10-Q

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

(Mark One)

þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2019

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 every Interactive Data File required to be submitted 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 such files). Yes þ  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ¨	Accelerated filer   ¨
Non-accelerated filer     þ	Smaller reporting company  þ
	Emerging growth company  ¨

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No þ

Securities registered pursuant to Section 12(b) of the Act:  None.

Title of each class Trading Symbol(s) Name of each exchange on which registered

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 58,616,716 shares of common stock, par value $0.01, as of May 9, 2019.

NOCOPI TECHNOLOGIES, INC.

INDEX

	PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements	1
Statements of Operations for Three Months ended March 31, 2019 and March 31, 2018	1
Balance Sheets at March 31, 2019 and December 31, 2018	2
Statements of Cash Flows for Three Months ended March 31, 2019 and March 31, 2018	3
Statements of Stockholders’ Equity for Three Months ended March 31, 2019 and March 31, 2018	4
Notes to Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 4. Controls and Procedures	13
Part II. OTHER INFORMATION
Item 6. Exhibits	14
SIGNATURES	15
EXHIBIT INDEX	16

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Nocopi Technologies, Inc.

Statements of Operations*

(unaudited)

	Three Months ended March 31
	2019			2018
Revenues
Licenses, royalties and fees	$	190,500		$	174,900
Product and other sales		218,900			250,500
		409,400			425,400
Cost of revenues
Licenses, royalties and fees		25,200			25,000
Product and other sales		90,300			92,200
		115,500			117,200
Gross profit		293,900			308,200
Operating expenses
Research and development		38,000			37,100
Sales and marketing		68,900			70,100
General and administrative		94,100			102,700
		201,000			209,900
Net income from operations		92,900			98,300
Other income (expenses)
Interest income		1,100			400
Interest expense and bank charges		(2,700	)		(2,900	)
		(1,600	)		(2,500	)
Net income before income taxes		91,300			95,800
Income taxes		5,900			–
Net income	$	85,400		$	95,800
Basic and diluted net income per common share	$	.00		$	.00
Weighted average common shares outstanding
Basic		58,616,716			58,616,716
Diluted		59,001,489			58,911,883

*See accompanying notes to these financial statements.

1

Nocopi Technologies, Inc.

Balance Sheets*

	March 31			December 31
	2019			2018
	(unaudited)			(audited)
Assets
Current assets
Cash	$	544,000		$	400,800
Accounts receivable less $5,000 allowance for doubtful accounts		642,800			579,000
Inventory		146,100			133,500
Prepaid and other		36,700			43,600
Total current assets		1,369,600			1,156,900
Fixed assets
Leasehold improvements		19,700			19,700
Furniture, fixtures and equipment		185,400			185,400
		205,100			205,100
Less: accumulated depreciation and amortization		199,000			197,600
		6,100			7,500
Other assets
Long-term receivables		1,255,000			1,352,000
Operating lease right of use – building		231,500			–
		1,486,500			1,352,200
Total assets	$	2,862,200		$	2,516,600
Liabilities and Stockholders' Equity
Current liabilities
Convertible debentures	$	128,300		$	128,300
Accounts payable		18,400			16,500
Accrued expenses		190,800			163,000
Income taxes		98,900			38,600
Operating lease liability – current		39,700			–
Total current liabilities		476,100			346,400
Other liabilities
Accrued expenses, non-current		87,900			94,700
Deferred income taxes		54,400			108,800
Operating lease liability – non-current		191,700			–
		334,000			203,500
Stockholders' equity
Common stock, $0.01 par value
Authorized – 75,000,000 shares
Issued and outstanding – 58,616,716 shares		586,200			586,200
Paid-in capital		12,440,000			12,440,000
Accumulated deficit		(10,974,100	)		(11,059,500	)
Total stockholders' equity		2,052,100			1,966,700
Total liabilities and stockholders' equity	$	2,862,200		$	2,516,600

*See accompanying notes to these financial statements.

2

Nocopi Technologies, Inc.

Statements of Cash Flows*

(unaudited)

	Three Months ended March 31
	2019			2018
Operating Activities
Net income	$	85,400		$	95,800
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization		1,400			1,800
Deferred income taxes		(54,400	)		–
Non-current assets and liabilities – net		90,300			–
Cumulative effect of accounting change		–			96,100
		122,700			193,700
(Increase) decrease in assets
Accounts receivable		(63,800	)		(90,500	)
Inventory		(12,600	)		2,000
Prepaid and other		6,900			(14,900	)
Increase (decrease) in liabilities
Accounts payable and accrued expenses		29,700			(4,900	)
Taxes on income		60,300			–
Deferred revenue		–			(99,400	)
		20,500			(207,700	)
Net cash provided by (used in) operating activities		143,200			(14,000	)
Cash at beginning of year		400,800			360,400
Cash at end of period	$	544,000		$	346,400
Supplemental Disclosure of Non Cash Lease Activities
Operating lease right of use – building	$	241,100		$	–
Operating lease liability	$	(241,100	)	$	–

*See accompanying notes to these financial statements.

3

Nocopi Technologies, Inc.

Statements of Stockholders’ Equity*

For the Periods December 31, 2018 through March 31, 2019 and December 31, 2017 through March 31, 2018

(unaudited)

	Common stock				Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance – December 31, 2018		58,616,716	$	586,200	$	12,440,000	$	(11,059,500	)	$	1,966,700
Net income								85,400			85,400
Balance – March 31, 2019		58,616,716	$	586,200	$	12,440,000	$	(10,974,100	)	$	2,052,100

	Common stock				Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance – December 31, 2017		58,616,716	$	586,200	$	12,440,000	$	(12,811,000	)	$	215,200
Cumulative effect of accounting change at January 1, 2018, Note 2								96,100			96,100
Net income								95,800			95,800
Balance – March 31, 2018		58,616,716	$	586,200	$	12,440,000	$	(12,619,100	)	$	407,100

* See accompanying notes to these financial statements.

4

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. (our “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 our Company's 2018 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 our Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The Notes to Financial Statements included in the 2018 Annual Report on Form10-K should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three months ended March 31, 2019 may not be necessarily indicative of the operating results expected for the full year.

Our 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 our Company has no items of other comprehensive income, comprehensive income is equal to net income.

Note 2. Revenues

On January 1, 2018, our Company adopted ASU 214-09, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective method. Results for periods beginning on or after January 1, 2018 are presented under Topic 606; however, prior period amounts are not adjusted and continue to be reported in accordance with Topic 605, Revenue Recognition, which was in effect for those periods.

Our Company recorded a decrease to the opening balance of the accumulated deficit of $96,100 and a corresponding charge to deferred revenue as of January 1, 2018 due to the cumulative impact of the adoption of Topic 606. The impact to the revenue for the quarter ended March 31, 2018 as a result of applying Topic 606 was not material. The disclosure of disaggregated revenue is disclosed in Note 10.

The adoption of the new guidance affected our recognition of revenue from licenses and royalties. Under our previous accounting practice, we recognized revenue from licenses and royalties on a straight-line basis over the term of the related license agreement. As a result of our adoption of the new guidance, we will recognize revenue from licensees and royalties at a point in time when the term begins.

The change in accumulated deficit on our Balance Sheet at March 31, 2018, including the aggregate impact of the change in accounting principles which was effective on January 1, 2018, was as follows:

Accumulated deficit – January 1, 2018	$	(12,811,000	)
Net earnings		95,800
Cumulative effect of accounting change		96,100
Accumulated deficit – March 31, 2018	$	(12,619,100	)

5

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

Note 3. Stock Based Compensation

Our Company follows FASB ASC 718, Compensation – Stock Compensation, and uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. At March 31, 2019, our Company did not have an active stock option plan. There was no unrecognized portion of expense related to stock option grants at March 31, 2019.

Note 4. Line of Credit

In November 2018, our Company negotiated a $150,000 revolving line of credit with a bank to provide a source of working capital, if required. The line of credit is secured by all the assets of our Company and bears interest at the bank’s prime rate for a period of one year and its prime rate plus 1.5% thereafter. The line of credit is subject to an annual review and quiet period. There have been no borrowings under the line of credit since its inception.

Note 5. Convertible Debentures

At March 31, 2019, our Company had convertible debentures totaling $128,300 outstanding, which are due during the third quarter of 2019. The convertible debentures bear interest at 7%. At the option of the lender, the debentures and accrued interest are convertible in whole or part into common stock of our Company at $0.025 per share. During the third quarter of 2018, our Company’s Board of Directors approved and the holders of all $128,300 of convertible debentures agreed to extend the maturity dates of those convertible debentures for one year to the third quarter of 2019 with no change in the terms or conditions of the debentures.

Our Company also granted warrants to purchase 691,365 shares of our 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 our 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.

The following table summarizes our Company’s warrant position at March 31, 2019 and December 31, 2018:

					Weighted Average
	Number		Exercise		Exercise
	of Shares		Price		Price
Outstanding warrants -
December 31, 2018		691,365	$	0.02	$	0.02
Outstanding warrants -
March 31, 2019		691,365	$	0.02	$	0.02
Weighted average remaining
contractual life (years)		1.58
Exercisable warrants -
March 31, 2019		691,365	$	0.02	$	0.02

6

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

Note 6. Other Income (Expenses)

Other income (expenses) for the three months ended March 31, 2019 and March 31, 2018 includes interest on debentures held by nine investors.

Note 7. Income Taxes

There is no provision for federal income taxes for the three months ended March 31, 2019 and March 31, 2018 due to the availability of net operating loss carryforwards. Our Company has established a valuation allowance for the entire amount of benefits resulting from our Company’s net operating loss carryforwards because our Company has determined that the realization of the net deferred tax asset is not assured.

The components for state income tax expense resulting from the limitation on the use of net operating losses are:

	Three months ended
	March 31,
	2019			2018
Current state taxes	$	60,300			–
Deferred state taxes		(54,400	)		–
	$	5,900			–

There was no change in unrecognized tax benefits during the period ended March 31, 2019 and there was no accrual for uncertain tax positions as of March 31, 2019.

Tax years from 2015 through 2018 remain subject to examination by U.S. federal and state jurisdictions.

Note 8. Related Party Transactions

During the three months ended March 31, 2018, our Company paid $70,900 to Michael A. Feinstein, M.D., our 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 our Company. During the three month period ended March 31, 2018, Dr. Feinstein deferred $21,250 of salary. The deferred salary was fully repaid to Dr. Feinstein during 2018 and, at March 31, 2019, there was no deferred salary owed to him. There was no interest payable on the deferred salary.

Note 9. Earnings per Share

In accordance with FASB ASC 260, Earnings per Share, basic earnings per common share is computed using net earnings divided by the weighted average number of common shares outstanding for the periods presented. The computation of diluted earnings per common share involves the assumption that outstanding common shares are increased by shares issuable upon exercise of those warrants for which the market price exceeds the exercise price. The number of shares issuable upon the exercise of such warrants is decreased by shares that could have been purchased by our Company with related proceeds. For the three months ended March 31, 2019 and March 31, 2018, the number of incremental common shares resulting from the assumed conversion of warrants was 384,773 and 295,167, respectively.

Note 10. Major Customer and Geographic Information

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

	Three Months ended March 31
	2019			2018
Customer A		34	%		40	%
Customer B		30	%		27	%
Customer C		12	%		15	%

7

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

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

	March 31			December 31
	2019			2018
Customer B		87	%		86	%

Our Company performs ongoing credit evaluations of its customers and generally does not require collateral. Our Company also maintains allowances for potential credit losses. The loss of a major customer could have a material adverse effect on our Company’s business operations and financial condition.

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

	Three Months ended March 31
	2019		2018
North America	$	216,600	$	184,900
South America		–		1,500
Asia		192,800		239,000
	$	409,400	$	425,400

Note 11. Leases

Our Company conducts its operations in leased facilities under a non-cancelable operating lease expiring in 2024.

Due to the adoption of the new lease standard under the optional transition method which allows the entity to apply the new lease standard at the adoption date, our Company has capitalized the present value of the minimum lease payments commencing January 1, 2019, using an estimated incremental borrowing rate of 6%. The minimum lease payments do not include common area annual expenses which are considered to be non-lease components.

As of January 1, 2019 the operating lease right-of-use asset and operating lease liability amounted to $241,100 with no cumulative-effect adjustment to the opening balance of accumulated deficit.

There are no other material operating leases. Our Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases.

Future minimum lease payments under non-cancelable operating leases with initial or remaining terms of one year or more at March 31, 2019 are: $37,800 – 2019; $51,600  – 2020; $53,100 – 2021; $54,600 – 2022; $56,200 – 2023 and $18,900 – 2024.

Total lease expense under operating leases for the three months ended March 31, 2019 and March 31, 2018 was $13,300 and $11,300, respectively.

Maturities of lease liabilities were as follows:

	Operating Leases
Year ending December 31
2019	$	50,000
2020		51,600
2021		53,100
2022		54,600
2023		56,200
2024		18,900
Total lease payments		284,400
Less imputed interest		(43,300	)
Total	$	241,100

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

This report on Form 10-Q contains, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding:

· Expected operating results, such as revenue growth and earnings

· Anticipated levels of capital expenditures for fiscal year 2019 and beyond

· Current or future volatility in market conditions

· Our belief that we have sufficient liquidity to fund our business operations during the next twelve months

· Strategy for customer retention, growth, product development, market position, financial results and reserves

· Strategy for risk management

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

· The extent to which we are successful in gaining new long-term relationships with customers or retaining significant existing customers and the level of service failures that could lead customers to use competitors' services.

· Our ability to improve our current credit rating with our vendors and the impact on our raw materials and other costs and competitive position of doing so.

· The impact of losing our intellectual property protections or the loss in value of our intellectual property.

· Changes in customer demand.

· The adequacy of our cash flow and earnings and other conditions which may affect our ability to timely service our debt obligations.

· The occurrence of hostilities, political instability or catastrophic events.

· Such other factors as discussed throughout Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in this report, and throughout Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2018.

Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

The following discussion and analysis should be read in conjunction with our Condensed financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management. This information should also be read in conjunction with our audited historical financial statements which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the Securities and Exchange Commission on March 29, 2019.

9

Background Overview

Nocopi Technologies, Inc. develops and markets specialty reactive inks for applications in the large educational and toy products market. We also develop and market technologies for document and product authentication, which we believe can reduce losses caused by fraudulent document reproduction or by product counterfeiting and/or diversion. We derive our revenues primarily from licensing our technologies on an exclusive or non-exclusive basis to licensees who incorporate our technologies into their product offering and from selling products incorporating our technologies to the licensees or to their licensed printers.

Unless the context otherwise requires, all references to the “Company,” “we,” “our” or “us” and other similar terms means Nocopi Technologies, Inc., a Maryland corporation.

Results of Operations

Our Company’s revenues are derived from (a) royalties paid by licensees of our technologies, (b) fees for the provision of technical services to licensees and (c) from the direct sale of (i) products incorporating our technologies, such as inks, security paper and pressure sensitive labels, and (ii) equipment used to support the application of our technologies, such as ink-jet printing systems. Royalties consist of guaranteed minimum royalties payable by our licensees in certain cases and additional royalties which typically vary with the licensee’s sales or production of products incorporating the licensed technology. Service fees and sales revenues vary directly with the number of units of service or product provided.

Our Company recognizes revenue on its lines of business as follows:

a.	License fees for the use of our technology and royalties with guaranteed minimum amounts are recognized at a point in time when the term begins;
b.	Product sales are recognized at the time of the transfer of goods to customers at an amount that our Company expects to be entitled to in exchange for these goods, which is at the time of shipment; and
c.	Fees for technical services are recognized at the time of the transfer of services to customers at an amount that our Company expects to be entitled to in exchange for the services, which is when the service has been rendered.

We believe that, as fixed cost reductions beyond those we have achieved in recent years may not be achievable, our 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 amount of our Company’s revenues and the mix among the various sources of revenue are subject to substantial fluctuation. We have 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 our Company’s total revenue, revenue mix and overall financial performance. Such changes may result from a substantial customer’s product development delays, engineering changes, changes in product marketing strategies, production requirements and the like. In addition, certain customers have, from time to time, sought to renegotiate certain provisions of their license agreements and, when our Company agrees to revise such terms, revenues from the customer may be affected.

Revenues for the first quarter of 2019 were $409,400 compared to $425,400 in the first quarter of 2018, a decrease of $16,000, or approximately 4%. Licenses, royalties and fees increased by $15,600, or approximately 9%, in the first quarter of 2019 to $190,500 from $174,900 in the first quarter of 2018. The increase in licenses, royalties and fees is due primarily to higher royalty revenue received from two licensees offset in part by lower royalty revenue received from a licensee. There can be no assurances that the marketing and product development activities of our Company’s licensees or other businesses in the entertainment and toy products market will produce a significant increase in revenues for our Company, nor can the timing of any potential revenue increases be predicted, particularly given the uncertain economic conditions being experienced worldwide.

10

Product and other sales decreased by $31,600, or approximately 13%, to $218,900 in the first quarter of 2019 from $250,500 in the first quarter of 2018. Sales of ink decreased in the first quarter of 2019 compared to the first quarter of 2018 due primarily to lower ink shipments to the third party authorized printers used by two of our Company’s major licensees in the entertainment and toy products market offset in part by higher ink shipments to our Company’s licensees in the retail receipt and document fraud market. In the first quarter of 2019, our Company derived revenues of approximately $335,900 from our Company’s licensees and their authorized printers in the entertainment and toy products market compared to revenues of approximately $369,300 in the first quarter of 2018.

Our Company’s gross profit decreased to $293,900, or approximately 72% of gross revenues, in the first quarter of 2019 from $308,200, or approximately 72% of gross revenues, in the first quarter of 2018. Licenses, royalties and fees have historically carried a higher gross profit than product and other sales, which generally consist of either supplies or other manufactured products which incorporate our Company’s technologies or equipment used to support the application of its technologies. These items (except for inks which are manufactured by our Company) are generally purchased from third-party vendors and resold to the end-user or licensee and carry a lower gross profit than licenses, royalties and fees.

As the variable component of cost of revenues related to licenses, royalties and fees is a low percentage of these revenues and the fixed component is not substantial, period to period changes in revenues from licenses, royalties and fees can significantly affect both the gross profit from these sources as well as our Company’s overall gross profit. The gross profit from licenses, royalties and fees increased to approximately 87% in the first quarter of 2019 from approximately 86% in the first quarter of 2018.

The gross profit of product and other sales, expressed as a percentage of revenues, is dependent on both the overall sales volumes of product and other sales and on the mix of the specific goods produced and/or sold. Primarily due to lower sales of inks and other products and a favorable product mix in the first quarter of 2019 compared to the first quarter of 2018, there was a lower gross profit from product and other sales of approximately 59% of revenues in the first quarter of 2019 compared to a gross profit of approximately 63% of revenues in the first quarter of 2018.

Research and development expenses of $38,000 in the first quarter of 2019 were comparable to $37,100 in the first quarter of 2018.

Sales and marketing expenses decreased to $68,900 in the first quarter of 2019 from $70,100 in the first quarter of 2018 due primarily to lower commission expense on the lower level of revenues in the first quarter of 2019 compared to the first quarter of 2018.

General and administrative expenses decreased in the first quarter of 2019 to $94,100 compared to $102,700 in the first quarter of 2018 due primarily to lower legal and patent related expenses in the first quarter of 2019 compared to the first quarter of 2018.

Other income (expenses) in the first quarter of 2019 and 2018 included interest on convertible debentures held by nine investors.

Income taxes in the first quarter of 2019 result from limitations placed on income tax net operating loss deductions by the Commonwealth of Pennsylvania.

The lower net income of $85,400 in the first quarter of 2019 compared to $95,800 in the first quarter of 2018 resulted primarily from a lower gross profit on a lower level of revenues in the first quarter of 2019 compared to the first quarter of 2018 and income taxes resulting from a change in Pennsylvania tax law offset in part by lower operating expenses in the first quarter of 2019 compared to the first quarter of 2018.

Plan of Operation, Liquidity and Capital Resources

During the first quarter of 2019, our Company’s cash increased to $544,000 at March 31, 2019 from $400,800 at December 31, 2018. During the first quarter of 2019, our Company generated $143,200 from its operating activities.

During the first quarter of 2019, our Company’s revenues decreased approximately 4% primarily as a result of lower sales of ink to the authorized printers of our Company’s licensees in the entertainment and toy products market offset in part by higher royalty revenues from a licensee in the entertainment and toy products market.

11

Our total overhead expenses and our Company’s net interest expense decreased in the first quarter of 2019 compared to the first quarter of 2018 and our Company’s income tax expense increased in the first quarter of 2019 compared to the first quarter of 2018. As a result of these factors, our Company generated net income of $85,400 in the first quarter of 2019 compared to $95,800 in first quarter of 2018. Our Company had positive operating cash flow of $143,200 during the first quarter of 2019. At March 31, 2019, our Company had positive working capital of $893,500 and stockholders’ equity of $2,052,100. For the full year of 2018, our Company had net income of $1,655,400 and had positive operating cash flow of $40,900. At December 31, 2018, our Company had positive working capital of $810,500 and stockholders’ equity of $1,966,700.

Our Company has $128,300 of convertible debentures outstanding that are due during the third quarter of 2019. These borrowings allowed our Company to remain in operation through late 2016 when our Company’s cash flow increased significantly.

Our Company has a $150,000 revolving line of credit with a bank that provides a source of working capital, if required. At March 31, 2019, there were no outstanding borrowings under the line of credit.

We may need to obtain additional capital in the future to support the working capital requirements associated with our existing revenue base and to fund the potential negative impact on our profitability that could occur if our licensees experience significant declines in sales of products utilizing our Company’s technologies. We cannot assure you that we will be successful in obtaining sufficient additional capital, or if we do so, that the additional capital will enable our Company to continue to operate profitably in the future and develop new revenue sources to have a material positive effect on our Company’s operations and cash flow.

We continue to maintain a cost containment program including curtailment, where possible, of discretionary research and development and sales and marketing expenses.

Our 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 our Company has developed in the entertainment and toy products market. This includes two licensees that have been marketing products incorporating our Company’s technologies since 2012. These two licensees maintain a significant presence in the entertainment and toy products market and are well known and highly regarded participants in this market. We anticipate that these two licensees will expand their current offerings that incorporate our technologies and will introduce and market new products that will incorporate our technologies available to them under their license agreements with our Company. We will continue to develop various applications for these licensees. We also plan to expand our licensee base in the entertainment and toy market. We currently have additional licensees marketing or developing products incorporating our technologies in certain geographic and niche markets of the overall entertainment and toy products market.

Our Company maintains its presence in the retail loss prevention market and believes that revenue growth in this market can be achieved through increased security ink sales to its licensees in this market. We will continue to adjust our production and technical staff as necessary and, subject to available financial resources, invest in capital equipment needed to support potential growth in ink production requirements beyond our current capacity. Additionally, we will pursue opportunities to market our current technologies in specific security and non-security markets. There can be no assurances that these efforts will enable our Company to generate additional revenues and positive cash flow.

Our Company has received and continues to seek additional capital, in the form of debt, equity or both, to support our working capital requirements and to provide funding for other business opportunities. We cannot assure you that we will be successful in raising additional capital, or that such additional capital, if obtained, will enable our Company to generate additional revenues and positive cash flow.

As previously stated, we generate a significant portion of our total revenues from licensees in the entertainment and toy products market. These licensees generally sell their products through retail outlets. In the future, 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, our revenues, results of operations and liquidity may be negatively impacted as they were in earlier years.

12

Contractual Obligations

As of March 31, 2019, there were no material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K filed with the SEC on March 29, 2019, other than those appearing in the notes to the financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and subsequent related updates. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from operating leases. The Company adopted the standard effective January 1, 2019 under the optional transition method which allows the entity to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the period of adoption. The standard had a material impact on the balance sheet (see Note 11).

Recently Issued Accounting Pronouncements Not Yet Adopted

As of March 31, 2019, there are no recently issued accounting standards not yet adopted which would have a material effect on our Company’s financial statements.

Off-Balance Sheet Arrangements

Our Company does not have any off-balance sheet arrangements.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our Company’s management, with the participation of our Company’s Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2019. Based on this evaluation, our Company’s Principal Executive Officer and Principal Financial Officer concluded that, as of March 31, 2019, our Company’s disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by our Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our Company’s management, including our Company’s Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

13

PART II - OTHER INFORMATION

Item 6.Exhibits

The following exhibits are included herein:

Exhibit No.	Description of Exhibit	Location
3.1	Amended and Restated Bylaws	Incorporated by reference to the Company’s Form 8-K filed on March 12, 2019
31.1	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Executive Officer of the Company.	Filed herewith
31.2	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Financial Officer of the Company.	Filed herewith
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Executive Officer and the Principal Financial Officer of the Company.	Filed herewith
101	XBRL

14

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: May 14, 2019	/s/ Michael A. Feinstein, M.D.
	Michael A. Feinstein, M.D.
	Chairman of the Board, President & Chief Executive Officer
DATE: May 14, 2019	/s/ Rudolph A. Lutterschmidt
	Rudolph A. Lutterschmidt
	Vice President & Chief Financial Officer

15

EXHIBIT INDEX

Exhibit No.	Description of Exhibit	Location
3.1	Amended and Restated Bylaws	Incorporated by reference to the Company’s Form 8-K filed on March 12, 2019
31.1	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Executive Officer of the Company.	Filed herewith
31.2	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Financial Officer of the Company.	Filed herewith
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Executive Officer and the Principal Financial Officer of the Company.	Filed herewith
101	XBRL

16

EX-31.1

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: May 14, 2019

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

Michael A. Feinstein, M.D.

Chief Executive Officer

EX-31.2

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: May 14, 2019

/s/ Rudolph A. Lutterschmidt

Rudolph A. Lutterschmidt

Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Nocopi Technologies, Inc.  (the "Company") on Form 10-Q for the Quarter ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Michael A. Feinstein, M.D., Chief Executive Officer, and Rudolph A. Lutterschmidt, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that;

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

May 14, 2019

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

Michael A. Feinstein, M.D.

Principal Executive Officer

/s/ Rudolph A. Lutterschmidt

Rudolph A. Lutterschmidt

Principal Financial Officer

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 09, 2019
Document And Entity Information
Entity Registrant Name	NOCOPI TECHNOLOGIES INC/MD/
Entity Central Index Key	0000888981
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		58,616,716
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2019

XML

Statements of Operations - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenues
Licenses, royalties and fees	$ 190,500	$ 174,900
Product and other sales	218,900	250,500
Total revenues	409,400	425,400
Cost of revenues
Licenses, royalties and fees	25,200	25,000
Product and other sales	90,300	92,200
Total cost of revenues	115,500	117,200
Gross profit	293,900	308,200
Operating expenses
Research and development	38,000	37,100
Sales and marketing	68,900	70,100
General and administrative	94,100	102,700
Total operating expenses	201,000	209,900
Net income from operations	92,900	98,300
Other income (expenses)
Interest income	1,100	400
Interest expense and bank charges	(2,700)	(2,900)
Total other income (expenses)	(1,600)	(2,500)
Net income before income taxes	91,300	95,800
Income taxes	5,900
Net income	$ 85,400	$ 95,800
Basic and diluted net income per common share	$ 0.00	$ 0.00
Weighted average common shares outstanding
Basic	58,616,716	58,616,716
Diluted	59,001,489	58,911,883

XML

Balance Sheets - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Current assets
Cash	$ 544,000	$ 400,800
Accounts receivable less $5,000 allowance for doubtful accounts	642,800	579,000
Inventory	146,100	133,500
Prepaid and other	36,700	43,600
Total current assets	1,369,600	1,156,900
Fixed assets
Leasehold improvements	19,700	19,700
Furniture, fixtures and equipment	185,400	185,400
Fixed assets, gross	205,100	205,100
Less: accumulated depreciation and amortization	199,000	197,600
Total fixed assets	6,100	7,500
Other assets
Long-term receivable	1,255,000	1,352,200
Operating lease right of use - building	231,500
Other assets	1,486,500	1,352,200
Total assets	2,862,200	2,516,600
Current liabilities
Convertible debentures	128,300	128,300
Accounts payable	18,400	16,500
Accrued expenses	190,800	163,000
Income taxes	98,900	38,600
Operating lease liability - current	39,700
Total current liabilities	476,100	346,400
Other liabilities
Accrued expenses, non-current	87,900	94,700
Deferred income taxes	54,400	108,800
Operating lease liability - non-current	191,700
Total other liabilities	334,000	203,500
Stockholders' equity
Common stock, $0.01 par value Authorized - 75,000,000 shares Issued and outstanding - 58,616,716	586,200	586,200
Paid-in capital	12,440,000	12,440,000
Accumulated deficit	(10,974,100)	(11,059,500)
Total stockholders' equity	2,052,100	1,966,700
Total liabilities and stockholders' equity	$ 2,862,200	$ 2,516,600

XML

Balance Sheets (Parenthetical) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
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	58,616,716	58,616,716
Common stock, shares outstanding	58,616,716	58,616,716

XML

Statements of Cash Flows - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Operating Activities
Net income	$ 85,400	$ 95,800
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization	1,400	1,800
Deferred income taxes	(54,400)
Non-current assets and liabilities - net	90,300
Cumulative effect of accounting change		96,100
Net income adjusted for non-cash operating activities	122,700	193,700
(Increase) decrease in assets
Accounts receivable	(63,800)	(90,500)
Inventory	(12,600)	2,000
Prepaid and other	6,900	(14,900)
Increase (decrease) in liabilities
Accounts payable and accrued expenses	29,700	(4,900)
Taxes on income	60,300
Deferred revenue		(99,400)
Total increase in operating capital	20,500	(207,700)
Net cash provided by (used in) operating activities	143,200	(14,000)
Increase (decrease) in cash	143,200	(14,000)
Cash at beginning of year	400,800	360,400
Cash at end of period	544,000	346,400
Supplemental Disclosure of Non Cash Lease Activities
Operating lease right of use - building	241,100
Operating lease liability	$ (241,100)

XML

Statements of Stockholders' Equity - USD ($)	Common Stock [Member]	Paid-In Capital [Member]	Accumulated Deficit [Member]	Total
Balance at Dec. 31, 2017	$ 586,200	$ 12,440,000	$ (12,811,000)	$ 215,200
Balance shares at Dec. 31, 2017	58,616,716
Cumulative effect of accounting change			96,100	96,100
Net income			95,800	95,800
Balance at Mar. 31, 2018	$ 586,200	12,440,000	(12,619,100)	407,100
Balance shares at Mar. 31, 2018	58,616,716
Balance at Dec. 31, 2018	$ 586,200	12,440,000	(11,059,500)	$ 1,966,700
Balance shares at Dec. 31, 2018	58,616,716			58,616,716
Net income			85,400	$ 85,400
Balance at Mar. 31, 2019	$ 586,200	$ 12,440,000	$ (10,974,100)	$ 2,052,100
Balance shares at Mar. 31, 2019	58,616,716			58,616,716

XML

Financial Statements

3 Months Ended

Mar. 31, 2019

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. (our “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 our Company's 2018 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 our Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The Notes to Financial Statements included in the 2018 Annual Report on Form10-K should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three months ended March 31, 2019 may not be necessarily indicative of the operating results expected for the full year.

Our 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 our Company has no items of other comprehensive income, comprehensive income is equal to net income.

XML

Revenues

3 Months Ended

Mar. 31, 2019

Revenue from Contract with Customer [Abstract]

Revenues

Note 2. Revenues

On January 1, 2018, our Company adopted ASU 214-09, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective method. Results for periods beginning on or after January 1, 2018 are presented under Topic 606; however, prior period amounts are not adjusted and continue to be reported in accordance with Topic 605, Revenue Recognition, which was in effect for those periods.

Our Company recorded a decrease to the opening balance of the accumulated deficit of $96,100 and a corresponding charge to deferred revenue as of January 1, 2018 due to the cumulative impact of the adoption of Topic 606. The impact to the revenue for the quarter ended March 31, 2018 as a result of applying Topic 606 was not material. The disclosure of disaggregated revenue is disclosed in Note 10.

The adoption of the new guidance affected our recognition of revenue from licenses and royalties. Under our previous accounting practice, we recognized revenue from licenses and royalties on a straight-line basis over the term of the related license agreement. As a result of our adoption of the new guidance, we will recognize revenue from licensees and royalties at a point in time when the term begins.

The change in accumulated deficit on our Balance Sheet at March 31, 2018, including the aggregate impact of the change in accounting principles which was effective on January 1, 2018, was as follows:

Accumulated deficit – January 1, 2018	$	(12,811,000	)
Net earnings		95,800
Cumulative effect of accounting change		96,100
Accumulated deficit – March 31, 2018	$	(12,619,100	)

XML

Stock Based Compensation

3 Months Ended

Mar. 31, 2019

Share-based Payment Arrangement [Abstract]

Stock Based Compensation

Note 3. Stock Based Compensation

Our Company follows FASB ASC 718, Compensation – Stock Compensation, and uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. At March 31, 2019, our Company did not have an active stock option plan. There was no unrecognized portion of expense related to stock option grants at March 31, 2019.

XML

Line of Credit

3 Months Ended

Mar. 31, 2019

Line of Credit Facility [Abstract]

Line of Credit

Note 4. Line of Credit

In November 2018, our Company negotiated a $150,000 revolving line of credit with a bank to provide a source of working capital, if required. The line of credit is secured by all the assets of our Company and bears interest at the bank’s prime rate for a period of one year and its prime rate plus 1.5% thereafter. The line of credit is subject to an annual review and quiet period. There have been no borrowings under the line of credit since its inception.

XML

Convertible Debentures

3 Months Ended

Mar. 31, 2019

Convertible Debt [Abstract]

Convertible Debentures

Note 5. Convertible Debentures

At March 31, 2019, our Company had convertible debentures totaling $128,300 outstanding, which are due during the third quarter of 2019. The convertible debentures bear interest at 7%. At the option of the lender, the debentures and accrued interest are convertible in whole or part into common stock of our Company at $0.025 per share. During the third quarter of 2018, our Company’s Board of Directors approved and the holders of all $128,300 of convertible debentures agreed to extend the maturity dates of those convertible debentures for one year to the third quarter of 2019 with no change in the terms or conditions of the debentures.

Our Company also granted warrants to purchase 691,365 shares of our 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 our 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.

The following table summarizes our Company’s warrant position at March 31, 2019 and December 31, 2018:

					Weighted Average
	Number		Exercise		Exercise
	of Shares		Price		Price
Outstanding warrants -
December 31, 2018		691,365	$	0.02	$	0.02
Outstanding warrants -
March 31, 2019		691,365	$	0.02	$	0.02
Weighted average remaining
contractual life (years)		1.58
Exercisable warrants -
March 31, 2019		691,365	$	0.02	$	0.02

XML

Other Income (Expenses)

3 Months Ended

Mar. 31, 2019

Other Income and Expenses [Abstract]

Other Income (Expenses)

Note 6. Other Income (Expenses)

Other income (expenses) for the three months ended March 31, 2019 and March 31, 2018 includes interest on debentures held by nine investors.

XML

Income Taxes

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Note 7. Income Taxes

There is no provision for federal income taxes for the three months ended March 31, 2019 and March 31, 2018 due to the availability of net operating loss carryforwards. Our Company has established a valuation allowance for the entire amount of benefits resulting from our Company’s net operating loss carryforwards because our Company has determined that the realization of the net deferred tax asset is not assured.

The components for state income tax expense resulting from the limitation on the use of net operating losses are:

	Three months ended
	March 31,
	2019			2018
Current state taxes	$	60,300			–
Deferred state taxes		(54,400	)		–
	$	5,900			–

There was no change in unrecognized tax benefits during the period ended March 31, 2019 and there was no accrual for uncertain tax positions as of March 31, 2019.

Tax years from 2015 through 2018 remain subject to examination by U.S. federal and state jurisdictions.

XML

Related Party Transactions

3 Months Ended

Mar. 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Note 8. Related Party Transactions

During the three months ended March 31, 2018, our Company paid $70,900 to Michael A. Feinstein, M.D., our 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 our Company. During the three month period ended March 31, 2018, Dr. Feinstein deferred $21,250 of salary. The deferred salary was fully repaid to Dr. Feinstein during 2018 and, at March 31, 2019, there was no deferred salary owed to him. There was no interest payable on the deferred salary.

XML

Earnings per Share

3 Months Ended

Mar. 31, 2019

Weighted average common shares outstanding

Earnings per Share

Note 9. Earnings per Share

In accordance with FASB ASC 260, Earnings per Share, basic earnings per common share is computed using net earnings divided by the weighted average number of common shares outstanding for the periods presented. The computation of diluted earnings per common share involves the assumption that outstanding common shares are increased by shares issuable upon exercise of those warrants for which the market price exceeds the exercise price. The number of shares issuable upon the exercise of such warrants is decreased by shares that could have been purchased by our Company with related proceeds. For the three months ended March 31, 2019 and March 31, 2018, the number of incremental common shares resulting from the assumed conversion of warrants was 384,773 and 295,167, respectively.

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Major Customer and Geographic Information

3 Months Ended

Mar. 31, 2019

Major Customer and Geographic Information [Abstract]

Major Customer and Geographic Information

Note 10. Major Customer and Geographic Information

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

	Three Months ended March 31
	2019			2018
Customer A		34	%		40	%
Customer B		30	%		27	%
Customer C		12	%		15	%

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

	March 31			December 31
	2019			2018
Customer B		87	%		86	%

Our Company performs ongoing credit evaluations of its customers and generally does not require collateral. Our Company also maintains allowances for potential credit losses. The loss of a major customer could have a material adverse effect on our Company’s business operations and financial condition.

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

	Three Months ended March 31
	2019		2018
North America	$	216,600	$	184,900
South America		–		1,500
Asia		192,800		239,000
	$	409,400	$	425,400

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Leases

3 Months Ended

Mar. 31, 2019

Lessee Disclosure [Abstract]

Leases

Note 11. Leases

Our Company conducts its operations in leased facilities under a non-cancelable operating lease expiring in 2024.

Due to the adoption of the new lease standard under the optional transition method which allows the entity to apply the new lease standard at the adoption date, our Company has capitalized the present value of the minimum lease payments commencing January 1, 2019, using an estimated incremental borrowing rate of 6%. The minimum lease payments do not include common area annual expenses which are considered to be non-lease components.

As of January 1, 2019 the operating lease right-of-use asset and operating lease liability amounted to $241,100 with no cumulative-effect adjustment to the opening balance of accumulated deficit.

There are no other material operating leases. Our Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases.

Future minimum lease payments under non-cancelable operating leases with initial or remaining terms of one year or more at March 31, 2019 are: $37,800 – 2019; $51,600  – 2020; $53,100 – 2021; $54,600 – 2022; $56,200 – 2023 and $18,900 – 2024.

Total lease expense under operating leases for the three months ended March 31, 2019 and March 31, 2018 was $13,300 and $11,300, respectively.

Maturities of lease liabilities were as follows:

	Operating Leases
Year ending December 31
2019	$	50,000
2020		51,600
2021		53,100
2022		54,600
2023		56,200
2024		18,900
Total lease payments		284,400
Less imputed interest		(43,300	)
Total	$	241,100

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Revenues (Tables)

3 Months Ended

Mar. 31, 2019

Revenue from Contract with Customer [Abstract]

Change in Accumulated Deficit Balance

The change in accumulated deficit on our Balance Sheet at March 31, 2018, including the aggregate impact of the change in accounting principles which was effective on January 1, 2018, was as follows:

Accumulated deficit – January 1, 2018	$	(12,811,000	)
Net earnings		95,800
Cumulative effect of accounting change		96,100
Accumulated deficit – March 31, 2018	$	(12,619,100	)

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Convertible Debentures (Tables)

3 Months Ended

Mar. 31, 2019

Convertible Debt [Abstract]

Schedule of Warrants Outstanding

The following table summarizes our Company’s warrant position at March 31, 2019 and December 31, 2018:

					Weighted Average
	Number		Exercise		Exercise
	of Shares		Price		Price
Outstanding warrants -
December 31, 2018		691,365	$	0.02	$	0.02
Outstanding warrants -
March 31, 2019		691,365	$	0.02	$	0.02
Weighted average remaining
contractual life (years)		1.58
Exercisable warrants -
March 31, 2019		691,365	$	0.02	$	0.02

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Components for State Income Tax Expense

The components for state income tax expense resulting from the limitation on the use of net operating losses are:

	Three months ended
	March 31,
	2019			2018
Current state taxes	$	60,300			–
Deferred state taxes		(54,400	)		–
	$	5,900			–

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Major Customer and Geographic Information (Tables)

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Schedule of Revenues from Non-affiliated Customers

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

	Three Months ended March 31
	2019			2018
Customer A		34	%		40	%
Customer B		30	%		27	%
Customer C		12	%		15	%

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

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

	March 31			December 31
	2019			2018
Customer B		87	%		86	%

Schedule of Revenue by Geographic Region

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

	Three Months ended March 31
	2019		2018
North America	$	216,600	$	184,900
South America		–		1,500
Asia		192,800		239,000
	$	409,400	$	425,400

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Leases (Tables)

3 Months Ended

Mar. 31, 2019

Lessee Disclosure [Abstract]

Maturities of Lease Liabilities

Maturities of lease liabilities were as follows:

	Operating Leases
Year ending December 31
2019	$	50,000
2020		51,600
2021		53,100
2022		54,600
2023		56,200
2024		18,900
Total lease payments		284,400
Less imputed interest		(43,300	)
Total	$	241,100

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Revenues (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenue from Contract with Customer [Abstract]
Accumulated deficit	$ (11,059,500)	$ (12,811,000)
Net earnings	85,400	95,800
Cumulative effect of accounting change		96,100
Accumulated deficit	$ (10,974,100)	$ (12,619,100)

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Stock Based Compensation (Details)	Mar. 31, 2019 USD ($)
Share-based Payment Arrangement [Abstract]
Unrecognized portion of expense related to stock option grants	$ 0

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Line of Credit (Details)	3 Months Ended
	Mar. 31, 2019 USD ($)
Line of Credit Facility [Abstract]
Line of credit borrowing capacity	$ 150,000
Interest rate	The line of credit is secured by all the assets of our Company and bears interest at the bank’s prime rate for a period of one year and its prime rate plus 1.5% thereafter.

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Convertible Debentures (Narrative) (Details) - Convertible Debt [Member]	Mar. 31, 2019 USD ($) $ / shares shares
Debt Instrument [Line Items]
Convertible debt amount outstanding | $	$ 128,300
Convertible debt due during the third quarter of 2019 | $	$ 128,300
Debt instrument, interest rate	7.00%
Debt instrument, conversion price per share | $ / shares	$ 0.025
Number of shares of common stock that can be purchased through warrants | shares	691,365
Price per share of warrants | $ / shares	$ 0.02

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Convertible Debentures (Warrants Activity) (Details) - Warrant [Member] - $ / shares	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Warrants
Warrants outstanding	691,365	691,365
Exercise price	$ 0.02	$ 0.02
Weighted average exercise price	$ 0.02	0.02
Weighted average remaining contractual life	1 year 6 months 29 days
Exercisable	691,365
Exercisable weighted average exercise price	$ 0.02	$ 0.02

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Income Taxes (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Tax Contingency [Line Items]
Income tax provision	$ 5,900
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	2015
Maximum [Member]
Income Tax Contingency [Line Items]
Tax years open for examination	2018

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Income Taxes (Components for State Income Tax Expense) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Tax Disclosure [Abstract]
Current state taxes	$ 60,300
Deferred state taxes	(54,400)
Income tax expense	$ 5,900

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Related Party Transactions (Details) - Related Party [Member] - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2019
Related Party Transaction [Line Items]
Deferred salary paid to related party	$ 70,900
Portion of salary to related party deferred during period	$ 21,250
Deferred salary owed to related party		$ 0

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Earnings per Share (Details) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Weighted average common shares outstanding
Number of incremental common shares resulting from the assumed conversion of warrants	384,773	295,167

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Major Customer and Geographic Information (Schedule of Revenues from Non-affiliated Customers) (Details) - Revenue [Member]	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Customer A [Member]
Revenue, Major Customer [Line Items]
Risk percentage	34.00%	40.00%
Customer B [Member]
Revenue, Major Customer [Line Items]
Risk percentage	30.00%	27.00%
Customer C [Member]
Revenue, Major Customer [Line Items]
Risk percentage	12.00%	15.00%

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Major Customer and Geographic Information (Schedule of Non-affiliated Customers with Accounts Receivable) (Details)	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Accounts Receivable [Member] | Customer B [Member]
Concentration Risk [Line Items]
Risk percentage	87.00%	86.00%

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Major Customer and Geographic Information (Schedule of Revenue by Geographic Region) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 409,400	$ 425,400
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	216,600	184,900
South America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues		1,500
Asia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 192,800	$ 239,000

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Leases (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Lessee Disclosure [Abstract]
2019	$ 37,800
2020	51,600
2021	53,100
2022	54,600
2023	56,200
2024	18,900
Lease expense	$ 13,300	$ 11,300
Incremental borrowing rate	6.00%

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Leases (Maturities of Lease Liabilities) (Details)	Mar. 31, 2019 USD ($)
Lessee Disclosure [Abstract]
2019	$ 50,000
2020	51,600
2021	53,100
2022	54,600
2023	56,200
2024	18,900
Total lease payments	284,400
Less imputed interest	(43,300)
Total	$ 241,100