Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
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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)
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| Maryland
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87-0406496 |
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| State or other jurisdiction of incorporation or organization
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(I.R.S. Employer Identification No.) |
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| 9C Portland Road, West Conshohocken, PA
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19428 |
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| (Address of principal executive offices)
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Registrant’s telephone number, including area code (610) 834-9600
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class
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Name of each exchange on which registered |
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| None
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Not Applicable |
Securities registered pursuant to section 12(g) of the Act:
Common Stock $.01 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Act o Yes þ No
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. þ Yes No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). o
Yes No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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| Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act) Yes o No þ
State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter. $2,531,000 at June 30, 2010 closing price of $.05.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock,
as of the latest practicable date. 57,852,041 shares of common stock, $.01 par value at March 15,
2011.
DOCUMENTS INCORPORATED BY REFERENCE
None
NOCOPI TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I
Background
Nocopi Technologies, Inc. (hereinafter “Nocopi”, “Registrant” or the “Company”) is a Maryland
corporation organized in 1983 to exploit a technology developed by its founders for impeding the
reproduction of documents on office copiers. In its early stages of development, Nocopi’s business
consisted primarily of selling copy resistant paper to protect corporate documents and information.
More recently, Registrant has increasingly focused on developing and marketing technologies for
document and product authentication which can reduce losses caused by fraudulent document
reproduction or by product counterfeiting and/or diversion. Since 2003, the Registrant has focused
on developing specialty reactive inks that it believes have applications in the large educational
and toy market. During 2009, Registrant expanded its retail loss prevention market activities by
entering into licensing arrangements with several printers and distributors who serve this market
and refocused its sales and marketing efforts to utilize licensed printers and distributors to
market its technologies to major retailers. Registrant derives revenues by licensing its
technologies, both to end-users and to value-added resellers, and by selling products incorporating
its technologies and technical support services.
The Registrant experienced a significant decline in its financial condition from the late 1990’s
through 2006. However, in 2007, it recorded net income and positive cash flow from operations for
the first time in a number of years primarily as a result of licenses signed in 2006 and early 2007
with Elmer’s Products, Inc. (“Elmer’s”), a privately held industry leader in adhesives, arts and
crafts and educational products, and two of Elmer’s operating companies, Giddy Up and Color Loco.
During 2008, Registrant recorded a decline in revenues with a resultant net loss primarily as a
result of a significant decline in ink sales to Elmer’s and its licensed printers as they used
previously purchased inventories for 2008 production. Registrant experienced a further decline in
revenues and a net loss in 2009 caused by the global recession’s impact on the sales of the
Registrant’s licensees. Additionally, in 2009, Registrant incurred sales and marketing expenses
associated with the expansion of its licensee base in the retail loss prevention market. In 2009,
Registrant’s net loss was $389,400 and Registrant had negative operating cash flow of $312,000. In
early 2010 Registrant was informed by Elmer’s that it was discontinuing a product line, called Go
Paint!™, that utilized technologies licensed from Registrant, ceasing ink purchases
related to the Go Paint!™ products and selling off its remaining Go Paint!™ inventory. While
Registrant’s 2010 revenues were negatively affected by this licensee’s decision, the revenue loss
was substantially offset by Registrant’s obtaining a new licensee in the entertainment and toy
products market, increased revenues from its four licensees in the retail loss prevention market
and initial sales to a new international customer that introduced products incorporating
Registrant’s technologies in South America. Registrant’s net loss decreased in 2010 to $245,100;
this was due primarily to cost reductions, including staff reductions, implemented in the second
half of 2009 and in 2010. At December 31, 2010, Registrant had negative working capital of
$358,500. The cash requirements in 2009 and 2010 were funded by utilizing available cash reserves
at the beginning of 2009, borrowing the entire $100,000 available under Registrant’s line of
credit, the borrowing of $50,500 from four individuals and selling 5,566,204 shares of Registrant’s
common stock for $263,600. Historically, during such periods of adverse liquidity in the past,
Registrant relied upon capital investment and various short-term loans to provide liquidity needed
to avoid a cessation of its operations.
Registrant is currently attempting to raise additional capital, in the form of debt, equity or both
to support its working capital requirements and to provide funding for other business
opportunities. There are no assurances that Registrant will be able to attract such additional
capital.
1
In late 2003, Registrant developed and began to market a new technology, named Rub-it & Color,
which consists of a system of removable dyes in a large variety of colors that can be activated
through rubbing with a fingernail or a firm object. Registrant believed this technology had
applications in children’s activity products such as a coloring book without crayons and in
educational testing review products. Registrant displayed this technology to several potential
licensees and participated in trade shows including, from 2004 to 2011, the American International
Toy Fair in New York City where the technology received several industry awards. In April 2006,
Registrant signed multi-year license agreements with Giddy Up and Color Loco, two reputable and
leading children’s books
publishers with proven track records of innovation and access to major channels of distribution.
Registrant subsequently amended these license agreements to expand the licenses. In October 2006,
both Giddy Up and Color Loco became wholly owned by Elmer’s, a privately held industry leader in
adhesives, arts and crafts and educational products. Products incorporating Registrant’s
technologies, including Giddy Up’s Rub-n-Color™ activity books and kits have been on sale in
leading retail outlets since January 2007 and have received coverage in the press and on
television. In late 2009, the Registrant entered into a three-year license agreement with Elmer’s
which commenced in January 2010, containing guaranteed minimum annual royalties and covering the
products sold by its Giddy Up and Color Loco divisions under the previous license agreements. In
February 2007, Registrant entered into a multi-year license agreement with Elmer’s whereby
Registrant’s technologies have been incorporated into products sold under the Elmer’s brand
including its Go Paint!™ line of children’s products. Retail sales of these products commenced in
the second quarter of 2007. In March 2010, Registrant was informed by Elmer’s that Elmer’s was
discontinuing the Go Paint!™ product line, ceasing ink purchases related to the Go Paint!™ products
and selling off its remaining Go Paint!™ inventory. In 2009, Registrant experienced a significant
decline in both royalties and ink sales related to its license with Elmer’s for the technology used
in Elmer’s Go Paint!™ products. However, Management of Registrant believes that the relationship
with Elmer’s through its Giddy Up and Color Loco divisions continues to offer significant
opportunities to increase revenues in the entertainment and toy products markets and improve the
Registrant’s overall financial position. Late in the second quarter of 2010, Registrant concluded a
multi-year license, containing guaranteed minimum royalties, with a new licensee in the
entertainment and toy products market that generated revenues in the second half of 2010.
Registrant believes this licensee will continue to generate future revenues, including ink sales,
which it believes will commence in 2011. There can be no assurances that this new licensee will
generate significant additional operating revenues for the Registrant. In the third quarter of
2010, the Registrant made an initial sale to a large international business which is introducing
entertainment and toy products that incorporate Registrant’s technologies into South America.
Registrant believes that prospects are good for additional sales to this business. Late in 2010,
Registrant received a new order from this business for products incorporating Registrant’s
technologies for delivery to South America in early 2011. There can be no assurances that this
customer will continue to purchase and distribute products incorporating Registrant’s technologies
in the future.
Entertainment and Toy Technologies and Products
As mentioned above, in late 2003, after the re-employment of two former members of the Registrant’s
technical staff, the Registrant developed a new technology that consists of removable dyes that can
be produced in a variety of colors and can be revealed by rubbing with a fingernail or other firm
object such as a plastic pen cap. This technology has been named Rub-it & Color. Registrant
believes that this new technology does not compromise the confidentiality of its security and
authentication technologies as there are different formulations related to each technology.
Applications include children’s activity products such as a coloring book without crayons or a
restaurant place mat, educational instruction books and testing review manuals. Registrant has
obtained certifications of non-toxicity from the Consumer Products Services, Inc. and the American
Society for Testing and Materials Laboratories. In February 2004, Registrant inaugurated its
marketing efforts for this new technology at the American International Toy Fair in New York City.
Registrant continued to attend the Toy Fair each February from 2005 through 2011. During 2004,
Registrant received awards from both Creative Child Magazine and Spectrum Magazine for its Rub-it &
Color Activity Book. As a result of its participation and marketing activities, Registrant
identified a number of potential licensees in the children’s and educational markets. In April
2006, Registrant signed multi-year license agreements with Giddy Up and Color Loco, two reputable
and leading children’s books publishers with proven track records of innovation and access to major
channels of distribution. Registrant subsequently amended these agreements to expand the licenses.
In October 2006, both Giddy Up and Color Loco became wholly owned by Elmer’s, a privately held
company. Since January 2007, products incorporating Registrant’s technologies, including Giddy Up’s
Rub-n-Color™ activity books and kits have been on sale in leading retail outlets and have received
coverage in the press and on television. In late 2009, the Registrant entered into a three-year
license agreement with Elmer’s which commenced in January 2010 containing guaranteed minimum annual
royalties and covering the products sold by its Giddy Up and Color Loco divisions under the
previous license agreements. In February 2007, Registrant entered into a multi-year license
agreement with Elmer’s whereby Registrant’s technologies have been incorporated into products sold
under the Elmer’s brand including its Go Paint!™ line of children’s products. In March 2007,
Registrant received initial ink orders from Elmer’s and, in the second quarter of 2007, Elmer’s
began actively marketing products incorporating Registrant’s technologies. Revenues derived
directly from Elmer’s, including its Giddy Up and
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Color Loco divisions, and from its third party
printer, accounted for approximately 39% of Registrant’s 2010 revenues; approximately 30% from Elmer’s and its operating companies and
approximately 9% from its third party printer. In March 2010, Registrant was informed by Elmer’s
that Elmer’s was discontinuing the Go Paint!™ product line, ceasing ink purchases related to the Go
Paint!™ products and selling off its remaining Go Paint!™ inventory. In both 2009 and 2010,
Registrant experienced a significant decline in both royalties and ink sales related to decreased
revenue generated by its license with Elmer’s for the technology used in Elmer’s Go Paint!™
products. Registrant’s revenues related to the discontinued Go Paint!™ product line were
approximately $200 in 2010 compared to approximately $45,800, or approximately 7% of Registrant’s
revenues, in 2009. Late in the second quarter of 2010, the Registrant entered into a multi-year
license, containing guaranteed minimum royalties, with a new licensee in the entertainment and toy
products market that generated revenues in the second half of 2010. Registrant believes this
licensee will continue to generate future revenues, including ink sales, which it believes will
commence in 2011 when the licensee introduces a line of products incorporating Registrant’s
technologies. There can be no assurances that this new licensee will generate significant
additional operating revenues for the Registrant. In the third quarter of 2010, Registrant made an
initial sale to a large international business which is introducing entertainment and toy products
that incorporate the Registrant’s technologies into South America. Registrant believes that
prospects are good for additional sales to this business as the business intends to expand
distribution of these products throughout South America. Late in 2010, Registrant received an
additional order from this business for delivery of these products to South America in early 2011.
There can be no assurances that this customer will continue to purchase and distribute products
incorporating Registrant’s technologies.
In September 2008, Registrant signed a multi-year license agreement with privately-held Family
Hospitality LLC to sell or resell its Classy Kid branded products to the restaurant industry; the
Classy Kid branded products use Registrant’s Rub-it & Color ink technology in children’s menus,
placemats and butcher paper for restaurant use. Placemats incorporating Registrant’s technologies
have been sold directly by Family Hospitality and through distributors of Family Hospitality
including the Hoffmaster Group, a leading distributor of products to the restaurant industry. There
can be no assurances that the marketing efforts of Registrant’s licensee will continue to generate
revenues for the Registrant in the future.
In late March 2011, Registrant completed a multi-year license agreement with a designer of creative
educational products for children granting the licensee the exclusive right to utilize Registrant’s
Rub-it & Color ink technology in a newly-created vertical market in the United States. In addition
to an annual license fee, Registrant will receive a royalty based on units of product produced.
Registrant believes that receipt of royalties will commence in the second quarter of 2011. There
can be no assurances that the marketing efforts of Registrant’s licensee will generate significant
additional revenues for the Registrant.
Registrant continues to pursue additional licensing opportunities for its technologies in the large
entertainment and toy products market through direct marketing efforts and attendance at trade
shows. There can be no assurances that the Registrant’s available resources, even with additional
investment, if obtained, for marketing and further technical development of this product line will
be sufficient to increase Registrant’s revenues.
Anti-Counterfeiting and Anti-Diversion Technologies and Products
Continuing developments in copying and printing technologies have made it ever easier to
counterfeit a wide variety of documents. Lottery tickets, gift certificates, event and
transportation tickets, travelers’ checks and the like are all susceptible to counterfeiting, and
Registrant believes that losses from such counterfeiting have increased substantially with
improvements in the copying and printing technologies. Product counterfeiting has long caused
losses to manufacturers of brand name products, and Registrant believes these losses have increased
as the counterfeiting of labeling and packaging has become easier.
3
Registrant’s proprietary document authentication technologies are useful to businesses desiring to
authenticate a wide variety of printed materials and products. One product incorporating these
technologies has the ability to print invisibly on certain areas of a document. When authentication
of certain documents is required, the invisible printing can be activated or revealed by use of a
special highlighter pen. This technology is marketed under the trademark COPIMARK. Other variations
of the COPIMARK technology involve multiple color responses from a common pen, visible marks of one
color that turn another color with the pen or visible and invisible marks that turn into a
multicolored image. A related technology is Nocopi’s RUB & REVEAL system, which permits the
invisible printing
of an authenticating symbol or code that can be revealed by rubbing a fingernail over the printed
area. These technologies provide users with the ability to authenticate documents and detect
counterfeit documents. Applications include the authentication of documents having intrinsic value,
such as merchandise receipts, checks, travelers’ checks, gift certificates and event tickets, and
the authentication of product labeling and packaging. When applied to product labels and packaging
such technologies allow detection of counterfeit products, the labels and packaging of which would
not contain the authenticating marks invisibly printed on the packaging or labels of the legitimate
product. These technologies also combat product diversion (i.e. sale of legitimate products through
unauthorized distribution channels or in unauthorized markets). A related technology of the
Registrant, the invisible inkjet technology permits manufacturers and distributors to track the
movement of products from production to ultimate consumption when coupled with proprietary
software. Management believes that the “track and trace” capability provided by this technology
should be attractive to brand owners and marketers. Registrant continues to pursue opportunities
for its patented anti-counterfeiting and anti-diversion technologies as a potential solution to
counterfeit and diverted pharmaceutical products. While this market incentive has not developed
revenues to date, Registrants continues to pursue opportunities in this market. There are no
assurances that initiatives currently underway in the pharmaceutical and other markets will result
in additional revenues in the future.
In early 2009, Registrant formed a new sales and marketing division, named the Loss Prevention
Division, to focus on sales of products created to prevent and fight retail receipt and document
fraud. The sales and marketing division included two sales consultants with previous experience in
the retail loss prevention market. Registrant participated in this market segment for a number of
years through a licensing arrangement with Computer Imaging Supplies (“CIS”), a division of Nashua
Corporation (“Nashua”), which gave CIS exclusive rights to sell products incorporating Registrant’s
technologies to businesses in this specific market. That license, which expired in December 2008,
was renewed but on a non-exclusive basis, thus allowing Registrant to enter this market to sell its
security products directly to other outlets, including loss prevention departments within retail
businesses and chains and/or to make non-exclusive licenses available to other printers who serve
this market segment. The non-exclusive license with Nashua has been renewed for 2011. During 2009,
in addition to its licensing relationship with Nashua, Registrant established licensing
relationships with three printers and distributors in the United States and Canada who provide loss
prevention products to retailers and other outlets. Based on experience gained in this market
through trade shows and direct contact with prospective retail clients, Registrant determined that
these large retail businesses prefer to source these products directly from large printers and
distributors. In the second half of 2009, Registrant refocused its sales and marketing efforts to
utilizing licensed printers and distributors to market its technologies to major retailers and
discontinued its direct relationship with two loss prevention consultants. As a result, Registrant
believes that cost savings have been realized while active participation in the loss prevention
market has continued through its licensees and its internal sales and technical resources. In
addition to products incorporating its RUB & REVEAL technology, Registrant has developed and has
introduced a new patent pending ink-based technology, named Multi-Mark Security Ink, which
Registrant believes will provide high levels of security and ease of authentication on a large
variety of paper and film-based substrates. During 2010, Registrant derived approximately 34% of
its 2010 total revenues from its four licensees in the retail loss prevention market compared to
approximately 22% derived from this market in 2009. There can be no assurances that Registrant’s
strategy, initiated in 2009, for the retail loss prevention market will result in significant
additional revenues and cash flow for Registrant.
Document Security Products
Registrant continues to offer a line of burgundy colored papers that deter photocopying and
transmission by facsimile. This colored paper inhibits photocopier reproduction but diminishes
legibility to the reader. Registrant currently offers its copy resistant papers in three grades,
each balancing improved copy resistance against diminished legibility. Registrant also sells user
defined, pre-printed forms on which selected areas are colored to inhibit reproduction. An example
is a doctor’s prescription form with the signature area protected. This product line is called
SELECTIVE NOCOPI. Registrant also offers several inks that impede photocopying by color copiers.
This technology is called COLORBLOC.
Registrant, in addition to marketing its own technologies and products, acts as a distributor for a
line of Pantograph security paper. This patented product, complementary to the Registrant’s line of
security paper, produces a message, such as “unauthorized copy,” when a copy of an original
document that was printed or typed on the Pantograph paper is reproduced on a photocopier. This
product line is called COPI-ALERT.
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Registrant also markets Secure Rub Rx, a specially designed prescription paper base stock that
incorporates all three tamper resistant characteristics mandated by the U.S. Department of Health &
Human Services for Medicaid prescriptions beginning in October 2008 including certain tamper
resistant requirements that became effective in April 2008. There are no assurances that Registrant
will obtain significant additional revenues from its investment in developing and marketing this
new product.
The following table illustrates the approximate percentage of Registrant’s revenues accounted for
by each type of its products for each of the two last fiscal years:
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Year Ended December 31 |
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2010 |
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Entertainment and Toy Technologies and Products |
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Anti-Counterfeiting and Anti-Diversion Technologies and Products |
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Document Security Products |
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Marketing
Registrant’s marketing approach focuses on the sufficient flexibility in its products and
technologies and its ability to provide cost effective solutions to a wide variety of
counterfeiting, diversion and copier fraud problems. As a technology company, Registrant generates
revenues primarily by collecting license fees from market-specific manufacturers that incorporate
Registrant’s technologies into their manufacturing processes and products and, in certain cases,
sales of Registrant’s inks to these licensees and their designated manufacturers. Registrant also
licenses its technologies directly to end-users.
Registrant has identified a number of major markets for its technologies and products, including
security printers, labels, packaging materials and specialty paper products and brand name
products. Within each market, key potential users have been identified and several have been
licensed. Within North America, sales efforts include direct selling by Company personnel to create
end user demand and selling through licensee sales forces and sales agents with support from
Company personnel. Registrant has determined that technical sales supported by its personnel is of
great importance and results increasing its licensees’ sales of products incorporating Registrant’s
technologies and, therefore, seeks to maintain, to the extent permitted by its limited resources,
its commitment to providing such support.
In recent years, Registrant’s management has somewhat refocused the Company’s marketing efforts in
view of the limited resources available to the Company for marketing and the need to improve the
Registrant’s cash flow. Current marketing efforts are focused on Registrant’s more mature
technologies that can be utilized by customers with relatively fewer development efforts.
As continued improvements in color copier and desktop publishing technology make counterfeiting and
fraud opportunities less expensive and more available, Registrant intends, to the extent feasible,
to maintain an interactive product development and enhancement program thorough the combined
efforts of marketing, applications engineering and research and development. Registrant’s objective
is to concentrate its efforts on developing market-ready products with the most favorable ratios of
market potential to development time and cost.
Except in Europe, Registrant markets its technologies through its own employees and through
independent sales representatives. In 2007, Registrant engaged a sales consultant to assist in
marketing the Company’s existing line of security papers, inks and ink-jet products as well as
Registrant’s newer security products including Secure Rub Rx. The relationship with this consultant
led to the Registrant’s increased focus on marketing its security inks to printers and distributors
who serve the retail loss prevention market. In Europe, certain of its security technologies are
marketed by Contrast Technologies, formerly known as Euro-Nocopi, S.A., and a former affiliate of
the Registrant, which holds certain European marketing rights with respect to those technologies.
Registrant is presently considering a number of marketing strategies for its Rub-it & Color product
line including
licensing and direct sales through product retailers as well as continued service to the markets
presently served by its licensees.
5
Registrant continues its efforts to improve the marketing of its technologies. In 2008, the
Registrant developed and implemented a completely new web site and online store developed in
conjunction with Minerva Design, a creative marketing and communications agency associated with a
number of well known brands. During 2009, Registrant finalized a strategy to market its proprietary
security inks to the retail loss prevention market, appointing three new printers and distributors
in the United States and Canada. During 2010, Registrant concluded a multi-year license with a
business in the domestic entertainment and toy products market and established a relationship with
a large international business that introduced entertainment and toy products that incorporate the
Registrant’s technologies into South America. Registrant, through its internal sales resources,
continues its marketing efforts to former and potential customers in the anti-counterfeiting and
anti-diversion marketplace and to prospective licensees in the entertainment and toy products.
There can be no assurances that the limited resources Registrant can dedicate to its marketing
activities will result in significant additional revenues in the future.
Major Customers
During 2010, Registrant made sales or obtained revenues equal to 10% or more of Registrant’s 2010
total revenues from two non-affiliated customers who individually accounted for approximately 30%
and 25%, respectively, of 2010 revenues of the Company.
Manufacturing
Registrant has a small facility for the manufacture of its security inks. Except for this facility,
Registrant does not maintain manufacturing facilities. Registrant presently subcontracts the
manufacture of its applications (mainly printing and coating) to third party manufacturers and
expects to continue such subcontracting. Because some of the processes that Nocopi uses in its
applications are based on relatively common manufacturing technologies, there appears to be no
technical or economic reason for Registrant to invest capital in its own manufacturing facilities.
Registrant has established a quality control program that currently entails laboratory analysis of
developed technologies. When warranted, Registrant’s specially trained technicians travel to third
party production facilities to install equipment, train client staff and monitor the manufacturing
process.
Patents
Nocopi has received various patents and/or has patents pending in the United States, Canada, South
Africa, Saudi Arabia, Australia, New Zealand, Japan, France, the United Kingdom, Belgium, the
Netherlands, Germany, Austria, Italy, Sweden, Switzerland, Luxembourg, and Liechtenstein. There can
be no assurance, however, that such protection will be obtained on patents pending. Registrant
currently has obtained patent protection on substantially all of its security inks including the
RUB & REVEAL system and the Rub-it & Color technology and has patents pending on the recently
marketed Multi-Mark Security Ink. Patents on Registrant’s line of burgundy colored papers,
presently a minor portion of Registrant’s product line, have expired.
When a new product or process is developed, the developer may seek to preserve for itself the
economic benefit of the product or process by applying for a patent in each jurisdiction in which
the product or process is likely to be exploited. Generally speaking, in order for a patent to be
granted, the product or process must be new and be inventively different from what has been
previously patented or otherwise known anywhere in the world. Patents generally have a duration of
twenty years from the date of application depending on the jurisdiction concerned, after which time
any person is free to exploit the product or process covered by a patent. A person who is the owner
of a patent has, within the jurisdiction in which the patent is granted, the exclusive right,
either directly or through licensees, to prevent any person from infringing on the patent.
The granting of a patent does not prevent a third party from seeking a judicial determination that
the patent is invalid. Such challenges to the validity of a patent are not uncommon and are
occasionally successful. There can be no assurance that a challenge will not be filed to one or
more of Registrant’s patents and that, if filed, such challenge(s) will not be successful.
6
In the United States and some other countries, patent applications are automatically published at a
specified time after filing. Nocopi is required to pay annuities from time to time on patents to
keep them in force; with this in mind, Nocopi makes an annual evaluation of its patents in order to
determine which patents it will continue to maintain. In Europe, the territory of Contrast
Technologies, formerly known as Euro-Nocopi, S.A. (“Contrast”), annuities for European patents are
paid by Contrast.
Research and Development
Nocopi has been involved in research and development since its inception. Although Registrant’s
financial condition has forced it to reduce funding for research and development in recent years,
it intends to continue its research and development activities in three areas, to the extent
feasible. First, Registrant will seek to continue to refine its present family of products. Second,
Registrant will seek to develop specific customer applications. Finally, Registrant will seek to
expand its technology into new areas of implementation. There can be no assurances that Registrant
will continue to have funds available to maintain its research and development activities at
current or increased levels.
During the years ended December 31, 2010 and 2009, Nocopi expended approximately $132,300 and
$165,900 respectively, on research and development.
Competition
In the area of document and product authentication and serialization, Registrant is aware of other
covert and overt surface marking technologies requiring decoding implements or analytical methods
to reveal certain information. These technologies are offered by other companies for the same
anti-counterfeiting and anti-diversion purposes for which the Registrant markets its covert
technologies. These include, among others, biological DNA codes, microtaggants, thermochronic, UV
and infrared inks as well as encryption, 2D symbology and laser engraving. Nonetheless, Registrant
believes its patented and proprietary technologies provide a unique and cost-effective solution to
the problem of counterfeiting and gray marketing in the document and product authentication markets
it has traditionally sought to exploit.
Registrant is not aware of any competitors that market paper which functions in the same way as
Nocopi security papers. However, the Company’s management is aware of a limited number of
competitors that are attempting, with different approaches, to address the same problems that the
Registrant’s products address. Registrant is aware of a Japanese company that has developed a film
overlay that is advertised as providing protection from photocopying. Registrant has examined the
film overlay and believes that it has a more limited number of applications than Nocopi’s security
products. Nocopi’s security paper is also considerably less expensive than the film overlay.
Other indirect competitors are marketing products utilizing the hologram and copy void
technologies. The hologram, which has been incorporated into credit cards to foil counterfeiting,
is considerably more costly than Registrant’s technology. Copy void is a security device that has
been developed to indicate whether a document has been photocopied. Registrant markets a product
that has similar features to the copy void technology.
The entertainment and toy products markets include numerous potential competitors who have
significantly greater financial resources and presence in these markets than Registrant.
The loss prevention market includes numerous potential competitors, including large-publicly traded
companies such as NCR Corporation and regional paper converters, many of whom have greater
financial resources and presence in these markets than Registrant.
Registrant currently has limited resources and competes with businesses that have greater financial
resources than Registrant. There can be no assurance that businesses with greater resources than
Registrant will not enter Registrant’s markets and compete successfully with Registrant.
7
Contrast Technologies (formerly Euro-Nocopi, S.A.)
Contrast Technologies, formerly known as Euro-Nocopi, S.A., is a former affiliate of Registrant
which, since June 2003, has held a perpetual royalty-free license to exploit certain of
Registrant’s technologies in Europe.
Employees
At March 15, 2011, Registrant had two full-time and three part-time employees.
Financial Information about Foreign and Domestic Operations
Registrant conducts its operations solely in the United States; however, it does have licensees in
Europe and Asia and, in 2010, Registrant added a customer that distributes products incorporating
Registrant’s technologies in South America. These licensees/customers accounted for approximately
13% of Registrant’s gross revenues in 2010 and approximately 21% in 2009. Certain information
concerning Registrant’s foreign and domestic operations is contained in Note 12 to Registrant’s
Financial Statements included elsewhere in this Annual Report on Form 10-K.
Not required for a smaller reporting company.
|
|
|
| ITEM 1B. |
|
UNRESOLVED STAFF COMMENTS |
None.
Registrant’s corporate headquarters, research and ink production facilities are located at 9C
Portland Road, West Conshohocken, Pennsylvania 19428. Its telephone number is (610) 834-9600. These
premises consist of approximately 5,000 square feet of space in a multi-tenant building leased by
the Registrant from an unaffiliated third party pursuant to a lease expiring in March 2013. Current
monthly rent under this lease is $3,438; this amount escalates an amount of three percent on each
anniversary date of the lease. In addition to rent, Registrant is responsible for its pro-rata
share of the operating costs of the building. Registrant incurred leasehold improvement
expenditures of approximately $72,500 through December 31, 2010 and believes that additional
leasehold improvement expenditures will not be significant. Registrant believes that this space
will be adequate for its current needs and that additional space will be available as needed.
|
|
|
| ITEM 3. |
|
LEGAL PROCEEDINGS |
Registrant is not aware of any pending litigation (other than ordinary routine litigation
incidental to its business where, in management’s view, the amount involved is not material to
which Registrant is or may be a party, or to which any of its properties is or may be subject, nor
is it aware of any pending or contemplated proceedings against it by any governmental authority.
Registrant knows of no material legal proceedings pending or threatened, or judgments entered
against, any director or officer of Registrant in his capacity as such.
|
|
|
| ITEM 4. |
|
REMOVED AND REVISED |
8
PART II
|
|
|
| ITEM 5. |
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Registrant’s Common Stock is traded on the over-the-counter market and quoted on the OTCQB
marketplace under the symbol “NNUP”. The table below presents the range of high and low bid
quotations of Registrant’s Common Stock by calendar quarter for the last two full fiscal years and
for a recent date, as reported by the OTC Market Group, Inc. The quotations represent prices
between dealers and do not include retail markup, markdown, or
commissions; hence, such quotations do not represent actual transactions.
| |
|
|
|
|
|
|
|
|
| |
|
High Bid |
|
|
Low Bid |
|
| |
January 1, 2009 to March 31, 2009 |
|
$ |
.15 |
|
|
$ |
.05 |
|
April 1, 2009 to June 30, 2009 |
|
$ |
.09 |
|
|
$ |
.03 |
|
July 1, 2009 to September 30, 2009 |
|
$ |
.20 |
|
|
$ |
.04 |
|
October 1, 2009 to December 31, 2009 |
|
$ |
.16 |
|
|
$ |
.04 |
|
|
|
|
|
|
|
|
|
|
January 1, 2010 to March 31, 2010 |
|
$ |
.10 |
|
|
$ |
.05 |
|
April 1, 2010 to June 30, 2010 |
|
$ |
.09 |
|
|
$ |
.03 |
|
July 1, 2010 to September 30, 2010 |
|
$ |
.07 |
|
|
$ |
.02 |
|
October 1, 2010 to December 31, 2010 |
|
$ |
.07 |
|
|
$ |
.01 |
|
|
|
|
|
|
|
|
|
|
January 1, 2011 to March 15, 2011 |
|
$ |
.11 |
|
|
$ |
.04 |
|
As of March 15, 2011, 57,852,041 shares of Registrant’s Common Stock were outstanding. The number
of holders of record of Registrant’s Common Stock was approximately 600 However, Registrant
estimates that it has a significantly greater number of common stockholders because a number of
shares of Registrant’s Common Stock are held of record by broker-dealers for their customers in
street name. In addition to the 57,852,041 shares of Common Stock which are outstanding,
Registrant, at March 15, 2011, has reserved for the issuance of 1,057,500 shares of its Common
Stock which underlie options and warrants to purchase common stock of the Registrant.
The Company did not pay dividends in 2010 or 2009 and does not anticipate paying any such dividends
in the foreseeable future. Any determination to pay dividends in the future will be at the
discretion of the Company’s Board of Directors and will be dependent upon the Company’s results of
operations, financial condition, contractual restrictions and other factors deemed relevant by the
Board of Directors.
Information required with respect to Equity Compensation Plans in this Item 5 is included in Item
12 on page 22 of this report on Form 10-K.
Recent Sales of Unregistered Securities
On December 13, 2010, the Company sold 208,333 shares of its Common Stock, $.01 per share (the
Common Stock) to an individual accredited investor (who was acquainted with a member of the
Company’s Board of Directors) for $5,000, or $0.024 per share.
All shares of Common Stock were sold in private transactions exempt from registration pursuant to
Section 4(2) of the Securities Act. No underwriters were involved in these transactions or received
any commissions or other compensation. Proceeds of the sales of Common Stock were used to fund the
Company’s working capital requirements.
Issuer Repurchases of Equity Securities
None
ITEM 6. SELECTED FINANCIAL DATA
Not required for a smaller reporting company.
9
|
|
|
| ITEM 7. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Information
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, regarding, among
other things, anticipated improvements in operations, the Company’s plans, earnings, cash flow and
expense estimates, strategies and prospects, both business and financial. All statements other than
statements of current or historical fact contained in this report are forward-looking statements.
The words “believe,’’ “expect,’’ “anticipate,’’ “should,’’ “plan,’’ “will,’’ “may,’’ “intend,’’
“estimate,’’ “potential,’’ “continue’’ and similar expressions, as they relate to the Company, are
intended to identify forward-looking statements.
The Company has based these forward-looking statements largely on its current expectations and
projections about future events, financial trends, market opportunities, competition, and the
adequacy of the Company’s available cash resources, which the Company believes may affect its
financial condition, results of operations, business strategy and financial needs. This Form 10-K
also contains forward-looking statements attributed to third parties. All such statements can be
affected by inaccurate assumptions, including, without limitation, with respect to risks,
uncertainties, anticipated operating efficiencies, new business prospects and the rate of expense
increases. In light of these risks, uncertainties and assumptions, the forward-looking statements
in this report may not occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements. For these reasons, and because of the uncertainty
relating to the current financial crisis in today’s economic environment and the potential
reduction in demand for the Company’s products, you should not consider this information to be a
guarantee by the Company or any other person that its objectives and plans will be achieved. When
you consider these forward-looking statements, you should keep in mind the “Risk Factors” and other
cautionary statements set forth in this Item 7 and elsewhere in this Form 10-K. The Company’s
forward-looking statements speak only as of the date made. The Company undertakes no obligation to
update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise.
The following discussion and analysis of the Company’s financial condition and results of
operations should be read in conjunction with the financial statements and related notes, and
keeping in mind this cautionary statement regarding forward-looking information.
Results of Operations
The Company’s revenues are derived from royalties paid by licensees of the Company’s technologies,
fees for the provision of technical services to licensees and from the direct sale of (i) products
incorporating the Company’s technologies, such as inks, security paper and pressure sensitive
labels, and (ii) equipment used to support the application of the Company’s technologies, such as
ink-jet printing systems. Royalties consist of guaranteed minimum royalties payable by the
Company’s licensees 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.
The Company recognizes revenue on its lines of business as follows:
a) License fees and royalties are recognized when the license term begins. Upon inception of
the license term, revenue is recognized in a manner consistent with the nature of the transaction
and the earnings process, which generally is ratably over the license term;
b) Product sales are recognized upon shipment of products, when the price is fixed or
determinable and collectability is reasonably assured; and
10
c) Fees for technical services are recognized when (i) the service has been rendered; (ii) an
arrangement exists; (iii) the price is fixed or determinable based upon a per diem or hourly rate;
and (iv) collectability is reasonably assured.
The Company believes that, as fixed cost reductions beyond those it has achieved in recent years
may not be achievable, its operating results are substantially dependent on revenue levels. Because
revenues derived from licenses and royalties carry a much higher gross profit margin than other
revenues, operating results are also substantially affected by changes in revenue mix.
Both the absolute amount of the Company’s revenues and the mix among the various sources of revenue
are subject to substantial fluctuation. The Company has a relatively small number of substantial
customers rather than a large number of small customers. Accordingly, changes in the revenue
received from a significant customer can have a substantial effect on the Company’s total revenue,
revenue mix and overall financial performance. Such changes may result from a 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 the Company agrees to revise
such terms, revenues from the customer may be affected.
Revenues for 2010 were $658,700, a decrease of approximately 1%, or $9,400, from $668,100 in 2009.
Licenses, royalties and fees decreased in 2010 by $4,200, or approximately 1%, to $373,700 from
$377,900 in 2009. In early 2010, the Company was informed that one licensee in the entertainment
and toy products market was discontinuing a product line incorporating technology licensed under a
license agreement, ceasing ink purchases related to the these products and selling off its
remaining inventory of these products. Royalties under this license declined from approximately
$45,800 in 2009 to approximately $200 in 2010. Late in the second quarter of 2010, the Company
concluded a multi-year license, containing guaranteed minimum royalties, with a new licensee in the
entertainment and toy products market that generated licensing revenues during the second half of
the year. The Company believes this licensee will continue to generate future revenues, including
ink sales, as it introduces products incorporating the Company’s technologies beginning in 2011.
Also, there was an increase royalties in 2010 compared to 2009 related to the Company’s new
three-year license entered into in 2010 with an existing licensee in the entertainment and toy
products market; this new three-year license contains guaranteed minimum annual royalties.
Additionally, royalties from the Company’s four licensees in the retail receipt and document fraud
market increased in 2010 compared to 2009. These increased royalties nearly offset the revenues
from the discontinued licensee. Product and other sales decreased by $5,200, or approximately 2%,
to $285,000 in 2010 from $290,200 in 2009. The lower level of ink sales in 2010 compared to 2009 is
due primarily to lower ink requirements of the third party printers used by the Company’s major
licensee in the entertainment and toy products market; this decreased ink requirement is related to
the licensees’ declines in sales during the current period of economic decline. Ink orders from the
licensed printers of its licensees in the entertainment and toy products market were approximately
$84,900 lower in 2010 compared to 2009. Additionally, sales of the Company’s security paper
declined by approximately $15,600 in 2010 compared to 2009. This decline in ink and security paper
sales is substantially offset by increased sales of security ink to the Company’s licensees in the
retail receipt and document fraud market and its initial sale of entertainment and toy products
that incorporate the Company’s technologies to a large international business that is introducing
these products into South America. Late in 2010, the Company received an additional order from this
business for products incorporating the Company’s technologies for delivery to South America in
early 2011. The Company derived $329,300 or approximately 50% of total revenues, from licensees and
their licensed printers in the entertainment and toy products market in 2010 compared to $389,900
or approximately 58% of total revenues, in 2009. The Company’s licensees in the entertainment and
toy products market continue to develop new products for this market and improve their current
offerings; however, their sales will be affected by economic conditions that influence this market
segment and the economy as a whole. Revenues that the Company derives from these licensees will be
similarly affected. There can be no assurances that the marketing and product development
activities of licensees in the entertainment and toy products market will produce increased
revenues for the Company in future periods, nor can the timing of any potential revenue increases
be predicted, particularly given the uncertain economic conditions currently being experienced
worldwide.
11
Gross profit increased to $383,200, or approximately 58% of revenues, in 2010 from $342,500, or
approximately 51% of revenues, in 2009. Licenses, royalties and fees have historically carried a
higher gross profit than product sales, which generally consist of supplies or other manufactured
products that incorporate the Company’s
technologies or equipment used to support the application of its technologies. These items (except
for inks which are manufactured by the Company) are generally purchased from third-party vendors
and resold to the end-user or licensee and carry a lower gross profit than licenses, royalties and
fees. The higher gross profit in 2010 compared to 2009 reflects a more favorable mix of product
sales and cost reductions implemented during the second quarter of 2010.
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 gross profit from
licenses, royalties and fees as well as overall gross profit. Primarily due to the cost reductions
initiated in the second quarter of 2010, the gross profit from licenses, royalties and fees
increased to approximately 82% of revenues from licenses, royalties and fees in 2010 from
approximately 77% in 2009.
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. As a result of both increased ink sales and cost reductions initiated in the
second quarter of 2010, the gross profit from product and other sales increased to approximately
27% of revenues in 2010 compared to approximately 18% of revenues from product and other sales in
2009.
Research and development expenses decreased to $132,300 in 2010 from $165,900 in 2009. The decrease
in 2010 compared 2009 is due primarily to a staff reduction in the second quarter of 2010.
Sales and marketing expenses decreased to $152,800 in 2010 from $259,200 in 2009. The decrease in
2010 compared to 2009 is due primarily to the Company’s decision in the second half of 2009 to
modify its method of marketing its security products to loss prevention departments in retailers.
As a result, the Company incurred no consulting fees or business show exhibition expense in 2010
and its travel expense declined in 2010 compared to 2009.
General and administrative expenses decreased to $332,500 in 2010 from $372,400 in 2009. The
decrease in 2010 compared to 2009 is due primarily to due primarily to lower legal expenses in 2010
compared to 2009 as there were fewer requirements for these services and, additionally, lower
compensation expenses, including lower salary expenses and stock option compensation, during 2010
compared 2009.
Other income (expenses) included, in 2009, a benefit from the reversal of $69,100 of accounts
payable by the Company related to invoices the Company had received from 2001 through 2003 from a
business for consulting services provided by a third party. The Company, with the advice of legal
counsel, had determined that it was no longer legally required to pay these invoices as the statute
of limitations within which the consultant had to bring a claim had expired. Additionally, the
Company incurred higher interest expense and financing costs in 2010 compared to 2009 on funds
borrowed under its line of credit and, in 2010, from demand loans obtained during 2010.
The net loss of $245,100 in 2010 compared to the net loss of $389,400 in 2009 results primarily
from lower sales and marketing expenses in 2010 compared to 2009; this net loss was due primarily
to the Company’s decision in the second half of 2009 to modify its method of marketing its security
products to loss prevention departments in retailers, lower compensation expenses due to staff
reductions in the second quarter of 2010 and a higher gross profit in 2010 compared to 2009 offset
in part by no reversal of accounts payable in 2010 and higher interest expense and financing cost
in 2010 compared to 2009.
Management of the Company does not believe that inflation and changing prices have had a
significant effect on its revenues and results of operations during the years ended December 31,
2010 and December 31, 2009.
Plan of Operation, Liquidity and Capital Resources
The Company’s cash decreased to $10,600 at December 31, 2010 from $37,200 at December 31, 2009.
During 2010, the Company received $101,600 from the sale of 2,879,745 shares of its common stock,
borrowed $50,500 from four individuals, used $170,200 to fund operations, used $6,200 to
reduce the balance on its line of credit and used $2,300 for capital investment.
12
While, beginning in 2006, the Company began to add new licensees in the entertainment and toy
market and, through the end of 2010, has obtained significant increases in revenues from licenses,
royalties and product sales from these licensees and their third party printers, the Company’s
working capital requirements have increased primarily in order to support of inventory and
receivables related to these revenues. In 2009, the Company’s revenues declined significantly as a
result of declines in licensing revenues from its principal licensees in the entertainment and toy
products business and incurred expenditures due to marketing activities related to a new division
and the Company’s intention to sell the Company’s security products directly to loss prevention
departments within retail businesses and chains and to license other printers who serve this market
segment. In the third quarter of 2009, the Company modified these objectives in order to
participate in this market through licensed printers and distributors who serve this market
segment. Primarily as a result of cost reductions in 2010, the Company recorded a lower net loss of
$245,100 in the year ended December 31, 2010 and had negative operating cash flow of $170,200
during that period. At December 31, 2010, the Company had negative working capital of $343,000 and
stockholders’ deficiency of $333,400. For the full year of 2009, the Company had a net loss of
$389,400 and had negative operating cash flow of $312,000 during the year. At December 31, 2009,
the Company had negative working capital of $210,300 and stockholders’ deficiency of $195,100. In
2008, the Company secured a $100,000 line of credit with a bank to provide future working capital.
During the year ended December 31, 2009, the Company borrowed the entire $100,000 available under
the line of credit. In August 2010, the Company accepted an offer by the bank to repay the
outstanding loan balance in forty-eight equal monthly installments, plus interest, beginning in
October 2010. In 2010, the Company received unsecured loans totaling $50,500 from four individuals.
Additionally, the Company, in 2009 and 2010, raised $263,600 through the sale of 5,566,204 shares
of its common stock. These borrowings and sales of common stock have allowed the Company to remain
in operation through the current date.
Management of the Company believes that it will need to obtain additional capital in the immediate
future to support its working capital requirements associated with its existing revenue base and to
fund operating losses that it believes may continue through 2011 related to the uncertainty
associated with the worldwide economic downturn. There can be no assurances that the Company will
be successful in obtaining sufficient additional capital, or if it does, that the additional
capital will enable the Company to return its business to profitability and develop new revenue
sources to have a material positive effect on the Company’s operations and cash flow. The Company
believes that without additional investment, it may be forced to cease operations in the near
future.
There can be no assurances that the Company will be successful in obtaining additional investment.
There can be no assurances that revenues in future periods will be sustained at levels that will
allow it to return to and maintain positive cash flow.
The Company continues to maintain a cost containment program including curtailment, where possible,
of discretionary research and development and sales and marketing expenses, where possible. In the
second quarter of 2010, the Company reduced it staff by two full-time individuals.
The Company’s plan of operation for the twelve months beginning with the date of this annual report
consists of concentrating available human and financial resources to continue to capitalize on the
specific business relationships the Company has developed in the entertainment and toy products
business, including a new licensee added in the second quarter of 2010 and a new international
customer added in the third quarter of 2010, through ongoing development of applications for these
licensees and continued expansion in its licensee base in the entertainment and toy market.
Additionally, the Company anticipates further revenue growth in the retail loss prevention market
through increased royalties from and security ink sales to its long-standing and recently added
licensees in this market. The Company believes that these opportunities can provide increases in
revenues and will continue to adjust the Company’s production and technical staff as necessary. The
Company will also, subject to available financial resources, invest in capital equipment needed to
support any ink production requirements beyond its current capacity. Additionally, the Company will
pursue opportunities to market its current technologies in specific security and non-security
markets. The Company plans to raise additional capital, in the form of debt, equity or both, to
support its working capital requirements as well as to provide funding for its new and other
business opportunities. There can be no assurances that the Company will be successful in raising
additional capital, or that such additional capital, if obtained, will enable the Company to
generate additional revenues and return to positive cash flow.
13
Risk Factors
The Company’s operating results, financial condition and stock price are subject to certain risks,
some of which are beyond its control. These risks could cause the Company’s actual operating and
financial results to differ materially from those expressed in its forward looking statements,
including the risks described below and the risks identified in other documents which are filed and
furnished with the SEC:
Access to Capital. The Company anticipates that it will need to raise capital in the immediate
future to fund its historical and new business operations. The crisis in the financial markets that
commenced in 2007 has caused serious deterioration in the net worth and liquidity of many
investors, including that of potential investors in the Company, and seriously eroded investor
confidence in general making it more difficult for the Company to raise capital. If the Company is
unable to secure capital in the near future, in the form debt, equity or both, it may be forced to
cease operations. There can be no assurances that the Company will be successful in obtaining
additional investment in sufficient amounts to fund its ongoing business operations.
Line of Credit. The Company has a line of credit with a bank that, at its inception, allowed the
Company to borrow a maximum of $100,000. During 2010, the Company accepted unsecured loans totaling
$50,500 from four individuals. The acceptance of these unsecured loans constituted a violation of
certain covenants of the Company’s line of credit with the bank. Under the terms of the line of
credit agreement, this covenant violation is an event of default whereby the bank has certain
rights including requiring the Company to repay the entire outstanding loan balance. In August
2010, the Company accepted an offer by the bank to repay the then outstanding loan balance of
$100,000 in forty-eight equal monthly installments of $2,083, plus interest, beginning in October
2010. A requirement by the bank for immediate repayment of the entire outstanding loan balance,
which was $93,750 at December 31, 2010, could have a material adverse effect on the Company’s
financial condition.
Dependency on Major Customer. The Company’s growth in revenues in 2008 and 2007 compared to earlier
periods resulted primarily from relationships developed with a major customer and two of its
operating companies. Revenues derived directly from this customer and indirectly, through its third
party printer, equaled approximately 39% of the Company’s 2010 revenues. The Company also has
substantial receivables from these businesses. While a multi-year license exists with these
organizations, the Company is dependent on its licensees to develop new products and markets that
will generate increases in its licensing and product revenues. The inability of these licensees to
maintain at least current levels of sales of products utilizing the Company’s technologies could
adversely affect the Company’s operating results and cash flow. As the Company’s licensees are
subject to, and have been adversely affected by economic conditions related to the current economic
conditions, the Company’s revenues may be adversely impacted. In late 2009, the Company entered
into a three-year license agreement commencing in January 2010 and containing guaranteed minimum
annual royalties covering products sold under previous license agreements with two of the
licensee’s operating divisions. The agreement contains renewal options. In March 2010, the Company
was informed that this customer was discontinuing a product line which incorporates technology
licensed under a separate license agreement, ceasing ink purchases related to the these products
and selling off its remaining inventory of these products. There can be no assurances that the
recently renewed license will continue in force at the same, or more favorable, terms beyond its
current termination date.
Possible Inability to Develop New Business. While the Company raised cash through additional
capital investment and borrowings under its line of credit in 2009 and loans from individuals in
2010, it limited increases in its operating expenses and reduced its operating expenses when
possible. Management of the Company believes that any significant improvement in the Company’s cash
flow must result from increases in revenues from traditional sources and from new revenue sources.
The Company’s ability to develop new revenues may depend on the extent of both its marketing
activities and its research and development activities, both of which are limited. There are no
assurances that the resources that the Company can devote to marketing and to research and
development will be sufficient to increase its revenues to levels that will enable it to return to
and maintain positive operating cash flow in the future.
14
Inability to Obtain Raw Materials and Products for Resale. The Company’s adverse financial
condition has required it to significantly defer payments due to vendors who supply raw materials
and other components of its security inks and to providers of professional and other services. As a
result, the Company is required to pay cash in advance of shipment to certain of its suppliers.
Delays in shipments to customers caused by the inability to obtain materials on a
timely basis and the possibility that certain current vendors may permanently discontinue supplying
the Company with needed products and services threaten to impact the Company’s ability to service
its customers, thereby adversely affecting its customer and licensee relationships. While receipt
of funds through the sale of shares of the Company’s common stock and borrowings under the
Company’s line of credit and from other third parties has allowed the Company to continue in
operation to the current date, there can be no assurances that the Company will be able to maintain
its vendor relationships in an acceptable manner.
Uneven Pattern of Quarterly and Annual Operating Results. The Company’s revenues, which are derived
primarily from licensing, royalties and sales of products incorporating its technologies, are
difficult to forecast due to the long sales cycle of its technologies, the potential for customer
delay or deferral of implementation of its technologies, the size and timing of inception of
individual license agreements, the success of its licensees and strategic partners in exploiting
the market for the licensed products, modifications of customer budgets, and uneven patterns of
royalty revenue and product orders. As the Company’s revenue base is not substantial, delays in
finalizing license contracts, implementing the technology to initiate the revenue stream and
customer ordering decisions can have a material adverse effect on the Company’s quarterly and
annual revenue expectations and, as the Company’s operating expenses are substantially fixed,
income expectations will be subject to a similar adverse outcome. As licensees for the
entertainment and toy products markets are added, the predictability of the Company’s revenue
stream may be further impacted.
Volatility of Stock Price. The market price for the Company’s common stock has historically
experienced significant fluctuations and may continue to do so. From inception, with the exception
of 2007, the Company has operated at a loss and has not produced revenue levels traditionally
associated with publicly traded companies. The Company’s common stock is not listed on a national
or regional securities exchange and, consequently, it receives limited publicity regarding its
business achievements and prospects. Additionally, securities analysts and traders do not
extensively follow the Company’s stock and its stock is thinly traded. The Company’s market price
may be affected by announcements of new relationships or modifications to existing relationships.
The stock prices of many developing public companies, particularly those with small
capitalizations, have experienced wide fluctuations not necessarily related to operating
performance. Such fluctuations may adversely affect the market price of the Company’s common stock.
Intellectual Property. The Company relies on a combination of protections provided under applicable
international patent, trademark and trade secret laws. The Company also relies on confidentiality,
non-analysis and licensing agreements to establish and protect its rights in its proprietary
technologies. While the Company actively attempts to protect these rights, its technologies could
possibly be compromised through reverse engineering or other means. In addition, the Company’s
ability to enforce its intellectual property rights through appropriate legal action has been and
may continue to be limited by its adverse liquidity. There can be no assurances that the Company
will be able to protect the basis of its technologies from discovery by unauthorized third parties
or to preclude unauthorized persons from conducting activities that infringe on its rights. The
Company’s adverse liquidity situation also impacts its ability to obtain patent protection on its
intellectual property and to maintain protection on previously issued patents. The Company is not
aware of any patent maintenance fees due during 2011. There can be no assurances that the Company
will be able to continue to prosecute new patents and maintain issued patents. As a result, the
Company’s customer and licensee relationships could be adversely affected and the value of its
technologies and intellectual property (including their value upon liquidation) could be
substantially diminished.
Economic Conditions. The Company’s revenue is susceptible to changes in general economic conditions
and the present global recession that is expected to continue during 2011. Decreasing consumer
confidence, further slowdown in consumer spending or other downturn in the U.S. economy as a whole
or in any geographic markets from which the Company derives revenue, could substantially impact the
Company’s sales, liquidity and overall results of operations, as these factors may result in
decreased demand for the Company’s products from its customers and licensees, and the Company’s
ability to develop new customers and licensees. Due to the uncertainty surrounding the financial
crisis, and negatively impact the Company’s ability to predict the effect such conditions will have
on its customers and licensees, the Company cannot predict the scope or magnitude of the negative
effect that such an ongoing global financial crisis and economic slowdown will have on it.
15
Recently Adopted Accounting Pronouncements
As of December 31, 2010 and for the year then ended, there were no recently adopted accounting
pronouncements that had a material effect on the Company’s financial statements.
As of December 31, 2010, the FASB has issued Accounting Standards Updates (ASU) through No.
2010-29. None of the ASUs have had an impact on the Company’s financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
As of December 31, 2010, there are no recently issued accounting standards not yet adopted which
would have a material effect on the Company’s financial statements.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
|
|
|
| ITEM 7A. |
|
QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not required for a smaller reporting company.
|
|
|
| ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
For information required with respect to this Item 8, see index to Financial Statements and
Schedules on page F-1 of this report on Form 10-K.
|
|
|
| ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
|
|
|
| ITEM 9A. |
|
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
The Company’s disclosure controls and procedures are designed to provide reasonable assurance that
material information required to be included in its periodic SEC reports is recorded, processed,
summarized and reported within the time periods specified in the relevant SEC rules and forms. The
Company has carried out an evaluation, under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial
Officer concluded, as of the end of the period covered by this report, that the Company’s
disclosure controls and procedures are effective.
Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
Internal control over financial reporting is a process to provide reasonable assurance regarding
the reliability of financial reporting and preparation of financial statements for external
purposes in accordance with U.S. GAAP. Internal control over financial reporting includes
maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company, provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP,
that receipts and expenditures of the Company are being made only with management authorization and
provide reasonable assurance that unauthorized acquisition, use or disposition of Company assets
that could have a material effect on the Company’s financial
statements would be prevented or detected on a timely basis. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements in the Company’s
financial statements on a timely basis.
16
Management assessed the effectiveness of the Company’s internal control over financial reporting
based on the Committee of Sponsoring Organizations of the Treadway Commission in “Internal
Control-Integrated Framework.” Based on this assessment, management believes that, as of December
31, 2010, the Company’s internal control over financial reporting was effective.
This annual report does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial reporting. The attestation report
requirement for non-accelerated filers was permanently removed from the Sarbanes-Oxley Act by
Section 989C of the Dodd-Frank Act as adopted by the SEC.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting during the
fourth quarter of 2010 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
|
|
|
| ITEM 9B. |
|
OTHER INFORMATION |
None.
PART III
|
|
|
| ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The directors and officers of the Company, their ages, present positions with the Company, and a
summary of their business experience are set forth below.
Michael A. Feinstein, M.D., 64, Chairman of the Board of Directors since December 1999 and Nocopi’s
Chief Executive Officer since February 2000, has been a practicing physician in Philadelphia for
more than thirty years, serving for more than twenty-five years as the President of a group medical
practice which includes three physicians. He is a Fellow of the American College of Obstetrics and
Gynecology and of the American Board of Obstetrics and Gynecology. He received his B.A. from
LaSalle University and his M.D. from Jefferson Medical College. He has represented Nocopi in
numerous licensing negotiations, governmental meetings and capital raises. The Board of Directors
believes that Dr. Feinstein’s considerable personal experience as a business owner and investor in
publicly traded businesses makes him well suited to serve as a member of Nocopi Technologies’ Board
of Directors.
William P. Curtis, Jr., 49, a director since November 2008 is a Partner at Porter & Curtis, L.L.C,
of Media, Pennsylvania, an insurance brokerage and risk management consulting company. The
technical focus of Porter & Curtis is in risk financing, specifically in the alternative financing
area (insurance and reinsurance), and risk management including claims administration. Prior to
forming Porter & Curtis, Mr. Curtis, along with Partner Kenneth Porter, founded and successfully
managed a retail brokerage operation for Arthur J. Gallagher & Company, the fourth largest
insurance broker in the world. Mr. Curtis is licensed as a Pennsylvania Attorney and a Resident
Insurance Broker. He has a Bachelor of Science in Accounting and a M.B.A. in Finance from St.
Joseph’s University in Philadelphia and a Juris Doctor from Temple University School of Law. In
addition, he holds the Chartered Property Casualty Underwriter (CPCU), Associate in Risk Management
(ARM), and Associate in Reinsurance (ARe) professional designations from the Insurance Institute of
America. The Board of Directors believes that Mr. Curtis’ finance, law, risk management and
business management experience makes him well suited to serve as a member of Nocopi Technologies’
Board of Directors.
17
Herman M. Gerwitz, CPA, 57, a director since May 2005, is the Treasurer of Keystone Property Group.
Mr. Gerwitz has been with Keystone full time since 1998 and has been responsible for all the
financial matters of a Real Estate Development Company that has grown to over 3 million square feet
of commercial real estate and a $100,000,000
Real Estate Fund. Prior to joining Keystone, Mr. Gerwitz has spent 20 years as a partner in a
public accounting firm. He has received a BBA from Temple University with master’s coursework at
Widener University. He has been a member of both the Pennsylvania and American Institutes of
Certified Public Accountants since 1983. The Board of Directors believes that Mr. Gerwitz’ many
years as a Certified Public Accountant and his subsequent business management experience make him
well suited to serve as a member of Nocopi Technologies’ Board of Directors and to serve on its
Audit Committee.
Richard Levitt, 54, a director since December 1999, has been engaged in the computer and services
segment of the computer industry since 1981. Mr. Levitt is currently a Senior Account Executive for
Dell Computer in Pittsburgh, PA. He is in the Large Enterprise Group and is responsible for
developing major accounts in Western Pennsylvania. Mr. Levitt has been with Dell since November
2005. In 2009, Mr. Levitt was awarded the “Circle of Excellence” award by Dell which is Dell’s
highest corporate award given to less than 1% of its sales and support employees. In addition, he
was awarded over the past three years the “Top Team Performer” and “Regional Top Performer” awards.
In 1995, he participated in the founding of XiTech Corporation, a Pittsburgh, Pennsylvania-based
provider of computing and computer networking hardware and network design and implementation
services which in five years grew to over 100 employees and $50 million in annual sales. Since
founding XiTech, Mr. Levitt served as one of its corporate principals, as a Network Consultant and
as the Manager of its Network Sales Force. Mr. Levitt left XiTech in 2004. Before joining XiTech,
Mr. Levitt served as a network sales executive for Digital Equipment Corporation from 1988 to 1994
and as a network consultant for TriLogic Corporation during 1994 and 1995. Mr. Levitt holds a B.S.
in Marketing from Kent State University. The Board of Directors believes that Mr. Levitt’s sales
and marketing experience in technology-based businesses, including start-ups and smaller
businesses, makes him well suited to serve as a member of Nocopi Technologies’ Board of Directors.
Philip B. White, 72, has been a director since August 2006. Mr. White is currently an international
consultant in the private sector providing regulatory and industry standards advice to
international companies regulated by the Food and Drug Administration, the Consumer Product Safety
Commission, and the Environmental Protection Agency. He also served as a Technical Advisor and
Regulatory Liaison to Nocopi from 2002 to 2005. Before establishing his own global consulting
practice in 2000, Mr. White was, from 1994 to 2000, Director of Medical Device Consulting at the
international firm of AAC Consulting Group (now Kendle), Rockville, MD. In 1994, Mr. White retired
from a 33-year career with the U.S. Food and Drug Administration. His last FDA position was
Director of the Office of Standards and Regulations in the Center for Devices and Radiological
Health. Previous FDA positions included Regional Director of FDA’s enforcement activities in the
Southwestern Region, Deputy FDA Assistant Commissioner for Program Coordination, and Supervisory
Food and Drug Inspector. He has served on the Board of Directors of the American National Standards
Institute, the Association for Advancement of Medical Instrumentation, and the Regulatory Affairs
Professionals Society. He is a 1961 graduate of Wilkes University, Wilkes-Barre, PA with a B.A.
Degree in Biology. He also did graduate studies in 1967 and 1968 specializing in the Federal Food
Drug and Cosmetic Act at the New York University Graduate Law School in New York City. The Board of
Directors believes that Mr. White’s considerable experience with consumer product safety and
regulatory matters gained from his many years at the Food and Drug Administration makes him well
suited to serve as a member of Nocopi Technologies’ Board of Directors.
Rudolph A. Lutterschmidt, 64, has been Vice President and Chief Financial Officer of the Company
for more than five years, serving in this capacity on a part-time basis since January 2000. Since
July 2006, Mr. Lutterschmidt has been a consultant to several southeast Pennsylvania businesses
including Murex Investments, a Philadelphia investment fund, where he provided financial guidance
to two of its portfolio companies. From April 2005 to July 2006, Mr. Lutterschmidt was employed by
BCA Employee Management Group, Inc., a Human Resource Outsource firm located in West Chester, PA.
He is a graduate of Syracuse University, a member of Financial Executives International, the
Institute of Management Accountants and is a Certified Management Accountant.
The terms of the current directors will expire at the 2011 annual meeting of stockholders of the
Company.
Corporate Governance
The Board of Directors has determined that all of the directors, with the exception of Michael A.
Feinstein, M.D., who serves as Chief Executive Officer, are independent as that term is defined by
the SEC. The Company did not make any material changes to the procedures by which stockholders may
recommend nominees to the Company’s
Board of Directors during 2011.
18
Audit Committee Financial Expert
The Company has established a standing audit committee in accordance with Section 3(a) (58) (A) of
the Securities Exchange Act of 1934 that makes recommendations to the Company’s Board of Directors
regarding the selection of an independent registered public accounting firm, reviews the results
and scope of the Company’s audits and other accounting-related services and reviews and evaluates
the Company’s internal control functions. The audit committee does not presently have a written
charter. The audit committee is comprised of Michael A. Feinstein, M.D., its Chairman of the Board,
and Herman M. Gerwitz, CPA. The Board of Directors has determined that Mr. Gerwitz is an “audit
committee financial expert” as currently defined under the SEC rules implementing Section 407 of
the Sarbanes Oxley Act of 2002 and that Mr. Gerwitz meets the criteria for independence as defined
by the SEC.
Code of Ethics
The Company has adopted a Code of Ethics that applies to its Principal Executive Officer, Principal
Financial Officer, Principal Accounting Officer and persons performing similar functions. A copy of
the Company’s Code of Ethics is incorporated by reference to Exhibit 14.1 of this report on Form
10-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s executive officers and directors and any
persons who beneficially own more than 10% of its Common Stock (collectively, “Reporting Persons”)
to file reports of ownership and changes in ownership with the SEC. Reporting Persons are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on the Company’s review of the copies of any Section 16(a) forms received by it, the
Company believes that with respect to the fiscal year ended December 31, 2010, all Reporting
Persons complied with all applicable filing requirements.
|
|
|
| ITEM 11. |
|
EXECUTIVE COMPENSATION |
The
following table sets forth information concerning compensation for
2010 and 2009 earned by Michael A. Feinstein, M.D., the Company’s Chairman who has served since February 2000 as the
Company’s Chief Executive Officer. No other employee received compensation in 2010 greater than
$100,000.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
| Name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonequity |
|
|
deferred |
|
|
|
|
|
|
|
| and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
incentive plan |
|
|
compensation |
|
|
All other |
|
|
|
|
| principal |
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
awards |
|
|
awards |
|
|
compensation |
|
|
earnings |
|
|
compensation |
|
|
Total |
|
| position |
|
Year |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
| (a) |
|
(b) |
|
|
(c) |
|
|
(d) |
|
|
(e) |
|
|
(f) |
|
|
(g) |
|
|
(h) |
|
|
(i) |
|
|
(j) |
|
Michael A. Feinstein, M.D. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman, President and Chief Executive Officer |
|
|
2010 |
|
|
|
85,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,000 |
|
|
|
|
2009 |
|
|
|
85,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,000 |
|
19
Dr. Feinstein entered into a written employment agreement effective June 1, 2008 under which
he serves as President and Chief Executive Officer of the Company for an initial term of three
years with successive one year renewal terms. In accordance with the terms of the employment
agreement, the employment agreement renewed on December 1, 2010 for a period of one year effective
June 1, 2011. The employment agreement provides for an annual base salary of $85,000 which may be
increased annually at the discretion of the Board of Directors and an
annual performance bonus determined by the Board of Directors. In certain situations, including a
change in control, Dr. Feinstein may be eligible to receive his base salary for a period of up to
twelve months following the termination of employment. The employment agreement prohibits him from
competing with the Company during the term of this agreement and for two years after the
termination of his employment with the Company. During 2010, Dr. Feinstein deferred approximately
$11,400 of salary owed to him for 2010.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Option Awards
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
(b) |
|
|
(c) |
|
|
(d) |
|
|
(e) |
|
|
(f) |
|
| |
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Income |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Plan |
|
|
|
|
|
|
|
| |
|
Number |
|
|
Number |
|
|
Awards |
|
|
|
|
|
|
|
| |
|
Of |
|
|
Of |
|
|
Number of |
|
|
|
|
|
|
|
| |
|
Securities |
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
| |
|
Underlying |
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
| |
|
Options |
|
|
Options |
|
|
Unexercised |
|
|
Option |
|
|
Option |
|
| |
|
(#) |
|
|
(#) |
|
|
Options |
|
|
Exercise |
|
|
Expiration |
|
| Name |
|
Exercisable |
|
|
Unexercisable |
|
|
(#) |
|
|
Price |
|
|
Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Feinstein, M.D. |
|
|
100,000 |
|
|
|
|
|
|
|
100,000 |
|
|
$ |
.215 |
|
|
April 29, 2011 |
Michael A. Feinstein, M.D. |
|
|
100,000 |
|
|
|
|
|
|
|
100,000 |
|
|
$ |
.45 |
|
|
April 29, 2013 |
There are no outstanding stock awards.
If Dr. Feinstein’s employment is terminated as a result of a change in control, Dr. Feinstein is
entitled to receive severance payments equal to twelve months of his then base salary.
Director Compensation
The following table summarizes compensation earned by the Company’s non-executive directors for the
year ended December 31, 2010. All directors have been and will be reimbursed for reasonable
expenses incurred in connection with attendance at meetings of the Board of Directors or other
activities undertaken by them on behalf of the Company.
| |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
| |
|
or |
|
|
|
|
|
|
|
|
|
|
Nonequity |
|
|
deferred |
|
|
|
|
|
|
|
| |
|
paid in |
|
|
Stock |
|
|
Option |
|
|
incentive plan |
|
|
compensation |
|
|
All other |
|
|
|
|
| |
|
cash |
|
|
awards |
|
|
awards |
|
|
compensation |
|
|
earnings |
|
|
compensation |
|
|
Total |
|
| Name |
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
| (a) |
|
(b) |
|
|
(c) |
|
|
(d) |
|
|
(e) |
|
|
(f) |
|
|
(g) |
|
|
(h) |
|
W. Ward Carey (1) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
William P. Curtis, Jr. |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Herman M. Gerwitz (2) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Richard Levitt (3) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Philip B. White (4) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| |
|
|
| (1) |
|
Mr. Carey resigned in November 2010. |
| |
| (2) |
|
Mr. Gerwitz held 200,000 exercisable stock options and 7,500 exercisable warrants at December 31, 2010. |
| |
| (3) |
|
Mr. Levitt held 200,000 exercisable stock options at December 31, 2010. |
| |
| (4) |
|
Mr. White held 100,000 exercisable stock options at December 31, 2010. |
20
|
|
|
| ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth, as of March 15, 2011, the stock ownership of (1) each person or
group known by the Registrant to beneficially own 5% or more of Registrant’s Common Stock and (2)
each director individually, and (3) all directors and executive officers of the Company as a group.
To the Company’s knowledge, except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table below has sole voting and
investment power with respect to the shares set forth opposite such person’s name. Except as
otherwise indicated, the address of each of the persons in the table below is c/o Nocopi
Technologies, Inc., 9C Portland Road, West Conshohocken, Pennsylvania, 19428.
| |
|
|
|
|
|
|
|
|
| Common Stock |
|
| |
|
Number |
|
|
|
|
| |
|
Of Shares |
|
|
|
|
| |
|
Beneficially |
|
|
Percentage of |
|
| |
|
Owned |
|
|
Class (1) |
|
Name of Beneficial Owner |
|
|
|
|
|
|
|
|
5% Stockholders |
|
|
|
|
|
|
|
|
Philip N. Hudson
P.O. Box 160892
San Antonio, TX 78280-3092 (2) |
|
|
4,000,000 |
|
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
Westvaco Brand Security, Inc.
One High Ridge Park
Stamford, CT 06905 (3) |
|
|
3,917,030 |
|
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
Ross. L Campbell
675 Lewis Lane
Ambler, PA 19002 (4) |
|
|
3,264,457 |
|
|
|
5.6 |
% |
|
|
|
|
|
|
|
|
|
Directors and Officers |
|
|
|
|
|
|
|
|
Michael A Feinstein, M.D. (5) |
|
|
3,231,881 |
|
|
|
5.5 |
% |
William P. Curtis, Jr. (6) |
|
|
472,428 |
|
|
|
* |
|
Herman M. Gerwitz (7) |
|
|
503,500 |
|
|
|
* |
|
Richard Levitt (8) |
|
|
450,000 |
|
|
|
* |
|
Philip B. White (9) |
|
|
371,745 |
|
|
|
* |
|
All Executive Officers and Directors as a Group (6 individuals) (10) |
|
|
5,080,154 |
|
|
|
8.8 |
% |
| |
|
|
| * |
|
Less than 1.0%. |
| |
| (1) |
|
Where the Number of Shares Beneficially Owned (reported in the preceding column)
includes shares which may be purchased upon the exercise of outstanding stock options and
warrants which are or within sixty days will become exercisable (“presently exercisable
options”) the percentage of class reported in this column has been calculated assuming the
exercise of such presently exercisable options. |
| |
| (2) |
|
As reflected in a Schedule 13D dated August 11, 2008 filed on behalf of Philip N.
Hudson and subsequent open market purchases as reported to the Company by Mr. Hudson. |
| |
| (3) |
|
As reflected in a Schedule 13D dated March 14, 2001 filed on behalf of Westvaco Brand
Security, Inc. |
| |
| (4) |
|
As reflected in a Schedule 13D dated April 4, 2005 filed on behalf of Ross L. Campbell. |
| |
| (5) |
|
Includes 656,000 shares held by a pension plan of which Dr. Feinstein is a trustee,
100,000 shares held in an IRA and 200,000 presently exercisable stock options. |
| |
| (6) |
|
Includes, subject to Board of Directors approval, warrants to purchase 15,000 shares of
Common Stock. |
| |
| (7) |
|
Includes 50,000 shares held by a trust on behalf of a child of Mr. Gerwitz, 72,500
shares held by a child of Mr. Gerwitz, 6,000 shares held in an IRA, 200,000 presently
exercisable stock options and
presently exercisable warrants to purchase 7,500 shares of Common Stock. |
21
| |
|
|
| (8) |
|
Includes 200,000 presently exercisable stock options. |
| |
| (9) |
|
Includes 100,000 presently exercisable stock options and 50,000 presently exercisable
stock options held by Mr. White’s wife. |
| |
| (10) |
|
Includes 800,000 presently exercisable stock options, presently exercisable warrants to
purchase 7,500 shares of Common Stock and, subject to Board of Directors approval, warrants
to purchase 15,000 shares of Common Stock. |
EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2010
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Number of securities |
|
| |
|
|
|
|
|
|
|
|
|
remaining available for |
|
| |
|
|
|
|
|
Weighted-average |
|
|
future issuance under |
|
| |
|
Number of securities to |
|
|
exercise price of |
|
|
equity compensation |
|
| |
|
be issued upon exercise |
|
|
outstanding options, |
|
|
plans (excluding |
|
| |
|
of outstanding options, |
|
|
warrants and rights |
|
|
securities reflected in |
|
| Plan Category |
|
warrants and rights |
|
|
compensation plans |
|
|
column (a)) |
|
| |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity Compensation
plans approved by
security holders |
|
|
300,000 |
|
|
$ |
.22 |
|
|
|
-0- |
|
Equity Compensation
plans not approved by
security holders (1) |
|
|
645,000 |
|
|
$ |
.32 |
|
|
|
-0- |
|
Warrants issued in connection with
short-term loans (2) |
|
|
97,500 |
|
|
$ |
.15 |
|
|
|
-0- |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,042,500 |
|
|
$ |
.28 |
|
|
|
-0- |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Registrant’s 1999 Stock Option Plan was adopted by the Registrant’s Board of Directors
in February 1999. The Plan provided for the grant of incentive or non-qualified options to
purchase up to 2,000,000 shares of common restricted stock of the Registrant to employees,
directors, consultants and advisors. The Plan was administered by the Board of Directors or
a committee of not less than two board members appointed by the board. The Plan terminated
in February 2009 on the tenth anniversary of its adoption. |
| |
| (2) |
|
Warrants issued in connection with the receipt of short term-notes totaling $57,000 in
2006 and $50,500 in 2010 were approved by the Board of Directors. In 2008, 10,000 warrants
were exercised. The warrants expire five years from the date of issuance. |
|
|
|
| ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
During 2009, Mr. Lutterschmidt, Chief Financial Officer, received options to purchase 50,000
shares of the Company’s Common Stock at $.12 per share. The options expire in 2014.
During 2009, Mr. White’s wife, a consultant to the Company, received options to purchase 50,000
shares of the Company’s Common Stock at $.12 per share. The options expire in 2014.
22
During 2009, Dr. Feinstein’s brother-in-law purchased 650,000 unregistered shares of the Company’s
Common Stock for $32,000 (250,000 shares at $.064 per share and 400,000 shares at $.04 per share).
During 2009, the Company sold 260,417 unregistered shares of its Common Stock to William P. Curtis,
Jr., a director, for $25,000 ($.096 per share).
During 2010, the Company sold 148,912 unregistered shares of its Common Stock to Philip B. White.,
a director, for $6,500 ($.04365 per share).
During 2010, the Company sold 62,500 unregistered shares of its Common Stock to Herman M Gerwitz.,
a director, for $2,000 ($.032 per share), received an unsecured loan of $7,500 from Mr. Gerwitz and
issued warrants, expiring in five years, to purchase 7,500 shares of its Common Stock at $.0703 per
share to Mr. Gerwitz.
During 2010, Dr. Feinstein’s brother-in-law purchased 500,000 unregistered shares of the Company’s
Common Stock for $16,000 ($.032 per share).
The Board of Directors has determined that all the directors, with the exception of Michael A.
Feinstein, M.D., who serves as President and Chief Executive Officer, are independent as that term
is defined by the SEC.
|
|
|
| ITEM 14. |
|
PRINCIPAL ACCOUNTING FEES AND SERVICES |
The Company has retained the public accounting firm of Morison Cogen, LLP, whose principal business
address is 150 Monument Rd., Suite 500, Bala Cynwyd, PA 19004, to perform its annual audit for
inclusion of its report on Form 10-K and perform SAS 100 reviews of quarterly information in
connection with Form 10-Q filings.
Audit Fees
During 2010 and 2009, the aggregate fees billed for professional services rendered by our principal
accountant for the audit of our annual financial statements and review of our quarterly financial
statements was $36,500 and $34,000, respectively.
Audit-Related Fees
During 2010 and 2009, our principal accountant did not render assurance and related services
reasonably related to the performance of the audit or review of financial statements.
Tax Fees
During 2010 and 2009, the aggregate fees billed for professional services rendered by our principal
accountant for tax compliance, tax advice and tax planning were $4,500 in each year.
All Other Fees
During 2010 and 2009, there were no fees billed for products and services provided by our principal
accountant other than those set forth above.
Audit Committee Approval
The Audit Committee, consisting of Michael A. Feinstein, M.D., Chairman, President and Chief
Executive Officer, and Herman M. Gerwitz, CPA, evaluate and approve, in advance, the scope and cost
of the engagement of an auditor before the auditor renders audit and non-audit services. All
non-audit services were approved by the audit committee. Registrant does not rely on pre-approval
policies and procedures.
|
|
|
| ITEM 15. |
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
See Exhibit Index.
23
SIGNATURES
Pursuant to the requirements of Section 13 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: March 31, 2011 |
By: |
/s/ Michael A. Feinstein, M.D.
|
|
| |
|
Michael A. Feinstein, M.D. |
|
| |
|
Title: |
Chairman of the Board, President and
Chief
Executive Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Michael A. Feinstein, M.D.
|
|
Chairman of the Board, President and
|
|
March 31, 2011 |
| |
|
|
|
|
Michael A. Feinstein, M.D.
|
|
Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ Rudolph A. Lutterschmidt
|
|
Vice President, Chief Financial Officer and
|
|
March 31, 2011 |
| |
|
|
|
|
Rudolph A. Lutterschmidt
|
|
Chief Accounting Officer
(Principal Financial and Accounting Officer) |
|
|
|
|
|
|
|
/s/ William P. Curtis, Jr.
|
|
Director
|
|
March 31, 2011 |
| |
|
|
|
|
William P. Curtis, Jr. |
|
|
|
|
|
|
|
|
|
/s/ Herman M. Gerwitz
|
|
Director
|
|
March 31, 2011 |
| |
|
|
|
|
Herman M. Gerwitz |
|
|
|
|
|
|
|
|
|
/s/ Richard Levitt
|
|
Director
|
|
March 31, 2011 |
| |
|
|
|
|
Richard Levitt |
|
|
|
|
|
|
|
|
|
/s/ Philip B. White
|
|
Director
|
|
March 31, 2011 |
| |
|
|
|
|
Philip B. White |
|
|
|
|
24
INDEX TO FINANCIAL STATEMENTS
| |
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
F-7 to F-15 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
of Nocopi Technologies, Inc.
West Conshohocken, Pennsylvania
We have audited the accompanying balance sheets of Nocopi Technologies, Inc. as of December
31, 2010 and 2009, and the related statements of operations, stockholders’ deficiency, and
cash flows for the years then ended. The financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Nocopi Technologies, Inc. at December 31, 2010 and 2009,
and the results of its operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 3 to the financial statements, the Company
has incurred losses from operations that raises substantial doubt about its ability to
continue as a going concern. Management’s plans in regard to this matter are also described in
Note 3. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
| |
|
|
|
|
|
|
|
|
|
Bala Cynwyd, Pennsylvania |
|
|
March 31, 2011 |
|
|
F-2
Nocopi Technologies, Inc.
Balance Sheets*
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2010 |
|
|
2009 |
|
Assets
|
Current assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
10,600 |
|
|
$ |
37,200 |
|
Accounts receivable less $5,000 allowance for doubtful
accounts |
|
|
171,100 |
|
|
|
140,400 |
|
Inventory |
|
|
34,800 |
|
|
|
66,100 |
|
Prepaid and other |
|
|
37,200 |
|
|
|
35,200 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
253,700 |
|
|
|
278,900 |
|
|
|
|
|
|
|
|
| |
Fixed assets |
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
72,500 |
|
|
|
72,500 |
|
Furniture, fixtures and equipment |
|
|
184,500 |
|
|
|
184,900 |
|
|
|
|
|
|
|
|
|
|
|
257,000 |
|
|
|
257,400 |
|
Less: accumulated depreciation and amortization |
|
|
247,400 |
|
|
|
242,200 |
|
|
|
|
|
|
|
|
|
|
|
9,600 |
|
|
|
15,200 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
263,300 |
|
|
$ |
294,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficiency
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Line of credit |
|
$ |
93,800 |
|
|
$ |
100,000 |
|
Demand loans |
|
|
50,500 |
|
|
|
— |
|
Accounts payable |
|
|
263,400 |
|
|
|
268,400 |
|
Accrued expenses |
|
|
142,500 |
|
|
|
106,900 |
|
Deferred revenue |
|
|
46,500 |
|
|
|
13,900 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
596,700 |
|
|
|
489,200 |
|
|
|
|
|
|
|
|
| |
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficiency |
|
|
|
|
|
|
|
|
Series A preferred stock, $1.00 par value |
|
|
|
|
|
|
|
|
Authorized — 300,000 shares |
|
|
|
|
|
|
|
|
Issued and outstanding — none |
|
|
|
|
|
|
|
|
Common stock, $.01 par value |
|
|
|
|
|
|
|
|
Authorized — 75,000,000 shares |
|
|
|
|
|
|
|
|
Issued and outstanding |
|
|
|
|
|
|
|
|
2010 — 57,852,041 shares; 2009 — 54,972,296 shares |
|
|
578,500 |
|
|
|
549,700 |
|
Paid-in capital |
|
|
12,365,400 |
|
|
|
12,287,400 |
|
Accumulated deficit |
|
|
(13,277,300 |
) |
|
|
(13,032,200 |
) |
|
|
|
|
|
|
|
|
|
|
(333,400 |
) |
|
|
(195,100 |
) |
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficiency |
|
$ |
263,300 |
|
|
$ |
294,100 |
|
|
|
|
|
|
|
|
|
|
|
| * |
|
The accompanying notes are an integral part of these financial statements. |
F-3
Nocopi Technologies, Inc.
Statements of Operations*
| |
|
|
|
|
|
|
|
|
| |
|
Years ended December 31 |
|
| |
|
2010 |
|
|
2009 |
|
| |
Revenues |
|
|
|
|
|
|
|
|
Licenses, royalties and fees |
|
$ |
373,700 |
|
|
$ |
377,900 |
|
Product and other sales |
|
|
285,000 |
|
|
|
290,200 |
|
|
|
|
|
|
|
|
|
|
|
658,700 |
|
|
|
668,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
Licenses, royalties and fees |
|
|
67,500 |
|
|
|
86,400 |
|
Product and other sales |
|
|
208,000 |
|
|
|
239,200 |
|
|
|
|
|
|
|
|
|
|
|
275,500 |
|
|
|
325,600 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
383,200 |
|
|
|
342,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Research and development |
|
|
132,300 |
|
|
|
165,900 |
|
Sales and marketing |
|
|
152,800 |
|
|
|
259,200 |
|
General and administrative |
|
|
332,500 |
|
|
|
372,400 |
|
|
|
|
|
|
|
|
|
|
|
617,600 |
|
|
|
797,500 |
|
|
|
|
|
|
|
|
Net loss from operations |
|
|
(234,400 |
) |
|
|
(455,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
|
|
|
|
|
|
Reversal of accounts payable |
|
|
— |
|
|
|
69,100 |
|
Interest expense, bank charges and financing cost |
|
|
(10,700 |
) |
|
|
(3,500 |
) |
|
|
|
|
|
|
|
|
|
|
(10,700 |
) |
|
|
65,600 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(245,100 |
) |
|
$ |
(389,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share |
|
$ |
(.00 |
) |
|
$ |
(.01 |
) |
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares
outstanding |
|
|
56,041,549 |
|
|
|
53,124,118 |
|
|
|
|
| * |
|
The accompanying notes are an integral part of these financial statements. |
F-4
Nocopi Technologies, Inc.
Statement of Stockholders’ Deficiency*
For the Period January 1, 2009 through December 31, 2010
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance — January 1, 2009 |
|
|
52,285,837 |
|
|
$ |
522,900 |
|
|
$ |
12,132,300 |
|
|
$ |
(12,642,800 |
) |
|
$ |
12,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of common stock |
|
|
2,686,459 |
|
|
|
26,800 |
|
|
|
135,200 |
|
|
|
|
|
|
|
162,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option compensation |
|
|
|
|
|
|
|
|
|
|
19,900 |
|
|
|
|
|
|
|
19,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(389,400 |
) |
|
|
(389,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance — December 31, 2009 |
|
|
54,972,296 |
|
|
|
549,700 |
|
|
|
12,287,400 |
|
|
|
(13,032,200 |
) |
|
|
(195,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of common stock |
|
|
2,879,745 |
|
|
|
28,800 |
|
|
|
72,800 |
|
|
|
|
|
|
|
101,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option compensation |
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
|
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants issued to demand loan
holders |
|
|
|
|
|
|
|
|
|
|
2,200 |
|
|
|
|
|
|
|
2,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(245,100 |
) |
|
|
(245,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance — December 31, 2010 |
|
|
57,852,041 |
|
|
$ |
578,500 |
|
|
$ |
12,365,400 |
|
|
$ |
(13,277,300 |
) |
|
$ |
(333,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * |
|
The accompanying notes are an integral part of these financial statements. |
F-5
Nocopi Technologies, Inc.
Statements of Cash Flows*
| |
|
|
|
|
|
|
|
|
| |
|
Years ended December 31 |
|
| |
|
2010 |
|
|
2009 |
|
Operating Activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(245,100 |
) |
|
$ |
(389,400 |
) |
Adjustments to reconcile net loss to cash
used in operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
7,900 |
|
|
|
9,100 |
|
Compensation expense — stock option grants |
|
|
3,000 |
|
|
|
19,900 |
|
Financing cost — warrant grants |
|
|
2,200 |
|
|
|
— |
|
Reversal of accounts payable |
|
|
— |
|
|
|
(69,100 |
) |
|
|
|
|
|
|
|
|
|
|
(232,000 |
) |
|
|
(429,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in assets |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(30,700 |
) |
|
|
26,700 |
|
Inventory |
|
|
31,300 |
|
|
|
31,100 |
|
Prepaid and other |
|
|
(2,000 |
) |
|
|
700 |
|
Increase in liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
30,600 |
|
|
|
55,100 |
|
Deferred revenue |
|
|
32,600 |
|
|
|
3,900 |
|
|
|
|
|
|
|
|
|
|
|
61,800 |
|
|
|
117,500 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(170,200 |
) |
|
|
(312,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Additions to fixed assets |
|
|
(2,300 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(2,300 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Net borrowings (repayments) under line of credit |
|
|
(6,200 |
) |
|
|
100,000 |
|
Proceeds from demand loans |
|
|
50,500 |
|
|
|
— |
|
Issuance of common stock |
|
|
101,600 |
|
|
|
162,000 |
|
Net cash provided by financing activities |
|
|
145,900 |
|
|
|
262,000 |
|
|
|
|
|
|
|
|
Decrease in cash |
|
|
(26,600 |
) |
|
|
(50,000 |
) |
Cash |
|
|
|
|
|
|
|
|
Beginning of year |
|
|
37,200 |
|
|
|
87,200 |
|
|
|
|
|
|
|
|
End of year |
|
$ |
10,600 |
|
|
$ |
37,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
3,800 |
|
|
$ |
2,100 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non Cash Investing Activities |
|
|
|
|
|
|
|
|
Write-off of fully depreciated furniture, fixtures and equipment |
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment |
|
$ |
2,700 |
|
|
|
— |
|
Accumulated depreciation |
|
$ |
2,700 |
|
|
|
— |
|
|
|
|
| * |
|
The accompanying notes are an integral part of these financial statements. |
F-6
NOCOPI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2010 and 2009
| 1. |
|
Organization of the Company |
| |
|
Nocopi Technologies, Inc. (the “Company”) is organized under the laws of the State of Maryland.
Its main business activities are the development and distribution of document security products
and the licensing of its patented reactive ink technologies for the Entertainment and Toy and
the Document and Product Authentication markets in the United States and foreign countries. The
Company operates in one principal industry segment. |
| 2. |
|
Significant Accounting Policies |
| |
|
Financial Statement Presentation — Amounts included in the accompanying financial statements
have been rounded to the nearest hundred, except for number of shares and per share
information. |
| |
|
Estimates — The preparation of the financial statements in conformity with Accounting
Principles Generally Accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the dates of financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual results could differ from those
estimates. |
| |
|
Cash consists of demand deposits with a major U.S. bank. |
| |
|
Accounts receivable — As amounts become uncollectible, they will be charged to an allowance or
operations in the period when a determination of uncollectibility is made. Any estimates of
potentially uncollectible customer accounts receivable will be made based on an analysis of
individual customer and historical write-off experience. The Company’s analysis includes the
age of the receivable account, creditworthiness and general economic conditions. |
| |
|
Inventory consists primarily of ink components and paper and is stated at the lower of cost
(determined by the first-in, first-out method) or market. |
| |
|
Fixed assets are carried at cost less accumulated depreciation and amortization. Furniture,
fixtures and equipment are generally depreciated on the straight-line method over their
estimated service lives. Leasehold improvements are amortized on a straight-line basis over the
shorter of five years or the term of the lease. Major renovations and betterments are
capitalized. Maintenance, repairs and minor items are expensed as incurred. Upon disposal,
assets and related depreciation are removed from the accounts and the net amount, less proceeds
from disposal, is charged or credited to income. In 2010, the Company wrote off approximately
$2,700 of fully depreciated furniture, fixtures and equipment that had been disposed of during
the year, along with an equal amount of accumulated depreciation. There was no effect on the
Company’s results of operations. |
| |
|
Patent costs are charged to expense as incurred due to the uncertainty of their recoverability
as a result of the Company’s adverse liquidity situation. |
F-7
| |
|
Revenues — In accordance with Financial Accounting Standards Board Accounting Standards
Codification (“FASB ASC”) 605, Revenue Recognition, the Company recognizes revenue when (i)
persuasive evidence of a customer or distributor arrangement exists or acceptance occurs, (ii)
a retailer, distributor or wholesaler receives the goods, (iii) the price is fixed or
determinable, and (iv) collectability of the sales revenue is reasonably assured. Subject to
these criteria, the Company will generally recognize revenue upon shipment of product. Revenue
from license fees and royalties will be recognized as earned over the license term. |
| |
|
Income taxes — Deferred income taxes are provided for all temporary differences and net
operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. |
| |
|
Fair value — The carrying amounts reflected in the balance sheets for cash, receivables,
accounts payable and accrued expenses approximate fair value due to the short maturities of
these instruments. The carrying amount of the line of credit approximates fair value since the
interest rate associated with the debt approximates the current market interest rates. |
| |
|
Earnings (loss) per share — The Company follows FASB ASC 260, “Earnings Per Share,” resulting
in the presentation of basic and diluted earnings per share. Because the Company reported a net
loss for the years ended December 31, 2010 and December 31, 2009, common stock equivalents,
consisting of stock options and warrants, were anti-dilutive for those periods. |
| |
|
Comprehensive income (loss) — The Company follows FASB ASC 220 in reporting comprehensive
income. Comprehensive income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been recognized in the
calculation of net income. Since the Company has no items of other comprehensive income,
comprehensive income (loss) is equal to net income (loss). |
| |
|
Recoverability of Long-Lived Assets |
| |
|
The Company follows FASB ASC 360-35, “Impairment or Disposal of Long-Lived Assets.” The
Statement 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 Company is not aware of any events or circumstances which
indicate the existence of an impairment which would be material to the Company’s annual
financial statements. |
| |
|
Recently Adopted Accounting Pronouncements |
| |
|
As of December 31, 2010 and for the year then ended, there were no recently adopted accounting
pronouncements that had a material effect on the Company’s financial statements. |
| |
|
As of December 31, 2010, the FASB has issued Accounting Standards Updates (ASU) through No.
2010-29. None of the ASUs have had an impact on the Company’s financial statements. |
| |
|
Recently Issued Accounting Pronouncements Not Yet Adopted |
| |
|
As of December 31, 2010, there are no recently issued accounting standards not yet adopted
which would have a material effect on the Company’s financial statements. |
F-8
| |
|
Since its inception, with the exception of the year ended December 31, 2007 during which it
generated net income of $386,000, the Company has incurred significant losses and, as of
December 31, 2010, had accumulated losses of $13,277,300. For the years ended December 31, 2010
and December 31, 2009, the Company’s had a net loss from operations of $234,400 and $455,000,
respectively. The Company had negative working capital of $343,000 at December 31, 2010 and
$210,300 at December 31, 2009. Due in part to the recession which has and is continuing to
negatively impact the country’s economy, the Company, which is substantially dependent on its
licensees to generate licensing revenues, may incur further operating losses and experience
negative cash flow in the future. Achieving profitability and positive cash flow depends on the
Company’s ability to generate and sustain significant increases in revenues and gross profits
from its traditional business. There can be no assurances that the Company will be able to
generate sufficient revenues and gross profits to return to and sustain profitability and
positive cash flow in the future. |
| |
|
During 2010, the Company received unsecured loans totaling $50,500 from four individuals, of
which $7,500 was lent by Herman M. Gerwitz, a Director. In 2010, the Company raised $101,600 in
a private placement exempt from registration under section 4(2) of the Securities Act of 1933,
as amended, whereby 2,668,333 shares of the Company’s common stock were sold to five
non-affiliated individual investors and 211,412 shares of the Company’s common stock were sold
to two Directors of the Company. During 2009, the Company raised $162,000 in this private
placement whereby 2,426,042 shares of the Company’s common stock were sold to six
non-affiliated individual investors and 260,417 were sold to a Director of the Company. Receipt
of funds from these investors and from the demand loan holders, along with borrowings during
2009 under its line of credit with a bank, has permitted the Company to continue in operation
to the current date. During 2009, the Company borrowed the entire $100,000 under the line of
credit, obtained in 2008, to fund its operating activities. In August 2010, the Company
accepted an offer by the bank to repay the outstanding loan balance in forty-eight equal
monthly installments, plus interest, beginning in October 2010. Management of the Company
believes that it will need additional capital in the immediate future both to fund investments
needed to increase its operating revenues to levels that will sustain its operations and to
fund operating deficits that it anticipates will continue until revenue increases from
traditional and new product lines can be realized. There can be no assurances that the Company
will be successful in obtaining sufficient additional capital, or if it does, that the
additional capital will enable the Company to impact its revenues so as to have a material
positive effect on the Company’s operations and cash flow. The Company believes that without
additional capital, whether in the form of debt, equity or both, it may be forced to cease
operations in the near future. |
| |
|
The Company’s independent registered public accountants have included a “going concern”
explanatory paragraph in their audit report accompanying the 2010 financial statements. The
paragraph states that the Company’s recurring losses from operations raise substantial doubt
about the Company’s ability to continue as a going concern and cautions that the financial
statements do not include any adjustments that might result from the outcome of this
uncertainty. |
F-9
| 4. |
|
Concentration of Credit Risk |
| |
|
Certain financial instruments potentially subject the Company to concentrations of credit
risk. These financial instruments consist primarily of cash and accounts receivables. At
December 31, 2010, the Company did not have deposits with a financial institution that exceed
the FDIC deposit insurance coverage of $250,000. There is a concentration of credit risk with
respect to accounts receivable due to the number of major customers. |
| |
|
In March 2010, the Company received unsecured loans totaling $40,500 from three individuals of
which $7,500 was lent by Herman M. Gerwitz, a Director. The loans bear interest at 8% and are
payable on demand. The loans were used to finance the Company’s working capital requirements.
Additionally, the Company granted warrants, approved by the Company’s Board of Directors, to
purchase 40,500 shares of common stock of the Company at $.0703 per share to these three
individuals. The warrants expire in five years. A financing cost of approximately $1,800
representing the fair value of the warrants was charged to income in the first quarter of
2010. The fair value of the warrants was determined using the Black-Scholes pricing model with
the following assumptions: expected life-5 years; interest rate-2.65%; volatility-77% and
dividend yield-0. In May 2010, the Company received an unsecured loan of $10,000 from an
individual. The loan bears interest at 8% and is payable on demand. The loan was used to
finance the Company’s working capital requirements. Additionally, the Company granted
warrants, approved by the Company’s Board of Directors, to purchase 10,000 shares of common
stock of the Company at $.06 per share to this individual. The warrants expire in five years.
A financing cost of approximately $400 representing the fair value of the warrants was charged
to income in the second quarter of 2010. The fair value of the warrants was determined using
the Black-Scholes pricing model with the following assumptions: expected life-5 years;
interest rate-2.11%; volatility-78% and dividend yield-0. The acceptance of these unsecured
loans constitutes a violation of certain covenants under the Company’s line of credit which
gives the lender certain rights including requiring the Company to repay the entire
outstanding loan balance which was $93,750 at December 31, 2010. Such a requirement by the
bank could have a material adverse effect on the Company’s financial condition. Management of
the Company intends to cure this violation. |
| |
|
In 2008, the Company negotiated a $100,000 revolving line of credit with a bank to provide a
source of working capital. The line of credit is secured by all the assets of the Company and
bears interest at the bank’s prime rate plus 0.5%. At December 31, 2010, the interest rate
applicable to the Company’s line of credit was 3.75%. During the year ended December 31, 2009,
the Company borrowed the entire $100,000 available under the line of credit. Until the third
quarter of 2010, the Company had been required to pay interest only on borrowings under the
line of credit. During the third quarter of 2010, the Company was notified by the bank that the
line of credit was not being renewed and was offered repayment terms, which the Company
accepted, to repay the outstanding loan balance in forty-eight equal monthly installments of
$2,083, plus interest at the bank’s prime rate plus 0.5%, beginning in October 2010. At
December 31, 2010, the line of credit balance was $93,750. Future installment payments under
this repayment arrangement are: $25,000 — 2011; $25,000 — 2012; $25,000 — 2013 and $18,750
— 2014. |
F-10
| 7. |
|
Stockholders’ Deficiency |
| |
|
During 2010, the Company sold 2,668,333 shares of its common stock to six non-affiliated
individuals, 148,912 shares of its common stock to Philip B. White, a Director, and 62,500
shares of its common stock to Herman M. Gerwitz, a Director, for a total of $101,600 pursuant
to a private placement. During 2009, the Company sold 2,426,042 shares of its common stock to
six non-affiliated individual investors and 260,417 shares to William P. Curtis, Jr., a
Director, for a total of $162,000 pursuant to a private placement. |
| 8. |
|
Other Income (Expenses) |
| |
|
Other income (expenses) included, for the year ended December 31, 2009, a benefit from the
reversal of $69,100 of accounts payable by the Company related to invoices the Company had
received from 2001 through 2003 for consulting services provided by a third party. The
Company, with advice of legal counsel, determined that it was no longer legally required
to pay these invoices as the statute of limitations within which the consultant had to
bring a claim had expired. |
| |
|
There is no income tax benefit for the years ended December 31, 2010 and December 31, 2009 due
to the availability of net operating loss carryforwards (“NOL’s”) for which the Company had
previously established a 100% valuation allowance for deferred tax assets due to the
uncertainty of their recoverability. At December 31, 2010 and December 31, 2009, the Company
had NOL’s approximating $6,104,000 and $7,194,000, respectively. The operating losses at
December 31, 2010 are available to offset future taxable income; however, if not utilized, they
expire in varying amounts through the year 2030. As a result of the sale of the Company’s
common stock in an equity offering in late 1997 and the issuance of additional shares, the
amount of the NOL’s may be limited. Additionally, the utilization of these NOL’s, if available,
to reduce the future income taxes will depend on the generation of sufficient taxable income
prior to their expiration. There were no material temporary differences for the years ended
December 31, 2010 and December 31, 2009. The Company has established a 100% valuation allowance
of approximately $2,502,000 and $2,949,000 at December 31, 2010 and December 31, 2009,
respectively, for the deferred tax assets due to the uncertainty of their realization. |
| |
|
The Company has adopted the provisions of FASB ASC 740-10-50-15, “Unrecognized Tax Benefit
Related Disclosures.” There were no unrecognized tax benefits as of the date of adoption and no
unrecognized tax benefits at December 31, 2010. There was no change in unrecognized tax
benefits during the year ended December 31, 2010 and there was no accrual for uncertain tax
positions as of December 31, 2010. |
| |
|
There were no interest and penalties recognized in the statement of operations and in the
balance sheet. Tax years from 2007 through 2010 remain subject to examination by U.S. federal
and state tax jurisdictions. |
F-11
| 10. |
|
Commitments and Contingencies |
| |
|
The Company conducts its operations in leased facilities and leases equipment under
non-cancelable operating leases expiring at various dates to 2013. |
| |
|
Future minimum lease payments under non-cancelable operating leases with initial or remaining
terms of one year or more at December 31, 2010 are: $43,200 — 2011; $44,400 — 2012 and
$11,400 — 2013. |
| |
|
Total rental expense under operating leases was $42,400 in both 2010 and 2009. |
| |
|
The Company has an employment agreement, expiring in May 2012, with Michael A. Feinstein, M.D.,
its Chairman of the Board and Chief Executive Officer. The employment agreement contains
one-year renewal provisions that become effective after the original term. Dr. Feinstein
receives base compensation of $85,000 per year plus a performance bonus determined by the
Company’s Board of Directors. Future minimum compensation payments under this employment
agreement are: $85,000 — 2011; and $35,400 — 2012. |
| |
|
From time to time, the Company may be subject to legal proceedings and claims that arise in the
ordinary course of its business. |
| 11. |
|
Stock Options, Warrants and 401(k) Savings Plan |
| |
|
The Company follows FASB ASC 718, Share Based Payment, which requires that the cost resulting
from all share-based payment transactions be recognized in the Company’s financial statements.
FASB ASC 718 requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the statement of operations based on their fair values. |
| |
|
The 1996 and 1999 Stock Option Plans provided for the granting of up to 2,700,000 incentive and
non-qualified stock options to employees, non-employee directors, consultants and advisors to
the Company. In the case of options designated as incentive stock options, the exercise price
of the options granted must be not less than the fair market value of such shares on the date
of grant. Non-qualified stock options may be granted at any amount established by the Stock
Option Committee or, in the case of Discounted Options issued to non-employee directors in lieu
of any portion of an Annual Retainer, in accordance with a formula designated in the Plan. The
1996 Stock Option Plan terminated in June 2006 and no further stock options can be granted
under the plan; however, options granted before June 2006 may be exercised through their
expiration date. The 1999 Stock Option Plan terminated in February 2009 and no further stock
options can be granted under the plan; however, options granted before the termination date may
be exercised through their expiration date. |
| |
|
The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value
of an award. |
F-12
A summary of stock options under the Company’s stock option plans follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Exercise |
|
|
Weighted |
|
| |
|
Number of |
|
|
Price Range |
|
|
Average |
|
| |
|
Shares |
|
|
Per Share |
|
|
Exercise Price |
|
| |
Outstanding at December 31, 2008 |
|
|
2,250,000 |
|
|
$.10 to $.45 |
|
|
$ |
.23 |
|
Options granted |
|
|
325,000 |
|
|
.12 |
|
|
|
.12 |
|
Options canceled |
|
|
1,250,000 |
|
|
.10 to .45 |
|
|
|
.19 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
1,325,000 |
|
|
.10 to .45 |
|
|
|
.24 |
|
Options canceled |
|
|
380,000 |
|
|
.10 to .12 |
|
|
|
.11 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
945,000 |
|
|
$.12 to $.45 |
|
|
$ |
.29 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Exercise |
|
|
Weighted |
|
| |
|
Option |
|
|
Price Range |
|
|
Average |
|
| |
|
Shares |
|
|
Per Share |
|
|
Exercise Price |
|
Exercisable options at year end: |
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
945,000 |
|
|
$.12 to $.45 |
|
|
$ |
.29 |
|
| |
Weighted average remaining contractual life (years) |
|
|
1.91 |
|
|
|
|
|
|
|
|
|
| |
Options available for future grant under all plans: |
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
0 |
|
|
|
|
|
|
|
|
|
| |
|
In February 2009, the Board of Directors of the Company, under the Company’s 1999 Stock Option
Plan, granted options to acquire 200,000 shares of its common stock to five employees of the
Company, options to acquire 75,000 shares of its common stock to two consultants and options to
acquire 50,000 shares of its common stock to an officer of the Company at $.12 per share. The
options vested in February 2010 and expire after five years. In accordance with the fair value
method as described in accounting requirements of FASB ASC 718, compensation expense of
approximately $22,900 was recognized over the vesting period of the options through February
2010 to account for the cost of services received by the Company in exchange for the grant of
stock options. The fair value was determined using the Black-Scholes pricing model with the
following assumptions: expected life-5 years; interest rate-1.81%; volatility-70% and dividend
yield-0. During the years ended December 31, 2010 and December 31, 2009, compensation expense
of approximately $3,000 and $19,900, respectively, was recognized. There was no unrecognized
portion of expense at December 31, 2010. |
| |
|
At December 31, 2010, the Company had 97,500 warrants to purchase common stock of the Company
outstanding at exercise prices ranging from $.06 to $.27 and expiring at various dates through
May 2015. The warrants were granted in conjunction with loans provided to the Company by five
individuals in 2006 and 2010. |
F-13
| |
|
A summary of outstanding warrants follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Exercise |
|
|
Weighted |
|
| |
|
Number of |
|
|
Price Range |
|
|
Average |
|
| |
|
Shares |
|
|
Per Share |
|
|
Exercise Price |
|
Outstanding at December 31, 2008 and 2009 |
|
|
47,000 |
|
|
$.21 to $.27 |
|
|
$ |
.23 |
|
Warrants granted |
|
|
50,500 |
|
|
.06 and .07 |
|
|
|
.07 |
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
97,500 |
|
|
$.06 to $.27 |
|
|
$ |
.14 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Exercise |
|
|
Weighted |
|
| |
|
|
|
|
|
Price Range |
|
|
Average |
|
| |
|
Shares |
|
|
Per Share |
|
|
Exercise Price |
|
Exercisable warrants at year end: |
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
97,500 |
|
|
$.06 to $.27 |
|
|
$ |
.14 |
|
| |
Weighted average remaining contractual life (years) |
|
|
2.52 |
|
|
|
|
|
|
|
|
|
| |
|
At December 31, 2010, the Company has reserved 1,042,500 shares of common stock for
possible future issuance upon exercise of 945,000 stock options and 97,500 warrants. |
| |
|
The Company sponsors a 401(k) savings plan, covering substantially all employees, providing for
employee and employer contributions. Employer contributions are made at the discretion of the
Company. There were no contributions charged to expense during 2010 or 2009. |
| 12. |
|
Major Customer and Geographic Information |
| |
|
The Company’s revenues, expressed as a percentage of total revenues, from non-affiliated
customers that equaled 10% or more of the Company’s total revenues were: |
| |
|
|
|
|
|
|
|
|
| |
|
Year ended December 31 |
|
| |
|
2010 |
|
|
2009 |
|
Customer A |
|
|
30 |
% |
|
|
35 |
% |
Customer B |
|
|
25 |
% |
|
|
19 |
% |
Customer C |
|
|
9 |
% |
|
|
21 |
% |
| |
|
The Company’s non-affiliate customers whose individual balances amounted to more than 10% of
the Company’s net accounts receivable, expressed as a percentage of net accounts receivable,
were: |
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2010 |
|
|
2009 |
|
Customer A |
|
|
75 |
% |
|
|
59 |
% |
Customer B |
|
|
16 |
% |
|
|
19 |
% |
Customer C |
|
|
— |
|
|
|
13 |
% |
| |
|
The Company performs ongoing credit evaluations of its customers and generally does not require
collateral. The Company also maintains allowances for potential credit losses. The loss of a
major customer could have a material adverse effect on the Company’s business operations and
financial condition. |
F-14
| |
|
The Company’s revenues by geographic region are as follows: |
| |
|
|
|
|
|
|
|
|
| |
|
Year ended December 31 |
|
| |
|
2010 |
|
|
2009 |
|
North America |
|
$ |
569,800 |
|
|
$ |
524,600 |
|
Asia |
|
|
61,900 |
|
|
|
142,600 |
|
South America |
|
|
24,300 |
|
|
|
— |
|
Europe |
|
|
2,700 |
|
|
|
900 |
|
|
|
|
|
|
|
|
|
|
$ |
658,700 |
|
|
$ |
668,100 |
|
|
|
|
|
|
|
|
| |
|
In late January 2011, the Company received an unsecured loan of $15,000 from William P. Curtis,
Jr., a Director, and repaid the loan, along with interest at 8%, in early February 2011.
Additionally, subject to Board of Directors approval, the Company granted warrants to purchase
15,000 shares of common stock of the Company at $.06 per share to Mr. Curtis. The warrants
expire in five years. A financing cost of approximately $600 representing the fair value of the
warrants is being charged to income in the first quarter of 2011. The loan was used to finance
the Company’s short-term working capital requirements. |
F-15
Exhibit Index
The following Exhibits are filed as part of this Annual Report on Form 10-K:
| |
|
|
|
|
| Exhibit |
|
|
|
| Number |
|
|
Description |
| |
|
|
|
|
| |
3.1 |
|
|
Amended and Restated Articles of Incorporation (19) |
| |
|
|
|
|
| |
3.2 |
|
|
Amended and Restated Bylaws (20) |
| |
|
|
|
|
| |
4.1 |
|
|
Form of Certificate of Common Stock (14) |
| |
|
|
|
|
| |
10.1 |
† |
|
Summary Plan Description for Nocopi Technologies, Inc. 401(k)
Profit Sharing Plan (1) |
| |
|
|
|
|
| |
10.2 |
† |
|
Nocopi Technologies, Inc. 1996 Stock Option Plan (2) |
| |
|
|
|
|
| |
10.3 |
† |
|
Nocopi Technologies, Inc. 1999 Stock Option Plan (3) |
| |
|
|
|
|
| |
10.4 |
† |
|
Amended Summary Plan Description for Nocopi Technologies, Inc. 401(k) Profit Sharing Plan (3) |
| |
|
|
|
|
| |
10.5 |
|
|
Director Indemnification Agreement (4) |
| |
|
|
|
|
| |
10.6 |
|
|
Officer Indemnification Agreement (5) |
| |
|
|
|
|
| |
10.7 |
|
|
Stock Purchase Agreement with Westvaco Brand Security, Inc. (6) |
| |
|
|
|
|
| |
10.8 |
|
|
Registration Rights Agreement with Westvaco Brand Security, Inc. (7) |
| |
|
|
|
|
| |
10.9 |
|
|
Subscription Agreement with Entrevest I Associates (8) |
| |
|
|
|
|
| |
10.10 |
|
|
Lease Agreement dated March 19, 2003 relating to premises at 9 Portland Road, West Conshohocken, PA 19428 (9) |
| |
|
|
|
|
| |
10.11 |
|
|
Settlement Agreement with Euro-Nocopi, S.A. (10) |
| |
|
|
|
|
| |
10.12 |
|
|
Agreement of Terms with Entrevest I Associates (11) |
| |
|
|
|
|
| |
10.13 |
|
|
Conversion Agreement (12) |
| |
|
|
|
|
| |
10.14 |
|
|
Patent License Agreement with Giddy Up, LLC and Color Loco, LLC (15) |
| |
|
|
|
|
| |
10.15 |
|
|
Addendum #1 to Patent License Agreement with Giddy Up, LLC and Color Loco, LLC (16) |
| |
|
|
|
|
| |
10.16 |
|
|
Amendment dated July 18, 2007 to Lease Agreement dated March 19, 2003 relating
to premises at 9 Portland Road, West Conshohocken, PA 19428 (17) |
| |
|
|
|
|
| |
10.17 |
† |
|
Employment Agreement with Michael A. Feinstein, M.D. (18) |
| |
|
|
|
|
| |
10.18 |
|
|
Business Loan Agreement, Promissory Note and Commercial Security Agreement
dated August 19, 2008 between the Company and Sovereign Bank (21) |
| |
|
|
|
|
| |
10.19 |
† |
|
Amended Summary Plan Description for Nocopi Technologies, Inc. 401(k) Profit Sharing
Plan (22) |
| |
|
|
|
|
| |
10.20 |
|
|
Patent License Agreement with Elmer’s Products, Inc. (23) |
| |
|
|
|
|
| Exhibit |
|
|
|
| Number |
|
|
Description |
| |
|
|
|
|
| |
14.1 |
|
|
Code of Ethics (13) |
| |
|
|
|
|
| |
31.1 |
* |
|
Certification of Chief Financial Officer required by Rule 13a-14(a) |
| |
|
|
|
|
| |
31.2 |
* |
|
Certification of Chief Executive Officer required by Rule 13a-14(a) |
| |
|
|
|
|
| |
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 |
|
|
|
| * |
|
Exhibit filed with this Report. |
| |
| † |
|
Compensation plans and arrangements for executives and others. |
| |
| (1) |
|
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the Year Ended
December 31, 1993 |
| |
| (2) |
|
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the Year Ended
December 31, 1996 |
| |
| (3) |
|
Incorporated by reference to Registrant’s Annual Report on Form 10-KSB for the Year Ended
December 31, 1998 |
| |
| (4) |
|
Incorporated by reference to Exhibit 10.19 of the Registrant’s Quarterly Report on Form
10-QSB for the Three Months Ended September 30, 1999 filed on November 15, 1999 |
| |
| (5) |
|
Incorporated by reference to Exhibit 10.20 of the Registrant’s Quarterly Report on Form
10-QSB for the Three Months Ended September 30, 1999 filed on November 15, 1999 |
| |
| (6) |
|
Incorporated by reference to Exhibit 10.17 of the Registrant’s Annual Report on Form 10-KSB
for the Year Ended December 31, 2000 filed on April 17, 2001 |
| |
| (7) |
|
Incorporated by reference to Exhibit 10.18 of the Registrant’s Annual Report on Form 10-KSB
for the Year Ended December 31, 2000 filed on April 17, 2001 |
| |
| (8) |
|
Incorporated by reference to Exhibit 10.18 of the Registrant’s Annual Report on Form 10-KSB
for the Year Ended December 31, 2002 filed on April 14, 2003 |
| |
| (9) |
|
Incorporated by reference to Exhibit 10.19 of the Registrant’s Annual Report on Form 10-KSB
for the Year Ended December 31, 2002 filed on April 14, 2003 |
| |
| (10) |
|
Incorporated by reference to Exhibit 10.17 of the Registrant’s Annual Report on Form 10-KSB
for the Year Ended December 31, 2003 filed on April 14, 2004 |
| |
| (11) |
|
Incorporated by reference Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed
on September 16, 2004 |
| |
| (12) |
|
Incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-QSB
for the Three Months Ended September 30, 2004 filed on November 15, 2004 |
| |
| (13) |
|
Incorporated by reference to Exhibit 14.1 of the Registrant’s Annual Report on Form 10-KSB
for the Year Ended December 31, 2004 filed on March 31, 2005 |
| |
| (14) |
|
Incorporated by reference to Exhibit 4.1 of the Registrant’s Annual Report on Form 10-KSB for
the Year Ended December 31, 2005 filed on April 7, 2006 |
| |
| (15) |
|
Incorporated by reference to Exhibit 10.14 of the Registrant’s Annual Report on Form 10-KSB
for the Year Ended December 31, 2006 filed on April 16, 2007 |
| |
| (16) |
|
Incorporated by reference to Exhibit 10.15 of the Registrant’s Annual Report on Form 10-KSB
for the Year Ended December 31, 2006 filed on April 16, 2007 |
|
|
|
| (17) |
|
Incorporated by reference to Exhibit 10.16 of the Registrant’s Quarterly Report on Form
10-QSB for the Three Months Ended September 30, 2007 filed on November 14, 2007 |
| |
| (18) |
|
Incorporated by reference to Exhibit 10.17 of the Registrant’s Quarterly Report on Form 10-Q
for the Three Months Ended June 30, 2008 filed on August 14, 2008 |
| |
| (19) |
|
Incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q
for the Three Months Ended September 30, 2008 filed on November 14, 2008 |
| |
| (20) |
|
Incorporated by reference to Exhibit 3.2 of the Registrant’s Quarterly Report on Form 10-Q
for the Three Months Ended September 30, 2008 filed on November 14, 2008 |
| |
| (21) |
|
Incorporated by reference to Exhibit 10.18 of the Registrant’s Quarterly Report on Form 10-Q
for the Three Months Ended September 30, 2008 filed on November 14, 2008 |
| |
| (22) |
|
Incorporated by reference to Exhibit 10.19 of the Registrant’s Annual Report on Form 10-K for
the Year Ended December 31, 2009 filed on March 31, 2010 |
| |
| (23) |
|
Incorporated by reference to Exhibit 10.20 of the Registrant’s Annual Report on Form 10-K for
the Year Ended December 31, 2009 filed on March 31, 2010 |