NOCOPI TECHNOLOGIES INC/MD/ Files Q3 2024 10-Q

TL;DR

NOCOPI TECHNOLOGIES INC/MD/ filed its Q3 2024 10-Q. Check financials.

AI Summary

NOCOPI TECHNOLOGIES INC/MD/ filed its 10-Q for the period ending September 30, 2024. The company, operating in the Games, Toys & Children's Vehicles sector, is headquartered in King of Prussia, PA. The filing covers financial performance for the third quarter and the year-to-date period.

Why It Matters

This filing provides investors with the latest financial performance and operational details for NOCOPI TECHNOLOGIES INC/MD/, crucial for understanding the company's current health and future prospects.

Risk Assessment

Risk Level: low — This is a standard quarterly filing with no immediate red flags or significant negative news indicated in the provided header information.

Key Players & Entities

• NOCOPI TECHNOLOGIES INC/MD/ (company) — Filer of the 10-Q
• King of Prussia, PA (location) — Business and mailing address
• 20240930 (date) — Conformed period of report
• 20241113 (date) — Filed as of date

FAQ

Key Financial Figures

• $0 — 3,108 shares of common stock, par value $0.01, as of November 7, 2024. NOCOPI TEC
• $1,410,000 — esulted in an incremental fair value of $1,410,000, calculated as the difference between t

Filing Documents

• nnup_10q-093024.htm (10-Q) — 506KB
• ex31x1.htm (EX-31.1) — 10KB
• ex31x2.htm (EX-31.2) — 10KB
• ex32x1.htm (EX-32.1) — 4KB
• 0001079973-24-001508.txt ( ) — 3031KB
• nnup-20240930.xsd (EX-101.SCH) — 24KB
• nnup-20240930_cal.xml (EX-101.CAL) — 46KB
• nnup-20240930_def.xml (EX-101.DEF) — 63KB
• nnup-20240930_lab.xml (EX-101.LAB) — 248KB
• nnup-20240930_pre.xml (EX-101.PRE) — 194KB
• nnup_10q-093024_htm.xml (XML) — 311KB

FINANCIAL INFORMATION

Part I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements 1 1 Balance Sheets at September 30, 2024 and December 31, 202 3 2 3 4

Notes to Financial Statements

Notes to Financial Statements 5

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 16

Controls and Procedures

Item 4. Controls and Procedures 16

OTHER INFORMATION

Part II. OTHER INFORMATION

Legal Proceedings

Item 1. Legal Proceedings 17

Risk Factors

Item 1A. Risk Factors 17

Unregistered Sales of Equity

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 17

Defaults Upon Senior Securities

Item 3. Defaults Upon Senior Securities 17

Mine Safety Disclosures

Item 4. Mine Safety Disclosures 17

Other Information

Item 5. Other Information 17

Exhibits

Item 6. Exhibits 17

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements Nocopi Technologies, Inc. (unaudited) Three Months ended September 30 Nine Months ended September 30 2024 2023 2024 2023 Revenues Licenses, royalties and fees $ 151,500 $ 136,900 $ 327,000 $ 410,100 Product and other sales 516,900 438,200 1,198,700 1,356,300 Total revenues 668,400 575,100 1,525,700 1,766,400 Cost of revenues Licenses, royalties and fees 59,300 62,700 162,000 171,200 Product and other sales 228,800 247,300 587,500 648,300 Total cost of revenues 288,100 310,000 749,500 819,500 Gross profit 380,300 265,100 776,200 946,900 Operating expenses Research and development 43,600 39,800 127,100 119,900 Sales and marketing 91,600 71,200 236,500 218,600 General and administrative 727,400 833,800 3,196,900 1,258,300 Total operating expenses 862,600 944,800 3,560,500 1,596,800 Net loss from operations ( 482,300 ) ( 679,700 ) ( 2,784,300 ) ( 649,900 ) Other income (expenses) Other income 84,000 — 84,000 — Interest income 153,000 69,800 432,900 192,300 Interest expense and bank charges ( 5,800 ) ( 4,000 ) ( 17,300 ) ( 9,000 ) Total other income (expenses) 231,200 65,800 499,600 183,300 Net loss before income taxes ( 251,100 ) ( 613,900 ) ( 2,284,700 ) ( 466,600 ) Income taxes benefit — ( 160,600 ) — ( 122,700 ) Net loss $ ( 251,100 ) $ ( 453,300 ) $ ( 2,284,700 ) $ ( 343,900 ) Net loss per common share Basic $ ( .02 ) $ ( .05 ) $ ( .22 ) $ ( .04 ) Diluted $ ( .02 ) $ ( .05 ) $ ( .22 ) $ ( .04 ) Weighted average common shares outstanding Basic and diluted 10,508,488 9,667,845 10,503,615 9,390,067 See accompanying notes to these condensed financial 1 Nocopi Technologies, Inc. Balance Sheets (unaudited) September 30 December 31 2024 2023 Assets Current assets Cash and cash equivalents $ 10,940,900 $ 2,269,200 Acco

NOTES TO FINANCIAL STATEMENTS

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 Note 2 Significant Accounting Policies included in the Notes to Financial and Exchange Commission on March 25, 2024 (the "2023 Annual Report"). Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The Notes to Financial Statements included in the 2023 Annual Report should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three months and nine months ended September 30, 2024 may not be necessarily indicative of the operating results expected for the full year. The Company follows Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 220 in reporting comprehensive income (loss). Comprehensive income (loss) 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 (loss). Since the Company has no items of other comprehensive income (loss), comprehensive income (loss) is equal to net income (loss). Reclassifications Certain reclassifications have been made to the 2

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) As part of an employment agreement, the Company granted (the "Prior Grant") to an executive a one-time equity award of 1,000,000 restricted stock units ("RSUs") of the Company's common stock valued at $ 3,580,000 , fair value, which award was originally set to vest in its entirety on August 18, 2024. The fair market value of the restricted stock award was determined based on the closing price of the Company's common stock on the grant date and was expensed on a straight-line basis to general and administrative expense as stock-based compensation over the one-year vesting term. The Company recorded stock-based compensation expense of $ 479,300 and $ 2,259,500 for the three and nine months ended September 30, 2024, respectively. Under the original terms of the award, to the extent the Company had not established an employee equity compensation plan on or prior to August 18, 2024, the restricted shares may have been converted, at the election of the executive, in full or in part, into cash compensation, at a rate of $ 3.58 per share of common stock, which was the fair market value of the common stock on October 10, 2023, which was the date the Board of Directors approved the grant. Since the issuance of the restricted stock can be settled in cash, the monthly expense was credited to a liability account, stock compensation liability, instead of equity. On August 16, 2024, the executive agreed to cancel and forfeit the Prior Grant and, in lieu of the Prior Grant, the Company granted the executive 1,649,769 RSUs ("Replacement Grant"), pursuant to and subject to the 2024 Plan and an award agreement, as approved by the Board of Directors. The fair market value of the replacement grant was $ 3,580,000 , which was determined based on the closing price of the Company's common stock on the grant date. The shares of common stock underlying the Replacement Grant shall vest ratably and quarterly over a two-year period beginning on

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 6. Long-term Receivables As of September 30, 2024, the Company had long-term receivables of $ 1,428,400 from two of the three licensees representing the present value of fixed guaranteed royalty payments that will be payable over varying periods of two through five years that commenced in the second half of 2022 and terminate in the second quarter of 2028. The fixed guaranteed royalty payments result from amendments to license agreements with two existing licensees and a license agreement with a new licensee. The receivable represents the present value of the fixed minimum annual payments due under the license agreements, discounted at the Company's incremental borrowing rate of 4 % . The three agreements grant licenses for the use of certain patented ink technology as it exists at the time that it is granted which is considered functional intellectual property. Under Topic 606, a performance obligation to transfer a license for functional intellectual property is satisfied at a point in time and the fixed consideration could be recognized upfront when the Company transfers control of the licensee if certain criteria are met. Specifically, the minimum royalty guarantee could be recognized upfront if the following conditions are met: The royalty payment is fixed or determinable Collection of the royalty payment is considered probable The licensee has the ability to benefit from the licensed technology The Company determined that the above conditions were met upon execution of the 2022 license agreements and recognized $ 2,810,600 of royalty revenue net of imputed interest of $ 131,300 for the year ended December 31, 2022. The commissions are payable over the term of the license agreements and are due when payments are received by the Company. As of September 30, 2024, the accrued commission payable balance was approximately $ 139,400 , which is included in accrued expenses. The current portion of the th

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 7. Stockholders' Equity On September 11, 2023, the Company entered into a stock purchase agreement in connection with a private placement for total gross proceeds of $ 5.0 million. The stock purchase agreement provided for the issuance of an aggregate of 1,250,000 shares of the Company's common stock to an investor at a purchase price of $ 4.00 per share. In addition, as consideration for general advisory services until the third anniversary, the Company agreed to issue an aggregate total of 65,790 shares of common stock with a total fair market value on the date of grant of $ 263,160 , which shares shall be issued as follows: one-third (21,930 shares) on September 11, 2024, which was issued on such date, one-third (21,930 shares) on September 11, 2025 and one-third (21,930 shares) on September 11, 2026. The Company expenses the value of the stock grant, which is determined to be the fair market value of the shares at the date of grant, straight-line over the term of the advisory agreement. For the three and nine months ended September 30, 2024, the Company recognized $ 22,100 and $ 65,800 , respectively of consulting expense associated with this issuance. On September 11, 2023, the sale pursuant to the Purchase Agreement closed. No placement fees or commissions were paid in connection with this transaction. During the three months ended September 30, 2024 the Company issued 21,930 shares of its common stock for advisory services with a fair value of $ 87,700 , which was fully expensed upon issuance. The Company recognized share-based compensation of $ 501,400 and $ 420,600 for the three months ended September 30, 2024 and 2023 and $ 2,325,300 and $ 420,600 for the nine months ended September 30, 2024 and 2023. At September 30, 2024, the Company had no warrants outstanding. Note 8. Income Taxes There was no income tax benefit for the net losses for the three and nine months ended September 30, 2024 and

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 10. Major Customer and Geographic Information The Company's revenues, expressed as a percentage of total revenues, from non-affiliated customers that equaled 10% or more of the Company's total revenues were: Schedule of revenues as percentage of revenue Three Months ended September 30 Nine Months ended September 30 2024 2023 2024 2023 Customer A 75 % 69 % 71 % 69 % Customer B 17 % 18 % 16 % 17 % The Company's non-affiliate customers whose individual balances amounted to more than 10% of the Company's net accounts receivable, expressed as a percentage of net accounts receivable, were: Schedule of non-affiliated customers with accounts receivable September 30 December 31 2024 2023 Customer A 19 % — Customer B 73 % 82 % The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company also maintains allowances for potential credit losses. The loss of a major customer could have a material adverse effect on the Company's business operations and financial condition. The Company's revenues by geographic region are as follows: Schedule of revenue by geographic region Three Months ended September 30 Nine Months ended September 30 2024 2023 2024 2023 North America $ 143,600 $ 140,700 $ 296,100 $ 414,300 South America — 600 600 600 Asia 503,400 409,900 1,162,700 1,286,600 Australia 21,400 23,900 66,300 64,900 $ 668,400 $ 575,100 $ 1,525,700 $ 1,766,400 9 NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 11. Leases The Company conducts its operations in leased facilities under a non-cancelable operating lease, which was originally set to expire in April 2024. The lease has been extended for 13 months for a new term that began on May 1, 2024 and will expire on May 31, 2025. 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, the Company has capitalized the present value of the minimum lease payments commencing May 1, 2024, using an estimated incremental borrowing rate of 6.5 % . The minimum lease payments do not include common area annual expenses which are considered to be non-lease components. As of May 1, 2024 the operating lease right-of-use asset and operating lease liability amounted to $ 83,046 with no cumulative-effect adjustment to the opening balance of accumulated deficit. There are no other material operating leases. The Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases. Total lease expense under operating leases for the three and nine months ended September 30, 2024 was $ 19,800 and $ 50,800 , respectively. Total lease expense under operating leases for the three and nine months ended September 30, 2023 was $ 13,300 and $ 40,000 , respectively. Undiscounted future minimum lease payments as of September 30, 2024, by year and in aggregate are as follows : Schedule of maturities of lease liabilities Operating Leases 2024 $ 21,400 2025 35,700 57,100 Less interest ( 5,300 ) Total $ 51,800 Note 12. Employee Retention Tax Credit The CARES Act, signed into law on March 27, 2020 with subsequent amendments, provides for refundable employee retention credit to employers whose operations were suspended due to COVID-19 or whose revenue significantly decreased. On June 15, 2023, the Company filed a Form 941-X to claim

Management's Discussion and Analysis

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Information This Report on Form 10-Q contains, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Examples of

forward-looking statements include, among others, statements we

forward-looking statements include, among others, statements we

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