United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2016
or
¨ 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: 000-20333
NOCOPI TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Maryland | 87-0406496 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
480 Shoemaker Road, Suite 104, King of Prussia, PA 19406
(Address of principal executive offices) (Zip Code)
(610) 834-9600
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ |
| Accelerated filer | ¨ |
Non-accelerated filer | ¨ |
| Smaller reporting company | þ |
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 58,599,016 shares of common stock, par value $0.01, as of May 1, 2016.
NOCOPI TECHNOLOGIES, INC.
INDEX
| PAGE |
Part I. FINANCIAL INFORMATION |
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Financial Statements | 1 |
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Statements of Operations for Three Months ended March 31, 2016 and March 31, 2015 | 1 |
2 | |
Statements of Cash Flows for Three Months ended March 31, 2016 and March 31, 2015 | 3 |
4 | |
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Managements Discussion and Analysis of Financial Condition and Results of Operations | 7 |
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Quantitative and Qualitative Disclosures About Market Risk | 12 |
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Controls and Procedures | 12 |
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Part II. OTHER INFORMATION |
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Exhibits | 13 |
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14 | |
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15 |
PART I FINANCIAL INFORMATION
Statements of Operations*
(unaudited)
|
| Three Months ended March 31, |
| |||||
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| 2016 |
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| 2015 |
| ||
Revenues |
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| ||
Licenses, royalties and fees |
| $ | 112,800 |
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| $ | 78,100 |
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Product and other sales |
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| 170,000 |
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| 110,300 |
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| 282,800 |
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| 188,400 |
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Cost of revenues |
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Licenses, royalties and fees |
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| 19,600 |
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| 18,200 |
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Product and other sales |
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| 69,100 |
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| 55,600 |
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| 88,700 |
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| 73,800 |
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Gross profit |
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| 194,100 |
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| 114,600 |
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Operating expenses |
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Research and development |
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| 37,600 |
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| 32,900 |
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Sales and marketing |
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| 56,500 |
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| 49,900 |
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General and administrative |
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| 87,500 |
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| 83,500 |
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| 181,600 |
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| 166,300 |
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Net income (loss) from operations |
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| 12,500 |
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| (51,700 | ) |
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Other income (expenses) |
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Interest expense, bank charges and accretion of interest |
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| (3,400 | ) |
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| (5,200 | ) |
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| (3,400 | ) |
|
| (5,200 | ) |
Net income (loss) |
| $ | 9,100 |
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| $ | (56,900 | ) |
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Basic and diluted net income (loss) per common share |
| $ | .00 |
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| $ | (.00 | ) |
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Weighted average common shares outstanding |
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Basic |
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| 58,599,016 |
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| 58,599,016 |
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Diluted |
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| 58,600,159 |
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| 58,599,016 |
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*See accompanying notes to these financial statements.
1
Balance Sheets*
|
| March 31, |
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| December 31, |
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| 2016 |
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| 2015 |
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| (unaudited) |
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| (audited) |
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Assets |
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Current assets |
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Cash |
| $ | 48,400 |
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| $ | 11,400 |
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Accounts receivable less $5,000 allowance for doubtful accounts |
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| 268,300 |
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| 253,300 |
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Inventory |
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| 31,200 |
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| 36,600 |
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Prepaid and other |
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| 16,600 |
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| 32,600 |
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Total current assets |
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| 364,500 |
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| 333,900 |
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Fixed assets |
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Leasehold improvements |
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| 19,700 |
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| 19,700 |
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Furniture, fixtures and equipment |
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| 176,900 |
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| 176,900 |
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| 196,600 |
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| 196,600 |
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Less: accumulated depreciation and amortization |
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| 177,500 |
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| 175,700 |
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| 19,100 |
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| 20,900 |
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Total assets |
| $ | 383,600 |
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| $ | 354,800 |
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Liabilities and Stockholders' Deficiency |
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Current liabilities |
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Demand loans |
| $ | 19,500 |
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| $ | 23,500 |
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Convertible debentures |
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| 33,000 |
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| 32,800 |
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Accounts payable |
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| 103,400 |
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| 76,200 |
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Accrued expenses |
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| 455,800 |
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| 453,000 |
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Deferred revenue |
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| 105,900 |
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| 112,400 |
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Total current liabilities |
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| 717,600 |
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| 697,900 |
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Convertible debentures |
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| 95,000 |
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| 95,000 |
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Stockholders' deficiency |
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Common stock, $0.01 par value; Authorized 75,000,000 shares; Issued and outstanding 58,599,016 shares |
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| 586,000 |
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| 586,000 |
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Paid-in capital |
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| 12,426,600 |
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| 12,426,600 |
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Accumulated deficit |
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| (13,441,600 | ) |
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| (13,450,700 | ) |
Total stockholders' deficiency |
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| (429,000 | ) |
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| (438,100 | ) |
Total liabilities and stockholders' deficiency |
| $ | 383,600 |
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| $ | 354,800 |
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*See accompanying notes to these financial statements.
2
Statements of Cash Flows*
(unaudited)
|
| Three Months ended March 31, |
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| 2016 |
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| 2015 |
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Operating Activities |
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Net income (loss) |
| $ | 9,100 |
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| $ | (56,900 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities |
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Depreciation and amortization |
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| 1,800 |
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| 1,200 |
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Accretion of interest convertible debentures |
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| 200 |
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| 1,400 |
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| 11,100 |
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| (54,300 | ) |
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(Increase) decrease in assets |
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Accounts receivable |
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| (15,000 | ) |
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| 68,100 |
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Inventory |
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| 5,400 |
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| (11,000 | ) |
Prepaid and other |
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| 16,000 |
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| 5,600 |
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Increase (decrease) in liabilities |
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Accounts payable and accrued expenses |
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| 30,000 |
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| 3,200 |
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Deferred revenue |
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| (6,500 | ) |
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| |
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| 29,900 |
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| 65,900 |
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Net cash provided by operating activities |
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| 41,000 |
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| 11,600 |
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Financing Activities |
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Repayment of demand loans |
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| (4,000 | ) |
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| (11,000 | ) |
Net cash used in financing activities |
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| (4,000 | ) |
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| (11,000 | ) |
Increase in cash |
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| 37,000 |
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| 600 |
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Cash at beginning of year |
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| 11,400 |
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| 28,000 |
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Cash at end of period |
| $ | 48,400 |
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| $ | 28,600 |
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*See accompanying notes to these financial statements.
3
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Financial Statements
The accompanying unaudited condensed financial statements have been prepared by Nocopi Technologies, Inc. (the Company). These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in the summary of Accounting Policies included in the Company's 2015 Annual Report on Form 10-K. Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The Notes to Financial Statements included in the 2015 Annual Report on Form 10-K should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three months ended March 31, 2016 may not be necessarily indicative of the operating results expected for the full year.
The Company follows Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 220 in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Since the Company has no items of other comprehensive income, comprehensive income (loss) is equal to net income (loss).
Note 2. Going Concern
Since its inception, the Company has incurred significant losses and, as of March 31, 2016, had accumulated losses of $13,441,600. For the three months ended March 31, 2016, the Company had net income from operations of $12,500. At March 31, 2016, the Company had negative working capital of $353,100 and a stockholders deficiency of $429,000. For the year ended December 31, 2015, the Companys net loss from operations was $38,700. Due in part to uncertainties in the US economy, the Company, which is substantially dependent on its licensees to generate licensing revenues, may incur operating losses and experience negative cash flow in the future. Achieving profitability and positive cash flow depends on the Companys 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 return to and sustain profitability and positive cash flow in the future.
Receipt of funds in periods prior to 2015 from investors and from demand loan holders have allowed the Company to remain in operation through the current date. Management of the Company believes that it may need additional capital in the future both to fund investments needed to increase its operating revenues to levels that will sustain its operations and to fund operating deficits that it believes may occur until revenue increases from traditional and new product lines can be realized. 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 impact its revenues so as to have a material positive effect on the Companys operations and cash flow. The Company believes that without additional capital, whether in the form of debt, equity or both, it may be forced to cease operations at an undetermined future date.
Note 3. Stock Based Compensation
The Company follows FASB ASC 718, Compensation Stock Compensation, and uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. At March 31, 2016, the Company did not have an active stock option plan. There was no unrecognized portion of expense related to stock option grants at March 31, 2016.
Note 4. Demand Loans
At March 31, 2016, the Company had unsecured loans totaling $19,500 from two individuals outstanding. The loans bear interest at 8%. During the first three months of 2016, the Company repaid $4,000 of the unsecured loans.
4
NOCOPI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 5. Convertible Debentures
At March 31, 2016, the Company had convertible debentures totaling $128,000 outstanding, of which $33,000 are due during the third quarter of 2016 and $95,000 are due during the third quarter of 2017. The convertible debentures bear interest at 7%. At the option of the lender, $95,000 principal of the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.025 per share and $33,000 principal of the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.05 per share. The Company also granted warrants to purchase 691,365 shares of the Companys common stock at $0.02 per share to the holders of the debentures. The warrants are exercisable two years after issuance and expire seven years after issuance.
The fair value of the warrants was determined using the Black-Scholes pricing model. The relative fair value of the warrants was recorded as a discount to the notes payable with an offsetting credit to additional paid-in capital since the Company determined that the warrants were an equity instrument in accordance with FASB ASC 815. The debt discount related to the warrant issuances is being accreted through interest expense over the term of the notes payable. For the three months ended March 31, 2016 and March 31, 2015, approximately $200 and $1,400, respectively, was accreted through interest expense.
The following table summarizes all warrant activity of the Company since December 31, 2015:
|
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| Weighted Average |
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| Number |
| Exercise |
| Exercise |
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| of Shares |
| Price |
| Price |
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Outstanding warrants - December 31, 2015 |
| 756,365 |
| $0.01 to $0.07 |
| $0.022 |
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Warrants expired |
| 15,000 |
| $0.06 |
| $0.06 |
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Outstanding warrants - March 31, 2016 |
| 741,365 |
| $0.01 to $0.07 |
| $0.021 |
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Weighted average remaining contractual life (years) |
| 4.35 |
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Exercisable warrants - March 31, 2016 |
| 575,000 |
| $0.01 to $0.07 |
| $0.022 |
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Weighted average remaining contractual life (years) |
| 4.08 |
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|
Note 6. Other Income (Expenses)
Other income (expenses) in the three months ended March 31, 2016 and March 31, 2015 includes interest on unsecured loans from three individuals and on convertible debentures held by ten investors.
Note 7. Income Taxes
There is no provision for income taxes for the three months ended March 31, 2016 due to the availability of net operating loss carryforwards. There is no income tax benefit for the losses for the three months ended March 31, 2015 because the Company has determined that the realization of the net deferred tax asset is not assured. The Company has created a valuation allowance for the entire amount of such benefits.
There was no change in unrecognized tax benefits during the period ended March 31, 2016 and there was no accrual for uncertain tax positions as of March 31, 2016.
Tax years from 2011 through 2015 remain subject to examination by U.S. federal and state jurisdictions.
5
NOCOPI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 8. Related Party Transactions
In January 2016, the Company paid $15,000 to Michael A. Feinstein, M.D., the Companys Chairman of the Board and Chief Executive Officer, representing a portion of previously deferred salary owed to him under an employment agreement with the Company. During the first quarter of 2016, Dr. Feinstein deferred $21,250 of salary. At March 31, 2016, Dr. Feinstein was owed $296,600 of salary deferred by him.
Note 9. Earnings (Loss) per Share
In accordance with FASB ASC 260, Earnings per Share, basic earnings (loss) per common share is computed using net earnings (loss) divided by the weighted average number of common shares outstanding for the periods presented. The computation of diluted earnings per common share involves the assumption that outstanding common shares are increased by shares issuable upon exercise of those warrants for which the market price exceeds the exercise price. The number of shares issuable upon the exercise of such warrants is decreased by shares that could have been purchased by the Company with related proceeds. For the three months ended March 31, 2016, the number of incremental common shares resulting from the assumed conversion of warrants was 1,143. Because the Company reported a net loss for the three months ended March 31, 2015, common stock equivalents, consisting of warrants to purchase common stock, were anti-dilutive.
Note 10. Major Customer and Geographic Information
The Companys revenues, expressed as a percentage of total revenues, from non-affiliated customers that equaled 10% or more of the Companys total revenues were:
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| Three Months ended March 31, |
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|
| 2016 |
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| 2015 |
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Customer A |
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| 51 | % |
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| 51 | % |
Customer B |
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| 22 | % |
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| 27 | % |
The Companys non-affiliate customers, whose individual balances amounted to more than 10% of the Companys net accounts receivable, expressed as a percentage of net accounts receivable, were:
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| March 31, |
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| December 31, |
| ||
|
| 2016 |
|
| 2015 |
| ||
Customer A |
|
| 54 | % |
|
| 31 | % |
Customer B |
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| 23 | % |
|
| 25 | % |
The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company also maintains allowances for potential credit losses. The loss of a major customer could have a material adverse effect on the Companys business operations and financial condition.
The Companys revenues by geographic region are as follows:
|
| Three Months ended March 31, |
| |||||
|
| 2016 |
|
| 2015 |
| ||
North America |
| $ | 126,000 |
|
| $ | 89,600 |
|
Asia |
|
| 149,400 |
|
|
| 98,800 |
|
Australia |
|
| 7,400 |
|
| |
| |
|
| $ | 282,800 |
|
| $ | 188,400 |
|
.
6
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act), regarding, among other things, anticipated improvements in operations, the Companys plans, earnings, cash flow and expense estimates, strategies and prospects, both business and financial. All statements other than statements of current or historical fact contained in this report are forward-looking statements. The words believe, expect, anticipate, should, plan, will, may, intend, estimate, potential, continue and similar expressions, as they relate to the Company, are intended to identify, where possible, forward-looking statements.
The Company has based these forward-looking statements largely on its current expectations and projections about future events, financial trends, market opportunities, competition, and the adequacy of the Companys available cash resources, which the Company believes may affect its financial condition, results of operations, business strategy and financial needs. This Form 10-Q also contains forward-looking statements attributed to third parties. All such statements can be affected by inaccurate assumptions, including, without limitation, with respect to risks, uncertainties, anticipated operating efficiencies, new business prospects and the rate of expense increases. In light of these risks, uncertainties and assumptions, the forward-looking statements in this report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. For these reasons, and because of the uncertainty relating to the current financial conditions in todays economic environment and the potential reduction in demand for the Companys products, you should not consider this information to be a guarantee by the Company or any other person that its objectives and plans will be achieved. When you consider these forward-looking statements, you should keep in mind the Risk Factors and other cautionary statements set forth in this Item 2 and elsewhere in this Form 10-Q. The Companys forward-looking statements speak only as of the date made. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The following Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Financial Statements and related notes included elsewhere in this report as well as with the Companys audited Financial Statements and Notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the SEC) on March 30, 2016 and keeping in mind this cautionary statement regarding forward-looking information.
Results of Operations
The Companys revenues are derived from (i) royalties paid by licensees of the Companys technologies, (ii) fees for the provision of technical services to licensees and (iii) the direct sale of (a) products incorporating the Companys technologies, such as inks, security paper and pressure sensitive labels, and (b) equipment used to support the application of the Companys technologies, such as ink-jet printing systems. Royalties consist of guaranteed minimum royalties payable by the Companys licensees and/or additional royalties, which typically vary with the licensees sales or production of products incorporating the licensed technology. Technical services, in the form of on-site or telephone consultations by members of the Companys technical staff, may be offered to licensees of the Companys technologies. The consulting fees are billed at agreed upon per diem or hourly rates at the time the services are rendered. Service fees and sales revenues vary directly with the number of units of service or product provided.
The Company recognizes revenue on its lines of business as follows:
a) License fees and royalties are recognized when the license term begins. Upon inception of the license term, revenue is recognized in a manner consistent with the nature of the transaction and the earnings process, which generally is ratably over the license term;
b) Product sales are recognized upon shipment of products, when the price is fixed or determinable and collectability is reasonably assured; and
c) Fees for technical services are recognized when (i) the service has been rendered; (ii) an arrangement exists; (iii) the price is fixed or determinable based upon a per diem or hourly rate; and (iv) collectability is reasonably assured.
7
The Company believes that, as fixed cost reductions beyond those it has achieved in recent years may not be achievable, its operating results are substantially dependent on revenue levels. Because revenues derived from licenses and royalties carry a much higher gross profit margin than other revenues, operating results are also substantially affected by changes in revenue mix.
Both the absolute amounts of the Companys 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 Companys total revenue, revenue mix and overall financial performance. Such changes may result from a customers product development delays, engineering changes, changes in product marketing strategies, production requirements and the like. In addition, certain customers have, from time to time, sought to renegotiate certain provisions of their license agreements and, when the Company agrees to revise terms, revenues from the customer may be affected. The addition of a substantial new customer or the loss of a substantial existing customer may also have a substantial effect on the Companys total revenue, revenue mix and operating results.
Revenues for the first quarter of 2016 were $282,800 compared to $188,400 in the first quarter of 2015, an increase of $94,400, or approximately 50%. Licenses, royalties and fees increased by $34,700, or approximately 44%, in the first quarter of 2016 to $112,800 from $78,100 in the first quarter of 2015. The increase in licenses, royalties and fees is due primarily to higher licensing revenue received from five licensees including two licensees added in the second half of 2015 along with a licensee in the entertainment and toy products market who signed a new four-year license in mid-2015. There can be no assurances that the marketing and product development activities of the Companys licensees or other businesses in the entertainment and toy products market will produce a significant increase in revenues for the Company, nor can the timing of any potential revenue increases be predicted, particularly given the uncertain economic conditions being experienced worldwide.
Product and other sales increased by $59,700, or approximately 54%, to $170,000 in the first quarter of 2016 from $110,300 in the first quarter of 2015. Sales of ink increased in the first quarter of 2016 compared to the first quarter of 2015 due primarily to higher ink shipments to a third party authorized printer used by two of the Companys major licensees in the entertainment and toy products market and higher ink shipments to the Companys licensees in the retail receipt and document fraud market. In the first quarter of 2016, the Company derived revenues of approximately $229,400 from its licensees and their authorized printers in the entertainment and toy products market compared to revenues of approximately $154,600 in the first quarter of 2015.
The Companys gross profit increased to $194,100, or approximately 69% of gross revenues, in the first quarter of 2016 from $114,600, or approximately 61% of gross revenues, in the first quarter of 2015. Licenses, royalties and fees have historically carried a higher gross profit than product and other sales, which generally consist of either supplies or other manufactured products which incorporate the Companys 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.
As the variable component of cost of revenues related to licenses, royalties and fees is a low percentage of these revenues and the fixed component is not substantial, period to period changes in revenues from licenses, royalties and fees can significantly affect both the gross profit from these sources as well as the Companys overall gross profit. Primarily due to the increase in revenues from licenses, royalties and fees in the first quarter of 2016 compared to the first quarter of 2015, the gross profit from licenses, royalties and fees increased to approximately 83% in the first quarter of 2016 from approximately 77% in the first quarter of 2015.
The gross profit of product and other sales, expressed as a percentage of revenues, is dependent on both the overall sales volumes of product and other sales and on the mix of the specific goods produced and/or sold. Primarily due to higher sales of inks and other products in the first quarter of 2016 compared to the first quarter of 2015, there was a higher gross profit from product and other sales of approximately 59% of revenues in the first quarter of 2016 compared to a gross profit of approximately 50% of revenues in the first quarter of 2015.
Research and development expenses increased to $37,600 in the first quarter of 2016 from $32,900 in the first quarter of 2015 due primarily to higher product development expenses in the first quarter of 2016 compared to the first quarter of 2015.
Sales and marketing expenses increased to $56,500 in the first quarter of 2016 from $49,900 in the first quarter of 2015 due primarily to higher commission expense on the higher level of revenues in the first quarter of 2016 compared to the first quarter of 2015.
8
General and administrative expenses increased in the first quarter of 2016 to $87,500 compared to $83,500 in the first quarter of 2015 due primarily to higher employment expenses and compliance expenses related to the Companys filing of its annual report on Form 10-K for 2015.
Other income (expenses) in the first quarter of 2016 and 2015 included interest on unsecured loans from three individuals and on convertible debentures held by ten investors.
The net income of $9,100 in the first quarter of 2016 compared to the net loss of $56,900 in the first quarter of 2015 resulted primarily from a higher gross profit on a higher level of revenues offset in part by higher operating expenses in the first quarter of 2016 compared to the first quarter of 2015.
Plan of Operation, Liquidity and Capital Resources
During the first quarter of 2016, the Companys cash increased to $48,400 at March 31, 2016 from $11,400 at December 31, 2015. During the first quarter of 2016, the Company generated $41,000 from its operating activities and repaid $4,000 to an individual lender.
During the first quarter of 2016, the Companys revenues increased approximately 50% primarily as a result of higher sales of ink to the authorized printer of four of the Companys licensees in the entertainment and toy products market and from higher licensing and royalty revenues from new and existing licensees. The Companys first quarter 2016 total overhead expenses increased compared to the 2015 first quarter total overhead expenses and the Companys interest expense decreased in the first quarter of 2016 compared to the first quarter of 2015. As a result of these factors, the Companys generated net income in the first quarter of 2016 compared to a net loss in the first quarter of 2015. The Company had positive operating cash flow of $41,000 during the first quarter of 2016. At March 31, 2016, the Company had negative working capital of $353,100 and a stockholders deficiency of $429,000. For the full year of 2015, the Company had a net loss of $18,000 and had positive operating cash flow of $41,800. At December 31, 2015, the Company had negative working capital of $364,000 and a $438,100 stockholders deficiency.
Since January 1, 2015, the Company has repaid $43,500 of $63,000 of short-term loans that had been outstanding at January 1, 2015. In 2015, the Company repaid $10,000 of convertible debentures and extended the maturity dates of $95,000 of convertible debentures from the third quarter of 2015 to the third quarter of 2017. Borrowings and sales of common stock in years prior to January 1, 2015 have allowed the Company to remain in operation through the current date. There can be no assurances that the Company will be able to secure sufficient additional funding through investments or borrowings that will allow the Company to fund losses that it presently believes may continue during 2016. The Company believes that without additional investment, it may be forced to cease operations at an undetermined date in the future.
The Companys plan of operation for the twelve months beginning with the date of this quarterly report consists of concentrating available human and financial resources to continue to capitalize on the specific business relationships the Company has developed in the entertainment and toy products market including two licensees with a significant presence in the entertainment and toy products market that have been marketing products incorporating the Companys technologies since 2012. These two licensees in the entertainment and toy products market are well known and highly regarded participants in this market. The Company believes that these two licensees will expand their offerings incorporating the Companys technologies currently being marketed and will introduce new products incorporating available technologies covered by the license agreements that are not currently being marketed by them. The Company plans to continue developing applications for these licensees while expanding its licensee base in the entertainment and toy market. The Company has additional licensees marketing or developing products incorporating the Companys technologies in certain niche markets of the overall entertainment and toy products market. In late 2015, the Company added a licensee who the Company believes will market products incorporating the Companys available technologies in certain international markets beginning in the second half of 2016. The Company maintains its presence in the retail loss prevention market and believes that revenue growth in this market can be achieved through increased security ink sales to its licensees in this market. The Company will continue to adjust its production and technical staff as necessary. The Company will also, subject to available financial resources, invest in capital equipment needed to support potential growth in ink production requirements beyond its current capacity. Additionally, the Company will pursue opportunities to market its current technologies in specific security and non-security markets. There can be no assurances that these efforts will enable the Company to generate additional revenues and positive cash flow.
The Company has received and may continue to seek additional capital, in the form of debt, equity or both, to support its working capital requirements. There can be no assurances that the Company will be successful in raising additional capital, or that such additional capital, if obtained, will enable the Company to generate additional revenues and positive cash flow.
9
The Company generates a significant portion of its total revenues from licensees in the entertainment and toy products market. These licensees generally sell their products through retail outlets. During the year, such sales may be adversely affected by changes in consumer spending that may occur as a result of an uncertain economic environment. As a result, the Companys revenues, results of operations and liquidity may be negatively impacted as they were in previous years.
Risk Factors
The Companys operating results, financial condition and stock price are subject to certain risks, some of which are beyond the Companys control. These risks could cause actual operating and financial results to differ materially from those expressed in the Companys forward-looking statements, including the risks described below and the risks identified in other documents which are filed and furnished with the SEC including the Companys Annual Report on Form 10-K for the year ended December 31, 2015 that was filed with the SEC on March 30, 2016:
Limited Interim Historical Information. In September 2015, the Company filed a comprehensive annual report on Form 10-K for the fiscal years ended December 31, 2012, 2013 and 2014. The Form 10-K contains summarized quarterly financial information for each of the quarters ended June 30 and September 30, 2012 and for each of the quarters ended March 31, June 30 and September 30, 2013 and 2014. As the complete periodic filings for those periods have not been filed, certain financial information, disclosures and discussions normally contained in a Form 10-Q were not included in the Form 10-K. The omission of the information that would have been contained in these periodic filings leaves current and prospective investors, customers, employees and others without this source of information about the Companys business achievements and prospects and may negatively impact the Companys business opportunities and its ability to raise capital. There can be no assurances that the Company will be able to remain current with its required SEC filing obligations in the future.
Access to Capital. The Company anticipates that it may need to raise capital in the future to fund its historical and new business operations. Negative or uncertain global economic conditions could make it more difficult for the Company to raise capital. If the Company is unable to secure capital, if needed, in the future, in the form debt, equity or both, it may be forced to cease operations. There can be no assurances that, if required, the Company will be successful in obtaining additional investment in sufficient amounts to fund its ongoing business operations.
Dependency on Major Customers. The Company is dependent on its licensees to develop new products and markets that will generate increases in its licensing and product revenues. The inability of the Companys licensees to maintain at least current levels of sales of products utilizing the Companys technologies could adversely affect the Companys operating results and cash flow. To the extent that the Companys licensees are affected by negative economic conditions, the Companys revenues may also be negatively impacted. The Company derives a significant percentage of its revenues through licensing relationships with two major customers. Revenues obtained directly from these two licensees and indirectly, through the licensees third party authorized printer, equaled approximately 75% of the Companys revenues in the first quarter of 2016 and approximately 73% of the Companys revenues in 2015. The Company also has, from time to time, substantial receivables from these businesses. The Company has a license agreement containing guaranteed minimum royalties expiring in 2019 with one of these two licensees and a license with the second that expires in 2017. Products incorporating the Companys technologies that are sold by these two licensees have certain dissimilar characteristics and are marketed generally through distinctly different channels of distribution. These two licensees are well known and highly regarded participants in the entertainment and toy products market. The agreements with both licensees contain renewal options but there can be no assurances that the licenses will continue in force at the same or more favorable terms beyond their current termination dates, nor can there be any assurances that the relationships with these two licensees will generate increased revenues for the Company in the future.
Possible Inability to Develop New Business. Management of the Company believes that any significant improvement in the Companys cash flow must result from increases in revenues from traditional sources and from new revenue sources. The Company raised cash through additional capital investment and loans from investors in 2012, 2013 and 2014. The Company also benefited from limiting increases in its operating expenses and reducing its operating expenses when possible. The Companys ability to develop new revenues may depend on the extent of its marketing activities and its research and development activities, both of which are limited. There are no assurances that the resources that the Company can devote to marketing and to research and development will be sufficient to increase its revenues to levels that will enable it to maintain positive operating cash flow in the future.
10
Inability to Obtain Raw Materials and Products for Resale. The Companys adverse financial condition in the past has required it to significantly defer payments due to (i) vendors who supply raw materials and other components of the lines of inks marketed by the Company, (ii) providers of professional and other services and (iii) certain employees to whom salary and sales commissions are owed. As a result, the Company is required to pay cash in advance of shipment to certain of its suppliers. The inability to obtain materials on a timely basis and the possibility that certain vendors may permanently discontinue supplying the Company with needed products and services threaten to result in delayed shipments to customers and further impact the Companys ability to service its customers, thereby adversely affecting the Companys relationships with its customers and licensees. There can be no assurances that the Company will be able to maintain its vendor relationships in an acceptable manner.
Uneven Pattern of Quarterly and Annual Operating Results. The Companys revenues, which are derived primarily from licensing, royalties and sales of products incorporating its technologies, are difficult to forecast; such forecasting difficulty is due to, among other reasons, the long sales cycle of the Companys technologies, the potential for customer delay or deferral of implementation of the Companys technologies, the size and timing of inception of individual license agreements, the success of the Companys 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 Companys revenue base is not substantial, delays in finalizing license contracts, implementing the technology to initiate the revenue stream and ordering decisions of customers can have a material adverse effect on the Companys quarterly and annual revenue expectations. As the Companys operating expenses are substantially fixed, income expectations will be subject to a similar adverse outcome. As licensees for the entertainment and toy products markets are added, the predictability of the Companys revenue stream may be further impacted.
Volatility of Stock Price. The market price for the Companys common stock has historically experienced significant fluctuations and may continue to do so. From inception, with the exception of 2007, 2013 and 2014, the Company has operated at a loss and has not produced revenue levels traditionally associated with publicly-traded companies. The Companys 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. Additionally, securities analysts and traders do not extensively follow the Companys stock and its stock is thinly traded. The Companys 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 Companys common stock.
Intellectual Property. The Company relies on a combination of protections as may be available under applicable domestic, foreign or international patent, trademark and trade secret laws. The Company also relies on confidentiality, non-analysis and licensing agreements to establish and protect its rights in its proprietary technologies. While the Company attempts to protect these rights, its technologies may be compromised through reverse engineering, independent invention or other means. In addition, the Companys ability to enforce its intellectual property rights through appropriate legal action has been and will continue to be limited by its adverse liquidity. There can be no assurances that the Company will be able to protect the basis of its technologies from discovery by third parties or to preclude third parties from conducting activities that infringe on the Companys rights. The Companys adverse liquidity situation also impacts its ability to obtain patent protection on its intellectual property and to maintain protection on previously issued patents. 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 Companys customer and licensee relationships could be adversely affected, and the value of the Companys technologies and intellectual property (including their value upon liquidation) could be substantially diminished.
Economic Conditions. The Companys revenue is susceptible to changes in general economic conditions. The Companys sales, liquidity and overall results of operations may be negatively affected by decreasing consumer confidence, slowdowns in consumer spending or other downturns in the U.S. economy as a whole or in any geographic markets from which the Company derives revenue. In addition, these factors may result in decreased customer and licensee demand for the Companys products and may negatively impact the Companys ability to develop new customers and licensees. Due to uncertainties surrounding the worldwide economy, the Company is unable to predict the effect of such conditions on its customers and licensees. Consequently, the Company cannot predict the scope or magnitude of the negative effect resulting from ongoing global financial uncertainties or economic slowdowns.
Recently Adopted Accounting Pronouncements
As of March 31, 2016 and for the period then ended, there were no recently adopted accounting pronouncements that had a material effect on the Companys financial statements.
11
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. The amendments in this Update provide guidance about managements responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entitys ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related footnote disclosures. Substantial doubt about an entitys ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. Management is assessing the impact of the adoption to the financial statements.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures
The Company has carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Companys disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded, as of the end of the period covered by this report, that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified within the rules and forms of the SEC, and are designed to ensure that information required to be disclosed by the Company in these reports is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.
(b) Changes in Internal Control over Financial Reporting
There have been no changes in the Companys internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
12
PART II - OTHER INFORMATION
(a) Exhibits
| 31.1 | Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certifications 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. |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
13
Pursuant to the requirement of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| NOCOPI TECHNOLOGIES, INC. |
|
|
|
DATE: May 16, 2016 |
| /s/ Michael A. Feinstein, M.D. |
|
| Michael A. Feinstein, M.D. |
|
| Chairman of the Board, President & Chief Executive Officer |
|
|
|
DATE: May 16, 2016 |
| /s/ Rudolph A. Lutterschmidt |
|
| Rudolph A. Lutterschmidt |
|
| Vice President & Chief Financial Officer |
14
31.1 | Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certifications 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. |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | XBRL Taxonomy Extension Label Linkbase |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
15
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Michael A. Feinstein, M.D., Chief Executive Officer of Nocopi Technologies, Inc., certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Nocopi Technologies, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary 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 this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 this report;
4.
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 16, 2016
/s/ Michael A. Feinstein, M.D.
Michael A. Feinstein, M.D.
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Rudolph A. Lutterschmidt, Vice President and Chief Financial Officer of Nocopi Technologies, Inc., certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Nocopi Technologies, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary 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 this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 this report;
4.
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (registrants fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 16, 2016
/s/ Rudolph A. Lutterschmidt
Rudolph A. Lutterschmidt
Vice President and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Nocopi Technologies, Inc. (the "Company") on Form 10-Q for the Quarter ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Michael A. Feinstein, M.D., Chief Executive Officer, and Rudolph A. Lutterschmidt, Chief Financial Officer of the Company, 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.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
May 16, 2016
/s/ Michael A. Feinstein, M.D.
Michael A. Feinstein, M.D.
/s/ Rudolph A. Lutterschmidt
Rudolph A. Lutterschmidt
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
May. 01, 2016 |
|
Document And Entity Information | ||
Entity Registrant Name | NOCOPI TECHNOLOGIES INC/MD/ | |
Entity Central Index Key | 0000888981 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 58,599,016 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2016 |
Statements of Operations - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Revenues | ||
Licenses, royalties and fees | $ 112,800 | $ 78,100 |
Product and other sales | 170,000 | 110,300 |
Total revenues | 282,800 | 188,400 |
Cost of revenues | ||
Licenses, royalties and fees | 19,600 | 18,200 |
Product and other sales | 69,100 | 55,600 |
Total cost of revenues | 88,700 | 73,800 |
Gross profit | 194,100 | 114,600 |
Operating expenses | ||
Research and development | 37,600 | 32,900 |
Sales and marketing | 56,500 | 49,900 |
General and administrative | 87,500 | 83,500 |
Total operating expenses | 181,600 | 166,300 |
Net income (loss) from operations | 12,500 | (51,700) |
Other income (expenses) | ||
Interest expense, bank charges and accretion of interest | (3,400) | (5,200) |
Total other income (expenses) | (3,400) | (5,200) |
Net income (loss) | $ 9,100 | $ (56,900) |
Basic and diluted net income (loss) per per common share | $ 0.00 | $ 0.00 |
Weighted average common shares outstanding | ||
Basic | 58,599,016 | 58,599,016 |
Diluted | 58,600,159 | 58,599,016 |
Balance Sheets (Parenthetical) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 5,000 | $ 5,000 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 75,000,000 | 75,000,000 |
Common stock, shares issued | 58,599,016 | 58,599,016 |
Common stock, shares outstanding | 58,599,016 | 58,599,016 |
Statements of Cash Flows - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Operating Activities | ||
Net income (loss) | $ 9,100 | $ (56,900) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||
Depreciation and amortization | 1,800 | 1,200 |
Accretion of interest - convertible debentures | 200 | 1,400 |
Net loss adjusted for non-cash operating activities | 11,100 | (54,300) |
(Increase) decrease in assets | ||
Accounts receivable | (15,000) | 68,100 |
Inventory | 5,400 | (11,000) |
Prepaid and other | 16,000 | 5,600 |
Increase (decrease) in liabilities | ||
Accounts payable and accrued expenses | 30,000 | $ 3,200 |
Deferred revenue | (6,500) | |
Total increase in operating capital | 29,900 | $ 65,900 |
Net cash provided by operating activities | 41,000 | 11,600 |
Financing Activities | ||
Repayment of demand loans | (4,000) | (11,000) |
Net cash used in financing activities | (4,000) | (11,000) |
Increase in cash | 37,000 | 600 |
Cash at beginning of year | 11,400 | 28,000 |
Cash at end of period | $ 48,400 | $ 28,600 |
Financial Statements |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Financial Statements | Note 1. Financial Statements The accompanying unaudited condensed financial statements have been prepared by Nocopi Technologies, Inc. (the Company). These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in the summary of Accounting Policies included in the Company's 2015 Annual Report on Form 10-K. Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The Notes to Financial Statements included in the 2015 Annual Report on Form 10-K should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three months ended March 31, 2016 may not be necessarily indicative of the operating results expected for the full year. The Company follows Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 220 in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Since the Company has no items of other comprehensive income, comprehensive income (loss) is equal to net income (loss). |
Going Concern |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Going Concern [Abstract] | |
Going Concern |
Note 2. Going Concern Since its inception, the Company has incurred significant losses and, as of March 31, 2016, had accumulated losses of $13,441,600. For the three months ended March 31, 2016, the Company had net income from operations of $12,500. At March 31, 2016, the Company had negative working capital of $353,100 and a stockholders deficiency of $429,000. For the year ended December 31, 2015, the Companys net loss from operations was $38,700. Due in part to uncertainties in the US economy, the Company, which is substantially dependent on its licensees to generate licensing revenues, may incur operating losses and experience negative cash flow in the future. Achieving profitability and positive cash flow depends on the Companys 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 return to and sustain profitability and positive cash flow in the future. Receipt of funds in periods prior to 2015 from investors and from demand loan holders have allowed the Company to remain in operation through the current date. Management of the Company believes that it may need additional capital in the future both to fund investments needed to increase its operating revenues to levels that will sustain its operations and to fund operating deficits that it believes may occur until revenue increases from traditional and new product lines can be realized. 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 impact its revenues so as to have a material positive effect on the Companys operations and cash flow. The Company believes that without additional capital, whether in the form of debt, equity or both, it may be forced to cease operations at an undetermined future date. |
Stock Based Compensation |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock Based Compensation | Note 3. Stock Based Compensation The Company follows FASB ASC 718, Compensation Stock Compensation, and uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. At March 31, 2016, the Company did not have an active stock option plan. There was no unrecognized portion of expense related to stock option grants at March 31, 2016. |
Demand Loans |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Debt Disclosure [Abstract] | |
Demand Loans | Note 4. Demand Loans At March 31, 2016, the Company had unsecured loans totaling $19,500 from two individuals outstanding. The loans bear interest at 8%. During the first three months of 2016, the Company repaid $4,000 of the unsecured loans. |
Convertible Debentures |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Debentures |
Note 5. Convertible Debentures At March 31, 2016, the Company had convertible debentures totaling $128,000 outstanding, of which $33,000 are due during the third quarter of 2016 and $95,000 are due during the third quarter of 2017. The convertible debentures bear interest at 7%. At the option of the lender, $95,000 principal of the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.025 per share and $33,000 principal of the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.05 per share. The Company also granted warrants to purchase 691,365 shares of the Companys common stock at $0.02 per share to the holders of the debentures. The warrants are exercisable two years after issuance and expire seven years after issuance. The fair value of the warrants was determined using the Black-Scholes pricing model. The relative fair value of the warrants was recorded as a discount to the notes payable with an offsetting credit to additional paid-in capital since the Company determined that the warrants were an equity instrument in accordance with FASB ASC 815. The debt discount related to the warrant issuances is being accreted through interest expense over the term of the notes payable. For the three months ended March 31, 2016 and March 31, 2015, approximately $200 and $1,400, respectively, was accreted through interest expense. The following table summarizes all warrant activity of the Company since December 31, 2015:
|
Other Income (Expenses) |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Other Income and Expenses [Abstract] | |
Other Income (Expenses) |
Note 6. Other Income (Expenses) Other income (expenses) in the three months ended March 31, 2016 and March 31, 2015 includes interest on unsecured loans from three individuals and on convertible debentures held by ten investors. |
Income Taxes |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Note 7. Income Taxes There is no provision for income taxes for the three months ended March 31, 2016 due to the availability of net operating loss carryforwards. There is no income tax benefit for the losses for the three months ended March 31, 2015 because the Company has determined that the realization of the net deferred tax asset is not assured. The Company has created a valuation allowance for the entire amount of such benefits. There was no change in unrecognized tax benefits during the period ended March 31, 2016 and there was no accrual for uncertain tax positions as of March 31, 2016. Tax years from 2011 through 2015 remain subject to examination by U.S. federal and state jurisdictions. |
Related Party Transactions |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | Note 8. Related Party Transactions In January 2016, the Company paid $15,000 to Michael A. Feinstein, M.D., the Companys Chairman of the Board and Chief Executive Officer, representing a portion of previously deferred salary owed to him under an employment agreement with the Company. During the first quarter of 2016, Dr. Feinstein deferred $21,250 of salary. At March 31, 2016, Dr. Feinstein was owed $296,600 of salary deferred by him. |
Earnings (Loss) per Share |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Weighted average common shares outstanding | |
Earnings (Loss) per Share | Note 9. Earnings (Loss) per Share In accordance with FASB ASC 260, Earnings per Share, basic earnings (loss) per common share is computed using net earnings (loss) divided by the weighted average number of common shares outstanding for the periods presented. The computation of diluted earnings per common share involves the assumption that outstanding common shares are increased by shares issuable upon exercise of those warrants for which the market price exceeds the exercise price. The number of shares issuable upon the exercise of such warrants is decreased by shares that could have been purchased by the Company with related proceeds. For the three months ended March 31, 2016, the number of incremental common shares resulting from the assumed conversion of warrants was 1,143. Because the Company reported a net loss for the three months ended March 31, 2015, common stock equivalents, consisting of warrants to purchase common stock, were anti-dilutive. |
Major Customer and Geographic Information |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Major Customer and Geographic Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Major Customer and Geographic Information | Note 10. Major Customer and Geographic Information The Companys revenues, expressed as a percentage of total revenues, from non-affiliated customers that equaled 10% or more of the Companys total revenues were:
The Companys non-affiliate customers, whose individual balances amounted to more than 10% of the Companys net accounts receivable, expressed as a percentage of net accounts receivable, were:
The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company also maintains allowances for potential credit losses. The loss of a major customer could have a material adverse effect on the Companys business operations and financial condition. The Companys revenues by geographic region are as follows:
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Convertible Debentures (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Warrants Outstanding |
The following table summarizes all warrant activity of the Company since December 31, 2015:
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Major Customer and Geographic Information (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Revenues from Non-affiliated Customers |
The Companys revenues, expressed as a percentage of total revenues, from non-affiliated customers that equaled 10% or more of the Companys total revenues were:
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Schedule of Non-affiliated Customers with Accounts Receivable More Than 10% | The Companys non-affiliate customers, whose individual balances amounted to more than 10% of the Companys net accounts receivable, expressed as a percentage of net accounts receivable, were:
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Schedule of Revenue by Geographic Region | The Companys revenues by geographic region are as follows:
|
Going Concern (Details) - USD ($) |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
Going Concern [Abstract] | |||
Accumulated deficit | $ 13,441,600 | $ 13,450,700 | |
Working capital deficit | 353,100 | ||
Operating income (loss) | 12,500 | $ (51,700) | (38,700) |
Stockholders' deficiency | $ 429,000 | $ 438,100 |
Stock Based Compensation (Details) |
Mar. 31, 2016
USD ($)
|
---|---|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Unrecognized portion of expense related to stock option grants |
Demand Loans (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
Debt Instrument [Line Items] | |||
Demand loans | $ 19,500 | $ 23,500 | |
Repayment of demand loans | 4,000 | $ 11,000 | |
Unsecured Debt [Member] | |||
Debt Instrument [Line Items] | |||
Demand loans | $ 19,500 | ||
Debt instrument, interest rate | 8.00% | ||
Repayment of demand loans | $ 4,000 |
Convertible Debentures (Summary of Warrants Activity) (Details) - Warrant [Member] |
3 Months Ended |
---|---|
Mar. 31, 2016
$ / shares
shares
| |
Warrants | |
Warrants outstanding at beginning of period | shares | 756,365 |
Warrants expired | shares | 15,000 |
Warrants outstanding at end of period | shares | 741,365 |
Price | |
Warrants outstanding at beginning of period | $ / shares | $ 0.022 |
Warrants expired | $ / shares | 0.06 |
Warrants outstanding at end of period | $ / shares | $ 0.021 |
Convertible Debentures (Summary of Warrants Outstanding by Price Range) (Details) - Warrant [Member] - $ / shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
Share Based Compensation Shares Authorized Under Equity Instruments Other Than Options Exercise Price Range [Line Items] | ||
Warrants outstanding exercise price range, lower limit | $ .01 | $ 0.01 |
Warrants outstanding exercise price range, upper limit | .07 | $ 0.07 |
Warrants expired exercise price range, lower limit | 0.06 | |
Warrants expired exercise price range, upper limit | 0.06 | |
Warrants exercisable exercise price range, lower limit | 0.01 | |
Warrants exercisable exercise price range, upper limit | $ 0.07 | |
Weighted average remaining contractual life | 4 years 9 months 4 days | |
Warrants exercisable, number | 575,000 | |
Warrants exercisable, weighted average exercise price | $ 0.022 | |
Warrants exercisable, weighted average remaining contractual life | 4 years 29 days |
Income Taxes (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Income Tax Contingency [Line Items] | ||
Income tax provision | ||
Change in unrecognized tax benefits during the period | ||
Accrual for uncertain tax positions | ||
Minimum [Member] | ||
Income Tax Contingency [Line Items] | ||
Tax years open for examination | 2011 | |
Maximum [Member] | ||
Income Tax Contingency [Line Items] | ||
Tax years open for examination | 2015 |
Related Party Transactions (Details) - Chief Executive Officer [Member] - USD ($) |
1 Months Ended | 3 Months Ended |
---|---|---|
Jan. 31, 2016 |
Mar. 31, 2016 |
|
Related Party Transaction [Line Items] | ||
Deferred salary paid to related party | $ 15,000 | |
Portion of salary to related party deferred during period | $ 21,250 | |
Deferred salary owed to related party | $ 296,600 |
Earnings (Loss) per Share (Details) |
3 Months Ended |
---|---|
Mar. 31, 2016
shares
| |
Weighted average common shares outstanding | |
Number of incremental common shares resulting from the assumed conversion of warrants | 1,143 |
Major Customer and Geographic Information (Schedule of Revenues from Non-affiliated Customers) (Details) - Revenue [Member] |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Customer A [Member] | ||
Revenue, Major Customer [Line Items] | ||
Risk percentage | 51.00% | 51.00% |
Customer B [Member] | ||
Revenue, Major Customer [Line Items] | ||
Risk percentage | 22.00% | 27.00% |
Major Customer and Geographic Information (Schedule of Non-affiliated Customers with Accounts Receivable) (Details) - Accounts Receivable [Member] |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
Customer A [Member] | ||
Concentration Risk [Line Items] | ||
Risk percentage | 54.00% | 31.00% |
Customer B [Member] | ||
Concentration Risk [Line Items] | ||
Risk percentage | 23.00% | 25.00% |
Major Customer and Geographic Information (Schedule of Revenue by Geographic Region) (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Revenues | $ 282,800 | $ 188,400 |
North America [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Revenues | 126,000 | 89,600 |
Asia [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Revenues | 149,400 | $ 98,800 |
Australia [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Revenues | $ 7,400 |
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