0001553350-20-000997.txt : 20201113 0001553350-20-000997.hdr.sgml : 20201113 20201113101756 ACCESSION NUMBER: 0001553350-20-000997 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 46 CONFORMED PERIOD OF REPORT: 20200930 FILED AS OF DATE: 20201113 DATE AS OF CHANGE: 20201113 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: 201309628 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, 2020


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)


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 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


Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 67,353,690 shares of common stock, par value $0.01, as of November 9, 2020.


 

 




 


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, 2020 and September 30, 2019

1

Balance Sheets at September 30, 2020 and December 31, 2019

2

Statements of Cash Flows for Nine Months Ended September 30, 2020 and September 30, 2019

3

Statements of Stockholders’ Equity for Three Months and Nine Months ended September 30, 2020 and September 30, 2019

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

14

 

 

Part II. OTHER INFORMATION

 

 

 

Item 1A.

Risk Factors

15

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

15

 

 

Item 5.

Other Information

15

 

 

Item 6.

Exhibits

16

 

 

SIGNATURES

17

 

 

EXHIBIT INDEX

18






 


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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Licenses, royalties and fees

 

$

153,300

 

 

$

189,400

 

 

$

425,000

 

 

$

571,900

 

Product and other sales

 

 

601,500

 

 

 

448,100

 

 

 

1,477,400

 

 

 

991,100

 

 

 

 

754,800

 

 

 

637,500

 

 

 

1,902,400

 

 

 

1,563,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Licenses, royalties and fees

 

 

61,900

 

 

 

41,400

 

 

 

170,200

 

 

 

98,200

 

Product and other sales

 

 

267,400

 

 

 

166,600

 

 

 

716,200

 

 

 

380,300

 

 

 

 

329,300

 

 

 

208,000

 

 

 

886,400

 

 

 

478,500

 

Gross profit

 

 

425,500

 

 

 

429,500

 

 

 

1,016,000

 

 

 

1,084,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

40,700

 

 

 

45,200

 

 

 

123,700

 

 

 

122,600

 

Sales and marketing

 

 

90,900

 

 

 

81,000

 

 

 

260,900

 

 

 

224,200

 

General and administrative

 

 

123,800

 

 

 

84,200

 

 

 

383,500

 

 

 

265,200

 

 

 

 

255,400

 

 

 

210,400

 

 

 

768,100

 

 

 

612,000

 

Net income from operations

 

 

170,100

 

 

 

219,100

 

 

 

247,900

 

 

 

472,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

4,200

 

 

 

4,600

 

 

 

12,300

 

 

 

7,200

 

Interest expense and bank charges

 

 

(1,300

)

 

 

(2,600

)

 

 

(5,900

)

 

 

(8,000

)

 

 

 

2,900

 

 

 

2,000

 

 

 

6,400

 

 

 

(800

)

Net income before income taxes

 

 

173,000

 

 

 

221,100

 

 

 

254,300

 

 

 

471,700

 

Income taxes

 

 

9,900

 

 

 

14,300

 

 

 

(32,200

)

 

 

30,600

 

Net income

 

$

163,100

 

 

$

206,800

 

 

$

286,500

 

 

$

441,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income per common share

 

$

.00

 

 

$

.00

 

 

$

.00

 

 

$

.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

66,768,023

 

 

 

59,614,698

 

 

 

62,952,473

 

 

 

58,949,377

 

Diluted

 

 

66,893,250

 

 

 

59,990,371

 

 

 

63,069,652

 

 

 

59,322,141

 



*See accompanying notes to these financial statements.




1



 


Nocopi Technologies, Inc.

Balance Sheets*


 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

(audited)

 

Assets

 

Current assets

 

 

 

 

 

 

Cash

 

$

1,428,900

 

 

$

688,000

 

Accounts receivable less $5,000 allowance for doubtful accounts

 

 

1,023,000

 

 

 

1,352,300

 

Inventory

 

 

286,600

 

 

 

127,900

 

Prepaid and other

 

 

21,200

 

 

 

135,000

 

Total current assets

 

 

2,759,700

 

 

 

2,303,200

 

 

 

 

 

 

 

 

 

 

Fixed assets

 

 

 

 

 

 

 

 

Leasehold improvements

 

 

27,800

 

 

 

24,200

 

Furniture, fixtures and equipment

 

 

163,700

 

 

 

252,500

 

 

 

 

191,500

 

 

 

276,700

 

Less: accumulated depreciation and amortization

 

 

98,100

 

 

 

206,600

 

 

 

 

93,400

 

 

 

70,100

 

Other assets

 

 

 

 

 

 

 

 

Long-term receivables

 

 

671,100

 

 

 

957,000

 

Operating lease right of use - building

 

 

171,000

 

 

 

202,000

 

 

 

 

842,100

 

 

 

1,159,000

 

Total assets

 

$

3,695,200

 

 

$

3,532,300

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Convertible debentures

 

$

 

 

$

97,900

 

Accounts payable

 

 

58,300

 

 

 

44,300

 

Accrued expenses

 

 

165,500

 

 

 

231,600

 

Income taxes

 

 

22,200

 

 

 

52,400

 

Operating lease liability, current

 

 

43,800

 

 

 

41,700

 

Total current liabilities

 

 

289,800

 

 

 

467,900

 

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

 

 

 

 

 

 

Accrued expenses, non-current

 

 

47,000

 

 

 

67,000

 

Deferred income taxes

 

 

 

 

 

47,400

 

Operating lease liability, non-current

 

 

127,200

 

 

 

160,300

 

 

 

 

174,200

 

 

 

274,700

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized – 75,000,000 shares

 

 

 

 

 

 

 

 

Issued and outstanding

 

 

 

 

 

 

 

 

2020 – 67,353,690 shares; 2019 – 61,044,698 shares

 

 

673,500

 

 

 

610,400

 

Paid-in capital

 

 

12,575,800

 

 

 

12,483,900

 

Accumulated deficit

 

 

(10,018,100

)

 

 

(10,304,600

)

Total stockholders' equity

 

 

3,231,200

 

 

 

2,789,700

 

Total liabilities and stockholders' equity

 

$

3,695,200

 

 

$

3,532,300

 



*See accompanying notes to these financial statements.





2



 


Nocopi Technologies, Inc.

Statements of Cash Flows*

(unaudited)


 

 

Nine Months ended
September 30,

 

 

 

2020

 

 

2019

 

Operating Activities

 

 

 

 

 

 

Net income

 

$

286,500

 

 

$

441,100

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

15,300

 

 

 

2,900

 

Deferred income taxes

 

 

(47,400

 

 

(61,200

Other assets

 

 

316,900

 

 

 

69,500

 

Other liabilities

 

 

(51,000

)

 

 

192,300

 

 

 

 

520,300

 

 

 

644,600

 

(Increase) decrease in assets

 

 

 

 

 

 

 

 

Accounts receivable

 

 

329,300

 

 

 

(255,500

Inventory

 

 

(158,700

)

 

 

(27,500

)

Prepaid and other

 

 

113,800

 

 

 

(37,500

)

Increase (decrease) in liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

(6,000

)

 

 

76,400

 

Income taxes

 

 

(30,200

)

 

 

(1,100

)

 

 

 

248,200

 

 

 

(245,200

)

Net cash provided by operating activities

 

 

768,500

 

 

 

399,400

 

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

Additions to fixed assets

 

 

(38,600

)

 

 

(2,200

)

Net cash used in investing activities

 

 

(38,600

)

 

 

(2,200

)

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

Exercise of warrants

 

 

11,000

 

 

 

 

Net cash provided by financing activities

 

        

11,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in cash

 

 

740,900

 

 

 

397,200

 

Cash at beginning of year

 

 

688,000

 

 

 

400,800

 

Cash at end of period

 

$

1,428,900

 

 

$

798,000

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

 

Operating lease right of use – building

 

$

 

 

$

241,100

 

Operating lease liability

 

$

 

 

$

(241,100

)

Accumulated depreciation and amortization

 

$

123,800

 

 

$

1,800

 

Furniture, fixtures and equipment

 

$

(123,800

)

 

$

(1,800

Convertible debentures

 

$

97,900

 

 

$

30,400

 

Accrued expenses

    

$

46,100

 

 

$

12,300

 

Common stock

 

$

(57,600

)

 

$

(17,100

)

Paid-in capital

 

$

(86,400

)

 

$

(25,600

)



*See accompanying notes to these financial statements.




3



 


Nocopi Technologies, Inc.

Statements of Stockholders’ Equity*

For the Periods December 31, 2019 through September 30, 2020 and December 31, 2018 through September 30, 2019

(unaudited)


 

 

Common stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance – December 31, 2019

 

 

61,044,698

 

 

610,400

 

 

 $

12,483,900

 

 

 $

(10,304,600

)

 

2,789,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,600

 

 

 

52,600

 

Balance – March 31, 2020

 

 

61,044,698

 

 

 

610,400

 

 

 

12,483,900

 

 

 

(10,252,000

)

 

 

2,842,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

70,800

 

 

 

70,800

 

Balance – June 30, 2020

 

 

61,044,698

 

 

 

610,400

 

 

 

12,483,900

 

 

 

(10,181,200

)

 

 

2,913,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of debentures and interest

 

 

5,758,992

 

 

 

57,600

 

 

 

86,400

 

 

 

 

 

 

 

144,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of warrants

 

 

550,000

 

 

 

5,500

 

 

 

5,500

 

 

 

 

 

 

 

11,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

163,100

 

 

 

163,100

 

Balance – September 30, 2020

 

 

67,353,690

 

 

$

673,500

 

 

$

12,575,800

 

 

$

(10,018,100

)

 

$

3,231,200

 


 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

148,900

 

 

 

148,900

 

Balance – June 30, 2019

 

 

58,616,716

 

 

 

586,200

 

 

 

12,440,000

 

 

 

(10,825,200

)

 

 

2,201,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of debentures and interest

 

 

1,707,982

 

 

 

17,100

 

 

 

25,600

 

 

 

 

 

 

 

42,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

206,800

 

 

 

206,800

 

Balance – September 30, 2019

 

 

60,324,698

 

 

$

603,300

 

 

$

12,465,600

 

 

$

(10,618,400

)

 

$

2,450,500

 




* 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 2019 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 2019 Annual Report on Form10-K should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three and nine months ended September 30, 2020 may not be necessarily indicative of the operating results expected for the full year.


In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States. On March 19, 2020 the Governor of Pennsylvania declared a health emergency and issued an order to close all nonessential businesses until further notice. The mandated closure of nonessential businesses in Pennsylvania remains in effect as of the current date and is expected to continue for the foreseeable future in the portion of the state in which we conduct our business operations. While certain businesses in Pennsylvania have been granted permission to resume operations, they may be subject to significant restrictions on their operations by both state and local government mandates. Our operations are deemed to be essential and thus we remain open. However, disruptions to our business operations due to COVID-19 with a resultant impact on our results of operations could continue to occur as a result of quarantines of employees and suppliers in areas affected by the outbreak, availability of raw materials required to manufacture our products, disruption of supply chains that provide our raw materials, price increases of raw materials and supplies used in our production processes, facility closures of domestic and international customers who purchase and use our products, and travel and logistics restrictions affecting our inbound and outbound shipments in connection with the COVID-19 outbreak. While we expect this global COVID-19 pandemic to continue to negatively impact our results of operations, cash flow and financial position, the related financial impact cannot be reasonably estimated at this time.


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. 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 September 30, 2020, our Company did not have an active stock option plan. There was no unrecognized portion of expense related to stock option grants at September 30, 2020.


Note 3. 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 4. Convertible Debentures


During the third quarter of 2020, the holders of all previously outstanding convertible debentures totaling approximately $97,900 that were due during the third quarter of 2020 elected to convert those debentures plus approximately $46,100 of accrued interest into 5,758,992 shares of restricted stock of our Company. At September 30, 2020, our Company had no convertible debentures outstanding. The convertible debentures bore interest at 7%. During the third quarter of 2019, the holders of approximately $30,400 of previously outstanding convertible debentures elected to convert those debentures plus approximately $12,300 of accrued interest into 1,707,982 shares of restricted stock of our Company.




5



NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



Our Company also granted warrants in earlier periods 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. During the third quarter of 2020, holders of 550,000 warrants exercised their warrants to purchase a total of 550,000 shares of our Company’s common stock.


The following table summarizes our Company’s warrant position at September 30, 2020 and December 31, 2019:


 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number

 

 

Exercise

 

 

Exercise

 

 

 

of Shares

 

 

Price

 

 

Price

 

Outstanding warrants -

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

691,365

 

 

$

0.02

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

141,365

 

 

$

0.02

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining

 

 

 

 

 

 

 

 

 

 

 

 

contractual life (years)

 

 

.77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently exercisable warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

141,365

 

 

$

0.02

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The aggregate intrinsic value of warrants outstanding and exercisable as of September 30, 2020 was approximately $22,300. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $0.1775 for our Company’s common stock on September 30, 2020.


Note 5. Other Income (Expenses)


Other income (expenses) for the three and nine months ended September 30, 2020 and 2019 includes interest on convertible debentures held by nine investors and interest earned on invested funds.


Note 6. Income Taxes


There is no provision for federal income taxes for the three and nine months ended September 30, 2020 and 2019 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

 

 

Nine months ended

 

 

 

September 30

 

 

September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Current state taxes

 

$

9,900

 

 

$

21,100

 

 

$

15,200

 

 

$

91,800

 

Deferred state taxes

 

 

 

 

 

(6,800

)

 

 

(47,400

)

 

 

(61,200

)

 

 

$

9,900

 

 

$

14,300

 

 

$

(32,200

)

 

$

30,600

 


During the first quarter of 2020, our Company reversed $47,400 of accrued Pennsylvania income taxes that are not payable.


There was no change in unrecognized tax benefits during the period ended September 30, 2020 and there was no accrual for uncertain tax positions as of September 30, 2020.


Tax years from 2017 through 2019 remain subject to examination by U.S. federal and state jurisdictions.




6



NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



Note 7. 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 and nine months ended September 30, 2020, the number of incremental common shares resulting from the assumed conversion of warrants was 125,227 and 117,179, respectively. For the three and nine months ended September 30, 2019, the number of incremental common shares resulting from the assumed conversion of warrants was 375,673 and 372,764, respectively.


Note 8. 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

September 30

 

 

Nine Months ended

September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Customer A

 

 

74

%

 

 

65

%

 

 

65

%

 

 

47

%

Customer B

 

 

3

%

 

 

 

 

 

10

%

 

 

6

%

Customer C

 

 

10

%

 

 

14

%

 

 

12

%

 

 

21

%


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:


 

 

September 30

 

 

December 31

 

 

 

2020

 

 

2019

 

Customer A

 

 

28

%

 

 

26

%

Customer C

 

 

66

%

 

 

67

%


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

September 30

 

 

Nine Months ended

September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

North America

 

$

155,700

 

 

$

190,600

 

 

$

446,100

 

 

$

633,000

 

South America

 

 

700

 

 

 

 

 

 

2,100

 

 

 

 

Europe

 

 

 

 

 

 

 

 

 

 

 

100

 

Asia

 

 

583,400

 

 

 

418,300

 

 

 

1,424,000

 

 

 

901,300

 

Australia

 

 

15,000

 

 

 

28,600

 

 

 

30,200

 

 

 

28,600

 

 

 

$

754,800

 

 

$

637,500

 

 

$

1,902,400

 

 

$

1,563,000

 





7



NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



Note 9. 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 6.5%. 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.


Total lease expense under operating leases for the three and nine months ended September 30, 2020 was $13,300 and $40,000, respectively. Total lease expense under operating leases for the three and nine months ended September 30, 2019 was $13,300 and $40,000, respectively.


Maturities of lease liabilities are as follows:


 

 

 

 

 

Operating Leases

 

Year ending December 31

 

 

 

 

 

 

 

2020

 

 

 

 

$

13,000

 

2021

 

 

 

 

 

53,100

 

2022

 

 

 

 

 

54,600

 

2023

 

 

 

 

 

56,200

 

2024

 

 

 

 

 

18,900

 

Total lease payments

 

 

 

 

 

195,800

 

Less imputed interest

 

 

 

 

 

(24,800

)

Total

 

 

 

 

$

171,000

 









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:


 

·

The ongoing impact of the COVID-19 coronavirus pandemic on our business operations, revenues, employees, suppliers and customers

 

·

Expected operating results, such as revenue growth and earnings

 

·

Anticipated levels of capital expenditures for fiscal year 2020 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 the COVID-19 pandemic may impact our future financial and operational performance will be dependent on many factors that we may not be able to predict because they continue to change and evolve depending on both national and local circumstances among them government restrictions affecting our employees, customers and suppliers, changes in our revenues due to lower customer demand as a result of the pandemic and a potential inability to obtain raw materials due to lower availability. We continue to monitor the impact of COVID-19 on our business but we cannot accurately predict the extent to which it will adversely affect our future results of operations, financial condition or cash flows.

 

·

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.

 

·

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 Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019 and this Quarterly Report on Form 10-Q. 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.


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.




9



 


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, 2019, filed with the Securities and Exchange Commission on March 30, 2020, as amended on April 29, 2020.


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.


Effects of COVID-19


To serve our customers while also providing for the safety of our employees and service providers, we have adapted various steps to protect our employees. Any employee who is uncomfortable coming into our facilities may choose not to come in. We have a large enough facility to enable all of our employees to social distance and we follow Centers for Disease Control and Prevention (CDC) guidelines. Our production employees work with chemicals and they have always used masks, respirators, etc., even before COVID-19. As a result, we continue to maintain the same level of productivity and effectiveness as prior to the COVID-19 pandemic.


The impact of COVID-19 on our Company’s financial results during the third quarter and first nine months of 2020 resulted primarily from a significant increase in the price of raw materials used in certain of our Company’s products caused by shortages of these ingredients as a result of the COVID-19 pandemic along with a mix of our Company’s products purchased by our licensees’ third party printers toward certain products with formulations that require ingredients whose prices have increased as a result of COVID-19. We expect these higher raw material prices to negatively affect subsequent quarters until the shortages are alleviated. We expect the fourth quarter to see a similar impact from COVID-19 and the various operational adjustments we made. The full extent of the impact to our Company due to the impact of the COVID-19 pandemic for our fourth quarter and beyond cannot be currently determined. The extent to which the COVID-19 pandemic may impact our future financial and operational performance will be dependent on many factors that we may not be able to predict because they continue to change and evolve depending on both national and local circumstances among them government restrictions affecting our employees, customers and suppliers, changes in our revenues due to lower customer demand as a result of the pandemic and a potential inability to obtain raw materials due to lower availability. We continue to monitor the impact of COVID-19 on our business but we cannot accurately predict the extent to which it will adversely affect our future results of operations, financial condition or cash flows.


To date, we have not suffered a drop off in customer orders and total earned royalties in the entertainment and toy products market as a result of COVID-19, but we continue to experience a negative impact on revenues in our smaller anti-counterfeiting and anti-diversion products market due to closures of certain printing facilities that utilize these technologies and anticipate that these closures may continue for a period of time. We continue to retain revenues at historical levels in the entertainment and toy products market through the current date despite the downturns in the overall economy. While the products of our licensees in the larger entertainment and toy products market are sold by both large and smaller retailers, some of whom remain open, and are also available for purchase online, we believe that revenues may not continue to be achieved at levels experienced to the current date due to the negative economic conditions that are expected to continue over the balance of the year and beyond as a result of COVID-19. A slowdown in overall consumer spending may affect the sales of products marketed by our licensees. Our major licensees in the entertainment and toy products market are large, well-known businesses in this market with whom we believe our long-term relationship will not be adversely affected by the current COVID-19 pandemic.




10



 


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 third quarter of 2020 were $754,800 compared to $637,500 in the third quarter of 2019, an increase of $117,300, or approximately 18%. Licenses, royalties and fees decreased by $36,100, or approximately 19%, to $153,300 in the third quarter of 2020 from $189,400 in the third quarter of 2019. The decrease in licenses, royalties and fees in the third quarter of 2020 compared to the third quarter of 2019 is due primarily to lower royalties from our Company’s licensees in both the entertainment and security markets. We cannot assure you 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 as a result of the COVID-19 pandemic that is continuing to negatively impact all worldwide economies.


Product and other sales increased by $153,400, or approximately 34%, to $601,500 in the third quarter of 2020 from $448,100 in the third quarter of 2019. Sales of ink increased in the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher 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 lower ink shipments to our Company’s licensees in the retail receipt and document fraud market. In the third quarter of 2020, our Company derived revenues of approximately $699,100 from our licensees and their authorized printers in the entertainment and toy products market compared to revenues of approximately $555,900 in the third quarter of 2019.


For the first nine months of 2020, revenues were $1,902,400, representing an increase of $339,400, or approximately 22%, from revenues of $1,563,000 in the first nine months of 2019. The decrease in licenses, royalties and fees is due primarily to lower guaranteed licensing revenue of approximately $200,000 in the first six months of 2020 from one licensee in the entertainment and toy products market as a result of the adoption of ASU 214-09, Revenue from Contracts with Customers in the second quarter of 2018. We cannot assure you 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 as a result of the COVID-19 pandemic that is continuing to negatively impact all worldwide economies.




11



 


Product and other sales increased by $486,300, or approximately 49%, to $1,477,400 in the first nine months of 2020 from $991,100 in the first nine months of 2019. Sales of ink increased in the nine months of 2020 compared to the first nine months of 2019 due primarily to higher 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 lower ink shipments to our Company’s licensees in the retail receipt and document fraud market. Our Company derived revenues of approximately $1,727,800 from licensees and their authorized printers in the entertainment and toy products market in the first nine months of 2020 compared to revenues of approximately $1,327,900 in the first nine months of 2019.


Our Company’s gross profit decreased to $425,500 in the third quarter of 2020, or approximately 56% of revenues, from $429,500 in the third quarter of 2019 or approximately 67% 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 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. The lower gross profit in the third quarter of 2020 compared to the third quarter of 2019 results primarily from lower gross revenues from licenses, royalties and fees offset in part by higher product and other sales in the third quarter of 2020 compared to the third quarter of 2019.


For the first nine months of 2020, gross profit was $1,016,000, or approximately 53% of revenues, compared to $1,084,500, or approximately 69% of revenues in 2019. The lower gross profit in the first nine months of 2020 compared to the first nine months of 2019 results primarily from lower licenses, royalties and fees due to the adoption of Topic 606 in 2018 offset in part by higher gross revenues from product and other sales in the first nine months of 2020 compared to the first nine months of 2019. 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. The gross profit from licenses, royalties and fees decreased to approximately 60% in the third quarter of 2020 compared to approximately 78% in the third quarter of 2019 and to approximately 60% of revenues from licenses, royalties and fees in the first nine months of 2020 from approximately 83% in the first nine months of 2019.


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 56% of revenues in the third quarter of 2020 compared to approximately 63% of revenues in the third quarter of 2019. For the first nine months of 2020, the gross profit, expressed as a percentage of revenues, decreased to approximately 52% of revenues from product and other sales compared to approximately 62% of revenues from product and other sales in the first nine months of 2019. The decrease in both the third quarter and first nine months of 2020 compared to the third quarter and first nine months of 2019 is due to: a) a significant increase in the cost of raw materials utilized by our Company in the manufacture of certain of its products as a result of price increases related to the impact of the ongoing COVID-19 pandemic on the availability and supply of these raw materials in the third quarter and first nine months of 2020 compared to the third quarter and first nine months of 2019 (we are not passing along these cost increases to our customers at this time); b) an unfavorable mix of products sold whereby the increases in purchases of our Company’s products by the licensed printers of its licensees in the entertainment and toy products market in the third quarter and first nine months of 2020 compared to the third quarter and first nine months of 2019 were of products manufactured by our Company whose raw material prices were most affected by shortages created by the COVID-19 pandemic and c) increased production salaries related to a staffing addition, higher duties and equipment depreciation in the third quarter and first nine months of 2020 compared to the third quarter and first nine months of 2019.


Research and development expenses of $40,700 and $123,700 in the third quarter and first nine months of 2020, respectively, were comparable to $45,200 and $122,600 in the third quarter and first nine months of 2019, respectively.


Sales and marketing expenses increased in the third quarter of 2020 to $90,900 from $81,000 in the third quarter of 2019. Sales and marketing expenses increased in the first nine months of 2020 to $260,900 from $224,200 in the first nine months of 2019. This increase is due primarily to higher commission expense on the higher level of sales in the third quarter and first nine months of 2020 compared to the third quarter and first nine months of 2019.


General and administrative expenses increased in the third quarter of 2020 to $123,800 from $84,200 in the third quarter of 2019. General and administrative expenses increased in the first nine months of 2020 to $383,500 from $265,200 in the first nine months of 2019. The increase in third quarter of 2020 compared to the third quarter of 2019 is due primarily to higher public relations and salary expenses in the third quarter of 2020 compared to the third quarter of 2019. The increase in the first nine months of 2020 compared to the first nine months of 2019 is due primarily to higher public relations and salary expenses in the first nine months of 2020 compared to the first nine months of 2019.



12



 


Other income (expenses) in the third quarter and first nine months of 2020 and 2019 included interest on convertible debentures held by seven investors and interest earned on invested funds.


Income taxes in the third quarter and first nine months of 2020 and 2019 result from limitations placed on income tax net operating loss deductions by the Commonwealth of Pennsylvania. In the first quarter of 2020, our Company reversed $47,400 of accrued Pennsylvania income taxes that are not payable.


The lower net income of $163,100 in the third quarter of 2020 compared to net income of $206,800 in the third quarter of 2019 resulted primarily from a lower gross profit on a lower level of licenses, royalties and fees, higher cost of revenues and higher operating expenses in the third quarter of 2020 compared to the third quarter of 2019. The lower net income of $286,500 in the first nine months of 2020 compared to net income of $441,100 in the first nine months of 2019 resulted primarily from a lower gross profit on a lower level of licenses, royalties and fees, higher cost of revenues and higher operating expenses in the first nine months of 2020 compared to the first nine months of 2019 offset in part by the reversal of income taxes in the first quarter of 2020.


Plan of Operation, Liquidity and Capital Resources


During the first nine months of 2020, our Company’s cash increased to $1,428,900 at September 30, 2020 from $688,000 at December 31, 2019. During the first nine months of 2020, our Company generated $768,500 from its operating activities, received $11,000 upon the exercise of warrants and used $38,600 for capital expenditures.


During the first nine months of 2020, our Company’s revenues increased approximately 22% primarily as a result of higher sales of ink to the authorized printers of our Company’s licensees in the entertainment and toy products market offset in part by lower royalty revenues from two licensees in the entertainment and toy products market.


Our Company’s total overhead expenses increased in the first nine months of 2020 compared to the first nine months of 2019 and our Company’s net interest expense decreased in the first nine months of 2020 compared to the first nine months of 2019. As a result of these factors, our Company generated net income of $286,500 in the first nine months of 2020 compared to $441,100 in the first nine months of 2019. Our Company had positive operating cash flow of $768,500 during the first nine months of 2020 and at September 30, 2020, had positive working capital of $2,469,900 and stockholders’ equity of $3,231,200. For the full year of 2019, our Company had net income of $754,900 and had positive operating cash flow of $360,600. At December 31, 2019, our Company had positive working capital of $1,835,300 and stockholders’ equity of $2,789,700.


In November 2018, our Company negotiated a $150,000 revolving line of credit (“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. We may need to obtain additional capital in the future to further support the working capital requirements associated with our existing revenue base and to develop new revenue sources. We cannot assure you that we will be successful in obtaining such additional capital, if needed. 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.




13



 


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 may in the future 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. Beyond the Line of Credit, we cannot assure you that if we require additional capital, that we will be successful in obtaining such 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 throughout the balance of 2020 and beyond due to the COVID-19 virus and its effect on the global economy. As a result, our revenues, results of operations and liquidity may be negatively impacted.


Contractual Obligations


As of September 30, 2020, 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 30, 2020, as amended on April 29, 2020, 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


As of September 30, 2020, there were no recently adopted accounting standards that had a material effect on our Company’s financial statements.


Recently Issued Accounting Pronouncements Not Yet Adopted


As of September 30, 2020, 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 September 30, 2020. Based on this evaluation, our Company’s Principal Executive Officer and Principal Financial Officer concluded that, as of September 30, 2020, 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 September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.






14



 


PART II - OTHER INFORMATION


Item 1A.  Risk Factors


The following risk factors supplement the Risk Factors described in the Company’s annual report on Form 10-K for the year ended December 31, 2019, as amended, and should be read in conjunction therewith.


We expect the COVID-19 pandemic to continue to negatively impact our results of operations, cash flow and financial position.


The negative impact of COVID-19 on our Company’s financial results during the third quarter and first nine months of 2020 resulted primarily from a significant increase in the price of raw materials used in certain of our Company’s products caused by shortages of these ingredients as a result of the COVID-19 pandemic along with a mix of our Company’s products purchased by our licensees’ third party printers toward certain products with formulations that require ingredients whose prices have increased as a result of COVID-19. We expect these higher raw material prices to negatively affect subsequent quarters until the shortages are alleviated. We expect the fourth quarter to see a similar impact from COVID-19 and the various operational adjustments we made.


Other disruptions to our business operations due to COVID-19 with a resultant impact on our results of operations are expected to continue to occur as a result of quarantines of employees and suppliers in areas affected by the outbreak, availability of raw materials required to manufacture our products, disruption of supply chains that provide our raw materials, price increases of raw materials and supplies used in our production processes, facility closures of domestic and international customers who purchase and use our products, and travel and logistics restrictions affecting our inbound and outbound shipments in connection with the COVID-19 outbreak. While we expect this global COVID-19 pandemic to continue to negatively impact our results of operations, cash flow and financial position, the related financial impact cannot be reasonably estimated at this time.


The extent to which the COVID-19 pandemic will negatively impact our results of operations, cash flow and financial position is highly uncertain and cannot be reasonably estimated at this time.


The COVID-19 pandemic has created significant worldwide uncertainty, volatility and economic disruption. The extent to which COVID-19 will negatively impact our results of operations, cash flow and financial position is dependent upon numerous factors, many of which are highly uncertain, rapidly changing and uncontrollable. These factors include, but are not limited to: (i) the duration and scope of the pandemic; (ii) governmental, business and individual actions that have been and continue to be taken in response to the pandemic, including travel restrictions, quarantines, social distancing, work-from-home and shelter-in-place orders and shut-downs; (iii) the impact on U.S. and global economies and the timing and rate of economic recovery; (iv) potential adverse effects on the financial markets and access to capital; (v) potential goodwill or other impairment charges; and (vi) the ability of our licensees and other customers to sell products that utilize or incorporate our technology.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


Date

 

Security/Value

July 2020

 

5,758,992 shares of common stock at $0.025 per share pursuant to the conversion of $97,900 of 7% convertible debentures plus approximately $46,000 of accrued interest.

July 2020

 

Common Stock – 550,000 shares of common stock at $0.02 per share pursuant to warrant exercises for total proceeds of $11,000.


No underwriters were utilized, and no commissions or fees were paid with respect to any of the above transactions. We relied on Section 4(a)(2) and/or Regulation D of the Securities Act of 1933, as amended, since the transactions did not involve any public offering.


Item 5. Other Information


During the third quarter of 2020, the holders of outstanding convertible debentures totaling approximately $97,900 that were due during the third quarter of 2020 elected to convert those debentures plus approximately $46,100 of accrued interest into 5,758,992 shares of our Company’s common stock. The convertible debentures bore interest at 7%. The conversion price was $0.025 per share.




15



 


During the third quarter of 2020, holders of 550,000 warrants exercised their warrants to purchase a total of 550,000 shares of our Company’s common stock at an exercise price of $0.02 per share. Our Company received $11,000 upon the exercise of these warrants.


Item 6.  Exhibits


The following exhibits are included herein:


Exhibit No.

 

Description of Exhibit

 

Location

10.1

 

Form of Convertible Debenture Purchase Agreement and Exhibits

 

Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 11, 2015

10.2

 

Form of Letter Agreement re: Convertible Debenture Purchase Agreement Election

 

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2019

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.

 

Filed herewith

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.

 

Filed herewith

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.

 

Filed herewith

101.INS

 

XBRL Instance Document

 

Filed herewith

101.SCH

 

XBRL Taxonomy Extension Schema

 

Filed herewith

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

 

Filed herewith

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

 

Filed herewith

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

 

Filed herewith

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

 

Filed herewith





16



 


SIGNATURES


Pursuant to the requirement of the Securities Exchange Act of 1934, our Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 

 

NOCOPI TECHNOLOGIES, INC.

 

 

 

DATE: November 13, 2020

 

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

 

 

Michael A. Feinstein, M.D.

 

 

Chairman of the Board, President & Chief Executive Officer

 

 

 

DATE: November 13, 2020

 

/s/ Rudolph A. Lutterschmidt

 

 

Rudolph A. Lutterschmidt

 

 

Vice President & Chief Financial Officer










17



 


EXHIBIT INDEX

 

Exhibit No.

 

Description of Exhibit

 

Location

10.1

 

Form of Convertible Debenture Purchase Agreement and Exhibits

 

Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 11, 2015

10.2

 

Form of Letter Agreement re: Convertible Debenture Purchase Agreement Election

 

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2019

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.

 

Filed herewith

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.

 

Filed herewith

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.

 

Filed herewith

101.INS

 

XBRL Instance Document

 

Filed herewith

101.SCH

 

XBRL Taxonomy Extension Schema

 

Filed herewith

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

 

Filed herewith

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

 

Filed herewith

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

 

Filed herewith

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

 

Filed herewith

  

 

 

 

 








18


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 13, 2020


/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 13, 2020


/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, 2020 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 13, 2020

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

Michael A. Feinstein, M.D.

Principal Executive Officer


/s/ Rudolph A. Lutterschmidt

Rudolph A. Lutterschmidt

Principal Financial Officer









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160300 127200 -61200 -47400 -1100 -30200 241100 -241100 91800 15200 9900 21100 -61200 -47400 -6800 40000 40000 13300 13300 NOCOPI TECHNOLOGIES INC/MD/ 0000888981 10-Q 2020-09-30 false --12-31 Non-accelerated Filer true false false 67353690 Q3 2020 Yes Yes MD 000-20333 1159000 842100 0 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. 150000 0.065 53100 54600 56200 18900 195800 24800 171000 241100 -69500 -316900 192300 -51000 2200 38600 -2200 -38600 691365 141365 0.02 0.02 141365 0.02 22300 22300 0.1775 397200 740900 47400 1800 123800 -1800 -123800 P9M7D 47400 13000 550000 144000 42700 57600 17100 86400 25600 5758992 1707982 11000 11000 30400 97900 12300 46100 -17100 -57600 -25600 -86400 11000 5500 5500 550000 97900 30400 5758992 1707982 46100 12300 P2Y P7Y 550000 <p style="margin: 0px"><b>Note 1. Financial Statements</b></p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify">The accompanying unaudited condensed financial statements have been prepared by Nocopi Technologies, Inc. (our &#147;Company&#148;). 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 2019 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 2019 Annual Report on Form10-K should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three and nine months ended September&#160;30,&#160;2020 may not be necessarily indicative of the operating results expected for the full year.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; padding-left: -0.33px; text-indent: -0.66px; text-align: justify">In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States. On March 19, 2020 the Governor of Pennsylvania declared a health emergency and issued an order to close all nonessential businesses until further notice. The mandated closure of nonessential businesses in Pennsylvania remains in effect as of the current date and is expected to continue for the foreseeable future in the portion of the state in which we conduct our business operations. While certain businesses in Pennsylvania have been granted permission to resume operations, they may be subject to significant restrictions on their operations by both state and local government mandates. Our operations are deemed to be essential and thus we remain open. 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0px">&#160;</p> </td><td style="border-bottom: #000000 1px solid; margin-top: 0px; vertical-align: bottom; width: 66px"><p style="margin: 0px; text-align: right">(47,400</p> </td><td style="border-bottom: #FFFFFF 1px solid; margin-top: 0px; vertical-align: bottom; width: 6.06px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.06px"><p style="margin: 0px">&#160;</p> </td><td style="border-bottom: #000000 1px solid; margin-top: 0px; vertical-align: bottom; width: 9.93px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="border-bottom: #000000 1px solid; margin-top: 0px; vertical-align: bottom; width: 66.53px"><p style="margin: 0px; text-align: right">(61,200</p> </td><td style="border-bottom: #FFFFFF 1px solid; margin-top: 0px; vertical-align: bottom; width: 7.66px"><p style="margin: 0px">)</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.33px"><p style="margin: 0px">&#160;</p> </td><td style="border-bottom: #000000 3px double; margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">$</p> </td><td style="border-bottom: #000000 3px double; margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 66.4px"><p style="margin: 0px; text-align: right">9,900</p> </td><td style="border-bottom: #FFFFFF 3px double; margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.06px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.06px"><p style="margin: 0px">&#160;</p> </td><td style="border-bottom: #000000 3px double; margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 9.93px"><p style="margin: 0px">$</p> </td><td style="border-bottom: #000000 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ended</b></p> <p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.13px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 5.4px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td colspan="6" style="border-bottom: #000000 1px solid; margin-top: 0px; vertical-align: top; width: 159.06px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Nine Months ended</b></p> <p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.13px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 5.33px"><p style="margin: 0px; font-size: 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center"><b>2020</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.13px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 5.4px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td colspan="2" style="border-bottom: #000000 1px solid; margin-top: 0px; vertical-align: top; width: 71.26px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2019</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.13px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: top"><p style="margin: 0px">Customer A</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 5.33px"><p style="margin: 0px">&#160;</p> </td><td style="border-top: #000000 1px solid; margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 5.33px"><p style="margin: 0px">&#160;</p> </td><td style="border-top: #000000 1px solid; margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 65.8px"><p style="margin: 0px; text-align: right">74</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 5.4px"><p style="margin: 0px">&#160;</p> </td><td style="border-top: #000000 1px solid; margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 5.4px"><p style="margin: 0px">&#160;</p> </td><td style="border-top: #000000 1px solid; margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 65.86px"><p style="margin: 0px; text-align: right">65</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 5.4px"><p style="margin: 0px">&#160;</p> </td><td style="border-top: #000000 1px solid; margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 5.4px"><p style="margin: 0px">&#160;</p> </td><td style="border-top: #000000 1px solid; margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 65.86px"><p style="margin: 0px; text-align: right">65</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 5.4px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 5.4px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 65.86px"><p style="margin: 0px; text-align: right">47</p> </td><td style="margin-top: 0px; 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Weighted average remaining contractual term of outstanding equity instruments other than options, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days. Convertible debentures with maturity date extended for one year. Accumulated depreciation and amortization. Furniture, fixtures and equipment. Accrued interest converted. Reversal accrued income taxes. Warrants exercised. Common stock issued warrants exercised. Convertible debentures. Accrued expenses. Common stock. Paid-in capital. Revenues [Default Label] Going Concern [Abstract] CostOfProductAndOtherSales Cost of Goods and Services Sold Gross Profit Operating Expenses Operating Income (Loss) Interest Expense Nonoperating Income (Expense) Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Noncontrolling Interest Assets, Current Property, Plant and Equipment, Gross Property, Plant and Equipment, Net Other Assets, Noncurrent Assets [Default Label] Accrued Income Taxes, Current Liabilities, Current Liabilities, Noncurrent Stockholders' Equity Attributable to Parent Liabilities and Equity Deferred Income Tax Expense (Benefit) Increase (Decrease) in Other Operating Assets Increase (Decrease) in Other Operating Liabilities Adjustments, Noncash Items, to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities Increase (Decrease) in Accounts Receivable Increase (Decrease) in Inventories Increase (Decrease) in Prepaid Expense and Other Assets Increase (Decrease) in Income Taxes Payable Increase (Decrease) in Operating Capital Net Cash Provided by (Used in) Operating Activities Payments to Acquire Property, Plant, and Equipment Net Cash Provided by (Used in) Investing Activities Net Cash Provided by (Used in) Financing Activities Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Excluding Exchange Rate Effect Sharebased Compensation Shares Authorized Under Equity Instruments Other Than Options Exercise Price Range Exercisable Instruments Weighted Average Exercise Price 1 NoncashInvestingAndFinancingFurnitureFixturesAndEquipment NonCashInvestingAndFinancingActivitiesConvertibleDebentures NonCashInvestingAndFinancingActivitiesAccruedExpenses NonCashInvestingAndFinancingActivitiesPaidInCapital Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture Revenue from Contract with Customer [Text Block] Debt Instrument, Interest Rate, Stated Percentage Unrecognized Tax Benefits, Period Increase (Decrease) Lessee, Operating Lease, Liability, to be Paid Lessee, Operating Lease, Liability, Undiscounted Excess Amount EX-101.PRE 10 nnup-20200930_pre.xml XBRL PRESENTATION FILE XML 11 R1.htm IDEA: XBRL DOCUMENT v3.20.2
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2020
Nov. 09, 2020
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, 2020  
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 Shell Company false  
Entity Common Stock, Shares Outstanding   67,353,690
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2020  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Incorporation State Country Name MD  
Entity File Number 000-20333  
XML 12 R2.htm IDEA: XBRL DOCUMENT v3.20.2
Statements of Operations - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenues        
Licenses, royalties and fees $ 153,300 $ 189,400 $ 425,000 $ 571,900
Product and other sales 601,500 448,100 1,477,400 991,100
Total revenues 754,800 637,500 1,902,400 1,563,000
Cost of revenues        
Licenses, royalties and fees 61,900 41,400 170,200 98,200
Product and other sales 267,400 166,600 716,200 380,300
Total cost of revenues 329,300 208,000 886,400 478,500
Gross profit 425,500 429,500 1,016,000 1,084,500
Operating expenses        
Research and development 40,700 45,200 123,700 122,600
Sales and marketing 90,900 81,000 260,900 224,200
General and administrative 123,800 84,200 383,500 265,200
Total operating expenses 255,400 210,400 768,100 612,000
Net income from operations 170,100 219,100 247,900 472,500
Other income (expenses)        
Interest income 4,200 4,600 12,300 7,200
Interest expense and bank charges (1,300) (2,600) (5,900) (8,000)
Total other income (expenses) 2,900 2,000 6,400 (800)
Net income before income taxes 173,000 221,100 254,300 471,700
Income taxes 9,900 14,300 (32,200) 30,600
Net income $ 163,100 $ 206,800 $ 286,500 $ 441,100
Basic and diluted net income per common share $ 0.00 $ 0.00 $ 0.00 $ 0.01
Weighted average common shares outstanding        
Basic 66,768,023 59,614,698 62,952,473 58,949,377
Diluted 66,893,250 59,990,371 63,069,652 59,322,141
XML 13 R3.htm IDEA: XBRL DOCUMENT v3.20.2
Balance Sheets - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Current assets    
Cash $ 1,428,900 $ 688,000
Accounts receivable less $5,000 allowance for doubtful accounts 1,023,000 1,352,300
Inventory 286,600 127,900
Prepaid and other 21,200 135,000
Total current assets 2,759,700 2,303,200
Fixed assets    
Leasehold improvements 27,800 24,200
Furniture, fixtures and equipment 163,700 252,500
Fixed assets, gross 191,500 276,700
Less: accumulated depreciation and amortization 98,100 206,600
Total fixed assets 93,400 70,100
Other assets    
Long-term receivables 671,100 957,000
Operating lease right of use - building 171,000 202,000
Other assets 842,100 1,159,000
Total assets 3,695,200 3,532,300
Current liabilities    
Convertible debentures 97,900
Accounts payable 58,300 44,300
Accrued expenses 165,500 231,600
Income taxes 22,200 52,400
Operating lease liability - current 43,800 41,700
Total current liabilities 289,800 467,900
Other liabilities    
Accrued expenses, non-current 47,000 67,000
Deferred income taxes 47,400
Operating lease liability - non-current 127,200 160,300
Total other liabilities 174,200 274,700
Stockholders' equity    
Common stock, $0.01 par value Authorized - 75,000,000 shares, Issued and outstanding - 2020 - 67,353,690 shares; 2019 - 61,044,698 shares 673,500 610,400
Paid-in capital 12,575,800 12,483,900
Accumulated deficit (10,018,100) (10,304,600)
Total stockholders' equity 3,231,200 2,789,700
Total liabilities and stockholders' equity $ 3,695,200 $ 3,532,300
XML 14 R4.htm IDEA: XBRL DOCUMENT v3.20.2
Balance Sheets (Parenthetical) - USD ($)
Sep. 30, 2020
Dec. 31, 2019
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 67,353,690 61,044,698
Common stock, shares outstanding 67,353,690 61,044,698
XML 15 R5.htm IDEA: XBRL DOCUMENT v3.20.2
Statements of Cash Flows - USD ($)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Operating Activities    
Net income $ 286,500 $ 441,100
Adjustments to reconcile net income to net cash provided by operating activities    
Depreciation and amortization 15,300 2,900
Deferred income taxes (47,400) (61,200)
Other assets 316,900 69,500
Other liabilities (51,000) 192,300
Net income adjusted for non-cash operating activities 520,300 644,600
(Increase) decrease in assets    
Accounts receivable 329,300 (255,500)
Inventory (158,700) (27,500)
Prepaid and other 113,800 (37,500)
Increase (decrease) in liabilities    
Accounts payable and accrued expenses (6,000) 76,400
Income taxes (30,200) (1,100)
Total increase in operating capital 248,200 (245,200)
Net cash provided by operating activities 768,500 399,400
Investing Activities    
Additions to fixed assets (38,600) (2,200)
Net cash used in investing activities (38,600) (2,200)
Financing Activities    
Exercise of warrants 11,000
Net cash provided by financing activities 11,000
Increase in cash 740,900 397,200
Cash at beginning of year 688,000 400,800
Cash at end of period 1,428,900 798,000
Supplemental Disclosure of Non-Cash Investing and Financing Activities    
Operating lease right of use - building 241,100
Operating lease liability (241,100)
Accumulated depreciation and amortization 123,800 1,800
Furniture, fixtures and equipment (123,800) (1,800)
Convertible debentures 97,900 30,400
Accrued expenses 46,100 12,300
Common stock (57,600) (17,100)
Paid-in capital $ (86,400) $ (25,600)
XML 16 R6.htm IDEA: XBRL DOCUMENT v3.20.2
Statements of Stockholders' Equity - USD ($)
Common Stock [Member]
Paid-In Capital [Member]
Accumulated Deficit [Member]
Total
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      
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       $ 441,100
Balance at Sep. 30, 2019 $ 603,300 12,465,600 (10,618,400) 2,450,500
Balance shares at Sep. 30, 2019 60,324,698      
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      
Net income     148,900 148,900
Balance at Jun. 30, 2019 $ 586,200 12,440,000 (10,825,200) 2,201,000
Balance shares at Jun. 30, 2019 58,616,716      
Conversion of debentures and interest $ 17,100 25,600   42,700
Conversion of debentures and interest Shares 1,707,982      
Net income     206,800 206,800
Balance at Sep. 30, 2019 $ 603,300 12,465,600 (10,618,400) 2,450,500
Balance shares at Sep. 30, 2019 60,324,698      
Balance at Dec. 31, 2019 $ 610,400 12,483,900 (10,304,600) $ 2,789,700
Balance shares at Dec. 31, 2019 61,044,698     61,044,698
Net income     52,600 $ 52,600
Balance at Mar. 31, 2020 $ 610,400 12,483,900 (10,252,000) 2,842,300
Balance shares at Mar. 31, 2020 61,044,698      
Balance at Dec. 31, 2019 $ 610,400 12,483,900 (10,304,600) $ 2,789,700
Balance shares at Dec. 31, 2019 61,044,698     61,044,698
Net income       $ 286,500
Balance at Sep. 30, 2020 $ 673,500 12,575,800 (10,018,100) $ 3,231,200
Balance shares at Sep. 30, 2020 67,353,690     67,353,690
Balance at Mar. 31, 2020 $ 610,400 12,483,900 (10,252,000) $ 2,842,300
Balance shares at Mar. 31, 2020 61,044,698      
Net income     70,800 70,800
Balance at Jun. 30, 2020 $ 610,400 12,483,900 (10,181,200) 2,913,100
Balance shares at Jun. 30, 2020 61,044,698      
Conversion of debentures and interest $ 57,600 86,400   144,000
Conversion of debentures and interest Shares 5,758,992      
Exercise of warrants $ 5,500 5,500   11,000
Exercise of warrants Shares 550,000      
Net income     163,100 163,100
Balance at Sep. 30, 2020 $ 673,500 $ 12,575,800 $ (10,018,100) $ 3,231,200
Balance shares at Sep. 30, 2020 67,353,690     67,353,690
XML 17 R7.htm IDEA: XBRL DOCUMENT v3.20.2
Financial Statements
9 Months Ended
Sep. 30, 2020
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 2019 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 2019 Annual Report on Form10-K should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three and nine months ended September 30, 2020 may not be necessarily indicative of the operating results expected for the full year.


In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States. On March 19, 2020 the Governor of Pennsylvania declared a health emergency and issued an order to close all nonessential businesses until further notice. The mandated closure of nonessential businesses in Pennsylvania remains in effect as of the current date and is expected to continue for the foreseeable future in the portion of the state in which we conduct our business operations. While certain businesses in Pennsylvania have been granted permission to resume operations, they may be subject to significant restrictions on their operations by both state and local government mandates. Our operations are deemed to be essential and thus we remain open. However, disruptions to our business operations due to COVID-19 with a resultant impact on our results of operations could continue to occur as a result of quarantines of employees and suppliers in areas affected by the outbreak, availability of raw materials required to manufacture our products, disruption of supply chains that provide our raw materials, price increases of raw materials and supplies used in our production processes, facility closures of domestic and international customers who purchase and use our products, and travel and logistics restrictions affecting our inbound and outbound shipments in connection with the COVID-19 outbreak. While we expect this global COVID-19 pandemic to continue to negatively impact our results of operations, cash flow and financial position, the related financial impact cannot be reasonably estimated at this time.


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 18 R8.htm IDEA: XBRL DOCUMENT v3.20.2
Stock Based Compensation
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
Stock Based Compensation

Note 2. 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 September 30, 2020, our Company did not have an active stock option plan. There was no unrecognized portion of expense related to stock option grants at September 30, 2020.

XML 19 R9.htm IDEA: XBRL DOCUMENT v3.20.2
Line of Credit
9 Months Ended
Sep. 30, 2020
Line of Credit Facility [Abstract]  
Line of Credit

Note 3. 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 20 R10.htm IDEA: XBRL DOCUMENT v3.20.2
Convertible Debentures
9 Months Ended
Sep. 30, 2020
Convertible Debt [Abstract]  
Convertible Debentures

Note 4. Convertible Debentures


During the third quarter of 2020, the holders of all previously outstanding convertible debentures totaling approximately $97,900 that were due during the third quarter of 2020 elected to convert those debentures plus approximately $46,100 of accrued interest into 5,758,992 shares of restricted stock of our Company. At September 30, 2020, our Company had no convertible debentures outstanding. The convertible debentures bore interest at 7%. During the third quarter of 2019, the holders of approximately $30,400 of previously outstanding convertible debentures elected to convert those debentures plus approximately $12,300 of accrued interest into 1,707,982 shares of restricted stock of our Company.


Our Company also granted warrants in earlier periods 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. During the third quarter of 2020, holders of 550,000 warrants exercised their warrants to purchase a total of 550,000 shares of our Company’s common stock.


The following table summarizes our Company’s warrant position at September 30, 2020 and December 31, 2019:


 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number

 

 

Exercise

 

 

Exercise

 

 

 

of Shares

 

 

Price

 

 

Price

 

Outstanding warrants -

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

691,365

 

 

$

0.02

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

141,365

 

 

$

0.02

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining

 

 

 

 

 

 

 

 

 

 

 

 

contractual life (years)

 

 

.77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently exercisable warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

141,365

 

 

$

0.02

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The aggregate intrinsic value of warrants outstanding and exercisable as of September 30, 2020 was approximately $22,300. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $0.1775 for our Company’s common stock on September 30, 2020.

XML 21 R11.htm IDEA: XBRL DOCUMENT v3.20.2
Other Income (Expenses)
9 Months Ended
Sep. 30, 2020
Other Income and Expenses [Abstract]  
Other Income (Expenses)


Note 5. Other Income (Expenses)


Other income (expenses) for the three and nine months ended September 30, 2020 and 2019 includes interest on convertible debentures held by nine investors and interest earned on invested funds.

XML 22 R12.htm IDEA: XBRL DOCUMENT v3.20.2
Income Taxes
9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes


Note 6. Income Taxes


There is no provision for federal income taxes for the three and nine months ended September 30, 2020 and September 30, 2019 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

 

 

Nine months ended

 

 

 

September 30

 

 

September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Current state taxes

 

$

9,900

 

 

$

21,100

 

 

$

15,200

 

 

$

91,800

 

Deferred state taxes

 

 

 

 

 

(6,800

)

 

 

(47,400

)

 

 

(61,200

)

 

 

$

9,900

 

 

$

14,300

 

 

$

(32,200

)

 

$

30,600

 


During the first quarter of 2020, our Company reversed $47,400 of accrued Pennsylvania income taxes that are not payable.


There was no change in unrecognized tax benefits during the period ended September 30, 2020 and there was no accrual for uncertain tax positions as of September 30, 2020.


Tax years from 2017 through 2019 remain subject to examination by U.S. federal and state jurisdictions.

XML 23 R13.htm IDEA: XBRL DOCUMENT v3.20.2
Earnings per Share
9 Months Ended
Sep. 30, 2020
Weighted average common shares outstanding  
Earnings per Share

Note 7. 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 and nine months ended September 30, 2020, the number of incremental common shares resulting from the assumed conversion of warrants was 125,227 and 117,179, respectively. For the three and nine months ended September 30, 2019, the number of incremental common shares resulting from the assumed conversion of warrants was 375,673 and 372,764, respectively.

XML 24 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Major Customer and Geographic Information
9 Months Ended
Sep. 30, 2020
Major Customer and Geographic Information [Abstract]  
Major Customer and Geographic Information

Note 8. 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

September 30

 

 

Nine Months ended

September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Customer A

 

 

74

%

 

 

65

%

 

 

65

%

 

 

47

%

Customer B

 

 

3

%

 

 

 

 

 

10

%

 

 

6

%

Customer C

 

 

10

%

 

 

14

%

 

 

12

%

 

 

21

%


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:


 

 

September 30

 

 

December 31

 

 

 

2020

 

 

2019

 

Customer A

 

 

28

%

 

 

26

%

Customer C

 

 

66

%

 

 

67

%


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

September 30

 

 

Nine Months ended

September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

North America

 

$

155,700

 

 

$

190,600

 

 

$

446,100

 

 

$

633,000

 

South America

 

 

700

 

 

 

 

 

 

2,100

 

 

 

 

Europe

 

 

 

 

 

 

 

 

 

 

 

100

 

Asia

 

 

583,400

 

 

 

418,300

 

 

 

1,424,000

 

 

 

901,300

 

Australia

 

 

15,000

 

 

 

28,600

 

 

 

30,200

 

 

 

28,600

 

 

 

$

754,800

 

 

$

637,500

 

 

$

1,902,400

 

 

$

1,563,000

 

XML 25 R15.htm IDEA: XBRL DOCUMENT v3.20.2
Leases
9 Months Ended
Sep. 30, 2020
Lessee Disclosure [Abstract]  
Leases

Note 9. 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 6.5%. 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.


Total lease expense under operating leases for the three and nine months ended September 30, 2020 was $13,300 and $40,000, respectively. Total lease expense under operating leases for the three and nine months ended September 30, 2019 was $13,300 and $40,000, respectively.


Maturities of lease liabilities are as follows:


 

 

 

 

 

Operating Leases

 

Year ending December 31

 

 

 

 

 

 

 

2020

 

 

 

 

$

13,000

 

2021

 

 

 

 

 

53,100

 

2022

 

 

 

 

 

54,600

 

2023

 

 

 

 

 

56,200

 

2024

 

 

 

 

 

18,900

 

Total lease payments

 

 

 

 

 

195,800

 

Less imputed interest

 

 

 

 

 

(24,800

)

Total

 

 

 

 

$

171,000

 

XML 26 R16.htm IDEA: XBRL DOCUMENT v3.20.2
Convertible Debentures (Tables)
9 Months Ended
Sep. 30, 2020
Convertible Debt [Abstract]  
Warrants Position

The following table summarizes our Company’s warrant position at September 30, 2020 and December 31, 2019:


 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number

 

 

Exercise

 

 

Exercise

 

 

 

of Shares

 

 

Price

 

 

Price

 

Outstanding warrants -

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

691,365

 

 

$

0.02

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

141,365

 

 

$

0.02

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining

 

 

 

 

 

 

 

 

 

 

 

 

contractual life (years)

 

 

.77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently exercisable warrants -

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

141,365

 

 

$

0.02

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

XML 27 R17.htm IDEA: XBRL DOCUMENT v3.20.2
Income Taxes (Tables)
9 Months Ended
Sep. 30, 2020
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

 

 

Nine months ended

 

 

 

September 30

 

 

September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Current state taxes

 

$

9,900

 

 

$

21,100

 

 

$

15,200

 

 

$

91,800

 

Deferred state taxes

 

 

 

 

 

(6,800

)

 

 

(47,400

)

 

 

(61,200

)

 

 

$

9,900

 

 

$

14,300

 

 

$

(32,200

)

 

$

30,600

 

XML 28 R18.htm IDEA: XBRL DOCUMENT v3.20.2
Major Customer and Geographic Information (Tables)
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Company's Revenues As Percentage Of Revenue

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

September 30

 

 

Nine Months ended

September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Customer A

 

 

74

%

 

 

65

%

 

 

65

%

 

 

47

%

Customer B

 

 

3

%

 

 

 

 

 

10

%

 

 

6

%

Customer C

 

 

10

%

 

 

14

%

 

 

12

%

 

 

21

%

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:


 

 

September 30

 

 

December 31

 

 

 

2020

 

 

2019

 

Customer A

 

 

28

%

 

 

26

%

Customer C

 

 

66

%

 

 

67

%

Company's Revenue by Geographic Region

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


 

 

Three Months ended

September 30

 

 

Nine Months ended

September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

North America

 

$

155,700

 

 

$

190,600

 

 

$

446,100

 

 

$

633,000

 

South America

 

 

700

 

 

 

 

 

 

2,100

 

 

 

 

Europe

 

 

 

 

 

 

 

 

 

 

 

100

 

Asia

 

 

583,400

 

 

 

418,300

 

 

 

1,424,000

 

 

 

901,300

 

Australia

 

 

15,000

 

 

 

28,600

 

 

 

30,200

 

 

 

28,600

 

 

 

$

754,800

 

 

$

637,500

 

 

$

1,902,400

 

 

$

1,563,000

 

XML 29 R19.htm IDEA: XBRL DOCUMENT v3.20.2
Leases (Tables)
9 Months Ended
Sep. 30, 2020
Lessee Disclosure [Abstract]  
Maturities of Lease Liabilities

Maturities of lease liabilities are as follows:


 

 

 

 

 

Operating Leases

 

Year ending December 31

 

 

 

 

 

 

 

2020

 

 

 

 

$

13,000

 

2021

 

 

 

 

 

53,100

 

2022

 

 

 

 

 

54,600

 

2023

 

 

 

 

 

56,200

 

2024

 

 

 

 

 

18,900

 

Total lease payments

 

 

 

 

 

195,800

 

Less imputed interest

 

 

 

 

 

(24,800

)

Total

 

 

 

 

$

171,000

 

XML 30 R20.htm IDEA: XBRL DOCUMENT v3.20.2
Stock Based Compensation (Details)
Sep. 30, 2020
USD ($)
Share-based Payment Arrangement [Abstract]  
Unrecognized portion of expense related to stock option grants $ 0
XML 31 R21.htm IDEA: XBRL DOCUMENT v3.20.2
Line of Credit (Details)
9 Months Ended
Sep. 30, 2020
USD ($)
Line of Credit Facility [Abstract]  
Line of credit $ 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.
XML 32 R22.htm IDEA: XBRL DOCUMENT v3.20.2
Convertible Debentures (Narrative) (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Debt Instrument [Line Items]      
Amount converted $ 97,900 $ 30,400  
Shares issued 5,758,992 1,707,982  
Accrued interest converted $ 46,100 $ 12,300  
Common stock that can be purchased 2013 and 2014 warrants 691,365   691,365
Price per share of warrants $ 0.02   $ 0.02
Warrants exercisable term     2 years
Warrants expiration     7 years
Warrants exercised 550,000    
Common stock issued warrants exercised 550,000    
Convertible Debt [Member]      
Debt Instrument [Line Items]      
Convertible debt which are due during the third quarter of 2020 $ 97,900   $ 97,900
Interest rate 7.00%   7.00%
XML 33 R23.htm IDEA: XBRL DOCUMENT v3.20.2
Convertible Debentures (Warrants Activity) (Details) - USD ($)
9 Months Ended
Sep. 30, 2020
Dec. 31, 2019
Warrants    
Exercise price $ 0.02  
Warrant [Member]    
Warrants    
Outstanding warrants - 141,365 691,365
Exercise price $ 0.02 $ 0.02
Weighted average exercise price $ 0.02 $ 0.02
Weighted average remaining contractual life (years) 9 months 7 days  
Exercisable 141,365  
Exercisable weighted average exercise price $ 0.02  
Intrinsic value $ 22,300  
Intrinsic value exercisable $ 22,300  
Stock price $ 0.1775  
XML 34 R24.htm IDEA: XBRL DOCUMENT v3.20.2
Income Taxes (Details)
9 Months Ended
Sep. 30, 2020
USD ($)
Income Tax Contingency [Line Items]  
Reversal accrued income taxes $ 47,400
Unrecognized tax benefits
Uncertain tax positions
Minimum [Member]  
Income Tax Contingency [Line Items]  
Tax years open for examination 2017
Maximum [Member]  
Income Tax Contingency [Line Items]  
Tax years open for examination 2019
XML 35 R25.htm IDEA: XBRL DOCUMENT v3.20.2
Income Taxes (Components for State Income Tax Expense) (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Tax Disclosure [Abstract]        
Current state taxes $ 9,900 $ 21,100 $ 15,200 $ 91,800
Deferred state taxes (6,800) (47,400) (61,200)
Income tax expense (benefit) $ 9,900 $ 14,300 $ (32,200) $ 30,600
XML 36 R26.htm IDEA: XBRL DOCUMENT v3.20.2
Earnings per Share (Details) - shares
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Weighted average common shares outstanding        
Number of incremental common shares resulting from the assumed conversion of warrants 125,227 375,673 117,179 372,764
XML 37 R27.htm IDEA: XBRL DOCUMENT v3.20.2
Major Customer and Geographic Information (Schedule of Revenues from Non-affiliated Customers) (Details) - Revenue [Member]
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Customer A [Member]        
Revenue, Major Customer [Line Items]        
Risk percentage 74.00% 65.00% 65.00% 47.00%
Customer B [Member]        
Revenue, Major Customer [Line Items]        
Risk percentage 3.00% 10.00% 6.00%
Customer C [Member]        
Revenue, Major Customer [Line Items]        
Risk percentage 10.00% 14.00% 12.00% 21.00%
XML 38 R28.htm IDEA: XBRL DOCUMENT v3.20.2
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, 2020
Dec. 31, 2019
Customer A [Member]    
Concentration Risk [Line Items]    
Risk percentage 28.00% 26.00%
Customer C [Member]    
Concentration Risk [Line Items]    
Risk percentage 66.00% 67.00%
XML 39 R29.htm IDEA: XBRL DOCUMENT v3.20.2
Major Customer and Geographic Information (Schedule of Revenue by Geographic Region) (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenues from External Customers and Long-Lived Assets [Line Items]        
Revenues $ 754,800 $ 637,500 $ 1,902,400 $ 1,563,000
North America [Member]        
Revenues from External Customers and Long-Lived Assets [Line Items]        
Revenues 155,700 190,600 446,100 633,000
South America [Member]        
Revenues from External Customers and Long-Lived Assets [Line Items]        
Revenues 700 2,100
Europe [Member]        
Revenues from External Customers and Long-Lived Assets [Line Items]        
Revenues 100
Asia [Member]        
Revenues from External Customers and Long-Lived Assets [Line Items]        
Revenues 583,400 418,300 1,424,000 901,300
Australia [Member]        
Revenues from External Customers and Long-Lived Assets [Line Items]        
Revenues $ 15,000 $ 28,600 $ 30,200 $ 28,600
XML 40 R30.htm IDEA: XBRL DOCUMENT v3.20.2
Leases (Narrative) (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Jan. 01, 2019
Lessee Disclosure [Abstract]            
Lease expense $ 13,300 $ 13,300 $ 40,000 $ 40,000    
Incremental borrowing rate 6.50%   6.50%      
Operating lease right-of-use asset $ 171,000   $ 171,000   $ 202,000 $ 241,100
Operating lease liability $ 171,000   $ 171,000     $ 241,100
XML 41 R31.htm IDEA: XBRL DOCUMENT v3.20.2
Leases (Maturities of Lease Liabilities) (Details) - USD ($)
Sep. 30, 2020
Jan. 01, 2019
Lessee Disclosure [Abstract]    
2020 $ 13,000  
2021 53,100  
2022 54,600  
2023 56,200  
2024 18,900  
Total lease payments 195,800  
Less imputed interest (24,800)  
Total $ 171,000 $ 241,100
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