NOCOPI Systems INC/MD/ Management’s Dialogue and Assessment of Money Situation and
The details in this report consists of ahead-searching statements. All
statements other than statements of historic truth designed in this report are
ahead searching. In distinct, the statements herein with regards to sector
potential clients and potential final results of functions or economical place are
ahead-searching statements. These ahead-searching statements can be recognized
by the use of terms these kinds of as “thinks,” “estimates,” “could,” “probably,”
“almost certainly,” anticipates,” “tasks,” “expects,” “could,” “will,” or “ought to” or
other variants or identical terms. No assurances can be provided that the potential
final results predicted by the ahead-searching statements will be realized.
Ahead-searching statements replicate management’s existing anticipations and are
inherently unsure. Our real final results could vary considerably from
management’s anticipations.
nine
The pursuing dialogue and examination ought to be read through in conjunction with our
economical statements, involved herewith. This dialogue ought to not be construed
to indicate that the final results mentioned herein will essentially keep on into the
potential, or that any summary attained herein will essentially be indicative of
real running final results in the potential. These types of dialogue signifies only the finest
existing evaluation of our administration.
Track record Overview
purposes in the substantial academic and toy merchandise industry. We also create
and industry systems for doc and merchandise authentication, which we
think can lessen losses prompted by fraudulent doc copy or by
merchandise counterfeiting and/or diversion. We derive our revenues generally from
licensing our systems on an exceptional or non-exceptional foundation to licensees
who include our systems into their merchandise supplying and from offering
merchandise incorporating our systems to the licensees or to their certified
printers.
Except if the context usually involves, all references to the “Business,” “we,”
“our” or “us” and other identical phrases implies
Success of Functions
Our Firm’s revenues are derived from (a) royalties compensated by licensees of our
systems, (b) service fees for the provision of specialized expert services to licensees and
(c) from the immediate sale of (i) merchandise incorporating our systems, these kinds of as
inks, safety paper and strain delicate labels, and (ii) gear applied to
aid the software of our systems, these kinds of as ink-jet printing programs.
Royalties consist of certain minimal royalties payable by our licensees in
specified conditions and extra royalties which usually change with the licensee’s
product sales or output of merchandise incorporating the certified know-how. Assistance
service fees and product sales revenues change straight with the selection of models of support or
merchandise offered.
Our Business acknowledges profits on its strains of enterprise as follows:
a. License service fees for the use of our know-how and royalties with certain
minimal quantities are acknowledged at a position in time when the time period starts
b. Products product sales are acknowledged at the time of the transfer of items to prospects
at an quantity that our Business expects to be entitled to in trade for these
items, which is at the time of cargo and
c. Costs for specialized expert services are acknowledged at the time of the transfer of
expert services to prospects at an quantity that our Business expects to be entitled to
in trade for the expert services, which is when the support has been rendered.
We think that, as fastened charge reductions over and above these we have realized in
latest many years could not be achievable, our running final results are considerably
dependent on profits ranges. Simply because revenues derived from licenses and
royalties have a substantially increased gross gain margin than other revenues, running
final results are also considerably influenced by variations in profits blend.
Equally the complete quantity of our Firm’s revenues and the blend among the the a variety of
resources of profits are issue to considerable fluctuation. We have a rather
modest selection of considerable prospects alternatively than a substantial selection of modest
prospects. Appropriately, variations in the profits obtained from a major
buyer can have a considerable influence on our Firm’s whole profits, profits
blend and general economical efficiency. These types of variations could end result from a
considerable customer’s merchandise progress delays, engineering variations, variations
in merchandise marketing and advertising techniques, output necessities and the like. We are not able to
forecast regardless of whether COVID-19 will materially have an impact on our licensing service fees or the desire
for our merchandise in 2022 and over and above. In addition, specified prospects have, from
time to time, sought to renegotiate specified provisions of their license
agreements and, when our Business agrees to revise these kinds of phrases, revenues from the
buyer could be influenced.
ten
Comparison of the Decades finished
Revenues for 2021 had been
from
Licenses, royalties and service fees improved in 2021 by about nine%, or
to
in 2021 as opposed to 2020 is owing generally to increased royalties from our Firm’s
licensees in the leisure and toy merchandise industry owing to ongoing solid
retail desire for these merchandise offset in component by decrease revenues from our
licensees in the safety marketplaces. We are not able to guarantee you that the marketing and advertising and
merchandise progress routines of our Firm’s licensees or other companies in
the leisure and toy merchandise industry will create a major maximize in
revenues for our Business, nor can the timing of any likely profits improves
be predicted, especially provided the unsure financial disorders remaining
professional around the globe as a end result of the COVID-19 pandemic that is continuing to
negatively impression all around the globe economies alongside with the enormous global
provide chain disruptions now remaining professional. The merchandise promoted by
the Firm’s key licensees in the leisure and toy merchandise marketplaces are
manufactured in
container shortages and port delays both equally in
Products and other product sales lowered by
as opposed to 2020 is owing generally to decrease ink necessities of the 3rd get together
approved printers applied by two of our Firm’s key licensees in the
leisure and toy merchandise industry. Profits of ink to the certified printers of
its licensees in the leisure and toy merchandise industry had been about
licensees in the retail receipt and doc fraud industry lowered by
about
similar to COVID-19 closures of retail stores commencing in 2020 and continuing
through 2021.
Our Business derived
licensees and their certified printers in the leisure and toy merchandise
industry in 2021 as opposed to
in 2020. The minimize in revenues from our licensees and their approved
printers in the leisure and toy merchandise industry in 2021 as opposed to 2020
is owing generally to decrease ink product sales to the approved printers of our Firm’s
licensees in the leisure and toy merchandise industry in 2021 as opposed to 2020
offset in component by increased licensing profits in 2021 as opposed to 2020 from just one
licensee in the leisure and toy merchandise industry. Our Firm’s licensees
in the leisure and toy merchandise industry keep on to create new merchandise
for this industry and increase their existing choices even so, their product sales will
be influenced by market response to the new and enhanced merchandise, financial
disorders that affect this industry section and the overall economy as a total.
Revenues that the Business derives from these licensees will be equally
influenced. We are not able to guarantee you that the marketing and advertising and merchandise progress
routines of licensees in the leisure and toy merchandise industry will
create improved revenues for the Business in potential intervals, nor can the timing
of any likely profits improves be predicted, especially provided the
unsure financial disorders now remaining professional around the globe as a end result
of COVID-19 and its variants such as the Omicron variant recognized in 2021
and the freshly recognized BA.two variant.
Our Firm’s gross gain lowered to
revenues, in 2021 from
The decrease gross gain in 2021 as opposed to 2020 final results generally from decrease
gross revenues from merchandise and other product sales offset in component by increased licenses,
royalties and service fees in 2021 as opposed 2020.
Licenses, royalties and service fees have traditionally carried a increased gross gain
than merchandise product sales, which commonly consist of provides or other made
merchandise that include the Firm’s systems or gear applied to
aid the software of its systems. These goods (besides for inks which
are made by our Business) are commonly ordered from 3rd-get together
distributors and resold to the finish-consumer or licensee and have a decrease gross gain
than licenses, royalties and service fees. The decrease gross gain in 2021 as opposed to
2020 displays decrease gross revenues from merchandise and other product sales offset in component
by increased gross revenues from licenses, royalties and service fees in 2021 as opposed to
2020.
As the variable ingredient of charge of revenues similar to licenses, royalties and
service fees is a lower proportion of these revenues and the fastened ingredient is not
considerable, period of time to period of time variations in revenues from licenses, royalties and
service fees can considerably have an impact on both equally gross gain from licenses, royalties and
service fees as perfectly as general gross gain. Because of generally to the increased revenues from
licenses, royalties and service fees in 2021 as opposed to 2020, the gross gain from
licenses, royalties and service fees improved to about seventy nine% of revenues from
licenses, royalties and service fees in 2021 from about 70% in 2020.
eleven
The gross gain, expressed as a proportion of revenues, of merchandise and other
product sales is dependent on both equally the general product sales volumes of merchandise and other product sales
and on the blend of the distinct items manufactured and/or offered. The gross gain from
merchandise and other product sales lowered to about fifty% of revenues in 2021
as opposed to about fifty three% of revenues 2020. The minimize in gross gain in
2021 as opposed to 2020 is owing generally to considerably decrease ink shipments to
the 3rd get together approved printer applied by just one of our Firm’s key licensees
in the leisure and toy merchandise industry offset in component by (a) a drop in
the charge of specified uncooked components used by the Business in the manufacture of
specified of its merchandise as charges of these uncooked components that experienced improved in
2020 owing to the impression of the ongoing COVID-19 pandemic on the availability and
provide of these uncooked components have been at minimum briefly eased in 2021, and
(b) a favorable blend of merchandise offered whereby the buys of the Firm’s
merchandise by the certified printers of its licensees in the leisure and toy
merchandise industry in 2021 as opposed to 2020 had been of increased margin merchandise
made by the Business.
Analysis and progress fees had been
2020. The maximize in 2021 as opposed to 2020 resulted generally from merchandise
progress cost in 2021 as opposed to 2020.
Profits and marketing and advertising fees had been
The minimize in 2021 as opposed to 2020 is owing generally to decrease fee
cost on the decrease amount of revenues in 2021 as opposed to 2020.
Standard and administrative fees improved to
in 2020. The maximize in 2021 as opposed to 2020 is owing generally to considerably
increased authorized fees in 2021 as opposed to 2020 offset in component by decrease company
relations fees in 2021 as opposed to 2020.
Other profits (fees) in 2020 involved curiosity on convertible debentures that
had been held by 7 buyers and curiosity profits on invested resources.
Money taxes in 2021 and 2020 resulted from restrictions positioned on profits tax web
running reduction deductions by the
Our decrease web profits of
2020 resulted generally from a decrease gross gain on a decrease amount of merchandise
and other product sales and increased running fees in 2021 as opposed to 2020.
Our administration does not think that inflation and switching charges, with the
exception of improves in the charges of specified uncooked components that had been most
influenced by shortages made by the COVID-19 pandemic in 2020, have experienced a
major influence on our revenues and final results of functions through the many years
finished
System of Procedure, Liquidity and Money Means
Our Firm’s dollars improved to
at
running routines, obtained
Our Firm’s revenues lowered about 27% to
printers of our Firm’s licensees in the leisure and toy merchandise industry
and decrease revenues from licensees in the anti-counterfeiting and anti-diversion
systems and merchandise industry reflecting the impression of the ongoing COVID-19
pandemic on this industry offset in component by increased royalty revenues from a
licensee in the leisure and toy merchandise industry. Our Firm’s gross
gain lowered about 21% to
generally as a end result of decrease product sales of ink to the certified printers of our
licensees in the leisure and toy merchandise industry and to licensees in the
anti-counterfeiting and anti-diversion systems and merchandise industry.
Our Firm’s whole overhead fees improved in 2021 as opposed to 2020, our
Firm’s web curiosity profits improved in 2021 as opposed to 2020 and our
Firm’s profits tax cost improved in 2021 as opposed to 2020. As a end result of
these variables, our Business produced web profits of
2021. At
stockholders’ fairness of
web profits of
stockholders’ fairness of
twelve
In
(“Line of Credit history”) with a financial institution to supply a resource of doing the job funds, if
demanded. The Line of Credit history is secured by all the belongings of our Business and
bears curiosity at the bank’s key fee for a period of time of just one yr and its key
fee additionally one.five% thereafter. The Line of Credit history is issue to an once-a-year critique and
silent period of time. There have been no borrowings beneath the Line of Credit history due to the fact its
inception. We could need to have to acquire extra funds in the potential to additional
aid the doing the job funds necessities linked with our current profits
foundation and to create new profits resources. We are not able to guarantee you that we will be
thriving in getting these kinds of extra funds, if essential. We keep on to
manage a charge containment plan such as curtailment, the place probable, of
discretionary analysis and progress and product sales and marketing and advertising fees. Our
system of procedure for the twelve months commencing with the day of this once-a-year
report is made up of concentrating out there human and economical assets to
keep on to capitalize on the distinct enterprise interactions our Business has
formulated in the leisure and toy merchandise industry. This contains two
licensees that have been marketing and advertising merchandise incorporating the Firm’s
systems due to the fact 2012. These two licensees manage a major existence in
the leisure and toy merchandise industry and are perfectly recognized and very regarded
contributors in this industry. We foresee that these two licensees will increase
their existing choices that include our systems and will introduce and
industry new merchandise that will include our systems out there to them
beneath their license agreements with our Business. We will keep on to create
a variety of purposes for these licensees. We also system to increase our licensee
foundation in the leisure and toy industry. We now have extra licensees
marketing and advertising or creating merchandise incorporating our systems in specified
geographic and specialized niche marketplaces of the general leisure and toy merchandise
industry.
Our Business maintains its existence in the retail reduction avoidance industry and
thinks that profits advancement in this industry can be realized by way of improved
safety ink product sales to its licensees in this industry. We will keep on to regulate
our output and specialized personnel as needed and, issue to out there
economical assets, devote in funds gear essential to aid likely
advancement in ink output necessities over and above our existing potential. Furthermore,
we will go after alternatives to industry our existing systems in distinct
safety and non-safety marketplaces. There can be no assurances that these initiatives
will empower our Business to create extra revenues and favourable dollars move.
Our Business has obtained, and could in the potential request, extra funds in the
type of credit card debt, fairness or both equally, to aid our doing the job funds necessities and to
supply funding for other enterprise alternatives. Outside of the Line of Credit history, we
are not able to guarantee you that if we call for extra funds, that we will be
thriving in getting these kinds of extra funds, or that these kinds of extra
funds, if acquired, will empower our Business to create extra revenues
and favourable dollars move.
As formerly said, we create a major part of our whole revenues
from licensees in the leisure and toy merchandise industry. These licensees
commonly offer their merchandise by way of retail stores. In the potential, these kinds of product sales
could be adversely influenced by variations in shopper expending that could manifest as a
end result of an unsure financial surroundings in 2022 and over and above owing to the
COVID-19 virus and its influence on the worldwide overall economy remaining professional around the globe
as a end result of COVID-19 and its variants such as the Omicron variant
recognized in late 2021 and the freshly recognized BA.two variant. As a end result, our
revenues, final results of functions and liquidity could be negatively impacted.
Contractual Obligations
We perform our functions in leased services beneath a non-cancelable running
lease expiring in 2024. Long run minimal lease payments beneath this running lease
at
Overall rental cost beneath running leases was
finished
Lately Adopted Accounting Pronouncements
As of
that experienced a materials influence on our Firm’s economical statements.
Lately Issued Accounting Pronouncements Not Still Adopted
In
Losses (Subject 326), Measurement of Credit history Losses on Money Devices. The
amendments in this Update have an impact on financial loans, credit card debt securities, trade receivables, and
any other economical belongings that have the contractual ideal to get dollars. The
ASU involves an entity to figure out envisioned credit score losses alternatively than incurred
losses for economical belongings. For general public entities, the amendments are powerful
for fiscal many years commencing just after
inside of these fiscal many years. ASU No. 2019-ten extends the powerful dates for two
many years for smaller sized reporting corporations and nonpublic corporations.
thirteen
In
Other Selections (Subtopic 470-twenty) and Derivatives and Hedging – Contracts in
Entity’s Personal Fairness (Subtopic 815-forty), Accounting for Convertible Devices
and Contracts in an Entity’s Personal Fairness.The amendments in this Update have an impact on
entities that situation convertible devices and/or contracts in an entity’s individual
fairness. For convertible devices, the devices generally influenced are
these issued with effective conversion options or dollars conversion options
since the accounting designs for these distinct options are eliminated. On the other hand,
all entities that situation convertible devices are influenced by the amendments
to the disclosure necessities in this Update. For contracts in an entity’s individual
fairness, the contracts generally influenced are freestanding devices and
embedded options that are accounted for as derivatives beneath the existing
assistance since of failure to fulfill the settlement disorders of the derivatives
scope exception similar to specified necessities of the settlement evaluation.
The Board simplified the settlement evaluation by eliminating the necessities (one)
to take into consideration regardless of whether the agreement would be settled in registered shares, (two) to
take into consideration regardless of whether collateral is demanded to be posted, and (three) to evaluate
shareholder legal rights. These amendments also have an impact on the evaluation of regardless of whether an
embedded conversion characteristic in a convertible instrument qualifies for the
derivatives scope exception. Furthermore, the amendments in this Update have an impact on
the diluted EPS calculation for devices that could be settled in dollars or
shares and for convertible devices. The amendments in this Update are
powerful for general public enterprise entities that fulfill the definition of a
and Trade Fee
reporting corporations as outlined by the
other entities, the amendments are powerful for fiscal many years commencing just after
adoption is permitted, but no before than fiscal many years commencing just after
fifteen, 2020
specified that an entity ought to undertake the assistance as of the commencing of its
once-a-year fiscal yr. The Board resolved to make it possible for entities to undertake the assistance
by way of both a modified retrospective strategy of changeover or a thoroughly
retrospective strategy of changeover.
Off-Equilibrium Sheet Preparations
None.
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