S.A, Registrant's former European licensee, commenced proceedings against Registrant in a court in Paris, France. These proceedings are described above under the heading "Euro-Nocopi, S.A." In March 2001, Euro-Nocopi, S.A. commenced arbitration proceedings against Registrant before the American Arbitration Association in New York, NY. In these proceedings, Euro-Nocopi, S.A. has sought an award in the nature of a declaratory judgment to the effect that, due to alleged breaches by Registrant of the licensing arrangement between Registrant and Euro-Nocopi. S.A., it is entitled to a royalty-free license to exploit Registrant's technologies in Europe. Euro-Nocopi, S.A. has not sought an award of money damages. Euro-Nocopi's demand appears to allege that Registrant has committed numerous breaches of the licensing arrangement between the parties, notably by failing to disclose certain technical information, by failing to provide technical support, services and products to Euro-Nocopi, S.A. and by entering into a licensing agreement with a third party allegedly violating the exclusivity provisions of the Euro-Nocopi, S.A. licensing arrangement. Registrant has filed a response to Euro-Nocopi's demand denying that Euro-Nocopi is entitled to the relief requested and has filed a counter-demand contending that it has validly terminated the Euro-Nocopi licensing arrangement and seeking to recover in excess of $125,000 owed to it by Euro-Nocopi, S.A. under the terminated licensing arrangement. Registrant intends to defend itself against Euro-Nocopi's claims and to assert its counterclaim vigorously. The parties are currently engaged in discussions relating to the settlement of the arbitration, and all related matters, and the arbitration hearing on the merits has been postponed pending such discussions. In March 2001 certain shareholders of Euro-Nocopi, S.A. filed suit in a court in Paris, France against certain current and former officers and directors of Registrant, and against a licensee of Registrant. Registrant is not named as a defendant in the suit. The suit seeks damages in excess of $7 million from the defendants for various alleged acts of oppression, self-dealing and fraud in connection with the organization and capitalization of Euro-Nocopi, S.A., the management of that company and Registrant's management of its relationship with that company. The defendants in this litigation have denied any liability to the plaintiffs and have claimed indemnification from the Company in connection with the lawsuit, and Registrant has advanced certain funds toward payment of the costs of defense. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year ended December 31, 2002, no matters were submitted to a vote of Registrant's security holders. 6 PART II ITEM 5. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Registrant's Common Stock is traded on the over-the-counter market and quoted on the NASD over-the-counter Bulletin Board under the symbol "NNUP". The table below presents the range of high and low bid quotations of Registrant's Common Stock by calendar quarter for the last two full fiscal years and for a recent date, as reported by the National Quotation Bureau, Inc. The quotations represent prices between dealers and do not include retail markup, markdown, or commissions; hence, such quotations do not represent actual transactions. High Bid Low Bid -------- ------- January 1, 2001 to March 31, 2001 $.20 $.11 April 1, 2001 to June 30, 2001 $.15 $.08 July 1, 2001 to September 30, 2001 $.15 $.06 October 1, 2001 to December 31, 2001 $.14 $.05 January 1, 2002 to March 31, 2002 $.16 $.10 April 1, 2002 to June 30, 2002 $.11 $.07 July 1, 2002 to September 30, 2002 $.08 $.05 October 1, 2002 to December 31, 2002 $.08 $.05 January 1, 2003 to March 31, 2003 $.07 $.03 As of March 31, 2003, 45,972,241 shares of Registrant's Common Stock were outstanding. The number of holders of record of Registrant's Common Stock was approximately 1,100. However, Registrant estimates that it has a significantly greater number of Common Stockholders because a number of shares of Registrant's Common Stock are held of record by broker-dealers for their customers in street name. In addition to the 45,972,241 shares of Common Stock which are outstanding, Registrant, at March 31, 2003, has reserved for issuance 2,700,000 shares of its Common Stock which underlie outstanding options to purchase Common Stock of the Registrant. Under the terms of a Subscription Agreement under which 3,333,333 shares of Registrant's common stock were purchased from the Registrant by an investment partnership in late 2002, one of whose partners is a director of Registrant, Registrant has agreed to issue 40,000,000 warrants, at varying prices ranging from $.10 per share to $.25 per share, exercisable during various periods through year-end 2003 through year-end 2006, subject to partial rollover and extension, to the partnership. The issuance of the warrants are subject to the negotiation and agreement of the Registrant and the investors on the definitive terms thereof and also to the approval by the Registrant's common stockholders of an amendment to the Registrant's charter to increase its authorized capital to a number of shares sufficient to permit exercise of the warrants. Registrant has paid no cash dividends on its Common Stock and does not anticipate paying any such dividends in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Forward-Looking Information The information in this Management's Discussion and Analysis of Results of Operations and Financial Condition contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Such factors include those described in "Uncertainties That May Affect the Company, its Operating Results and Stock Price." The forward-looking statements included in this report may prove to be inaccurate. In light of the 7 significant uncertainties inherent in these forward-looking statements, you should not consider this information to be a guarantee by us or any other person that our objectives and plans will be achieved. 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. 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 inks, security paper and 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 significantly 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 2002 were $736,800, a decline of 5%, or $35,300, from $772,100 in 2001. Licenses, royalties and fees declined in 2002 by 11% to $441,100 from $498,300 in 2001. The reduction in licenses, royalties and fees is due primarily to the termination or non-renewal of license arrangements with three licensees, including the Company's largest 2001 customer, during 2002 offset in part by the addition of two new licensees. Product and other sales increased by $21,900, or 8% to $295,700 in 2002 from $273,800 in 2001. The increase in product sales reflects higher level of sales of the Company's line of security papers in 2002 compared to 2001. Gross profit declined to $358,000 or 49% of revenues in 2002 from $405,900 or 53% of revenues in 2001. Licenses, royalties and fees have historically carried a higher gross profit than product sales, which generally consist of supplies or other manufactured products which incorporate the Company's technologies or equipment used to support the application of its technologies. These items (except for inks which are manufactured by the Company) are generally purchased from third-party vendors and resold to the end-user or licensee and carry a lower gross profit than licenses, royalties and fees. The 2002 gross profit and gross profit percentage was negatively impacted by the decline in revenues from licenses, royalties and fees as well higher expenditures for paper purchased for resale and higher production costs incurred in the manufacture of the Company's line of security inks. Research and development expenses of $254,100 in 2002 approximated the $251,600 incurred in 2001. Sales and marketing expenses increased to $269,900 in 2002 from $251,700 in 2001. The increase reflects the hiring of a sales executive in the fourth quarter of 2001 offset in part by a reduction in fees paid to sales agents and consultants and lower travel expenses during 2002. General and administrative expenses (exclusive of legal expenses) decreased to $269,600 in 2002 from $376,400 in 2001 as the Company was forced to strictly limit its expenditures to conserve its cash resources. The decline in 2002 compared to 2001 relates to lower audit fees, consulting fees and costs involved in the acquisition of new patents and the maintenance of existing patents in 2002 compared to 2001. 8 Legal expenses increased to $479,600 in 2002 from $313,900 in 2001. Significant legal expenses have been incurred since early 2001 as a result of the arbitration proceedings and other litigation in both the United States and France between the Company and Euro-Nocopi, S.A., its former European licensee. The increase 2002 compared to 2001 results primarily from higher arbitration related expenses as the arbitration proceedings accelerated during the year. While the arbitration was scheduled to be heard by the arbitrators in December 2002, the arbitration has been suspended at the request of the parties as attorneys seek to negotiate a settlement. There can be no assurances that a settlement acceptable to both parties will be concluded. Related party expenses of $42,500 in 2001 consisted of consulting services provided by a firm employing an officer of the Company. There were no such expenses incurred in 2002. Other income (expense) includes interest income on funds invested and, in 2002, interest expense on the Demand Loans. The decline in interest income to $300 in 2002 compared to $3,400 in 2001 resulted from lower levels of cash invested. The net loss increased to $924,500 in 2002 from $828,600 in 2001. The $95,600 increase in the net loss in 2002 from the prior year resulted primarily from reductions in revenue and gross profit as the Company's business has continued to contract and higher legal fees incurred in litigation and arbitration proceedings with this former licensee. Plan of Operation, Liquidity and Capital Resources The Company's cash and cash equivalents increased to $139,000 at December 31, 2002 from $100 at December 31, 2001. During 2002, the Company sold 6,850,000 shares of its common stock to affiliated and non-affiliated individual investors for $411,000, received loans of $160,400 from three individuals, including $48,400 from the Chairman of the Board of the Company and used $432,500 to fund operations. The loss of a number of customers during the past three years and the termination of the Company's exclusive European licensee in 2000 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 will make it impossible for the Company to continue in operation as a going concern unless it receives substantial new capital investment in the immediate future. During 2002, the receipt of funds in conjunction with the sale of approximately 18% of the Company's common stock as was outstanding at December 31, 2001 and loans of $160,400 has permitted the Company to continue in operation. The Company's illiquidity has forced it to follow a policy of deferring payment to its vendors, even where such deferral has not been agreed to by the vendors. As a result, the Company's trade payables have increased to $649,200 at December 31, 2002 from $237,400 at December 31, 2001. Accordingly, the Company is currently in default of the payment terms extended by certain of its professional service providers and other vendors, some of which have suspended providing services and/or credit to the Company and may require payment in advance. Management of the Company believes that, to survive, it must obtain additional capital immediately to reduce its substantial obligations, fund continuing operating deficits and fund investment needed to increase its operating revenues to levels that will sustain its operations. If the Company fails to significantly increase its cash balances through further equity investment, for which it has no commitments and only very limited prospects, it will be forced to cease operations due to a lack of cash early in the second quarter of 2003. There can be no assurances that the Company will be able to secure additional equity investment before it is forced to cease operations. The Company, in response to the ongoing adverse liquidity situation, has maintained a cost reduction program including staff reductions, where possible, and curtailment of discretionary research and development and sales and marketing expenses. The Company plans to spend approximately $20,000 in leasehold improvements at its newly leased premises during the second quarter of 2003. 9 Uncertainties That May Affect the Company, its Operating Results 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: Inability to Continue in Operation Without Immediate New Capital Investment. The Company had a negative working capital of $994,700 at December 31, 2002 and experienced negative cash flow from operations of $432,500 in the year ended December 31, 2002. The Company currently has insufficient cash to conduct its business operations in the ordinary course without substantial regard for the effect of a contemplated activity or transaction on its liquidity. Cash received from the sale of common stock and the issuance of demand loans during 2002 have allowed the Company to continue in operation to the current date but have not been sufficient to offset the Company's ongoing cash deficits resulting in the continuing deterioration of the Company's financial condition. Management does not believe the Company can significantly improve its negative cash flow in the near future. If it does not obtain a substantial cash infusion, (through capital investment or otherwise) in the very near term, it will be forced to cease operations due to a lack of cash by early in the second quarter of 2003. It is uncertain whether the Company's assets will retain any value if the Company ceases operations. There are no assurances that the Company will be able to secure additional capital investment before it is forced to cease operations. Continuing Euro-Nocopi Litigation. The Company is currently expending sums representing a substantial portion of it revenues for professional fees and costs relating to legal disputes between the Company and its former affiliate, Euro-Nocopi, S.A. as described under the heading "Litigation". Management believes that successful resolution of the disputes between it and Euro-Nocopi is necessary for the Company to be able to license its technologies to European users. If Euro-Nocopi succeeds in asserting its rights to a paid-up European license, it will be entitled to license European end users of the Company's technologies with no payment of license fees (by Euro-Nocopi or such users) to the Company, and the Company will not be entitled to grant licenses or collect license fees from European users or to grant worldwide licenses. The Company cannot continue to pay the costs of this dispute unless it can obtain substantial new capital investment, of which there can be no assurances, and the Company will not prevail in this dispute if it cannot continue to pay such costs. Even if the Company is able to continue its dispute with Euro-Nocopi through resolution, or complete the settlement discussions currently underway, there can be no assurance that the resolution will be a successful one for the Company or that it will have a material positive effect on the financial condition of the Company. Possible Inability to Develop New Business. Even if the Company is able to raise cash through additional capital investment or otherwise, it must quickly improve its operating cash flow. Because the Company has already significantly reduced its operating expenses, Management believes that any significant improvement in the Company's cash flow must result from increases in its revenues from traditional sources and from new revenue sources. The Company's ability to develop new revenues may depend on the extent of both its marketing activities and its research and development activities. There are no assurances that the resources the Company, even with additional investment, can devote to marketing and to research and development will be sufficient to increase the Company's revenues to levels resulting in positive cash flow. Inability to Obtain Raw Materials and Products for Resale. The Company's adverse financial condition has required it to significantly defer payments due vendors who supply raw materials and other components of the Company's security inks, security paper that the Company purchases for resale and professional and other services. As a result, the Company is on credit hold with certain of its suppliers and is required to pay cash in advance of shipment to others. Delays in shipments to customers caused by the Company's inability to obtain materials on a timely basis and the possibility that certain current vendors may permanently discontinue to supply the Company with needed products could impact the Company's ability to service its customers and adversely affect its customer and licensee relationships. Management of the Company believes that, without significant capital investment in the very near term, the Company will not be able to maintain acceptable relationships with its vendors and professional service providers. There are no assurances that the Company will be able to secure sufficient capital investment to maintain its vendor accounts on satisfactory terms. 10 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 of 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. 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. 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. In addition, the Company's ability to enforce its intellectual property rights through appropriate legal action has been and will continue to be limited by the Company's adverse liquidity. 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 that infringe on the Company's rights. The Company's adverse liquidity situation has also impacted its ability to obtain patent protection on its intellectual property and to maintain protection on previously issued patents. The Company has been advised by its patent counsel that patent maintenance fees approximating $20,000 will be due during 2003. The Company has not yet made a decision on keeping any or all of these patents in force. There can be no assurances that the Company will be able to continue to prosecute new patents and maintain issued patents. As a result, the Company's customer and licensee relationships could be adversely affected and the value of the Company's technologies and intellectual property (including their value upon a liquidation of the Company) could be substantially diminished. Recently Issued Accounting Standards In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement 144"), effective in fiscal years beginning after December 15, 2001, with early adoption permitted, and in general are to be applied prospectively. Statement 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. Statement 144 superseded Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The Company adopted SFAS No. 144 effective January 1, 2002. The adoption of this standard had no effect on the Company's financial statements. The following recently issued accounting pronouncements are currently not applicable to the Company. In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction." This Statement eliminates extraordinary accounting treatment for reporting gain or loss on debt extinguishment, and amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. 11 In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This Interpretation expands the disclosures to be made by a guarantor about its obligations under certain guarantees and requires that, at the inception of a guarantee, a guarantor recognize a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements are effective immediately. The initial recognition and measurement provisions of this Interpretation are effective for guarantees issued or modified after December 31, 2002. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure - an Amendment to SFAS 123". SFAS No. 148 provides two additional transition methods for entities that adopt the preferable method of accounting for stock based compensation. Further, the statement requires disclosure of comparable information for all companies regardless of whether, when, or how an entity adopts the preferable, fair value based method of accounting. These disclosures are now required for interim periods in addition to the traditional annual disclosure. The amendments to SFAS No. 123, which provides for additional transition methods are effective for periods ending after December 15, 2002, although earlier application is permitted. The amendments to the disclosure requirements are required for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements of Registrant meeting the requirements of Regulation S-B (except section 228.310 and Article 11 of Regulation S-X thereof) are included herein beginning at page F-1 of this Annual Report on Form 10-KSB. For information required with respect to this Item 7, see "Financial Statements and Schedules on pages F-1 through F-13 of this report. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On March 23, 2002, Registrant engaged the accounting firm Cogen Sklar, LLP to audit Registrant's financial statements for the year ended December 31, 2001. The engagement of BDO Seidman, LLP which had been engaged by Registrant to audit its financial statements for prior years was not renewed. Such firm had not submitted a resignation, nor had it formally declined to stand for re-election as Registrant's auditor. This event is more fully described in 8-K and 8-K/A filings dated March 23, 2002 and April 3, 2002, respectively, which are incorporated herein by reference. PART III The information required by Part III, items 9 through 12 inclusive, of Form 10-KSB either (a) is incorporated by reference to Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders if filed by April 30, 2003 or (b) will be furnished by amendment to this Form 10-KSB to be filed by that date. 12 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) The following Financial Statements are filed as part of this Annual Report on Form 10-KSB PAGE ---- Report of Independent Certified Public Accountants F-1 Balance Sheet as of December 31, 2002 F-2 Statements of Operations for the Years ended December 31, 2002 and 2001 F-3 Statements of Stockholders' Equity (Deficiency) for the Years ended December 31, 2002 and 2001 F-4 Statements of Cash Flows for the Years ended December 31, 2002 and 2001 F-5 Notes to Financial Statements F-6 to F-13 (b) The Exhibit Index begins on Page 15 of this Annual Report on Form 10-KSB. No Current Reports on Form 8-K have been filed by the Registrant during the quarter ended December 31, 2002. ITEM 14. CONTROLS AND PROCEDURES Within 90 days prior to the filing date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures provide reasonable assurance that material information required to be included in our periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the relevant SEC rules and forms. In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. 13 SIGNATURES Pursuant to the requirements of Section 13 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. Registrant Dated: April 11, 2003 By: /s/ Michael A. Feinstein, M.D. ------------------------------------- Michael A. Feinstein, M.D. Chairman of the Board Dated: April 11, 2003 By: /s/ Rudolph A. Lutterschmidt -------------------------------------- Rudolph A. Lutterschmidt Vice President, Chief Financial Officer and Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: April 11, 2003 /s/ Michael A. Feinstein, M.D. -------------------------------- Michael A. Feinstein, M.D., Chairman of the Board Date: April 11, 2003 -------------------------------- Franco Harris, Director Date: April 11, 2003 /s/ Stanley G. Hart -------------------------------- Stanley G. Hart, Director Date: April 11, 2003 /s/ Richard Levitt -------------------------------- Richard Levitt, Director Date: April 11, 2003 /s/ Waldemar Maya, Jr. -------------------------------- Waldemar Maya, Jr., Director Date: April 11, 2003 /s/ Claude Nash -------------------------------- Claude Nash, Director Date: April 11, 2003 -------------------------------- John F. O'Brien III, Director Date: April 11, 2003 -------------------------------- Alan Rihm, Director Date: April 11, 2003 /s/ Michael Solomon ------------------------------- Michael Solomon, Director 14 The following Exhibits are filed as part of this Annual Report on Form 10-KSB: Exhibit Number Description - ------ ----------- 3.1 Articles of Incorporation (1) 3.2 Bylaws (1) 3.3 Articles of Amendment to Articles of Incorporation (3) 3.4 Article of Amendment to Articles of Incorporation (5) 3.5 Amendments to Bylaws (6) 10.1 Summary Plan Description for Nocopi Technologies, Inc. 401(k) Profit Sharing Plan (2) 10.2 Nocopi Technologies, Inc. 1996 Stock Option Plan (3) 10.3 Employment Agreement between Registrant and Dr. A. Gundjian (4) 10.4 Form of Common Stock Purchase Warrant (4) 10.5 Lease Agreement dated February 17, 1998 relating to premises at 537 Apple Street, West Conshohocken, PA 19428 (4) 10.6 Nocopi Technologies, Inc. 1999 Stock Option Plan (5) 10.7 Amended Summary Plan Description for Nocopi Technologies, Inc. 401(k) Profit Sharing Plan (5) 10.8 Director Indemnification Agreement (6) 10.9 Officer Indemnification Agreement (6) 10.10 License Agreement with Westvaco Brand Security, Inc. (7) 10.11 Amendment to Westvaco License Agreement (7) 10.12 Amendment (No. 2) to Westvaco License Agreement (7) 10.13 Stock Purchase Agreement with Westvaco Brand Security, Inc. (7) 10.14 Registration Rights Agreement with Westvaco Brand Security, Inc. (7) 10.15 Collateral Assignment of Patent Rights to Westvaco Brand Security, Inc. (7) 10.16 Escrow Agreement with Westvaco Brand Security, Inc. (7) 10.17 Amendment (No. 3) to Westvaco License Agreement 10.18 Subscription Agreement with Entrevest I Associates 10.19 Lease Agreement dated March 19, 2003 relating to premises at 9 Portland Road, West Conshohocken, PA 19428 16.1 Letter dated March 27, 2002 from BDO Seidman, LLP re: Change in Certifying Accountant (8) 99.1 Certificates of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 15 (1) Incorporated by reference to Registrant's Registration Statement on Form 10, as filed with the Commission on or about August 19, 1992 (2) Incorporated by reference to Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1993 (3) Incorporated by reference to Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1996 (4) Incorporated by reference to Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1997 (5) Incorporated by reference to Registrant's Annual Report on Form 10-KSB for the Year Ended December 31, 1998 (6) Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB for the Three Months Ended September 30, 1999 (7) Incorporated by reference to Registrant's Annual Report on Form 10-KSB for the Year Ended December 31, 2000 (8) Incorporated by reference to Registrant's Current Report on Form 8-K/A dated April 3, 2002 16 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Nocopi Technologies, Inc. West Conshohocken, Pennsylvania We have audited the accompanying balance sheet of Nocopi Technologies, Inc. as of December 31, 2002 and the related statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2002. The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nocopi Technologies, Inc. at December 31, 2002, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 11 to the financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 11. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. COGEN SKLAR, LLP Bala Cynwyd, Pennsylvania February 25, 2003 F-1 Nocopi Technologies, Inc. Balance Sheet
December 31 2002 ------------ Assets Current assets Cash and cash equivalents $139,000 Accounts receivable less $15,000 allowance for doubtful accounts 39,100 Prepaid and other 31,000 ----------- Total current assets 209,100 Fixed assets Leasehold improvements 39,500 Furniture, fixtures and equipment 476,200 ----------- 515,700 Less: accumulated depreciation and amortization 501,700 ----------- 14,000 Other assets Investment in unconsolidated affiliate - net 110,600 ----------- $333,700 =========== Liabilities and Stockholders' Deficiency Current liabilities Demand loans $160,400 Accounts payable 649,200 Accrued expenses 273,500 Deferred revenue 120,700 ----------- Total current liabilities 1,203,800 Commitments and contingencies Stockholders' deficiency Series A preferred stock $1.00 par value Authorized - 300,000 shares Issued and outstanding - none Common stock, $.01 par value Authorized - 75,000,000 shares Issued and outstanding - 45,972,241 shares 459,700 Paid-in capital 11,141,100 Accumulated deficit (12,470,900) ----------- (870,100) ----------- $333,700 ===========
The accompanying notes are an integral part of these financial statements. F-2 Nocopi Technologies, Inc. Statements of Operations
Years ended December 31 2002 2001 ------------ ------------ Revenues Licenses, royalties and fees $441,100 $498,300 Product and other sales 295,700 273,800 ----------- ----------- 736,800 772,100 ----------- ----------- Cost of sales Licenses, royalties and fees 187,700 215,800 Product and other sales 191,100 150,400 ----------- ----------- 378,800 366,200 ----------- ----------- Gross profit 358,000 405,900 ----------- ----------- Operating expenses Research and development 254,100 251,600 Sales and marketing 269,900 251,700 General and administrative (exclusive of legal expenses) 269,600 376,400 Legal expenses 479,600 313,900 Related party expenses 42,500 ----------- ----------- 1,273,200 1,236,100 ----------- ----------- Loss from operations (915,200) (830,200) ----------- ----------- Other income (expenses) Interest income 300 3,400 Interest and bank charges (9,600) (1,800) ----------- ----------- (9,300) 1,600 ----------- ----------- Net loss ($924,500) ($828,600) =========== =========== Basic and diluted loss per common share ($.02) ($.02) Weighted average common shares outstanding 42,516,686 37,386,574
The accompanying notes are an integral part of these financial statements. F-3 Nocopi Technologies, Inc. Statements of Stockholders' Equity (Deficit) For the Period January 1, 2001 through December 31, 2002
Common stock Paid-in Accumulated Shares Amount Capital Deficit ------ ------ ------- ------------ Balance - January 1, 2001 33,817,332 $338,200 $10,434,600 $(10,717,800) Sales of common stock, net of expenses 5,304,909 53,000 364,000 Net loss (828,600) -------------------------------------------------- Balance - December 31, 2001 39,122,241 391,200 10,798,600 (11,546,400) Sales of common stock 6,850,000 68,500 342,500 Net loss (924,500) -------------------------------------------------- Balance - December 31, 2002 45,972,241 $459,700 $11,141,100 ($12,470,900) =========== ======== =========== ===========
The accompanying notes are an integral part of these financial statements. F-4 Nocopi Technologies, Inc. Statements of Cash Flows
Years ended December 31 2002 2001 ------------ ------------- Operating Activities Net loss ($924,500) ($828,600) Adjustments to reconcile net loss to cash used in operating activities Depreciation 18,700 23,500 Allowance for doubtful accounts, net (6,200) (1,300) ---------- ---------- (912,000) (806,400) (Increase) decrease in assets Accounts receivable 6,700 33,700 Prepaid and other (8,300) 16,400 Increase in liabilities Accounts payable and accrued expenses 423,400 133,600 Deferred revenue 57,700 18,900 ---------- ---------- 479,500 202,600 ---------- ---------- Cash used in operating activities (432,500) (603,800) Financing Activities Issuance of common stock, net 411,000 417,000 Demand loans 160,400 ---------- ---------- Cash provided by financing activities 571,400 417,000 ---------- ---------- Increase (decrease) in cash and cash equivalents 138,900 (186,800) Cash and cash equivalents Beginning of year 100 186,900 ---------- ---------- End of year $139,000 $100 ========== ==========
The accompanying notes are an integral part of these financial statements. F-5 NOCOPI TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2002 and 2001 1. Organization of the Company Nocopi Technologies, Inc. (the Company) is organized under the laws of the State of Maryland. Its main business activities are the development and distribution of document security products and the licensing of its patented authentication technologies in the United States and foreign countries. The Company operates in one principal industry segment. 2. Significant Accounting Policies Estimates - The preparation of the financial statements in conformity with Accounting Principles Generally Accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Cash and cash equivalents - Cash equivalents consist principally of time deposits and highly liquid investments with an original maturity of three months or less placed with major banks and financial institutions. Cash equivalents are carried at the lower of cost, plus accrued interest, or market value and are held in money market accounts at a local bank. At December 31, 2002, Nocopi's investments in money market accounts amounted to $124,200. Concentration of credit risk involving cash - At December 31, 2002, the Company has deposits with a major financial institution that exceed Federal Deposit Insurance limits. This financial institution has a strong credit rating, and Management believes that credit risk related to these deposits is minimal. Fixed assets are carried at cost less accumulated depreciation and amortization. Furniture, fixtures and equipment are generally depreciated on the straight-line method over their estimated service lives. Leasehold improvements are amortized on a straight-line basis over the shorter of five years or the term of the lease. Major renovations and betterments are capitalized. Maintenance, repairs and minor items are expensed as incurred. Upon disposal, assets and related depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to income. Investment in Affiliate - The Company's investment, approximately 18%, in Euro-Nocopi, S.A. (Euro) was accounted for under the equity method through September 30, 2000 due to the technical dependence of Euro on the Company. The Company changed its method of accounting for its investment in Euro to the cost method effective October 1, 2000 and recorded the carrying value at that date as the cost of its investment. During the fourth quarter of 2000, the Company wrote down its investment in Euro by $110,000 due to the uncertainty of its recoverability. (See note 9). Patent costs are charged to expense as incurred due to the uncertainty of their recoverability as a result of the Company's adverse liquidity situation. F-6 Revenues, consisting primarily of license fees and royalties, are recorded as earned over the license term. Product sales are recognized upon shipment of products. Income taxes - Deferred income taxes are provided for all temporary differences and net operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Fair value - The carrying amounts reflected in the balance sheets for cash, cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short maturities of these instruments. The fair values represent estimates of possible value that may not be realized in the future. The carrying value of the Demand Loans approximates the fair market value since the interest rate associated with the debt approximates the current market interest rate. Loss per share - The Company follows Statement of Financial Accounting Standards No. 128, "Earnings Per Share" resulting in the presentation of basic and diluted earnings per share. Because the Company reported a net loss in 2002 and 2001, common stock equivalents, including stock options and warrants were anti-dilutive. Comprehensive income (loss) - The Company follows Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". Since the Company has no items of comprehensive income (loss), Comprehensive income (loss) is equal to net income (loss). Recently Issued Accounting Standards In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement 144"), effective in fiscal years beginning after December 15, 2001, with early adoption permitted, and in general are to be applied prospectively. Statement 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. Statement 144 superseded Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The adoption of this standard had no effect on the Company's financial statements. The following recently issued accounting pronouncements are currently not applicable to the Company. In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction." This Statement eliminates extraordinary accounting treatment for reporting gain or loss on debt extinguishment, and amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. F-7 In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This Interpretation expands the disclosures to be made by a guarantor about its obligations under certain guarantees and requires that, at the inception of a guarantee, a guarantor recognize a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements are effective immediately. The initial recognition and measurement provisions of this Interpretation are effective for guarantees issued or modified after December 31, 2002. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure - an Amendment to SFAS 123". SFAS No. 148 provides two additional transition methods for entities that adopt the preferable method of accounting for stock based compensation. Further, the statement requires disclosure of comparable information for all companies regardless of whether, when, or how an entity adopts the preferable, fair value based method of accounting. These disclosures are now required for interim periods in addition to the traditional annual disclosure. The amendments to SFAS No. 123, which provides for additional transition methods are effective for periods ending after December 15, 2002, although earlier application is permitted. The amendments to the disclosure requirements are required for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. 3. Demand Loans During 2002, the Company received unsecured loans from three individuals, including $48,400 from the Company's Chairman of the Board, totaling $160,400. The loans bear interest at seven per cent per year and are payable on demand. The loans were used to finance the Company's working capital requirements. 4. Stockholders' Equity During January 2002, the Company sold 2,316,667 shares of its common stock to investors, including affiliates of the Company, for $139,000. In May 2002, the Company sold 1,200,000 shares of its common stock to non-affiliated investors for $72,000. One of the individuals who invested in May 2002 was later appointed to the Company's Board of Directors in late May 2002. In mid-November, 2002, the Company entered into a subscription agreement with a partnership composed of Michael Solomon, a director of the Company, and three other persons pursuant to which the partnership agreed to acquire, in return for a subscription payment of $200,000, a total of 3,333,333 shares of the Company's common stock, together with warrants to purchase an additional 40,000,000 shares of common stock in the aggregate at exercise prices ranging from $0.10 to $0.25 per share, during various periods through year-end 2003 through year-end 2006, subject to partial rollover and extension. The warrants are subject to the negotiation and agreement of the Company and the investors on the definitive terms thereof and also to the approval by the Company's common stockholders of an amendment to the Company's charter to increase its authorized capital to a number of shares sufficient to permit exercise of the warrants. This transaction was approved by the Company's board of directors with Mr. Solomon abstaining. The Company received the partnership's $200,000 subscription payment in early December 2002. F-8 5. Income Taxes At December 31, 2002, the Company had net operating loss carryforwards ("NOL's") approximating $12,000,000. These operating losses are available to offset future taxable income through the year 2022. As a result of the sale of the Company's common stock in an equity offering in late 1997 and the issuance of additional shares, the amount of the NOL's carryforwards may be limited. Additionally, the utilization of these NOL's if available, to reduce the future income taxes will depend on the generation of sufficient taxable income prior to their expiration. There were no temporary differences for the years ended December 31, 2002 and 2001. The Company has established a 100% valuation allowance of approximately $4,900,000 at December 31, 2002 for the deferred tax assets due to the uncertainty of their realization. 6. Related Party Transactions Expenses aggregating $42,500 in 2001 were incurred by the Company for consulting services provided by a firm employing an officer of the Company. There were no such expenses incurred in 2002. 7. Commitments and Contingencies The Company conducts its operations in leased facilities and leases equipment under non-cancelable operating leases expiring at various dates to 2008. Future minimum lease payments under non-cancelable operating leases with initial or remaining terms of one year or more at December 31, 2002 are: $43,700 - 2003; $34,800 - 2004; $36,100 - 2005; $37,600 - 2006 and $39,100 - 2007. Total rental expense under operating leases was $104,500 and $103,600 in 2002 and 2001, respectively. The Company had a consulting agreement with a former executive officer and director, the term of which expired at December 31, 2002. The Board of Directors of the Company, in mid-2000, suspended cash payments to the consultant as a potential offset to certain payments made to the consultant by a licensee of the Company. All other provisions of the agreement remained in force throughout the term of the agreement. At December 31, 2002, unpaid consulting fees totaling $166,300 were included in Accrued Expenses on the Balance Sheet. From time to time, the Company may be subject to legal proceedings and claims that arise in the ordinary course of its business. During late 2000 and early 2001, as described in Note 9, several legal and arbitration proceedings were commenced by the Company's former European exclusive licensee and certain of its shareholders against the Company, certain former and present directors of the Company and against a licensee of the Company. 8. Stock Options and 401(k) Savings Plan The 1996 and 1999 Stock Option Plans provide for the granting of up to 2,700,000 incentive and non-qualified stock options to employees, non-employee directors, consultants and advisors to the Company. In the case of options designated as incentive stock options, the exercise price of the options granted must be not less than the fair market value of such shares on the date of grant. Non-qualified stock options may be granted at any amount established by the Stock Option Committee or, in the case of Discounted Options issued to non-employee directors in lieu of any portion of an Annual Retainer, in accordance with a formula designated in the Plan. F-9 A summary of stock options under the Company's stock option plans follows:
Exercise Weighted Number of Price Range Average Shares Per Share Exercise Price --------- -------------- --------------- Outstanding at December 31, 2000 647,000 $.30 to $4.35 $.45 Options canceled during 2001 (122,000) .30 to 4.35 .83 -------- ------------- ----- Outstanding at December 31, 2001 and 2002 525,000 $.30 and $.45 $.36 ======== ============= ===== Exercise Weighted Option Price Range Average Shares Per Share Exercise Price ---------- --------------- --------------- Exercisable at year end: 2001and 2002 525,000 $.30 and $.45 $.36 Options available for future grant under all plans: 2001 and 2002 2,175,000
The following table summarizes information about stock options outstanding at December 31, 2002: Range of exercise prices $.30 to $.45 ------------ Number outstanding at December 31, 2002 525,000 ------- Weighted average remaining contractual life (years) 3.09 ---- Weighted average exercise price $.36 ---- Exercisable options: Number outstanding at December 31, 2002 525,000 ------- Weighted average remaining Contractual life (years) 3.09 ---- Weighted average exercise price $.36 ---- F-10 No options were granted in 2002 or 2001. The Company continues to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation costs for shares issued under performance share plans are recorded based upon the current market value of the Company's stock at the end of each period. The Company has adopted the disclosure-only provisions of Statement of Financial accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation" for employees and employee-directors as defined in SFAS No. 123. Compensation costs for grants to employees and directors would be determined based on the fair value at the date of grant in accordance with SFAS No. 123 and would be amortized over the vesting period of the option, which is generally two years. Had compensation cost for the Company's stock option grants to employees and employee-directors been determined based on the fair value at the date of grants in accordance with the provisions of SFAS No. 123, the Company would have amortized the cost over the vesting period of the option. There was no pro forma effect on the Company's net loss or the net loss per share applicable to common shares for 2002 and 2001, since no options were granted during these periods. At December 31, 2002, the Company has reserved 2,700,000 shares of common stock for possible future issuance upon exercise of stock options. The Company sponsors a 401(k) savings plan, covering substantially all employees, providing for employee and employer contributions. Employer contributions are made at the discretion of the Company. There were no contributions charged to expense during 2002 or 2001. 9. Affiliate The Company organized Euro-Nocopi, S.A. (Euro) in 1994 to market the Company's technologies in Europe under an exclusive license arrangement. Euro was capitalized through a European private placement. The Company holds an approximately 18% interest in Euro. During 2000, there arose between Euro and the Company a number of areas of conflict and dispute, leading each party to the licensing arrangement to assert informally that the other was in breach of its obligations under that arrangement. The parties initially sought to resolve their differences by negotiating a transaction in which Euro would have purchased from the Company its entire equity interest as well as the paid-up European rights to the Company's technologies. These negotiations terminated without agreement early in December 2000. Following the termination of the transaction negotiations, the Company was informed by Euro that it had adopted resolutions to liquidate and dissolve. In mid-December 2000, the Company terminated its license agreement with Euro in accordance with its terms and discontinued the provision of support (including the sale of proprietary inks) to Euro and its customers. As a result of the license termination the technological dependency of Euro on the Company ceased and the Company was no longer permitted to account for its investment in Euro on the equity method. Accordingly, the Company, effective October 1, 2000, changed its method of accounting for its investment in Euro to the cost method and recorded the carrying value at that date as the cost of its investment. During the fourth quarter of 2000, the Company wrote down its investment in Euro by $110,000 due to the uncertainty of its recoverability and recorded a charge of $68,600 resulting from the transfer of foreign currency translation adjustments to net income. F-11 Euro responded to the license termination by denying that the Company's action was permissible, or effective, and by asserting a claim that, as a result of alleged breaches of the licensing agreement by the Company, it was entitled to a royalty-free license to exploit the Company's technologies in Europe. Promptly thereafter, Euro commenced an action before a court in Paris, France in which it sought the entry of an order, in the nature of a preliminary injunction, to compel the Company to honor the license agreement pending judicial or arbitral resolution of the dispute between the parties under the license agreement. In the French litigation, Euro did not seek an adjudication on the merits of the underlying dispute. Certain shareholders of Euro subsequently joined in the proceedings commenced by Euro. In March 2001, the Emergency Judge hearing the action issued a decision denying the relief requested by Euro and the shareholders. The decision, which does not purport to be a final adjudication of the merits of the controversy but only of Euro's request for preliminary relief, held that Euro was not entitled to the requested order because the Company had validly terminated the licensing arrangement in mid-December, and also ordered Euro to pay into escrow the approximately $125,000 that the Company claimed was due and owing under the licensing arrangement. In March 2001, Euro commenced an arbitration proceeding before the American Arbitration Association in New York, NY against the Company. In this proceeding, Euro has not asserted a claim for damages but has asserted a claim for an award in the nature of a declaratory judgment to the effect that, because the Company has (allegedly) breached the license agreement, Euro is entitled to a royalty-free license to exploit the Company's technologies in Europe. The Company has filed a response denying that Euro is entitled to the relief requested, asserting that it has validly terminated Euro's license agreement, and seeking damages for Euro's breaches of the licensing agreement. The parties are currently engaged in discussions relating to the settlement of the arbitration, and all related matters, and the arbitration hearing on the merits has been postponed pending such discussions. In March 2001 certain shareholders of Euro filed suit in a court in Paris, France against certain current and former officers and directors of the Company and against a licensee of the Company. The Company is not named as a defendant in the suit. The suit seeks damages in excess of $7 million from the defendants for various alleged acts of oppression, self-dealing and fraud in connection with the organization and capitalization of Euro, the management of that company and the Company's management of its relationship with that company. The defendants have denied any liability to the plaintiffs and have sought indemnification from the Company in connection with the lawsuit. The Company has advanced certain costs of defense for the benefit of the named defendants. 10. Major Customer Information The Company's largest non-affiliate customers accounted for approximately 16% of revenues in both 2002 and 2001 and 34% of accounts receivable at December 31, 2002. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company also maintains allowances for potential credit losses. F-12 11. Going Concern Since its inception, the Company has incurred significant losses and, as of December 31, 2002, had accumulated losses of $12,470,900. For the years ended December 31, 2002 and 2001, the Company's net losses were $924,500 and $828,600, respectively. In addition, the Company had negative working capital of $994,700 at December 31, 2002 and experienced negative cash flow from operations of $432,500 and $603,800, respectively, for the years ended December 31, 2002 and 2001. 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 gross profits to achieve and sustain profitability and positive cash flow in the future. During 2002, the Company sold 6,850,000 shares of its common stock to affiliated and non-affiliated individual investors for $411,000, received loans of $160,400 from three individuals, including $48,400 from the Chairman of the Board of the Company and used $432,500 to fund operations. The reciept of these funds has permitted the Company to continue in operation to the current date. Management of the Company believes that, to survive, it must obtain additional capital immediately both to fund continuing operating deficits and to fund investments needed to increase its operating revenues to levels that will sustain its operations. There can be no assurances that the Company will be successful in obtaining sufficient additional capital, or if it does, that the additional capital will enable the Company to improve its business so as to have a material positive effect on the Company's operations and cash flow. The Company believes that without substantial immediate investment, it will be forced to cease operations early in the second quarter of 2003. Further, the Company requires investment to fund the ongoing arbitration with Euro-Nocopi, S.A. There are no assurances that, even if funding, for which the Company has no commitments and only limited prospects, is arranged, the Company will prevail in the arbitration. The Company's independent certified public accountants have included a "going concern" explanatory paragraph in their audit report accompanying the 2002 financial statements. The paragraph states that the Company's recurring losses from operations raise substantial doubt about the Company's ability to continue as a going concern and cautions that the financial statements do not include any adjustments that might result from the outcome of this uncertainty. F-13 EX-10 3 ex10-17.txt EXHIBIT 10.17 Exhibit 10.17 September 10th, 2002 Westvaco Brand Security One High Ridge Park Stamford, CT 06905 Attn: Jim Reiman Dear Mr. Reiman: As discussed with both yourself and Jay Parker, NoCopi is pleased to offer the following terms for the extension of your license agreement for NoCopi Security Technologies. With this addendum, both Westvaco Brand Security and NoCopi Technologies, Inc. agree to the following: 1. Extend the current agreement through 12/31/2004 (16 months additional time after current termination date) 2. In exchange for this extension of termination date, Westvaco Brand Security is to pay NoCopi Technologies, Inc. $35,000 as a prepayment for this extension. 3. Westvaco Brand Security to pay NoCopi Technologies, Inc. an additional $35,000 when either of the following occur (which ever occurs first): a. Westvaco Brand Security will pay NoCopi Technologies, Inc. an additional $35,000 upon payment from customer(s) when NoCopi technology revenue to Westvaco Brand Security exceeds $70,000. b. If 'a' above has not occurred by 9/1/03, Westvaco Brand Security will pay NoCopi Technologies, Inc. the additional $35,000. Agreed to this date _______________________________ _________________________________ __________________________________ Westvaco Brand Security NoCopi Technologies, Inc. EX-10 4 ex10-18.txt EXHIBIT 10.18 Exhibit 10.18 SUBSCRIPTION AGREEMENT ---------------------- The purpose of this Subscription Agreement is to set forth the terms and conditions whereby a Pennsylvania general partnership consisting of Randy Ayoob, Maury B. Reiter, Alan Rihm and Michael Solomon ("Associates") will make an investment in Nocopi, Inc. ("Nocopi"). It is the parties' intention to be legally bound by the terms hereof upon its execution by Associates and Nocopi. Specifically, the parties, intending to be legally bound, agree as follows: 1. Associates will acquire three million three hundred thousand three hundred thirty-three (3,333,333) shares of the fully paid non-assessable common stock of Nocopi (par value $.01) at $.06 per share, for a total investment of $200,000.00 (the initial shares and any after acquired shares are referred to as the "Shares"). Upon issuance of the initial Shares, the total outstanding shares of common stock will be 45,972,241, with an additional 29,027,759 remaining authorized but unissued shares. 2. Associates will invest the sum of Two Hundred Thousand Dollars ($200,000.00) in Nocopi in consideration of issuance of the initial Shares. The investment will be utilized for working capital and other normal course of business expenses. The proceeds shall not be directly used to retire, in whole or in part, nor pay interest on, any existing indebtedness of Nocopi to Michael Feinstein or Ross Campbell and Kathleen E. Patrick for advances made by such persons prior to the date hereof. In addition, Nocopi shall not pay its executives compensation beyond the level of compensation being paid as of October 1, 2002, until such time as Nocopi has attained breakeven after allowing for the additional executive compensation. 3. Associates will also have the right to acquire up to forty million (40,000,000) additional Shares of the common capital stock in Nocopi (the "Future Shares"). Inasmuch Nocopi has insufficient shares authorized to allow the issuance of the Future Shares, Nocopi shall obtain the approval of the current members of the Board of Directors to authorize additional shares. Further, Nocopi will use its best efforts to obtain shareholder approval for the authorization of the additional shares as soon as practicable. The Future Shares will be subject to acquisition by Associates based on the following schedule and pricing: Exercise Date No. of Future Shares Price ------------- -------------------- ----- On or before : 12/31/03 10,000,000 $.10 per share 12/31/04 10,000,000 $.15 per share 12/31/05 10,000,000 $.20 per share 12/31/06 10,000,000 $.25 per share 4. In the event Associates does not exercise the right to purchase any installment of the Future Shares in accordance with the timeframes set forth above, Associates will have the right to roll-over twenty-five percent (25%) of the Future Shares to the next period and to continue rolling over twenty-five percent (25%) of the then-available unexercised Future Shares at the end of any period to the subsequent period at the price prescribed for said subsequent period. By way of illustration, if on or before 12/31/03 Associates only acquires 6,000,000 of Future Shares for $.10 per share, Associates can rollover 2,500,000 of the remaining 4,000,000 Future Share rights to the following periods (the other 1,500,000 Future Share rights are thereafter no longer available to Associates). Therefore, Associates can acquire 12,500,000 of Future Shares in the next period for $.15 per share, or rollover 3,125,000 (i.e., 25%) to subsequent periods. 5. In addition, Associates shall have the right to accelerate the purchase of any of the Future Shares at any time provided that the purchase price for said Future Shares shall be at the stated price set forth above. Thus, by way of illustration, if on 12/31/05 Associates wanted to purchase the full 20,000,000 of remaining Future Shares (assuming there were then no rollover rights), the purchase price would be $.20 for 10,000,000 of the Future Shares, and $.25 for the other 10,000,000 of Future Shares. 6. Until 12/31/06, and for so long as Associates shall not have sold or transferred any of the securities hereby subscribed for, it shall have the right to designate a person for nomination and election to Nocopi's board of directors. During such period, Nocopi's board (1) shall nominate the designated person and support such person's election in any vote of its stockholders for the board of directors, and (2) shall not take any action to increase the size of its board of directors without the consent of Associates. 7. Alan Rihm shall be retained on a regular but half-time basis for a period of six (6) months from the date immediately following the investment by Associates hereunder to consult with the Company and assist in sales and marketing. In consideration, Alan Rihm shall be paid Six Thousand Dollars ($6,000.00) per month during this consulting engagement. The foregoing notwithstanding, Rihm (but not Nocopi)shall have the right at any time after the initial three (3) months to terminate the consulting engagement upon at least 10 days' written notice to Nocopi. The parties may mutually agree to extend the engagement. In addition, Nocopi recognizes that the other members of Associates are available for periodic consultations regarding the management and operations of Nocopi, as may be agreed between them. 8. Associates' rights with respect to the Future Shares under Sections 3, 4 and 5 above shall be subject to, in addition to the shareholder approval referred to in Section 3, the parties' negotiation of, and agreement on, the terms and conditions of customary common stock purchase warrants, which warrants shall contain standard anti-dilution adjustments for the number of Future Shares. 9. The parties agree that Associates will make the total investment within one (1) week of receipt by Associates of a fully signed copy of this Agreement. Upon such investment, Nocopi shall issue Associates the initial Shares, along with a copy of its resolutions confirming the authorization of Nocopi to enter into this Agreement. 10. Associates represents and warrants that (a) each of its members is an accredited investor and has such knowledge of securities and investments, including access to all public information concerning Nocopi, as to be able, with assistance, to evaluate the risks and merits of making the investment contemplated hereby, and (b) it is purchasing the securities for its own account and has no present agreement, arrangement or understanding to sell the securities to another person. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed the 22nd day of November, 2002. NOCOPI, INC. By:/s/ Michael Feinstein, M.D. --------------------------------- Title: Chairman ASSOCIATES /s/ Randy Ayoob --------------------------------- Randy Ayoob /s/ Maury B. Reiter --------------------------------- Maury B. Reiter /s/ Alan Rihm --------------------------------- Alan Rihm /s/ Michael Solomon --------------------------------- Michael Solomon EX-10 5 ex10-19.txt EXHIBIT 10.19 Exhibit 10.19 LEASE AGREEMENT This Agreement, Made the 19th day of March Two Thousand and Three (2003), by and between 9 Portland Partners (hereinafter called Lessor), of the one part, and Nocopi Technologies, Inc. (hereinafter called Lessee), of the other part. Witnesseth that: Lessor does hereby demise and let unto Lessee all that certain 5000 square feet industrial space also known as Unit "C", having the measurements of approx. 50 ft x 100 ft. and containing a tailgate and drive-in load doors. The premises is situate at 9 Portland Road, West Conshohocken, PA 19428, in the Borough of West Conshohocken (See Exhibit "A") in the County of Montgomery State of Pennsylvania, to be used and occupied as office, warehouse, and distribution and blending of water soluble inks and for no other purpose, for the term of Five (5) years beginning the first day of April, Two Thousand and Three (2003), and ending the Thirty-first of March, Two Thousand and Eight (2008), for the minimum total rental of One Hundred and Eighty Two Thousand Eight Hundred and One (Dollars) ($182,801.00), lawful money of the United States of America, payable in monthly installments in advance during the same term of this lease, or any renewal hereof, in sums of - - - - - - - - - - -SEE PARAGRAPHS 30 & 31 OF ADDENDUM - - - - - - - - - - - - Dollars ($__________) on the _________________ day of each month, rent to begin from the _______________ day of _______________, _____, the first installment to be paid at the time of signing this lease. Addendum to Lease Agreement and Exhibits "A" & "B" are attached hereto and made a part hereof. If Lessor is unable to give Lessee possession of the demised premises, as herein provided, by reason of the holding over of a previous occupant, or by reason of any cause beyond the control of the Lessor, the Lessor shall not be liable in damages to the Lessee therefore, and during the period that the Lessor is unable to give possession, all rights and remedies of both parties hereunder shall be suspended. (a) Lessee agrees to pay as rent in addition to the minimum rental herein reserved any and all sums which may become due by reason of the failure of Lessee to comply with all the covenants of this lease and pay any and all damages, costs and expenses which the Lessor may suffer or incur by reason of any default of the Lessee or failure on his part to comply with the covenants of this Lease, and each of them, and also any and all damages of the demised premises caused by any act or neglect of the Lessee. (b) Lessee further agrees to pay as rent in addition to the minimum rental herein reserved all taxes assessed or imposed upon the demised premises and/or the building of which the demised premises is a part during the term of this lease, [in excess of and over and above those assessed or imposed at the time of making this lease.] The amount due hereunder on account of such taxes shall be apportioned for that part of the first and last calendar years covered by the term hereof. [The same shall be paid by Lessee to Lessor on or before the first day of July of each and every year.] (c) Lessee further agrees to pay to Lessor as additional rent all increase or increases in fire insurance premiums upon the demised premises and/or the building of which the demised premises is a part, due to an increase in the rate of fire insurance in excess of the rate on the demised premises at the time of making this lease, if said increase is caused by any act or neglect of the Lessee or the nature of the Lessee's business. (d) Lessee further agrees to pay as additional rent, if there is a metered water connection to the said premises, all charges for water consumed upon the demised premises in excess of the yearly minimum meter charge and all charges for repairs to the said meter or meters on the premises, whether such repairs are made necessary by ordinary wear and tear, freezing, hot water, accident or other causes, immediately when the same become due. (e) Lessee further agrees to pay as additional rent, if there is a metered water connection to said premises, all sewer rental or charges for use of sewers, sewage system, and sewage treatment works servicing the demised premises in excess of the yearly minimum of such sewer charges, immediately when the same become due. All rents shall be payable without prior notice or demand at the office of the Lessee in 1926 Stone Ridge Lane, Villanova, PA 19085 or at such other place as Lessor may from time to time designate by notice in writing. Lessee covenants and agrees that he will without demand (a) Pay the rent and all other charges herein reserved as rent on the days and times and at the place that the same are made payable, without fail, and if Lessor shall at any time or times accept said rent or rent charges after the same shall have become due and payable, such acceptance shall not excuse delay upon subsequent occasions, or constitute or be construed as a waiver of any of Lessor's rights. Lessee agrees that any charge or payment herein reserved, included or agreed to be treated or collected as rent and/or any other charges or taxes, expenses, or costs herein agreed to be paid by the Lessee may be proceeded for and recovered by the Lessor by distraint or other process in the same manner as rent due and in arrears. (b) Keep the demised premises clean and free from all ashes, dirt and other refuse matter; replace all glass windows, doors, etc., broken; keep all waste and drain pipes open, repair all damage to plumbing and to the premises in general; keep the same in good order and repair as they now are, reasonably wear and tear and damage by accidental fire or other casualty not occurring through negligence of Lessee or those employed by or acting for Lessee alone excepted. The Lessee agrees to surrender the demised premises in the same condition in which Lessee has herein agreed to keep the same during the continuance of this Lease. (c) Comply with any requirements of any of the constituted public authorities, and with the terms of any State or Federal statute or local ordinance or regulation applicable to Lessee or his use of the demised premises, and save Lessor harmless from penalties, fines, costs or damages resulting from failure to do so. (d) Use every reasonable precaution against fire. (e) Comply with rules and regulations of Lessor promulgated as hereinafter defined. (f) Peaceably deliver up and surrender possession of the demised premises to the Lessor at the expiration or sooner termination of this lease, promptly delivering to Lessor at his office all keys for the demised premises. (g) Give to Lessor prompt written notice of any accident, fire, or damage occurring on or to the demised premises. [(h) Lessee shall be responsible for the condition of the pavement, curb, cellar doors, awnings and other erections in the pavement during the term of this lease; shall keep the pavement free from snow and ice; and shall be and hereby agrees that Lessee is solely liable for any accidents, due or alleged to be due to their defective condition, or to any accumulations of snow and ice.] (i) The Lessee agrees that if, with the permission in writing of Lessor, Lessee shall vacate or decide at any time during the term of this lease, or any renewal thereof, to vacate the herein demised premises prior to the expiration of this lease, or any renewal hereof, Lessee will not cause or allow any other agent to represent Lessee in any sub-letting or reletting of the demised premises other than an agent approved by the Lessor ___________________________ ____________________________________ and that should Lessee do so or attempt to do so, the Lessor ______________________________________________ may remove any signs that may be placed on or about the demised premises by such other agent without any liability to Lessor or to said agent, the Lessee assuming all responsibility for such action. Lessee covenants and agrees that he will do none of the following things without the consent in writing of the Lessor first hand and obtained: (a) Occupy the demised premises in any other manner or for any other purpose than as set forth above. (b) Assign, mortgage or pledge this lease or under-let or sub-lease the demised premises, or any part thereof, or permit any other person, firm or corporation to occupy the demised premises, or any part thereof; nor shall any assignee or sub-lessee assign, mortgage or pledge this lease or such sub-lease, without an additional written consent by the Lessor, and without such consent no such assignment, mortgage or pledge shall be valid. If the Lessee becomes embarrassed or insolvent, or makes an assignment for the benefit of creditors, or if a petition in bankruptcy is filed by or against the Lessee or a bill in equity or other proceeding for the appointment of a receiver for the Lessee is filed, or if the real or personal property of the Lessee shall be sold or levied upon any Sheriff, Marshall or Constable, the same shall be a violation of this covenant. (c) Place or allow to be placed any stand, booth, sign or show case upon the doorsteps, vestibules or outside walls or pavements of said premises, or paint, place, erect or cause to be painted, placed or erected any sign, projection or device on or in any part of the premises. Lessee shall remove any sign, projection or device painted, placed or erected, if permission has been granted and restore the walls, etc., to their former conditions, at or prior to the expiration of this lease. In case of the breach of this covenant (in addition to all other remedies given to Lessor in case of breach of any conditions or covenants of this lease) Lessor shall have the privilege of removing said stand, booth, sign, show case, projection or device, and restoring said walls, etc., to their former condition, and Lessee, at Lessor's option, shall be liable to Lessor for any and all expenses so incurred by Lessor. (d) Make any alterations, improvements, or additions to the demised premises. All alterations, improvements, additions or fixtures, whether installed before or after the execution of this lease, shall remain upon the premises at the expiration or sooner determination of this lease and become the property of Lessor, unless Lessor shall, prior to the determination of this lease, have given written notice to Lessee to remove the same, in which event Lessee will remove such alterations, improvements and additions and restore the premises to the same good order and condition in which they now are. Should Lessee fail so to do, Lessor may do so, collecting, at Lessor's option, the cost and expense thereof from Lessee as additional rent. (e) Use or operate any machinery that, in Lessor's opinion, is harmful to the building or disturbing to other tenants occupying other parts thereof. (f) Place any weights in any portion of the demised premises beyond the safe carrying capacity of the structure. (g) Do or suffer to be done, any act, matter or thing objectionable to the fire insurance companies whereby the fire insurance or any other insurance now in force or hereafter to be placed on the demised premises, or any part thereof, or on the building of which the demised premises may be a part, shall become void or suspended, or whereby the same shall be rated as a more hazardous risk than at the date of execution of this lease, or employ any person or persons objectionable to the fire insurance companies or carry or have any benzene or explosive matter of any kind in and about the demised premises. In case of a breach of this covenant (in addition to all other remedies given to Lessor in case of the breach of any of the conditions or covenants of this lease) Lessee agrees to pay to Lessor as additional rent any and all increase or increases of premiums on insurance carried by Lessor on the demised premises, or any part thereof, or on the building of which the demised premises may be a part, caused in any way by the occupancy of Lessee. (h) Remove, attempt to remove or manifest an intention to remove Lessee's goods or property from or out of the demised premises otherwise that in the ordinary and usual course of business, without having first paid and satisfied Lessor for all rent which may become due during the entire term of this lease. (i) Vacate or desert said premises during the term of this lease, or permit the same to be empty and unoccupied. Lessee covenants and agrees that Lessor shall have the right to do the following things and matters in and about the demised premises. (a) At all reasonable times by himself or his duly authorized agents to go upon and inspect the demised premises and every part thereof, and/or at his option to maker repairs, alterations and additions to the demised premises or the building of which the demised premises is a part. (b) At any time or times and from time to time to make such rules and regulations as in his judgment may from time to time be necessary for the safety, care and cleanliness of the premises, and for the preservation of good order therein. Such rules and regulations shall, when noticed thereof is given to Lessee, form a part of this lease. (c) To display a "For Sale" sign at any time, and also, after notice from either party of intention to determine this lease, or at any time within three months prior to the expiration of this lease, a "For Rent" sign, or both "For Rent" and "For Sale" signs; and all of said signs shall be placed upon such part of the premises as Lessor may elect any may contain such matter as Lessor shall require. Prospective purchasers or tenants authorized by Lessor may inspect the premises at reasonable hours at any time. (d) The Lessor may discontinue all facilities furnished and services rendered, or any of them, by Lessor, not expressly covenanted for herein, it being understood that they constitute no part of the consideration for this lease. (a) Lessee agrees to be responsible for and to relieve and hereby relieves the Lessor from all liability by reason of any injury or damage to any person or property in the demised premises, whether belonging to the Lessee or any other person, caused by any fire, breakage or leakage in any part or portion of the demised premises, or any part or portion of the building of which the demised premises is a part, or from water, rain or snow that may leak into, issue or flow from any part of the said premises, or of the building of which the demised premises is a part, or from the drains, pipes, or plumbing work of the same or from any place or quarter, whether such breakage, leakage, injury or damage be caused by or result from the negligence of Lessor or his servants or agents or any person or persons whatsoever. (b) Lessee also agrees to be responsible for and to relieve and hereby relieves Lessor from all liability by reason of any damage or injury to any person or thing which may arise from or be due to the use, misuse or abuse of all or any of the elevators, hatches, openings, stairways, hallways, of any kind whatsoever on the said premises or the building of which may exist or hereafter be erected or constructed on the said premises, or from any kind of injury which may arise from any other cause whatsoever on the said premises or the building of which the demised premises is a part, whether such damage, injury, use, misuse or abuse be caused by or, result from the negligence of Lessor, his servants or agents or any other person or persons whatsoever. (a) In the event that the demised premises is totally destroyed or so damaged by fire or other casualty not occurring through fault or negligence of the Lessee or those employed by or acting for him, that the same cannot be repaired or restored within a reasonable time, this lease shall absolutely cease and determine, and the rent shall abate for the balance of the term. (b) If the damage caused as above be only partial and such that the premises can be restored to their then condition within a reasonable time, the Lessor may, at his option, restore the same with reasonable promptness, reserving the right to enter upon the demised premises for that purpose. The Lessor also reserves the right to enter upon the demised premises whenever necessary to repair damage caused by fire or other casualty to the building of which the demised premises is a part, even through the effect of such entry be to render the demised premises or a part thereof untenantable. In either event, the shall be apportioned and suspended during the time the Lessor is in possession, taking into account the proportion of the demised premises rendered untenantable and the duration of the Lessor's possession. If a dispute arises as to the amount of rent due under this clause, Lessee agrees to pay the full amount claimed by Lessor. Lessee shall, however, have the right to proceed by law to recover the excess payment, if any. (c) Lessor shall make such election to repair the premises or terminate this lease by giving notice thereof to Lessee at the leased premises within thirty days from the day Lessor received notice that the demised premises had been destroyed or damaged by fire or other casualty. (d) Lessor shall not be liable for any damage, compensation or claim by reason of inconvenience or annoyance arising from the necessity of repairing any portion of the building, the interruption in the use of the premises, or the termination of this lease by reason of the destruction of the premises. (e) The Lessor has left the demised premises in their present condition and without any representations on the part of the Lessor, his officers, employees, servants and/or agents. It is understood and agreed that Lessor is under no duty to make repairs or alterations at the time of letting or at any time thereafter. (f) It is understood and agreed that the Lessor hereof does not warrant or undertake that the Lessee shall be able to obtain a permit under any Zoning Ordinance or Regulation for such use as Lessee intends to make of the said premises, and nothing in this lease contained shall obligate the Lessor to assist Lessee in obtaining said permits; the Lessee further agrees that in the event a permit cannot be obtained by Lessee under any Zoning Ordinance or Regulation, this lease shall not terminate without Lessor's consent, and the Lessee shall use the premises only in a manner permitted under such Zoning Ordinance or Regulation. (a) No contract entered into or that may be subsequently entered into by Lessor with Lessee, relative to any alterations, additions, improvements or repairs, nor the failure of Lessor to make such alterations, additions, improvements or repairs as required by any such contract, nor the making by Lessor or his agents or contractors of such alterations, additions, improvements or repairs shall in any way affect the payment of the rent or said other charges at the time specified in this lease. (b) It is hereby expressly agreed and understood that the said Geis Realty Group, Inc. is acting as agent only and shall not in any event be held liable to the owner or to Lessee for the fulfillment or non-fulfillment of any of the terms or conditions of this lease, or for any action or proceedings that may be taken by the owner against Lessee, or by Lessee against the owner. (c) It is hereby covenanted and agreed, any law, usage or custom to the contrary notwithstanding, that Lessor shall have the right at all times to enforce the covenants and provisions of this lease in strict accordance with the terms hereof, notwithstanding any conduct or custom on the part of the Lessor in refraining from so doing at any time or times; and, further, that the failure of Lessor at any time or times to enforce his rights under said covenants and provisions strictly in accordance with the same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions and covenants of this lease or as having in any way or manner modified the same. (d) This lease is granted upon the express condition that Lessee and/or the occupants of the premises herein leased, shall not conduct themselves in a manner which the Lessor in his sole opinion may deem improper or objectionable, Lessee shall be taken to have broken the covenants and conditions of this lease, and Lessor will be entitled to all of the rights and remedies granted and reserved herein for the Lessee's failure to observe any of the covenants and conditions of this lease. (e) In the event of the failure of Lessee promptly to perform the covenants of Section 8(b) hereof, Lessor may go upon the demised premises and perform such covenants, the cost thereof, at the sole option of Lessor, to be charged to Lessee as additional and delinquent rent. If the Lessee: (a) Does not pay in full when due any and all installments of rent and/or any other charge or payment herein reserved, included, or agreed to be treated or collected as rent and/or any other charge, expense, or cost herein agreed to be paid by the Lessee, or (b) Violates or fails to perform or otherwise breaks any covenant or agreement herein contained; or (c) Vacates the demised premises or removes or attempts to remove or manifests an intention to remove any goods or property there from otherwise than in the ordinary and usual course of business without having first paid and satisfied the Lessor in full for all rent and other charges then due or that may thereafter become due until the expiration of the then current term, above mentioned; or (d) Becomes embarrassed or insolvent, or makes an assignment for the benefit of creditors, or if a petition in bankruptcy is filed by or against the Lessee, or a bill in equity or other proceeding for the appointment of a receiver for the Lessee is filed, or if proceedings for reorganization or for composition with creditors under any State or Federal law be instituted by or against Lessee, or if the real or personal property of the Lessee shall be sold or levied upon by any Sheriff, Marshall or Constable; __________________________ ________________________________________________________________________________ then and in any or either of said events, there shall be deemed to be a breach of this lease, and thereupon ipso facto and without entry or other action by Lessor; (1) The rent for the entire unexpired balance of the term of this lease, as well as all other charges, payments, costs and expenses herein agreed to be paid by the Lessee, or at the option of Lessor any part thereof, and also all costs and officers' commissions including watchmen's wages and further including the five percent chargeable by Act of Assembly to the Lessor, shall, in addition to any and all installments of rent already due and payable and in arrears and/or any other charge or payment herein reserved, included or agreed to be treated or collected as rent, and/or any other charge, expense or cost herein agreed to be paid by the Lessee which may be due and payable and in arrears, be taken to be due and payable and in arrears as if by the terms and provisions of this lease, the whole balance of unpaid rent and other charges, payments, taxes, costs and expenses were on that date payable in advance; and if this lease or any part thereof is assigned, or if the premises or any part thereof is sub-let, Lessee hereby irrevocably constitutes and appoints Lessor Lessee's agent to collect the rents due by such assignee or sub-lessee and apply the same to the rent due hereunder without in any way affecting Lessee's obligation to pay any unpaid balance of rent due hereunder; (2) This lease and the term hereby created shall determine and become absolutely void without any right on the part of the Lessee to save the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken; whereupon, Lessor shall be entitled to recover damages for such breach in an amount equal to the amount of rent reserved for the balance of the term of this lease, less the fair rental value of the said demised premises, for the residue of said term. In the event of any default as above set forth in Section 14, the Lessor, or anyone acting on Lessor's behalf, at Lessor's option: (a) may without notice or demand enter the demised premises, breaking open locked doors if necessary to effect entrance, without liability to action for prosecution or damages for such entry or for the manner thereof, for the purpose of distraining or levying and for any other purposes, and take possession of and sell all goods and chattels at auction, on three days' notice serviced in person on the Lessee or left on the premises, and pay the said Lessor out of the proceeds, and even if the rent be not due and unpaid, should the Lessee at any time remove or attempt to remove goods and chattels from the premises without leaving enough thereof to meet the next periodical payment, Lessee authorizes the Lessor to follow for a period of ninety days after such removal, take possession of and sell at auction, upon like notice, sufficient of such goods to meet the proportion of rent accrued at the time of such removal; and the Lessee hereby releases and discharges the Lessor, and his agents, from all claims, actions, suits, damages, and penalties, for or by reason or on account of any entry, distraint, levy, appraisement or sale; and/or (b) may enter the premises, and without demand proceed by distress and sale of the goods there found to levy the rent and/or other charges herein payable as rent, and all costs and officers' commissions, including watchmen's wages and sums chargeable to Lessor, and further including a sum equal to 5% of the amount of the levy as commissions to the constable or other person making the levy, shall be paid by the Lessee, and in such case all costs, officers' commission and other charges shall immediately attach and become part of the claim of Lessor for rent, and any tender of rent without said costs, commission and charges made after the issue of a warrant of distress shall not be sufficient to satisfy the claim of the Lessor. Lessee hereby expressly waives in favor of Lessor the benefit of all laws now made or which may hereafter be made regarding any limitation as to the goods upon which, or the time within which, distress is to be made after removal of goods, and further relieves the Lessor of the obligations of proving or identifying such goods, it being the purpose and intent of this provision that all goods of Lessee, whether upon the demised premises or not, shall be liable to distress for rent. Lessee waives in favor of Lessor all rights under the Act of Assembly of April 6, 1951, P. L. 69, and all supplements and amendments thereto that have been or may hereafter be passed, and authorizes the sale of any goods distrained for rent at any time after five days from said distraint without any appraisement and/or condemnation thereof. (c) The Lessee further waives the right to issue a Writ of Replevin under the Pennsylvania Rules of Civil Procedure, No. 1071 &c. and Laws of the Commonwealth of Pennsylvania, or under any other law previously enacted and now in force, or which may be hereafter enacted, for the recovery of any articles, household goods, furniture, etc., seized under a distress for rent or levy upon an execution for rent, damages or otherwise; all waivers hereinbefore mentioned are hereby extended to apply to any such action; and/or (d) may lease said premises or any part or parts thereof to such person as may in Lessor's discretion seem best and the Lessee shall be liable for any loss of rent for the balance of the then current term. If rent and/or charges hereby reserved as rent shall remain unpaid on any day when the same ought to be paid, Lessee hereby empowers any Prothonotary, Clerk of Court or attorney of any Court of Record to appear for Lessee in any and all actions which may be brought rent and/or the charges, payments, costs and expenses reserved as rent, or agreed to be paid by the Lessee and/or to sign for Lessee an agreement for entering in any competent Court an amicable action or actions for the recovery of rent or other charges, payments, costs and expenses, and in said suits or in said amicable action or actions to confess judgment against Lessee for all or any part of the rent specified in this lease and then unpaid including, at Lessor's option, the rent for the entire unexpired balance of the term of this lease, and/or other charges, payments, costs and expenses reserved as rent or agreed to be paid by the Lessee, and for interest and costs together with any attorney's commission of 5%. Such authority shall not be exhausted by one exercise thereof, but judgment may be confessed as aforesaid from time to time as often as any of said rent and/or other charges, payments, costs and expenses, reserved as rent shall fall due or be in arrears, and such powers may be exercised as well after the expiration of the original term and/or during any extension or renewal of this lease. When this lease shall be determined by condition broken, either during the original term of this lease or any renewal or extension thereof, and also when and as soon as the term hereby created or any extension thereof shall have expired, it shall be lawful for any attorney as attorney for Lessee to file an agreement for entering in any competent Court an amicable action and judgment in ejectment against Lessee and all persons claiming under Lessee for the recovery by Lessor of possession of the herein demised premises, for which this lease shall be his sufficient warrant, whereupon, if Lessor so desires, a writ of execution or of Possession may issue forthwith, without any prior writ or proceedings whatsoever, and provided that if for any reason after such action shall have been commenced the same shall be determined and the possession of the premises hereby demised remain in or be restored to Lessee, Lessor shall have the right upon any subsequent default or defaults, or upon the termination of this lease as hereinbefore set forth, to bring one or more amicable action or actions as hereinbefore set forth to recover possession of the said premises. In any amicable action of ejectment and/or for rent in arrears, Lessor shall first cause to be filed in such action an affidavit made by him or someone acting for him setting forth the facts necessary to authorize the entry of judgment, of which facts such affidavit shall be conclusive evidence and if a true copy of this lease (and of the truth of the copy such affidavit shall be sufficient evidence) be filed in such action, it shall not be necessary to file the original as a warrant of attorney, any rule of Court, custom or practice to the contrary notwithstanding. Lessee expressly agrees that any judgment, order or decree entered against him by or in any Court or Magistrate by virtue of the powers of attorney contained in this lease, or otherwise, shall be final, and that he will not take an appeal, certiorari, writ of error, exception or objection to the same, or file a motion or rule to strike off or open or to stay execution of the same, and releases to Lessor and to any and all attorneys who may appear for Lessee all errors in the said proceedings, and all liability therefore. Lessee expressly waives the benefits of all laws, now or hereafter in force, exempting any goods on the demised premises, or elsewhere from distraint, levy or sale in any legal proceedings taken by the Lessor to enforce any rights under this lease. Lessee further waives the right of inquisition on any real estate that maybe levied upon to collect any amount which may become due under the terms and conditions of this lease, and does hereby voluntarily condemn the same and authorizes the Prothonotary or Clerk of Court to issue a Writ of Execution or other process upon Lessee's voluntary condemnation, and further agrees that the said real estate may be sold on a Writ of Execution or other process. If proceedings shall be commenced by Lessor to recover possession under the Acts of Assembly, either at the end of the term or sooner termination of this lease, or for nonpayment of the rent or any other reason Lessee specifically waives the right to the three months' notice and/or the fifteen or thirty days' notice required by the Act of April, 1951, P. L. 69, and agrees that five days' notice shall be sufficient in either or any other case. The right to enter judgment against Lessee and to enforce all of the other provisions of this lease hereinabove provided for may, at the option of any assignee of this lease, be exercised by any assignee of the Lessor's right, title and interest in this lease in his, here or their own name, notwithstanding the fact that any or all assignments of the said right, title and interest may not be executed and/or witnessed in accordance with the Act of Assembly of May 28, 1715, 1 Sm. L. 90, and all supplements and amendments thereto that have been or may hereafter be passed and Lessee hereby expressly waives the requirements of said Act or Assembly and any and all laws regulating the manner and/or form in which such assignments shall be executed and witnessed. All of the remedies hereinbefore given to Lessor and all rights and remedies given to him by law and equity shall be cumulative and concurrent. No determination of this lease or the taking or recovering of the premises shall deprive Lessor of any of his remedies or actions against the Lessee for rent due at the time or which, under the terms hereof, would in the future become due as if there has been no determination, or for any and all sums due at the time or which, under the terms hereof, would in the future become due as if there had been no determination, now shall the bringing of any action for rent or breach of covenant, or the resort to any other remedy herein provided for the recovery of rent be construed as a waiver of the right to obtain possession of the premises. In the event that the premises demised or any part thereof is taken or condemned for a public or quasi-public use, this lease shall, as to the part so taken, terminate as of the date title shall vest in the condemnor, and rent shall abate in proportion to the square feet of leased space taken or condemned or shall cease if the entire premises be so taken. In either event the Lessee waives all claims against the Lessor by reason of the complete or partial taking of the demised premises, and it is agreed that the Lessee shall not be entitled to any notice whatsoever of the partial or complete termination of this lease by reason of the aforesaid. This Agreement of Lease and all its terms, covenants and provisions are and each of them is subject and subordinate to any lease or other arrangement or right to possession, under which the Lessor is in control of the demised premises, to the rights of the owner or owner's of the demised premises and of the land or buildings of which the demised premises are a part, to all rights of the Lessor's landlord and to any and all mortgages and other encumbrances now or hereafter placed upon the demised premises or upon the land and/or the buildings containing the same; and Lessee expressly agrees that if Lessor's tenancy, control, or right to possession shall terminate either by expiration, forfeiture or otherwise, then this lease shall thereupon immediately terminate and the Lessee shall, thereupon, give immediate possession; and Lessee hereby waives any and all claims for damages or otherwise by reason of such termination as aforesaid. It is hereby mutually agreed that either party hereto may terminate this lease at the end of said term by giving to the other party written notice thereof at least 120 days prior thereto, but in default of such notice, this lease shall continue upon the same terms and conditions in force immediately prior to the expiration of the term hereof as are herein contained for a further period of one (1) year and so on from year to year unless or until terminated by either party hereto, giving the other 120 days written notice for removal previous to expiration of the then current term; PROVIDED, however, that should this lease be continued for a further period under the terms hereinabove mentioned, any allowances given Lessee on the rent during the original term shall not extend beyond such original term, and further provided, however, that if Lessor shall have given such written notice prior to the expiration of any term hereby created, of his intention to change the terms and conditions of this lease, and Lessee shall not within 30 days from such notice notify Lessor of Lessee's intention to vacate the demised premises at the end of the then current term, Lessee shall be considered as Lessee under the terms and conditions mentioned in such notice for a further term as above provided, or for such further term as may be stated in such notice. In the event that Lessee shall give notice, as stipulated in this lease, of intention to vacate the demised premises at the end of the present term, or any renewal or extension thereof, and shall fail or refuse so to vacate the same on the date designated by such notice, then it is expressly agreed that Lessor shall have the option either (a) to disregard the notice so given as having no effect, in which case all the terms and conditions of this lease shall continue thereafter with full force precisely as if such notice had not been given, or (b) Lessor may, at any time within thirty days after the present term or any renewal or extension thereof, as aforesaid, give the said Lessee ten days' written notice of his intention to terminate the said lease; whereupon the Lessee expressly agrees to vacate said premises at the expiration of the said period of ten days specified in said notice. All powers granted to Lessor by this lease may be exercised and all obligations imposed upon Lessee by this lease shall be performed by Lessee as well during any extension of the original term of this lease as during the original term itself. All notices required to be given by Lessor to Lessee shall be sufficiently given by leaving the same upon the demised premises, but notices given by Lessee to Lessor must be given by registered mail, and as against Lessor the only admissible evidence that notice has been given by Lessee shall be a registry return receipt signed by Lessor or his agent. It is expressly understood and agreed by and between the parties hereto that this lease and the riders attached hereto and forming a part hereof set forth all the promises, agreements, conditions and understandings between Lessor or his Agents and Lessee relative to the demised premises, and that there are no promises, agreements, conditions or understandings, either oral or written, between them other than are herein set forth. It is further understood and agreed that, except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this lease shall be binding upon Lessor or Lessee unless reduced to writing and signed by them. All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind the several and respective heirs, executors, administrators, successors and assigns of said parties; and if there shall be more than one Lessee, they shall all be bound jointly and severally by the terms, covenants and agreements herein, and the word "Lessee" shall be deemed and taken to mean each and every person or party mentioned as a Lessee herein, be the same one or more; and if there shall be more than one Lessee, any notice required or permitted by the terms of this lease may be given by or to any one thereof, and shall have the same force and effect as if given by or to all thereof. The words "his" and "him" wherever stated herein shall be deemed to refer to the "Lessor" and "Lessee" whether such Lessor or Lessee be singular or plural and irrespective of gender. No rights, however, shall inure to the benefit of any assignee of Lessee unless the assignment to such assignee has been approved by Lessor in writing as aforesaid. Lessee shall, upon execution hereof, deposit with Lessor as security for the performance of all the terms, covenants, and conditions of this lease, the sum of - - - - - - - - - - - - - -SEE PARAGRAPH 51 OF ADDENDUM - - - - - - - - - - - - - This deposit is to be retained by Lessor until the expiration of this lease and shall be returnable to Lessee provided that (1) premises have been vacated; (2) Lessor shall have inspected the premises after such vacation; and (3) Lessee shall have complied with all the terms, covenants and conditions of this lease, in which event the deposit so paid hereunder shall be returned to Lessee; otherwise, said sum deposited hereunder or any part thereof may be retained by Lessor at his option, as liquidated damages, or may be applied by Lessor against any actual loss, damage or injury chargeable to Lessee hereunder or otherwise, if Lessor determines that such loss, damage or injury exceeds said sum deposited. Lessor's determination of the amount, if any, to be returned to Lessee shall be final. It is understood that the said deposit is not to be considered as the last rental due under the lease. Any headings preceding the text of the several paragraphs, and sub-paragraphs hereof are inserted solely for convenience of reference and shall not constitute a part of this lease, nor shall they affect its meaning, construction or effect. IN WITNESS WHEREOF, the parties hereto have executed these presents the day and year first above written, and intend to be legally bound thereby. SEALED AND DELIVERED IN THE PRESENCE OF: __________________________________ _________________________________ (AGENT) __________________________________ _________________________________ (SEAL) __________________________________ _________________________________ (SEAL) __________________________________ _________________________________ (SEAL) ADDENDUM to Lease Agreement dated March 19, 2003 by and between 9 Portland Partners, (hereinafter referred to as Lessor), and Nocopi Technologies, Inc. a Maryland Corporation and __________________________, (hereinafter referred to as Lessee), for all that certain 5,000 square feet of rentable industrial space situate 9 Portland Street, West Conshohocken, situate in the Borough of West Conshohocken, County of Montgomery, State of Pennsylvania. The space is known as Unit "C" and has approximate measurements of 100 feet x 50 feet and contains 1 tailgate loading door and 1 drive-in garage door. See Exhibit "A" for detailed area of premises In the event of any conflict between the provisions of this Addendum and the preprinted provisions of this Lease, the provisions of this Addendum shall control and shall be given full force and effect without regard to any conflicting or contrary preprinted provisions. 30) The Minimum Annual Rent (as referred to above in paragraph 4) shall be paid on the following schedule: Lease Year Annually Monthly ---------- -------- ------- 4/1/2003 through 3/31/2004 $33,750.00 $2,812.50 4/1/2004 through 3/31/2005 $35,100.00 $2,925.00 4/1/2005 through 3/31/2006 $36,504.00 $3,042.00 4/1/2006 through 3/31/2007 $37,964.00 $3,163.67 4/1/2007 through 3/31/2008 $39,483.00 $3,290.25 The total of the Minimum Annual rents due during the initial term of this lease shall not be less than $182,801.00. 31) Lessee agrees to pay immediately to Lessor a late charge of ten (10%) percent of the gross monthly rental for rents not received by Lessor by the 5th day of the month. All base rents are due on the first day of each month. Any rent properly mailed and postmarked prior to the first of the month shall not be subject to a late charge until the 10th day of the month. All additionally billed rent is due within 30 days of billing. A charge of $50.00 is applicable for any checks returned from the bank, for whatever reason. Any rent (including charges collectible as additional rent) overdue for a period of more than 5 days shall bear an interest rate of 15% per annum until paid, such interest shall be considered as additional rent and shall be payable on demand. Any rent properly mailed and postmarked prior to the first of the month shall not be subject to an interest charge until the 10th day of the month. 32) Lessor and Lessee represent and warrant that Geis Realty Group, Inc. is the only broker or Realtor. Nine (9) Portland Partners, being the Lessor, hereby agrees to pay Geis Realty Group, Inc., a commission for brokerage services of six (6%) percent of the minimum annual rent as collected for the duration of said lease term and extensions, renewals or expansions. It is further agreed that Lessor shall pay this commission quarterly. Lessor agrees to indemnify, defend and hold Lessee harmless from any and all cost or liability for compensation claimed by any broker or agent employed by Lessor or claiming to have been engaged by Lessor with regard to this Lease Agreement. Lessee agrees to indemnify, defend and hold Lessor harmless from any and all cost or liability for compensation claimed by any broker or agent employed by Lessee or claiming to have been engaged by Lessee with regard to this Lease Agreement 33) Further to Paragraph 6(c) of this Lease Agreement, Lessor agrees to carry policies insuring the improvements on Lessor's premises against fire and such other perils, including liability coverage, as are normally covered by Lessor at the building and owners of similar properties, in an amount of at least ninety (90%) percent of the replacement value of such improvements, together with insurance against other risks (including loss of rent) and in such amounts as Lessor deems appropriate and in such amounts as are normally covered by owners of similar properties. Lessee agrees to reimburse to Lessor its proportionate share (Agreed to be 26.74%) of said insurance upon the building of which the demised premises is a part during the terms of this Lease, renewals or extensions thereof. Such cost of said insurance, as stated above, shall be paid by the Lessee to Lessor as additional rent, in addition to the minimum annual rental hereon reserved, within thirty (30) days of proof of payment of such insurance. Such insurance shall not include Lessee's furniture, fixtures, equipment or improvements. The amount due hereunder on account of said insurance shall be apportioned for that part of the first and last calendar years covered by the term hereof. Lessee agrees that it will not keep, use, or offer for sale in or upon the demised premises any article which may be prohibited by the standard form insurance policy. Lessee agrees to follow the recommendation of the Lessor, or its agents, on conditions that will help to lower the premium rate of insurance. Lessee will be required to follow such recommendations only to the extent that the y are required by law or may be accomplished without significant expense to Lessee. 34) Further to Paragraph 6(b) of this Lease Agreement, Lessee agrees to pay as additional rent, in addition to the minimum annual rental hereon reserved, its proportionate share (Agreed to be 26.74%) of all taxes assessed imposed upon the building of which the demised premises is a part during the term of this lease, renewals or extensions thereof. Lessor shall submit to Lessee a copy of the tax bill authorized and prepared by the tax authorities, as well as a bill prepared by Lessor as to Lessee's share of taxes. Lessee shall at all times be responsible for and shall pay before delinquency all municipal, county, state, or federal taxes assessed against any leasehold interest or any personal property of any kind owned, installed, or used by Lessee, as well as all rent, occupancy, transportation, utility, use, amusement, or vending machine taxes, now or hereafter imposed. The amount due hereunder on account of such h taxes shall be a portion for that part of the first and last fiscal years covered by the term hereof of the county, township, and school real estate taxes. Said taxes shall be paid by Lessee to Lessor at least one (1) month before the expiration of the net payment period of said taxes and before penalties are assessed. In the event that Lessee desires to take advantage of any early payment discount, then said tax payment shall be paid by Lessee to Lessor at least one (1) month prior to the expiration of any discount period. A bill submitted by Lessor to Lessee shall be conclusive evidence of the amount of taxes assessed or levied, as well as the items taxed. 35) Further to Paragraphs 6(d) and 6(e) of this Lease Agreement, Lessee agrees to pay to Lessor, upon demand, as additional rent, Lessee's proportionate share of the cost of the water used at 9 Portland Street. It is agreed that Lessee's proportionate share of water used at 9 Portland Street is 26.74%. Lessee shall pay to Lessor, upon demand, as additional rent, six ($6) dollars for every one thousand (1,000) gallons of water used, as allocated to Lessee, as a septic system use charge. It is agreed that said on site septic system is for personal hygiene only and Lessee agrees that no industrial processed water or industrial waste of any kind shall be disposed of in said system. The proceeding sentence is a material provision of this Lease Agreement and any violation of this provision shall be deemed to be a material breech of the Lease Agreement. At the option of Lessor, Lessor may install, at Lessor's expense, a water meter for the premises. If Lessor opts to install such meter, the amount of water used will be determined by the water meter. 36) It is understood and agreed between all parties a part hereto that this Lease Agreement shall be deemed a net/net/net Lease. Lessor shall provide as needed, in accordance with a good industrial park, maintenance practices in the opinion of the Lessor, certain services to the common areas of the property of which the demised premises is a part as well as the common areas of the entire building. Said services shall include, but may not be limited to, the cutting of grass, maintenance of landscaping, snow and ice removal, maintenance of sanitary sewer systems, maintenance of retention basins, general periodic clean-up, replacement of exterior lights and bulbs and/or fixtures, common area lighting, repairs to the parking area and access roads, including the main access roads, and seven (7%) percent of all the foregoing costs to cover the Lessor's administrative and overhead costs. Coincidental with these services, Lessor shall bill Lessee quarterly (every three months) for Lessee's proportionate share which is agreed to be 26.74%. Any such billings shall be treated as additional rent, and shall be as same in accordance with the provisions of this L ease Agreement, including Paragraph 31 of this lease. 37) In compliance with Paragraph 9(c) of this Lease Agreement, and any other applicable provisions contained herein, it is understood and agreed that the Lessee will not install any signs without having first received written permission from Lessor, and will be solely responsible for any cost and effort as may be required for the installation of signs on the building or within the demised premises. This responsibility includes the purchase, installation, maintenance, upkeep, and removal if required by Lessor (and repair after removal of any damage caused by the sign), of any such sign(s). Further, Lessee is responsible for all governmental approval and fees with regard to any signs. Lessee shall also maintain in good repair any signs erected under this provision. Lessor makes no representation as to the permissibility by governmental authority of any signs. 38) Lessee, at Lessee's expense, shall comply with all laws, rules, orders, ordinances, directions, regulations, and requirements of federal, state, county and municipal authorities, now in force or which may hereafter be in force, which shall impose any duty upon Lessor or Lessee with respect to the use, occupation or alteration of the demised premises. This shall include, obtaining whatever permits and/or licenses which may be required by Lessee to operate from this location, and compliance with the Americans with Disabilities Act relating to Lessee's use and occupancy of the demised premises. Lessor makes no representations with regard to the zoning of the premises and any permissible uses of the premises. 39) Notwithstanding anything to the contrary herein contained, each party waives any and all right to recover against the other party for damage to the demised premises or loss to property therein occurring from fire, or other casualty, covered by standard fire insurance policies with extended coverage, provided that each waiver shall be effective and binding only to the extent that such insurance covering the damage is in force permitting such waiver and to the extent actual recovery is had thereon. 40) During the term of this lease and any extensions thereof, Lessee shall keep in full force and effect a policy of Commercial General Liability Insurance in which the limits of Bodily Injury shall not be less than $2,000,000.00 per occurrence, and on which the Property Damage limit shall not be less than $1,000,000.00 per occurrence. The insurance carrier and the form and substance of the policy shall be to the reasonable satisfaction of Lessor and a copy of the policy or a Certificate of Insurance shall be delivered to the Lessor. The insurance carrier shall be a responsible insurance carrier authorized to do business in Pennsylvania. Said policy shall name Lessor and Lessee as insured, and shall contain a clause that the insurer will not cancel or change the insurance without first giving the Lessor thirty (30) days prior written notice. 41) Lessor's responsibility under this lease shall be limited to its interest in the demised premises, and Lessor shall not be personally liable hereunder. Lessee agrees to look solely to Lessor's interest in the demised premises and in the building for the collection of any judgment, and, in entering any such judgment, the person entering same shall request the Prothonotary to mark the judgment index accordingly. If the demised premises are transferred or conveyed, Lessor shall be relieved of all covenants and obligations under this lease thereafter, provided that notice of the transfer or conveyance is given to Lessee. 42) Lessee represents and warrants that they will not dump, bury, or contaminate the property with any hazardous waste, petroleum products or hazardous substances, or other substances at the property contrary to any governmental regulation. Lessee agrees and understands that should it violate any environmental regulation, then it shall be the sole responsibility of Lessee to correct said problem to the satisfaction of the Lessor and the Department of Environmental Resources, the Environmental Protection Agency, and any other governmental agency. Lessee will indemnify and hold harmless Lessor from any damages, fines, cost of clean-up, attorney fees, etc. The provisions of this paragraph shall survive the expiration of this Lease. Lessor agrees to comply with the above provisions and will require that any other tenants or occupants of the building also comply with the above provisions. 43) Lessee agrees to prohibit any odors, smoke, noise, or other pollutant resulting from the use of the premises, to the extent that any such pollution is contrary to any governmental rule or regulation. Lessor agrees to comply with the above provisions and will require that any other tenants or occupants of the building also comply with the above provisions. 44) During the term of this Lease Agreement, Lessor is responsible for the maintenance of the roof and exterior walls. If Lessee should disturb the roof in any manner which would affect the Lessor's roof guarantee, the Lessee shall be responsible to satisfy said guarantee. Any repair or maintenance to the property that is made necessary through the misuse, abuse, or negligence of the Lessee shall be the sole responsibility of the Lessee and Lessee shall reimburse Lessor for any expenses resulting from the misuse, abuse, or negligence. 45) Outside storage is not permitted without the advance written approval of the Lessor. 46) Lessee certifies that Lessee is not a non-resident alien, or foreign corporation, a foreign partnership, or foreign trust, or a foreign estate (as these terms are defined in the Internal Revenue Code and Income Tax Regulations.) Lessee acknowledges that this certification may be disclosed to the Internal Revenue Service pursuant to federal law. 47) Lessee shall be solely responsible for, agrees to contract with, and promptly pay all charges for heat, gas, water, sewer, electricity, trash, telephone, or any other utility or other service rendered, used or consumed in the demised premises, and service inspections made thereof, whether called charge, tax, assessment, fee or otherwise. Lessee shall also pay any "fire company charge" imposed with respect to the premises. However, Lessee shall not be responsible for any "fire company charge" that is imposed with regard to the premises as a result of another tenant's occupancy of the building. Should Lessor elect to supply the water, gas, heat, electricity, trash, sewer or any other utility used or consumed in the demised premises, Lessee agrees to purchase and pay for the same as additional rent at rates which will not exceed those rates as filed by the utility that formerly supplied such utilities with the proper regulatory authorities. In no event shall Lessor be liable for an interruption or failure in the supply of any such utilities to the demised premises. Should the Lessee fail to make these payments when due, Lessor shall have the right to settle therefore such sums to be considered additional rent and collectible from Lessee as such by distress or other process, and to have all the priorities given by law to claims for rent. Lessee further covenants and agrees throughout the term of this Lease Agreement, any extensions or renewals thereof, that it will be responsible to maintain the demised premises in good repair, order and condition, at its sole cost and expense, excluding any normal maintenance as may be required to the structural members, exterior walls, or roof of the demised premises, which Lessor is responsible to maintain, provided Lessee is not negligent. Lessee agrees to maintain all floors, interior walls, ceilings, doors of all types, locks, closures, and hinges, all lighting (including the replacement of light bulbs), all glass including windows, all electrical, heat, ventilating, and air-conditioning systems, as well as all utilities and plumbing systems above g round servicing the demised premises, making all repairs and/or replacements thereto as may be required or necessary, with materials of like quality. In addition to the above, Lessor will be responsible (except in the case of Lessee's negligence, in which case Lessee will be responsible) for maintenance of structural members, and exterior walls and replacement of heating and ventilation equipment at Lessor's sole cost and expense. Said expenses of Lessor will not constitute part of the common area charges under Paragraph 36. Further, it is agreed that Lessee will make ordinary repairs, but will not be responsible for replacement of heating and ventilation equipment. Lessor is not responsible for the maintenance or replacement of any air-conditioning systems within the premises. The demised premises will be delivered to Lessee with the plumbing, heating, electrical and other utility systems in good working order, the roof free from leaks and all doors, windows and interior partitions in good repair and working order. In addition, Lessee herein shall be responsible to have the heating system serviced a minimum of once a year. Said servicing shall be at the sole cost of the Lessee, shall be performed by a reputable heating and/or air conditioning contractor, and copies of said contract shall be submitted to Lessor by Lessee annually. Should Lessee fail to service said systems, then this work may be done by the Lessor, and immediate payment as well as a service charge of ten (10%) percent shall be due from Lessee for such work and/or repairs. It is further agreed that at all times, Lessee shall maintain enough heat in the demised premises to prevent the water line from freezing. Further, Lessee shall be responsible for the cleanliness of the demised premises and shall be responsible, at Lessee's sole cost and expense, for the operation, recycling, and removal of Lessee's waste materials to conform with any and all governmental rules and regulations thereto. Lessor shall have the right to designate the location of all dumpsters, it being understood that dumpsters shall be placed in the parking area of the building. Lessee agrees to comply with all Board of Health rules and regulations. 48) Lessee shall have the non-exclusive use in common with the Lessor, other tenants, and their agents and/or invitees, of the driveway and footways at 9 Portland Street, which will not be materially diminished during the term of the lease subject to reasonable rules and regulations for the use thereof as prescribed from time to time by Lessor. Vehicular and truck parking by Lessee, its agents, employees and/or invitees, shall be in those areas designated by the Lessor for that use. Further, Lessee, its agents, employees and/or invitees, shall not obstruct any ingress or egress roadways, driveways, firelanes, loading, unloading areas, walkways and building entrances that service the property of which the demised premises is a part. Lessee agrees that upon written notice from Lessor, it will furnish to Lessor, within five days, the state automobile license numbers assigned to the vehicles of the Lessee and its employees. Any vehicles that are illegally parked shall be towed away at the sole expense of the vehicle owner/driver. Lessor shall not be liable for any vehicles of the Lessee or its employees that the Lessor shall have towed from the premises when illegally parked. Lessor will not be liable for damage to vehicles in the parking areas or for theft of vehicles, personal property from vehicles, or equipment of vehicles. Lessor reserves the right to assign each tenant parking spots in direct proportion to the tenant's occupancy of the overall building. Lessee shall be entitled to no more than 26.74% of the parking spaces. 49) Lessor, its employees and agents shall have the right to enter the demised premises at all reasonable times, during normal business hours, for the purpose of examining or inspecting the same, showing the same to prospective purchasers or tenants of the building, or mortgagee, and making such alterations, repairs, improvements or additions to the demised premises or to the building as Lessor may deem necessary or desirable. Except in the case of emergency, any such entry shall be after reasonable notice to Lessee. If a representative of Lessee shall not be present to open and permit entry into the demised premises at any time when such entry by Lessor is necessary or permitted hereunder, Lessor may enter by means of a master key (or forcibly in the event of an emergency) without liability to Lessee and without such entry constituting an eviction of Lessee or termination of the Lease Agreement. 50) Lessor and Lessee agree that the spaced is leased "As Is" except for all existing mechanical systems which will be in working order. Exhibit "B" attached hereto outlines additional interior office improvements needed by Lessee. If Lessee constructs the additional improvements as outlined in Exhibit "B", and Lessee's cost exceeds $10,000.00, Lessor agrees to contribute $10,000.00 towards any of these additional office improvements. This includes all necessary electrical and HVAC. Upon completion of the construction, Lessee shall present to Lessor an itemization of expenses. In the event that Lessee requests that Lessor construct the improvements for Lessee, Lessee agrees to deposit its share of the construction expenses (anything over $10,000.00) with Lessee Realty Group, Inc. to be held in escrow until the work is completed ("Construction Deposit"). Upon completion of the agreed work, all construction costs related to the additional improvements will be itemized and presented to Lessee. If the construction costs minus Lessor's share ($10,000.00) equals or exceeds the Construction Deposit held by Lessee, the entire amount shall be released to Lessor and Lessee shall immediately pay to Lessor the difference between the construction costs minus Lessor's share ($10,000.00) and the Construction Deposit held by Lessee. If the Construction Deposit is greater than the construction costs minus Lessor's share ($10,000.00), then Lessee shall remit to Lessor, the construction costs minus Lessor's share of the construction costs ($10,000.00). Any remaining Construction Deposit shall be returned to Lessee. Any additional work needed to be done shall be done at the expense of the Lessee. All work to be performed by the Lessee or at the request of Lessee shall be approved, in writing by the Lessor and shall be in compliance with all applicable state and local regulations and rules. This includes the work to be done as outlined in Exhibit "B". Lessor shall be provided a Mechanics Lien Waiver on all work to be performed by Lessor or on behalf of Lessee. 51) In accordance with Paragraph 28 of the Lease Agreement, Lessee agrees to deposit with Lessor, Eight Thousand Four hundred and Thirty Seven Dollars and Fifty Cents ($8,437.50). Lessor agrees to hold the security deposit in an interest bearing savings account. Upon termination of the Lease Agreement, interest is to follow principal. Any Security Deposit to be returned to Lessee shall be returned within thirty (30) days after the termination of the Lease Agreement and Lessee's possession of the property. 52) The first installment of the rental payments as outlined above in Paragraphs 4 and 30 is to be Two Thousand and Eight Hundred and Twelve Dollars and Fifty Cents ($2,812.50) and is to be paid at the signing of this Lease Agreement. Thereafter, the monthly installments are to be paid in accordance with the Lease Agreement. In the event that the space is ready for occupancy prior to 4/1/03, Lessee agrees to pay Lessor the pro rata monthly rent for the period of early occupancy as well as the additional rents billed as common area maintenance, insurance, taxes, etc. 53) It is understood and agreed that the Lessor does not warrant or undertake that the Lessee shall be able to obtain a permit under any Zoning Ordinance or Regulation for such use as Lessee intends to make of the said premises. Lessee and Lessor shall make all reasonable and necessary actions sufficient to obtain such perm it approvals within 20 days of the signing of this Lease Agreement. If neither Lessor nor Lessee are able to obtain the necessary permits, then either Lessee or Lessor may terminate this Lease Agreement. In the event that the Lease Agreement is terminated as per this paragraph, neither party shall have any further obligations to the other party and the agreement shall be null and void. Paragraphs 1 through 53, inclusive and Exhibit "A" and "B" are attached hereto and made a part of this lease. IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day and year first written above. /s/ Albert M. Perlstein, Lessee ----------------------------------------- 9 Portland Partners Lessor Albert M. Perlstein, Partner /s/_____________________ Witness Nocopi Technologies, Inc. By: /s/ Michael Feinstein, M.D. ----------------------------------------- Title:__CEO______________________________ Lessee /s/______________________ Witness EX-99 6 ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 The undersigned certifies that: 1. I have reviewed the foregoing report; 2. Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in the report; 4. The other certifying officers and I: (a) are responsible for establishing and maintaining "disclosure controls and procedures" for the issuer; (b) have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which the periodic report is being prepared; (c) have evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of the report; and (d) have presented in the report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of that date; 5. The other certifying officers and I have disclosed to the Registrant's auditors and to the audit committee of the board of directors (or persons fulfilling the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer's ability to record, process, summarize and report financial data and have identified for the issuer's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; and 6. The other certifying officers and I have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. I further certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/Michael A. Feinstein, M.D. /s/Rudolph A. Lutterschmidt - ----------------------------- --------------------------- Michael A. Feinstein, M.D. Rudolph A. Lutterschmidt, Chief Executive Officer Chief Financial Officer 2 -----END PRIVACY-ENHANCED MESSAGE-----