U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934.
For the quarterly period ended March 31, 2001.
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________ to ______________
Commission file number 0-20333
NOCOPI TECHNOLOGIES, INC.
(Exact name of small business issuer as
specified in its charter)
MARYLAND 87-0406496
--------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
537 Apple Street, West Conshohocken, PA 19428
--------------------------------------------------------------------------------
(Address of principal executive offices)
(610) 834-9600
--------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____State the number of shares outstanding of each of the issuer's
classes of common equity, as of May 1, 2001: common stock, par value $.01 per
share 37,734,362 shares.
Transitional Small Business Disclosure Format (check one): Yes ____ No __X__
NOCOPI TECHNOLOGIES, INC.
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Statements of Operations 1
Three Months ended March 31, 2001
and March 31, 2000
Balance Sheet 2
March 31, 2001
Statements of Cash Flows 3
Three Months ended March 31, 2001
and March 31, 2000.
Notes to Financial Statements 4 - 6
Item 2. Management's Discussion and Analysis of 7 - 11
Financial Condition and Results of Operations
Part II. OTHER INFORMATION 12 -14
Signatures 15
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Nocopi Technologies, Inc.
Statements of Operations
(unaudited)
Three Months ended March 31
2001 2000
------------ ------------
Revenues
Licenses, royalties and fees $123,800 $218,200
Product and other sales 50,400 198,400
------------ ------------
174,200 416,600
Cost of sales
Licenses, royalties and fees 70,500 82,800
Product and other sales 27,000 178,000
------------ ------------
97,500 260,800
------------ ------------
Gross profit 76,700 155,800
Operating expenses
Research and development 54,700 55,400
Sales and marketing 64,600 50,200
General and administrative 201,300 128,500
------------ ------------
320,600 234,100
------------ ------------
Loss from operations (243,900) (78,300)
Other income (expenses)
Interest income 1,900 6,800
Interest and bank charges (300) (3,700)
Equity in net income of unconsolidated
affiliate -- 2,100
------------ ------------
1,600 5,200
------------ ------------
Net loss ($242,300) ($73,100)
============ ============
Basic and diluted loss per common share ($.01) ($.00)
Weighted average common shares outstanding 35,123,009 33,817,332
See notes to financial statements.
1
Nocopi Technologies, Inc.
Balance Sheet
(unaudited)
March 31
2001
-------------
Assets
Current assets
Cash and cash equivalents $244,700
Accounts receivable less allowances 116,100
Prepaid and other 27,200
-------------
Total current assets 388,000
Fixed assets
Leasehold improvements 39,500
Furniture, fixtures and equipment 476,200
-------------
515,700
Less: accumulated depreciation 468,500
-------------
47,200
Other assets
Investment in unconsolidated affiliate, at cost 110,600
-------------
Total assets $545,800
=============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $145,500
Accrued expenses 215,000
Deferred revenue 61,600
-------------
Total current liabilities 422,100
Stockholders' equity
Common stock, $.01 par value
Authorized - 75,000,000 shares
Issued and outstanding - 37,734,362 shares 377,300
Paid-in capital 10,706,500
Accumulated deficit (10,960,100)
-------------
123,700
-------------
Total liabilities and stockholders' equity $545,800
=============
See notes to financial statements.
2
Nocopi Technologies, Inc.
Statements of Cash Flows
(unaudited)
Three Months ended March 31
2001 2000
--------- ---------
Operating Activities
Net loss ($242,300) ($ 73,100)
Adjustments to reconcile net loss to cash
used in operating activities
Depreciation 9,000 13,800
Allowance for doubtful accounts 3,000 --
Equity in net (income) of unconsolidated
affiliate -- (2,100)
--------- ---------
(230,300) (61,400)
(Increase) decrease in assets
Accounts receivable (47,100) 53,500
Prepaid and other 11,900 67,600
Increase (decrease) in liabilities
Accounts payable and accrued expenses (5,200) (224,100)
Deferred revenue 17,500 (3,300)
--------- ---------
(22,900) (106,300)
--------- ---------
Cash (used in) operating activities (253,200) (167,700)
Investing Activities
Advances from affiliate, net -- 21,800
Financing Activities
Issuance of common stock, net 311,000 --
Repayment of notes -- (125,000)
--------- ---------
Cash provided by (used in) financing activities 311,000 (125,000)
--------- ---------
Increase (decrease) in cash and cash
equivalents 57,800 (270,900)
Cash and cash equivalents - beginning of period 186,900 750,000
--------- ---------
Cash and cash equivalents - end of period $ 244,700 $ 479,100
========= =========
See notes to financial statements.
3
NOCOPI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Financial Statements
The accompanying unaudited condensed financial statements have been
prepared by Nocopi Technologies, Inc. (the Company). These statements
include all adjustments (consisting only of normal recurring
adjustments) which management believes necessary for a fair
presentation of the statements and have been prepared on a consistent
basis using the accounting policies described in the summary of
Accounting Policies included in the Company's 2000 Annual Report.
Certain financial information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
accompanying disclosures are adequate to make the information presented
not misleading. The Notes to Financial Statements included in the 2000
Annual Report should be read in conjunction with the accompanying
interim financial statements. The interim operating results for the
three months ended March 31, 2001 may not be necessarily indicative of
the operating results expected for the full year.
Note 2. Affiliate
The Company organized Euro-Nocopi, S.A. (Euro) in 1994 to market the
Company's technologies in Europe under an exclusive license
arrangement. Euro was capitalized through a European private placement.
The Company holds an approximately 18% interest in Euro and a warrant
permitting it to increase its interest in Euro to 55%. This warrant,
which expires on December 31, 2001, is currently exercisable.
Additionally, although the matter is disputed, the Company believes it
has a right to acquire, under certain conditions, all shares of Euro
not owned by the Company for approximately one million shares of the
Company's common stock. This call right expires on December 31, 2001.
During 2000, there arose between Euro and the Company a number of areas
of conflict and dispute, leading each party to the licensing
arrangement to assert informally that the other was in breach of its
obligations under that arrangement. The parties initially sought to
resolve their differences by negotiating a transaction in which Euro
would have purchased from the Company its entire equity interest
(including the warrant and right described above) as well as the
paid-up European rights to the Company's technologies. These
negotiations terminated without agreement early in December 2000.
Following the termination of the transaction negotiations, the Company
was informed by Euro that it had adopted resolutions to liquidate and
dissolve. In mid-December 2000, the Company terminated its license
agreement with Euro in accordance with its terms and discontinued the
provision of support (including the sale of proprietary inks) to Euro
and its customers. As a result of the license termination the
technological dependency of Euro on the Company ceased and the Company
was no longer permitted to account for its investment in Euro on the
4
equity method. Accordingly, the Company, effective October 1, 2000,
changed its method of accounting for its investment in Euro to the cost
method and recorded the carrying value at that date as the cost of its
investment.
Euro responded to the license termination by denying that the Company's
action was permissible, or effective, and by asserting a claim that, as
a result of alleged breaches of the licensing agreement by the Company,
it was entitled to a royalty-free license to exploit the Company's
technologies in Europe.
Promptly thereafter, Euro commenced an action before a court in Paris,
France in which it sought the entry of an order, in the nature of a
preliminary injunction, to compel the Company to honor the license
agreement pending judicial or arbitral resolution of the dispute
between the parties under the license agreement. In the French
litigation, Euro did not seek an adjudication on the merits of the
underlying dispute. Certain shareholders of Euro subsequently joined in
the proceedings commenced by Euro. In March 2001, the Emergency Judge
hearing the action issued a decision denying the relief requested by
Euro and the shareholders. The decision, which does not purport to be a
final adjudication of the merits of the controversy but only of Euro's
request for preliminary relief, held that Euro was not entitled to the
requested order because the Company had validly terminated the
licensing arrangement in mid-December, and also ordered Euro to pay
into escrow the approximately $125,000 that the Company claimed was due
and owing under the licensing arrangement.
In March 2001, Euro commenced arbitration proceedings against the
Company before the American Arbitration Association in New York, NY. In
these proceedings, Euro has sought an award in the nature of a
declaratory judgment to the effect that, due to alleged breaches by the
Company of the licensing arrangement between the Company and Euro, it
is entitled to a royalty-free license to exploit Registrant's
technologies in Europe. Euro has not sought an award of money damages.
The demand appears to allege that the Company has committed numerous
breaches of the licensing arrangement between the parties, notably by
failing to disclose certain technical information, by failing to
provide technical support, services and products to Euro by entering
into a licensing agreement with a third party allegedly violating the
exclusivity provisions of the Euro licensing arrangement. The Company
has filed a response to Euro's demand denying that Euro is entitled to
the relief requested and asserting claims for sums due it under the
license agreement and for a determination that Registrant has validly
terminated the license agreement. The Company intends to defend itself
vigorously against Euro's claims and intends to prosecute its
counterclaims aggressively.
The Company has been made aware that in late March 2001 certain
shareholders of Euro have filed suit in a court in Paris, France
against certain current and former officers and directors of the
Company and against a licensee of the Company. The Company is not named
5
as a defendant in the suit. The Company has been advised that the suit
seeks damages in excess of $7 million from the defendants for various
alleged acts of oppression, self-dealing and fraud in connection with
the organization and capitalization of Euro, the management of that
company and the Company's management of its relationship with that
company. The Company has received requests for indemnification from
certain of the defendants and anticipates that additional defendants
will seek indemnification from the Company in connection with the
lawsuit. The defendants have not yet been required to file a response
to the complaint in this lawsuit and such a response has not yet been
prepared or filed.
Note 3. Stockholders' Equity
In March 2001, the Company received a $325,000 ($311,000 net of
expenses) investment from a licensee in return for 3,917,030 shares of
its common stock constituting approximately 10% of the Company's
outstanding common stock.
Note 4. Going Concern
Since its inception, the Company has incurred significant losses and,
as of March 31, 2001, had accumulated losses of $10,960,100. For the
years ended December 31, 2000 and 1999, the Company's net losses were
$382,700 and $1,262,600, respectively. In addition, the Company had
negative working capital of $34,100 at March 31, 2001. The Company 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 achieve and sustain profitability and
positive cash flow in the future.
The net proceeds from the sale in March 2001 by the Company of
3,917,030 shares of its common stock have permitted the Company to
continue in operation in the near term. However, Management of the
Company believes that, to survive, it must obtain additional capital in
the very near term both to fund continuing operating deficits and to
fund investment needed to increase its operating revenues to levels
that will sustain its operations. 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
improve its business so as to have a material positive effect on the
Company's operations and cash flow.
If the Company continues to experience negative cash flow at current
levels and is unable to significantly increase its cash balances
through further equity investment or otherwise, it will be forced to
cease operations due to a lack of cash within two to four months. It is
uncertain whether the Company's assets will retain any value if the
Company ceases operations. There are no assurances that the Company
will be able to secure additional equity investment before it is forced
to cease operations.
6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation
Forward-Looking Information
The following Management's Discussion and Analysis of Results of Operations
and Financial Condition should be read in conjunction with our audited Financial
Statements and Notes thereto for the year ended December 31, 2000 included in
our Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission.
The information in this discussion contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause our actual results, performance or achievements
or industry results to be materially different from any future results,
performance or achievements expressed or implied by these forward-looking
statements. Such factors include those described in "Risk Factors." The
forward-looking statements included in this report may prove to be inaccurate.
In light of the significant uncertainties inherent in these forward-looking
statements, you should not consider this information to be a guarantee by us or
any other person that our objectives and plans will be achieved. The Company
does not undertake to publicly update or revise its forward-looking statements
even if experience or future changes make it clear that any projected results
(expressed or implied) will not be realized.
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 products incorporating the Company's
technologies, such as pressure sensitive labels, and 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 fee and sales revenues vary directly with the number of
units of service or product provided.
Because the Company has a relatively high level of fixed costs, 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 amounts 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 and on its revenue mix and overall financial performance. Such changes
may result from a customer's product development delays, engineering changes,
7
changes in product marketing strategies 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 terms, revenues
from the customer may be affected. The addition of a substantial new customer or
the loss of a substantial existing customer may also have a substantial effect
on the Company's total revenue, revenue mix and operating results.
Revenues for the first quarter of 2001 were $174,200 compared to $416,600
in the first quarter of 2000, a 58% decline. Licenses, royalties and fees
declined by $94,400, or 43%, in the first quarter of 2001 to $123,800 from
$218,200 in the first quarter of 2000. The reduction in licenses, royalties and
fees is due primarily to the termination of license arrangements with five
licensees, including the Company's former exclusive European licensee, during
2000, offset in part by the addition of two new licensees. Product sales were
$50,400 in the first quarter of 2001 compared to $198,400 in the first quarter
of 2000. In the first quarter of 2000 the Company sold and installed an ink-jet
printing system to a new licensee. The entire $148,000 (75%) decline in product
sales is attributable to the non-recurrence of this one-time sale.
The Company's gross profit declined to $76,700 in the first quarter of 2001
or 44% of revenues from $155,800 or 37% of revenues in the first quarter of
2000. Licenses, royalties and fees carry a substantially higher gross profit
than product sales, which generally consist of manufactured products which may
incorporate the Company's technologies or equipment used to support the
application of its technologies. These items are generally purchased from
third-party vendors and resold to the end-user or licensee and carry a
significantly lower gross profit than licenses, royalties and fees. The lower
gross profit in absolute dollars in the first quarter of 2001 compared to the
first quarter of 2000 results principally from a decrease in the portion of
revenues represented by licenses, royalties and fees. Certain components of cost
of sales related to licenses, royalties and fees, such as production labor and
rent, are substantially fixed. The variable component of these costs of sales,
primarily ink and chemicals, is a small percentage of the related revenues. As
these revenues decline, the gross profit is negatively impacted, both in
absolute dollars and as a percentage of revenues. The gross profit related to
product and other sales increased slightly in absolute dollars in the first
quarter of 2001 compared to the first quarter of 2000 as a result of changes in
the mix of products sold.
Research and development expenses of $54,700 in the first quarter of 2001
approximated the $55,400 incurred in the first quarter of 2000.
Sales and marketing expenses increased to $64,600 in the first quarter of
2001 from $50,200 in the first quarter of 2000. The increase reflects fees paid
to sales agents and consultants and increased travel related to the Company's
initiative to market its technologies directly to European users. During the
first quarter of 2001 the Company derived no revenues from new European
licensees.
General and administrative expenses increased by $72,800 in the first
quarter of 2001 to $201,300 from $128,500 in the first quarter of 2000. The
entire increase results from higher audit expenses and legal fees recognized in
the first quarter of 2001 compared to the first quarter of 2000 due to
litigation and arbitration proceedings with the Company's former European
8
exclusive licensee and factors related to the Company's adverse liquidity
situation. The Company's legal and audit expenses were $111,500, or 64% of
revenues, in the first quarter of 2001 compared to $33,200, or 8% of revenues,
in the first quarter of 2000.
Other income (expense) includes interest income on funds invested.. The
decline in interest income in the first quarter of 2001 compared to the first
quarter of 2000 relates to lower levels of cash invested.
Equity in net income of unconsolidated affiliate represented the
proportionate share in the net income or loss of Euro-Nocopi, S.A. attributable
to the Company's approximate 18% ownership share of Euro-Nocopi, S.A. The
Company changed its method of accounting for its investment in Euro-Nocopi, S.A.
to the cost method effective October 1, 2000.
The net loss increased to $242,300 in the first quarter of 2001 from
$73,100 in the first quarter of 2000. The increase in the first quarter net loss
from the prior year period resulted primarily from reductions in revenue and
gross profit as the Company's business has continued to contract, the loss of
licensing revenues from the Company's former European exclusive licensee, and
higher audit expenses and increased legal fees incurred in litigation and
arbitration proceedings with this licensee and factors related to the Company's
adverse liquidity situation.
Plan of Operation, Liquidity and Capital Resources
The Company's cash and cash equivalents increased to $244,700 at March 31,
2001 from $186,900 at December 31, 2000. During the first quarter of 2001, the
Company sold 3,917,030 shares of its common stock to a licensee for $325,000
($311,000 net of expenses) and used $253,200 to fund operations over the
three-month period.
The loss of a number of customers during the past three years and the
termination of the Company's exclusive European licensee in 2000 has had a
material adverse effect on the Company's results of operations and upon its
liquidity and capital resources. The Company believes that the conditions
arising from these circumstances raise substantial doubts about the Company's
ability to continue as a going concern. During the first quarter of 2001, the
receipt of funds in conjunction with the sale of approximately 10% of the
Company's common stock has permitted the Company to continue in operation in the
near term. However, Management of the Company believes that, to survive, it must
obtain additional capital in the very near term both to fund continuing
operating deficits and to fund investment needed to increase its operating
revenues to levels that will sustain its operations.
The Company, in response to the ongoing adverse liquidity situation, has
maintained a cost reduction program including staff reductions and curtailment
of discretionary research and development and sales and marketing expenses.
9
Factors That May Affect Future Growth and Stock Price
The Company's operating results and stock price are dependent upon a number
of factors, some of which are beyond the Company's control. These include:
Potential Inability to Continue in Operations; Potential Need for New Equity
Investment. The Company had a negative working capital of $34,100 at March 31,
2001 and experienced negative cash flow from operations of $253,200 in the three
months ended March 31, 2001. Additionally, it experienced negative cash flow of
$563,100 and $622,900, respectively, for years ended December 31, 2000 and 1999.
While the Company, in early March 2001, received $311,000 in net new equity
investment, Management does not believe the Company can significantly improve
its negative cash flow in the near future through its United States operations.
Subsequent to the termination of the licensing agreement with Euro-Nocopi, S.A.,
the Company has been seeking to negotiate end-user licenses with current users
of its technologies in Europe; however, it did not derive any first quarter 2001
revenues from new European licensees. There can be no assurances that the
Company will be able to enter into licenses with European customers that will
generate sufficient revenues and cash flow to offset the negative cash flow
currently being experienced in its United States operations. The Company
continues to incur significant legal fees in connection with ongoing litigation
and arbitration proceedings with Euro-Nocopi, S.A. If the Company continues to
experience negative cash flow at current levels and is unable to significantly
increase its cash balances through further equity investment or otherwise, it
will be forced to cease operations due to a lack of cash within two to four
months. It is uncertain whether the Company's assets will retain any value if
the Company ceases operations. There are no assurances that the Company will be
able to secure additional equity investment before it is forced to cease
operations.
Possible Inability to Develop New Business. Even if the Company is able to raise
cash through additional equity investment or otherwise, it must quickly improve
its operating cash flow. Because the Company has already significantly reduced
its operating expenses, Management believes that any significant improvement in
the Company's cash flow must result from increases in its 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. The Company has reduced staffing in
both areas in order to reduce operating expenses, and there are no assurances
that the resources the Company can devote to marketing and to research and
development will be sufficient to increase the Company's revenues to levels
resulting in positive cash flow.
Uneven Pattern of Quarterly and Annual Operating Results. The Company's
revenues, which are derived primarily from licensing and royalties, are
difficult to forecast due to the long sales cycle of the Company's technologies,
the potential for customer delay or deferral of implementation of the Company's
technologies, the size and timing of inception of individual license agreements,
the success of the Company's licensees and strategic partners in exploiting the
market for the licensed products, modifications of customer budgets, and uneven
10
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.
Volatility of Stock Price. The market price for the Company's common stock has
historically experienced significant fluctuations and may continue to do so. The
Company has, since its inception, 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, the Company receives limited publicity regarding its
business achievements and prospects, nor do securities analysts and traders
extensively follow it. The 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.
It 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, the Company's 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 will continue to be limited by the
Company's 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
which infringe on the Company's rights. In either event, the Company's customer
and licensee relationships could be adversely affected.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Except as set forth below, Registrant is not aware of any material
pending litigation (other than ordinary routine litigation incidental
to its business where, in management's view, the amount involved is
less than 10% of Registrant's current assets) 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.
In December 2000, Euro-Nocopi, S.A, Registrant's former European
licensee, commenced emergency proceedings against Registrant in a court
in Paris, France. It sought the entry of an order, in the nature of a
preliminary injunction, to compel Registrant to honor the license
agreement between Euro-Nocopi and Registrant (which Registrant
terminated in December 2000) pending judicial or arbitral resolution of
a dispute between the parties under the license agreement. Notably, in
the French litigation, Euro-Nocopi S.A. did not seek an adjudication on
the merits of the underlying dispute. Certain shareholders of
Euro-Nocopi, S. A. subsequently joined in the proceedings commenced by
Euro-Nocopi, S.A. In March 2001, the Emergency Judge hearing the action
issued a decision denying the relief requested by Euro-Nocopi, S.A. and
the shareholders. The decision, which does not purport to be a final
adjudication of the merits of the controversy but only of Euro-Nocopi's
request for preliminary relief, notes that Registrant had validly
terminated the licensing arrangement and held that Euro-Nocopi, S.A.
was not entitled to the requested order compelling Registrant to
continue to perform the license agreement. The decision also ordered
Euro-Nocopi, S.A. to pay into escrow the approximately $125,000 that
Registrant claimed was due and owing under the licensing arrangement.
In March 2001, Euro-Nocopi, S.A. commenced arbitration proceedings
against Registrant before the American Arbitration Association in New
York, NY. In these proceedings, Euro-Nocopi, S.A. has sought an award
in the nature of a declaratory judgment to the effect that, due to
alleged breaches by Registrant of the licensing arrangement between
Registrant and Euro-Nocopi. S.A., it is entitled to a royalty-free
license to exploit Registrant's technologies in Europe. Euro-Nocopi,
S.A. has not sought an award of money damages.
The demand appears to allege that Registrant has committed numerous
breaches of the licensing arrangement between the parties, notably by
failing to disclose certain technical information, by failing to
provide technical support, services and products to Euro-Nocopi, S.A.
and by entering into a licensing agreement with a third party allegedly
12
violating the exclusivity provisions of the Euro-Nocopi, S.A. licensing
arrangement. Registrant has filed a response to Euro-Nocopi's demand
denying that Euro-Nocopi is entitled to the relief requested and
asserting claims for sums due it under the license agreement and for a
determination that Registrant has validly terminated the license
agreement. Registrant intends to defend itself vigorously against
Euro-Nocopi's claims and intends to prosecute its counterclaims
aggressively.
Registrant has been made aware that in late March 2001 certain
shareholders of Euro-Nocopi, S.A. have filed suit in a court in Paris,
France against certain current and former officers and directors of
Registrant, and against a licensee of Registrant. The current officers
and directors of Registrant named as defendants in the lawsuit are
Michael Feinstein, Chairman of the Board, and Stanley Hart, a director.
Registrant is not named as a defendant in the suit. Registrant has been
advised that the suit seeks damages in excess of $7 million from the
defendants for various alleged acts of oppression, self-dealing and
fraud in connection with the organization and capitalization of
Euro-Nocopi, S.A., the management of that company and Registrant's
management of its relationship with that company. Registrant has
received requests for indemnification from certain of the defendants
and anticipates that additional defendants will seek indemnification
from the Company in connection with the lawsuit. The defendants have
not yet been required to file a response to the complaint in this
lawsuit and such a response has not yet been prepared or filed.
Item 2. Changes in Securities
Effective March 5, 2001, Registrant sold an aggregate of 3, 917,030
shares of its common stock (representing approximately 10% of its
outstanding common stock following such sale) to Westvaco Brand
Security, Inc. (a licensee of Registrant) for a total consideration
equal to $325,000 (of which $300,000 was paid in cash and the balance
of which was credited against indebtedness owed by Registrant to the
investor), or $0.083 per share, in a private transaction exempt from
registration pursuant to Section 4(2) of the Securities Act. No
underwriters were involved in the transaction or received any
commissions or other compensation.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
13
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) The Registrant filed the following Current Reports on Form 8-K during
the quarter ended March 31, 2001.
January 15, 2001 - Press Release dated January 15, 2001
March 7, 2001 - Press Release dated March 7, 2001
March 19, 2001 - Press Release dated March 19, 2001
14
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOCOPI TECHNOLOGIES, INC.
DATE: May 14, 2001 /s/ Michael A Feinstein, M.D.
-----------------------------
Michael A Feinstein, M.D.
Chairman of the Board
DATE: May 14, 2001 /s/ Rudolph A. Lutterschmidt
------------------------------
Rudolph A. Lutterschmidt
Vice President & Chief Financial Officer