United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
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For the quarterly period ended September 30, 2008.
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
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For
the transition period from
to
Commission File Number: 000-20333
NOCOPI TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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MARYLAND
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87-0406496
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(State or other jurisdiction
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(I.R.S. Employer Identification No.)
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of incorporation or organization)
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9C Portland Road, West Conshohocken, PA
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19428
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(Address of principal executive offices)
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(Zip Code)
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(610) 834-9600
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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
þ
No
o
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer
o
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
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Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date. 52,285,837 shares of common stock, par value $.01, as of November
1, 2008.
NOCOPI TECHNOLOGIES, INC.
INDEX
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PAGE
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1
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2
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3
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4-7
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8-17
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18
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19
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19
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19
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19
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19
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19
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20
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21
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Nocopi Technologies, Inc.
Statements of Operations*
(unaudited)
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Three Months ended
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Nine Months ended
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September 30
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September 30
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2008
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2007
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2008
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2007
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Revenues
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Licenses, royalties and fees
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$
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105,600
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$
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174,400
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$
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409,700
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$
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301,000
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Product and other sales
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92,300
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312,600
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297,500
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777,100
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197,900
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487,000
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707,200
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1,078,100
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Cost of revenues
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Licenses, royalties and fees
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21,900
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37,600
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68,800
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81,700
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Product and other sales
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63,800
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142,900
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202,000
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366,600
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85,700
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180,500
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270,800
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448,300
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Gross profit
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112,200
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306,500
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436,400
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629,800
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Operating expenses
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Research and development
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41,000
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40,500
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123,100
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119,400
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Sales and marketing
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49,500
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75,000
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183,000
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173,800
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General and administrative
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158,100
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53,500
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407,000
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171,700
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248,600
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169,000
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713,100
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464,900
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Net income (loss) from operations
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(136,400
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137,500
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(276,700
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164,900
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Other income (expenses)
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Reversal of accounts payable and
accrued expenses
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166,200
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37,500
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166,200
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Interest income
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500
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2,300
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2,800
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3,500
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Interest expense and bank charges
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(500
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(1,700
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(1,600
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(5,400
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166,800
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38,700
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164,300
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Net income (loss) before income taxes
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(136,400
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304,300
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(238,000
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329,200
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Income taxes
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4,900
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900
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4,900
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Net income (loss)
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$
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(136,400
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$
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299,400
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$
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(238,900
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$
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324,300
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Net earnings (loss) per common share
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Basic
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$
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(.00
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$
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.01
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$
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(.00
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$
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.01
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Diluted
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$
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(.00
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$
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.01
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$
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(.00
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$
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.01
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Weighted average common shares outstanding
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Basic
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52,285,837
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52,275,837
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52,281,948
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52,012,521
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Diluted
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52,285,837
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53,504,353
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52,281,948
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53,324,628
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*
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The accompanying notes are an integral part of these financial statements.
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1
Nocopi Technologies, Inc.
Balance Sheets*
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September 30
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December 31
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2008
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2007
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(unaudited)
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(audited)
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Assets
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Current assets
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Cash and cash equivalents
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$
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161,900
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$
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263,600
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Accounts receivable less $5,000 allowance for
doubtful accounts
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128,600
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221,900
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Inventory
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99,600
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92,300
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Prepaid and other
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32,100
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56,200
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Total current assets
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422,200
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634,000
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Fixed assets
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Leasehold improvements
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72,500
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72,500
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Furniture, fixtures and equipment
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184,900
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509,400
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257,400
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581,900
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Less: accumulated depreciation and amortization
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230,500
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548,500
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26,900
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33,400
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Total assets
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$
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449,100
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$
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667,400
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Liabilities and Stockholders Equity (Deficiency)
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Current liabilities
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Accounts payable
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$
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334,400
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$
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364,200
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Accrued expenses
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105,100
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137,200
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Accrued income taxes
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800
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Deferred revenue
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10,000
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5,000
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Total current liabilities
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449,500
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507,200
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Stockholders equity (deficiency)
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Common stock, $.01 par value
Authorized 75,000,000 shares
Issued and outstanding
2008 52,285,837 shares; 2007 52,275,837 shares
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522,900
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522,800
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Paid-in capital
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12,086,700
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12,008,500
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Accumulated deficit
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(12,610,000
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(12,371,100
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(400
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160,200
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Total liabilities and stockholders equity (deficiency)
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$
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449,100
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$
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667,400
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*
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The accompanying notes are an integral part of these financial statements.
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2
Nocopi Technologies, Inc.
Statements of Cash Flows*
(unaudited)
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Nine Months ended September 30
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2008
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2007
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Operating Activities
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Net income (loss)
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$
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(238,900
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$
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324,300
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Adjustments to reconcile net income (loss) to
cash used in operating activities
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Depreciation and amortization
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9,900
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15,200
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Reversal of accounts payable and accrued expenses
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(37,500
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(166,200
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Compensation expense stock option grants
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76,100
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(190,400
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173,300
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(Increase) decrease in assets
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Accounts receivable
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93,300
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(229,500
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Arbitration settlement receivable
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50,000
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Inventory
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(7,300
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3,200
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Prepaid and other
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24,100
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(18,000
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Increase (decrease) in liabilities
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Accounts payable and accrued expenses
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(24,400
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(14,700
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Accrued income taxes
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(800
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4,900
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Deferred revenue
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5,000
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(800
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89,900
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(204,900
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Net cash used in operating activities
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(100,500
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(31,600
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Investing Activities
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Additions to fixed assets
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(3,400
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(17,600
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Net cash used in investing activities
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(3,400
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(17,600
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Financing Activities
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Exercise of warrants
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2,200
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Issuance of common stock
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282,700
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Proceeds from demand loan
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7,000
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Repayment of short-term loans
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(77,000
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Net cash provided by financing activities
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2,200
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212,700
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Increase (decrease) in cash and cash equivalents
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(101,700
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163,500
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Cash and cash equivalents at beginning of year
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263,600
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53,100
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Cash and cash equivalents at end of period
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$
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161,900
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$
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216,600
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Supplemental disclosure of cash flow information
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Cash paid for interest
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$
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2,700
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$
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5,500
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Cash paid for income taxes
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$
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2,000
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*
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The accompanying notes are an integral part of these financial statements.
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3
NOCOPI TECHNOLOGIES, INC.
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 Companys 2007 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 2007 Annual Report on Form 10-KSB should be read in conjunction with the
accompanying interim financial statements. Certain amounts in the 2007 financial statements have
been reclassified in order for them to be in conformity with the 2008 presentation. The interim
operating results for the three and nine months ended September 30, 2008 may not be necessarily
indicative of the operating results expected for the full year.
Note 2. Management Plan
The Company recorded a net loss of $238,900 in the first nine months of 2008 and had negative cash
flow during that period. At September 30, 2008, the Company had negative working capital and
stockholders equity. At September 30, 2008, the Company had no loans outstanding; however, during
the third quarter of 2008, it secured a $100,000 line of credit with a bank to provide working
capital in the future, if needed. There have been no borrowings under the line of credit. While the
Company is not actively seeking additional investment at the present time due to the improvements
in its revenues during 2007 and 2008 compared to earlier years, it may seek investment in the
future, if needed, to support working capital requirements or to provide funding for new business
opportunities. There can be no assurances that the Company will be successful in obtaining
additional investment if such additional investment is sought. At this time, management of the
Company believes that its current cash reserves, borrowing capacity and revenue opportunities will
allow it to remain in operation for at least one year from the date of this report. There can be no
assurances that revenues in future periods will be sustained at levels that will allow the Company
to return to and maintain positive cash flow.
Note 3. Stock Based Compensation
The Company follows SFAS 123(R), Share-Based Payment and uses the Black-Scholes option pricing
model to calculate the grant-date fair value of an award.
On April 30, 2008, under the Companys directors option plan (the Plan), options to acquire
100,000 shares of the Companys common stock were granted to each of the five members of the Board
of Directors of the Company, including one member who is also an executive officer of
4
the Company, at $.45 per share. Under the terms of the Plan, the options will (i) vest on
January 1, 2009, provided the director attends at least 75% of the years board meetings
and (ii) will expire five years from the date of grant. In accordance with the fair value method as
described in accounting requirements of SFAS No. 123(R), expense of approximately $121,700 is being
recognized during 2008 over the vesting period of the options to account for the cost of services
received by the Company in exchange for the grant of stock options. During the three and nine
months ended September 30, 2008, expense of approximately $45,600 and $76,100, respectively, was
recognized. As of September 30, 2008, the unrecognized portion of expense was approximately
$45,600. There were no stock options granted, exercised or cancelled during the nine months ended
September 30, 2007.
The following table summarizes all stock option activity of the Company since December 31, 2007:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Exercise
|
|
|
|
of Shares
|
|
|
Price
|
|
|
Price
|
|
Outstanding, December 31, 2007
|
|
|
1,750,000
|
|
|
$
|
.10 to $.22
|
|
|
$
|
.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
500,000
|
|
|
$
|
0.45
|
|
|
$
|
.45
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options,
September 30, 2008
|
|
|
2,250,000
|
|
|
$
|
.10 to $.45
|
|
|
$
|
.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining
contractual life (years)
|
|
|
2.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable options,
September 30, 2008
|
|
|
1,750,000
|
|
|
$
|
.10 to $.22
|
|
|
$
|
.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining
contractual life (years)
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
Note 4. Fixed Assets
During the third quarter of 2008, the Company wrote off approximately $327,900 of fully depreciated
furniture, fixtures and equipment that has been disposed of, along with an equal amount of
accumulated depreciation. There was no effect on the Companys results of operations.
Note 5. Line of Credit
In August 2008, the Company negotiated a $100,000 revolving line of credit with a bank. The line of
credit is secured by all the assets of the Company and bears interest at the banks prime rate plus
.5%. 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.
Note 6. Demand and Other Short-Term Loans
During the first nine months of 2007, the Company received (i) an unsecured loan of $7,000, bearing
interest at 7%, from Michael A. Feinstein, M.D., its Chairman of the Board and
5
(ii) repaid loans in the amount of $77,000 provided by four individuals in 2005 and 2006 including
the $15,000 loan from Herman Gerwitz, a Director. At September 30, 2008 and December 31, 2007, the
Company had no loans outstanding.
Note 7. Stockholders Equity (Deficiency)
During the second quarter of 2008, a warrant holder exercised warrants to acquire 10,000 shares of
common stock of the Company at $.22 per share. During the second quarter of 2007, the Company sold
568,193 shares of its common stock to nine non-affiliated individual investors and 20,833 shares to
Philip B. White, a Director, for a total of $282,700 pursuant to a valid private placement.
Note 8. Other Income (Expenses)
Included in Other income (expenses) for the nine months ended September 30, 2008 is $37,500 related
to the reversal of certain accounts payable and accrued expenses that the Company, with legal
counsel, has determined to be no longer statutorily payable. In the three and nine months ended
September 30, 2007, Other income (expenses) included the reversal of $166,200 of fees that had been
accrued, but not paid, under a consulting agreement that terminated in December 2002. During the
third quarter of 2007, the Company, with legal counsel, determined that the statute of limitations
on the consultants ability to bring a claim had expired.
Note 9. Income Taxes
There is no income tax benefit for the three months and nine months ended September 30, 2008
because the Company has determined that the realization of the net deferred tax asset is not
assured. The Company has created a valuation allowance for the entire amount of such benefits. In
the three months and nine months ended September 30, 2007, the Company recorded a provision of
$4,900 for estimated federal corporate alternative minimum taxes. The Company recorded an income
tax expense of $900 in the nine months ended September 30, 2008 for certain state income taxes due
for 2007 in excess of the tax liability recorded in that year.
There was no change in unrecognized tax benefits during the period ended September 30, 2008 and
there was no accrual for uncertain tax positions as of September 30, 2008.
Tax years from 2005 through 2007 remain subject to examination by U.S. federal and state
jurisdictions.
Note 10. Earnings (loss) per Share
In accordance with SFAS No. 128,
Earnings per Share
, basic earnings (loss) per common share is
computed using net earnings divided by the weighted average number of common shares outstanding for
the periods presented. Diluted earnings per common share assumes that outstanding common shares
were increased by shares issuable upon exercise of those stock options and warrants for which the
market price exceeds the exercise price, less shares that could have been purchased by the Company
with related proceeds. Because the Company reported a net loss for the three months and nine months
ended September 30, 2008, common stock equivalents, consisting of stock options and warrants, were
anti-dilutive for those periods.
6
Note 11. Commitment
During the second quarter of 2008, the Company entered into a three-year employment agreement,
commencing June 1, 2008, with Michael A. Feinstein, M.D., Chairman of the Board and Chief Executive
Officer of the Company. Dr. Feinstein receives base compensation of $85,000 per year plus a
performance bonus determined by the Companys Board of Directors. Minimum annual payments under
this employment agreement are: $21,200 - 2008; $85,000 - 2009; $85,000 - 2010; and $35,400 - 2011.
Note 12. Major Customer and Geographic Information
The Companys revenues, expressed as a percentage of total revenues, from non-affiliated customers
that equaled 10% or more of the Companys total revenues were:
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|
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|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
Nine Months ended
|
|
|
September 30
|
|
September 30
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Customer A
|
|
|
38
|
%
|
|
|
53
|
%
|
|
|
45
|
%
|
|
|
46
|
%
|
Customer B
|
|
|
23
|
%
|
|
|
24
|
%
|
|
|
22
|
%
|
|
|
27
|
%
|
Customer C
|
|
|
23
|
%
|
|
|
13
|
%
|
|
|
18
|
%
|
|
|
12
|
%
|
The Companys non-affiliate customers whose individual balances amounted to more than 10% of
the Companys net accounts receivable, expressed as a percentage of net accounts receivable, were:
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
December 31
|
|
|
2008
|
|
2007
|
Customer A
|
|
|
55
|
%
|
|
|
68
|
%
|
Customer B
|
|
|
21
|
%
|
|
|
10
|
%
|
Customer C
|
|
|
12
|
%
|
|
|
22
|
%
|
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 Companys revenues by geographic region are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
|
Nine Months ended
|
|
|
|
September 30
|
|
|
September 30
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
North America
|
|
$
|
152,100
|
|
|
$
|
370,200
|
|
|
$
|
547,400
|
|
|
$
|
778,400
|
|
Other
|
|
|
45,800
|
|
|
|
116,800
|
|
|
|
159,800
|
|
|
|
299,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
197,900
|
|
|
$
|
487,000
|
|
|
$
|
707,200
|
|
|
$
|
1,078,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Item 2.
NOCOPI TECHNOLOGIES, INC.
Managements Discussion and Analysis
of Financial Condition and Results of Operations
Forward-Looking Information
The following Managements Discussion and Analysis of Results of Operations and Financial
Condition should be read in conjunction with the Condensed Financial Statements and related notes
included elsewhere in this report as well as with the Companys audited Financial Statements and
Notes thereto for the year ended December 31, 2007 included in the Companys Annual Report on
Form 10-KSB filed with the Securities and Exchange Commission on March 31, 2008.
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 the Companys 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 Risk Factors. 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, and the uncertainty relating to the current financial crisis in todays
economic environment and the potential reduction in demand for the Companys products, you should
not consider this information to be a guarantee by the Company or any other person that its
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 Companys revenues are derived from royalties paid by licensees of the Companys
technologies, fees for the provision of technical services to licensees and from the direct sale of
(i) products incorporating the Companys technologies, such as inks, security paper and pressure
sensitive labels, and (ii) equipment used to support the application of the Companys technologies,
such as ink-jet printing systems. Royalties consist of guaranteed minimum royalties payable by the
Companys licensees and/or additional royalties which typically vary with the licensees sales or
production of products incorporating the licensed technology. Technical services, in the form of
on-site or telephone consultations by members of the Companys technical staff, may be offered to
licensees of the Companys technologies. The consulting fees are billed at agreed upon per diem or
hourly rates at the time the services are rendered. Service fees and sales revenues vary directly
with the number of units of service or product provided.
The Company recognizes revenue on its lines of business as follows:
a) License fees and royalties are recognized when the license term begins. Upon inception of
the license term, revenue is recognized in a manner consistent with the nature of the transaction
and the earnings process, which generally is ratably over the license term;
8
b) Product sales are recognized (i) upon shipment of products; (ii) when the price is fixed or
determinable and (iii) when collectability is reasonably assured; and
c) Fees for technical services are recognized when (i) the service has been rendered; (ii) an
arrangement exists; (iii) the price is fixed or determinable based upon a per diem or hourly rate;
and (iv) collectability is reasonably assured.
The Company believes that, as fixed costs reductions beyond those it has achieved in recent
years may not be achievable, its operating results are substantially dependent on revenue levels.
Because revenues derived from licenses and royalties carry a much higher gross profit margin than
other revenues, operating results are also substantially affected by changes in revenue mix.
Both the absolute amounts of the Companys 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 Companys total
revenue and on its revenue mix and overall financial performance. Such changes may result from a
customers 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 Companys total revenue,
revenue mix and operating results.
Revenues for the third quarter of 2008 were $197,900 compared to $487,000 in the third quarter
of 2007, a decrease of $289,100, or approximately 59%. Licenses, royalties and fees decreased by
$68,800, or approximately 39%, to $105,600 in the third quarter of 2008 from $174,400 in the third
quarter of 2007. The decrease in licenses, royalties and fees is due primarily to lower licensing
revenues derived from the Companys licensees in the Entertainment and Toy Products business as
their shipments to retail customers were significantly lower than in the same period of the
previous year. Product and other sales were $92,300 in the third quarter of 2008 compared to
$312,600 in the third quarter of 2007, a decrease of $220,300, or approximately 70%. In the second
quarter of 2007, a new licensee in the Entertainment and Toy Products business placed initial
orders with the Company for the reactive inks used in its product lines that utilize the Companys
technologies. These initial quantities of ink, along with additional purchases subsequent to the
second quarter of 2007, have proven adequate to manufacture sufficient product to meet the
licensees customer demands through the current time. The Company has not received substantial ink
orders from this licensee to date in 2008. Additionally, sales of the Companys security paper
declined in the third quarter of 2008 compared to the third quarter of 2007.
For the first nine months of 2008, revenues were $707,200, $370,900, or approximately 34%,
lower than revenues of $1,078,100 in the first nine months of 2007. Licenses, royalties and fees of
$409,700 in the first nine months of 2008 were $108,700, or approximately 36%, higher than $301,000
in the first nine months of 2007, due primarily to the inception during the first half of 2007 of a
license arrangement with one new licensee in the Entertainment and Toy Products business from whom
royalty revenues commenced in the second quarter of 2007 offset in part by the non-renewal of one
license during 2007. Product and other sales declined by $479,600, or approximately 62%, to
$297,500 in the first nine months of 2008 from $777,100 in the first nine
9
months of 2007. As discussed above, the first nine months of 2007 included initial sales of
the Companys reactive inks sold to a new licensee in the Entertainment and Toy Products business
that were not repeated in the first nine months of 2008. The Company experienced a decline in sales
of its security papers in the nine months of 2008 compared to the first nine months of 2007. The
Company derived approximately $119,600 and $473,100 in the third quarter and first nine months of
2008, respectively, in revenues from licensees and their printers in the Entertainment and Toy
Products market compared to approximately $376,000 and $783,400 in the third quarter and first nine
months of 2007, respectively. The Company believes that revenues from licensees in the
Entertainment and Toy Products market will grow in future periods compared to the third quarter and
first nine months of 2008 as its licensees expand their lines of products utilizing the Companys
technologies, develop new and expand existing retail outlets for their products and ink inventories
at the licensed printers require replenishment. There can be no assurances that revenues from
licensees in the Entertainment and Toy Products market will increase in future periods, nor can the
timing of such potential revenue increases be predicted, particularly given the uncertain economic
conditions currently being experienced worldwide.
The Companys gross profit decreased to $112,200 in the third quarter of 2008 or approximately
57% of revenues from $306,500 or approximately 63% of revenues in the third quarter of 2007.
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 Companys
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. As both revenues represented by licenses, royalties and fees and from product
and other sales decreased in the third quarter of 2008 compared to the third quarter of 2007, the
gross profit in both absolute dollars and as a percentage of revenues was negatively affected.
For the first nine months of 2008, the gross profit was $436,400, or approximately 62% of
revenues, compared to $629,800, or approximately 58% of revenues, in the first nine months of 2007.
While the gross profit in absolute dollars decreased in the first nine months of 2008 compared to
the first nine months of 2007, the gross profit, expressed as a percentage of revenues increased in
the first nine months of 2008 compared to the first nine months of 2007 resulting from the increase
in revenues represented by licenses, royalties and fees in the first nine months of 2008 compared
to the first nine months of 2007.
As the variable component of cost of revenues related to licenses, royalties and fees is a low
percentage of these revenues and the fixed component is not substantial, period to period changes
in revenues from licenses, royalties and fees can significantly affect both the gross profit from
licenses, royalties and fees as well as the overall gross profit. Primarily due to the increase in
revenues from licenses, royalties and fees in the first nine months of 2008 from the first nine
months of 2007, the gross profit from licenses royalties and fees increased to approximately 83% of
revenues from licenses royalties and fees in the first nine months of 2008 from approximately 73%
in the first nine months of 2007. The gross profit from licenses, royalties and fees improved
nominally in the third quarter of 2008 to approximately 79% of revenues from licenses, royalties
and fees from approximately 78% in the third quarter of 2007.
The gross profit, expressed as a percentage of revenues, of product and other sales is
dependent on both the overall sales volumes of product and other sales and on the mix of the
10
specific goods produced and/or sold. As a result of lower sales of both inks and security
paper products as well as higher fixed expenses due to a staff addition in mid-2007, the gross
profit from product and other sales declined to approximately 31% of revenues from product and
other sales in the third quarter of 2008 from approximately 54% in the third quarter of 2007 and to
approximately 32% of revenues from product and other sales in the first nine months of 2008 from
approximately 53% in the first nine months of 2007.
Research and development expenses of $41,000 and $123,100 in the third quarter and first nine
months of 2008 approximated the $40,500 and $119,400 in the third quarter and first nine months of
2007.
Sales and marketing expenses decreased to $49,500 in the third quarter of 2008 from $75,000 in
the third quarter of 2007. The decrease primarily reflects lower commission expense related to the
lower level of revenues in the third quarter of 2008 compared to the third quarter of 2007 offset
in part by fees paid to a sales consultant engaged late in the third quarter of 2007 and expenses
associated with the maintenance of the Companys new web site. In the first nine months of 2008,
sales and marketing expenses increased to $183,000 from $173,800 in the first nine months of 2007.
The increase primarily reflects expenses associated with the Companys attendance at two trade
shows, fees paid to a sales consultant engaged late in the third quarter of 2007 as well as
development and maintenance expenses associated with the Companys new web site offset in part by
lower commission expense on the lower level of revenues in the first nine months of 2008 compared
to the first nine months of 2007.
General and administrative expenses increased to $158,100 in the third quarter of 2008 from
$53,500 in the third quarter of 2007. The increase in the third quarter of 2008 compared to the
third quarter of 2007 is due primarily to: a) $45,600 in expenses recorded in the third quarter of
2008 in connection with the issuance of 500,000 options to purchase shares of the Companys common
stock to members of the Companys Board of Directors in April 2008 (there were no options issued in
2007); b) higher compensation expense due in part to greater securities law compliance obligations
and the inception of a three-year employment agreement with the Companys Chief Executive Officer
whereby the Chief Executive Officer receives minimum compensation of $85,000 per year beginning in
June 2008; c) higher patent acquisition and maintenance expenses and d) higher legal and accounting
fees related to higher levels of services required. For the first nine months of 2008, general and
administrative expenses increased to $407,000 from $171,700 in the first nine months of 2007 due
primarily to: a) the Companys one-time contribution of $40,000 to a licensee of the Company under
an agreement whereby the licensee acquired an interest in a patent held by a third party and the
Company received, among other things, certain assurances regarding its continuing ability to
manufacture and sell products to this licensee; b) $76,100 in expenses recorded through September
30, 2008 in connection with the issuance of 500,000 options to purchase shares of the Companys
common stock to members of the Companys Board of Directors in April 2008 (there were no options
issued in 2007); c) higher compensation expense due in part to greater securities law compliance
obligations and the inception in June 2008 of an employment agreement with the Companys Chief
Executive Officer; d) higher patent acquisition and maintenance expenses and e) higher legal and
accounting fees related to higher levels of services required.
Other income (expenses) in the first nine months of 2008 includes the reversal of $37,500 of
accounts payable and accrued expenses that the Company, with legal counsel, has determined to be no
longer statutorily payable. Other income (expenses) in the third quarter and first nine
11
months of 2007 included the reversal of $166,200 of accrued consulting fees that the Company,
with legal counsel, determined to be no longer statutorily payable. Additionally, interest income
on funds invested decreased in the third quarter and first nine months of 2008 compared to the
third quarter and first nine months of 2007 due to lower levels of funds invested and lower
interest rates associated with the financial crisis in todays economy. There was no interest
expense in the third quarter and first nine months of 2008 as there were no loans outstanding
during those periods.
The net loss of $136,400 in the third quarter of 2008 compared to net income of $299,400 in
the third quarter of 2007 results primarily from a lower gross profit on a lower level of revenues,
stock option expense, higher compensation expense and no income from the reversal of accounts
payable and accrued expenses offset in part by lower commission expense. The net loss of $238,900
for the nine months ended September 30, 2008 compared to net income of $324,300 in the nine months
ended September 30, 2007 results primarily from a one time transaction with a licensee, stock
option expense, higher compensation expense and lower income derived from the reversal of accounts
payable and accrued expenses that are no longer statutorily payable offset in part by lower
commission expense.
Plan of Operation, Liquidity and Capital Resources
The Companys cash and cash equivalents decreased to $161,900 at September 30, 2008 from
$263,600 at December 31, 2007. During the nine months of 2008, the Company received $2,200 from the
exercise of warrants to purchase 10,000 shares of its common stock and used $100,500 to fund
operations and $3,400 to fund capital purchases.
While the Company has added new licensees in the Entertainment and Toy Market over the past
two years and has obtained significant increases in revenues from licenses, royalties and product
sales from these licensees and their third party printers, its working capital requirements have
increased primarily in support of inventory and receivables related to these revenues; however,
during 2007, the Company achieved significant increases in revenues and recorded net income of
$386,000 and $56,100 of operating cash flow. The Company recorded a net loss of $238,900 in the
first nine months of 2008 and had negative cash flow during that period. At September 30, 2008, the
Company had negative working capital and stockholders equity. At September 30, 2008, the Company
had no loans outstanding; however, during the third quarter of 2008, it secured a $100,000 line of
credit with a bank to provide working capital in the future, if needed. There have been no
borrowings under the line of credit. While the Company is not actively seeking additional
investment at the present time due to the improvements in its revenues during 2007 and 2008
compared to earlier years, it may seek investment in the future, if needed, to support working
capital requirements or to provide funding for new business opportunities. There can be no
assurances that the Company will be successful in obtaining additional investment if such
additional investment is sought. At this time, management of the Company believes that its current
cash reserves, borrowing capacity and revenue opportunities will allow it to remain in operation
for at least one year from the date of this report. There can be no assurances that revenues in
future periods will be sustained at levels that will allow it to return to and maintain positive
cash flow.
While the investment received in 2007 and improvement in operations positively impacted the
Companys liquidity situation, it continues to maintain a cost containment program including
curtailment of discretionary research and development and sales and marketing expenses, where
12
possible. In 2007, it increased employment by one individual, acquired capital equipment to
increase its ink production capacity and, in the second quarter of 2008, finalized an employment
agreement with its Chief Executive Officer.
The Companys plan of operation for the twelve months beginning with the date of this
quarterly report consists of capitalizing on the specific business relationships it has developed
in the Entertainment and Toy Products business through ongoing applications development for these
licensees. The Company is also actively pursuing potential opportunities for its applications in
new markets. The Company believes that these initiatives can provide increases in revenues and it
will continue to increase its production and technical staff as necessary and invest in capital
equipment needed to support potential growth in its ink production requirements. The Company may
raise additional capital, in the form of debt, equity or both to support its working capital
requirements. There can be no assurances that the Company will be successful in raising additional
capital if such additional capital is sought.
The Company generates a significant portion of its total revenues from licensees in the
Entertainment and Toy Products market. A slowdown in consumer spending, particularly during this
holiday season, due to the current negative economic environment could adversely affect the sales
of these licensees products that are generally sold through retail outlets. The Companys
revenues, results of operations and liquidity would likewise be negatively impacted.
Risk Factors
The Companys operating results, financial condition and stock price are subject to certain
risks, some of which are beyond the Companys control. These risks could cause actual operating and
financial results to differ materially from those expressed in the Companys forward looking
statements, including the risks described below and the risks identified in other documents which
are filed and furnished with the SEC including the Companys annual report on Form 10-KSB filed on
March 31, 2008:
Dependency on Major Customer.
The Companys recent growth in revenues and return of profitability
in 2007 has resulted primarily from relationships developed with a major customer and two of its
operating companies. Revenues derived directly from this customer and indirectly, through its third
party printer, equaled approximately 67% of the Companys revenues in the first nine months of 2008
and approximately 71% of the Companys full year 2007 revenues. The Company also has substantial
receivables from these businesses. While multi-year licenses exist with these organizations, the
Company is dependent on its licensees to develop new products and markets that will generate
increases in its licensing and product revenues. The inability of these licensees to maintain at
least current levels of sales of products utilizing the Companys technologies could adversely
affect its operating results and cash flow.
Possible Inability to Develop New Business
. While the Company has raised cash through additional
capital investment in 2007 and improved its operating cash flow, it intends to limit increases in
its operating expenses. Management of the Company believes that any significant improvement in the
Companys cash flow must result from increases in revenues from traditional sources and from new
revenue sources. The Companys ability to develop new revenues may depend on the extent of both its
marketing activities and its research and development activities, both of which are limited. There
are no assurances that the resources that the Company can
13
devote to marketing and to research and development will be sufficient to increase its revenues to
levels that will enable it to return to and maintain positive operating cash flow in the future.
Inability to Obtain Raw Materials and Products for Resale.
The Companys adverse financial
condition in previous periods required it to significantly defer payments due vendors who supply
raw materials and other components of its security inks, security paper that it purchases for
resale, 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
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 its ability to
service its customers, thereby adversely affecting its customer and licensee relationships.
Management of the Company believes that capital investment in 2007 and improvements in operating
cash flow have allowed the Company to improve its relationships with its vendors and professional
service providers. There are no assurances that the Company will be able to continue to maintain
its vendor relationships in an acceptable manner.
Uneven Pattern of Quarterly and Annual Operating Results
. The Companys revenues, which are derived
primarily from licensing, royalties and sales of products incorporating its technologies, are
difficult to forecast due to the long sales cycle of its technologies, the potential for customer
delay or deferral of implementation of its technologies, the size and timing of inception of
individual license agreements, the success of its licensees and strategic partners in exploiting
the market for the licensed products, modifications of customer budgets, and uneven patterns of
royalty revenue and product orders. As the Companys revenue base is not substantial, delays in
finalizing license contracts, implementing the technology to initiate the revenue stream and
customer ordering decisions can have a material adverse effect on the Companys quarterly and
annual revenue expectations and, as its operating expenses are substantially fixed, income
expectations will be subject to a similar adverse outcome. As licensees for the Entertainment and
Toy Products markets are added, the unpredictability of the Companys revenue stream may be further
impacted.
Volatility of Stock Price
. The market price for the Companys common stock has historically
experienced significant fluctuations and may continue to do so. From inception through 2006, the
Company had operated at a loss and has not produced revenue levels traditionally associated with
publicly traded companies. The Companys common stock is not listed on a national or regional
securities exchange and, consequently, it receives limited publicity regarding its business
achievements and prospects. Additionally, securities analysts and traders do not extensively follow
the Companys stock and its stock is also thinly traded. The Companys market price may be affected
by announcements of new relationships or modifications to existing relationships. The stock prices
of many developing public companies, particularly those with small capitalizations, have
experienced wide fluctuations not necessarily related to operating performance. Such fluctuations
may adversely affect the market price of the Companys common stock.
Intellectual Property.
The Company relies on a combination of protections provided under applicable
international patent, trademark and trade secret laws. The Company also relies on confidentiality,
non-analysis and licensing agreements to establish and protect its rights in its proprietary
technologies. While the Company actively attempts to protect these rights, its technologies could
possibly be compromised through reverse engineering or other means. In addition, the Companys
ability to enforce its intellectual property rights through appropriate
14
legal action had been and may continue to be limited by its 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 its rights. The Companys adverse liquidity situation in previous years had also
impacted its ability to obtain patent protection on its intellectual property and to maintain
protection on previously issued patents. The Company has made payments of $11,900 for all known
maintenance fees due during 2008. 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 Companys customer
and licensee relationships could be adversely affected and the value of its technologies and
intellectual property (including their value upon liquidation) could be substantially diminished.
Economic Conditions
. The Companys revenue is susceptible to changes in general economic
conditions, and a recession, slowdown in consumer spending or other significant downturn in the
U.S. economy as a whole, or in any geographic markets from which the Company derives revenue, could
substantially impact its sales, liquidity, ability to develop new customers, and overall results of
operations.
Recent Accounting Pronouncements
During September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements (SFAS 157), which is effective for fiscal years beginning after November 15,
2007 with earlier adoption encouraged. SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands disclosures about
fair value measurements. In February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective
Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 for all non-financial
assets and liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis, until January 1, 2009. The Company adopted SFAS 157 on
January 1, 2008 for all financial assets and liabilities, but the implementation did not require
additional disclosures or have a significant impact on the Companys financial statements. The
Company has not yet determined the impact the implementation of SFAS 157 will have on the Companys
non-financial assets and liabilities which are not recognized or disclosed on a recurring basis.
However, the Company does not anticipate that the full adoption of SFAS 157 will significantly
impact its financial statements.
During February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS 159), which permits
entities to choose to measure many financial instruments and certain other items at fair value. The
objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity
to mitigate volatility in reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting provisions. The Company has adopted
SFAS 159 on January 1, 2008 and has elected not to measure any additional financial assets,
liabilities or other items at fair value.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R).
SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also
15
establishes disclosure requirements to enable the evaluation of the nature and financial effects of
the business combination. This statement is effective for the Company beginning January 1, 2009 and
will change the accounting for business combinations on a prospective basis.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held by parties other
than the parent, the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parents ownership interest, and the valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes
disclosure requirements that clearly identify and distinguish between the interests of the parent
and the interests of the noncontrolling owners. This statement is effective for the Company
beginning January 1, 2009. This statement is not currently applicable to the Company since it has
no majority-owned subsidiaries.
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161), which is effective January 1, 2009. SFAS 161 requires enhanced
disclosures about derivative instruments and hedging activities to allow for a better understanding
of their effects on an entitys financial position, financial performance, and cash flows. Among
other things, SFAS 161 requires disclosures of the fair values of derivative instruments and
associated gains and losses in a tabular format. SFAS 161 is not currently applicable to the
Company since the Company does not have derivative instruments or hedging activity.
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162,
The Hierarchy
of
Generally Accepted Accounting Principles
(FAS 162). This Standard identifies the sources of
accounting principles and the framework for selecting the principles to be used in the preparation
of financial statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles. FAS 162 directs the hierarchy to the entity, rather than the
independent auditors, as the entity is responsible for selecting accounting principles for
financial statements that are presented in conformity with generally accepted accounting
principles. The Standard is effective 60 days following SEC approval of the Public Company
Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting
principles from the auditing standards. FAS 162 is not expected to have an impact on the financial
statements.
In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3,
Determination of the Useful
Life of Intangible Assets
, which amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized intangible asset under
FASB Statement No. 142,
Goodwill and Other Intangible Assets.
This Staff Position is effective for
financial statements issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. Early adoption is prohibited. This FSP is not currently applicable to
the Company since the Company does not have any intangible assets.
In June 2008, the FASB issued FSP EITF 03-6-1,
Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities
. This FSP provides that
16
unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be included in the
computation of earnings per share pursuant to the two-class method. The Company does not currently
have any share-based awards that would qualify as participating securities. Therefore, application
of this FSP is not expected to have an effect on the Companys financial reporting.
In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1,
Accounting for Convertible Debt
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
(FSP 14-1). FSP
14-1 will be effective for financial statements issued for fiscal years beginning after December
15, 2008. The FSP includes guidance that convertible debt instruments that may be settled in cash
upon conversion should be separated between the liability and equity components, with each
component being accounted for in a manner that will reflect the entitys nonconvertible debt
borrowing rate when interest costs are recognized in subsequent periods. The Company does not
currently have any convertible debt instruments. Therefore, application of this FSP is not expected
to have an effect on the Companys financial reporting.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
17
Item 4T. Controls and Procedures
(a) Disclosure Controls and Procedures
The Company has carried out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the Companys disclosure controls and procedures pursuant to Exchange Act
Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Companys Chief Executive Officer
and Chief Financial Officer have concluded, as of the end of the period covered by this report,
that the Companys disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified within the rules and
forms of the SEC, and are designed to ensure that information required to be disclosed by the
Company in these reports is accumulated and communicated to management as appropriate to allow
timely decisions regarding required disclosures.
(b) Changes in Internal Control over Financial Reporting
There have been no changes in the Companys internal controls over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal
quarter that have materially affected, or are reasonably likely to materially affect, its internal
controls over financial reporting.
18
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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
(a) Exhibits
|
3.1
|
|
Amended and Restated Articles of Incorporation.
|
|
|
3.2
|
|
Amended and Restated Bylaws.
|
|
|
10.18
|
|
Business Loan Agreement, Promissory Note and Commercial Security
Agreement dated August 19, 2008 between the Company and Sovereign Bank.
|
|
|
31.1
|
|
Certification of Chief Executive Officer required by Rule 13a-14(a).
|
|
|
31.2
|
|
Certification of Chief Financial Officer required by Rule 13a-14(a).
|
|
|
32.
|
|
Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
19
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
DATE: November 14, 2008
|
NOCOPI TECHNOLOGIES, INC.
|
|
|
/s/ Michael A. Feinstein, M.D.
|
|
|
Michael A Feinstein, M.D.
|
|
|
Chairman of the Board & Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
DATE: November 14, 2008
|
/s/ Rudolph A. Lutterschmidt
|
|
|
Rudolph A. Lutterschmidt
|
|
|
Vice President & Chief Financial Officer
|
|
20
EXHIBIT INDEX
3.1
|
|
Amended and Restated Articles of Incorporation.
|
|
3.2
|
|
Amended and Restated Bylaws.
|
|
10.18
|
|
Business Loan Agreement, Promissory Note and Commercial Security
Agreement dated August 19, 2008 between the Company and Sovereign
Bank.
|
|
31.1
|
|
Certification of Chief Executive Officer required by Rule 13a-14(a).
|
|
31.2
|
|
Certification of Chief Financial Officer required by Rule 13a-14(a).
|
|
32.1
|
|
Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
Section 906 of the Sarbanes-Oxley Act of 2002.
|
21
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS OF
NOCOPI TECHNOLOGIES, INC.
a Maryland Corporation
PREAMBLE
The bylaws of Nocopi Technologies, Inc., a Maryland corporation (the Corporation) have been
amended and restated as of November 7, 2008. These bylaws are subject to, and governed by the
General Corporation Law of the State of Maryland (the Maryland General Corporation Law) and the
Corporations certificate of incorporation (as it may be amended and in effect from time to time).
In the event of a direct conflict between the provisions of these bylaws and the mandatory
provisions of the Maryland General Corporation Law or the provisions of the certificate of
incorporation of the Corporation, such provisions of the Maryland General Corporation Law or the
certificate of incorporation of the Corporation, as the case may be, will be controlling.
ARTICLE I
OFFICES
SECTION 1.
Principal and Registered Office.
The principal office of the Corporation
shall be located in Baltimore, Maryland. The Corporation may have such other offices, either within
or without the State of Maryland as the Board of Directors may designate or as the business of the
Corporation may require from time to time.
The registered office of the Corporation required by the Maryland General Corporation Law to
be maintained in the State of Maryland may be, but need not be, identical with the principal
offices in the State of Maryland, and the address of the registered office may be changed, from
time to time, by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 1.
Annual Meeting.
The annual meeting of the Stockholders of the Corporation
for the election of directors etc. shall be held at such time on such date as the Board of
Directors shall determine from time to time. The Secretary shall serve personally or by mail, on
each stockholder entitled to vote at the meeting and to each stockholder not entitled to vote who
is entitled by statute to notice, a written notice thereof, not less than ten (10) nor more than
ninety (90) days before the date of the meeting, addressed to each stockholder at his address as it
appears in the records of the Corporation; but at any meeting at which all stockholders shall be
present, or at which all stockholders not present have waived notice in writing, the giving of
notice as above required may be dispensed with.
SECTION 2.
Special Meetings.
Special meetings of the stockholders other than those
regulated by statute, may be called at any time by the President or by a majority of the Directors.
Notice of such meeting stating the place, day and hour and the purpose for which it is called,
shall be served personally or by mail, not less than ten (10) nor more than ninety (90) days before
the date set for such meeting on each stockholder entitled to vote at such meeting and to each
stockholder not entitled to vote who is entitled by statute to notice. If mailed, it shall be
directed to a stockholder at his address as it appears on the stock book, but at any meeting at
which all stockholders shall be present, or of which stockholders not present have waived notice in
writing, the giving of notice as above described may be dispensed with. The Board of Directors
shall also, in like manner, call a special meeting of stockholders whenever so requested in writing
by the holders of shares entitled to cast not less than twenty-five percent (25%) of all the votes
entitled to be cast at the meeting. Such request shall state the purpose or purposes of such
meeting and the matters proposed to be acted on thereat. The secretary shall inform such
stockholders of the reasonably estimated cost of preparing and mailing such
notice of the meeting, and upon payment to the corporation of such costs the secretary shall give
notice stating the purpose or purposes of the meeting to all stockholders
-2-
entitled to notice of
such meeting. No special meeting need be called upon the request of the holders of shares entitled
to cast less than a majority of all votes entitled to be cast at such meeting, to consider any
matter which is substantially the same as a matter voted upon at any special meeting of the
stockholders held during the preceding twelve (12) months. No business other than that specified in
the call for the meeting shall be transacted at any special meeting of the stockholders, except
upon the unanimous consent of all the stockholders entitled to notice thereof.
SECTION 3.
Closing of Transfer Books or Fixing of Record Date.
For the purpose of
determining stockholders entitled to receive notice of or to vote at any meeting of stockholders or
any adjournment thereof, or stockholders entitled to receive payment of any dividend; or in order
to make a determination of stockholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a stated period not to
exceed, in any case, twenty (20) days. If the stock transfer books shall be closed for the purpose
of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such
books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of
closing the stock transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of stockholders, such date in any case to be not prior to the close
of business on the day the record date is fixed nor more than ninety (90) days, and in case of a
meeting of stockholders, not less than ten (10) days prior to the date on which the particular
action, requiring such determination of stockholders, is to be taken. If the stock transfer books
are not closed, and no record date is fixed, the record date for the determination of stockholders
entitled to receive notice of or to vote at a meeting of stockholders shall be the later of the
close of business on the day on which notice of the meeting is mailed or the thirtieth
(30
th
) day before the meeting, and the record date for determining stockholders entitled
to receive payment of a dividend shall be the close of business on the day on which the resolution
of the Board of Directors declaring such dividend is adopted; provided that such payment may not be
made more than sixty (60) days after the date on which the resolution is adopted. When a
determination of
stockholders entitled to vote at any meeting of stockholders has been made as provided in this
section, such determination shall apply to any adjournment thereof.
-3-
SECTION 4.
Voting.
At all meetings of the stockholders, subject to the provisions
of Section 3, each stockholder of the Corporation is entitled to one (1) vote for each share of
stocking having voting power standing in the name of such stockholder on the books of the
Corporation. Votes may be cast in person or by written authorized proxy.
SECTION 5.
Proxy.
Each proxy must be executed in writing by the stockholder of the
Corporation or his duly authorized attorney. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after the expiration of
eleven (11) months from the date of its execution unless it shall have specified therein its
duration. Every proxy shall be revocable at the discretion of the person executing it or of his
personal representatives or assigns.
SECTION 6.
Voting of Shares by Certain Holders.
Shares standing in the name of another
corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may
prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may
determine.
Shares held by a fiduciary may be voted by him either in person or by proxy if such shares are
registered in his name as fiduciary, or without a transfer of such shares into his name on proof of
the fact that legal title to the shares has devolved on him in a fiduciary capacity and that he is
qualified to act in that capacity. Shares standing in the name of a trustee may be voted by him
either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and shares held by or
under the control of a receiver may be voted by such receiver without the transfer thereof into his
name if authority so to do be contained in an appropriate order of the Court by which such receiver
was appointed.
A stockholder whose shares are pledged shall be entitled to vote such shares until the shares
have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to
vote the shares so transferred.
Shares of its own stock belonging to the Corporation shall not be voted, directly or
indirectly, at any meeting, and shall not be counted in determining the total number of
outstanding shares at any given time, unless they are held by it in a fiduciary capacity, in
-4-
which
case they may be voted and shall be counted in determining the total number of outstanding shares
at any given time.
SECTION 7.
Cumulative Voting.
No stockholder shall be permitted to cumulate his votes.
SECTION 8.
Quorum and Voting.
One-third of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at any
meeting of stockholders, except as otherwise provided by the Maryland General Corporation Law and
the Articles of Incorporation. In the absence of a quorum at any such meeting, a majority of the
shares so represented may adjourn the meeting from time to time for a period not to exceed one
hundred twenty (120) days without further notice. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly organized meeting may continue to
transact the business until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum.
If a quorum is present, the affirmative vote of the majority of the shares represented at a
meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the
vote of a greater proportion or number or voting by classes is otherwise required by statute or by
the Articles of Incorporation of these Bylaws.
SECTION 9.
Informal Action by Stockholders.
Any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, if a consent in writing,
setting forth such action, is signed by all the stockholders entitled to vote on the subject matter
thereof and any other stockholders entitled to notice of a meeting of stockholders but not to vote
thereat have waived in writing any rights which they may have to dissent from such action, and such
consent and waiver are filed with the records of stockholders meetings.
-5-
ARTICLE III
DIRECTORS
SECTION 1.
Number.
The affairs and business of this Corporation shall be managed by a
Board of Directors. The first Board of Directors shall consist of one (1) member. Thereafter the
number of Directors may be increased to not more than nine (9) by resolution of the Board of
Directors. Directors need not be residents of the State of Maryland, and need not be stockholders
of the Corporation.
SECTION 2.
Election.
The Directors shall be elected at each annual meeting of the
stockholders, but if any such annual meeting is not held, or the Directors are not elected thereat,
the Directors may be elected at any special meeting of the stockholders held for that purpose.
SECTION 3.
Term of Office.
The term of office of each of the Directors shall be one
(1) year, which shall continue until his successor has been elected and qualified.
SECTION 4.
Duties.
The Board of Directors shall have the control and general
management of the affairs and business of the Corporation. Such Directors shall in all cases act
as a Board, except as herein provided in Section 11, regularly convened, by a majority, and may
adopt such rules and regulations for the conduct of meetings and the management of the Corporation,
as may be deemed proper, so long as it is not inconsistent with these Bylaws and the laws of the
State of Maryland.
SECTION 5.
Directors Meetings.
Regular meetings of the Board of Directors shall be
held immediately following the annual meeting of the stockholders, and at such other time and
places as the Board of Directors may determine. Special meetings of the Board of Directors may be
called by the Chairman of the Board or the Secretary upon the written request of two (2) Directors.
SECTION 6.
Notice of Meetings.
Notice of meetings other than the regular annual
meeting shall be given by service upon each Director in person, or by mailing to him at his last
known address, at least three (3) days before the date therein designated for such meeting,
including the day of mailing, of a written or printed notice thereof
specifying the time and place of such meeting and the business to be brought before the
-6-
meeting,
and no business other than that specified in such notice shall be transacted at any special
meeting. At any Directors meeting at which a quorum of the Board of Directors shall be present
(although held without notice), any and all business may be transacted which might have been
transacted if the meeting had been duly called if a quorum of the Directors waive or are willing to
waive the notice requirements of such meeting.
Any Directors may waive notice of any meeting under the provisions of Article XII. The
attendance of a Director at a meeting shall constitute a waiver of notice of such meeting except
where a Director attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully convened or called.
SECTION 7.
Voting.
At all meetings of the Board of Directors, each Director is to
have one (1) vote. The act of a majority of the Directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
SECTION 8.
Vacancies.
Vacancies in the Board occurring between annual meetings shall
be filled for the unexpired portion of the term by a majority of the remaining Directors.
SECTION 9.
Removal of Directors.
Any one or more of the Directors may be removed,
with or without cause, at any time, by a vote of the stockholders holding a majority of the stock,
at any special meeting called for that purpose.
SECTION 10.
Quorum and Voting.
A quorum at all meetings of the Board of Directors
shall consist of a majority of the number of Directors then holding office, but a smaller number
may adjourn from time to time without further notice, until a quorum is secured. The act of the
majority of the Directors present at a meeting at which a quorum is present shall be the act of the
Board of Directors, unless the act of a greater number is required by the laws of the State of
Maryland or by the Articles of Incorporation or these Bylaws.
SECTION 11.
Executive Committee.
By resolution of the Board of Directors and at
their option, the Directors may designate an Executive Committee which includes at least three (3)
Directors, to manage and direct the daily affairs of the Corporation. Said Executive Committee
shall have and may exercise all of the authority that is vested in the
Board of Directors as if the Board of Directors were regularly convened, except that the
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Executive
Committee shall not have authority to declare dividends or distributions on stock, recommend to the
stockholders any action which requires stockholder approval, amend the Bylaws, approve any merger
or share exchange which does not require stockholder approval or issue stock. However, if the Board
of Directors has given general authorization for the issuance of stock, a committee of the Board,
in accordance with a general formula or method specified by the Board of Directors by resolution or
by adoption of a stock option plan, may fix the terms of stock subject to classification or
reclassification and the terms on which any stock may be issued. In the absence of any member of
any such committee, the members thereof present at any meeting, whether or not they constitute a
quorum, may appoint a member of the Board of Directors to act in the place of such absent members.
At all meetings of the Executive committee, each member of said committee shall have one (1)
vote and the act of a majority of the members present at a meeting at which a quorum is present
shall be the act of the Executive Committee.
The number of Executive Committee members who shall be present at any meeting of the Executive
Committee in order to constitute a quorum for the transaction of business or nay specified item of
business shall be a majority.
The number of votes of Executive Committee members that shall be necessary for the transaction
of any business or any specified item of business at any meeting of the Executive Committee shall
be a majority.
SECTION 12.
Compensation.
By resolution of the Board of Directors, the Directors may
be paid their expenses, if any, of attendance at each meeting of the Board of Directors or each may
be paid a stated salary as Director. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation thereof.
SECTION 13.
Presumption of Assent.
A Director of the Corporation who is present at a
meeting of the Board of Directors at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless he announces his dissent at the meeting and
his dissent is entered in the minutes of the meeting or unless he shall file his written dissent to
such action with the person acting as the Secretary of the
meeting before his adjournment thereof or shall forward such dissent by registered mail
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to the
Secretary of the Corporation within twenty-four (24) hours after the adjournment of the meeting.
Such right to dissent shall not apply to a Director who voted in favor of such action or failed to
make his dissent known at the meeting.
SECTION 14.
Informal Action by Directors.
Any action required or permitted to be taken
by the Board of Directors, or a committee thereof, at a meeting may be taken without a meeting if a
consent in writing, setting forth the actions so taken, shall be signed by all of the Directors or
all the committee members and is filed with the minutes of proceedings of the Board or committee.
Such consent shall have the same effect as a unanimous vote.
ARTICLE IV
OFFICERS
SECTION 1.
Number.
The officers of the Corporation shall be: Chairman of the Board,
President, Vice-President, Secretary and Treasurer, and such assistant Secretaries as the President
shall determine. Any officer may hold more than one office, except the offices of President and
Vice-President shall not be held by the same person.
SECTION 2.
Election.
All officers of the Corporation shall be elected annually by the
Board of Directors at its meeting held immediately following the meeting of stockholders, and shall
hold office for the term of one (1) year or until their successors are duly elected and qualify.
Officers need not be members of the Board of Directors.
The Board may appoint such other officers, agents and employees as it shall deem necessary who
shall have such authority and shall perform such duties as, from time to time, shall be prescribed
by the Board.
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SECTION 3.
Duties of Officers.
The duties and powers of the officers of the Corporation
shall be as follows:
CHAIRMAN OF THE BOARD
The Chairman of the Board shall, when present, preside at all meetings of the Directors and
stockholders. He shall perform such other duties as the Board of Directors shall determine.
PRESIDENT
The President shall present at each annual meeting of the stockholders and Directors, a report
of the condition of the business of the Corporation. He shall cause to be called regular and
special meetings of the stockholders and Directors in accordance with these Bylaws. He shall
appoint and remove, employ and discharge, and fix compensation of all agents, employees and clerks
of the Corporation other than the duly appointed officers, subject to the approval of the Board of
Directors. He shall sign and make all contracts and agreements in the name of the Corporation,
subject to the approval of the Board of Directors. He shall see that the books, reports,
statements and certificates required by the statutes are properly kept, made and filed according to
law. He shall sign all certificates of stock, notes, drafts or bills of exchange, warrants or other
orders for the payment of money duly drawn by the Treasurer; and he shall enforce these Bylaws and
perform all the duties incident to the position and office and which are required by law.
VICE-PRESIDENT
During the absence or inability of the President to render and perform his duties or exercise
his powers, as set forth in these Bylaws or in the acts under which the Corporation is organized,
the same shall be performed and exercised by the
Vice-President; and when so acting, he shall have all the powers and be subject to all the
responsibilities hereby given to or imposed upon such President.
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SECRETARY
The Secretary shall keep the minutes of the meetings of the Board of Directors and of the
stockholders in appropriate books, provided for that purpose. He shall give and serve all notices
of the Corporation. He shall be custodian of the records and of the corporate seal and affix the
latter when required. He shall keep the stock and transfer books in the manner prescribed by law,
so as to show at all times the amount of capital stock issued and outstanding; the manner and the
time compensation for the same was paid; the names of the owners thereof, alphabetically arranged;
the number of shares owned by each; the time at which each person became such owner; and the amount
paid thereon; and keep such stock and transfer books open daily during the business hours of the
office of the Corporation, subject to the inspection of any stockholder of the Corporation, and
permit such stockholder to make extracts from said books to the extent prescribed by law. He shall
sign all certificates of stock. He shall present to the Board of Directors at their stated meetings
all communications addressed to him officially by the President or any officer or stockholder of
the Corporation; and he shall attend to all correspondence and perform all the duties incident to
the office of the Secretary.
TREASURER
The Treasurer shall have the care and custody of and be responsible for all the funds and
securities of the Corporation, and deposit all such funds in the name of the Corporation in such
bank or banks, trust company or trust companies or safe deposit vaults as the Board of Directors
may designate. He shall exhibit at all reasonable times his books and accounts to any Director or
stockholder of the Corporation upon application at the office of the Corporation during business
hours. He shall render a statement of the conditions of the finances of the Corporation at each
regular meeting of the Board of Directors, and at such other times as shall be required of him, and
a full
financial report at the annual meeting of the stockholders. He shall keep, at the office of
the Corporation, correct books of account of all its business and transactions and such
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other books
of account as the Board of Directors may require. He shall do and perform all duties appertaining
to the office of Treasurer. The Treasurer shall, if required by the Board of Directors, give to the
Corporation such security or bond for the faithful discharge of his duties as the Board may direct.
He shall perform such other duties as from time to time may be assigned to him by the President or
by the Directors.
SECTION 4.
Bond.
The Treasurer, if required by the Board of Directors, shall give to
the Corporation such security for the faithful discharge of his duties as the Board may direct.
SECTION 5.
Vacancies, How Filled.
All vacancies in any office shall be filled by the
Board of Directors without undue delay, either at its regular meeting or at a meeting specifically
called for that purpose. In the case of the absence of any officer of the Corporation or for any
reason that the Board of Directors may deem sufficient, the Board may, except as specifically
otherwise provided in these Bylaws, delegate the power or duties of such officers to any other
officer or Director for the time being; provided, a majority of the entire Board concur therein.
SECTION 6.
Compensation of Officers.
The officers shall receive such salary or
compensation as may be determined by the Board of Directors.
SECTION 7.
Removal of Officers.
The Board of Directors may remove an officer, by a
majority vote, at any time with or without cause.
ARTICLE V
CERTIFICATES OF STOCK
SECTION 1.
Description of Stock Certificates.
The certificates of stock representing
shares shall be in such form as shall be determined by the Directors and shall be numbered and
registered in the order in which they are issued. They shall be bound in a book and shall be issued
in consecutive order therefrom, and in the margin thereof shall be entered the name of the person
owning the shares therein represented, with the number of shares and the date hereof. Such
certificates shall exhibit the name of
the Corporation, the name of the stockholder and the class of stock and number of shares
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represented. They shall be signed by the President or Vice-President, and countersigned by the
Secretary or Treasurer and sealed with the Seal of the Corporation.
SECTION 2.
Transfer of Stock.
The stock of the Corporation shall be assignable and
transferable on the books of the Corporation only by the person in whose name it appears on said
books, his legal representatives or by his duly authorized agent. In case of transfer by
attorney, the power of attorney, duly executed and acknowledged, shall be deposited with the
Secretary. In all cases of transfer, the former certificate must be surrendered up and cancelled
before a new certificate may be issued. No transfer shall be made upon the books of the Corporation
with ten (10) days next preceding the annual meeting of the stockholders.
SECTION 3.
Lost Certificates.
If a stockholder shall claim to have lost or destroyed a
certificate or certificates or stock issued by the Corporation, the Board of Directors may, at its
discretion, direct a new certificate of certificates to be issued, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost or destroyed, and upon the
deposit of a bond or other indemnity in such form and with such sureties, if any, that the Board
may require.
ARTICLE VI
SEAL
SECTION 1.
Seal.
The seal of the Corporation shall be as follows:
ARTICLE VII
DIVIDENDS
SECTION 1.
When Declared.
The Board of Directors shall by vote declare dividends from
the surplus profits of the Corporation whenever, in their opinion, the
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condition of the Corporations affairs will render it expedient for such dividends to be
declared.
SECTION 2.
Reserve.
The Board of Directors may set aside, out of the net profits of
the Corporation available for dividends, such sum or sums (before payment of any dividends) as the
Board, in their absolute discretion, think proper as a reserve fund, to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such
other purpose as the Directors shall think conducive to the interest of the Corporation, and they
may abolish or modify any such reserve in the manner in which it was created.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. Any person made a party to or involved in any civil, criminal or administrative
action, suit or proceeding by reason of the fact that he or his testator or intestate is or was a
Director, officer or employee of the Corporation, or of any corporation which he, the testator, or
intestate served as such at the request of the Corporation, shall be indemnified by the Corporation
against expenses reasonably incurred by him or imposed on him in connection with or resulting from
the defense of such action, suit or proceeding and in connection with or resulting from any appeal
thereon, except with respect to matters as to which it is adjudged in such action, suit or
proceeding that such officer, Director or employee was liable to the Corporation, or to such other
corporation, for negligence or misconduct in the performance of his duty. As used herein, the term
expense shall include all obligations incurred by such person for the payment of money, including
without limitation, attorneys fees, judgments, awards, fines, penalties and amounts paid in
satisfaction of judgment or in settlement of any such action, suit or proceedings, except amounts
paid to the Corporation or such other corporation by him.
A judgment or conviction whether based on plea of guilty or nolo contendere or its equivalent,
or after trial, shall not of itself be deemed an adjudication that such Director, officer or
employee is liable to the Corporation or such other corporation, for
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negligence or misconduct in the performance of his duties. Determination of the rights of such
indemnification and the amount thereof may be made at the option of the person to be indemnified
pursuant to procedure set forth, from time to time, in the Bylaws or by any of the following
procedures:
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(a)
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Order of the Court or administrative body or agency having
jurisdiction of the action, suit or proceeding;
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(b)
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Resolution adopted by a majority of the quorum of the Board
of Directors of the Corporation without counting in such majority any
Directors who have incurred expenses in connection with such action, suit or
proceeding;
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(c)
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If there is no quorum of Directors who have not incurred
expense in connection with such action, suit or proceeding, then by resolution
adopted by a majority of the committee of stockholders and Directors who have
not incurred such expenses appointed by the Board of Directors;
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(d)
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Resolution adopted by a majority of the quorum of the
Directors entitled to vote at any meeting; or
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(e)
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Order of any Court having jurisdiction over the Corporation.
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Any such determination that a payment by way of indemnification should be made will be binding
upon the Corporation. Such right of indemnification shall not be exclusive of any other right which
such Directors, officers and employees of the Corporation and the other person above mentioned may
have or hereafter acquire, and without limiting the generality of such statement, they shall be
entitled to their respective rights of indemnification under any Bylaw, Agreement, vote of
stockholders, provision of law, or otherwise in addition to their rights under this Article. The
provisions of this Article shall apply to any member of any committee appointed by the Board of
Directors as fully as though each person had been a Director, officer or employee of the
Corporation.
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ARTICLE X
AMENDMENTS
SECTION 1.
How Amended.
These Bylaws may be altered, amended, repealed or added to by
the vote of the Board of Directors of the Corporation at any regular meeting of said Board, or at a
special meeting of Directors called for that purpose, provided a quorum of the Directors as
provided by law and by the Articles of Incorporation are present at such regular meeting or special
meeting. These Bylaws and any amendments thereto and new Bylaws added by the Directors may be
amended, altered or replaced by the stockholders at any annual or special meeting of the
stockholders.
ARTICLE XI
FISCAL YEAR
SECTION 1.
Fiscal Year.
The fiscal year shall begin on January 1.
ARTICLE XII
WAIVER OF NOTICE
SECTION 1. Whenever any notice is required to be given to any stockholders or Directors or
committee of the Board of Directors of the Corporation under the provisions of these Bylaws or
under the Articles of Incorporation or the provisions of the Maryland General Corporation Law, a
waiver thereof in writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of such notice.
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Exhibit 10.18
BUSINESS LOAN AGREEMENT
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Borrower:
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Nocopi Technologies, Inc.
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Lender:
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Sovereign Bank, a federal savings bank
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9C Portland Road
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Villanova Office
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West Conshohocken, PA 19428
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2 Aldwyn Lane
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P. O. Box 608
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Villanova, PA 19085-1431
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THIS BUSINESS LOAN AGREEMENT
dated August 19, 2008, is made and executed between Nocopi
Technologies, Inc. (Borrower) and Sovereign Bank, a federal savings bank (Lender) on the
following terms and conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans or other financial accommodations, including those
which may be described on any exhibit or schedule attached to this Agreement. Borrower understands
and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon
Borrowers representations, warranties, and agreements as set forth in this Agreement; (B) the
granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lenders
sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and
conditions of this Agreement.
TERM.
This Agreement shall be effective as of August 19, 2008, and shall continue in full force
and effect until such time as all of Borrowers Loans in favor of Lender have been paid in full,
including principal, interest, costs, expenses, attorneys fees, and other fees and charges, or
until such time as the parties may agree in writing to terminate this Agreement.
ADVANCE AUTHORITY.
The following person or persons are authorized to request advances and authorize
payments under the line of credit until Lender receives from Borrower, at Lenders address shown
above, written notice of revocation of such authority:
Michael Feinstein, President of Nocopi
Technologies, Inc.
CONDITIONS PRECEDENT TO EACH ADVANCE.
Lenders obligation to make the initial Advance and each
subsequent Advance under this Agreement shall be subject to the fulfillment to Lenders
satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.
Loan Documents.
Borrower shall provide to Lender the following documents for the Loan: (1)
the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3)
financing statements and all other documents perfecting Lenders
Security Interests; (4) evidence
of insurance as required below; (5) together with all such Related Documents as Lender may
require for the Loan; all in form and substance satisfactory to Lender and Lenders counsel.
Borrowers Authorization.
Borrower shall have provided in form and substance satisfactory to
Lender properly certified resolutions, duly authorizing the execution and delivery of this
Agreement, the Note and the
Related Documents. In addition, Borrower shall have provided such other resolutions,
authorizations, documents and instruments as Lender or its counsel, may require.
Payment of Fees and Expenses.
Borrower shall have paid to Lender all fees, charges, and other
expenses which are then due and payable as specified in this Agreement or any Related Document.
Representations and Warranties.
The representations and warranties set forth in this
Agreement, in the Related Documents, and in any document or certificate delivered to Lender under
this Agreement are true and correct.
No Event of Default.
There shall not exist at the time of any Advance a condition which would
constitute an Event of Default under this Agreement or under any Related Document.
REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Lender, as of the date of this
Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal,
extension or modification of any Loan, and at all times any indebtedness exists:
Organization.
Borrower is a corporation for profit which is, and at all times shall be, duly
organized, validly existing, and in good standing under and by virtue of the laws of the
Commonwealth of Pennsylvania. Borrower is duly authorized to transact business in all other states
in which Borrower is doing business, having obtained all necessary filings, governmental licenses
and approvals for each state in which Borrower is doing business. Borrower maintains an office at
9C Portland Road, West Conshohocken, PA 19428. Unless Borrower has designated otherwise in
writing, the principal office is the office at which Borrower keeps its books and records including
its records concerning the Collateral. Borrower will notify Lender prior to any change in the
location of Borrowers state of organization or any change in Borrowers name.
Assumed Business Names.
Borrower has filed or recorded all documents or filings required by
law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the
following is a complete list of all assumed business names under which Borrower does business:
None.
Authorization.
Borrowers execution, delivery, and performance of this Agreement and all the
Related Documents have been duly authorized by all necessary action by Borrower and do not conflict
with, result in a violation of, or constitute a default under (1) any provision of (a) Borrowers
articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument
binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable
to Borrower or to Borrowers properties.
Properties.
Except as contemplated by this Agreement or as previously disclosed in Borrowers
financial statements or in writing to Lender and as accepted by Lender, and except for property tax
liens for taxes not presently due and payable, Borrower owns and has good title to all of
Borrowers properties free and clear of all liens and security interests, and has not executed any
security documents or financing statements relating to such properties. All of Borrowers
properties are titled in Borrowers legal name, and Borrower has not used or filed a financing
statement under any other name for at least the last five (5) years.
AFFIRMATIVE COVENANTS.
Borrower covenants and agrees with Lender that, so long as this Agreement
remains in effect, Borrower will:
Notices of Claims and Litigation.
Promptly inform Lender in writing of (1) all material
adverse changes in Borrowers financial condition, and (2) all existing and all threatened
litigation, claims,
investigations, administrative proceedings or similar actions affecting
Borrower or any Guarantor which could materially affect the financial condition of Borrower or the
financial condition of any Guarantor.
Financial Records.
Maintain its books and records in accordance with accounting principles
acceptable to Lender, applied on a consistent basis, and permit Lender to examine and audit
Borrowers books and records at all reasonable times.
Financial Statements.
Furnish Lender with such financial statements and other related
information at such frequencies and in such detail as Lender may reasonably request.
Loan Proceeds.
Use all Loan proceeds solely for the following specific purposes:
Working
Capital.
Taxes, Charges and Liens.
Pay and discharge when due all of its indebtedness and obligations,
including without limitation all assessments, taxes, governmental charges, levies and liens, of
every kind and nature, imposed upon Borrower or its properties, income or profits, prior to the
date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or
charge upon any of Borrowers properties, income, or profits. Provided however, Borrower will not
be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as
(1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2)
Borrower shall have established on Borrowers books adequate reserves with respect to such
contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
Performance.
Perform and comply, in a timely manner, with all terms, conditions, and
provisions set forth in this Agreement, in the Related Documents, and in all other instruments and
agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any
default in connection with any agreement.
Operations.
Maintain executive and management personnel with substantially the same
qualifications and experience as the present executive and management personnel; provide written
notice to Lender of any change in executive and management personnel; conduct its business affairs
in a reasonable and prudent manner.
Compliance with Governmental Requirements.
Comply with all laws, ordinances, and regulations,
now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrowers
properties, businesses and operations, and to the use or occupancy of the Collateral, including
without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any
such law, ordinance, or regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so
long as, in Lenders sole opinion, Lenders interests in the Collateral are not jeopardized.
Lender may require Borrower to post adequate security or a surety bond, reasonable satisfactory to
Lender, to protect Lenders interest.
Inspection.
Permit employees or agents of Lender at any reasonable time to inspect any and all
Collateral for the Loan or Loans and Borrowers other properties and to examine or audit Borrowers
books, accounts, and records and to make copies and memoranda of Borrowers books, accounts and
records. If Borrower now or at any time hereafter maintains any records (including without
limitation computer generated
records and computer software programs for the generation of such records) in the possession of a
third party,
Borrower, upon request of Lender, shall notify such party to permit Lender free access
to such records at all reasonable times to provide Lender with copies of any records it may
request, all at Borrowers expense.
LENDERS EXPENDITURES.
If any action or proceeding is commenced that would materially affect
Lenders interest in the Collateral or if Borrower fails to comply with any provision of this
Agreement or any Related Documents, including but not limited to Borrowers failure to discharge or
pay when due any amounts Borrower is required to discharge or pay under this Agreement or any
Related Documents, Lender on Borrowers behalf may (but shall not be obligated to) take any action
that Lender deems appropriate on any Collateral and paying all costs for insuring, maintaining and
preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will
then bear interest at the rate charged under the Note from the date incurred or paid by Lender to
the date of repayment by Borrower. All such expenses will become a part of the indebtedness and,
at Lenders option, will (A) be payable on demand; (B) be added to the balance of the Note and
be apportioned among and be payable with any installment payments to become due during either (1)
the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Notes maturity.
NEGATIVE COVENANTS.
Borrower covenants and agrees with Lender that while this Agreement is in
effect, Borrower shall not, without the prior written consent of Lender:
Indebtedness and Liens.
(1) Except for trade debt incurred in the normal course of business
and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for
borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease,
grant a security interest in, or encumber any of Borrowers assets (except as allowed as Permitted
Liens), or (3) sell with recourse any of Borrowers accounts, except to Lender.
Continuity of Operations.
(1) Engage in any business activities substantially different than
those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer,
acquire or consolidate with any other entity, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, or (3) pay any dividends on Borrowers stock
(other than dividends payable in its stock), provided, however that notwithstanding the foregoing,
but only so long as no Event of Default has occurred and is continuing or would result from the
payment of dividends, if Borrower is a Subchapter S Corporation (as defined in the Internal
Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders
from time to time in amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal and state law which arise
solely from their status as Shareholders of a Subchapter S corporation because of their ownership
of shares of Borrowers stock, or purchase or retire any of Borrowers outstanding shares or alter
or amend Borrowers capital structure.
Loans, Acquisitions and Guaranties.
(1) Loan, invest in or advance money or assets to any
other person, enterprise or entity, (2) purchase, create or acquire any interest in any other
enterprise or entity, or (3) incur any obligation as surety or guarantor other than the ordinary
course of business.
Agreements.
Borrower will not enter into any agreement containing any provisions which would
be violated or breached by the performance of Borrowers obligations under this Agreement or in
connection herewith.
CESSATION OF ADVANCES.
If Lender has made any commitment to make any Loan to Borrower, whether
under this Agreement or under any other agreement, Lender shall have no obligation to make Loan
advances or to disburse Loan proceeds if: (A) Borrower or any guarantor is in default under the
terms of this Agreement or any other agreement that Borrower or any guarantor has with Lender; (B)
Borrower or any guarantor dies, becomes incompetent or becomes insolvent, files a petition in
bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse
change in Borrowers financial condition, in the financial condition of any guarantor, or in the
value of any collateral securing any Loan; or (D) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantors guaranty of the Loan or any other loan with
Lender; or (E) Lender in good faith deems itself insecure, even though no Event of Default shall
have occurred.
RIGHT OF SETOFF.
To the extent permitted by applicable law, Lender reserves a right of setoff
in all Borrowers accounts with Lender (whether checking, savings, or some other account). This
includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open
in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for
which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the indebtedness against any and all such
accounts, and, at Lenders option, to administratively freeze all such accounts to allow Lender to
protect Lenders charge and setoff rights provided in this paragraph.
DEFAULT.
Each of the following shall constitute an Event of Default under this Agreement:
Payment Default.
Borrower fails to make any payment when due under this Loan.
Other Default.
Borrower fails to comply with any other term, obligation, covenant or
condition contained in this Agreement or in any of the Related Documents.
Default in Favor of Third Parties.
Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrowers property or Borrowers ability to
repay the Loans or perform Borrowers obligations under this Agreement or any related document.
False Statements.
Any representation or statement made by Borrower to Lender is false in any
material respect.
Insolvency.
The dissolution or termination of Borrowers existence as a going business, the
insolvency of Borrower, the appointment of a receiver for any part of Borrowers property, any
assignment for the benefit of creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture proceedings.
Commencement of foreclosure or forfeiture proceedings,
whether by judicial proceeding, self-help, repossession or any other method, by any creditor of
Borrower or by any governmental agency against any collateral securing the Loan.
Events Affecting Guarantor.
Any of the preceding events occurs with respect to any Guarantor
of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the
validity of, or liability under, any Guaranty of the Indebtedness.
Change in Ownership.
Any change in ownership of twenty-five percent (25%) or more of the
common stock of Borrower.
Insecurity.
Lender in good faith believes itself insecure.
EFFECT OF AN EVENT OF DEFAULT.
If any Event of Default shall occur, except where otherwise provided
in this Agreement or the Related Documents, all commitments and obligations of Lender, under this
Agreement immediately will terminate (including any obligation to make further Loan Advances or
disbursements), and, at Lenders option, all Indebtedness immediately will become due and payable,
all without notice of any kind to Borrower, except that in the case of an Event of Default of the
type described in the Insolvency subsection above, such acceleration shall be automatic and not
optional. In addition, Lender shall have all the rights and remedies provided in the Related
documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable
law, all of Lenders rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an obligation of Borrower
or of any Grantor shall not affect Lenders right to declare a default and to exercise its rights
and remedies.
SWEEP AGREEMENT PROVISION.
The Borrower acknowledges and authorizes Bank to set up a zero balance
business checking account (the Business Line of Credit Sweep Account) on which checks (Business
Line of Credit Checks) will be drawn for the sole purpose of advancing funds against the Revolving
Loans. The Business Line of Credit Sweep Account number is
8881126028.
The Borrower
acknowledges that the Business Line of Credit Checks are not the same as checks drawn on a demand
deposit account, but constitute requests for advances respecting the Revolving Loans, which may be
made at the Banks discretion, in accordance with the terms of this Agreement, and are repayable ON
DEMAND. The amount of each Business Line of Credit Check shall be at least $500.00. The Bank may
honor or dishonor any Business Line of Credit Check upon the same conditions it may advance or
refuse to advance funds respecting Revolving Loans in accordance with this Agreement. Business
Line of Credit Checks may not be used to make any payment due to the Bank. Any authorized
representative of the Borrower may stop payment on any Business Line of Credit Check by issuing a
stop payment order stating the exact amount, date and identity of the payee on the Business Line of
Credit Check. Any such stop payment order shall be in writing or if made orally shall be confirmed
in writing within 5 calendar days. The Bank shall stop payment if the Bank determines, in its sole
and unfettered discretion, that there is adequate time to stop payment on any such Business Line of
Credit Check at the time the Bank receives such stop payment order. Subject to the terms of this
paragraph business Line of Credit Checks shall be governed by the terms of the Banks rules,
regulations and agreements respecting the Borrowers checking accounts with the Bank.
ERROR AND OMISSIONS.
In consideration of the loan made by Sovereign Bank, (hereafter referred
to as Lender to the undersigned, the undersigned does hereby represent the promise as follows:
Upon request made by the Lender, its successors or assigns, the undersigned will execute such
documents as are reasonable to provide assurance to Lender (1) that the obligations undertaken by
the undersigned in connection with said loan will be faithfully performed; (2) that any and all
documents and instruments signed by the undersigned in connection with said loan are accurate
statements as to the truth of the matters set forth in them and constitute
binding obligations upon the undersigned according to their tenor; or (3) as to the amount of
said loan outstanding from time to time, and the date and amount of payments made in respect to
said loan. Upon request made by the Lender, its successors or assigns, the undersigned will
re-execute any document or instrument
signed in connection with said loan or execute any document
or instrument that ought to have been signed at or before closing of said loan, or which was
incorrectly drafted and signed, to facilitate full execution of the appropriate documents. All
such requests shall receive the full cooperation and compliance by the undersigned within seven (7)
days of the making of the request set forth above. The failure of the undersigned to comply with
their obligations hereunder shall constitute a default under the documents executed in connection
with said loan and shall entitle Lender or its successors and assigns, to the remedies available
for default under the documents executed by the undersigned.
LINE OF CREDIT RENEWAL.
This Note is subject to an annual review. Renewal will be based on
Lenders ongoing satisfaction with Borrowers financial condition.
DEFINITIONS.
The following capitalized words and terms shall have the following meanings when
used in this Agreement. Unless specifically stated to the contrary, all references to dollar
amounts shall mean amounts in lawful money of the United States of America. Words and terms used
in the singular shall include the plural, and the plural shall include the singular, as the context
may require. Words and terms not otherwise defined in this Agreement shall have the meanings
attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise
defined in this Agreement shall have the meanings assigned to them in accordance with generally
accepted accounting principles as in effect on the date of this Agreement:
Advance.
The word Advance means a disbursement of Loan funds made, or to be made, to
Borrower or on Borrowers behalf on a line of credit or multiple advance basis under the terms and
conditions of this Agreement.
Agreement.
The word Agreement means this Business Loan Agreement, as this Business Loan
Agreement may be amended or modified from time to time, together with all exhibits and schedules
attached to this Business Loan Agreement from time to time.
Borrower.
The word Borrower means Nocopi Technologies, Inc. and includes all co-signers and
co-makers signing the Note and all their successors and assigns.
Collateral.
The word Collateral means all property and assets granted as collateral security
for a Loan, whether real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security interest, mortgage,
collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral
chattel mortgage, chattel trust, factors lien, equipment trust, conditional sale, trust receipt,
lien, charge, lien or title retention contract, lease or consignment intended as a security device,
or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.
Event of Default.
The words Event of Default mean any of the events of default set forth
in this Agreement in the default section of this Agreement.
GAAP.
The word GAAP means generally accepted accounting principles.
Grantor.
The word Grantor means each and all of the persons or entities granting a
Security Interest in any collateral for the Loan, including without limitation all Borrowers
granting such a Security Interest.
Guarantor.
The word Guarantor means any guarantor, surety, or accommodation party of any or
all of the Loan.
Guaranty.
The word Guaranty means the guaranty from Guarantor to Lender, including without
limitation a guaranty of all or part of the Note.
Indebtedness.
The word Indebtedness means the indebtedness evidenced by the Note or Related
Documents, including all principal and interest together with all other indebtedness and costs and
expenses for which Borrower is responsible under this Agreement or under any of the Related
Documents.
Lender.
The word Lender means Sovereign Bank, a federal savings bank, its successors and
assigns.
Loan.
The word Loan means any and all loans and financial accommodations from Lender to
Borrower whether now or hereafter existing, and however evidenced, including without limitation
those loans and financial accommodations described herein or described on any exhibit or schedule
attached to this Agreement from time to time.
Note.
The word Note means the Note executed by Nocopi Technologies, Inc. in the principal
amount of $100,000.00 dated August 19, 2008, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for the note or credit
agreement.
Permitted Liens.
The words Permitted Liens mean (1) liens and security interests securing
indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges
either not yet due or being contested in good faith; (3) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary course of business and
securing obligations which are not yet delinquent; (4) purchase money liens or purchase money
security interests upon or in any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled Indebtedness and Liens; (5) liens and
security interests which, as of the date of this Agreement, have been disclosed to and approved by
the Lender in writing; and (6) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the net value of
Borrowers assets.
Related Documents.
The words Related Documents mean all promissory notes, credit agreements,
loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, security deeds, collateral mortgages, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the Loan.
Security Agreement.
The words Security Agreement mean and include without limitation any
agreements, promises, covenants, arrangements, understandings or other agreements, whether created
by law, contract, or otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest.
The words Security Interest mean, without limitation, any and all types
of collateral security, present and future, whether in the form of a lien, charge, encumbrance,
mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage,
collateral chattel mortgage, chattel trust,
factors lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever whether created by law, contract, or otherwise.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER
AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED AUGUST 19, 2008.
THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE
AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER:
NOCOPI TECHNOLOGIES, INC.
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/s/
Michael Feinstein,
M.D.
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Michael Feinstein,
President of Nocopi Technologies, Inc.
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LENDER:
SOVEREIGN BANK, A FEDERAL SAVINGS BANK
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By:
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/s/ Janet E. DeTuro
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Authorized Signer
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PROMISSORY NOTE
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Borrower:
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Nocopi Technologies, Inc.
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Lender:
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Sovereign Bank, a federal savings bank
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9C Portland Road
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Villanova Office
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West Conshohocken, PA 19428
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2 Aldwyn Lane
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P. O. Box 608
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Villanova, PA 19085-1431
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Principal Amount: $100,000.00
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Date of Note: August 19, 2008
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PROMISE TO PAY. Nocopi Technologies, Inc. (Borrower) promises to pay to Sovereign Bank, a federal
savings bank (Lender), or order, in lawful money of the United States of America, the principal
amount of One Hundred Thousand & 00/100 Dollars ($100,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance of each advance. Interest shall
be calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in accordance with the following payment schedule:
Borrower will pay this loan immediately upon Lenders DEMAND. In addition, Borrower will pay
regular monthly payments of all accrued unpaid interest, due as of each payment date, beginning
thirty (30) days from the date of the Note, with all subsequent interest payments due on the same
day of each month thereafter.
Unless otherwise agreed or required by applicable law, payments will be applied first to any
accrued unpaid interest; then to principal, then to any late charges; and then to any unpaid
collection costs.
Borrower will pay Lender at Lenders address shown above or at such other place
as Lender may designate in writing.
VARIABLE INTEREST RATE.
The interest rate on this Note is subject to change from time to time based
on changes in a index which is the Sovereign Bank Prime Rate. The Sovereign Bank Prime Rate shall
mean the rate per annum from time to time established by Lender as the Prime Rate and made
available by Lender at its main office or, in the discretion of Lender, the base, reference or
other rate then designated by Lender for general commercial loan reference purposes, it being
understood that such rate is a reference rate, not necessarily the lowest, established from time to
time, which serves as the basis upon which effective interest rates are calculated for loans making
reference thereto, (the Index). The Index is not necessarily the lowest rate charged by Lender
on its loans and is set by Lender in its sole discretion. If the Index becomes unavailable during
the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender
will tell Borrower the current Index rate upon Borrowers request. The interest rate change will
not occur more often than each
time as and when the Index changes.
Borrower understands that
Lender may make loans based on other rates as well. The interest to be applied to the unpaid
principal balance of this Note will be calculated as described in the INTEREST CALCULATION METHOD
paragraph using a rate of 0.500 percentage points over the Index. NOTICE: Under no circumstances
will the interest rate on this Note be more than the maximum rate allowed by applicable law.
INTEREST CALCULATION METHOD.
Interest on this Note is computed on a 365/360 basis; that is, by
applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance is outstanding.
All interest payable under this Note is computed using this method.
PREFERRED RATE REDUCTION.
The interest rate on this Note includes a preferred rate reduction.
Following is a description of the event that would cause the preferred rate reduction to terminate
and how the new rate will be determined upon termination of the preferred rate reduction.
Description of Event That Would Cause the Preferred Rate Reduction to Terminate.
In the
event the Lender or Borrower cancels the pre-authorized internal transfer from a Sovereign Bank
Business Checking Account, or the Borrower closes the Sovereign Bank Business Checking Account, or,
if for 3 consecutive months, the Lender attempts to deduct the amounts due under this Note from
such Sovereign Bank Business Checking Account and there are insufficient funds in such account.
How The New Rate Will Be Determined Upon Termination of the Preferred Reduction.
Effective on the date of the closure or termination of the Sovereign Bank Business Checking Account
(as applicable), the interest rate set forth above will be increased by one (1%) percent per annum.
PREPAYMENT.
Borrower agrees that all loan fees and other prepaid finance charges are earned fully
as of the date of the loan and will not be subject to refund upon early payment (whether voluntary
or as a result of default), except as otherwise required by law. Except for the foregoing,
Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrowers obligation
to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the
principal balance due. Borrower agrees not to send Lender payments marked paid in full, without
recourse, or similar language. If Borrower sends such a payment, Lender may accept it without
losing any of Lenders rights under this Note, and Borrower will remain obligated to pay any
further amount owed to Lender. All written communications concerning disputed amounts, including
any check or other payment instrument that indicates that the payment constitutes payment in full
of the amount owed or that is tendered with other conditions or limitations or as full satisfaction
of a disputed amount must be mailed or delivered to: Sovereign Bank, P. O. Box 12707, Reading, PA
19612-2707.
LATE CHARGE.
If a payment is 15 days or more late, Borrower will be charged
5.000% of the unpaid
portion of the regularly scheduled payment or $10.00, whichever is greater.
INTEREST AFTER DEFAULT.
Upon default, including failure to pay upon final maturity, the interest
rate on this Note shall be increased by adding a 4.000 percentage point margin (Default Rate
Margin). The Default Rate Margin shall also apply to each succeeding interest rate change that
would have applied had there been no default. If judgment is entered in connection with this Note,
interest will continue to accrue after the date of judgment at the rate in effect at the time
judgment is entered. However, in no event will the interest rate exceed the maximum interest rate
limitations under applicable law.
DEFAULT.
Each of the following shall constitute an event of default (Event of Default) under this Note:
Payment Default.
Borrower fails to make any payment when due under this Note.
Other Defaults.
Borrower fails to comply with or to perform any other term, obligation,
covenant or condition contained in this Note or in any of the related documents or to comply with
or to perform any term, obligation, covenant or condition contained in any other agreement between
Lender and Borrower.
Default in Favor of Third Parties.
Borrower or any Grantor defaults under any loan, extension
of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrowers property or Borrowers
ability to repay this Note or perform Borrowers obligations under this Note or any of the related
documents.
False Statements.
Any warranty, representation or statement made or furnished to Lender by
Borrower or on Borrowers behalf under this Note or the related documents is false or misleading in
any material respect, either now or at the time made or furnished or becomes false or misleading at
any time thereafter.
Insolvency.
The dissolution or termination of Borrowers existence as a going business, the
insolvency of Borrower, the appointment of a receiver for any part of Borrowers property, any
assignment for the benefit of creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings.
Commencement of foreclosure or forfeiture proceedings,
whether by judicial proceeding, self-help, repossession or any other method, by any creditor of
Borrower or by any governmental agency against any collateral securing the loan. This includes a
garnishment of any of Borrowers accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or
reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if
Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor.
Any of the preceding events occurs with respect to any guarantor,
endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser,
surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of,
or liability under, any guaranty of indebtedness evidenced by this Note.
Change in Ownership.
Any change in ownership of twenty-five percent (25%) or more of the
common stock of Borrower.
Adverse Change.
A material adverse change occurs in Borrowers financial condition, or Lender
believes the prospect of payment or performance of this Note is impaired.
Insecurity.
Lender in good faith believes itself insecure.
Cure Provisions.
If any default, other than a default in payment is curable and if Borrower
has not been given a notice of a breach of the same provision of this Note within the preceding
twelve (12) months, it may be cured if Borrower, after receiving written notice from Lender
demanding cure of such default: (1) cures the default within thirty (30) days; or (2) if the
cure requires more than thirty (30) days, immediately initiates steps
which Lender deems in Lenders sole discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient to produce compliance as soon
as reasonable practical.
LENDERS RIGHTS.
Upon default, Lender may, after giving such notices as required by applicable law,
declare the entire unpaid principal balance under this Note and all accrued unpaid interest
immediately due, and then Borrower will pay that amount.
ATTORNEYS FEES; EXPENSES.
Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits
under applicable law, Lenders reasonable attorneys fees and Lenders legal expenses, whether or
not there is a lawsuit, including reasonable attorneys fees, expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction), and appeals. If not
prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums
provided by law.
JURY WAIVER.
Lender and Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Borrower against the other.
GOVERNING LAW.
This Note will be governed by federal law applicable to Lender and, to the extent
not preempted by federal law, the laws of the Commonwealth of Pennsylvania without regard to its
conflicts of law provisions. This Note has been accepted by Lender in the Commonwealth of
Pennsylvania.
RIGHT OF SETOFF.
To the extent permitted by applicable law, Lender reserves a right of setoff in
all Borrowers accounts with Lender (whether checking, savings, or some other account). This
includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open
in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for
which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the indebtedness against any and all such
accounts, and, at Lenders option, to administratively freeze all such accounts to allow Lender to
protect Lenders charge and setoff rights provided in this paragraph.
LINE OF CREDIT.
This Note evidences a revolving line of credit. Advances under this Note may be
requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, by
need not, require that all oral requests be confirmed in writing. All communications,
instructions, or directions by telephone or otherwise to Lender are to be directed to Lenders
office shown above. The following person or persons are authorized to request advances and
authorize payments under the line of credit until Lender receives from Borrower, at Lenders
address shown above, written notice of revocation of such authority:
Michael Feinstein, President
of Nocopi Technologies, Inc.
Borrower agrees to be liable for all sums either: (A) advanced in
accordance with the instructions of an authorized person or (B) credited to any of Borrowers
accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced
by endorsements on this Note or by Lenders internal records, including daily computer print-outs.
CYCLE DOWN PROVISION.
The Borrower will be required once each calendar year to pay down principal
outstanding respecting the Revolving Loan, and accrued interest thereon, such that for the thirty
(30) consecutive day period following such repayment, the total of all principal and interest
outstanding respecting the Revolving Loan shall not exceed forty (40%) percent of the Revolving
Loan amount and the Borrower shall not be permitted to borrow or request advances or other
financial accommodations respecting the Revolving
Loan during such thirty (30) day period if it would cause the amount outstanding respecting the
Revolving Loan to exceed such percentage.
TERM OUT PROVISION IF LINE IS RESTRICTED PRIOR TO DEMAND.
All advances shall be payable on demand.
Until demand is made, the Borrower will make monthly payments, on the payment due date, in an
amount equal to all accrued and unpaid interest and any other charges assessed to the account
through the payment due date. If the Lender has terminated its commitment to make Advances but has
not demanded full payment of the balance, on each payment date the Borrower shall pay: (a) all
accrued and unpaid interest and other charges assessed to the account through the payment due date:
and (b) one forty-eighth (1/48
th
) of the principal balance outstanding as of the date
the Lender terminated its commitment to make advances.
LINE OF CREDIT REVEWAL.
This Note is subject to an annual review. Renewal will be based on
Lenders ongoing satisfaction with Borrowers financial condition.
ANNUAL FEE.
A $100.00 annual fee will be charged to the Borrowers checking account on the first
anniversary of the first statement cycle after the Line is established and in the same cycle of
each following year. In the case where the Borrower has no open DDA, the Borrower will be billed
for and agrees to pay the Annual Fee.
SWEEP AGREEMENT PROVISION.
The Borrower acknowledges and authorizes Bank to set up a zero balance
business checking account (the Business Line of Credit Sweep Account) on which checks (Business
Line of Credit Checks) will be drawn for the sole purpose of advancing funds against the Revolving
Loans. The Business Line of Credit Sweep Account number is
8881126028.
The Borrower
acknowledges that the Business Line of Credit Checks are not the same as checks drawn on a demand
deposit account, but constitute requests for advances respecting the Revolving Loans, which may be
made at the Banks discretion, in accordance with the terms of this Agreement, and are repayable ON
DEMAND. The amount of each Business Line of Credit Check shall be at least $500.00. The Bank may
honor or dishonor any Business Line of Credit Check upon the same conditions it may advance or
refuse to advance funds respecting Revolving Loans in accordance with this Agreement. Business
Line of Credit Checks may not be used to make any payment due to the Bank. Any authorized
representative of the Borrower may stop payment on any Business Line of Credit Check by issuing a
stop payment order stating the exact amount, date and identity of the payee on the Business Line of
Credit Check. Any such stop payment order shall be in writing or if made orally shall be confirmed
in writing within 5 calendar days. The Bank shall stop payment if the Bank determines, in its sole
and unfettered discretion, that there is adequate time to stop payment on any such Business Line of
Credit Check at the time the Bank receives such stop payment order. Subject to the terms of this
paragraph Business Line of Credit Checks shall be governed by the terms of the Banks rules,
regulations and agreements respecting the Borrowers checking accounts with the Bank.
SUCCESSOR INTERESTS.
The terms of this Note shall be binding upon Borrower, and upon Borrowers
heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender
and its successors and assigns.
GENERAL PROVISIONS.
If any part of this Note cannot be enforced, this fact will not affect the rest
of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note
without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive
presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note,
and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability. All such parties
agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release
any party or guarantor or collateral; or impair, fail to realize upon or perfect Lenders security
interest in the collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the modification is made.
The obligations under this Note are joint and several. If any portion of this Note is for any
reason determined to be unenforceable, it will not affect the enforceability of any other
provisions of this Note.
CONFESSION OF JUDGMENT.
BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR THE
PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE TO APPEAR AT
ANY TIME FOR BORROWER AFTER A DEFAULT UNDER THIS NOTE AND WITH OR WITHOUT COMPLAINT FILED, CONFESS
OR ENTER JUDGMENT AGAINST BORROWER FOR THE ENTIRE PRINCIPAL BALANCE OF THIS NOTE AND ALL ACCRUED
INTEREST, LATE CHARGES AND ANY AND ALL AMOUNTS EXPENDED OR ADVANCED BY LENDER RELATING TO ANY
COLLATERAL SECURING THIS NOTE, TOGETHER WITH COSTS OF SUIT, AND AN ATTORNEYS COMMISSION OF TEN
PERCENT (10%) OF THE UNPAID PRINCIPAL BALANCE AND ACCRUED INTEREST FOR COLLECTION, BUT IN ANY EVENT
NOT LESS THAN FIVE HUNDRED DOLLARS ($500) ON WHICH JUDGMENT OR JUDGMENTS ONE OR MORE EXECUTIONS MAY
ISSUE IMMEDIATELY; AND FOR SO DOING, THIS NOTE OR A COPY OF THIS NOTE VERIFIED BY AFFIDAVIT SHALL
BE SUFFICIENT WARRANT. THE AUTHORITY GRANTED IN THIS NOTE TO CONFESS JUDGMENT AGAINST BORROWER
SHALL NOT BE EXHAUSTED BY ANY EXERCISE OF THAT AUTHORITY, BUT SHALL CONTINUE FROM TIME TO TIME AND
AT ALL TIMES UNTIL PAYMENT IN FULL OF ALL AMOUNTS DUE UNDER THIS NOTE. BORROWER HEREBY WAIVES ANY
RIGHT BORROWER MAY HAVE TO NOTICE OR TO A HEARING IN CONNECTION WITH ANY SUCH CONFESSION OF
JUDGMENT AND STATES THAT EITHER A REPRESENTATIVE OF LENDER SPECIFICALLY CALLED THIS CONFESSION OF
JUDGMENT PROVISION TO BORROWERS ATTENTION OR BORROWER HAS BEEN REPRESENTED BY INDEPENDENT LEGAL
COUNSEL.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING
THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THIS NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
THIS NOTE IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS NOTE IS AND SHALL CONSTITUTE AND HAVE
THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER:
NOCOPI TECHNOLOGIES, INC.
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/s/ Michael Feinstein, M. D.
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Michael Feinstein,
President of Nocopi Technologies, Inc.
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COMMERCIAL SECURITY AGREEMENT
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Grantor:
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Nocopi Technologies, Inc.
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Lender:
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Sovereign Bank, a federal savings bank
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9C Portland Road
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Villanova Office
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West Conshohocken, PA 19428
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2 Aldwyn Lane
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P. O. Box 608
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Villanova, PA 19085-1431
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THIS COMMERCIAL SECURITY AGREEMENT
dated August 19, 2008, is made and executed between Nocopi
Technologies, Inc. (Grantor) and Sovereign Bank, a federal savings bank (Lender).
GRANT OF SECURITY INTEREST.
For valuable consideration, Grantor grants to Lender a security
interest in the Collateral to secure the indebtedness and agrees that Lender shall have the rights
stated in this Agreement with respect to the Collateral, in addition to all other rights which
Lender may have by law.
COLLATERAL DESCRIPTION.
The word Collateral as used in this Agreement means the following
described property, whether now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located, in which Grantor is giving to Lender a security interest for the
payment of the indebtedness and performance of all other obligations under the Note of this
Agreement:
All assets, including but not limited to, all inventory, equipment, accounts (including but
not limited to all health-care-insurance receivables), chattel paper (whether tangible or
electronic), instruments (included but not limited to all promissory notes), letter-of-credit
rights, letters of credit, documents, deposit accounts, investment property, money, other rights to
payment and performance, choses in action (including but not limited to commercial tort claims) and
general intangibles (including but not limited to all software and all payment intangibles); all
tax refunds, all warranties, all intellectual property, including but not limited to licenses,
license agreements, trademarks, trade names, know how, copyrights and patents; all attachments,
accessions, accessories, fittings, increases, tools, parts, repairs, supplies and commingled goods
relating to the foregoing property, and all additions, replacements of and substitutions for all or
any part of the foregoing property; all insurance refunds relating to the foregoing property; all
good will relating to the foregoing property; all records and data and embedded software relating
to the foregoing property, and all equipment, inventory and software to utilize, create, maintain
and process any such records and data on electronic media; and all supporting obligations relating
to the foregoing property; all whether now existing or hereafter arising, whether now owned or
hereafter acquired or whether now or hereafter subject to any rights in the foregoing property; and
all products and proceeds (including but not limited to all insurance payments) of or relating to
the foregoing property.
In addition, the word Collateral also includes all the following, whether now owned or hereafter
acquired, whether now existing or hereafter arising, and wherever located:
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(A)
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All accessions, attachments, accessories, tools, parts, supplies, replacements of
and additions to any of the collateral described herein, whether added now or later.
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(B)
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All products and produce of any of the property described in this Collateral
section.
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(C)
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All accounts, general intangibles, instruments, rents, monies, payments, and all
other rights, arising out of a sale, lease, consignment or other disposition of any of
the property described in this Collateral section.
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(D)
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All proceeds (including insurance proceeds) from the sale, destruction, loss, or
other disposition of any of the property described in this Collateral section, and sums
due from a third party who has damaged or destroyed the Collateral or from that partys
insurer, whether due to judgment, settlement or other process.
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(E)
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All records and data relating to any of the property described in this Collateral
section, whether in the form of a writing, photograph, microfilm, microfiche, or
electronic media, together with all of Grantors right, title and interest in and to all
computer software required to utilize, create, maintain, and process any such records or
data on electronic media.
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CROSS-COLLATERALIZATION.
In addition to the Note, this Agreement secures all obligations, debts
and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well
as all claims by Lender against Grantor or any one or more of them, whether now existing or
hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or
otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or
contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with
others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether
recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and
whether the obligation to repay such amounts may be or hereafter may become otherwise
unenforceable.
FUTURE ADVANCES.
In addition to the Note, this Agreement secures all future advances made by Lender
to Grantor regardless of whether the advances are made a) pursuant to a commitment or b) for the
same purposes.
RIGHT OF SETOFF.
To the extent permitted by applicable law, Lender reserves a right of setoff in
all Grantors accounts with Lender (whether checking, savings, or some other account). This
includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in
the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for
which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the indebtedness against any and all such
accounts, and, at Lenders option, to administratively freeze all such accounts to allow Lender to
protect Lenders charge and setoff rights provided in this paragraph.
GRANTORS REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL.
With respect to the
Collateral, Grantor represents and promises to Lender that:
Perfection of Security Interest.
Grantor agrees to take whatever actions are requested by
Lender to perfect and continue Lenders security interest in the Collateral. Upon request of
Lender, Grantor will deliver
to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will
note Lenders interest upon any and all chattel paper and instruments if not delivered to Lender
for possession by Lender.
Notices to Lender.
Grantor will promptly notify Lender in writing at Lenders address shown
above (or such other addresses as Lender may designate from time to time) prior to any (1) change
in Grantors name; (2) change in Grantors assumed business name(s); (3) change in the
management of the Corporation Grantor; (4) change in the authorized signer(s); (5) change in
Grantors principal office address; (6) change in Grantors state of organization; (7)
conversion of Grantor to a new or different type of business entity; or (8) change in any other
aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender.
No change in Grantors name or state of organization will take effect until after Lender has
received notice.
No Violation.
The execution and delivery of this Agreement will not violate any law or
agreement governing Grantor or to which Grantor is a party, and its certificate or articles of
incorporation and bylaws do not prohibit any term or condition of this Agreement.
Transactions Involving Collateral.
Except for inventory sold or accounts collected in the
ordinary course of Grantors business, or as otherwise provided for in this Agreement, Grantor
shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. Grantor shall
not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien,
security interest, encumbrance, or charge, other than the security interest provided for in this
Agreement, without the prior written consent of Lender.
Title.
Grantor represents and warrants to Lender that Grantor holds good and marketable title
to the Collateral, free and clear of all liens and encumbrances except for the lien of this
Agreement. No financing statement covering any of the Collateral is on file in any public office
other than those which reflect the security interest created by this Agreement or to which Lender
has specifically consented. Grantor shall defend Lenders rights in the Collateral against the
claims and demands of all other persons.
Repairs and Maintenance.
Grantor agrees to keep and maintain, and to cause others to keep and
maintain, the Collateral in good order, repair and condition at all times while this Agreement
remains in effect. Grantor further agrees to pay when due all claims for work done on, or services
rendered or material furnished in connection with the Collateral so that no lien or encumbrance may
ever attach to or be filed against the Collateral.
Taxes, Assessments and Liens.
Grantor will pay when due all taxes, assessments and liens upon
the collateral, its use or operation, upon this Agreement, upon any promissory note or notes
evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any
such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lenders interest in the Collateral is
not jeopardized in Lenders sole opinion. If the Collateral is subjected to a lien which is not
discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate
surety bond or other security satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, costs, reasonable attorneys fees or other charges that
could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment before enforcement against
the Collateral. Grantor shall name Lender as an additional oblige under any surety bond furnished
in the contest proceedings.
Compliance with Governmental Requirements.
Grantor shall comply promptly with all laws,
ordinances, rules and regulations of all governmental authorities, now or hereafter in effect,
applicable to the ownership, production, disposition, or use of the Collateral, including without
limitation payment when due of all taxes, assessments and liens upon the Collateral.
Maintenance of Casualty Insurance.
Grantor shall procure and maintain all risks insurance,
including without limitation fire, theft and liability coverage together with such other insurance
as Lender may require with respect to the Collateral, in form, amounts, coverages and basis
reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to
Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including stipulations that coverages
will not be cancelled or diminished without at least thirty (30) days prior written notice to
Lender and not including any disclaimer of the insurers liability for failure to give such a
notice. Each insurance policy also shall include an endorsement providing that coverage in favor
of Lender will not be impaired in any way by any act, omission or default of Grantor or any other
person. In connection with all policies covering assets in which Lender holds or is offered a
security interest, Grantor will provide Lender with such loss payable or other endorsements as
Lender may require.
Financing Statements.
Grantor authorizes Lender to file a UCC financing statement, or
alternatively, a copy of this Agreement to perfect Lenders security interest. At Lenders
request, Grantor additionally agrees to sign all other documents that are necessary to perfect,
protect, and continue Lenders security interest in the Property. Grantor will pay all filing
fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless
Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to
execute documents necessary to transfer title if there is a default. Lender may file a copy of
this Agreement as a financing statement. If Grantor changes Grantors name and address, or the
name or address of any person granting a security interest under this Agreement changes, Grantor
will promptly notify the Lender of such change.
LENDERS EXPENDITURES.
If any action or proceeding is commenced that would materially affect
Lenders interest in the collateral or if Grantor fails to comply with any provision of this
Agreement or any Related Documents, including but not limited to Grantors failure to discharge or
pay when due any amounts Grantor is required to discharge or pay under this Agreement or any
Related Documents, Lender on Grantors behalf may (but shall not be obligated to) take any action
that Lender deems appropriate on the Collateral and paying all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will
then bear interest at the rate charged under the Note from the date incurred or paid by Lender to
the date of repayment by Grantor. All such expenses will become a part of the indebtedness and, at
Lenders option, will (A) be payable on demand; (B) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due during either (1) the
term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated
as a balloon payment which will be due and payable at the Notes maturity.
DEFAULT.
Each of the following shall constitute an Event of Default under this Agreement:
Payment Default.
Grantor fails to make any payment when due under the indebtedness.
Other Default.
Grantor fails to comply with any other term, obligation, covenant or
condition contained in this Agreement or in any of the Related Documents.
Default in Favor of Third Parties.
Grantor defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Grantors property or ability to perform
Grantors obligations under this Agreement or any of the Related Documents.
False Statements.
Any representation or statement made by Grantor to Lender is false in any
material respect.
Insolvency.
The dissolution or termination of Grantors existence as a going business, the
insolvency of Grantor, the appointment of a receiver for any part of Grantors property, any
assignment for the benefit of creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings.
Commencement of foreclosure or forfeiture proceedings,
whether by judicial proceeding, self-help, repossession or any other method, by any creditor of
Grantor or by any governmental agency against any collateral securing the Indebtedness.
Events Affecting Guarantor.
Any of the preceding events occurs with respect to any guarantor,
endorser, surety, or accommodation party of any of the Indebtedness or guarantor, endorser, surety,
or accommodation party dies or becomes incompetent or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.
Adverse Change.
A material adverse change occurs in Grantors financial condition, or Lender
believes the prospect of payment or performance of the Indebtedness is impaired.
Insecurity.
Lender in good faith believes itself insecure.
Cure Provisions.
If any default, other than a default in payment is curable and if Grantor has
not been given a notice of a breach of the same provision of this Agreement within the preceding
twelve (12) months, it may be cured if Grantor, after receiving written notice from Lender
demanding cure of such default: (1) cures the default within thirty (30) days; or (2) if the
cure requires more than thirty (30) days, immediately initiates steps which Lender deems in
Lenders sole discretion to be sufficient to cure the default and thereafter continues and
completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably
practical.
RIGHTS AND REMEDIES ON DEFAULT.
Upon the occurrence of any Event of Default under any indebtedness,
or should Grantor fail to comply with any of Grantors obligations under this Agreement, Lender
shall have all the rights of a secured party under the Pennsylvania Uniform Commercial Code. In
addition and without limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness.
Lender may declare the entire indebtedness, including any prepayment
penalty which Grantor would be required to pay, immediately due and payable, without notice of any
kind to Grantor.
Sell the Collateral.
Lender shall have full power to sell, lease, transfer, or otherwise deal
with the Collateral or proceeds thereof in Lenders own name or that of Grantor. Lender may sell
the Collateral at public auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market, Lender will give
Grantor, and other persons as required by law, reasonable notice of the time and place of any
public sale, or the time after which any private sale or any other disposition of the Collateral is
to be made. However, no notice need be provided to any person who, after Event of Default occurs,
enters into and authenticates an agreement waiving that persons right to notification of sale. The
requirements of reasonable notice shall be met if such notice is given at least ten (10) days
before the time of the sale or disposition. All expenses relating to the disposition of the
Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for
sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement
and shall be payable on demand, with interest at the Note rate from date of expenditure until
repaid.
Other Rights and Remedies.
Lender shall have all the rights and remedies of a secured
creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time.
In addition, Lender shall have and may exercise any or all other rights and remedies it may have
available at law, in equity, or otherwise.
Election of Remedies.
Except as may be prohibited by applicable law, all of Lenders rights
and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing,
shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue
any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or
to take action to perform an obligation of Grantor under this Agreement, after Grantors failure to
perform, shall not affect Lenders right to declare a default and exercise its remedies.
MISCELLANEOUS PROVISIONS.
The following miscellaneous provisions are a part of this Agreement:
DEFINITIONS.
The following capitalized words and terms shall have the following meanings when used
in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts
shall mean amounts in lawful money of the United States of America. Words and terms used in the
singular shall include the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the meanings
attributed to such terms in the Uniform Commercial Code:
Agreement.
The word Agreement means this Commercial Security Agreement, as this Commercial
Security Agreement may be amended or modified from time to time, together with all exhibits and
schedules attached to this Commercial Security Agreement from time to time.
Borrower.
The word Borrower means Nocopi Technologies, Inc. and includes all co-signers and
co-makers signing the Note and all their successors and assigns.
Collateral.
The word Collateral means all of Grantors right, title and interest in and to
all the Collateral as described in the Collateral Description section of this Agreement.
Event of Default.
The words Event of Default mean any of the events of default set forth in
this Agreement in the default section of this Agreement.
Grantor.
The word Grantor means Nocopi Technologies, Inc.
Guaranty.
The word Guaranty means the guaranty from guarantor, endorser, surety, or
accommodation party to Lender, including without limitation a guaranty of all or part of the Note.
Indebtedness.
The word indebtedness means the indebtedness evidenced by the Note or Related
Documents, including all principal and interest together with all other indebtedness and costs and
expenses for which Grantor is responsible under this Agreement or under any of the Related
Documents. The liens and security interests created pursuant to this Agreement covering the
Indebtedness which may be created in the future shall relate back to the date of this Agreement.
Specifically, without limitation, Indebtedness includes the future advances set forth in the Future
Advances provision, together with all interest thereon and all amounts that may be indirectly
secured by the Cross-Collateralization provision of this Agreement.
Lender.
The word Lender means Sovereign Bank, a federal savings bank, its successors and
assigns.
Note.
The word Note means the Note executed by Nocopi Technologies, Inc. in the principal
amount of $100,000.00 dated August 19, 2008, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for the note or credit
agreement.
Property.
The word Property means all of Grantors right, title and interest in and to all
the Property as described in the Collateral Description section of this Agreement.
Related Documents.
The words Related Documents mean all promissory notes, credit agreements,
loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, security deeds, collateral mortgages, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the Indebtedness.
GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES
TO ITS TERMS. THE AGREEMENT IS DATED AUGUST 19, 2008.
THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE
AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR:
NOCOPI TECHNOLOGIES, INC.
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/s/ Michael Feinstein, M. D.
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Michael Feinstein,
President of Nocopi Technologies, Inc.
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LENDER:
SOVEREIGN BANK, A FEDERAL SAVINGS BANK