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, 2004.
[ ] 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.
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(Exact name of small business issuer as specified in its charter)
MARYLAND 87-0406496
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
9C Portland Road, West Conshohocken, PA 19428
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(Address of principal executive offices)
(610) 834-9600
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(Issuer's telephone number)
Check whether the issuer has (1) 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, 2004: Common stock, par value $.01 per share:
45,972,241 shares.
Transitional Small Business Disclosure Format (check one): Yes ____ No __X__
NOCOPI TECHNOLOGIES, INC.
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INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Statements of Operations 1
Three Months ended March 31, 2004
and March 31, 2003
Balance Sheet 2
March 31, 2004
Statements of Cash Flows 3
Three Months ended March 31, 2004
and March 31, 2003
Notes to Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of 6 - 11
Financial Condition and Results of Operations
Item 3. Controls and Procedures 12
Part II. OTHER INFORMATION 13
Signatures 14
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOCOPI TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS*
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
2004 2003
--------------- ---------------
REVENUES
LICENSES, ROYALTIES AND FEES $77,600 $92,500
PRODUCT AND OTHER SALES 63,000 52,400
--------------- ---------------
140,600 144,900
COST OF SALES
LICENSES, ROYALTIES AND FEES 31,900 35,800
PRODUCT AND OTHER SALES 30,600 31,600
--------------- ---------------
62,500 67,400
--------------- ---------------
GROSS PROFIT 78,100 77,500
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT 52,000 49,200
SALES AND MARKETING 45,000 86,200
GENERAL AND ADMINISTRATIVE (EXCLUSIVE OF LEGAL
EXPENSES) 55,700 83,800
LEGAL EXPENSES 33,400 76,000
--------------- ---------------
186,100 295,200
--------------- ---------------
LOSS FROM OPERATIONS (108,000) (217,700)
OTHER INCOME (EXPENSES)
INTEREST INCOME 100
-
INTEREST AND BANK CHARGES (3,400) (3,400)
--------------- ---------------
(3,400) (3,300)
--------------- ---------------
NET LOSS ($111,400) ($221,000)
=============== ===============
BASIC AND DILUTED LOSS PER COMMON SHARE ($.00) ($.00)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 45,972,241 45,972,241
*THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
NOCOPI TECHNOLOGIES, INC.
BALANCE SHEET*
(UNAUDITED)
MARCH 31
2004
---------------
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $11,300
ACCOUNTS RECEIVABLE LESS $15,000 ALLOWANCE 54,000
ARBITRATION SETTLEMENT RECEIVABLE 50,000
PREPAID AND OTHER 23,000
---------------
TOTAL CURRENT ASSETS 138,300
FIXED ASSETS
LEASEHOLD IMPROVEMENTS 71,200
FURNITURE, FIXTURES AND EQUIPMENT 476,200
---------------
547,400
LESS: ACCUMULATED DEPRECIATION 480,200
---------------
67,200
OTHER ASSETS
ARBITRATION SETTLEMENT RECEIVABLE 100,000
---------------
TOTAL ASSETS $305,500
===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
DEMAND LOANS $149,900
ACCOUNTS PAYABLE 330,900
ACCRUED EXPENSES 295,900
DEFERRED REVENUE 51,500
--------------
TOTAL CURRENT LIABILITIES 828,200
STOCKHOLDERS' DEFICIENCY
COMMON STOCK, $.01 PAR VALUE
AUTHORIZED - 75,000,000 SHARES
ISSUED AND OUTSTANDING - 45,972,241 SHARES 459,700
PAID-IN CAPITAL 11,141,100
ACCUMULATED DEFICIT (12,123,500)
--------------
(522,700)
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $305,500
==============
*THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
NOCOPI TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS*
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
2004 2003
--------------- --------------
OPERATING ACTIVITIES
NET LOSS ($111,400) ($221,000)
ADJUSTMENT TO RECONCILE NET LOSS TO CASH
USED IN OPERATING ACTIVITIES
DEPRECIATION 5,100 2,100
--------------- --------------
(106,300) (218,900)
(INCREASE) DECREASE IN ASSETS
ACCOUNTS RECEIVABLE (14,200) 2,900
ARBITRATION SETTLEMENT RECEIVABLE 50,000 -
PREPAID AND OTHER 17,200 (800)
INCREASE (DECREASE) IN LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (4,500) 93,300
DEFERRED REVENUE (20,000) -
--------------- --------------
28,500 95,400
--------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (77,800) (123,500)
INVESTING ACTIVITIES
ADDITIONS TO FIXED ASSETS (800) -
--------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (800) -
--------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS (78,600) 123,500)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 89,900 139,000
--------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $11,300 $15,500
=============== ==============
*THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
NOCOPI TECHNOLOGIES, INC.
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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 2003 Annual Report on
Form 10-KSB. 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 2003 Annual Report on Form 10-KSB should be read in conjunction
with the accompanying interim financial statements. The interim
operating results for the three months ended March 31, 2004 may not be
necessarily indicative of the operating results expected for the full
year.
NOTE 2. GOING CONCERN
Since its inception, the Company has incurred significant losses and,
as of March 31, 2004, had accumulated losses of $12,123,500. For the
years ended December 31, 2003 and 2002, the Company's losses from
operations were $441,300 and $915,200, respectively. In addition, the
Company had negative working capital of $689,900 at March 31, 2004. 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 receipt of cash in the aggregate amount of $900,000 in June 2003 in
conjunction with the settlement of its arbitration proceedings with
Euro-Nocopi, S.A., an independent licensee, has permitted the Company
to continue in operation to the current date. As a result of the
settlement, the significant legal fees incurred in the arbitration have
been eliminated. Additionally, the Company has reduced staff and, in
2003, completed its relocation to a new facility that it believes will
enable the Company to further reduce its operating expenses. Management
of the Company believes that it will need to obtain additional capital
in the 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
4
increases 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 improve
its business 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 during the second quarter of 2004.
NOTE 3. DEMAND LOANS
The Company has unsecured loans from three individuals totaling
$149,900, including $37,900 from the Company's Chairman of the Board,
outstanding at March 31, 2004. The loans bear interest at seven per
cent per year and are payable on demand.
NOTE 4. INCOME TAXES
There is no income tax benefit for the losses for the three months
ended March 31, 2004 and March 31, 2003 since Management has determined
that the realization of the net deferred tax asset is not assured and
has created a valuation allowance for the entire amount of such
benefits.
NOTE 5. LOSS PER SHARE
Because the Company reported a net loss for the three months ended
March 31, 2004 and March 31, 2003, common stock equivalents, consisting
of stock options, were anti-dilutive.
NOTE 6. SUBSEQUENT EVENTS
On April 30, 2004, the Company granted options to acquire 300,000
shares of its common stock to two consultants for services rendered and
options to acquire 100,000 shares of its common stock to an officer of
the Company. The options vest after one year and expire after five
years.
On April 30, 2004, the Company granted options to acquire 50,000 shares
of its common stock to five directors of the Company. The options
vested immediately and expire in five years.
On April 30, 2004, the Board of Directors of the Company approved a
directors' option plan (the "plan"). Under the plan, directors will
receive options to acquire 100,000 shares of the Company's common stock
per year contingent on attending at least 75% of the board meetings.
The options will vest on January 1st of the subsequent year and expire
five years from issuance.
5
ITEM 2.
NOCOPI TECHNOLOGIES, INC.
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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, 2003 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 "Uncertainties That May
Affect the Company, its Operating Results and Stock Price." 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 inks, security paper and 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 fees and sales revenues vary
directly with the number of units of service or product provided.
While the Company's fixed costs have been reduced as a result of its
relocation to a new location in 2003 and because the Company believes that
further fixed cost reductions 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 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
6
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,
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 2004 were $140,600 compared to $144,900
in the first quarter of 2003, a 3% decrease. Licenses, royalties and fees
decreased by $14,900, or 16%, in the first quarter of 2004 to $77,600 from
$92,500 in the first quarter of 2003. The reduction in licenses, royalties and
fees is due primarily to the termination during the April 2003 to March 2004
period of license arrangements with three licensees offset in part by license
and royalty revenues received from one new licensee acquired during the same
period. Product sales were $63,000 in the first quarter of 2003 compared to
$52,400 in the first quarter of 2003, an increase of $10,600 or 20%. The
increase in product sales results primarily from higher levels of sales of the
Company's security inks in the first quarter of 2004 compared to the first
quarter of 2003.
The Company's gross profit increased to $78,100 in the first quarter of
2004 or 56% of revenues from $77,500 or 53% of revenues in the first quarter of
2003. Licenses, royalties and fees have historically carried a higher gross
profit than product sales, which generally consist of supplies or other
manufactured products which 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 first quarter 2004 gross
profit was negatively impacted by the decline in revenues from licenses,
royalties and fees; however, the Company benefited from lower rent and occupancy
costs resulting from the move of the facility in the second half of 2003.
Research and development expenses of $52,000 in the first quarter of 2004
approximated the $49,200 in the first quarter of 2003.
Sales and marketing expenses decreased to $45,000 in the first quarter of
2004 from $86,200 in the first quarter of 2003. The decrease reflects departure
of a sales executive late in the first quarter of 2003 and lower consulting fees
in the first quarter of 2004 compared to the first quarter of 2003 offset in
part by marketing costs associated with the introduction of the Company's new
Rub-n-Color product for the Educational and Toy Market.
General and administrative expenses (exclusive of legal expenses) decreased
by $28,100 in the first quarter of 2004 to $55,700 from $83,800 in the first
quarter of 2003. The decrease relates to lower costs involved in the acquisition
of new patents, lower public relations expenses and lower rent and occupancy
expenses resulting from the relocation of the facility in the second half of
2003.
7
Legal expenses declined to $33,400 in the first quarter of 2004 from
$76,000 in the first quarter of 2003. The decline results from the settlement of
the arbitration proceedings between the Company and Euro-Nocopi, S.A. in the
second quarter of 2003 resulting in the elimination of the arbitration related
legal expenses offset in part by additional legal expenses related to compliance
with recently enacted securities legislation and regulations.
Other income (expense) includes interest expense on the Demand Loans.
The net loss of $111,400 in the first quarter of 2004 compared to the net
loss of $221,000 in the first quarter of 2003 results primarily from lower rent
and occupancy costs due to the move to a new facility during 2003, staff
reductions during 2003 and lower legal expense resulting from the arbitration
settlement.
PLAN OF OPERATION, LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased to $11,300 at March 31,
2004 from $89,900 at December 31, 2003. The cash was used to fund operations
over the three-month period.
The loss of a number of customers during the past three years and the loss
of periodic fees under the license agreement with Euro-Nocopi, S.A. commencing
in 2000 have had a material adverse effect on the Company's revenues and results
of operations and upon its liquidity and capital resources. The receipt of
$900,000 in June 2003 in conjunction with the settlement of its arbitration
proceedings with Euro-Nocopi, S.A. has permitted the Company to continue in
operation to the current date. As a result of the settlement, a significant
ongoing expense for related legal fees has been eliminated. Additionally, the
Company has reduced staff and, during the third quarter of 2003, completed its
relocation to a new facility that it believes will enable the Company to further
reduce its operating expenses. Management of the Company believes that it will
need to obtain 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 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 improve
its business so as to have a material positive effect on the Company's
operations and cash flow. The Company believes that without additional capital,
in the form of debt, equity or both, it may be forced to cease operations during
the second quarter of 2004.
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,
where possible.
UNCERTAINTIES THAT MAY AFFECT THE COMPANY, ITS OPERATING RESULTS 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:
8
Inability to Continue in Operation Without Immediate New Equity Investment. The
Company had a negative working capital of $689,900 at March 31, 2004 and
experienced negative cash flow from operations of $77,800 in the three months
ended March 31, 2004. Additionally, it experienced negative cash flow from
operations of $78,800 (including $900,000 received in settlement of its
arbitration proceedings with Euro-Nocopi, S.A.) in the year ended December 31,
2003. Management of the Company believes that while certain staff reductions
initiated in 2003 and the move of the Company's operations to a new facility,
which was completed during 2003, will reduce the Company's negative cash flow,
it anticipates that the negative cash flow will continue until it can achieve
revenue increases. Management believes that it will need to obtain 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 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 improve its business so as to have a material
positive effect on the Company's operations and cash flow. The Company believes
that without additional capital, in the form of debt, equity or both, it may be
forced to cease operations during the second quarter of 2004. 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 may be forced to cease operations.
Possible Inability to Develop New Business. Even if the Company is able to raise
cash through additional capital 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. There are no assurances that the resources
the Company, even with additional capital, 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.
Inability to Obtain Raw Materials and Products for Resale. The Company's adverse
financial condition has required it to significantly defer payments due vendors
who supply raw materials and other components of the Company's security inks,
security paper that the Company purchases for resale and professional and other
services. As a result, the Company is on credit hold with certain of its
suppliers and is required to pay cash in advance of shipment to others. Delays
in shipments to customers caused by the Company's inability to obtain materials
on a timely basis and the possibility that certain current vendors may
permanently discontinue to supply the Company with needed products could impact
the Company's ability to service its customers and adversely affect its customer
and licensee relationships. Management of the Company believes that, without
significant capital investment in the very near term, the Company will not be
able to maintain acceptable relationships with its vendors and professional
service providers. There are no assurances that the Company will be able to
secure sufficient capital investment to maintain its vendor accounts on
satisfactory terms.
9
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
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 believes that further reductions in the fixed
component of the Company's operating expenses may not be achievable, 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, few securities analysts and traders follow
it and it is thinly traded. 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
that infringe on the Company's rights. The Company's adverse liquidity situation
has also impacted its ability to obtain patent protection on its intellectual
property and to maintain protection on previously issued patents. The Company
has paid approximately $7,000 in patent maintenance fees that are due during
2004 as advised by its patent counsel. 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 the Company's technologies and intellectual
property (including their value upon a liquidation of the Company) could be
substantially diminished.
10
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued Statement of Financial Accounting Standard No.
148 ("SFAS 148), Accounting for Stock-Based Compensation - Transition and
Disclosure. SFAS 148 provides alternative methods of transition for voluntary
change to the fair value based method of accounting for stock-based employee
compensation. SFAS 148 also requires prominent disclosure in the "Summary of
Significant Accounting Policies" of both annual and interim financial statements
about the method used on reported results. The Company has adopted the
disclosure requirements of SFAS 148 for the 2003 fiscal year. Adoption of this
statement has affected the location of the Company's disclosure in the
consolidated financial statements, but will not impact the Company's results of
operation or financial position unless the Company changes to the fair value
method of accounting for stock-based employee compensation.
On April 22, 2003, the FASB announced its decision to require all companies to
expense the fair value of employee stock options. Companies will be required to
measure the cost according to the fair value of the options. Although the new
guidelines have not yet been released, it is expected that they will be
finalized soon and be effective in 2004. When final rules are announced, the
Company will assess the impact to its financial statements.
The following recently issued accounting pronouncements are currently not
applicable to the Company.
In January 2003, subsequently revised December 2003, the FASB issued FASB
Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities -
An Interpretation of AARB No. 51. FIN 46 requires that if any entity has a
controlling financial interest in a variable interest entity, the assets,
liabilities and results of activities of the variable interest entity should be
included in the consolidated financial statements of the entity. FIN 46
provisions are effective for all arrangements entered into after January 31,
2003. FIN 46 provisions are required to be adopted for the first period ending
after December 15, 2004 for a small business issuer.
In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150
("SFAS 150"), Accounting for Certain Financial Instruments With Characteristics
of Both Liabilities and Equity. SFAS 150 clarifies the accounting for certain
financial instruments with characteristics of both liabilities and equity and
requires those instruments be classified as liabilities on the balance sheet.
Previously, many of those financial statements were classified as equity. SFAS
150 is effective for financial instruments entered into or modified after May
31, 2003 and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003.
11
ITEM 3. DISCLOSURE CONTROLS AND PROCEDURES
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-14. Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company that is required to be included in the Company's
periodic filings with the Securities and Exchange Commission. There have been no
significant changes in the Company's internal controls or, to the Company's
knowledge, in other factors that could significantly affect those internal
controls subsequent to the date the Company carried out its evaluation.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certificate of Chief Executive Officer required by Rule
13a-14(a).
31.2 Certificate of Chief Financial Officer required by Rule
13a-14(a).
32. Certificate of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K
The Registrant filed the following Current Report on Form 8-K
during the quarter ended March 31, 2004.
February 4, 2004 - Letter to Shareholders dated February 4, 2004
13
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, 2004 /s/ Michael A. Feinstein, M.D.
------------------------------
Michael A. Feinstein, M.D.
Chairman of the Board
DATE: May 14, 2004 /s/ Rudolph A. Lutterschmidt
----------------------------
Rudolph A. Lutterschmidt
Vice President & Chief Financial Officer
14