The accompanying unaudited condensed financial statements have been prepared by Nocopi Technologies, Inc. (the “Company”). These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in the summary of Accounting Policies included in the Company’s 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 six months ended March 31,June 30, 2008 may not be necessarily indicative of the operating results expected for the full year.

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 Company’s directors’ option plan (the “Plan”), options to acquire 100,000 shares of the Company’s 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 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 year’s 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. During the three and six months ended June 30, 2008, expense of approximately $30,500 was recognized. As of June 30, 2008, the unrecognized portion of expense was approximately $91,200. There were no stock options granted, exercised or cancelled during the threesix months ended March 31, 2008 and March 31,June 30, 2007.

The following table summarizes the Company’sall stock option plans at March 31, 2008 andactivity of the Company since December 31, 2007:

There was no change in unrecognized tax benefits during the period ended March 31,June 30, 2008 and there was no accrual for uncertain tax positions as of March 31,June 30, 2008.

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 and six months ended March 31,June 30, 2008, and March 31, 2007, common stock equivalents, consisting of stock options and warrants, were anti-dilutive.anti-dilutive for those periods.

TheDuring the second quarter of 2008, the Company made sales or obtained revenues equal to 10% or more of the Company’s largest non-affiliatetotal revenues for that quarter from three non-affiliated customers who individually accounted for approximately 88%34%, 31% and 64%19%, respectively, of the Company’s total revenues in the second quarter of 2008. During the second quarter of 2007, the Company made sales or obtained revenues equal to 10% or more of the Company’s total revenues for that quarter from three non-affiliated customers who individually accounted for approximately 52%, 24% and 10%, respectively, of the Company’s total revenues in the second quarter of 2007. During the first six months of 2008, the Company made sales or obtained revenues equal to 10% or more of the Company’s total revenues for the first six months of 2008 from three non-affiliated customers who individually accounted for approximately 47%, 22% and 17%, respectively, of the Company’s total revenues in the first quartersix months of 20082008. During the first six months of 2007, the Company made sales or obtained revenues equal to 10% or more of the Company’s total revenues for first six months of 2007 from three non-affiliated customers who individually accounted for approximately 40%, 29% and 2007,13%, respectively, and approximately 94% and 100%of the Company’s total revenues in the first six months of 2007. The Company’s non-affiliate customers whose individual balances amounted to more that 10% of net accounts receivable accounted for approximately 54%, 18% and 16%, respectively, of net accounts receivable at March 31,June 30, 2008 and 68%, 10% and 22%, respectively, of net accounts receivable at

December 31, 2007, respectively.2007. 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 following Management’s 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 our audited Financial Statements and Notes thereto for the year ended December 31, 2007 included in our 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 our 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, you should not consider this information to be a guarantee by us or any other person that our 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.

     The Company’s revenues are derived from royalties paid by licensees of the Company’s technologies, fees for the provision of technical services to licensees and from the direct sale of (i) products incorporating the Company’s technologies, such as inks, security paper and pressure sensitive labels, and (ii) equipment used to support the application of the Company’s technologies, such as ink-jet printing systems. Royalties consist of guaranteed minimum royalties payable by the Company’s licensees and/or additional royalties which typically vary with the licensee’s sales or production of products incorporating the licensed technology. Technical services, in the form of on-site or telephone consultations by members of the Company’s technical staff, may be offered to licensees of the Company’s 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;

          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) collectibilitycollectability 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 Company’s 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 Company’s total revenue and on its revenue mix and overall financial performance. Such changes may result from a customer’s product development delays, engineering changes, changes in product marketing strategies production requirements 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 Company’s total revenue, revenue mix and operating results.

     Revenues for the firstsecond quarter of 2008 were $271,800$237,500 compared to $158,500$432,600 in the firstsecond quarter of 2007, an approximate 71% increase.a decrease of $195,100, or approximately 45%. Licenses, royalties and fees increased by $146,200,$31,300, or approximately 305%40%, to $109,900 in the firstsecond quarter of 2008 to $194,200 from $48,000$78,600 in the firstsecond quarter of 2007. The increase in licenses, royalties and fees is due primarily to significanthigher licensing revenues derived from three licensees in the Entertainment and Toy products business offset in part by the non-renewal of one license in 2007. Product and other sales were $127,600 in the second quarter of which is a new license that began generating royalties2008 compared to $354,000 in the second quarter of 2007, a decrease of $226,400, or approximately 64%. In the second quarter of 2007, a new licensee in the Entertainment and twoToy products business placed initial orders with the Company for the reactive inks used in its product lines that utilize the Company’s technologies. These initial quantities of which are licenses signedink, along with additional purchases subsequent to the second quarter of 2007, have proven adequate to manufacture sufficient product to meet the licensee’s customer demands through the current time. The Company has not received substantial ink orders from this licensee to date in 2006,2008. Additionally, sales of the Company’s security paper declined in the second quarter of 2008 compared to the second quarter of 2007. For the first six months of 2008, revenues were $509,300, $81,800, or approximately 14%, lower than revenues of $591,100 in the first six months of 2007. Licenses, royalties and fees of $304,100 in the first half of 2008 were $177,500, or approximately 140%, higher than $126,600 in the first half 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 offset in part by the non-renewal of one license during 2007. Product and other sales decreaseddeclined by $32,900,$259,300, or approximately 30%56%, to $77,600$205,200 in the first quarterhalf of 2008 from $110,500$464,500 in the first quarterhalf of 2007. SalesAs discussed above, the first half of both ink2007 included initial sales of the Company’s reactive inks sold to a new licensee in the Entertainment and security paper declinedToy Products business that were not repeated in the first quarterhalf of 2008. The Company experienced a decline in sales of its security papers in the first half of 2008 compared to the first quarterhalf of 2007. The Company derived approximately $155,700 and $353,500 in the second quarter and first half of 2008, respectively, in revenues from licensees and their printers in the Entertainment and Toy Products market compared to approximately $325,900 and

$407,400 in the second quarter and first half of 2007, respectively. The Company believes that the decline in ink sales in the first quarter of 2008revenues from the first quarter of 2007 is due to timing differences in the placement of ink orders by overseas printers serving the Company’s licensees in the Entertainment and Toy products business. DuringProducts market will grow in future periods compared to the second quarter and first quarterhalf of 2008, the Company realized initial sales of Secure Rub Rx prescription paper, a new application developed by the Company in response to recent legislation requiring tamper-resistant features in prescription pads used by physicians nationwide in state Medicaid programs.2008.

     The Company’s gross profit increaseddecreased to $186,700$137,500 in the firstsecond quarter of 2008 or approximately 69%58% of revenues from $65,300$258,000 or approximately 60% of revenues in the firstsecond quarter of 2007 or approximately 41% of gross revenues.2007. Licenses, royalties and fees have historically carriedcarry a substantially higher gross profit than product and other sales, which generally consist of supplies or other manufactured products

     Research and development expenses increased to $42,300of $39,800 and $82,100 in the second quarter and first quartersix months of 2008 from $38,600approximated the $40,300 and $78,900 in the second quarter and first quartersix months of 2007 due to higher levels of compensation.2007.

     Sales and marketing expenses increased to $67,900$65,300 in the firstsecond quarter of 2008 from $37,500$61,300 in the firstsecond quarter of 2007. The increase primarily reflects higherexpenses incurred in the Company’s participation at a trade show in which it premiered a new product offering, fees paid to a sales consultant engaged in late 2007 and maintenance of the Company’s new web site offset in part by lower commission expense related to the lower level of revenues in the second quarter of 2008 compared to the second quarter of 2007. In the first six months of 2008, sales and marketing expenses increased to $133,500 from $98,800 in the first six months of 2006. The increase primarily reflects expenses associated with its attendance at two trade shows, fees paid to a sales consultant engaged in late 2007 as well as development and maintenance expenses associated with the Company’s new web site offset in part by lower commission expense on the higherlower level of revenues in the first quartersix months of 2008 compared to the first quartersix months of 2007, expenses incurred in the development and implementation of a new Company web site that became active during the first quarter of 2008 and fees paid to a sales consultant who was engaged in late 2007 to market its existing line of security papers, inks and ink-jet products as well as a new application developed by the Company in response to recent legislation requiring tamper-resistant features in prescription pads used by physicians nationwide in state Medicaid programs.2007.

     General and administrative expenses were $136,300increased to $112,600 in the firstsecond quarter of 2008 compared to $62,000from $56,200 in the firstsecond quarter of 2007. The increase in the firstsecond quarter of 2008 relatescompared to the second quarter of 2007 is due primarily to: a) $30,500 in expenses recorded in the second quarter of 2008 in connection with the issuance of 500,000 options to several factors:purchase shares of the Company’s common stock to members of the Company’s Board of Directors in April 2008. There were no options issued in the second quarter of 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 Company’s Chief Executive Officer whereby the Chief Executive Officer will receive minimum compensation of $85,000 per year beginning in June 2008 and c) higher legal and accounting fees related to higher levels of services required. For the first six months of 2008, general and administrative expenses increased to $248,900 in the first six months of 2008 from $118,200 in the first six months of 2007 due primarily to: a) the Company’s 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) higher patent acquisition and maintenance$30,500 in expenses andrecorded in the second quarter of 2008 in connection with the issuance of 500,000 options to purchase shares of the Company’s common stock to members of the Company’s Board of Directors in April 2008. There were no options issued in the second quarter of 2007;  c) higher compensation expense due in part to greater year-end securities law compliance obligations.obligations and the inception of an employment agreement with the Company’s Chief Executive Officer; d) higher patent acquisition and maintenance expenses and e) higher legal and accounting fees related to higher levels of services required.

commission expense and the reversal of accounts payable and accrued expenses that are no longer statutorily payable. The net loss of $102,500 for the six months ended June 30, 2008 compared to net income of $24,900 in the six months ended June 30, 2007 results primarily from a one time transaction with a licensee, higher commissionsstock option expense and other sales related expenses as well as higher compensation expense offset in part by lower commission expense and patent related costs.the reversal of accounts payable and accrued expenses that are no longer statutorily payable.

     During the first quarter of 2008, the Company generated $1,700 from operations as itsThe Company’s cash and cash equivalents increaseddecreased to $265,300$216,300 at March 31,June 30, 2008 from $263,600 at December 31, 2007. During the first half of 2008, the Company received $2,200 from the exercise of warrants to purchase 10,000 shares of its common stock and used $48,300 to fund operations and $1,200 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. While the Company recorded a net loss of $59,000$102,500 in the first quartersix months of 2008 it recorded a nominal positiveand had negative cash flow in the first quarter of 2008 andduring that period, it maintained positive stockholders’ equity and working capital at March 31,June 30, 2008. At March 31,June 30, 2008, the Company had no loans outstanding. 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. ManagementAt this time, management of the Company believes that maintenance of revenues at current levels will allow it to continue in operation for the foreseeable future. There can be no assurances that revenues in future periods will be sustained at levels achieved in 2007 and the first quartersix months of 2008.

     While the investment received in the second quarter of 2007 and improvement in operations have positively impacted the Company’s liquidity situation, it continues to maintain a cost containment program including curtailment of discretionary research and development and sales and marketing expenses, where possible. DuringLate in the second quarter of 2007, it increased employment by one individual, acquired capital equipment to increase its ink production capacity and, late in the thirdsecond quarter of 2007, it engaged a sales consultant to market2008, finalized an employment agreement with its existing line of security papers, inks and ink-jet products as well as a new application developed by the Company in response to recent legislation requiring tamper-resistant features in prescription pads used by physicians nationwide in state Medicaid programs.Chief Executive Officer.

     The Company’s 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 of applications for

     The Company’s operating results, financial condition and stock price are subject to certain risks, some of which are beyond the Company’s control. These risks could cause actual operating and financial results to differ materially from those expressed in the Company’s forward looking statements, including the risks described below and the risks identified in other documents which are filed and furnished with the SEC including our annual report on Form 10-KSB filed on March 31, 2008:

Dependency on Major Customer.The Company’s 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 printers, equaled approximately 73%69% of the Company’s revenues in the first quartersix months of 2008 revenues and approximately 71% of the Company’s 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 Company’s 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 Company’s cash flow must result from increases in revenues from traditional sources and from new revenue sources. The Company’s 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 devote to marketing and to research and development will be sufficient to increase its revenues to levels that will enable it to maintain positive operating cash flow in the future.

Inability to Obtain Raw Materials and Products for Resale.The Company’s 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

patterns of royalty revenue and product orders. As the Company’s 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 Company’s 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 Company’s revenue stream may be further impacted.

Volatility of Stock Price. The market price for the Company’s 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 Company’s 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 Company’s stock and its stock is also thinly traded. The Company’s 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 Company’s 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 Company’s ability to enforce its intellectual property rights through appropriate 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 Company’s adverse liquidity situation in previous years had also

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 Company’s financial statements. The Company has not yet determined the impact the implementation of SFAS 157 will have on the Company’s 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 Liabilities—Including 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 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.

The Company does not have any off-balance sheet arrangements.

(a) Disclosure Controls and Procedures

The Company has carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded, as of the end of the period covered by this report, that the Company’s 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 Company’s 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, our internal controls over financial reporting.

          (a) Exhibits