U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2003.
[ ] TRANSITION REPORT PURSUANT TO SECTIONS 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)
9 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 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 August 1, 2003: 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 and Six Months Ended
June 30, 2003 and June 30, 2002
Balance Sheet 2
June 30, 2003
Statements of Cash Flows 3
Six Months Ended June 30, 2003
and June 30, 2002
Notes to Financial Statements 4-5
Item 2. Management's Discussion and Analysis 6-12
of Financial Condition and Results of Operations
Item 3. Controls and Procedures 13
Part II. OTHER INFORMATION 14
Signatures 15
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Nocopi Technologies, Inc.
Statements of Operations
(unaudited)
Three Months ended June 30 Six Months ended June 30
2003 2002 2003 2002
-------------- -------------- ---------------- ---------------
(Note 2)
Revenues
Licenses, royalties and fees $78,600 $103,900 $171,100 $238,400
Product and other sales 75,400 72,900 127,800 140,300
-------------- -------------- ---------------- ---------------
154,000 176,800 298,900 378,700
Cost of sales
Licenses, royalties and fees 42,700 49,800 78,500 99,900
Product and other sales 36,400 45,600 68,000 93,800
-------------- -------------- ---------------- ---------------
79,100 95,400 146,500 193,700
-------------- -------------- ---------------- ---------------
Gross profit 74,900 81,400 152,400 185,000
Operating expenses
Research and development 49,400 63,300 98,600 129,400
Sales and marketing 31,900 70,800 118,100 149,300
General and administrative
(exclusive of legal expenses) 60,300 51,500 144,100 161,200
Legal expenses 30,200 140,300 48,800 214,300
-------------- -------------- ---------------- ---------------
171,800 325,900 409,600 654,200
-------------- -------------- ---------------- ---------------
Loss from operations (96,900) (244,500) (257,200) (469,200)
Other income (expenses)
Interest income 200 -- 300 100
Interest expense and bank charges (3,500) (2,300) (6,900) (3,000)
Net proceeds from arbitration
settlement 932,700 -- 875,300 --
-------------- -------------- ---------------- ---------------
929,400 (2,300) 868,700 (2,900)
-------------- -------------- ---------------- ---------------
Net earnings (loss) $832,500 ($246,800) $611,500 ($472,100)
============== ============== ================ ===============
Basic and diluted earnings (loss) per
common share $.02 ($.01) $.01 ($.01)
Weighted average common
shares outstanding 45,972,241 42,238,908 45,972,241 41,838,908
See notes to financial statements.
1
Nocopi Technologies, Inc.
Balance Sheet
(unaudited)
June 30
2003
--------------
Assets
Current assets
Cash and cash equivalents $339,000
Accounts receivable less allowance 54,900
Arbitration settlement receivable 50,000
Prepaid and other 33,700
-------------
Total current assets 477,600
Fixed assets
Leasehold improvements 52,300
Furniture, fixtures and equipment 476,200
-------------
528,500
Less: accumulated depreciation 505,900
-------------
22,600
Other assets
Arbitration settlement receivable 150,000
-------------
Total assets $650,200
=============
Liabilities and Stockholders' Deficiency
Current liabilities
Demand loans $164,900
Accounts payable 359,900
Accrued expenses 285,700
Deferred revenue 98,300
-------------
Total current liabilities 908,800
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 (11,859,400)
-------------
(258,600)
-------------
Total liabilities and stockholders' deficiency $650,200
=============
See notes to financial statements.
2
Nocopi Technologies, Inc.
Statements of Cash Flows
(unaudited)
Six Months ended June 30
2003 2002
------------- -------------
Operating Activities
Net earnings (loss) $611,500 ($472,100)
Adjustments to reconcile net loss to
cash from operating activities
Depreciation 4,200 9,000
------------- -------------
615,700 (463,100)
(Increase) in assets
Accounts receivable (15,800) (42,500)
Arbitration settlement receivable (200,000) --
Prepaid and other (2,700) (9,900)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (277,100) 149,600
Deferred revenue (22,400) 31,600
------------- -------------
(518,000) 128,800
------------- -------------
Cash provided by (used in) operating activities 97,700 (334,300)
Investing Activities
Additions to fixed assets (12,800) --
Investment in affiliate 110,600 --
------------- -------------
Cash provided by investment activities 97,800 --
Financing Activities
Issuance of common stock, net -- 211,000
Demand loans 4,500 129,500
------------- -------------
Cash provided by financing activities 4,500 340,500
------------- -------------
Increase in cash and cash equivalents 200,000 6,200
Cash and cash equivalents - beginning of period 139,000 100
------------- -------------
Cash and cash equivalents - end of period $339,000 $ 6,300
============= =============
See notes to 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 2002 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 2002 Annual Report on Form 10-KSB should be read in conjunction
with the accompanying interim financial statements. The interim
operating results for the three and six months ended June 30, 2003 may
not be necessarily indicative of the operating results expected for the
full year.
Note 2. Settlement of Arbitration with Affiliate
In June 2003, the Company settled its arbitration proceeding commenced
by Euro-Nocopi, S.A. (Euro). Under the terms of the settlement, Euro
paid $900,000 to Nocopi and will pay an additional $200,000 in the
future for back royalties and all other matters in dispute between the
two companies, as well as the termination of Nocopi's 18% ownership of
Euro. As part of the Settlement, the Company and Euro entered into an
amended and restated license pursuant to which the Company has agreed
that Euro may continue to market the Company's technologies in Europe.
The $200,000 will be paid in four equal annual installments commencing
in March 2004. The Company recorded a net gain of $932,700 and
$875,300, respectively, in the second quarter and first half of 2003
representing the proceeds of the settlement net of the Company's
$110,600 investment in Euro and legal expenses incurred during 2003
related to the arbitration.
For the first quarter of 2003 arbitration related legal expense of
$57,400 was reclassified from legal expenses to net proceeds from
arbitration settlement.
Note 3. Demand Loans
During the first six months of 2003, the Company received additional
unsecured loans of $4,500 from its Chairman of the Board, increasing
the total demand loans outstanding to $164,900. The loans bear interest
at seven per cent per year and are payable on demand. The loans were
used to finance the Company's working capital requirements.
4
Note 4. Income Taxes
There is no provision for income taxes for the three months and six
months ended June 30, 2003 due to the availability of net operating
loss carryforwards for which the Company had previously established a
100% valuation allowance for deferred tax assets due to the uncertainty
of their recoverability.
Note 5. Going Concern
Since its inception, the Company has incurred significant losses and,
as of June 30, 2003, had accumulated losses of $11,859,400. For the
years ended December 31, 2002 and 2001, the Company's net losses were
$924,500 and $828,600, respectively. In addition, the Company had
negative working capital of $431,200 at June 30, 2003. 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 $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, the significant legal fees incurred in the arbitration
will be eliminated. Additionally, the Company has reduced staff and,
during the third quarter of 2003, will relocate 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 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 investment, it may be forced to cease
operations at an undetermined future date.
5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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, 2002 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.
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
6
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 second quarter of 2003 were $154,000 compared to 176,800
in the second quarter of 2002, a 13% decline. Licenses, royalties and fees
declined by $25,300, or 24%, to $78,600 in the second quarter of 2003 from
$103,900 in the second quarter of 2002. The reduction in licenses, royalties and
fees is due primarily to the termination during the second half of 2002 and
early 2003 of license arrangements with three customers offset in part by
license revenues received from one new licensee. Product sales were $75,400 in
the second quarter of 2003 compared to $72,900 in the second quarter of 2002, a
3% increase due primarily to modestly higher sales of the Company security paper
and inks. For the first six months of 2003, revenues were $298,900, 21% lower
than revenues of $378,700 in the first six months of 2002. Licenses, royalties
and fees of $171,100 in the first half of 2003 were $67,300, or 28%, lower than
the $238,400 in the first half of 2002 as license fees and royalties from new
licensees did not offset those lost from terminated or discontinued license
arrangements. Product sales were $127,800 in the first half of 2003 compared to
$140,300 in the first half of 2002, a 9% decline. The decrease in product sales
reflects lower sales of the Company's line of security papers during the first
half of 2003 compared to the first half of 2002.
The Company's gross profit declined to $74,900 in the second quarter of
2003 or 49% of revenues from $81,400 or 46% of revenues in the second quarter of
2002. Licenses, royalties and fees carry a substantially 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 significantly lower
gross profit than licenses, royalties and fees. The lower gross profit in the
second quarter of 2003 compared to the second quarter of 2002 results
principally from a decrease in revenues represented by licenses, royalties and
fee offset in part by lower costs of production, including salaries, of the ink
products used by licensees.
For the first six months of 2003, the gross profit was $152,400, or 51% of
revenues compared to $185,000, or 49% of revenues, in the first half of 2002.
The decline in the gross profit in absolute dollars in the first half of 2003
compared to the first half of 2002 resulted from the same factors as the second
quarter decline.
Research and development expenses decreased to $49,400 in the second
quarter of 2003 from $63,300 in the second quarter of 2002. For the first six
months of 2003, research and development expenses were $98,600 compared to
$129,400 in the first half of 2002. The decrease in both the second quarter and
first half of 2003 relates primarily to the termination at December 31, 2002 of
a consulting agreement with a former executive officer and director of the
Company.
7
Sales and marketing expenses were $31,900 in the second quarter of 2003
compared to $70,800 in the second quarter of 2002. For the first six months of
2003, sales and marketing expenses were $118,100 compared to $149,300 in the
first six months of 2002. The decrease in both the second quarter and first half
of 2003 relates to the departure of a sales executive late in the first quarter
of 2003 and lower travel expenses in 2003 compared to 2002. The first half 2003
sales and marketing expenses includes fees of approximately $18,000 paid to a
member of the partnership that acquired 3,333,333 shares of the Company's common
stock in late 2002 who was engaged as a sales and marketing consultant in
accordance with the terms of the subscription agreement.
General and administrative expenses (exclusive of legal expenses) increased
to $60,300 in the second quarter of 2003 from $51,500 in the second quarter of
2002. The increase in the second quarter of 2003 compared to the second quarter
of 2002 relates to higher expenses associated with its patent activities. For
the first six months, general and administrative expenses (exclusive of legal
expense) declined to $144,100 in 2003 from $161,200 in 2002 as the Company
continued to limit its expenditures to conserve its cash resources.
Legal expenses decreased to $30,200 and $48,800, respectively, in the
second quarter and first half of 2003 from $140,300 and $214,300 in the second
quarter and first half of 2002. The second quarter and first half 2003 legal
fees associated with the Euro-Nocopi, S.A. arbitration proceedings which were
settled in June 2003 were offset against the settlement proceeds. In 2002, the
arbitration related legal fees were included in legal expenses.
Other income (expense) includes interest income on funds invested and
interest expense on the Demand Loans. Net proceeds from arbitration settlement
includes the net gain of $932,700 and $875,300, respectively, in the second
quarter and first half of 2003 representing the proceeds of the arbitration
settlement with Euro-Nocopi, S.A., net of the Company's $110,600 investment in
Euro-Nocopi, S.A. and legal expenses incurred during 2003 related to the
arbitration.
The net earnings of $832,500 and $611,500, respectively, in the second
quarter and first half of 2003 compared to the net loss of $246,800 and
$472,100, respectively, in the second quarter and first half results primarily
from the settlement of the arbitration proceedings with Euro-Nocopi, S.A. during
the second quarter of 2003.
Plan of Operation, Liquidity and Capital Resources
The Company's cash and cash equivalents increased to $339,000 at June 30,
2003 from $139,000 at December 31, 2002. During the first half of 2003, the
Company received $900,000 in settlement of its arbitration proceedings with
Euro-Nocopi, S.A. and a further $4,500 in demand loans from its Chairman of the
Board and used $704,500 to fund operations, working capital requirements,
including the payment of certain accumulated professional fees and other
obligations, and leasehold improvements at the new operating facility it will
occupy in the third quarter of 2003.
8
The loss of a number of customers during the past three years and the
termination of the license agreement with Euro-Nocopi, S.A. 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 Company believes that the
conditions arising from these circumstances raise substantial doubts about the
Company's ability to continue as a going concern. 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, the significant legal fees incurred
in the arbitration will be eliminated. Additionally, the Company has reduced
staff and, during the third quarter of 2003, will relocate 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 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 investment, it may be forced to cease operations at an
undetermined future date.
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:
Possible Inability to Continue in Operation Without New Capital Investment. The
Company had a negative working capital of $431,200 at June 30, 2003.
Additionally, it experienced negative cash flow from operations of $432,500 in
the year ended December 31, 2002. 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 during the third quarter of 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 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 investment, it may
be forced to cease operations at an undetermined future date. 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.
9
Possible Inability to Develop New Business. Even if the Company is able to raise
cash through additional capital 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. There are no assurances that the
resources the Company, even with additional investment, 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 required to pay cash in advance of
shipment to certain of its suppliers. 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.
While receipt of funds in conjunction with the settlement of the arbitration
with Euro-Nocopi, S.A. has improved the Company's financial condition, 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 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 utilizing 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 licensed products, modifications of customer budgets, and uneven
patterns of royalty revenue and product orders. Because the Company's revenue
base is not substantial, such delays from one or a small group of customers can
have a material adverse effect on the Company's quarterly and annual revenues
and, as the Company's operating expenses are substantially fixed, on quarterly
and annual operating results.
Volatility of Stock Price. The market price for the Company's common stock has
historically experienced significant fluctuations. 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, and securities analysts and traders do not extensively follow it.
These factors may result in the company continuing to experience significant
fluctuations in the price of its stock which are not necessarily related to its
operating performance.
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
10
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 been advised by its patent counsel that patent maintenance fees
approximating $20,000 will be due during 2003. The Company has not yet made a
decision on keeping any or all of these patents in force. 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.
Recently Issued Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities - an interpretation of ARB No. 51.
FIN 46 requires a variable interest entity to be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable
interest entity's activities, is entitled to receive a majority of the entity's
residual returns, or both. FIN 46 provisions are effective for all arrangements
entered into after January 31, 2003. For those arrangements entered into prior
to January 31, 2003, FIN 46 provisions are required to be adopted at the
beginning of the first interim or annual period beginning after June 15, 2003.
The adoption of FIN 46 is not expected to have an impact on the Company's
financial statements.
In April 2003, the FASB issued FASB Statement No. 149 ("Statement 149"),
Amendment of Statement 133 on Derivative Instruments and Hedging Activities.
This Statement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. Statement 149 is
generally effective for derivatives entered into or modified after June 30, 2003
and hedging relationships designated after June 30, 2003. The adoption of this
new standard had no effect on the consolidated financial position or results of
operations of the Company as of and for the three and six months ended June 30,
2003.
In May 2003, the FASB issued FASB Statement No. 150 ("Statement 150"),
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. Statement 150 clarifies the accounting for certain
financial instruments with characteristics of both liabilities and equity and
requires that those instruments be classified as liabilities on the balance
sheet. Previously, many of those financial instruments were classified as
equity. Statement 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. The Company does not expect
the adoption of Statement 150 to have a significant impact on its operating
results or financial position.
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
13 a-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 June 30, 2003.
June 4, 2003 - Press Release dated June 4, 2003
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: August 19, 2003 /s/ Michael A Feinstein, M.D.
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Michael A Feinstein, M.D.
Chairman of the Board
DATE: August 19, 2003 /s/ Rudolph A. Lutterschmidt
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Rudolph A. Lutterschmidt
Vice President & Chief
Financial Officer
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