Nocopi (NNUP) 10-Q 14 May 18 2018 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2018	May 11, 2018
Document And Entity Information
Entity Registrant Name	NOCOPI TECHNOLOGIES INC/MD/
Entity Central Index Key	888,981
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		58,616,716
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2,018

Statements of Operations

Statements of Operations - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Revenues
Licenses, royalties and fees	$ 174,900	$ 158,800
Product and other sales	250,500	182,600
Total revenues	425,400	341,400
Cost of revenues
Licenses, royalties and fees	25,000	21,000
Product and other sales	92,200	72,200
Total cost of revenues	117,200	93,200
Gross profit	308,200	248,200
Operating expenses
Research and development	37,100	36,400
Sales and marketing	70,100	60,900
General and administrative	102,700	90,700
Total operating expenses	209,900	188,000
Net income from operations	98,300	60,200
Other income (expenses)
Interest income	400
Interest expense, bank charges and accretion of interest	(2,900)	(16,200)
Total other income (expenses)	(2,500)	(16,200)
Net income	$ 95,800	$ 44,000
Basic and diluted net income per common share	$ 0	$ 0
Weighted average common shares outstanding
Basic	58,616,716	58,599,016
Diluted	58,911,883	58,756,023

Balance Sheets

Balance Sheets - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Current assets
Cash	$ 346,400	$ 360,400
Accounts receivable less $5,000 allowance for doubtful accounts	382,600	292,100
Inventory	108,600	110,600
Prepaid and other	50,200	35,300
Total current assets	887,800	798,400
Fixed assets
Leasehold improvements	19,700	19,700
Furniture, fixtures and equipment	184,900	184,900
Fixed assets, gross	204,600	204,600
Less: accumulated depreciation and amortization	192,300	190,500
Total fixed assets	12,300	14,100
Total assets	900,100	812,500
Current liabilities
Convertible debentures	128,300	128,300
Accounts payable	49,200	4,900
Accrued expenses	315,500	364,700
Deferred revenue		99,400
Total current liabilities	493,000	597,300
Stockholders' equity
Common stock, $0.01 par value Authorized - 75,000,000 shares Issued and outstanding 2017 - 58,616,716 shares	586,200	586,200
Paid-in capital	12,440,000	12,440,000
Accumulated deficit	(12,619,100)	(12,811,000)
Total stockholders' equity	407,100	215,200
Total liabilities and stockholders' equity	$ 900,100	$ 812,500

Balance Sheets (Parenthetical)

Balance Sheets (Parenthetical) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 5,000	$ 5,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	58,616,716	58,616,716
Common stock, shares outstanding	58,616,716	58,616,716

Statements of Cash Flows

Statements of Cash Flows - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Operating Activities
Net income	$ 95,800	$ 44,000
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization	1,800	1,700
Accretion of interest - convertible debentures		13,200
Cumulative effect of accounting change	96,100
Net income adjusted for non-cash operating activities	193,700	58,900
(Increase) decrease in assets
Accounts receivable	(90,500)	(40,100)
Inventory	2,000	9,800
Prepaid and other	(14,900)	(3,400)
Decrease in liabilities
Accounts payable and accrued expenses	(4,900)	(67,900)
Deferred revenue	(99,400)	(5,600)
Total increase in operating capital	(207,700)	(107,200)
Net cash used in operating activities	(14,000)	(48,300)
Investing Activities
Additions to fixed assets		(700)
Net cash used in investing activities		(700)
Financing Activities
Decrease in cash	(14,000)	(49,000)
Cash at beginning of year	360,400	199,100
Cash at end of period	$ 346,400	$ 150,100

Financial Statements

Financial Statements	3 Months Ended
	Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Financial Statements	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 2017 Annual Report on Form 10-K. 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 2017 Annual Report on Form10-K should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three months ended March 31, 2018 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. 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 the Company has no items of other comprehensive income, comprehensive income is equal to net income.

Revenues

Revenues	3 Months Ended
	Mar. 31, 2018
Revenue from Contract with Customer [Abstract]
Revenues	Note 2. Revenues On January 1, 2018, the Company adopted ASU 214-09, Revenue from Contracts with Customers Revenue Recognition The Company recorded a decrease to the opening balance of the accumulated deficit of $96,100 and a corresponding charge to deferred revenue as of January 1, 2018 due to the cumulative impact of the adoption of Topic 606. The impact to the revenue for the quarter ended March 31, 2018 as a result of applying Topic 606 was not material. The disclosure of disaggregated revenue is disclosed in Note 9. The adoption of the new guidance affected our recognition of revenue from licenses and royalties. Under our previous accounting practice, we recognized revenue from licenses and royalties on a straight-line basis over the term of the related license agreement. As a result of our adoption of the new guidance, we will recognize revenue from licensees and royalties at a point in time when the term begins. The change in accumulated deficit on our Balance Sheet at March 31, 2018, including the aggregate impact of the change in accounting principles which was effective on January 1, 2018, was as follows: Accumulated deficit – January 1, 2018 $ (12,811,000 ) Net earnings 95,800 Cumulative effect of accounting change 96,100 Accumulated deficit – March 31, 2018 $ (12,619,100 )

Stock Based Compensation

Stock Based Compensation	3 Months Ended
	Mar. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock Based Compensation	Note 3. Stock Based Compensation The Company follows FASB ASC 718, Compensation – Stock Compensation

Convertible Debentures

Convertible Debentures	3 Months Ended
	Mar. 31, 2018
Convertible Debt [Abstract]
Convertible Debentures	Note 4. Convertible Debentures At March 31, 2018, the Company had convertible debentures totaling $128,300 outstanding, which are due during the third quarter of 2018. The convertible debentures bear interest at 7%. At the option of the lender, the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.025 per share. In March 2017, the Company’s Board of Directors approved the extension of three convertible debentures totaling $33,300 that had matured in the third quarter of 2016, one of which is held by a Director of the Company. The maturity dates of the convertible debentures are extended for two years and the conversion rate of the debentures and accrued interest into Common Stock of the Company is reduced from $0.05 to $0.025. In accordance with FASB ASC 470, this modification was recorded as a debt discount to the notes payable of approximately $13,300 with an offsetting credit to additional paid-in capital. This modification of the $33,300 principal of the debentures and accrued interest would result in the issuance of 944,953 additional shares of Common Stock of the Company if the entire $33,300 principal and all accrued interest through maturity were converted into Common Stock of the Company at the new maturity dates. In the fourth quarter of 2017, the holders of $95,000 of convertible debentures agreed to extend the maturity dates of those convertible debentures for one year with no change in the terms or conditions of the debentures. The Company also granted warrants to purchase 691,365 shares of the Company’s common stock at $0.02 per share to the holders of the debentures. The warrants are 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 the 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. 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 the 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. The following table summarizes the Company’s warrant position at March 31, 2018 and December 31, 2017: Weighted Average Number Exercise Exercise of Shares Price Price Outstanding warrants - December 31, 2017 691,365 $ 0.02 $ 0.02 Outstanding warrants - March 31, 2018 691,365 $ 0.02 $ 0.02 Weighted average remaining contractual life (years) 2.58 Exercisable warrants - March 31, 2018 691,365 $ 0.02 $ 0.02 Weighted average remaining contractual life (years) 2.58

Other Income (Expenses)

Other Income (Expenses)	3 Months Ended
	Mar. 31, 2018
Other Income and Expenses [Abstract]
Other Income (Expenses)	Note 5. Other Income (Expenses) Other income (expenses) in the three months ended March 31, 2018 and March 31, 2017 includes interest on convertible debentures held by nine investors and, in the three months ended March 31, 2017, interest on an unsecured loan from an individual. Also included in other income (expenses) is accretion of debt discounts in the three months ended March 31, 2017 related to the extension of the maturity dates of $33,300 of convertible debentures.

Income Taxes

Income Taxes	3 Months Ended
	Mar. 31, 2018
Income Tax Disclosure [Abstract]
Income Taxes	Note 6. Income Taxes There is no provision for income taxes for the three months ended March 31, 2018 and March 31, 2017 due to the availability of net operating loss carryforwards. The Company has established a valuation allowance for the entire amount of benefits resulting from the Company’s net operating loss carryforwards because the Company has determined that the realization of the net deferred tax asset is not assured. There was no change in unrecognized tax benefits during the period ended March 31, 2018 and there was no accrual for uncertain tax positions as of March 31, 2018. Tax years from 2014 through 2017 remain subject to examination by U.S. federal and state jurisdictions.

Related Party Transactions

Related Party Transactions	3 Months Ended
	Mar. 31, 2018
Related Party Transactions [Abstract]
Related Party Transactions	Note 7. Related Party Transactions During the three months ended March 31, 2018 and March 31, 2017, the Company paid $70,900 and $95,500, respectively, to Michael A. Feinstein, M.D., the Company’s Chairman of the Board and Chief Executive Officer, representing a portion of previously deferred salary owed to him under an employment agreement with the Company. During each of the three month periods ended March 31, 2018 and March 31, 2017, Dr. Feinstein deferred $21,250 of salary. At March 31, 2018, Dr. Feinstein was owed approximately $150,300 of salary deferred by him. Since March 31, 2018, Dr. Feinstein has been paid approximately $118,600 of salary previously deferred by him. There is no interest payable on the deferred salary.

Earnings per Share

Earnings per Share	3 Months Ended
	Mar. 31, 2018
Weighted average common shares outstanding
Earnings per Share	Note 8. Earnings per Share In accordance with FASB ASC 260, Earnings per Share

Major Customer and Geographic I

Major Customer and Geographic Information	3 Months Ended
	Mar. 31, 2018
Major Customer and Geographic Information [Abstract]
Major Customer and Geographic Information	Note 9. 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: Three Months ended March 31 2018 2017 Customer A 40 % 33 % Customer B 27 % 28 % Customer C 15 % 12 % 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: March 31 December 31 2018 2017 Customer A 41 % 14 % Customer B 30 % 47 % Customer C 17 % 15 % 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: Three Months ended March 31 2018 2017 North America $ 184,900 $ 175,100 South America 1,500 – Asia 239,000 158,900 Australia – 7,400 $ 425,400 $ 341,400

Revenues (Tables)

Revenues (Tables)	3 Months Ended
	Mar. 31, 2018
Revenue from Contract with Customer [Abstract]
Change in Accumulated Deficit Balance	The change in accumulated deficit on our Balance Sheet at March 31, 2018, including the aggregate impact of the change in accounting principles which was effective on January 1, 2018, was as follows: Accumulated deficit – January 1, 2018 $ (12,811,000 ) Net earnings 95,800 Cumulative effect of accounting change 96,100 Accumulated deficit – March 31, 2018 $ (12,619,100 )

Convertible Debentures (Tables)

Convertible Debentures (Tables)	3 Months Ended
	Mar. 31, 2018
Convertible Debt [Abstract]
Schedule of Warrants Outstanding	The following table summarizes the Company’s warrant position at March 31, 2018 and December 31, 2017: Weighted Average Number Exercise Exercise of Shares Price Price Outstanding warrants - December 31, 2017 691,365 $ 0.02 $ 0.02 Outstanding warrants - March 31, 2018 691,365 $ 0.02 $ 0.02 Weighted average remaining contractual life (years) 2.58 Exercisable warrants - March 31, 2018 691,365 $ 0.02 $ 0.02 Weighted average remaining contractual life (years) 2.58

Major Customer and Geographic17

Major Customer and Geographic Information (Tables)	3 Months Ended
	Mar. 31, 2018
Segment Reporting [Abstract]
Schedule of Revenues from Non-affiliated Customers	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: Three Months ended March 31 2018 2017 Customer A 40 % 33 % Customer B 27 % 28 % Customer C 15 % 12 %
Schedule of Non-affiliated Customers with Accounts Receivable More Than 10%	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: March 31 December 31 2018 2017 Customer A 41 % 14 % Customer B 30 % 47 % Customer C 17 % 15 %
Schedule of Revenue by Geographic Region	The Company’s revenues by geographic region are as follows: Three Months ended March 31 2018 2017 North America $ 184,900 $ 175,100 South America 1,500 – Asia 239,000 158,900 Australia – 7,400 $ 425,400 $ 341,400

Revenues (Details)

Revenues (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Revenue from Contract with Customer [Abstract]
Accumulated deficit	$ (12,811,000)
Net earnings	95,800	$ 44,000
Cumulative effect of accounting change	96,100
Accumulated deficit	$ (12,619,100)

Stock Based Compensation (Detai

Stock Based Compensation (Details)	Mar. 31, 2018USD ($)
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Unrecognized portion of expense related to stock option grants	$ 0

Convertible Debentures (Narrati

Convertible Debentures (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Debt Instrument [Line Items]
Interest expense	$ 2,900	$ 16,200
Convertible Debt [Member]
Debt Instrument [Line Items]
Convertible debt amount outstanding	128,300
Convertible debt due during the third quarter of 2018	$ 128,300
Debt instrument, interest rate	7.00%
Number of shares of common stock that can be purchased through warrants	691,365
Price per share of warrants	$ 0.02
Warrant exercisable term	2 years	2 years
Warrant expiration term	7 years	7 years
Convertible Debt [Member] | Price One [Member]
Debt Instrument [Line Items]
Debt instrument, conversion price per share	$ 0.025
Convertible Debt [Member] | Price Two [Member]
Debt Instrument [Line Items]
Amount of principal that can be converted	$ 33,300
Debt instrument, conversion price per share	$ 0.05
Debt discount recognized on notes payable	$ 13,300
Accretion of debt discount recognized as interest expense	$ 13,300
Shares issued if converted	944,953

Convertible Debentures (Warrant

Convertible Debentures (Warrants Activity) (Details) - Warrant [Member] - $ / shares	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Warrants
Warrants outstanding	691,365	691,365
Exercise price	$ 0.02	$ 0.02
Weighted average exercise price	$ 0.02	0.02
Weighted average remaining contractual life	2 years 6 months 29 days
Exercisable	691,365
Exercisable weighted average exercise price	$ 0.02	$ 0.02
Exercisable weighted average remaining contractual life	2 years 6 months 29 days

Income Taxes (Details)

Income Taxes (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Income Tax Contingency [Line Items]
Income tax provision
Change in unrecognized tax benefits during the period
Accrual for uncertain tax positions
Minimum [Member]
Income Tax Contingency [Line Items]
Tax years open for examination	2,014
Maximum [Member]
Income Tax Contingency [Line Items]
Tax years open for examination	2,017

Related Party Transactions (Det

Related Party Transactions (Details) - Related Party [Member] - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Related Party Transaction [Line Items]
Deferred salary paid to related party	$ 70,900	$ 95,500
Portion of salary to related party deferred during period	21,250	$ 21,250
Deferred salary owed to related party	150,300
Salary paid previously deferred	$ 118,600

Earnings per Share (Details)

Earnings per Share (Details) - shares	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Weighted average common shares outstanding
Number of incremental common shares resulting from the assumed conversion of warrants	295,167	157,007

Major Customer and Geographic25

Major Customer and Geographic Information (Schedule of Revenues from Non-affiliated Customers) (Details) - Revenue [Member]	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Customer A [Member]
Revenue, Major Customer [Line Items]
Risk percentage	40.00%	33.00%
Customer B [Member]
Revenue, Major Customer [Line Items]
Risk percentage	27.00%	28.00%
Customer C [Member]
Revenue, Major Customer [Line Items]
Risk percentage	15.00%	12.00%

Major Customer and Geographic26

Major Customer and Geographic Information (Schedule of Non-affiliated Customers with Accounts Receivable) (Details) - Accounts Receivable [Member]	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Customer A [Member]
Concentration Risk [Line Items]
Risk percentage	41.00%	14.00%
Customer B [Member]
Concentration Risk [Line Items]
Risk percentage	30.00%	47.00%
Customer C [Member]
Concentration Risk [Line Items]
Risk percentage	17.00%	15.00%

Major Customer and Geographic27

Major Customer and Geographic Information (Schedule of Revenue by Geographic Region) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 425,400	$ 341,400
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	184,900	175,100
South America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	1,500	0
Asia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	239,000	158,900
Australia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 0	$ 7,400