United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended ~~June~~September 30, 2020

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from _________________ to ______________

Commission File Number: 000-20333

NOCOPI TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)


Maryland	87-0406496
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

480 Shoemaker Road, Suite 104, King of Prussia, PA 19406

(Address of principal executive offices) (Zip Code)

(610) 834-9600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

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 ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer þ	Smaller reporting company þ
	Emerging growth company ¨

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 67,353,690 shares of common stock, par value $0.01, as of ~~August 10,~~November 9, 2020.

NOCOPI TECHNOLOGIES, INC.

INDEX


	PAGE
Part I. FINANCIAL INFORMATION

Item 1. Financial Statements	1

Statements of Operations for Three Months and ~~Six~~Nine Months Ended ~~June~~September 30, 2020 and ~~June~~September 30, ~~2019~~2019	1
Balance Sheets at ~~June~~September 30, 2020 and December 31, 2019	2
Statements of Cash Flows for ~~Six~~Nine Months Ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019	3
Statements of Stockholders’ Equity for Three Months and ~~Six~~Nine Months ~~Ended June~~ended September 30, 2020 and ~~June~~September 30, 2019	4
Notes to Financial Statements	5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

Item 4. Controls and Procedures	1514

Part II. OTHER INFORMATION

Item 1A. Risk Factors	1615

Item 2. Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~Proceeds	1615

Item 5. Other Information	15

Item 6. Exhibits	1716

SIGNATURES	1817

EXHIBIT INDEX	1918

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Nocopi Technologies, Inc.

Statements of Operations*

(unaudited)

Three Months ended June 30

Six Months ended June 30

2020

2019

2020

2019

Revenues

Licenses, royalties and fees

$
107,100

$
192,000

$
271,700

$
382,500

Product and other sales

520,200

324,100

875,900

543,000

627,300

516,100

1,147,600

925,500

Cost of revenues

Licenses, royalties and fees

58,600

31,600

108,300

56,800

Product and other sales

247,200

123,400

448,800

213,700

305,800

155,000

557,100

270,500

Gross profit

321,500

361,100

590,500

655,000

Operating expenses

Research and development

41,900

39,400

83,000

77,400

Sales and marketing

86,000

74,300

170,000

143,200

General and administrative

120,000

86,900

259,700

181,000

247,900

200,600

512,700

401,600

Net income from operations

73,600

160,500

77,800

253,400

Other income (expenses)

Interest income

4,300

1,500

8,100

2,600

Interest expense, bank charges and accretion of interest

(2,100
)

(2,700
)

(4,600
)

(5,400
)

2,200

(1,200
)

3,500

(2,800
)
Net income before income taxes

75,800

159,300

81,300

250,600

Income taxes

5,000

10,400

(42,100
)

16,300

Net income

$
70,800

$
148,900

$
123,400

$
234,300

Basic and diluted net income per common share

$
.00

$
.00

$
.00

$
.00

Weighted average common shares outstanding

Basic

61,044,698

58,616,716

61,044,698

58,616,716

Diluted

61,605,985

58,973,280

61,577,129

58,988,005


	Three Months ended September 30,						Nine Months ended September 30,
	2020			2019			2020			2019

Revenues
Licenses, royalties and fees	$	153,300		$	189,400		$	425,000		$	571,900
Product and other sales		601,500			448,100			1,477,400			991,100
		754,800			637,500			1,902,400			1,563,000

Cost of revenues
Licenses, royalties and fees		61,900			41,400			170,200			98,200
Product and other sales		267,400			166,600			716,200			380,300
		329,300			208,000			886,400			478,500
Gross profit		425,500			429,500			1,016,000			1,084,500

Operating expenses
Research and development		40,700			45,200			123,700			122,600
Sales and marketing		90,900			81,000			260,900			224,200
General and administrative		123,800			84,200			383,500			265,200
		255,400			210,400			768,100			612,000
Net income from operations		170,100			219,100			247,900			472,500

Other income (expenses)
Interest income		4,200			4,600			12,300			7,200
Interest expense and bank charges		(1,300	)		(2,600	)		(5,900	)		(8,000	)
		2,900			2,000			6,400			(800	)
Net income before income taxes		173,000			221,100			254,300			471,700
Income taxes		9,900			14,300			(32,200	)		30,600
Net income	$	163,100		$	206,800		$	286,500		$	441,100

Basic and diluted net income per common share	$	.00		$	.00		$	.00		$	.01

Weighted average common shares outstanding
Basic		66,768,023			59,614,698			62,952,473			58,949,377
Diluted		66,893,250			59,990,371			63,069,652			59,322,141

*See accompanying notes to these financial statements.

Nocopi Technologies, Inc.

Balance Sheets*


		June 30			December 31				September 30,			December 31,
		2020			2019				2020			2019
		(unaudited)			(audited)				(unaudited)			(audited)
*Assets*	*Assets*							*Assets*
Current assets
Cash		$	1,052,700		$	688,000			$	1,428,900		$	688,000
Accounts receivable less $5,000 allowance for doubtful accounts			1,141,500			1,352,300				1,023,000			1,352,300
Inventory			277,500			127,900				286,600			127,900
Prepaid and other			95,100			135,000				21,200			135,000
Total current assets			2,566,800			2,303,200				2,759,700			2,303,200

Fixed assets
Leasehold improvements			27,800			24,200				27,800			24,200
Furniture, fixtures and equipment			279,400			252,500				163,700			252,500
			307,200			276,700				191,500			276,700
Less: accumulated depreciation and amortization			215,200			206,600				98,100			206,600
			92,000			70,100				93,400			70,100
Other assets
Long-term receivable			766,000			957,000
Operating lease right of use – building			181,500			202,000
Long-term receivables									671,100			957,000
Operating lease right of use - building									171,000			202,000
			947,500			1,159,000				842,100			1,159,000
Total assets		$	3,606,300		$	3,532,300			$	3,695,200		$	3,532,300

*Liabilities and Stockholders' Equity*	*Liabilities and Stockholders' Equity*							*Liabilities and Stockholders' Equity*

Current liabilities
Convertible debentures		$	97,900		$	97,900			$	–		$	97,900
Accounts payable			87,800			44,300				58,300			44,300
Accrued expenses			214,800			231,600				165,500			231,600
Income taxes			57,600			52,400				22,200			52,400
Operating lease liability, current			43,100			41,700				43,800			41,700
Total current liabilities			501,200			467,900				289,800			467,900

Other liabilities
Accrued expenses, non-current			53,600			67,000				47,000			67,000
Deferred income taxes			–			47,400				–			47,400
Operating lease liability, non-current			138,400			160,300				127,200			160,300
			192,000			274,700				174,200			274,700

Stockholders' equity
Common stock, $0.01 par value
Authorized – 75,000,000 shares
Issued and outstanding – 61,044,698 shares			610,400			610,400
Issued and outstanding
2020 – 67,353,690 shares; 2019 – 61,044,698 shares									673,500			610,400
Paid-in capital			12,483,900			12,483,900				12,575,800			12,483,900
Accumulated deficit			(10,181,200	)		(10,304,600	)			(10,018,100	)		(10,304,600	)
Total stockholders' equity			2,913,100			2,789,700				3,231,200			2,789,700
Total liabilities and stockholders' equity		$	3,606,300		$	3,532,300			$	3,695,200		$	3,532,300

*See accompanying notes to these financial statements.

Nocopi Technologies, Inc.

Statements of Cash Flows*

(unaudited)

Six Months ended June 30

2020

2019

Operating Activities

Net income

$
123,400

$
234,300

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

9,100

2,300

Deferred income taxes

(47,400
)

(54,400
)
Other assets

211,500

(27,800
)
Other liabilities

(33,900
)

208,300

262,700

362,700

(Increase) decrease in assets

Accounts receivable

210,800

(258,800
)
Inventory

(149,600
)

(31,400
)
Prepaid and other

39,900

(9,600
)
Increase (decrease) in liabilities

Accounts payable and accrued expenses

26,700

65,100

Taxes on income

5,200

(22,300
)

133,000

(257,000
)
Net cash provided by operating activities

395,700

105,700

Investment Activities

Additions to fixed assets

(31,000
)

–

Net cash used in investing activities

(31,000
)

–

Increase in cash

364,700

105,700

Cash at beginning of year

688,000

400,800

Cash at end of period

$
1,052,700

$
506,500

Supplemental Disclosure of Non Cash Investing and Financing Activities

Accumulated depreciation and amortization

$
500

$
–

Furniture, fixtures and equipment

$
(500
)

$
–

Operating lease right of use – building

$
–

$
241,100

Operating lease liability

$
–

$
(241,100
)


	Nine Months ended September 30,
	2020			2019
Operating Activities
Net income	$	286,500		$	441,100
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		15,300			2,900
Deferred income taxes		(47,400	)		(61,200	)
Other assets		316,900			69,500
Other liabilities		(51,000	)		192,300
		520,300			644,600
(Increase) decrease in assets
Accounts receivable		329,300			(255,500	)
Inventory		(158,700	)		(27,500	)
Prepaid and other		113,800			(37,500	)
Increase (decrease) in liabilities
Accounts payable and accrued expenses		(6,000	)		76,400
Income taxes		(30,200	)		(1,100	)
		248,200			(245,200	)
Net cash provided by operating activities		768,500			399,400

Investing Activities
Additions to fixed assets		(38,600	)		(2,200	)
Net cash used in investing activities		(38,600	)		(2,200	)

Financing Activities
Exercise of warrants		11,000			–
Net cash provided by financing activities		11,000			–

Increase in cash		740,900			397,200
Cash at beginning of year		688,000			400,800
Cash at end of period	$	1,428,900		$	798,000

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Operating lease right of use – building	$	–		$	241,100
Operating lease liability	$	–		$	(241,100	)
Accumulated depreciation and amortization	$	123,800		$	1,800
Furniture, fixtures and equipment	$	(123,800	)	$	(1,800	)
Convertible debentures	$	97,900		$	30,400
Accrued expenses	$	46,100		$	12,300
Common stock	$	(57,600	)	$	(17,100	)
Paid-in capital	$	(86,400	)	$	(25,600	)

*See accompanying notes to these financial statements.

Nocopi Technologies, Inc.

Statements of Stockholders’ Equity*

For the Periods December 31, 2019 through ~~June~~September 30, 2020 and December 31, 2018 through ~~June~~September 30, 2019

(unaudited)


	Common stock				Paid-in		Accumulated					Common stock						Paid-in			Accumulated
	Shares		Amount		Capital		Deficit			Total		Shares			Amount			Capital			Deficit				Total
Balance – December 31, 2019		61,044,698	$	610,400	$	12,483,900	$	(10,304,600	)	$	2,789,700		61,044,698		$	610,400		$	12,483,900		$	(10,304,600	)		$	2,789,700

Net income								52,600			52,600											52,600				52,600
Balance – March 31, 2020		61,044,698		610,400		12,483,900		(10,252,000	)		2,842,300		61,044,698			610,400			12,483,900			(10,252,000	)			2,842,300

Net income								70,800			70,800											70,800				70,800
Balance – June 30, 2020		61,044,698	$	610,400	$	12,483,900	$	(10,181,200	)	$	2,913,100		61,044,698			610,400			12,483,900			(10,181,200	)			2,913,100

Conversion of debentures and interest												5,758,992			57,600			86,400							144,000

Exercise of warrants												550,000			5,500			5,500							11,000

Net income																					163,100				163,100
Balance – September 30, 2020												67,353,690		$	673,500		$	12,575,800		$	(10,018,100	)		$	3,231,200


	Common stock				Paid-in		Accumulated					Common stock						Paid-in			Accumulated
	Shares		Amount		Capital		Deficit			Total		Shares			Amount			Capital			Deficit				Total
Balance – December 31, 2018		58,616,716	$	586,200	$	12,440,000	$	(11,059,500	)	$	1,966,700		58,616,716		$	586,200		$	12,440,000		$	(11,059,500	)		$	1,966,700

Net income								85,400			85,400											85,400				85,400
Balance – March 31, 2019		58,616,716		586,200		12,440,000		(10,974,100	)		2,052,100		58,616,716			586,200			12,440,000			(10,974,100	)			2,052,100

Net income								148,900			148,900											148,900				148,900
Balance – June 30, 2019		58,616,716	$	586,200	$	12,440,000	$	(10,825,200	)	$	2,201,000		58,616,716			586,200			12,440,000			(10,825,200	)			2,201,000

Conversion of debentures and interest												1,707,982			17,100			25,600							42,700

Net income																					206,800				206,800
Balance – September 30, 2019												60,324,698		$	603,300		$	12,465,600		$	(10,618,400	)		$	2,450,500

* See accompanying notes to these financial statements.

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. (our “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 our Company's 2019 Annual Report on Form 10-K. Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although our Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The Notes to Financial Statements included in the 2019 Annual Report on Form10-K should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three ~~months~~ and ~~six~~nine months ended ~~June~~September 30, 2020 may not be necessarily indicative of the operating results expected for the full year.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States. On March 19, 2020 the Governor of Pennsylvania declared a health emergency and issued an order to close all nonessential businesses until further notice. The mandated closure of nonessential businesses in Pennsylvania remains in effect as of the current date and is expected to continue for the foreseeable future in the portion of the state in which we conduct our business operations. While certain businesses in Pennsylvania have been granted permission to resume operations, they may be subject to significant restrictions on their operations by both state and local government mandates. Our operations are deemed to be essential and thus we remain open. However, disruptions to our business operations due to COVID-19 with a resultant impact on our results of operations could continue to occur as a result of quarantines of employees and suppliers in areas affected by the outbreak, availability of raw materials required to manufacture our products, disruption of supply chains that provide our raw materials, price increases of raw materials and supplies used in our production processes, facility closures of domestic and international customers who purchase and use our products, and travel and logistics restrictions affecting our inbound and outbound shipments in connection with the COVID-19 outbreak. While we expect this global COVID-19 pandemic to continue to negatively impact our results of operations, cash flow and financial position, the related financial impact cannot be reasonably estimated at this time.

Our Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 220 in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Since our Company has no items of other comprehensive income, comprehensive income is equal to net income.

Note 2. Stock Based Compensation

Our Company follows FASB ASC 718, Compensation – Stock Compensation, and uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. At ~~June~~September 30, 2020, our Company did not have an active stock option plan. There was no unrecognized portion of expense related to stock option grants at ~~June~~September 30, 2020.

Note 3. Line of Credit

In November 2018, our Company negotiated a $150,000 revolving line of credit with a bank to provide a source of working capital, if required. The line of credit is secured by all the assets of our Company and bears interest at the bank’s prime rate for a period of one year and its prime rate plus 1.5% thereafter. 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 4. Convertible Debentures

~~At June 30,~~During the third quarter of 2020, ~~our Company had~~the holders of all previously outstanding convertible debentures totaling approximately $97,900 ~~outstanding, which are~~that were due during the third quarter of 2020. The convertible debentures bear interest at 7%. At the option of the lender, the debentures and accrued interest are convertible in whole or part into common stock of our Company at $0.025 per share. During the third quarter of 2020 ~~holders of all $97,900 of convertible debentures~~ elected to convert ~~the~~those debentures plus approximately ~~$46,000~~$46,100 of accrued interest into 5,758,992 shares of ~~common~~restricted stock of our Company. At September 30, 2020, our Company had no convertible debentures outstanding. The convertible debentures bore interest at 7%. During the third quarter of 2019, the holders of approximately $30,400 of previously outstanding convertible debentures elected to convert those debentures plus approximately $12,300 of accrued interest into 1,707,982 shares of restricted stock of our Company.

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

Our Company also granted warrants in ~~the third quarter of 2013 and 2014~~earlier periods to purchase ~~a total of~~ 691,365 shares of our Company’s common stock at $0.02 per share to the holders of the debentures. The warrants are ~~currently~~ exercisable two years after issuance and expire ~~at various dates in the third quarter of 2020 and the third quarter of 2021.~~seven years after issuance. The fair value of the warrants was determined using the Black-Scholes pricing model. The relative fair value of the warrants was recorded as a discount to the notes payable with an offsetting credit to additional paid-in capital since our Company determined that the warrants were an equity instrument in accordance with FASB ASC 815. The debt discount related to the warrant issuances has been accreted through interest expense over the term of the notes payable. During the third quarter of 2020, holders of 550,000 warrants exercised their ~~options~~warrants to purchase a total of 550,000 shares of our Company’s common stock.

The following table summarizes our Company’s warrant position at ~~June~~September 30, 2020 and December 31, 2019:

Weighted Average

Number

Exercise

Exercise

of Shares

Price

Price

Outstanding warrants -

December 31, 2019

691,365

$0.02

$0.02

Outstanding warrants -

June 30, 2020

691,365

$0.02

$0.02

Weighted average remaining

contractual life (years)

.33

Currently exercisable warrants -

June 30, 2020

691,365

$0.02

$0.02


					Weighted Average
	Number		Exercise		Exercise
	of Shares		Price		Price
Outstanding warrants -
December 31, 2019		691,365	$	0.02	$	0.02

Outstanding warrants -
September 30, 2020		141,365	$	0.02	$	0.02

Weighted average remaining
contractual life (years)		.77

Currently exercisable warrants -
September 30, 2020		141,365	$	0.02	$	0.02

The aggregate intrinsic value of warrants outstanding and exercisable as of ~~June~~September 30, 2020 was approximately ~~$69,100.~~$22,300. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of ~~$0.12~~$0.1775 for ~~the~~our Company’s common stock on ~~June~~September 30, 2020.

Note 5. Other Income (Expenses)

Other income (expenses) for the three ~~months~~ and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 includes interest on convertible debentures held by ~~seven investors.~~nine investors and interest earned on invested funds.

Note 6. Income Taxes

There is no provision for federal income taxes for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 due to the availability of net operating loss carryforwards. Our Company has established a valuation allowance for the entire amount of benefits resulting from our Company’s net operating loss carryforwards because our Company has determined that the realization of the net deferred tax asset is not assured.

The components for state income tax expense resulting from the limitation on the use of net operating losses are:


											Three months ended					Nine months ended
	Three Months ended June 30				Six Months ended June 30						September 30					September 30
	2020		2019		2020			2019			2020		2019			2020			2019
Current state taxes	$	5,000	$	10,400	$	5,300		$	70,700		$	9,900	$	21,100		$	15,200		$	91,800
Deferred state taxes		–		–		(47,400	)		(54,400	)		–		(6,800	)		(47,400	)		(61,200	)
	$	5,000	$	10,400	$	(42,100	)	$	16,300		$	9,900	$	14,300		$	(32,200	)	$	30,600

During the first quarter of 2020, our Company reversed $47,400 of accrued Pennsylvania income taxes that are not payable.

There was no change in unrecognized tax benefits during the period ended ~~June~~September 30, 2020 and there was no accrual for uncertain tax positions as of ~~June~~September 30, 2020.

Tax years from 2017 through 2019 remain subject to examination by U.S. federal and state jurisdictions.

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

~~Tax years from 2016 through 2019 remain subject to examination by U.S. federal and state jurisdictions.~~

Note 7. Earnings per Share

In accordance with FASB ASC 260, Earnings per Share, basic earnings per common share is computed using net earnings divided by the weighted average number of common shares outstanding for the periods presented. The computation of diluted earnings per common share involves the assumption that outstanding common shares are increased by shares issuable upon exercise of those warrants for which the market price exceeds the exercise price. The number of shares issuable upon the exercise of such warrants is decreased by shares that could have been purchased by our Company with related proceeds. For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the number of incremental common shares resulting from the assumed conversion of warrants was ~~561,287~~125,227 and ~~532,431,~~117,179, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the number of incremental common shares resulting from the assumed conversion of warrants was ~~356,564~~375,673 and ~~371,289,~~372,764, respectively.

Note 8. Major Customer and Geographic Information

Our Company’s revenues, expressed as a percentage of total revenues, from non-affiliated customers that equaled 10% or more of ~~the~~our Company’s total revenues were:


	Three Months ended June 30						Six Months ended June 30						Three Months ended September 30						Nine Months ended September 30
	2020			2019			2020			2019			2020			2019			2020			2019
Customer A		72	%		36	%		59	%		35	%		74	%		65	%		65	%		47	%
Customer B		8	%		10	%		14	%		11	%		3	%		–			10	%		6	%
Customer C		8	%		24	%		13	%		27	%		10	%		14	%		12	%		21	%

Our Company’s non-affiliate customers whose individual balances amounted to more than 10% of our Company’s net accounts receivable, expressed as a percentage of net accounts receivable, were:


	June 30			December 31			September 30			December 31
	2020			2019			2020			2019
Customer A		24	%		26	%		28	%		26	%
Customer C		67	%		67	%		66	%		67	%

Our Company performs ongoing credit evaluations of its customers and generally does not require collateral. Our Company also maintains allowances for potential credit losses. The loss of a major customer could have a material adverse effect on our Company’s business operations and financial condition.

Our Company’s revenues by geographic region are as follows:


	Three Months ended June 30				Six Months ended June 30				Three Months ended September 30				Nine Months ended September 30
	2020		2019		2020		2019		2020		2019		2020		2019
North America	$	107,000	$	225,800	$	290,400	$	442,400	$	155,700	$	190,600	$	446,100	$	633,000
South America		–		–		1,400		–		700		–		2,100		–
Europe		–		100		–		100		–		–		–		100
Asia		505,100		290,200		840,600		483,000		583,400		418,300		1,424,000		901,300
Australia		15,200		–		15,200		–		15,000		28,600		30,200		28,600
	$	627,300	$	516,100	$	1,147,600	$	925,500	$	754,800	$	637,500	$	1,902,400	$	1,563,000

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

Note 9. Leases

Our Company conducts its operations in leased facilities under a non-cancelable operating lease expiring in 2024.

~~NOCOPI TECHNOLOGIES, INC.~~

~~NOTES TO FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Due to the adoption of the new lease standard under the optional transition method which allows the entity to apply the new lease standard at the adoption date, our Company has capitalized the present value of the minimum lease payments commencing January 1, 2019, using an estimated incremental borrowing rate of 6%6.5%. The minimum lease payments do not include common area annual expenses which are considered to be non-lease components.

As of January 1, 2019 the operating lease right-of-use asset and operating lease liability amounted to $241,100 with no cumulative-effect adjustment to the opening balance of accumulated deficit.

There are no other material operating leases. Our Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases.

Total lease expense under operating leases for the three and ~~six~~nine months ended ~~June~~September 30, 2020 was ~~$13,400~~$13,300 and ~~$26,700,~~$40,000, respectively. Total lease expense under operating leases for the three and ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$13,400~~$13,300 and ~~$26,700,~~$40,000, respectively.

Maturities of lease liabilities are as follows:

Operating Leases

Year ending December 31

2020

$
26,000

2021

53,100

2022

54,600

2023

56,200

2024

18,900

Total lease payments

208,800

Less imputed interest

(27,300
)
Total

$
181,500


	Operating Leases
Year ending December 31
2020	$	13,000
2021		53,100
2022		54,600
2023		56,200
2024		18,900
Total lease payments		195,800
Less imputed interest		(24,800	)
Total	$	171,000

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

Forward-Looking Information

This report on Form 10-Q contains, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Examples of forward-looking statements include, among others, statements we make ~~regarding~~regarding:


	·	The ongoing impact of the COVID-19 coronavirus pandemic on our business operations, revenues, employees, suppliers and customers
	·	Expected operating results, such as revenue growth and earnings
	·	Anticipated levels of capital expenditures for fiscal year 2020 and beyond
	·	Current or future volatility in market conditions
	·	Our belief that we have sufficient liquidity to fund our business operations during the next twelve months
	·	Strategy for customer retention, growth, product development, market position, financial results and reserves
	·	Strategy for risk management

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:


	·	The extent to which the COVID-19 pandemic may impact our future financial and operational performance will be dependent on many factors that we may not be able to predict because they continue to change and evolve depending on both national and local circumstances among them government restrictions affecting our employees, customers and suppliers, changes in our revenues due to lower customer demand as a result of the pandemic and a potential inability to obtain raw materials due to lower availability. We continue to monitor the impact of COVID-19 on our business but we cannot accurately predict the extent to which it will adversely affect our future results of operations, financial condition or cash flows.
	·	The extent to which we are successful in gaining new long-term relationships with customers or retaining significant existing customers and the level of service failures that could lead customers to use competitors' services.
	·	Our ability to improve our current credit rating with our vendors and the impact on our raw materials and other costs and competitive position of doing so.
	·	The impact of losing our intellectual property protections or the loss in value of our intellectual property.
	·	Changes in customer demand.
	·	The adequacy of our cash flow and earnings and other conditions which may affect our ability to timely service our debt obligations.
	·	Such other factors as discussed throughout Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in this report, and throughout Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019 and this Quarterly Report on Form 10-Q.
		Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

The following discussion and analysis should be read in conjunction with our condensed financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management. This information should also be read in conjunction with our audited historical financial statements which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission on March 30, 2020, as amended on April 29, 2020.

Background Overview

Nocopi Technologies, Inc. develops and markets specialty reactive inks for applications in the large educational and toy products market. We also develop and market technologies for document and product authentication, which we believe can reduce losses caused by fraudulent document reproduction or by product counterfeiting and/or diversion. We derive our revenues primarily from licensing our technologies on an exclusive or non-exclusive basis to licensees who incorporate our technologies into their product offering and from selling products incorporating our technologies to the licensees or to their licensed printers.

Unless the context otherwise requires, all references to the “Company,” “we,” “our” or “us” and other similar terms means Nocopi Technologies, Inc., a Maryland corporation.

Effects of COVID-19

To serve our customers while also providing for the safety of our employees and service providers, we have adapted various steps to protect our employees. Any employee who is uncomfortable coming into our facilities may choose not to come in. We have a large enough facility to enable all of our employees to social distance and we follow Centers for Disease Control and Prevention (CDC) guidelines. Our production employees work with chemicals and they have always used masks, respirators, etc., even before COVID-19. As a result, we continue to maintain the same level of productivity and effectiveness as prior to the COVID-19 pandemic.

The impact of COVID-19 on our Company’s financial results during the ~~second~~third quarter and first ~~six~~nine months of 2020 resulted primarily from a significant increase in the price of raw materials used in certain of our Company’s products caused by shortages of these ingredients as a result of the COVID-19 pandemic along with a mix of our Company’s products purchased by our licensees’ third party printers toward certain products with formulations that require ingredients whose prices have increased as a result of COVID-19. We expect these higher raw material prices to negatively affect subsequent quarters until the shortages are alleviated. We expect the ~~third~~fourth quarter to see a similar impact from COVID-19 and the various operational adjustments we made. The full extent of the impact to our Company due to the impact of the COVID-19 pandemic for our fourth quarter and beyond cannot be currently determined. The extent to which the COVID-19 pandemic may impact our future financial and operational performance will be dependent on many factors that we may not be able to predict because they continue to change and evolve depending on both national and local circumstances among them government restrictions affecting our employees, customers and suppliers, changes in our revenues due to lower customer demand as a result of the pandemic and a potential inability to obtain raw materials due to lower availability. We continue to monitor the impact of COVID-19 on our business but we cannot accurately predict the extent to which it will adversely affect our future results of operations, financial condition or cash flows.

To date, we have not suffered a drop off in customer orders and total earned royalties in the entertainment and toy products market as a result of COVID-19, but we continue to experience a negative impact on revenues in our smaller anti-counterfeiting and anti-diversion products market due to closures of certain printing facilities that utilize these technologies and anticipate that these closures may continue for a period of time. We continue to retain revenues at historical levels in the entertainment and toy products market through the current date despite the downturns in the overall economy. While the products of our licensees in the larger entertainment and toy products market are sold by both large and smaller retailers, some of whom remain open, and are also available for purchase online, we believe that revenues may not continue to be achieved at levels experienced to the current date due to the negative economic conditions that are expected to continue over the balance of the year and beyond as a result of COVID-19. A slowdown in overall consumer spending may affect the sales of products marketed by our licensees. Our major licensees in the entertainment and toy products market are large, well-known businesses in this market with whom we believe our long-term relationship will not be adversely affected by the current COVID-19 pandemic.

Results of Operations

Our Company’s revenues are derived from (a) royalties paid by licensees of our technologies, (b) fees for the provision of technical services to licensees and (c) from the direct sale of (i) products incorporating our technologies, such as inks, security paper and pressure sensitive labels, and (ii) equipment used to support the application of our technologies, such as ink-jet printing systems. Royalties consist of guaranteed minimum royalties payable by our licensees in certain cases and additional royalties which typically vary with the licensee’s sales or production of products incorporating the licensed technology. Service fees and sales revenues vary directly with the number of units of service or product provided.

Our Company recognizes revenue on its lines of business as follows:


	a.	License fees for the use of our technology and royalties with guaranteed minimum amounts are recognized at a point in time when the term begins;
	b.	Product sales are recognized at the time of the transfer of goods to customers at an amount that our Company expects to be entitled to in exchange for these goods, which is at the time of shipment; and
	c.	Fees for technical services are recognized at the time of the transfer of services to customers at an amount that our Company expects to be entitled to in exchange for the services, which is when the service has been rendered.

We believe that, as fixed cost reductions beyond those we have achieved in recent years may not be achievable, our 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 amount of our Company’s revenues and the mix among the various sources of revenue are subject to substantial fluctuation. We have 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 our Company’s total revenue, revenue mix and overall financial performance. Such changes may result from a substantial 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 our Company agrees to revise such terms, revenues from the customer may be affected.

Revenues for the ~~second~~third quarter of 2020 were ~~$627,300~~$754,800 compared to ~~$516,100~~$637,500 in the ~~second~~third quarter of 2019, an increase of ~~$111,200,~~$117,300, or approximately ~~22%~~18%. Licenses, royalties and fees decreased by ~~$84,900,~~$36,100, or approximately ~~44%~~19%, to ~~$107,100~~$153,300 in the ~~second~~third quarter of 2020 from ~~$192,000~~$189,400 in the ~~second~~third quarter of 2019. The decrease in licenses, royalties and fees in the third quarter of 2020 compared to the third quarter of 2019 is due primarily to lower royalties from our Company’s licensees in both the entertainment and security markets. We cannot assure you that the marketing and product development activities of our Company’s licensees or other businesses in the entertainment and toy products market will produce a significant increase in revenues for our Company, nor can the timing of any potential revenue increases be predicted, particularly given the uncertain economic conditions being experienced worldwide as a result of the COVID-19 pandemic that is continuing to negatively impact all worldwide economies.

Product and other sales increased by $153,400, or approximately 34%, to $601,500 in the third quarter of 2020 from $448,100 in the third quarter of 2019. Sales of ink increased in the third quarter of 2020 compared to the third quarter of 2019 due primarily to higher ink shipments to the third party authorized printers used by two of our Company’s major licensees in the entertainment and toy products market offset in part by lower ink shipments to our Company’s licensees in the retail receipt and document fraud market. In the third quarter of 2020, our Company derived revenues of approximately $699,100 from our licensees and their authorized printers in the entertainment and toy products market compared to revenues of approximately $555,900 in the third quarter of 2019.

For the first nine months of 2020, revenues were $1,902,400, representing an increase of $339,400, or approximately 22%, from revenues of $1,563,000 in the first nine months of 2019. The decrease in licenses, royalties and fees is due primarily to lower guaranteed licensing revenue of approximately ~~$100,000~~$200,000 in the ~~second quarter~~first six months of 2020 from one licensee in the entertainment and toy products market as a result of the adoption of ASU 214-09, Revenue from Contracts with Customersin the second quarter of 2018. We cannot assure you that the marketing and product development activities of our Company’s licensees or other businesses in the entertainment and toy products market will produce a significant increase in revenues for our Company, nor can the timing of any potential revenue increases be predicted, particularly given the uncertain economic conditions being experienced worldwide as a result of the COVID-19 pandemic that is continuing to negatively impact all worldwide economies.

We cannot assure you that the marketing and product development activities of our Company’s licensees or other businesses in the entertainment and toy products market will produce a significant increase in revenues for our Company, nor can the timing of any potential revenue increases be predicted, particularly given the uncertain economic conditions being experienced worldwide as a result of the COVID-19 pandemic.

Product and other sales increased by ~~$196,100,~~$486,300, or approximately ~~61%~~49%, to $520,200 in the second quarter of 2020 from $324,100 in the second quarter of 2019. Sales of ink increased in the second quarter of 2020 compared to the second quarter of 2019 due primarily to higher ink shipments to the third party authorized printers used by two of our Company’s major licensees in the entertainment and toy products market. In the second quarter of 2020, our Company derived revenues of approximately $575,200 from our licensees and their authorized printers in the entertainment and toy products market compared to revenues of approximately $436,100 in the second quarter of 2019.

~~For the first six months of 2020, revenues were $1,147,600, representing an increase of $222,100, or approximately 24%, from revenues of $925,500~~$1,477,400 in the first ~~six months of 2019. Licenses, royalties and fees decreased by $110,800, or approximately 29%, to $271,700 in the first six~~nine months of 2020 from ~~$382,500~~$991,100 in the first six months of 2019. The decrease in licenses, royalties and fees is due primarily to lower guaranteed licensing revenue of approximately $200,000 in the first six months of 2020 from one licensee in the entertainment and toy products market as a result of the adoption of ASU 214-09, ~~Revenue from Contracts with Customers~~ in the second quarter of 2018. We cannot assure you that the marketing and product development activities of our Company’s licensees or other businesses in the entertainment and toy products market will produce a significant increase in revenues for our Company, nor can the timing of any potential revenue increases be predicted, particularly given the uncertain economic conditions being experienced worldwide as a result of the COVID-19 pandemic that is continuing to negatively impact all worldwide economies.

~~Product and other sales increased by $332,900, or approximately 61%, to $875,900 in the first six months of 2020 from $543,000 in the first six~~nine months of 2019. Sales of ink increased in the ~~first six~~nine months of 2020 compared to the first ~~six~~nine months of 2019 due primarily to higher ink shipments to the third party authorized printers used by two of our Company’s major licensees in the entertainment and toy products market offset in part by lower ink shipments to our Company’s licensees in the retail receipt and document fraud market. Our Company derived revenues of approximately ~~$1,028,700~~$1,727,800 from licensees and their authorized printers in the entertainment and toy products market in the first ~~six~~nine months of 2020 compared to revenues of approximately ~~$772,000~~$1,327,900 in the first ~~six~~nine months of 2019.

Our Company’s gross profit decreased to ~~$321,500~~$425,500 in the ~~second~~third quarter of 2020, or approximately ~~51%~~56% of revenues, from ~~$361,100~~$429,500 in the ~~second~~third quarter of 2019 or approximately ~~70%~~67% of revenues. Licenses, royalties and fees have historically carried a higher gross profit than product and other sales. Such other sales generally consist of supplies or other manufactured products which incorporate our Company’s technologies or equipment used to support the application of its technologies. These items (except for inks which are manufactured by our Company) are generally purchased from third-party vendors and resold to the end-user or licensee and carry a lower gross profit than licenses, royalties and fees. The lower gross profit in the ~~second~~third quarter of 2020 compared to the ~~second~~third quarter of 2019 results primarily from lower gross revenues from licenses, royalties and fees ~~due to the adoption of Topic 606 in the second quarter of 2018~~ offset in part by higher ~~gross revenues from~~ product and other sales in the ~~second~~third quarter of 2020 compared to the ~~second~~third quarter of 2019.

For the first ~~six~~nine months of 2020, gross profit was ~~$590,500,~~$1,016,000, or approximately ~~51%~~53% of revenues, compared to ~~$655,000,~~$1,084,500, or approximately ~~71%~~69% of revenues in ~~the first six months of~~ 2019. The lower gross profit in the first ~~six~~nine months of 2020 compared to the first ~~six~~nine months of 2019 results primarily from lower licenses, royalties and fees due to the adoption of Topic 606 in ~~the second quarter of~~ 2018 offset in part by higher gross revenues from product and other sales in the first ~~six~~nine months of 2020 compared to the first ~~six~~nine months of 2019.

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 overall gross profit. The gross profit from licenses, royalties and fees decreased to approximately ~~45%~~60% in the ~~second~~third quarter of 2020 compared to approximately ~~84%~~78% in the ~~second~~third quarter of 2019 and to approximately 60% of revenues from licenses, royalties and fees in the first ~~six~~nine months of 2020 from approximately ~~85%~~83% in the first ~~six~~nine months of 2019.

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 specific goods produced and/or sold. The gross profit from product and other sales decreased to approximately ~~52%~~56% of revenues in the ~~second~~third quarter of 2020 compared to approximately ~~62%~~63% of revenues in the ~~second~~third quarter of 2019. For the first ~~six~~nine months of 2020, the gross profit, expressed as a percentage of revenues, decreased to approximately ~~49%~~52% of revenues from product and other sales compared to approximately ~~61%~~62% of revenues from product and other sales in the first ~~six~~nine months of 2019. The decrease in both the ~~second~~third quarter and first ~~six~~nine months of 2020 compared to the ~~second~~third quarter and first ~~six~~nine months of 2019 is due to: a) a significant increase in the cost of raw materials utilized by ~~the~~our Company in the manufacture of certain of its products as a result of price increases related to the impact of the ongoing COVID-19 pandemic on the availability and supply of these raw materials in the ~~second~~third quarter and first ~~six~~nine months of 2020 compared to the ~~second~~third quarter and first ~~six~~nine months of ~~2019;~~2019 (we are not passing along these cost increases to our customers at this time); b) an unfavorable mix of products sold whereby the increases in purchases of ~~the~~our Company’s products by the licensed printers of its licensees in the entertainment and toy products market in the ~~second~~third quarter and first ~~six~~nine months of 2020 compared to the ~~second~~third quarter and first ~~six~~nine months of 2019 were of products manufactured by ~~the~~our Company whose raw material prices were most affected by shortages created by the COVID-19 pandemic and c) increased production salaries related to a staffing addition, higher duties and equipment depreciation in the ~~second~~third quarter and first ~~six~~nine months of 2020 compared to the ~~second~~third quarter and first ~~six~~nine months of 2019.

Research and development expenses of ~~$41,900~~$40,700 and ~~$83,000~~$123,700 in the ~~second~~third quarter and first ~~six~~nine months of 2020, respectively, were comparable to ~~$39,400~~$45,200 and ~~$77,400~~$122,600 in the ~~second~~third quarter and first ~~six~~nine months of 2019, respectively.

Sales and marketing expenses increased ~~to $86,000~~ in the ~~second~~third quarter of 2020 to $90,900 from ~~$74,300~~$81,000 in the ~~second~~third quarter of ~~2019~~2019. Sales and ~~to $170,000~~marketing expenses increased in the first ~~six~~nine months of 2020 to $260,900 from ~~$143,200~~$224,200 in the first ~~six~~nine months of 2019. This increase is due primarily to higher commission expense on the higher level of sales in the ~~second~~third quarter and first ~~six~~nine months of 2020 compared to the ~~second~~third quarter and first ~~six~~nine months of 2019.

General and administrative expenses increased in the ~~second~~third quarter of 2020 to ~~$120,000~~$123,800 from ~~$86,900~~$84,200 in the ~~second~~third quarter of 2019. ~~In the first six months of 2020, general~~General and administrative expenses increased ~~to $259,700 from $181,000~~ in the first ~~six~~nine months of 2020 to $383,500 from $265,200 in the first nine months of 2019. The increase in ~~the second~~third quarter of 2020 compared to the ~~second~~third quarter of 2019 is due primarily to higher public relations and salary expenses in the ~~second~~third quarter of 2020 compared to the ~~second~~third quarter of 2019. The increase in the first ~~six~~nine months of 2020 compared to the first ~~six~~nine months of 2019 is due primarily to higher public relations and salary expenses in the first ~~six~~nine months of 2020 compared to the first ~~six~~nine months of 2019.

Other income (expenses) in the ~~second~~third quarter and first ~~six~~nine months of 2020 and 2019 included interest on convertible debentures held by seven ~~investors.~~investors and interest earned on invested funds.

Income taxes in the ~~second~~third quarter and first ~~six~~nine months of 2020 and 2019 result from limitations placed on income tax net operating loss deductions by the Commonwealth of Pennsylvania. In the first quarter of 2020, our Company reversed $47,400 of accrued Pennsylvania income taxes that are not payable.

The lower net income of ~~$70,800~~$163,100 in the ~~second~~third quarter of 2020 compared to net income ~~$148,900~~of $206,800 in the ~~second~~third quarter of 2019 resulted primarily from a lower gross profit on a lower level of licenses, royalties and fees, higher cost of revenues and higher operating expenses in the ~~second~~third quarter of 2020 compared to the ~~second~~third quarter of 2019. The lower net income of ~~$123,400~~$286,500 in the first ~~six~~nine months of 2020 compared to net income of ~~$234,300~~$441,100 in the first ~~six~~nine months of 2019 resulted primarily from a lower gross profit on a lower level of licenses, royalties and fees, higher cost of revenues and higher operating expenses in the first ~~six~~nine months of 2020 compared to the first ~~six~~nine months of 2019 offset in part by the reversal of income taxes in the first quarter of 2020.

Plan of Operation, Liquidity and Capital Resources

During the first ~~six~~nine months of 2020, our Company’s cash increased to ~~$1,052,700~~$1,428,900 at ~~June~~September 30, 2020 from $688,000 at December 31, 2019. During the first ~~six~~nine months of 2020, our Company generated ~~$395,700~~$768,500 from its operating activities, received $11,000 upon the exercise of warrants and used ~~$31,000~~$38,600 for capital expenditures.

During the first ~~six~~nine months of 2020, our Company’s revenues increased approximately ~~24%~~22% primarily as a result of higher sales of ink to the authorized printers of our Company’s licensees in the entertainment and toy products market offset in part by lower royalty revenues from ~~a licensee~~two licensees in the entertainment and toy products market.

~~Additionally, our~~Our Company’s total overhead expenses increased in the first ~~six~~nine months of 2020 compared to the first ~~six~~nine months of 2019 and our Company’s net interest expense decreased in the first ~~six~~nine months of 2020 compared to the first ~~six~~nine months of 2019. As a result of these factors, our Company generated net income of ~~$123,400~~$286,500 in the first ~~six~~nine months of 2020 compared to ~~$234,300~~$441,100 in the first ~~six~~nine months of 2019. Our Company had positive operating cash flow of ~~$395,700~~$768,500 during the first ~~six~~nine months of ~~2020. At June~~2020 and at September 30, 2020, ~~our Company~~ had positive working capital of ~~$2,065,600~~$2,469,900 and stockholders’ equity of ~~$2,913,100.~~$3,231,200. For the full year of 2019, our Company had net income of $754,900 and had positive operating cash flow of $360,600. At December 31, 2019, our Company had positive working capital of $1,835,300 and stockholders’ equity of $2,789,700.

Our Company has $97,900 of convertible debentures outstanding at June 30, 2020 that are due during the third quarter of 2020. As of the current date, holders of all $97,900 of the convertible debentures have elected to convert the debentures plus approximately $46,000 of accrued interest into 5,758,992 shares of common stock of our Company. These borrowings allowed our Company to remain in operation through late 2016 when our Company’s cash flow increased significantly.

In November 2018, our Company negotiated a $150,000 revolving line of credit (“Lineof Credit”) with a bank to provide a source of working capital, if required. The Line of Credit is secured by all the assets of our Company and bears interest at the bank’s prime rate for a period of one year and its prime rate plus 1.5% thereafter. 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. We may need to obtain additional capital in the future to further support the working capital requirements associated with our existing revenue base and to develop new revenue sources. We cannot assure you that we will be successful in obtaining such additional capital, if needed. We continue to maintain a cost containment program including curtailment, where possible, of discretionary research and development and sales and marketing expenses.

Our plan of operation for the twelve months beginning with the date of this quarterly report consists of concentrating available human and financial resources to continue to capitalize on the specific business relationships our Company has developed in the entertainment and toy products market. This includes two licensees that have been marketing products incorporating our Company’s technologies since 2012. These two licensees maintain a significant presence in the entertainment and toy products market and are well known and highly regarded participants in this market. We anticipate that these two licensees will expand their current offerings that incorporate our technologies and will introduce and market new products that will incorporate our technologies available to them under their license agreements with our Company. We will continue to develop various applications for these licensees. We also plan to expand our licensee base in the entertainment and toy market. We currently have additional licensees marketing or developing products incorporating our technologies in certain geographic and niche markets of the overall entertainment and toy products market.

Our Company maintains its presence in the retail loss prevention market and believes that revenue growth in this market can be achieved through increased security ink sales to its licensees in this market. We will continue to adjust our production and technical staff as necessary and, subject to available financial resources, invest in capital equipment needed to support potential growth in ink production requirements beyond our current capacity. Additionally, we will pursue opportunities to market our current technologies in specific security and non-security markets. ~~We cannot assure you~~There can be no assurances that these efforts will enable our Company to generate additional revenues and positive cash flow.

Our Company has received, and may in the future seek, additional capital in the form of debt, equity or both, to support our working capital requirementsand to provide funding for other business opportunities. Beyond the Line of Credit, we cannot assure you that if we require additional capital, that we will be successful in obtaining such additional capital, or that such additional capital, if obtained, will enable our Company to generate additional revenues and positive cash flow.

As previously stated, we generate a significant portion of our total revenues from licensees in the entertainment and toy products market. These licensees generally sell their products through retail outlets. In the future, such sales may be adversely affected by changes in consumer spending that may occur as a result of an uncertain economic environment throughout the balance of 2020 and beyond due to the COVID-19 virus and its effect on the global economy. As a result, our revenues, results of operations and liquidity may be negatively impacted.

Contractual Obligations

As of ~~June~~September 30, 2020, there were no material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K filed with the SEC on March 30, 2020, as amended on April 29, 2020, other than those appearing in the notes to the financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Recently Adopted Accounting Pronouncements

As of ~~June~~September 30, 2020, there were no recently adopted accounting standards that had a material effect on our Company’s financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

As of ~~June~~September 30, 2020, there are no recently issued accounting standards not yet adopted which would have a material effect on our Company’s financial statements.

Off-Balance Sheet Arrangements

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our Company’s management, with the participation of our Company’s Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of ~~June~~September 30, 2020. Based on this evaluation, our Company’s Principal Executive Officer and Principal Financial Officer concluded that, as of ~~June~~September 30, 2020, our Company’s disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by our Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our Company’s management, including our Company’s Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended ~~June~~September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

The following risk factors supplement the Risk Factors described in the Company’s annual report on Form 10-K for the year ended December 31, 2019, as amended, and should be read in conjunction therewith.

We expect the COVID-19 pandemic to continue to negatively impact our results of operations, cash flow and financial position.

The negative impact of COVID-19 on our Company’s financial results during the ~~second~~third quarter and first ~~six~~nine months of 2020 resulted primarily from a significant increase in the price of raw materials used in certain of our Company’s products caused by shortages of these ingredients as a result of the COVID-19 pandemic along with a mix of our Company’s products purchased by our licensees’ third party printers toward certain products with formulations that require ingredients whose prices have increased as a result of COVID-19. We expect these higher raw material prices to negatively affect subsequent quarters until the shortages are alleviated. We expect the ~~third~~fourth quarter to see a similar impact from COVID-19 and the various operational adjustments we made.

Other disruptions to our business operations due to COVID-19 with a resultant impact on our results of operations are expected to continue to occur as a result of quarantines of employees and suppliers in areas affected by the outbreak, availability of raw materials required to manufacture our products, disruption of supply chains that provide our raw materials, price increases of raw materials and supplies used in our production processes, facility closures of domestic and international customers who purchase and use our products, and travel and logistics restrictions affecting our inbound and outbound shipments in connection with the COVID-19 outbreak. While we expect this global COVID-19 pandemic to continue to negatively impact our results of operations, cash flow and financial position, the related financial impact cannot be reasonably estimated at this time.

The extent to which the COVID-19 pandemic will negatively impact our results of operations, cash flow and financial position is highly uncertain and cannot be reasonably estimated at this time.

The COVID-19 pandemic has created significant worldwide uncertainty, volatility and economic disruption. The extent to which COVID-19 will negatively impact our results of operations, cash flow and financial position is dependent upon numerous factors, many of which are highly uncertain, rapidly changing and uncontrollable. These factors include, but are not limited to: (i) the duration and scope of the pandemic; (ii) governmental, business and individual actions that have been and continue to be taken in response to the pandemic, including travel restrictions, quarantines, social distancing, work-from-home and shelter-in-place orders and shut-downs; (iii) the impact on U.S. and global economies and the timing and rate of economic recovery; (iv) potential adverse effects on the financial markets and access to capital; (v) potential goodwill or other impairment charges; and (vi) the ability of our licensees and other customers to sell products that utilize or incorporate our technology.

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


Date		~~Security~~Security/Value
July 2020		5,758,992 shares of common stock at $0.025 per share pursuant to the conversion of $97,900 of 7% convertible debentures plus approximately $46,000 of accrued interest.
July 2020		Common Stock – 550,000 shares of common stock at $0.02 per share pursuant to warrant exercises for total proceeds of $11,000.

These persons were the only offerees in connection with these transactions. We relied on Section 4(a)(2), 4(a)(5) and Regulation D of the Securities Act since the transactions do not involve any public offering. No underwriters were utilized, and no commissions or fees were paid with respect to any of the above transactions.We relied on Section 4(a)(2) and/or Regulation D of the Securities Act of 1933, as amended, since the transactions did not involve any public offering.

Item 5. Other Information

During the third quarter of 2020, the holders of outstanding convertible debentures totaling approximately $97,900 that were due during the third quarter of 2020 elected to convert those debentures plus approximately $46,100 of accrued interest into 5,758,992 shares of our Company’s common stock. The convertible debentures bore interest at 7%. The conversion price was $0.025 per share.

During the third quarter of 2020, holders of 550,000 warrants exercised their warrants to purchase a total of 550,000 shares of our Company’s common stock at an exercise price of $0.02 per share. Our Company received $11,000 upon the exercise of these warrants.

Item 6. Exhibits

~~(a) Exhibits~~The following exhibits are included herein:


	Exhibit ~~Number~~No.		Description of Exhibit		Location
	1 ~~0.1~~10.1		Form of Convertible Debenture Purchase Agreement and Exhibits		Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 11, 2015
	10.2		Form of Letter Agreement re: Convertible Debenture Purchase Agreement Election		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2019
31.1		~~31.1~~		Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed herewith
	31.2		Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed herewith
	32.1		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.		Filed herewith
	~~101~~101.INS		XBRL Instance Document		Filed herewith
101.SCH		XBRL Taxonomy Extension Schema		Filed herewith
101.CAL		XBRL Taxonomy Extension Calculation Linkbase		Filed herewith
101.DEF		XBRL Taxonomy Extension Definition Linkbase		Filed herewith
101.LAB		XBRL Taxonomy Extension Label Linkbase		Filed herewith
101.PRE		XBRL Taxonomy Extension Presentation Linkbase		Filed herewith

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, our Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		NOCOPI TECHNOLOGIES, INC.

DATE: ~~August 14,~~November 13, 2020		/s/ Michael A. Feinstein, M.D.
		Michael A. Feinstein, M.D.
		Chairman of the Board, President & Chief Executive Officer

DATE: ~~August 14,~~November 13, 2020		/s/ Rudolph A. Lutterschmidt
		Rudolph A. Lutterschmidt
		Vice President & Chief Financial Officer

EXHIBIT INDEX


Exhibit ~~Number~~No.	Description of Exhibit	Location
10.1	Form of Convertible Debenture Purchase Agreement and Exhibits	Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 11, 2015
10.2	Form of Letter Agreement re: Convertible Debenture Purchase Agreement Election	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2019
31.1	Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith
32.1	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.	Filed herewith
~~101~~101.INS	XBRL Instance Document	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	Filed herewith

1918


	Three Months ended June 30						Six Months ended June 30
	2020			2019			2020			2019

Revenues
Licenses, royalties and fees	$	107,100		$	192,000		$	271,700		$	382,500
Product and other sales		520,200			324,100			875,900			543,000
		627,300			516,100			1,147,600			925,500

Cost of revenues
Licenses, royalties and fees		58,600			31,600			108,300			56,800
Product and other sales		247,200			123,400			448,800			213,700
		305,800			155,000			557,100			270,500
Gross profit		321,500			361,100			590,500			655,000

Operating expenses
Research and development		41,900			39,400			83,000			77,400
Sales and marketing		86,000			74,300			170,000			143,200
General and administrative		120,000			86,900			259,700			181,000
		247,900			200,600			512,700			401,600
Net income from operations		73,600			160,500			77,800			253,400

Other income (expenses)
Interest income		4,300			1,500			8,100			2,600
Interest expense, bank charges and accretion of interest		(2,100	)		(2,700	)		(4,600	)		(5,400	)
		2,200			(1,200	)		3,500			(2,800	)
Net income before income taxes		75,800			159,300			81,300			250,600
Income taxes		5,000			10,400			(42,100	)		16,300
Net income	$	70,800		$	148,900		$	123,400		$	234,300

Basic and diluted net income per common share	$	.00		$	.00		$	.00		$	.00

Weighted average common shares outstanding
Basic		61,044,698			58,616,716			61,044,698			58,616,716
Diluted		61,605,985			58,973,280			61,577,129			58,988,005