0001553350-16-002626.txt : 20161110 0001553350-16-002626.hdr.sgml : 20161110 20161110102115 ACCESSION NUMBER: 0001553350-16-002626 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 46 CONFORMED PERIOD OF REPORT: 20160930 FILED AS OF DATE: 20161110 DATE AS OF CHANGE: 20161110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOCOPI TECHNOLOGIES INC/MD/ CENTRAL INDEX KEY: 0000888981 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 870406496 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20333 FILM NUMBER: 161986412 BUSINESS ADDRESS: STREET 1: 480 SHOEMAKER ROAD STREET 2: SUITE 104 CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 BUSINESS PHONE: 6108349600 MAIL ADDRESS: STREET 1: 480 SHOEMAKER ROAD STREET 2: SUITE 104 CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 10-Q 1 nnup_10q.htm QUARTERLY REPORT Quarterly Report

 



 

 

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 September 30, 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

(Registrant’s 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 issuer’s classes of common stock, as of the latest practicable date. 58,599,016 shares of common stock, par value $0.01, as of November 10, 2016.


 

 





 


NOCOPI TECHNOLOGIES, INC.

INDEX


 

PAGE

Part I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

1

 

 

Statements of Operations for Three Months and Nine Months ended September 30, 2016 and September 30, 2015

1

Balance Sheets at September 30, 2016 and December 31, 2015

2

Statements of Cash Flows for Nine Months ended September 30, 2016 and September 30, 2015

3

Notes to Financial Statements

4

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

8

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

14

 

 

Item 4.

Controls and Procedures

14

 

 

Part II. OTHER INFORMATION

 

 

 

Item 6.

Exhibits

15

 

 

SIGNATURES

16

 

 

EXHIBIT INDEX

17




 


PART I – FINANCIAL INFORMATION


Item 1. Financial Statements


Nocopi Technologies, Inc.

Statements of Operations*

(unaudited)


 

 

Three Months ended September 30

 

 

Nine Months ended September 30

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Licenses, royalties and fees

 

$

170,300

 

 

$

76,700

 

 

$

381,800

 

 

$

233,600

 

Product and other sales

 

 

373,400

 

 

 

159,700

 

 

 

648,100

 

 

 

507,900

 

 

 

 

543,700

 

 

 

236,400

 

 

 

1,029,900

 

 

 

741,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Licenses, royalties and fees

 

 

36,500

 

 

 

19,000

 

 

 

73,000

 

 

 

61,000

 

Product and other sales

 

 

156,900

 

 

 

63,300

 

 

 

275,200

 

 

 

207,100

 

 

 

 

193,400

 

 

 

82,300

 

 

 

348,200

 

 

 

268,100

 

Gross profit

 

 

350,300

 

 

 

154,100

 

 

 

681,700

 

 

 

473,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

33,700

 

 

 

31,300

 

 

 

103,700

 

 

 

95,300

 

Sales and marketing

 

 

72,800

 

 

 

49,100

 

 

 

176,700

 

 

 

154,300

 

General and administrative

 

 

69,900

 

 

 

101,600

 

 

 

224,200

 

 

 

253,000

 

 

 

 

176,400

 

 

 

182,000

 

 

 

504,600

 

 

 

502,600

 

Net income (loss) from operations

 

 

173,900

 

 

 

(27,900

)

 

 

177,100

 

 

 

(29,200

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, bank charges and accretion of interest

 

 

(3,300

)

 

 

(21,900

)

 

 

(10,100

)

 

 

(32,200

)

 

 

 

(3,300

)

 

 

(21,900

)

 

 

(10,100

)

 

 

(32,200

)

Net income (loss)

 

$

170,600

 

 

(49,800

)

 

$

167,000

 

 

(61,400

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per common share

 

$

.00

 

 

(.00

)

 

$

.00

 

 

(.00

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

58,599,016

 

 

 

58,599,016

 

 

 

58,599,016

 

 

 

58,599,016

 

Diluted

 

 

58,599,655

 

 

 

58,599,016

 

 

 

58,600,384

 

 

 

58,599,016

 



*See accompanying notes to these financial statements.




1



 


Nocopi Technologies, Inc.

Balance Sheets*


 

 

September 30

 

 

December 31

 

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

 

(audited)

 

Assets

 

Current assets

 

 

 

 

 

 

Cash

 

$

37,100

 

 

$

11,400

 

Accounts receivable less $5,000 allowance for    doubtful accounts

 

 

413,100

 

 

 

253,300

 

Inventory

 

 

73,300

 

 

 

36,600

 

Prepaid and other

 

 

11,900

 

 

 

22,600

 

Total current assets

 

 

535,400

 

 

 

323,900

 

 

 

 

 

 

 

 

 

 

Fixed assets

 

 

 

 

 

 

 

 

Leasehold improvements

 

 

19,700

 

 

 

19,700

 

Furniture, fixtures and equipment

 

 

178,300

 

 

 

176,900

 

 

 

 

198,000

 

 

 

196,600

 

Less: accumulated depreciation and amortization

 

 

181,200

 

 

 

175,700

 

 

 

 

16,800

 

 

 

20,900

 

Total assets

 

$

552,200

 

 

$

344,800

 

 

 

Liabilities and Stockholders' Deficiency

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Demand loans

 

$

10,000

 

 

$

23,500

 

Convertible debentures

 

 

128,300

 

 

 

32,800

 

Accounts payable

 

 

88,100

 

 

 

76,200

 

Accrued expenses

 

 

506,700

 

 

 

443,000

 

Deferred revenue

 

 

90,200

 

 

 

112,400

 

Total current liabilities

 

 

823,300

 

 

 

687,900

 

 

 

 

 

 

 

 

 

 

Convertible debentures

 

 

 

 

 

95,000

 

 

 

 

 

 

 

 

 

 

Stockholders' deficiency

 

 

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized – 75,000,000 shares

 

 

 

 

 

 

 

 

Issued and outstanding  – 58,599,016 shares

 

 

586,000

 

 

 

586,000

 

Paid-in capital

 

 

12,426,600

 

 

 

12,426,600

 

Accumulated deficit

 

 

(13,283,700

)

 

 

(13,450,700

)

Total stockholders' deficiency

 

 

(271,100

)

 

 

(438,100

)

Total liabilities and stockholders' deficiency

 

$

552,200

 

 

$

344,800

 



*See accompanying notes to these financial statements.






2



 


Nocopi Technologies, Inc.

Statements of Cash Flows*

(unaudited)


 

 

Nine Months ended September 30

 

 

 

2016

 

 

2015

 

Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$

167,000

 

 

(61,400

)

Adjustments to reconcile net income (loss) to net cash  provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,500

 

 

 

3,900

 

Accretion of interest – convertible debentures

 

 

500

 

 

 

21,000

 

 

 

 

173,000

 

 

 

(36,500

)

 

 

 

 

 

 

 

 

 

(Increase) decrease in assets

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(159,800

)

 

 

137,900

 

Inventory

 

 

(36,700

)

 

 

14,800

 

Prepaid and other

 

 

10,700

 

 

 

11,500

 

Increase (decrease) in liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

75,600

 

 

 

72,100

 

Deferred revenue

 

 

(22,200

)

 

 

(24,100

)

 

 

 

(132,400

)

 

 

212,200

 

Net cash provided by operating activities

 

 

40,600

 

 

 

175,700

 

 

 

 

 

 

 

 

 

 

Investment Activities

 

 

 

 

 

 

 

 

Additions to fixed assets

 

 

(1,400

)

 

 

(8,900

)

Net cash used in investing activities

 

 

(1,400

)

 

 

(8,900

)

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

Repayment of demand loans

 

 

(13,500

)

 

 

(30,000

)

Repayment of convertible debenture

 

 

 

 

 

(10,000

)

Net cash used in financing activities

 

 

(13,500

)

 

 

(40,000

)

 

 

 

 

 

 

 

 

 

Increase in cash

 

 

25,700

 

 

 

126,800

 

Cash at beginning of year

 

 

11,400

 

 

 

28,000

 

Cash at end of period

 

$

37,100

 

 

$

154,800

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

 

 

$

1,400

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non Cash Investing Activities

 

 

 

 

 

 

 

 

Write-off of fully depreciated furniture, fixtures and equipment

 

 

 

 

 

 

 

 

Accumulated depreciation and amortization

 

 

 

 

(8,800

)

Furniture, fixtures and equipment

 

 

 

 

$

8,800

 



*See accompanying notes to these financial statements.






3



 


NOCOPI TECHNOLOGIES, INC.

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 and nine months ended September 30, 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 September 30, 2016, had accumulated losses of $13,283,700. For the nine months ended September 30, 2016, the Company had net income from operations of $177,100. At September 30, 2016, the Company had negative working capital of $287,900 and a stockholders’ deficiency of $271,100. For the year ended December 31, 2015, the Company’s net loss from operations was $38,700. 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 ongoing profitability and positive cash flow depends on the Company’s ability to generate and maintain 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 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 if the Company is unable to continue to increase the revenue level and profits realized in the three months ended September 30, 2016 from traditional and new product lines. 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 Company’s 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 September 30, 2016, the Company did not have an active stock option plan. There was no unrecognized portion of expense related to stock option grants at September 30, 2016.


Note 4. Demand Loans


At September 30, 2016, the Company had a $10,000 unsecured loan from one individual outstanding. The loan bears interest at an annual rate of 8%. During the nine months ended September 30, 2016, the Company repaid the remaining $13,500 principal balance of an unsecured loan from a second individual.

 





4



NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



Note 5. Convertible Debentures


At September 30, 2016, the Company had convertible debentures totaling $128,300 outstanding, of which $33,300 were 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 in 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 $33,300 principal of the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.05 per share. In July 2015, the Company repaid, with interest, a $10,000 convertible debenture that had matured. During the third quarter of 2015, $95,000 of convertible debentures matured. The Company’s Board of Directors approved and the holders the convertible debentures accepted an offer of extension whereby (i) the maturity dates of the convertible debentures were extended for two years and (ii) the conversion rate of the debentures plus accrued interest into Common Stock was reduced from $0.05 to $0.025. In accordance with FASB ASC 470, this modification of the convertible debentures was recorded as a debt discount to the notes payable of approximately $18,100 with an offsetting credit to additional-paid in capital. In the three months and nine months ended September 30, 2015, the entire $18,100 was accreted through interest expense.


The Company is additionally negotiating the extension of the three convertible debentures totaling $33,300 that matured during the third quarter of 2016, one of which is held by a Director of the Company. The Company believes that extensions of the debentures can be achieved on acceptable terms.


The Company also granted warrants to purchase 691,365 shares of the Company’s 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 has been accreted through interest expense over the term of the notes payable. For the three months and nine months ended September 30, 2016, $0 and approximately $500, respectively, was accreted through interest expense. For the three months and nine months ended September 30, 2015, approximately $300 and $2,900, respectively, was accreted through interest expense.


The following table summarizes all warrant activity of the Company since December 31, 2015:


 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number

 

 

Exercise

 

 

Exercise

 

 

 

of Shares

 

 

Price

 

 

Price

 

Outstanding warrants -

  

                        

  

  

                        

  

  

                        

  

December 31, 2015

 

  

756,365

 

 

$

0.01 to $0.07

 

 

$

0.022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants expired

 

 

15,000

 

 

$

0.06

 

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

 

741,365

 

 

$

0.01 to $0.07

 

 

$

0.021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining

 

 

 

 

 

 

 

 

 

 

 

 

contractual life (years)

 

 

3.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

 

741,365

 

 

$

0.01 to $0.07

 

 

$

0.021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining

 

 

 

 

 

 

 

 

 

 

 

 

contractual life (years)

 

 

3.85

 

 

 

 

 

 

 

 

 




5



NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



Note 6. Other Income (Expenses)


Other income (expenses) in the three months and nine months ended September 30, 2016 and September 30, 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 and nine months ended September 30, 2016 due to the availability of net operating loss carryforwards. There is no income tax benefit for the losses for the three months and nine months ended September 30, 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 September 30, 2016 and there was no accrual for uncertain tax positions as of September 30, 2016.


Tax years from 2012 through 2015 remain subject to examination by U.S. federal and state jurisdictions.


Note 8. Related Party Transactions


In January 2016, the Company paid $15,000 to Michael A. Feinstein, M.D., the Company’s 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 nine months ended September 30, 2016, Dr. Feinstein deferred $63,800 of salary. At September 30, 2016, Dr. Feinstein was owed $339,200 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 stock options and warrants for which the market price exceeds the exercise price. The number of shares issuable upon the exercise of such stock options and warrants is decreased by shares that could have been purchased by the Company with related proceeds. For the three months and nine months ended September 30, 2016, the number of incremental common shares resulting from the assumed conversion of warrants was 639 and 1,368, respectively. Because the Company reported a net loss for the three months and nine months ended September 30, 2015, common stock equivalents, consisting of stock options and warrants, were anti-dilutive.


Note 10. Major Customer and Geographic Information


The Company’s revenues, expressed as a percentage of total revenues, from non-affiliated customers that equaled 10% or more of the Company’s total revenues were:


 

 

Three Months ended

September 30

 

 

Nine Months ended

September 30

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 Customer A

 

 

3

%

 

 

53

%

 

 

19

%

 

 

57

%

 Customer B

 

 

21

%

 

 

13

%

 

 

22

%

 

 

18

%

 Customer C

 

 

60

%

 

 

 

 

 

37

%

 

 

 




6



NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



The Company’s non-affiliate customers whose individual balances amounted to more than 10% of the Company’s net accounts receivable, expressed as a percentage of net accounts receivable, were:


 

 

September 30

 

 

December 31

 

 

 

2016

 

 

2015

 

Customer A

 

 

5

%

 

 

31

%

Customer B

 

 

28

%

 

 

25

%

Customer C

 

 

51

%

 

 

 


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 Company’s business operations and financial condition.


The Company’s revenues by geographic region are as follows:


 

 

Three Months ended

September 30

 

 

Nine Months ended

September 30

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

North America

 

$

184,900

 

 

$

110,000

 

 

$

411,300

 

 

$

308,600

 

Asia

 

 

351,400

 

 

 

126,400

 

 

 

596,400

 

 

 

432,900

 

Australia

 

 

7,400

 

 

 

 

 

 

22,200

 

 

 

 

 

 

$

543,700

 

 

$

236,400

 

 

$

1,029,900

 

 

$

741,500

 


Note 11. Subsequent Event


In October 2016, the Company paid $4,000 of accrued interest to an individual whose demand loan principal had been fully repaid.







7



 


Item 2. Management’s 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 Company’s 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 Company’s 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 today’s economic environment and the potential reduction in demand for the Company’s 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 Company’s 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 Management’s 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 Company’s audited Financial Statements and Notes thereto included in the Company’s 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 Company’s revenues are derived from (i) royalties paid by licensees of the Company’s technologies; (ii) fees for the provision of technical services to licensees; and (iii) the direct sale of (a) products incorporating the Company’s technologies, such as inks, security paper and pressure sensitive labels, and (b) 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 and/or additional royalties, which typically vary with the licensee’s sales or production of products incorporating the licensed technology. Technical services, in the form of on-site or telephone consultations by members of the Company’s technical staff, may be offered to licensees of the Company’s 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 (i) upon shipment of products; (ii) when the price is fixed or determinable; and (iii) when 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.




8



 


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 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. The addition of a substantial new customer or the loss of a substantial existing customer may also have a substantial effect on the Company’s total revenue, revenue mix and operating results.


Revenues for the third quarter of 2016 were $543,700 compared to $236,400 in the third quarter of 2015, an increase of $307,300, or approximately 130%. Licenses, royalties and fees increased by $93,600, or approximately 122%, to $170,300 in the third quarter of 2016 from $76,700 in the third quarter of 2015. The increase in licenses, royalties and fees is due primarily to higher quarterly licensing revenues from an existing licensee in the entertainment and toy products market who signed a new four-year license late in the second quarter of 2015 along with higher royalties from certain licensees, including one new licensee. There can be no assurances that the marketing and product development activities of the Company’s licensees or other businesses in the entertainment and toy products market will produce sustained increases 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 $213,700, or approximately 134%, to $373,400 in the third quarter of 2016 from $159,700 in the third quarter of 2015. Sales of ink increased in the third quarter of 2016 compared to the third quarter of 2015 due primarily to a significant volume of ink shipped in the third quarter of 2016 to a new third party authorized printer used by one of the Company’s major licensees in the entertainment and toy products market offset in part by lower ink shipments to the Company’s licensees in the retail receipt and document fraud market. In the third quarter of 2016, the Company derived revenues of approximately $490,100 from its licensees and their authorized printers in the entertainment and toy products market compared to revenues of approximately $181,400 in the third quarter of 2015.


For the first nine months of 2016, revenues were $1,029,900, representing an increase of $288,400, or approximately 39% higher than revenues of $741,500 in the first nine months of 2015. Licenses, royalties and fees of $381,800 in the first nine months of 2016 were $148,200, or approximately 63%, higher than licenses, royalties and fees of $233,600 in the first nine months of 2015. The increase in licenses, royalties and fees in the first nine months of 2016 compared to the first nine months of 2015 is due primarily to higher licensing revenues from existing licensees in the entertainment and toy products market.


Product and other sales increased by $140,200, or approximately 28%, to $648,100 in the first nine months of 2016 from $507,900 in the first nine months of 2015. Sales of ink increased in the first nine months of 2016 compared to the first nine months of 2015 due primarily to a higher volume of ink shipped to the third party authorized printers used by two of the Company’s major licensees in the entertainment and toy products market offset in part by lower ink shipments to the Company’s licensees in the retail receipt and document fraud market. The Company derived revenues of approximately $883,800 from licensees and their authorized printers in the entertainment and toy products market in the first nine months of 2016 compared to revenues of approximately $603,800 in the first nine months of 2015.


The Company’s gross profit increased to $350,300 in the third quarter of 2016, or approximately 64% of revenues, from $154,100 in the third quarter of 2015, or approximately 65% of revenues. Licenses, royalties and fees have historically carried a higher gross profit than product and other sales. Such other sales 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 higher gross profit in the third quarter of 2016 compared to the third quarter of 2015 results primarily from higher gross revenues from licenses, royalties and fees and from product and other sales in the third quarter of 2016 compared to the third quarter of 2015.




9



 


For the first nine months of 2016, gross profit was $681,700, or approximately 66% of revenues, compared to $473,400, or approximately 64% of revenues, in the first nine months of 2015. The higher gross profit in the first nine months of 2016 compared to the first nine months of 2015 results from the same positive factors as the increase in the third quarter of 2016 compared to the third quarter of 2015.


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 licenses, royalties and fees as well as overall gross profit. Primarily due to higher revenues from licenses, royalties and fees in the third quarter of 2016 compared to the third quarter of 2015, the gross profit from licenses, royalties and fees increased to approximately 79% of revenues in the third quarter of 2016 from approximately 75% of revenues in the third quarter of 2015. The gross profit from licenses, royalties and fees was approximately 81% in the first nine months of 2016 compared to approximately 74% in first nine months of 2015 resulting from the same factors as the third quarter of 2016 compared to the third quarter of 2015.


The gross profit, expressed as a percentage of revenues, of product and other sales 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. The gross profit from product and other sales decreased to approximately 58% of revenues in the third quarter of 2016 compared to approximately 60% of revenues in the third quarter of 2015. This decrease in the gross profit, expressed as a percentage of revenues was due primarily to a change in mix of products sold during the third quarter of 2016 compared to the third quarter of 2015. For the first nine months of 2016, the gross profit, expressed as a percentage of revenues, decreased to approximately 58% of revenues from product and other sales compared to approximately 59% of revenues from product and other sales in the first nine months of 2015.


Research and development expenses of $33,700 in the third quarter of 2016 and $103,700 in the first nine months of 2016 were comparable to $31,300 in the third quarter of 2015 and $95,300 in the first nine months of 2015.


Sales and marketing expenses increased to $72,800 in the third quarter of 2016 from $49,100 in the third quarter of 2015 and to $176,700 in the first nine months of 2016 from $154,300 in the first nine months of 2015. This increase is due primarily to higher commission expense on the higher level of sales in the third quarter and first nine months of 2016 compared to the third quarter and first nine months of 2015.


General and administrative expenses decreased in the third quarter and first nine months of 2016 to $69,900 and $224,200, respectively, from $101,600 and $253,000 in the third quarter and first nine months of 2015, respectively, due primarily to lower legal and audit expenses incurred in the third quarter and first nine months of 2016 compared to the third quarter and first nine months of 2015. In the third quarter of 2015, the Company incurred significant expenses related to the filing of the comprehensive annual report on Form 10-K and the first and second quarter 2015 Form 10-Q’s that were filed during the third quarter of 2015. These expenses included legal and audit fees in the third quarter and first nine months of 2015 as well as expenses related to the electronic filing of the documents.


Other income (expenses) in the third quarter and first nine months of 2016 and 2015 included interest on unsecured loans from three individuals and on convertible debentures held by ten investors. Other income (expenses) decreased to $3,300 in the third quarter of 2016 from $21,900 in the third quarter of 2015 and to $10,100 in the first nine months of 2016 from $32,200 in the first nine months of 2015. This decrease is due primarily to lower interest expense on the lower level of unsecured loans and convertible debentures and lower accretion of interest in the third quarter and first nine months of 2016 compared to the third quarter and first nine months of 2015.


The net income of $170,600 in the third quarter of 2016 compared to the net loss of $49,800 in the third quarter of 2015 resulted primarily from a higher gross profit on a higher level of revenues in the third quarter of 2016 compared to the third quarter of 2015 along with lower operating expenses, interest expense and accretion of interest in the third quarter of 2016 compared to the third quarter of 2015. The net income of $167,000 in the first nine months of 2016 compared to the net loss of $61,400 in the first nine months of 2015 resulted primarily from a higher gross profit on a higher level of revenues, lower interest expense and lower accretion of interest in the first nine months of 2016 compared to the first nine months of 2015 offset in part by higher operating expenses in the first nine months of 2016 compared to the first nine months of 2015.




10



 


Plan of Operation, Liquidity and Capital Resources


During the first nine months of 2016, the Company’s cash increased to $37,100 at September 30, 2016 from $11,400 at December 31, 2015. During the first nine months of 2016, the Company generated $40,600 from its operating activities, used $1,400 for capital equipment and repaid $13,500 to an individual lender.


During the first nine months of 2016, the Company’s revenues increased primarily as a result of significant sales of ink to a new authorized printer of one of the Company’s licensees in the entertainment and toy products market and higher license fees from a licensee in the entertainment and toy products market offset in part by lower sales of ink to an existing authorized printer for certain licensees in the entertainment and toy products market. The Company’s operating expenses increased nominally in the first nine months of 2016 compared to operating expenses in the first nine months of 2015. As a result of these factors, the Company recorded a net profit in the first nine months of 2016 compared to a net loss in the first nine months of 2015. The Company had positive operating cash flow of $40,600 during the first nine months of 2016. At September 30, 2016, the Company had negative working capital of $287,900 and a stockholders’ deficiency of $271,100. 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.


Through September 30, 2016, the Company repaid $53,000 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 be experienced in the future. The Company believes that without additional investment, it may be forced to cease operations at an undetermined date in the future.


The Company’s 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 Company’s 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 continue to expand their offerings incorporating the Company’s 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 Company’s 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 Company’s available technologies in certain international markets in late 2016 or early 2017. The Company maintains its presence in the retail loss prevention market and believes that revenue growth in this market could 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 continues 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.


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 Company’s revenues, results of operations and liquidity may be negatively impacted as they were in previous years.




11



 


Risk Factors


The Company’s operating results, financial condition and stock price are subject to certain risks, some of which are beyond the Company’s control. These risks could cause actual operating and financial results to differ materially from those expressed in the Company’s 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 Company’s 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 Company’s business achievements and prospects and may negatively impact the Company’s 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 would 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 Company’s licensees to maintain at least current levels of sales of products utilizing the Company’s technologies would adversely affect the Company’s operating results and cash flow. To the extent that the Company’s licensees are affected by negative economic conditions, the Company’s revenues would 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 printers, equaled approximately 87% and 81% of the Company’s revenues in the third quarter and first nine months of 2016, respectively, and approximately 73% of the Company’s revenues in 2015. Receivables from these two licensees and their third party authorized printers were approximately 87% and 58% of the Company’s net accounts receivable at September 30, 2016 and December 31, 2015, respectively. 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 Company’s 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 be renewed or that they will be renewed 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 Company’s 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 Company’s 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.




12



 


Inability to Obtain Raw Materials and Products for Resale. The Company’s 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 Company’s ability to service its customers, thereby adversely affecting the Company’s 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 Company’s 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 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 ordering decisions of customers can have a material adverse effect on the Company’s quarterly and annual revenue expectations. As the Company’s 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 Company’s revenue stream may be further impacted.


Volatility of Stock Price. The market price for the Company’s 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 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. Additionally, securities analysts and traders do not extensively follow the Company’s stock and its stock is thinly traded. The Company’s 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 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 Company’s 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 Company’s rights. The Company’s 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 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 liquidation) could be substantially diminished.


Economic Conditions. The Company’s revenue is susceptible to changes in general economic conditions. The Company’s 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 Company’s products and may negatively impact the Company’s 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 September 30, 2016 and for the period then ended, there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements.



13



 


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 Entity’s Ability to Continue as a Going Concern. The amendments in this Update provide guidance about management’s responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s 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 entity’s 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 Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded, as of the end of the period covered by this report, that the Company’s 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 Company’s 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.








14



 


PART II - OTHER INFORMATION


Item 6.  Exhibits


(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








15



 


SIGNATURES


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: November 10, 2016

 

/s/ Michael A. Feinstein, M.D.

 

 

Michael A. Feinstein, M.D.

 

 

Chairman of the Board, President & Chief Executive Officer

 

 

 

DATE: November 10, 2016

 

/s/ Rudolph A. Lutterschmidt

 

 

Rudolph A. Lutterschmidt

 

 

Vice President & Chief Financial Officer










16



 


EXHIBIT INDEX

 

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

  

 

 

 

 








17


EX-31.1 2 nnup_ex31z1.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER Certification

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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.


Date: November 10, 2016


/s/ Michael A. Feinstein, M.D.

Michael A. Feinstein, M.D.

Chief Executive Officer









EX-31.2 3 nnup_ex31z2.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER Certification

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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (registrant’s fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.


Date: November 10, 2016


/s/ Rudolph A. Lutterschmidt

Rudolph A. Lutterschmidt

Vice President and Chief Financial Officer









EX-32.1 4 nnup_ex32z1.htm CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Certification

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 September 30, 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.

November 10, 2016


/s/ Michael A. Feinstein, M.D.

Michael A. Feinstein, M.D.


/s/ Rudolph A. Lutterschmidt

Rudolph A. Lutterschmidt








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Document and Entity Information - shares
9 Months Ended
Sep. 30, 2016
Nov. 10, 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 Sep. 30, 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 Q3  
Document Fiscal Year Focus 2016  
XML 12 R2.htm IDEA: XBRL DOCUMENT v3.5.0.2
Statements of Operations - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Revenues        
Licenses, royalties and fees $ 170,300 $ 76,700 $ 381,800 $ 233,600
Product and other sales 373,400 159,700 648,100 507,900
Total revenues 543,700 236,400 1,029,900 741,500
Cost of revenues        
Licenses, royalties and fees 36,500 19,000 73,000 61,000
Product and other sales 156,900 63,300 275,200 207,100
Total cost of revenues 193,400 82,300 348,200 268,100
Gross profit 350,300 154,100 681,700 473,400
Operating expenses        
Research and development 33,700 31,300 103,700 95,300
Sales and marketing 72,800 49,100 176,700 154,300
General and administrative 69,900 101,600 224,200 253,000
Total operating expenses 176,400 182,000 504,600 502,600
Net income (loss) from operations 173,900 (27,900) 177,100 (29,200)
Other income (expenses)        
Interest expense, bank charges and accretion of interest (3,300) (21,900) (10,100) (32,200)
Total other income (expenses) (3,300) (21,900) (10,100) (32,200)
Net income (loss) $ 170,600 $ (49,800) $ 167,000 $ (61,400)
Basic and diluted net income (loss) per common share $ 0.00 $ 0.00 $ 0.00 $ 0.00
Weighted average common shares outstanding        
Basic 58,599,016 58,599,016 58,599,016 58,599,016
Diluted 58,599,655 58,599,016 58,600,384 58,599,016
XML 13 R3.htm IDEA: XBRL DOCUMENT v3.5.0.2
Balance Sheets - USD ($)
Sep. 30, 2016
Dec. 31, 2015
Current assets    
Cash $ 37,100 $ 11,400
Accounts receivable less $5,000 allowance for doubtful accounts 413,100 253,300
Inventory 73,300 36,600
Prepaid and other 11,900 22,600
Total current assets 535,400 323,900
Fixed assets    
Leasehold improvements 19,700 19,700
Furniture, fixtures and equipment 178,300 176,900
Fixed assets, gross 198,000 196,600
Less: accumulated depreciation and amortization 181,200 175,700
Total fixed assets 16,800 20,900
Total assets 552,200 344,800
Current liabilities    
Demand loans 10,000 23,500
Convertible debentures 128,300 32,800
Accounts payable 88,100 76,200
Accrued expenses 506,700 443,000
Deferred revenue 90,200 112,400
Total current liabilities 823,300 687,900
Convertible debentures 95,000
Stockholders' deficiency    
Common stock, $0.01 par value, Authorized - 75,000,000 shares, Issued and outstanding - 58,599,016 shares 586,000 586,000
Paid-in capital 12,426,600 12,426,600
Accumulated deficit (13,283,700) (13,450,700)
Total stockholders' deficiency (271,100) (438,100)
Total liabilities and stockholders' deficiency $ 552,200 $ 344,800
XML 14 R4.htm IDEA: XBRL DOCUMENT v3.5.0.2
Balance Sheets (Parenthetical) - USD ($)
Sep. 30, 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
XML 15 R5.htm IDEA: XBRL DOCUMENT v3.5.0.2
Statements of Cash Flows - USD ($)
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Operating Activities    
Net income (loss) $ 167,000 $ (61,400)
Adjustments to reconcile net income (loss) to net cash provided by operating activities    
Depreciation and amortization 5,500 3,900
Accretion of interest - convertible debentures 500 21,000
Net loss adjusted for non-cash operating activities 173,000 (36,500)
(Increase) decrease in assets    
Accounts receivable (159,800) 137,900
Inventory (36,700) 14,800
Prepaid and other 10,700 11,500
Increase (decrease) in liabilities    
Accounts payable and accrued expenses 75,600 72,100
Deferred revenue (22,200) (24,100)
Total increase in operating capital (132,400) 212,200
Net cash provided by operating activities 40,600 175,700
Investing Activities    
Additions to fixed assets (1,400) (8,900)
Net cash used in investing activities (1,400) (8,900)
Financing Activities    
Repayment of demand loans (13,500) (30,000)
Repayment of convertible debenture (10,000)
Net cash used in financing activities (13,500) (40,000)
Increase in cash 25,700 126,800
Cash at beginning of year 11,400 28,000
Cash at end of period 37,100 154,800
Supplemental Disclosure of Cash Flow Information    
Cash paid for interest 1,400
Write-off of fully depreciated furniture, fixtures and equipment    
Accumulated depreciation and amortization (8,800)
Furniture, fixtures and equipment $ 8,800
XML 16 R6.htm IDEA: XBRL DOCUMENT v3.5.0.2
Financial Statements
9 Months Ended
Sep. 30, 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 and nine months ended September 30, 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).

XML 17 R7.htm IDEA: XBRL DOCUMENT v3.5.0.2
Going Concern
9 Months Ended
Sep. 30, 2016
Going Concern [Abstract]  
Going Concern

Note 2. Going Concern


Since its inception, the Company has incurred significant losses and, as of September 30, 2016, had accumulated losses of $13,283,700. For the nine months ended September 30, 2016, the Company had net income from operations of $177,100. At September 30, 2016, the Company had negative working capital of $287,900 and a stockholders’ deficiency of $271,100. For the year ended December 31, 2015, the Company’s net loss from operations was $38,700. 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 ongoing profitability and positive cash flow depends on the Company’s ability to generate and maintain 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 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 if the Company is unable to continue to increase the revenue level and profits realized in the three months ended September 30, 2016 from traditional and new product lines. 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 Company’s 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.

XML 18 R8.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Based Compensation
9 Months Ended
Sep. 30, 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 September 30, 2016, the Company did not have an active stock option plan. There was no unrecognized portion of expense related to stock option grants at September 30, 2016.

XML 19 R9.htm IDEA: XBRL DOCUMENT v3.5.0.2
Demand Loans
9 Months Ended
Sep. 30, 2016
Debt Disclosure [Abstract]  
Demand Loans

Note 4. Demand Loans


At September 30, 2016, the Company had a $10,000 unsecured loan from one individual outstanding. The loan bears interest at an annual rate of 8%. During the nine months ended September 30, 2016, the Company repaid the remaining $13,500 principal balance of an unsecured loan from a second individual.

XML 20 R10.htm IDEA: XBRL DOCUMENT v3.5.0.2
Convertible Debentures
9 Months Ended
Sep. 30, 2016
Convertible Debt [Abstract]  
Convertible Debentures

Note 5. Convertible Debentures


At September 30, 2016, the Company had convertible debentures totaling $128,300 outstanding, of which $33,300 were 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 in 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 $33,300 principal of the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.05 per share. In July 2015, the Company repaid, with interest, a $10,000 convertible debenture that had matured. During the third quarter of 2015, $95,000 of convertible debentures matured. The Company’s Board of Directors approved and the holders the convertible debentures accepted an offer of extension whereby (i) the maturity dates of the convertible debentures were extended for two years and (ii) the conversion rate of the debentures plus accrued interest into Common Stock was reduced from $0.05 to $0.025. In accordance with FASB ASC 470, this modification of the convertible debentures was recorded as a debt discount to the notes payable of approximately $18,100 with an offsetting credit to additional-paid in capital. In the three months and nine months ended September 30, 2015, the entire $18,100 was accreted through interest expense.


The Company is additionally negotiating the extension of the three convertible debentures totaling $33,300 that matured during the third quarter of 2016, one of which is held by a Director of the Company. The Company believes that extensions of the debentures can be achieved on acceptable terms.


The Company also granted warrants to purchase 691,365 shares of the Company’s 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 has been accreted through interest expense over the term of the notes payable. For the three months and nine months ended September 30, 2016, $0 and approximately $500, respectively, was accreted through interest expense. For the three months and nine months ended September 30, 2015, approximately $300 and $2,900, respectively, was accreted through interest expense.


The following table summarizes all warrant activity of the Company since December 31, 2015:


 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number

 

 

Exercise

 

 

Exercise

 

 

 

of Shares

 

 

Price

 

 

Price

 

Outstanding warrants -

  

                        

  

  

                        

  

  

                        

  

December 31, 2015

 

  

756,365

 

 

$

0.01 to $0.07

 

 

$

0.022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants expired

 

 

15,000

 

 

$

0.06

 

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

 

741,365

 

 

$

0.01 to $0.07

 

 

$

0.021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining

 

 

 

 

 

 

 

 

 

 

 

 

contractual life (years)

 

 

3.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

 

741,365

 

 

$

0.01 to $0.07

 

 

$

0.021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining

 

 

 

 

 

 

 

 

 

 

 

 

contractual life (years)

 

 

3.85

 

 

 

 

 

 

 

 

 

XML 21 R11.htm IDEA: XBRL DOCUMENT v3.5.0.2
Other Income (Expenses)
9 Months Ended
Sep. 30, 2016
Other Income and Expenses [Abstract]  
Other Income (Expenses)

Note 6. Other Income (Expenses)


Other income (expenses) in the three months and nine months ended September 30, 2016 and September 30, 2015 includes interest on unsecured loans from three individuals and on convertible debentures held by ten investors.

XML 22 R12.htm IDEA: XBRL DOCUMENT v3.5.0.2
Income Taxes
9 Months Ended
Sep. 30, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

Note 7. Income Taxes


There is no provision for income taxes for the three months and nine months ended September 30, 2016 due to the availability of net operating loss carryforwards. There is no income tax benefit for the losses for the three months and nine months ended September 30, 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 September 30, 2016 and there was no accrual for uncertain tax positions as of September 30, 2016.


Tax years from 2012 through 2015 remain subject to examination by U.S. federal and state jurisdictions.

XML 23 R13.htm IDEA: XBRL DOCUMENT v3.5.0.2
Related Party Transactions
9 Months Ended
Sep. 30, 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 Company’s 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 nine months ended September 30, 2016, Dr. Feinstein deferred $63,800 of salary. At September 30, 2016, Dr. Feinstein was owed $339,200 of salary deferred by him.

XML 24 R14.htm IDEA: XBRL DOCUMENT v3.5.0.2
Earnings (Loss) per Share
9 Months Ended
Sep. 30, 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 stock options and warrants for which the market price exceeds the exercise price. The number of shares issuable upon the exercise of such stock options and warrants is decreased by shares that could have been purchased by the Company with related proceeds. For the three months and nine months ended September 30, 2016, the number of incremental common shares resulting from the assumed conversion of warrants was 639 and 1,368, respectively. Because the Company reported a net loss for the three months and nine months ended September 30, 2015, common stock equivalents, consisting of stock options and warrants, were anti-dilutive.

XML 25 R15.htm IDEA: XBRL DOCUMENT v3.5.0.2
Major Customer and Geographic Information
9 Months Ended
Sep. 30, 2016
Major Customer and Geographic Information [Abstract]  
Major Customer and Geographic Information

Note 10. Major Customer and Geographic Information


The Company’s revenues, expressed as a percentage of total revenues, from non-affiliated customers that equaled 10% or more of the Company’s total revenues were:


 

 

Three Months ended

September 30

 

 

Nine Months ended

September 30

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 Customer A

 

 

3

%

 

 

53

%

 

 

19

%

 

 

57

%

 Customer B

 

 

21

%

 

 

13

%

 

 

22

%

 

 

18

%

 Customer C

 

 

60

%

 

 

 

 

 

37

%

 

 

 


The Company’s non-affiliate customers whose individual balances amounted to more than 10% of the Company’s net accounts receivable, expressed as a percentage of net accounts receivable, were:


 

 

September 30

 

 

December 31

 

 

 

2016

 

 

2015

 

Customer A

 

 

5

%

 

 

31

%

Customer B

 

 

28

%

 

 

25

%

Customer C

 

 

51

%

 

 

 


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 Company’s business operations and financial condition.


The Company’s revenues by geographic region are as follows:


 

 

Three Months ended

September 30

 

 

Nine Months ended

September 30

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

North America

 

$

184,900

 

 

$

110,000

 

 

$

411,300

 

 

$

308,600

 

Asia

 

 

351,400

 

 

 

126,400

 

 

 

596,400

 

 

 

432,900

 

Australia

 

 

7,400

 

 

 

 

 

 

22,200

 

 

 

 

 

 

$

543,700

 

 

$

236,400

 

 

$

1,029,900

 

 

$

741,500

 

XML 26 R16.htm IDEA: XBRL DOCUMENT v3.5.0.2
Subsequent Events
9 Months Ended
Sep. 30, 2016
Subsequent Events [Abstract]  
Subsequent Event

Note 11. Subsequent Event


In October 2016, the Company paid $4,000 of accrued interest to an individual whose demand loan principal had been fully repaid.

XML 27 R17.htm IDEA: XBRL DOCUMENT v3.5.0.2
Convertible Debentures (Tables)
9 Months Ended
Sep. 30, 2016
Convertible Debt [Abstract]  
Schedule of Warrants Outstanding

The following table summarizes all warrant activity of the Company since December 31, 2015:


 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number

 

 

Exercise

 

 

Exercise

 

 

 

of Shares

 

 

Price

 

 

Price

 

Outstanding warrants -

  

                        

  

  

                        

  

  

                        

  

December 31, 2015

 

  

756,365

 

 

$

0.01 to $0.07

 

 

$

0.022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants expired

 

 

15,000

 

 

$

0.06

 

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

 

741,365

 

 

$

0.01 to $0.07

 

 

$

0.021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining

 

 

 

 

 

 

 

 

 

 

 

 

contractual life (years)

 

 

3.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

 

741,365

 

 

$

0.01 to $0.07

 

 

$

0.021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining

 

 

 

 

 

 

 

 

 

 

 

 

contractual life (years)

 

 

3.85

 

 

 

 

 

 

 

 

 

XML 28 R18.htm IDEA: XBRL DOCUMENT v3.5.0.2
Major Customer and Geographic Information (Tables)
9 Months Ended
Sep. 30, 2016
Segment Reporting [Abstract]  
Schedule of Revenues from Non-affiliated Customers

The Company’s revenues, expressed as a percentage of total revenues, from non-affiliated customers that equaled 10% or more of the Company’s total revenues were:


 

 

Three Months ended

September 30

 

 

Nine Months ended

September 30

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 Customer A

 

 

3

%

 

 

53

%

 

 

19

%

 

 

57

%

 Customer B

 

 

21

%

 

 

13

%

 

 

22

%

 

 

18

%

 Customer C

 

 

60

%

 

 

 

 

 

37

%

 

 

 

Schedule of Non-affiliated Customers with Accounts Receivable More Than 10%


The Company’s non-affiliate customers whose individual balances amounted to more than 10% of the Company’s net accounts receivable, expressed as a percentage of net accounts receivable, were:


 

 

September 30

 

 

December 31

 

 

 

2016

 

 

2015

 

Customer A

 

 

5

%

 

 

31

%

Customer B

 

 

28

%

 

 

25

%

Customer C

 

 

51

%

 

 

 

Schedule of Revenue by Geographic Region

The Company’s revenues by geographic region are as follows:


 

 

Three Months ended

September 30

 

 

Nine Months ended

September 30

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

North America

 

$

184,900

 

 

$

110,000

 

 

$

411,300

 

 

$

308,600

 

Asia

 

 

351,400

 

 

 

126,400

 

 

 

596,400

 

 

 

432,900

 

Australia

 

 

7,400

 

 

 

 

 

 

22,200

 

 

 

 

 

 

$

543,700

 

 

$

236,400

 

 

$

1,029,900

 

 

$

741,500

 

XML 29 R19.htm IDEA: XBRL DOCUMENT v3.5.0.2
Going Concern (Details) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
Going Concern [Abstract]          
Accumulated deficit $ 13,283,700   $ 13,283,700   $ 13,450,700
Working capital deficit 287,900   287,900    
Operating income (loss) 173,900 $ (27,900) 177,100 $ (29,200) (38,700)
Stockholders' deficiency $ 271,100   $ 271,100   $ 438,100
XML 30 R20.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Based Compensation (Details)
Sep. 30, 2016
USD ($)
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Unrecognized portion of expense related to stock option grants
XML 31 R21.htm IDEA: XBRL DOCUMENT v3.5.0.2
Demand Loans (Details) - USD ($)
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
Debt Instrument [Line Items]      
Demand loans $ 10,000   $ 23,500
Repayment of demand loans 13,500 $ 30,000  
Unsecured Debt [Member]      
Debt Instrument [Line Items]      
Demand loans $ 10,000    
Debt instrument, interest rate 8.00%    
Repayment of demand loans $ 13,500    
XML 32 R22.htm IDEA: XBRL DOCUMENT v3.5.0.2
Convertible Debentures (Narrative) (Details) - USD ($)
1 Months Ended 3 Months Ended 9 Months Ended
Jul. 31, 2015
Sep. 30, 2016
Sep. 30, 2015
Jun. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Debt Instrument [Line Items]            
Repayments of convertible debenture         $ 10,000
Interest expense   $ 3,300 $ 21,900   10,100 32,200
Convertible Debt [Member]            
Debt Instrument [Line Items]            
Convertible debt, amount outstanding   128,300     128,300  
Convertible debt due during the third quarter of 2016   33,300     33,300  
Convertible debt due during the third quarter of 2017   $ 95,000     $ 95,000  
Debt instrument, interest rate   7.00%     7.00%  
Repayments of convertible debenture $ 10,000          
Debt discount recognized on notes payable $ 18,100          
Accretion of debt discount recognized as interest expense           18,100
Number of shares of common stock that can be purchased through warrants   691,365     691,365  
Price per share of warrants   $ 0.02     $ 0.02  
Warrant exercisable term         2 years  
Warrant expiration term         7 years  
Pricing model used to value warrants         Black-Scholes pricing model  
Interest expense     $ 300 $ 500 $ 2,900
Convertible Debt [Member] | Conversion Price One [Member]            
Debt Instrument [Line Items]            
Amount of principal that can be converted         $ 95,000  
Debt instrument, conversion price per share   $ 0.025     $ 0.025  
Convertible Debt [Member] | Conversion Price Two [Member]            
Debt Instrument [Line Items]            
Amount of principal that can be converted         $ 33,300  
Debt instrument, conversion price per share   $ 0.05     $ 0.05  
XML 33 R23.htm IDEA: XBRL DOCUMENT v3.5.0.2
Convertible Debentures (Summary of Warrants Activity) (Details) - Warrant [Member]
9 Months Ended
Sep. 30, 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
XML 34 R24.htm IDEA: XBRL DOCUMENT v3.5.0.2
Convertible Debentures (Summary of Warrants Outstanding by Price Range) (Details) - Warrant [Member] - $ / shares
9 Months Ended
Sep. 30, 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 3 years 10 months 6 days  
Warrants exercisable, number 741,365  
Warrants exercisable, weighted average exercise price $ 0.021  
Warrants exercisable, weighted average remaining contractual life 3 years 10 months 6 days  
XML 35 R25.htm IDEA: XBRL DOCUMENT v3.5.0.2
Income Taxes (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Income Tax Contingency [Line Items]        
Income tax provision
Change in unrecognized tax benefits during the period      
Accrual for uncertain tax positions    
Minimum [Member]        
Income Tax Contingency [Line Items]        
Tax years open for examination     2012  
Maximum [Member]        
Income Tax Contingency [Line Items]        
Tax years open for examination     2015  
XML 36 R26.htm IDEA: XBRL DOCUMENT v3.5.0.2
Related Party Transactions (Details) - Chief Executive Officer [Member] - USD ($)
1 Months Ended 9 Months Ended
Jan. 31, 2016
Sep. 30, 2016
Related Party Transaction [Line Items]    
Deferred salary paid to related party $ 15,000  
Portion of salary to related party deferred during period   $ 63,800
Deferred salary owed to related party   $ 339,200
XML 37 R27.htm IDEA: XBRL DOCUMENT v3.5.0.2
Earnings (Loss) per Share (Details) - shares
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2016
Weighted average common shares outstanding    
Number of incremental common shares resulting from the assumed conversion of warrants 639 1,368
XML 38 R28.htm IDEA: XBRL DOCUMENT v3.5.0.2
Major Customer and Geographic Information (Schedule of Revenues from Non-affiliated Customers) (Details) - Revenue [Member]
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Customer A [Member]        
Revenue, Major Customer [Line Items]        
Risk percentage 3.00% 53.00% 19.00% 57.00%
Customer B [Member]        
Revenue, Major Customer [Line Items]        
Risk percentage 21.00% 13.00% 22.00% 18.00%
Customer C [Member]        
Revenue, Major Customer [Line Items]        
Risk percentage 60.00% 37.00%
XML 39 R29.htm IDEA: XBRL DOCUMENT v3.5.0.2
Major Customer and Geographic Information (Schedule of Non-affiliated Customers with Accounts Receivable) (Details) - Accounts Receivable [Member]
9 Months Ended 12 Months Ended
Sep. 30, 2016
Dec. 31, 2015
Customer A [Member]    
Concentration Risk [Line Items]    
Risk percentage 5.00% 31.00%
Customer B [Member]    
Concentration Risk [Line Items]    
Risk percentage 28.00% 25.00%
Customer C [Member]    
Concentration Risk [Line Items]    
Risk percentage 51.00%
XML 40 R30.htm IDEA: XBRL DOCUMENT v3.5.0.2
Major Customer and Geographic Information (Schedule of Revenue by Geographic Region) (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Revenues from External Customers and Long-Lived Assets [Line Items]        
Revenues $ 543,700 $ 236,400 $ 1,029,900 $ 741,500
North America [Member]        
Revenues from External Customers and Long-Lived Assets [Line Items]        
Revenues 184,900 110,000 411,300 308,600
Asia [Member]        
Revenues from External Customers and Long-Lived Assets [Line Items]        
Revenues 351,400 126,400 596,400 432,900
Australia [Member]        
Revenues from External Customers and Long-Lived Assets [Line Items]        
Revenues $ 7,400 $ 22,200
XML 41 R31.htm IDEA: XBRL DOCUMENT v3.5.0.2
Subsequent Events (Details) - USD ($)
1 Months Ended 9 Months Ended
Oct. 31, 2016
Sep. 30, 2016
Sep. 30, 2015
Subsequent Event [Line Items]      
Repayment of demand loans   $ 13,500 $ 30,000
Subsequent Event [Member]      
Subsequent Event [Line Items]      
Repayment of demand loans $ 4,000    
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