SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1996 Commission File No. 0-20333
NOCOPI TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 87-0406496
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
230 Sugartown Road, Suite 100, Wayne, PA 19087
- -------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 610-687-2000
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 X NO
---- ----
Number of shares of common stock outstanding:
Title of each class Shares outstanding
----------------------- at August 1, 1996
Common stock, par value ------------------
$.01 per share 14,080,654
<PAGE>
NOCOPI TECHNOLOGIES, INC.
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Operations 1
Three Months and Six Months Ended June 30, 1996
and June 30, 1995
Consolidated Balance Sheets 2
June 30, 1996 and December 31, 1995
Consolidated Statements of Cash Flows 3
Six Months Ended June 30, 1996
and June 30, 1995
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis 5 - 6
of Financial Condition and Results of Operations
Part II. OTHER INFORMATION 7 - 8
Signatures 9
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Nocopi Technologies, Inc.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months ended June 30 Six Months ended June 30
1996 1995 1996 1995
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $936,200 $743,100 $1,811,700 $1,396,300
Cost of sales 262,300 92,700 432,500 189,400
-------- -------- -------- ---------
Gross profit 673,900 650,400 1,379,200 1,206,900
Operating expenses
Research and development 191,700 206,400 396,700 390,900
Sales and marketing 351,500 384,000 723,400 823,700
General and administrative 281,700 248,300 521,300 469,200
-------- -------- -------- ---------
824,900 838,700 1,641,400 1,683,800
-------- -------- -------- ---------
Loss from operations (151,000) (188,300) (262,200) (476,900)
Other income (expenses)
Amortization (6,400) (6,900) (12,700) (15,500)
Interest income 28,000 44,700 65,100 74,500
Interest and bank charges (17,300) (18,900) (34,800) (41,500)
Ownership interest of others
in consolidated entity 112,100 108,600 199,200 229,800
-------- -------- -------- ---------
116,400 127,500 216,800 247,300
-------- -------- -------- ---------
Net loss ($34,600) ($60,800) ($45,400) ($229,600)
======== ======== ======== =========
Loss per common share* ($.00) ($.00) ($.00) ($.02)
Average common shares outstanding* 14,064,951 14,009,334 14,054,558 13,984,743
</TABLE>
- ----------------------
* Restated to reflect one-for-five reverse stock split effective July 15, 1996.
See notes to consolidated financial statements.
1
<PAGE>
Nocopi Technologies, Inc.
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
----------- -----------
<S> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 2,870,000 $ 2,982,100
Accounts receivable less allowance 586,600 667,700
Inventory 28,800 22,200
Prepaid and other 97,800 93,900
----------- -----------
Total current assets 3,583,200 3,765,900
Fixed assets
Leasehold improvements 56,800 55,300
Furniture, fixtures and equipment 416,200 381,100
----------- -----------
473,000 436,400
Less: accumulated depreciation 274,100 231,600
----------- -----------
198,900 204,800
Other assets
Patents, net of accumulated amortization 419,200 419,800
Debt issue costs, net of accumulated amortization 44,200 56,900
Other 16,100 17,800
----------- -----------
479,500 494,500
----------- -----------
Total assets $ 4,261,600 $ 4,465,200
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 491,500 $ 398,100
Accrued expenses 142,900 258,700
Accrued commissions 117,500 182,500
Deferred revenue 374,600 280,100
----------- -----------
Total current liabilities 1,126,500 1,119,400
Long--term notes payable 950,000 950,000
Ownership interest of others in consolidated entity 1,623,900 1,823,100
Shareholders' equity
Common stock, $.01 par value
Authorized - 50,000,000 shares
Issued and outstanding
1996 - 14,080,654; 1995 - 14,044,166 shares 140,800 140,400
Paid-in capital 7,651,000 7,522,900
Currency translation adjustment 83,200 177,800
Accumulated deficit (7,313,800) (7,268,400)
----------- -----------
561,200 572,700
----------- -----------
Total liabilities and shareholders' equity $ 4,261,600 $ 4,465,200
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
Nocopi Technologies, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30
1996 1995
----------- -----------
<S> <C> <C>
Operating Activities
Net loss ($ 45,400) ($ 229,600)
Adjustments to reconcile net loss to
cash from operating activities
Depreciation 42,900 34,200
Amortization 39,000 41,200
Allowance for doubtful accounts 7,400 4,800
Ownership interest of others in
consolidated entity (199,200) (229,800)
Other 4,700
----------- -----------
(155,300) (374,500)
Changes in working capital
Accounts receivable 69,600 153,800
Inventory (6,600) 3,500
Prepaid and other (5,900) (300)
Accounts payable and accrued expenses (78,600) 157,900
Deferred revenue 95,700 67,200
----------- -----------
74,200 382,100
----------- -----------
Cash provided (used) by operating activities (81,100) 7,600
Investing Activities
Additions to fixed assets (37,500) (24,100)
Additions to patents (24,000) (67,100)
----------- -----------
Cash used by investing activities (61,500) (91,200)
Financing Activities
Exercise of stock options 128,500 6,500
----------- -----------
Cash provided by financing activities 128,500 6,500
Effect of exchange rate changes on cash (98,000) 226,200
----------- -----------
Increase (decrease) in cash and temporary cash investments (112,100) 149,100
Cash and temporary cash investments - beginning of period 2,982,100 3,137,600
----------- -----------
Cash and temporary cash investments - end of period $ 2,870,000 $ 3,286,700
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
NOCOPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Financial Statements
The accompanying interim financial statements have been
prepared by the Company without audit. These statements
include all adjustments (consisting only of normal recurring
adjustments) which management believes necessary for a fair
presentation of the statements and have been prepared on a
consistent basis using the accounting policies described in
the summary of Accounting Policies included in the Company's
1995 Annual Report. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles
have been condensed or omitted. The Notes to Financial
Statements included in the 1995 Annual Report should be read
in conjunction with the accompanying interim financial
statements. The interim operating results are not necessarily
indicative of the operating results expected for the full
year.
Note 2. Reverse Stock Split
The Company, on July 15, 1996, amended its Articles of
Incorporation to effect a one-for-five reverse split of its
common stock, to increase the par value of its common stock
from $.002 to $.01 and to decrease the number of shares of
common stock authorized under its Articles of Incorporation
from 90,000,000 to 50,000,000. All applicable share and per
share data have been adjusted for the reverse stock split.
Note 3. Accounting Changes
Effective January 1, 1996, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed" (SFAS 121). SFAS 121
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. The adoption of SFAS 121 did
not have a material effect on the Company's financial
position.
Effective January 1, 1996, the Company adopted the
disclosure-only approach of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123). SFAS 123 encourages employers to account for stock
compensation awards based on their fair value on their date of
grant. Entities may choose not to apply the new accounting
method but instead, disclose in the notes to the financial
statements the pro forma effects on net income and earnings
per share as if the new method had been applied.
4
<PAGE>
Item 2.
NOCOPI TECHNOLOGIES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Revenues for the second quarter of 1996 were $936,200 compared to
$743,100 in the second quarter of 1995, an increase of 26%. The first half
revenues of $1,811,700 represent a 30% increase from $1,396,300 in the first
half of 1995. The increase is attributable to revenues from licensees and
end-user customers signed in the latter half of 1995 and the first half of 1996
as well as increased revenues from those signed earlier. Included in second
quarter 1996 revenues are revenues derived from initial production of pressure
sensitive security labels under a license agreement signed in late 1995. The
continuing financial losses from product counterfeiting and product diversion
experienced by domestic and international business and the ability to combat
these losses using technologies such as those offered by the Company continue to
provide the Company with opportunities to increase its revenue base.
The Company's gross profit increased to $673,900 or 72% of revenues in
the second quarter of 1996 from $650,400 or 88% of revenues in the second
quarter of 1995. For the first six months of 1996 the gross profit was
$1,379,200 or 76% of revenues compared to $1,206,900 or 86% of revenues in the
first half of 1995. The decline in gross profit as a percentage of revenues is
attributable in part to the inclusion in the 1996 second quarter revenues of
certain manufactured products which carry higher direct costs than licensing and
royalty revenues.
Research and development expenses of $191,700 in the second quarter of
1996 were slightly below the second quarter 1995 expenses of $206,400. The first
half 1996 research and development expenses of $396,700 approximated the
$390,900 incurred in the first half of 1995.
Sales and marketing expenses were $351,500 in the second quarter of
1996 compared to $384,000 in the second quarter of 1995. For the first six
months of 1996 sales and marketing expenses declined to $723,400 from $823,700
in the first half of 1995. The decrease is attributable to lower staffing levels
in the U.S. as well as modified compensation arrangements with certain sales
employees and sales agents. Late in the second quarter the Company increased its
sales staff to take advantage of newly developed technologies which the Company
believes to be best handled by its sales persons as compared to licensees. The
Company also plans to increase its sales promotion activities in the second half
of the year.
General and administrative expenses increased to $281,700 in the second
quarter of 1996 from $248,300 in the second quarter of 1995 and to $521,300 in
the first half of 1996 from $469,200 in the first half of 1995. The increases
are the result of expenses incurred by Euro-Nocopi S.A.
5
<PAGE>
Other income (expenses) include interest on the Series B 7%
Subordinated Convertible Promissory Notes issued in May 1993 and amortization of
debt issue costs related to these Notes. The decrease in interest expense and
debt amortization costs in the second quarter and first half of 1996 reflects
the conversion of some of these notes into common stock during 1995. Interest
income includes interest on funds invested in the U.S. as well as the investment
of funds remaining from those raised in the 1994 Euro-Nocopi S.A. private
placement.
Ownership interest of others in consolidated entity represents the
proportionate share in the assets and profits or losses of Euro-Nocopi S.A.
attributable to the 82% ownership interest of the outside shareholders of that
company.
The consolidated net loss declined in the second quarter of 1996 to
$34,600 from $60,800 in the second quarter of 1995. For the first six months of
1996, the consolidated net loss declined to $45,400 from $229,600 in the first
half of 1995. The Company's U.S. operations, with an operating profit of $2,300
in the second quarter of 1996, recorded its fourth consecutive quarterly
operating profit.
Liquidity and Capital Resources
The Company's consolidated cash and temporary cash investment position
decreased to $2,870,000 at June 30, 1996 from $2,982,100 at December 31, 1995.
Included in the June 30, 1996 balance is $1,900,100 held by Euro-Nocopi S.A.
which is available only to fund Euro-Nocopi's operations. At December 31, 1995,
the Euro-Nocopi S.A. cash balance was $2,075,000. The decrease during the first
half is principally attributable to funds required to support Euro-Nocopi S.A.'s
operations.
The Company's domestic cash position increased to $969,900 at June 30,
1996 from $907,100 at December 31, 1995. The increase results primarily from
receivables collections and proceeds of stock option exercises in the first half
of 1996 partially offset by payments related to the acquisition of ink
production equipment in late 1995 and incentive compensation paid for the
achievement of the 1995 U.S. business plan.
The Company believes that it has sufficient working capital and
available credit to support its consolidated operations.
The Company, on July 15, 1996, amended its Articles of Incorporation to
effect a one-for-five reverse split of its common stock, increased the par value
of its common stock from $.002 to $.01 and decreased the number of shares of
common stock authorized under its Articles of Incorporation from 90,000,000 to
50,000,000.
The Company's operations are subject to all of the risks inherent in a
developing business enterprise. The likelihood of success must be considered in
light of problems, difficulties, complications and delays frequently encountered
in connection with an emerging business and the development of new technologies.
6
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Effective July 15, 1996, Registrant's Articles of
Incorporation were amended in order (a) to effect a
one-for-five reverse split of Registrant's common stock, par
value $.002 per share, (b) to increase the par value of
Registrant's common stock from $.002 per share to $.01 per
share, and (c) to decrease the number of shares of common
stock authorized under Registrant's Articles of Incorporation
from 90,000,000 to 50,000,000.
The amendment of Registrant's Articles of Incorporation did
not materially alter the voting and other rights of holders of
Registrant's common stock, or any other class of registrant's
securities.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Registrant's 1996 Annual Meeting of Shareholders was held
on June 10, 1996. At such meeting, Registrant's shareholders
elected six (6) persons nominated by the Nominating Committee
of the Board to serve as directors of Registrant, approved an
Amendment to the Articles of Incorporation to provide for a
Recapitalization of the Registrant including authorizing the
Board of Directors, in its discretion, to effect a
one-for-five reverse stock split, approved the adoption of the
Registrant's 1996 Stock Option Plan, and ratified the
selection of Coopers & Lybrand L.L.P. as Registrant's
independent public accountants.
7
<PAGE>
The following table shows the votes cast for and against each
person nominated to serve as a director, as well as all
abstentions, authority withheld and broker non-votes:
Votes
Against
or Broker
Name of authority Non-
Nominee Votes For withheld Abstentions Votes
- ----------------- ---------- --------- ----------- ------
Ray B. Mundt 65,842,324 1,382,680 -0- -0-
Norman A. Gardner 65,840,424 1,384,580 -0- -0-
Dr. A. Gundjian 65,839,424 1,385,580 -0- -0-
Joel A. Pinsky 65,690,624 1,534,380 -0- -0-
William F. Drake 65,519,483 1,705,521 -0- -0-
Edward N. Patrone 65,230,953 1,994,051 -0- -0-
The voting on the proposal to approve an Amendment to the
Articles of Incorporation providing for a Recapitalization,
including authorizing the Board of Directors, in its
discretion, to effect a one-for-five reverse stock split was
as follows: 64,783,026 For; 289,519 Against; 187,950
Abstentions; and 1,964,509 Broker Non-Votes.
The voting on the proposal to approve the adoption of the
Registrant's 1996 Stock Option Plan was as follows: 60,271,803
For; 2,624,036 Against; 656,595 Abstentions; and 3,672,570
Broker Non-Votes.
The voting on the proposal to ratify the selection of Coopers
& Lybrand L.L.P. as Registrant's independent public
accountants was as follows: 67,023,499 For; 108,840 Against;
92,665 Abstentions; and -0- Broker Non-Votes.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibit 11 Computation of loss per common share.
(b). No Current Reports on Form 8-K have been filed by the
Registrant during the quarter ended June 30, 1996.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOCOPI TECHNOLOGIES, INC.
DATE: August 12, 1996 /s/ Norman A. Gardner
----------------------------------------
Norman A. Gardner
President & Chief Executive Officer
DATE: August 12, 1996 /s/ Rudolph A. Lutterschmidt
----------------------------------------
Rudolph A. Lutterschmidt
Vice President & Chief Financial Officer
NOCOPI TECHNOLOGIES, INC.
COMPUTATION OF LOSS PER COMMON SHARE
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months ended June 30 Six Months ended June 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary
Net loss applicable to common shares ($34,600) ($60,800) ($45,400) ($229,600)
========== ========== ========== ==========
Weighted average common shares
outstanding 14,064,951 14,009,334 14,054,558 13,984,743
Dilutive shares - based on the
treasury stock method using the
average market price (1) 119,481 62,930 76,376 82,868
---------- ---------- ---------- ----------
14,184,432 14,072,264 14,130,934 14,067,611
========== ========== ========== ==========
Per share amount applicable to
net loss ($.00) ($.00) ($.00) ($.02)
<CAPTION>
Three Months ended June 30 Six Months ended June 30
1996 1995 1996 1995
---- ---- ---- ----
Fully diluted
Net loss ($34,600) ($60,800) ($45,400) ($229,600)
Add interest on Series B notes 16,600 18,100 33,200 40,100
Deduct ownership interest of
others in consolidated entity (112,100) (108,600) (199,200) (229,800)
---------- ---------- ---------- ----------
Net loss applicable to common shares ($130,100) ($151,300) ($211,400) ($419,300)
========== ========== ========== ==========
Weighted average common shares
outstanding 14,064,951 14,009,334 14,054,558 13,984,743
Dilutive shares - based on the
treasury stock method using the
greater of the period-end market
price or the average market price (2) 1,412,187 1,373,493 1,369,082 1,397,003
---------- ---------- ---------- ----------
15,477,138 15,382,827 15,423,640 15,381,746
========== ========== ========== ==========
Per share amount applicable to
net loss ($.01) ($.01) ($.01) ($.03)
</TABLE>
- ------------------------
(1) represents shares resulting from stock options and warrants.
(2) represents shares resulting from stock options, warrants and the assumed
conversion of the convertible notes and Euro-Nocopi S.A. stock.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,870,000
<SECURITIES> 0
<RECEIVABLES> 614,900
<ALLOWANCES> 28,300
<INVENTORY> 28,800
<CURRENT-ASSETS> 3,583,200
<PP&E> 473,000
<DEPRECIATION> 274,100
<TOTAL-ASSETS> 4,261,600
<CURRENT-LIABILITIES> 1,126,500
<BONDS> 950,000
0
0
<COMMON> 140,800
<OTHER-SE> 420,400
<TOTAL-LIABILITY-AND-EQUITY> 4,261,600
<SALES> 1,811,700
<TOTAL-REVENUES> 1,811,700
<CGS> 432,500
<TOTAL-COSTS> 432,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,600
<INTEREST-EXPENSE> 34,800
<INCOME-PRETAX> (45,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,400)
<EPS-PRIMARY> 0
<EPS-DILUTED> (0.01)
</TABLE>
