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 March 31, 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.)
130 W. Lancaster Avenue, Suite 103, 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:
Shares outstanding
Title of each class at May 1, 1996
Common stock, par value 70,220,829
$.002 per share
<PAGE>
NOCOPI TECHNOLOGIES, INC.
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Operations 1
Three Months Ended March 31, 1996 and
March 31, 1995
Consolidated Balance Sheets 2
March 31, 1996 and December 31, 1995
Consolidated Statements of Cash Flows 3
Three Months Ended March 31, 1996
and March 31, 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
Signatures 8
<PAGE>
PART 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements
Nocopi Technologies, Inc.
Consolidated Statements of Operations
(unaudited)
Three Months ended March 31
1996 1995
---- ----
Revenues $ 875,500 $ 653,200
Cost of sales 170,200 96,700
------------ ------------
Gross profit 705,300 556,500
Operating expenses
Research and development 205,000 184,500
Sales and marketing 371,900 439,700
General and administrative 239,600 220,900
------------ ------------
816,500 845,100
------------ ------------
Loss from operations (111,200) (288,600)
Other income (expenses)
Amortization (6,300) (8,600)
Interest income 37,100 29,800
Interest and bank charges (17,500) (22,600)
Ownership interest of others
in consolidated entity 87,100 121,200
------------ ------------
100,400 119,800
------------ ------------
Net loss ($ 10,800) ($ 168,800)
============ ============
Loss per common share ($ .00) ($ .00)
Average common shares outstanding 70,220,829 69,800,758
See notes to consolidated financial statements.
1
<PAGE>
Nocopi Technologies, Inc.
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------- -----------
<S> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 2,835,800 $ 2,982,100
Receivables less allowances 511,500 667,700
Inventory 7,700 22,200
Prepaid and other 104,100 93,900
----------- -----------
Total current assets 3,459,100 3,765,900
Fixed assets
Leasehold improvements 55,300 55,300
Furniture, fixtures and equipment 394,900 381,100
----------- -----------
450,200 436,400
Less: accumulated depreciation 252,500 231,600
----------- -----------
197,700 204,800
Other assets
Patents, net of accumulated amortization 414,200 419,800
Debt issue costs, net of accumulated amortization 50,600 56,900
Other 16,900 17,800
----------- -----------
481,700 494,500
----------- -----------
Total assets $ 4,138,500 $ 4,465,200
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 214,900 $ 398,100
Accrued expenses 210,700 258,700
Accrued commissions 153,700 182,500
Deferred revenue 375,300 280,100
----------- -----------
Total current liabilities 954,600 1,119,400
Long-term notes payable 950,000 950,000
Ownership interest of others in consolidated entity 1,736,000 1,823,100
Shareholders' equity
Common stock, $.002 par value
Authorized - 90,000,000 shares
Issued and outstanding
70,220,829 shares 140,400 140,400
Paid-in capital 7,522,900 7,522,900
Currency translation adjustment 113,800 177,800
Accumulated deficit (7,279,200) (7,268,400)
----------- -----------
497,900 572,700
----------- -----------
Total liabilities and shareholders' equity $ 4,138,500 $ 4,465,200
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
Nocopi Technologies, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three Months ended March 31
1996 1995
---- ----
Operating Activities
Net loss ($ 10,800) ($ 168,800)
Adjustments to reconcile net loss to
cash from operating activities
Depreciation 20,200 16,700
Amortization 19,500 21,400
Allowance for doubtful accounts 3,000 2,400
Ownership interest of others in
consolidated entity (87,100) (121,200)
Other 3,900
----------- -----------
(55,200) (245,600)
Changes in working capital
Accounts receivable 150,900 187,500
Inventory 14,500 1,900
Prepaid and other (10,600) 6,700
Accounts payable and accrued expenses (256,700) 92,900
Deferred revenue 96,100 (17,000)
----------- -----------
(5,800) 272,000
----------- -----------
Cash provided (used) by operating activities (61,000) 26,400
Investing Activities
Additions to fixed assets (14,100) (6,600)
Additions to patents (6,700) (11,900)
----------- -----------
Cash used by investing activities (20,800) (18,500)
Effect of exchange rate changes on cash (64,500) 261,500
----------- -----------
Increase (decrease) in cash and
temporary cash investments (146,300) 269,400
Cash and temporary cash
investments - beginning of period 2,982,100 3,137,600
----------- -----------
Cash and temporary cash
investments - end of period $ 2,835,800 $ 3,407,000
=========== ===========
See notes to consolidated financial statements.
3
<PAGE>
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. 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 first quarter of 1996 increased 34% to $875,500 from
$653,200 in the first quarter of 1995. The increase is attributable to revenue
from licensees and end-user customers signed in the latter half of 1995 as well
as increased revenues from those signed earlier. The continuing financial losses
from product counterfeiting and product diversion experienced by domestic and
international businesses 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 $705,300 in the first quarter
of 1996 compared to $556,500 in the first quarter of 1995 reflecting the
increase in license and royalty revenues which carry a low level of direct
costs.
Research and development expenses increased to $205,000 in the first
quarter of 1996 from $184,500 in the first quarter of 1995 resulting principally
from a staff addition in late 1995.
Sales and marketing expenses were $371,900 in the first quarter of 1996
compared to $439,700 in the first quarter 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. The Company plans to
increase its sales staff in future quarters to take advantage of newly developed
technologies which the Company believes to be best marketed by its own sales
persons as compared to licensees.
General and administrative expenses increased to $239,600 in the first
quarter of 1996 from $220,900 in the first quarter of 1995 primarily due to
increased expenses incurred by Euro-Nocopi S.A.
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 first quarter 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 raised
in the 1994 Euro-Nocopi S.A. private placement.
Ownership interest of others in consolidated entity represents the
proportionate share in the loss of Euro-Nocopi S.A. attributable to the 82%
ownership interest of the outside shareholders of the company.
The consolidated net loss declined in the first quarter of 1996 to
$10,800 from $168,800 in the first quarter of 1995. The improvement is primarily
attributable to the U.S. revenue increases and reductions in domestic overhead
expenses compared to the first quarter of 1995.
5
<PAGE>
The Company's U.S. operations recorded an operating profit of $18,200 in the
first quarter of 1996, its third consecutive quarter of profitability.
Liquidity and Capital Resources
The Company's consolidated cash and temporary cash investment position
decreased to $2,835,800 at March 31, 1996 from $2,982,100 at December 31, 1995.
Included in the March 31, 1996 balance is $1,989,900 held by Euro-Nocopi S.A.
which is available only to fund Euro-Nocopi's operations. At December 31, 1995,
the Euro-Nocopi cash balance was $2,075,000. The decrease during the quarter is
principally attributable to funds required to support Euro-Nocopi's operations
during the quarter.
The Company's domestic cash position decreased to $845,900 at March 31,
1996 from $907,100 at December 31, 1995. The decrease results primarily from
payments related to the acquisition of ink production equipment received in late
1995 and incentive compensation paid for the achievement of the 1995 U.S.
business plan.
The Company believes that it has sufficient working capital and
available credit to support its consolidated operations.
The Company's operations are subject to all of the risks inherent in a
developing business enterprise. The likelihood of success must be considered in
light of problems, difficulties, complications and delays frequently encountered
in connection with an emerging business and the development of new technologies.
6
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibit 11 - Computation of loss per common share.
(b). No Current Reports on Form 8-K have been filed by the
Registrant during the quarter ended March 31, 1996.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOCOPI TECHNOLOGIES, INC.
DATE: May 13, 1996 /s/ Norman A. Gardner
---------------------
Norman A. Gardner
President and Chief Executive Officer
DATE: May 13, 1996 /s/ Rudolph A. Lutterschmidt
----------------------------
Rudolph A. Lutterschmidt
Vice President and Chief Financial Officer
NOCOPI TECHNOLOGIES, INC.
COMPUTATION OF LOSS PER COMMON SHARE
EXHIBIT 11
Three Months ended March 31
1996 1995
---- ----
Primary
Net loss applicable to common shares ($ 10,800) ($ 168,800)
============ ============
Weighted average common shares
outstanding 70,220,829 69,800,758
Dilutive shares - based on the
treasury stock method using the
average market price (1) 166,356 513,833
------------ ------------
70,387,185 70,314,591
============ ============
Per share amount applicable to
net loss ($.00) ($.00)
Three Months ended March 31
1996 1995
---- ----
Fully diluted
Net loss ($ 10,800) ($ 168,800)
Add interest on Series B notes 16,600 22,000
Deduct ownership interest of
others in consolidated entity (87,100) (121,200)
------------ ------------
Net loss applicable to common shares ($ 81,300) ($ 268,000)
============ ============
Weighted average common shares
outstanding 70,220,829 69,800,758
Dilutive shares - based on the
treasury stock method using the
greater of the period-end market
price or the average market price (2) 6,629,886 7,102,363
------------ ------------
76,850,715 76,903,121
============ ============
Per share amount applicable to
net loss ($.00) ($.00)
(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.
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: May 13, 1996 /s/ Norman A. Gardner
----------------------------------------
Norman A. Gardner
President and Chief Executive Officer
DATE: May 13, 1996 /s/ Rudolph A. Lutterschmidt
----------------------------------------
Rudolph A. Lutterschmidt
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,835,800
<SECURITIES> 0
<RECEIVABLES> 535,500
<ALLOWANCES> 24,000
<INVENTORY> 7,700
<CURRENT-ASSETS> 3,459,100
<PP&E> 450,200
<DEPRECIATION> 252,500
<TOTAL-ASSETS> 4,138,500
<CURRENT-LIABILITIES> 954,600
<BONDS> 950,000
0
0
<COMMON> 140,400
<OTHER-SE> 357,500
<TOTAL-LIABILITY-AND-EQUITY> 4,138,500
<SALES> 875,500
<TOTAL-REVENUES> 875,500
<CGS> 170,200
<TOTAL-COSTS> 170,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,000
<INTEREST-EXPENSE> 17,500
<INCOME-PRETAX> (10,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,800)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
