Item 15. Exhibits, Financial Statement Schedules
(a) |
The following Audited Financial Statements are filed as part of this Form 10-K Report: |
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Report of Independent Registered Public Accounting Firm |
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Balance Sheets |
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Statements of Comprehensive Income |
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Statement of Stockholders’ Equity |
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Statements of Cash Flows |
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Notes to Financial Statements |
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(b) |
The following exhibits are filed as part of this report. |
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See Exhibit Index. |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) 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.
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NOCOPI TECHNOLOGIES, INC. |
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Date: March 30, 2022 |
By: |
/s/ Michael A. Feinstein, M.D. |
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Michael A. Feinstein, M.D. |
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Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature |
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Title |
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Date |
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/s/ Michael A. Feinstein, M.D. |
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Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) |
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March 30, 2022 |
Michael A. Feinstein, M.D. |
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/s/ Rudolph A. Lutterschmidt |
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Vice President, Chief Financial Officer and Chief Accounting Officer (Principal Financial and Accounting Officer) |
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March 30, 2022 |
Rudolph A. Lutterschmidt |
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/s/ Marc Rash |
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Director |
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March 30, 2022 |
Marc Rash |
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/s/ Joseph Raymond |
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Director |
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March 30, 2022 |
Joseph Raymond |
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/s/ Philip B. White |
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Director |
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March 30, 2022 |
Philip B. White |
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/s/ Matthew C. Winger |
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Director |
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March 30, 2022 |
Matthew C. Winger |
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INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm |
F-2 |
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Balance Sheets as of December 31, 2021 and 2020 |
F-3 |
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Statements of Comprehensive Income for the Years ended December 31, 2021 and 2020 |
F-4 |
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Statement of Stockholders’ Equity for the Years ended December 31, 2021 and 2020 |
F-5 |
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Statements of Cash Flows for the Years ended December 31, 2021 and 2020 |
F-6 |
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Notes to Financial Statements |
F-7 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Nocopi Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of
Nocopi Technologies, Inc. (the Company) as of December 31, 2021 and 2020, and the related statements of comprehensive income,
stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively
referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States
of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the
current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:
(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective,
or complex judgments. We determined that there are no critical audit matters.
/s/ Morison Cogen LLP (PCAOB-536)
We have served as the Company’s auditor since
2001.
Blue Bell, Pennsylvania
March 30, 2022
Nocopi Technologies,
Inc.
Balance Sheets*
| |
| | | |
| | |
| |
December 31 | |
| |
2021 | | |
2020 | |
Assets | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 1,846,700 | | |
$ | 1,362,800 | |
Accounts receivable less $12,000 allowance for doubtful accounts | |
| 970,800 | | |
| 1,280,800 | |
Inventory | |
| 422,700 | | |
| 324,800 | |
Prepaid and other | |
| 160,000 | | |
| 97,800 | |
Total current assets | |
| 3,400,200 | | |
| 3,066,200 | |
Fixed assets | |
| | | |
| | |
Leasehold improvements | |
| 58,400 | | |
| 27,800 | |
Furniture, fixtures and equipment | |
| 164,100 | | |
| 163,700 | |
Fixed assets, gross | |
| 222,500 | | |
| 191,500 | |
Less: accumulated depreciation and amortization | |
| 134,200 | | |
| 104,300 | |
Total fixed assets | |
| 88,300 | | |
| 87,200 | |
Other assets | |
| | | |
| | |
Long-term receivables | |
| 185,000 | | |
| 559,500 | |
Operating lease right of use – building | |
| 115,800 | | |
| 160,300 | |
Other assets | |
| 300,800 | | |
| 719,800 | |
Total assets | |
$ | 3,789,300 | | |
$ | 3,873,200 | |
| |
| | | |
| | |
Liabilities and Stockholders’ Equity | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 3,700 | | |
$ | 5,700 | |
Accrued expenses | |
| 151,500 | | |
| 178,600 | |
Income taxes | |
| — | | |
| 36,300 | |
Operating lease liability – current | |
| 47,500 | | |
| 44,500 | |
Total current liabilities | |
| 202,700 | | |
| 265,100 | |
| |
| | | |
| | |
Other liabilities | |
| | | |
| | |
Accrued expenses, non-current | |
| 13,000 | | |
| 39,200 | |
Operating lease liability – non-current | |
| 68,300 | | |
| 115,800 | |
Total other liabilities | |
| 81,300 | | |
| 155,000 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ equity | |
| | | |
| | |
Series A preferred stock, $1.00 par value, authorized – 300,000 shares, issued and outstanding – none | |
| — | | |
| — | |
Common stock, $0.01 par value, authorized – 75,000,000 shares, issued and outstanding – 2021 - 67,495,055 shares; 2020 - 67,353,690 shares | |
| 675,000 | | |
| 673,500 | |
Paid-in capital | |
| 12,577,100 | | |
| 12,575,800 | |
Accumulated deficit | |
| (9,746,800 | ) | |
| (9,796,200 | ) |
Total stockholders' equity | |
| 3,505,300 | | |
| 3,453,100 | |
Total liabilities and stockholders’ equity | |
$ | 3,789,300 | | |
$ | 3,873,200 | |
*The accompanying notes are an integral part of these
financial statements.
Nocopi Technologies,
Inc.
Statements of Comprehensive Income*
| |
| | | |
| | |
. | |
Years ended December 31 | |
| |
2021 | | |
2020 | |
Revenues | |
| | |
| |
Licenses, royalties and fees | |
$ | 809,900 | | |
$ | 744,000 | |
Product and other sales | |
| 1,142,000 | | |
| 1,914,700 | |
Total revenues | |
| 1,951,900 | | |
| 2,658,700 | |
| |
| | | |
| | |
Cost of revenues | |
| | | |
| | |
Licenses, royalties and fees | |
| 168,000 | | |
| 223,800 | |
Product and other sales | |
| 570,100 | | |
| 899,900 | |
Total cost of revenues | |
| 738,100 | | |
| 1,123,700 | |
Gross profit | |
| 1,213,800 | | |
| 1,535,000 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Research and development | |
| 181,500 | | |
| 173,500 | |
Sales and marketing | |
| 287,700 | | |
| 356,400 | |
General and administrative | |
| 719,400 | | |
| 526,100 | |
Total operating expenses | |
| 1,188,600 | | |
| 1,056,000 | |
Net income from operations | |
| 25,200 | | |
| 479,000 | |
| |
| | | |
| | |
Other income (expenses) | |
| | | |
| | |
Interest income | |
| 20,700 | | |
| 18,200 | |
Interest expense and bank charges | |
| (2,200 | ) | |
| (6,900 | ) |
Total other income (expenses) | |
| 18,500 | | |
| 11,300 | |
Net income before income taxes | |
| 43,700 | | |
| 490,300 | |
Income taxes | |
| (5,700 | ) | |
| (18,100 | ) |
Net income | |
$ | 49,400 | | |
$ | 508,400 | |
| |
| | | |
| | |
Net income per common share | |
| | | |
| | |
Basic | |
$ | .00 | | |
$ | .01 | |
Diluted | |
$ | .00 | | |
$ | .01 | |
| |
| | | |
| | |
Weighted average common shares outstanding | |
| | | |
| | |
Basic | |
| 67,436,153 | | |
| 64,052,777 | |
Diluted | |
| 67,436,153 | | |
| 64,172,276 | |
*The accompanying notes are an integral part of these
financial statements.
Nocopi Technologies,
Inc.
Statement of Stockholders’ Equity*
For the Period January 1, 2020 through December
31, 2021
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Common stock | | |
Paid-in | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
| |
| | |
| | |
| | |
| | |
| |
Balance – January 1, 2020 | |
| 61,044,698 | | |
$ | 610,400 | | |
$ | 12,483,900 | | |
$ | (10,304,600 | ) | |
$ | 2,789,700 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of debentures and accrued interest to common stock | |
| 5,758,992 | | |
| 57,600 | | |
| 86,400 | | |
| | | |
| 144,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Exercise of warrants | |
| 550,000 | | |
| 5,500 | | |
| 5,500 | | |
| | | |
| 11,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| | | |
| | | |
| | | |
| 508,400 | | |
| 508,400 | |
Balance – December 31, 2020 | |
| 67,353,690 | | |
| 673,500 | | |
| 12,575,800 | | |
| (9,796,200 | ) | |
| 3,453,100 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Exercise of warrants | |
| 141,365 | | |
| 1,500 | | |
| 1,300 | | |
| | | |
| 2,800 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| | | |
| | | |
| | | |
| 49,400 | | |
| 49,400 | |
Balance – December 31, 2021 | |
| 67,495,055 | | |
$ | 675,000 | | |
$ | 12,577,100 | | |
$ | (9,746,800 | ) | |
$ | 3,505,300 | |
*The accompanying notes are an integral part of these
financial statements.
Nocopi Technologies,
Inc.
Statements of Cash Flows*
| |
| | | |
| | |
| |
Years ended December 31 | |
| |
2021 | | |
2020 | |
Operating Activities | |
| | | |
| | |
Net income | |
$ | 49,400 | | |
$ | 508,400 | |
Adjustments to reconcile net income to net cash provided by operating activities | |
| | | |
| | |
Depreciation and amortization | |
| 30,500 | | |
| 21,500 | |
Bad debt expense | |
| — | | |
| 7,000 | |
Deferred income taxes | |
| — | | |
| (47,400 | ) |
Other assets | |
| 419,000 | | |
| 439,200 | |
Other liabilities | |
| (70,700 | ) | |
| (69,500 | ) |
Net income adjusted for non-cash operating activities | |
| 428,200 | | |
| 859,200 | |
(Increase) decrease in assets | |
| | | |
| | |
Accounts receivable | |
| 310,000 | | |
| 64,500 | |
Inventory | |
| (97,900 | ) | |
| (196,900 | ) |
Prepaid and other | |
| (62,200 | ) | |
| 37,200 | |
Decrease in liabilities | |
| | | |
| | |
Accounts payable and accrued expenses | |
| (29,100 | ) | |
| (45,500 | ) |
Income taxes | |
| (36,300 | ) | |
| (16,100 | ) |
Total increase (decrease) in operating capital | |
| 84,500 | | |
| (156,800 | ) |
Net cash provided by operating activities | |
| 512,700 | | |
| 702,400 | |
| |
| | | |
| | |
Investing Activities | |
| | | |
| | |
Additions to fixed assets | |
| (31,600 | ) | |
| (38,600 | ) |
Net cash used in investing activities | |
| (31,600 | ) | |
| (38,600 | ) |
| |
| | | |
| | |
Financing Activities | |
| | | |
| | |
Exercise of warrants | |
| 2,800 | | |
| 11,000 | |
Net cash provided by financing activities | |
| 2,800 | | |
| 11,000 | |
Increase in cash | |
| 483,900 | | |
| 674,800 | |
| |
| | | |
| | |
Cash | |
| | | |
| | |
Beginning of year | |
| 1,362,800 | | |
| 688,000 | |
End of year | |
$ | 1,846,700 | | |
$ | 1,362,800 | |
| |
| | | |
| | |
| |
| | | |
| | |
Cash paid for taxes | |
$ | 38,000 | | |
$ | 45,500 | |
| |
| | | |
| | |
Supplemental Disclosure of Non-Cash Investing and Financing Activities | |
| | | |
| | |
Accumulated depreciation and amortization | |
$ | 600 | | |
$ | 123,800 | |
Furniture, fixtures and equipment | |
$ | (600 | ) | |
$ | (123,800 | ) |
Convertible debentures | |
$ | — | | |
$ | 97,900 | |
Accrued expenses | |
$ | — | | |
$ | 46,100 | |
Common stock | |
$ | — | | |
$ | (57,600 | ) |
Paid-in capital | |
$ | — | | |
$ | (86,400 | ) |
*The accompanying notes are an integral part of these
financial statements.
NOCOPI TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2021 and 2020 |
1. Organization of the Company
Nocopi Technologies, Inc. (the “Company”)
is organized under the laws of the State of Maryland. Its main business activities are the development and distribution of document security
products and the licensing of its patented reactive ink technologies for the Entertainment and Toy and the Document and Product Authentication
markets in the United States and foreign countries. Our Company operates in one principal industry segment.
2. Significant Accounting Policies
Financial Statement Presentation – Amounts
included in the accompanying financial statements have been rounded to the nearest hundred, except for number of shares and per share
information.
Estimates – The preparation of the financial
statements in conformity with Accounting Principles Generally Accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of financial
statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.
Cash consists of demand deposits with a major
U.S. bank.
Accounts receivable and credit policies –
Accounts receivable are uncollateralized customer obligations due under normal trade terms generally requiring payment within 30 days
from the invoice date. Accounts receivable are stated at the amount billed to the customer. Customer account balances with invoices dated
over 90 days old are considered delinquent.
The carrying amount of accounts receivable is reduced
by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management individually reviews
all accounts receivable balances that exceed 90 days from invoice date and based on an assessment of current creditworthiness, estimates
the portion, if any, of the balance that will not be collected.
Inventory consists primarily of ink components
and is stated at the lower of cost (determined by the first-in, first-out method) or net realizable value.
Fixed assets are carried at cost less accumulated
depreciation and amortization. Furniture, fixtures and equipment are generally depreciated on the straight-line method over their estimated
service lives. Leasehold improvements are amortized on a straight-line basis over the shorter of five years or the term of the lease.
Major renovations and betterments are capitalized. Maintenance, repairs and minor items are expensed as incurred. Upon disposal, assets
and related depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to income.
Patent costs are charged to expense as incurred.
Revenues – Our Company follows Accounting
Standards Update (“ASU”) 214-09, Revenue from Contracts with Customers (“Topic 606”), using the modified
retrospective method. We recognize revenue from fixed fee licensees at a point in time when the term begins if the contract provides for
patented ink technology only as it exists at the time that it is granted. However, for license agreements that provide for rights to future
ink technology, revenue is recognized over the term of the license agreement. Revenue for per-unit license agreement is recognized in
the period that the Company receives the related royalty report. Revenue for product sales is recognized upon shipment to the customer.
There are no contract assets or contract liabilities and therefore no unsatisfied performance obligations. The Company does not offer
any warranties, however, damaged products can be returned for credit or refund. For disaggregation of revenue by customers and geographic
region, see Note 10.
Income taxes – Deferred income taxes
are provided for all temporary differences and net operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not
be realized.
NOCOPI TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2021 and 2020 |
Fair value –
The carrying amounts reflected in the balance sheets for receivables, accounts payable and accrued expenses approximate fair value due
to the short maturities of these instruments.
Stock-based payments – Our Company accounts
for stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
718, "Compensation – Stock Compensation", which requires the measurement and recognition of compensation expense for all
stock-based awards made to employees and directors based on estimated fair values on the grant date. Our Company estimates the fair value
of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately
expected to vest is recognized as expense over the shorter of the vesting period or the requisite service periods using the straight-line
method. Our Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASU 2017-07, with ASU No. 2018-07,
Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”),
which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718,
with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity
– Equity-Based Payments to Non-Employees. All issuances of stock options or other equity instruments to non-employees as consideration
for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Non-employee
equity-based payments are recorded as an expense over the service period, as if the Company had paid cash for the services.
Earnings per share – Our Company follows
FASB ASC 260 resulting in the presentation of basic and diluted earnings per share. Basic
earnings per common share are based on the weighted average number of shares outstanding during the periods presented. Diluted earnings
per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period.
Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e. the
exercise prices of the outstanding stock options were greater than the market price of the common stock.
The table below presents the computation of basic
and diluted weighted average common shares outstanding:
Computation of Basic and Diluted Weighted Average Common Shares Outstanding | |
| | | |
| | |
| |
2021 | | |
2020 | |
Basic shares outstanding | |
| 67,436,153 | | |
| 64,052,777 | |
Incremental shares from assumed conversion of warrants | |
| — | | |
| 119,499 | |
Diluted shares outstanding | |
| 67,436,153 | | |
| 64,172,276 | |
Comprehensive income – Our Company follows
FASB ASC 220 in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been recognized in the calculation of net income. Since our Company
has no items of other comprehensive income, comprehensive income is equal to net income.
Recoverability of Long-Lived Assets
Our Company follows FASB ASC 360-35, “Impairment
or Disposal of Long-Lived Assets.” The Statement requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Our
Company is not aware of any events or circumstances which indicate the existence of an impairment which would be material to our Company’s
annual financial statements.
Recently Adopted Accounting Pronouncements
As of December 31, 2021, there were no recently adopted
accounting standards that had a material effect on our Company’s financial statements.
NOCOPI TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2021 and 2020 |
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this Update
affect loans, debt securities, trade receivables, and any other financial assets that have the contractual
right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets.
For public entities, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within
those fiscal years. ASU No. 2019-10 extends the effective dates for two years for smaller reporting companies and nonpublic
companies.
In August 2020, the FASB issued ASU No. 2020-06, Debt
– Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity
(Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this Update
affect entities that issue convertible instruments and/or contracts in an entity’s own equity. For convertible instruments, the
instruments primarily affected are those issued with beneficial conversion features or cash conversion features because the accounting
models for those specific features are removed. However, all entities that issue convertible instruments are affected by the amendments
to the disclosure requirements in this Update. For contracts in an entity’s own equity, the contracts primarily affected are freestanding
instruments and embedded features that are accounted for as derivatives under the current guidance because of failure to meet the settlement
conditions of the derivatives scope exception related to certain requirements of the settlement assessment. The Board simplified the settlement
assessment by removing the requirements (1) to consider whether the contract would be settled in registered shares, (2) to consider whether
collateral is required to be posted, and (3) to assess shareholder rights. Those amendments also affect the assessment of whether an embedded
conversion feature in a convertible instrument qualifies for the derivatives scope exception. Additionally, the amendments in this Update
affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The amendments
in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer,
excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021,
including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after
December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years
beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt
the guidance as of the beginning of its annual fiscal year. The Board decided to allow entities to adopt the guidance through either a
modified retrospective method of transition or a fully retrospective method of transition.
3. Concentration of Credit Risk
Certain financial instruments potentially subject
our Company to concentrations of credit risk. These financial instruments consist primarily of cash and accounts receivables. At December 31, 2021,
our Company’s deposits with a financial institution were $1,596,700 in excess of the FDIC deposit insurance coverage of $250,000.
There is a concentration of credit risk with respect to accounts receivable due to the number of major customers.
4. Line of Credit
In November 2018, our Company negotiated a $150,000
revolving line of credit with a bank to provide a source of working capital, if required. The line of credit is secured by all the assets
of our Company and bears interest at the bank’s prime rate for a period of one year and its prime rate plus 1.5% thereafter. The
line of credit is subject to an annual review and quiet period. There have been no borrowings under the line of credit since its inception.
5. Convertible Debentures
During the third quarter of 2020, the holders of all
previously outstanding convertible debentures totaling approximately $97,900 that were due during the third quarter of 2020 elected to
convert those debentures plus approximately $46,100 of accrued interest into 5,758,992 shares of restricted stock of our Company. At December
31, 2021 and December 31, 2020, our Company had no convertible debentures outstanding. The convertible debentures bore interest at 7%.
NOCOPI TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2021 and 2020 |
Our Company also granted warrants in earlier periods
to purchase 691,365 shares of our Company’s common stock at $0.02 per share to the holders of the debentures. The warrants were
exercisable two years after issuance and expire seven years after issuance. The fair value of the warrants was determined using the Black-Scholes
pricing model. The relative fair value of the warrants was recorded as a discount to the notes payable with an offsetting credit to additional
paid-in capital since our Company determined that the warrants were an equity instrument in accordance with FASB ASC 815. The
debt discount related to the warrant issuances has been accreted through interest expense over the term of the notes payable. During the
third quarter of 2020, holders of 550,000 warrants exercised their warrants to purchase a total of 550,000 shares of our Company’s
common stock. During the second quarter of 2021, holders of the remaining 141,365 warrants that had been outstanding exercised their warrants
to purchase a total of 141,365 shares of our Company’s common stock.
6. Other Income (Expenses)
Other income (expenses) in the year ended December
31, 2020 includes interest on convertible debentures that were held by seven investors.
7. Income Taxes
There is no provision for federal income taxes for
the years ended December 31, 2021 and December 31, 2020 due to the availability of net operating loss (NOL’s) carryforwards.
At December 31, 2021 and December 31, 2020, our Company had federal NOL’s approximating $1,174,300 and $1,166,100, respectively
and state NOL’s approximating $2,638,800 and $2,647,000, respectively. The net operating losses at December 31, 2021 are
available to offset future taxable income; however, if not utilized, they expire in varying amounts through the year 2032. The utilization
of these NOL’s to reduce future income taxes will depend on the generation of sufficient taxable income prior to their expiration.
There were no material temporary differences for the years ended December 31, 2021 and December 31, 2020. Our Company
has established a 100% valuation allowance of $457,700 and $456,700 at December 31, 2021 and December 31, 2020, respectively,
for the deferred tax assets due to the uncertainty of their realization. The components for state income tax expense resulting from the
limitation on the use of net operating losses are:
State Income Tax Expense | |
| | | |
| | |
| |
Year ended December 31 | |
| |
2021 | | |
2020 | |
Current state taxes | |
$ | (5,700 | ) | |
$ | 29,300 | |
Deferred state taxes | |
| — | | |
| (47,400 | ) |
Income tax expense | |
$ | (5,700 | ) | |
$ | (18,100 | ) |
The reconciliation of the statutory federal rate to our Company’s
effective tax rate follows:
Reconciliation of the Statutory Fedreal Rate | |
| | | |
| | | |
| | | |
| | |
| |
2021 | | |
2020 | |
| |
Amount | | |
% | | |
Amount | | |
% | |
| |
| | |
| | |
| | |
| |
Income tax at U.S. federal income tax rate | |
$ | 9,700 | | |
| 21 | | |
$ | 106,700 | | |
| 21 | |
| |
| | | |
| | | |
| | | |
| | |
State tax net of federal tax effect | |
| (2,600 | ) | |
| (5 | ) | |
| (18,100 | ) | |
| (4 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other | |
| (13,800 | ) | |
| (30 | ) | |
| 15,800 | | |
| 3 | |
| |
| | | |
| | | |
| | | |
| | |
Increase in (utilization of ) operating losses | |
| 1,000 | | |
| 2 | | |
| (122,500 | ) | |
| (24 | ) |
| |
$ | (5,700 | ) | |
| (12 | ) | |
$ | (18,100 | ) | |
| (4 | ) |
NOCOPI TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2021 and 2020 |
The components of deferred tax assets and liabilities as of December 31,
2021 and 2020 are as follows:
Deferred Tax Assets and Liabilities | |
| | | |
| | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Deferred tax asset for NOL carryforwards | |
$ | 457,700 | | |
$ | 456,700 | |
| |
| | | |
| | |
Deferred tax liability - other | |
| | | |
| | |
Valuation allowance | |
| (457,700 | ) | |
| (456,700 | ) |
Deferred tax liability | |
$ | — | | |
$ | — | |
Our Company follows FASB
ASC 740.10, which provides guidance for the recognition and measurement of certain tax positions in an enterprise’s financial statements.
Recognition involves a determination of whether it is more likely than not that a tax position will be sustained upon examination with
the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information.
Our Company’s policy
is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of comprehensive
income. As of January 1, 2021, our Company had no unrecognized tax benefits and no charge during 2021, and accordingly, our Company did
not recognize any interest or penalties during 2021 related to unrecognized tax benefits. There is no accrual for uncertain tax positions
as of December 31, 2021.
Tax years from 2019 through 2021 remain subject
to examination by U.S. federal and state tax jurisdictions.
8. Commitments and Contingencies
Our Company conducts its operations in leased facilities
under a non-cancelable operating lease expiring in 2024.
Due to the adoption of the new lease standard
under the optional transition method which allows the entity to apply the new lease standard at the adoption date, our Company has capitalized
the present value of the minimum lease payments commencing January 1, 2019, using an estimated incremental borrowing rate of 6%. The minimum
lease payments do not include common area annual expenses which are considered to be non-lease components.
As of January 1, 2019 the operating lease right-of-use
asset and operating lease liability amounted to $241,100 with no cumulative-effect adjustment to the opening balance of accumulated deficit.
There are no other material operating leases.
Our Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases.
Total lease expense under operating leases was $53,300
in each of the years ended December 31, 2021 and December 31, 2020.
Maturities of lease liabilities are as follows:
Maturities of Lease Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
Year ending December 31 |
|
|
|
|
|
|
|
2022 |
|
|
|
|
$ |
54,600 |
|
2023 |
|
|
|
|
|
56,200 |
|
2024 |
|
|
|
|
|
18,900 |
|
Total lease payments |
|
|
|
|
|
129,700 |
|
Less imputed interest |
|
|
|
|
|
(13,900 |
) |
Total |
|
|
|
|
$ |
115,800 |
|
NOCOPI TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2021 and 2020 |
Our Company has an employment agreement, expiring
in May 2023, with Michael A. Feinstein, M.D., its Chairman of the Board and Chief Executive Officer. The employment agreement
contains one-year renewal provisions that became effective after the original term. Dr. Feinstein receives base compensation of $120,000
per year effective January 1, 2020 plus a performance bonus determined by our Company’s Board of Directors. Our Company has an employment
agreement, expiring in March 2023, with Terry W. Stovold, its Chief Operating Officer, whereby Mr. Stovold receives a salary
set by our Company’s Board of Directors, currently set at $75,000, along with a commission of seven percent on sales generated by
his efforts. The employment agreement contains one-year renewal provisions that became effective after the original term. Future minimum
compensation payments under these employment agreements are: $195,000 to be paid in 2022 and $68,800 to be paid in 2023.
From time to time, our Company may be subject to legal
proceedings and claims that arise in the ordinary course of its business.
9. Stock Options, Warrants and 401(k) Savings Plan
Our Company follows FASB ASC 718, Share Based Payment,
which requires that the cost resulting from all share-based payment transactions be recognized in the Company’s financial statements.
FASB ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement
of comprehensive income based on their fair values.
At December 31, 2021, our Company did not have an
active stock option plan. Our Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award.
There was no compensation expense recognized during the years ended December 31, 2021 and December 31, 2020 and there was no
unrecognized portion of expense at December 31, 2021.
At December 31, 2021, our Company had no outstanding
warrants to purchase common stock of our Company. A summary of outstanding warrants follows:
Outstanding Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Exercise |
|
|
Average |
|
|
|
Number of |
|
|
Price Range |
|
|
Exercise |
|
|
|
Shares |
|
|
Per Share |
|
|
Price |
|
Outstanding at December 31, 2019 |
|
691,365 |
|
|
$0.02 |
|
|
$0.02 |
|
Warrants exercised |
|
550,000 |
|
|
0.02 |
|
|
0.02 |
|
Outstanding at December 31, 2020 |
|
141,365 |
|
|
0.02 |
|
|
0.02 |
|
Warrants exercised |
|
141,365 |
|
|
0.02 |
|
|
0.02 |
|
Outstanding at December 31, 2021 |
|
— |
|
|
0.00 |
|
|
0.00 |
|
Our Company sponsors a 401(k) savings plan, covering
substantially all employees, providing for employee and employer contributions. Employer contributions are made at the discretion of our
Company. There were no contributions charged to expense during 2021 or 2020.
10. Major Customer and Geographic Information
Our Company’s revenues, expressed as a percentage
of total revenues, from non-affiliated customers that equaled 10% or more of our Company’s total revenues were:
Revenues from Non-affiliated Customers | |
| | | |
| | |
| |
Year ended December 31 | |
| |
2021 | | |
2020 | |
Customer A | |
| 48 | % | |
| 62 | % |
Customer B | |
| 27 | % | |
| 16 | % |
NOCOPI TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2021 and 2020 |
Our Company’s non-affiliate customers whose
individual balances amounted to more than 10% of our Company’s net accounts receivable, expressed as a percentage of net accounts
receivable, were:
Non-affiliated Customers with Accounts Receivable More Than 10% | |
| | | |
| | |
| |
December 31 | |
| |
2021 | | |
2020 | |
Customer A | |
| 21 | % | |
| 25 | % |
Customer B | |
| 74 | % | |
| 65 | % |
Our Company performs ongoing credit evaluations
of its customers and generally does not require collateral. Our Company also maintains allowances for potential credit losses. The
loss of a major customer could have a material adverse effect on our Company’s business operations and financial
condition. Our Company’s revenues by geographic region are as follows:
Revenue by Geographic Region | |
| | | |
| | |
| |
Year ended December 31 | |
| |
2021 | | |
2020 | |
North America | |
$ | 812,800 | | |
$ | 701,600 | |
South America | |
| 4,100 | | |
| 2,200 | |
Asia | |
| 1,041,300 | | |
| 1,845,500 | |
Australia | |
| 93,700 | | |
| 109,400 | |
| |
$ | 1,951,900 | | |
$ | 2,658,700 | |
11. COVID-19
A novel strain of coronavirus (“COVID-19”)
continues to spread in many countries around the world including the United States. In March 2020, the Governor of Pennsylvania declared
a health emergency and issued an order to close all nonessential businesses until further notice. Our Company’s operations were
deemed to be essential and thus remained open. Our Company’s results of operations were negatively affected in 2020 in part as a
result of a significant increase in the cost of raw materials utilized by our Company in the manufacture of certain of its products as
a result of price increases related to the impact of the ongoing COVID-19 pandemic on the availability and supply of these raw materials.
During 2021, our Company’s results of operations were further affected by the cargo surge related to congestion experienced in certain
Chinese ports due to a COVID-19 outbreak that began in the second quarter of 2021. The cargo surge continues to the present time, adversely
affecting major United States ports. The world-wide cargo surge along with a container shortage resulted in significantly higher shipping
costs during the second half of 2021 causing certain of our Company’s licensees in the entertainment and toy products market to
defer or scale back production and size of future orders and, in some cases, to reschedule the shipping of completed orders. As
the COVID-19 pandemic continues to spread with the Omicron variant and the newly identified BA.2 variant, any future financial impact
cannot be reasonably estimated at this time.
Exhibit Index
The following Exhibits are filed as part of this Annual
Report on Form 10-K:
Exhibit |
|
|
|
|
Number |
|
Description |
|
Location |
|
|
|
|
|
3.1 |
|
Amended and Restated Articles of Incorporation |
|
Incorporated by reference to the Company’s Form 10-Q filed on November 14, 2008 |
3.2 |
|
Second Amended and Restated Bylaws, Dated January 28, 2022 |
|
Incorporated by reference to the Company’s Form 8-K filed on February 2, 2022 |
3.3 |
|
Articles Supplementary relating to Nocopi Technologies, Inc.’s election to be subject to Sections 3-803, 3-804(a),
3-804(b) and 3-804(c) of the Maryland General Corporation Law |
|
Incorporated by reference to the Company’s Form 8-K filed on October
29, 2021 |
4.1 |
|
Form of Certificate of Common Stock |
|
Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on April 7, 2006 |
4.2 |
|
Securities registered under Section 12 of the Exchange Act |
|
Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 30, 2020 |
10.1† |
|
Amended Summary Plan Description for Nocopi Technologies, Inc. 401(k) Profit Sharing Plan |
|
Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on April 15, 1999 |
10.2 |
|
Director Indemnification Agreement |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed on November 15, 1999 |
10.3 |
|
Officer Indemnification Agreement |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed on November 15, 1999 |
10.4† |
|
Employment Agreement with Michael A. Feinstein, M.D. |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008 |
10.5† |
|
Employment Agreement Amendment - Michael A. Feinstein, M.D. |
|
Incorporated by reference to the Company’s Form 8-K filed on December 17, 2019 |
10.6† |
|
Amended Summary Plan Description for Nocopi Technologies, Inc. 401(k) Profit Sharing Plan |
|
Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 31, 2010 |
10.7† |
|
Employment Agreement with Terry W. Stovold |
|
Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 30, 2012 |
10.8 |
|
Form of Convertible Debenture Purchase Agreement and Exhibits |
|
Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 11, 2015 |
10.9 |
|
Form of Letter Agreement re: Convertible Debenture Purchase Agreement Election |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2019 |
10.10 |
|
Lease Agreement dated December 12, 2013 relating to premises at 480 Shoemaker Road, King of Prussia, PA 19406 |
|
Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 11, 2015 |
10.11 |
|
Lease Extension Agreement dated September 28, 2018 |
|
Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 29, 2019 |
10.12 |
|
Business Loan Agreement, Promissory Note and Commercial Security Agreement dated November 28, 2018 between the Company and Santander Bank |
|
Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 29, 2019 |
———————
† Compensation plans and arrangements for executives
and others.
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