10-Q

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

or

☐  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 ☒  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 ☒  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	☒	Smaller reporting company	☒
		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 ☒

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 May 12, 2021.

NOCOPI TECHNOLOGIES, INC.

INDEX

	PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements	1
Statements of Comprehensive Income for Three Months ended March 31, 2021 and March 31, 2020	1
Balance Sheets at March 31, 2021 and December 31, 2020	2
Statements of Cash Flows for Three Months ended March 31, 2021 and March 31, 2020	3
Statements of Stockholders’ Equity for Three Months ended March 31, 2021 and March 31, 2020	4
Notes to Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3. Quantitative and Qualitative Disclosures About Market Risk	14
Item 4. Controls and Procedures	14
Part II. OTHER INFORMATION
Item 6. Exhibits	15
SIGNATURES	16
EXHIBIT INDEX	17

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Nocopi Technologies, Inc.

Statements of Comprehensive Income*

(unaudited)

	Three Months ended March 31
	2021			2020
Revenues
Licenses, royalties and fees	$	185,500		$	164,600
Product and other sales		425,900			355,700
		611,400			520,300
Cost of revenues
Licenses, royalties and fees		47,100			49,700
Product and other sales		173,200			201,600
		220,300			251,300
Gross profit		391,100			269,000
Operating expenses
Research and development		44,500			41,100
Sales and marketing		83,200			84,000
General and administrative		145,500			139,700
		273,200			264,800
Net income from operations		117,900			4,200
Other income (expenses)
Interest income		4,800			3,800
Interest expense and bank charges		(600	)		(2,500	)
		4,200			1,300
Net income before income taxes		122,100			5,500
Income taxes		7,300			(47,100	)
Net income	$	114,800		$	52,600
Basic and diluted net income per common share	$	.00		$	.00
Weighted average common shares outstanding
Basic		67,353,690			61,044,698
Diluted		67,477,603			61,530,910

*See accompanying notes to these financial statements.

1

Nocopi Technologies, Inc.

Balance Sheets*

	March 31			December 31
	2021			2020
	(unaudited)			(audited)
Assets
Current assets
Cash	$	1,728,200		$	1,362,800
Accounts receivable less $12,000 allowance for doubtful accounts		1,167,600			1,280,800
Inventory		384,700			324,800
Prepaid and other		63,600			97,800
Total current assets		3,344,100			3,066,200
Fixed assets
Leasehold improvements		27,800			27,800
Furniture, fixtures and equipment		163,700			163,700
		191,500			191,500
Less: accumulated depreciation and amortization		110,400			104,300
		81,100			87,200
Other assets
Long-term receivables		465,300			559,500
Operating lease right of use – building		149,400			160,300
		614,700			719,800
Total assets	$	4,039,900		$	3,873,200
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	52,600		$	5,700
Accrued expenses		193,800			178,600
Income taxes		43,600			36,300
Operating lease liability – current		45,200			44,500
Total current liabilities		335,200			265,100
Other liabilities
Accrued expenses, non-current		32,600			39,200
Operating lease liability – non-current		104,200			115,800
		136,800			155,000
Stockholders' equity
Common stock, $0.01 par value
Authorized – 75,000,000 shares
Issued and outstanding – 67,353,690 shares		673,500			673,500
Paid-in capital		12,575,800			12,575,800
Accumulated deficit		(9,681,400	)		(9,796,200	)
Total stockholders' equity		3,567,900			3,453,100
Total liabilities and stockholders' equity	$	4,039,900		$	3,873,200

*See accompanying notes to these financial statements.

2

Nocopi Technologies, Inc.

Statements of Cash Flows*

(unaudited)

	Three Months ended March 31
	2021			2020
Operating Activities
Net income	$	114,800		$	52,600
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		6,100			4,400
Deferred income taxes		—			(47,400	)
Other assets		105,100			105,900
Other liabilities		(17,500	)		(16,900	)
		208,500			98,600
(Increase) decrease in assets
Accounts receivable		113,200			457,600
Inventory		(59,900	)		(59,400	)
Prepaid and other		34,200			42,900
Increase (decrease) in liabilities
Accounts payable and accrued expenses		62,100			(15,100	)
Income taxes		7,300			300
		156,900			426,300
Net cash provided by operating activities		365,400			524,900
Investment Activities
Additions to fixed assets		—			(7,500	)
Net cash used in investing activities		—			(7,500	)
Increase in cash		365,400			517,400
Cash at beginning of year		1,362,800			688,000
Cash at end of period	$	1,728,200		$	1,205,400

*See accompanying notes to these financial statements.

3

Nocopi Technologies, Inc.

Statements of Stockholders’ Equity*

For the Periods December 31, 2020 through March 31, 2021

and December 31, 2019 through March 31, 2020

(unaudited)

	Common stock				Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance – December 31, 2020		67,353,690	$	673,500	$	12,575,800	$	(9,796,200	)	$	3,453,100
Net income								114,800			114,800
Balance – March 31, 2021		67,353,690	$	673,500	$	12,575,800	$	(9,681,400	)	$	3,567,900

	Common stock				Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance – December 31, 2019		61,044,698	$	610,400	$	12,483,900	$	(10,304,600	)	$	2,789,700
Net income								52,600			52,600
Balance – March 31, 2020		61,044,698	$	610,400	$	12,483,900	$	(10,252,000	)	$	2,842,300

* See accompanying notes to these financial statements.

4

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 Note 2 Significant Accounting Policies included in the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 30, 2021, as amended on April 30, 2021 (the “2020 Annual Report”). 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 2020 Annual Report should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three months ended March 31, 2021 may not be necessarily indicative of the operating results expected for the full year.

A novel strain of coronavirus, COVID-19, that was first identified in Wuhan, China in December 2019 has surfaced in many countries around the world including the United States. Many countries continue to experience reoccurrences of COVID-19 to the current date. The World Health Organization has declared COVID-19 to constitute a global pandemic. Certain state and local governments reacted by placing significant restrictions on businesses including a closure in Pennsylvania of non-essential businesses that was announced on March 20, 2020. While many Pennsylvania businesses have been allowed to reopen, often at limited capacity and with certain restrictions, as of the current date, there can be no assurances that future closures will be avoided. A requirement to close our Company for a considerable period of time could result in a negative impact on our Company’s financial condition and results of operations. Additionally, as our Company imports certain raw materials from China, if an extended disruption of the supply of these raw materials were to occur, our ability to produce products for sale to our customers could be negatively impacted. Further, restrictions on our customers and licensees in areas affected by the COVID-19 could adversely affect our results of operations and financial condition. We cannot predict the scope or magnitude of the negative effect that may result from the impact of the COVID-19 pandemic on the Company’s financial condition and results of operations. Our Company’s results of operations were negatively affected in 2020 in part as a result of a significant increase in the cost of raw materials utilized by 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. While prices of these raw materials have declined at the present time, there can be no assurances that raw material prices will remain at current levels or decrease to pre-COVID-19 pandemic levels in future periods. As the COVID-19 pandemic continues to spread, any future 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 March 31, 2021, our Company did not have an active stock option plan. There was no unrecognized portion of expense related to stock option grants at March 31, 2021.

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.

5

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

Note 4. Stock Warrants

At March 31, 2021, our Company had warrants outstanding to purchase 141,365 of our Company’s common stock at $0.02 per share. The warrants were granted in 2014 to two individuals who acquired convertible debentures from the Company in 2014. The warrants are exercisable two years after issuance and expire seven years after issuance. The fair value of the warrants was determined using the Black-Scholes pricing model. The relative fair value of the warrants was recorded as a discount to the notes payable with an offsetting credit to additional paid-in capital since 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.

The following table summarizes our Company’s warrant position at March 31, 2021 and December 31, 2020:

					Weighted Average
	Number		Exercise		Exercise
	of Shares		Price		Price
Outstanding warrants -
December 31, 2020		141,365	$	0.02	$	0.02
Outstanding warrants -
March 31, 2021		141,365	$	0.02	$	0.02
Weighted average remaining
contractual life (years)		.27
Exercisable warrants -
March 31, 2021		141,365	$	0.02	$	0.02

The aggregate intrinsic value of warrants outstanding and exercisable as of March 31, 2021 was approximately $19,800. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $0.16 for our Company’s common stock on March 31, 2021.

Note 5. Other Income (Expenses)

Other income (expenses) for the three months ended March 31, 2020 included interest on debentures held by seven investors.

Note 6. Income Taxes

There is no provision for federal income taxes for the three months ended March 31, 2021 and March 31, 2020 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
	March 31,
		2021		2020
Current state taxes	$	7,300	$	300
Deferred state taxes		—		(47,400	)
	$	7,300	$	(47,100	)

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 March 31, 2021 and there was no accrual for uncertain tax positions as of March 31, 2021.

Tax years from 2017 through 2020 remain subject to examination by U.S. federal and state jurisdictions.

6

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

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 months ended March 31, 2021 and March 31, 2020, the number of incremental common shares resulting from the assumed conversion of warrants was 123,913 and 486,212, 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 our Company’s total revenues were:

	Three Months ended March 31
	2021			2020
Customer A		67	%		43	%
Customer B		—			21	%
Customer C		19	%		19	%

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:

	March 31			December 31
	2021			2020
Customer A		30	%		25	%
Customer C		65	%		65	%

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 March 31
	2021		2020
North America	$	169,700	$	183,400
South America		1,500		1,400
Asia		413,500		335,500
Australia		26,700		—
	$	611,400	$	520,300

Note 9. Leases

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

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%. 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.

7

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

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 each of the three month periods ended March 31, 2021 and March 31, 2020 was $13,300.

Maturities of lease liabilities were as follows:

	Operating Leases
Year ending December 31
2021	$40,000
2022	54,600
2023	56,200
2024	18,900
Total lease payments	169,700
Less imputed interest	(20,300)
Total	$149,400

8

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:

● 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 2021 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. These factors include, among others, the following: 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.

● The occurrence of hostilities, political instability or catastrophic events.

● Such other factors as discussed throughout Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q, 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, 2020..

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.

9

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, 2020, filed with the Securities and Exchange Commission on March 30, 2021, as amended on April 30, 2021.

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 had little impact on the financial results during the first quarter of 2021 as the shortage of raw materials used in certain of our Company’s products experienced throughout 2020 as a consequence of the COVID-19 pandemic and the resultant price increases have been at least temporarily eased, though still higher than pre-pandemic levels, so our Company’s gross margins on those products returned to similar levels as were experienced before the inception of the COVID-19 pandemic. We cannot accurately predict the availability and pricing of these raw materials in subsequent quarters due to ongoing uncertainties related to COVID-19. The full extent of the impact to the Company due to the impact of the COVID-19 pandemic for our second 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. These factors include, among others, the following: 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 we 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 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.

10

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 adversely affected.

Revenues for the first quarter of 2021 were $611,400 compared to $520,300 in the first quarter of 2020, an increase of $91,100, or approximately 18%. Licenses, royalties and fees increased by $20,900, or approximately 13%, in the first quarter of 2021 to $185,500 from $164,600 in the first quarter of 2020. The increase in licenses, royalties and fees in the first quarter of 2021 compared to the first quarter of 2020 is due primarily to higher royalties from our Company’s licensees in entertainment and toy products market offset in part by lower revenues from our Company’s licensees in the security markets which continues to be negatively affected by the COVID-19 pandemic. 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 $70,200, or approximately 20%, to $425,900 in the first quarter of 2021 from $355,700 in the first quarter of 2020. Sales of ink increased in the first quarter of 2021 compared to the first quarter of 2020 due primarily to higher ink shipments to the third party authorized printer 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 first quarter of 2021, our Company derived revenues of approximately $561,600 from our Company’s licensees and their authorized printers in the entertainment and toy products market compared to revenues of approximately $453,500 in the first quarter of 2020.

Our Company’s gross profit increased to $391,100, or approximately 64% of gross revenues, in the first quarter of 2021 from $269,000, or approximately 52% of gross revenues, in the first quarter of 2020. Licenses, royalties and fees have historically carried a higher gross profit than product and other sales, which generally consist of either 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.

11

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 these sources as well as our Company’s overall gross profit. The gross profit from licenses, royalties and fees increased to approximately 75% in the first quarter of 2021 from approximately 70% in the first quarter of 2020.

The gross profit of product and other sales, expressed as a percentage of revenues, 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. Primarily due to higher sales of inks and other products and a favorable product mix in the first quarter of 2021 compared to the first quarter of 2020, there was a higher gross profit from product and other sales of approximately 59% of revenues in the first quarter of 2021 compared to a gross profit of approximately 43% of revenues in the first quarter of 2020.

Research and development expenses increased in the first quarter of 2021 to $44,500 compared to $41,100 in the first quarter of 2020 due primarily to higher employee related expenses in the first quarter of 2021 compared to the first quarter of 2020.

Sales and marketing expenses decreased nominally to $83,200 in the first quarter of 2021 from $84,000 in the first quarter of 2020.

General and administrative expenses increased in the first quarter of 2021 to $145,500 compared to $139,700 in the first quarter of 2020 due primarily to higher professional fees in the first quarter of 2021 compared to the first quarter of 2020.

Other income (expenses) in the first quarter of 2020 included interest on convertible debentures held by seven investors.

Income taxes in the first quarter of 2021 and 2020 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 higher net income of $114,800 in the first quarter of 2021 compared to $52,600 in the first quarter of 2020 resulted primarily from a higher gross profit on a higher level of licenses, royalties and fees and higher product sales, lower cost of revenues and higher operating expenses in the first quarter of 2021 compared to the first quarter of 2020. There was no reversal of income taxes in the first quarter of 2021 as there was in the first quarter of 2020.

Plan of Operation, Liquidity and Capital Resources

During the first quarter of 2021, our Company’s cash increased to $1,728,200 at March 31, 2021 from $1,362,800 at December 31, 2020. During the first quarter of 2021, our Company generated $365,400 from its operating activities. 

During the first quarter of 2021, our Company’s revenues increased approximately 18% primarily as a result of higher royalty revenues from our Company’s licensees in the entertainment and toy products market and higher sales of ink to the authorized printers of our Company’s licensees in the entertainment and toy products market. Our total overhead expenses increased in the first quarter of 2021 to $273,200 compared to $264,800 in the first quarter of 2020 and our Company’s income tax expense increased in the first quarter of 2021 compared to the first quarter of 2020. As a result of these factors, our Company generated net income of $114,800 in the first quarter of 2021 compared to $52,600 in first quarter of 2020. Our Company had positive operating cash flow of $365,400 during the first quarter of 2021. At March 31, 2021, our Company had working capital of $3,008,900 and stockholders’ equity of $3,567,900. For the full year of 2020, our Company had net income of $508,400 and had positive operating cash flow of $702,400. At December 31, 2020, our Company had working capital of $2,801,100 and stockholders’ equity of $3,453,100.

12

In November 2018, our Company negotiated a $150,000 revolving line of credit (“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. 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 the 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. 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 requirements and 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 2021 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 March 31, 2021, 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, 2021, as amended on April 30, 2021, 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 March 31, 2021, 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

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this Update affect loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. For public entities, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ASU No. 2019-10 extends the effective dates for two years for smaller reporting companies and nonpublic companies.

13

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

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 March 31, 2021. Based on this evaluation, our Company’s Principal Executive Officer and Principal Financial Officer concluded that, as of March 31, 2021, 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 March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

14

PART II - OTHER INFORMATION

Item 6.  Exhibits

The following exhibits are included herein:

Exhibit No.	Description of Exhibit	Location
31.1	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Executive Officer of the Company.	Filed herewith
31.2	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Financial Officer of the Company.	Filed herewith
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Executive Officer and the Principal Financial Officer of the Company.	Filed herewith
101	XBRL

15

SIGNATURES

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

	NOCOPI TECHNOLOGIES, INC.
DATE: May 14, 2021	/s/ Michael A. Feinstein, M.D.
	Michael A. Feinstein, M.D.
	Chairman of the Board, President & Chief Executive Officer
DATE: May 14, 2021	/s/ Rudolph A. Lutterschmidt
	Rudolph A. Lutterschmidt
	Vice President & Chief Financial Officer

16

EXHIBIT INDEX

Exhibit No.	Description of Exhibit	Location
31.1	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Executive Officer of the Company.	Filed herewith
31.2	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Financial Officer of the Company.	Filed herewith
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Executive Officer and the Principal Financial Officer of the Company.	Filed herewith
101	XBRL

17

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Michael A. Feinstein, M.D., Chief Executive Officer of Nocopi Technologies, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nocopi Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2021

/s/ Michael A. Feinstein, M.D.

Michael A. Feinstein, M.D.

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Rudolph A. Lutterschmidt, Vice President and Chief Financial Officer of Nocopi Technologies, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nocopi Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (registrant’s fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2021

/s/ Rudolph A. Lutterschmidt

Rudolph A. Lutterschmidt

Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Nocopi Technologies, Inc. (the "Company") on Form 10-Q for the Quarter ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Michael A. Feinstein, M.D., Chief Executive Officer, and Rudolph A. Lutterschmidt, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that;

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

May 14, 2021

/s/ Michael A. Feinstein, M.D.

Michael A. Feinstein, M.D.

Principal Executive Officer

/s/ Rudolph A. Lutterschmidt

Rudolph A. Lutterschmidt

Principal Financial Officer

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2021	May 12, 2021
Document And Entity Information
Entity Registrant Name	NOCOPI TECHNOLOGIES INC/MD/
Entity Central Index Key	0000888981
Document Type	10-Q
Document Period End Date	Mar. 31, 2021
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		67,353,690
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2021
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Incorporation State Country Name	MD
Entity File Number	000-20333

XML

Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenues
Licenses, royalties and fees	$ 185,500	$ 164,600
Product and other sales	425,900	355,700
Total revenues	611,400	520,300
Cost of revenues
Licenses, royalties and fees	47,100	49,700
Product and other sales	173,200	201,600
Total cost of revenues	220,300	251,300
Gross profit	391,100	269,000
Operating expenses
Research and development	44,500	41,100
Sales and marketing	83,200	84,000
General and administrative	145,500	139,700
Total operating expenses	273,200	264,800
Net income from operations	117,900	4,200
Other income (expenses)
Interest income	4,800	3,800
Interest expense and bank charges	(600)	(2,500)
Total other income (expenses)	4,200	1,300
Net income before income taxes	122,100	5,500
Income taxes	7,300	(47,100)
Net income	$ 114,800	$ 52,600
Basic and diluted net income per common share	$ .00	$ .00
Weighted average common shares outstanding
Basic	67,353,690	61,044,698
Diluted	67,477,603	61,530,910

XML

Balance Sheets (Unaudited) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Current assets
Cash	$ 1,728,200	$ 1,362,800
Accounts receivable less $12,000 allowance for doubtful accounts	1,167,600	1,280,800
Inventory	384,700	324,800
Prepaid and other	63,600	97,800
Total current assets	3,344,100	3,066,200
Fixed assets
Leasehold improvements	27,800	27,800
Furniture, fixtures and equipment	163,700	163,700
Fixed assets, gross	191,500	191,500
Less: accumulated depreciation and amortization	110,400	104,300
Total fixed assets	81,100	87,200
Other assets
Long-term receivables	465,300	559,500
Operating lease right of use - building	149,400	160,300
Other assets	614,700	719,800
Total assets	4,039,900	3,873,200
Current liabilities
Accounts payable	52,600	5,700
Accrued expenses	193,800	178,600
Income taxes	43,600	36,300
Operating lease liability - current	45,200	44,500
Total current liabilities	335,200	265,100
Other liabilities
Accrued expenses, non-current	32,600	39,200
Operating lease liability - non-current	104,200	115,800
Total other liabilities	136,800	155,000
Stockholders' equity
Common stock, $0.01 par value Authorized - 75,000,000 shares, Issued and outstanding - 67,353,690 shares	673,500	673,500
Paid-in capital	12,575,800	12,575,800
Accumulated deficit	(9,681,400)	(9,796,200)
Total stockholders' equity	3,567,900	3,453,100
Total liabilities and stockholders' equity	$ 4,039,900	$ 3,873,200

XML

Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 12,000	$ 12,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	67,353,690	67,353,690
Common stock, shares outstanding	67,353,690	67,353,690

XML

Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Operating Activities
Net income	$ 114,800	$ 52,600
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	6,100	4,400
Deferred income taxes		(47,400)
Other assets	105,100	105,900
Other liabilities	(17,500)	(16,900)
Net income adjusted for non-cash operating activities	208,500	98,600
(Increase) decrease in assets
Accounts receivable	113,200	457,600
Inventory	(59,900)	(59,400)
Prepaid and other	34,200	42,900
Increase (decrease) in liabilities
Accounts payable and accrued expenses	62,100	(15,100)
Income taxes	7,300	300
Total increase in operating capital	156,900	426,300
Net cash provided by operating activities	365,400	524,900
Investment Activities
Additions to fixed assets		(7,500)
Net cash used in investing activities		(7,500)
Increase in cash	365,400	517,400
Cash at beginning of year	1,362,800	688,000
Cash at end of period	$ 1,728,200	$ 1,205,400

XML

Statements of Stockholders' Equity (Unaudited) - USD ($)	Common Stock	Paid-In Capital	Accumulated Deficit	Total
Balance at Dec. 31, 2019	$ 610,400	$ 12,483,900	$ (10,304,600)	$ 2,789,700
Balance shares at Dec. 31, 2019	61,044,698
Net income			52,600	52,600
Balance at Mar. 31, 2020	$ 610,400	12,483,900	(10,252,000)	2,842,300
Balance shares at Mar. 31, 2020	61,044,698
Balance at Dec. 31, 2020	$ 673,500	12,575,800	(9,796,200)	$ 3,453,100
Balance shares at Dec. 31, 2020	67,353,690			67,353,690
Net income			114,800	$ 114,800
Balance at Mar. 31, 2021	$ 673,500	$ 12,575,800	$ (9,681,400)	$ 3,567,900
Balance shares at Mar. 31, 2021	67,353,690			67,353,690

XML

Financial Statements

3 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Financial Statements

Note 1. Financial Statements

The accompanying unaudited condensed financial statements have been prepared by Nocopi Technologies, Inc. (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 Note 2 Significant Accounting Policies included in the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 30, 2021, as amended on April 30, 2021 (the “2020 Annual Report”). 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 2020 Annual Report should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three months ended March 31, 2021 may not be necessarily indicative of the operating results expected for the full year.

A novel strain of coronavirus, COVID-19, that was first identified in Wuhan, China in December 2019 has surfaced in many countries around the world including the United States. Many countries continue to experience reoccurrences of COVID-19 to the current date. The World Health Organization has declared COVID-19 to constitute a global pandemic. Certain state and local governments reacted by placing significant restrictions on businesses including a closure in Pennsylvania of non-essential businesses that was announced on March 20, 2020. While many Pennsylvania businesses have been allowed to reopen, often at limited capacity and with certain restrictions, as of the current date, there can be no assurances that future closures will be avoided. A requirement to close our Company for a considerable period of time could result in a negative impact on our Company’s financial condition and results of operations. Additionally, as our Company imports certain raw materials from China, if an extended disruption of the supply of these raw materials were to occur, our ability to produce products for sale to our customers could be negatively impacted. Further, restrictions on our customers and licensees in areas affected by the COVID-19 could adversely affect our results of operations and financial condition. We cannot predict the scope or magnitude of the negative effect that may result from the impact of the COVID-19 pandemic on the Company’s financial condition and results of operations. Our Company’s results of operations were negatively affected in 2020 in part as a result of a significant increase in the cost of raw materials utilized by 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. While prices of these raw materials have declined at the present time, there can be no assurances that raw material prices will remain at current levels or decrease to pre-COVID-19 pandemic levels in future periods. As the COVID-19 pandemic continues to spread, any future 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.

XML

Stock Based Compensation

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock Based Compensation

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 March 31, 2021, our Company did not have an active stock option plan. There was no unrecognized portion of expense related to stock option grants at March 31, 2021.

XML

Line of Credit

3 Months Ended

Mar. 31, 2021

Line of Credit Facility [Abstract]

Line of Credit

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.

XML

Stock Warrants

3 Months Ended

Mar. 31, 2020

Convertible Debt [Abstract]

Stock Warrants

Note 4. Stock Warrants

At March 31, 2021, our Company had warrants outstanding to purchase 141,365 of our Company’s common stock at $0.02 per share. The warrants were granted in 2014 to two individuals who acquired convertible debentures from the Company in 2014. The warrants are exercisable two years after issuance and expire seven years after issuance. The fair value of the warrants was determined using the Black-Scholes pricing model. The relative fair value of the warrants was recorded as a discount to the notes payable with an offsetting credit to additional paid-in capital since 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.

The following table summarizes our Company’s warrant position at March 31, 2021 and December 31, 2020:

					Weighted Average
	Number		Exercise		Exercise
	of Shares		Price		Price
Outstanding warrants -
December 31, 2020		141,365	$	0.02	$	0.02
Outstanding warrants -
March 31, 2021		141,365	$	0.02	$	0.02
Weighted average remaining
contractual life (years)		.27
Exercisable warrants -
March 31, 2021		141,365	$	0.02	$	0.02

The aggregate intrinsic value of warrants outstanding and exercisable as of March 31, 2021 was approximately $19,800. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $0.16 for our Company’s common stock on March 31, 2021.

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Other Income (Expenses)

3 Months Ended

Mar. 31, 2021

Other Income and Expenses [Abstract]

Other Income (Expenses)

Note 5. Other Income (Expenses)

Other income (expenses) for the three months ended March 31, 2020 included interest on debentures held by seven investors.

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Income Taxes

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 6. Income Taxes

There is no provision for federal income taxes for the three months ended March 31, 2021 and March 31, 2020 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
	March 31,
		2021		2020
Current state taxes	$	7,300	$	300
Deferred state taxes		—		(47,400	)
	$	7,300	$	(47,100	)

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 March 31, 2021 and there was no accrual for uncertain tax positions as of March 31, 2021.

Tax years from 2017 through 2020 remain subject to examination by U.S. federal and state jurisdictions.

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Earnings per Share

3 Months Ended

Mar. 31, 2021

Weighted average common shares outstanding

Earnings per Share

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 months ended March 31, 2021 and March 31, 2020, the number of incremental common shares resulting from the assumed conversion of warrants was 123,913 and 486,212, respectively.

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Major Customer and Geographic Information

3 Months Ended

Mar. 31, 2021

Major Customer and Geographic Information [Abstract]

Major Customer and Geographic Information

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 our Company’s total revenues were:

	Three Months ended March 31
	2021			2020
Customer A		67	%		43	%
Customer B		—			21	%
Customer C		19	%		19	%

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:

	March 31			December 31
	2021			2020
Customer A		30	%		25	%
Customer C		65	%		65	%

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 March 31
	2021		2020
North America	$	169,700	$	183,400
South America		1,500		1,400
Asia		413,500		335,500
Australia		26,700		—
	$	611,400	$	520,300

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Leases

3 Months Ended

Mar. 31, 2021

Lessee Disclosure [Abstract]

Leases

Note 9. Leases

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

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%. 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 each of the three month periods ended March 31, 2021 and March 31, 2020 was $13,300.

Maturities of lease liabilities were as follows:

	Operating Leases
Year ending December 31
2021	$40,000
2022	54,600
2023	56,200
2024	18,900
Total lease payments	169,700
Less imputed interest	(20,300)
Total	$149,400

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Stock Warrants (Tables)

3 Months Ended

Mar. 31, 2020

Convertible Debt [Abstract]

Schedule of warrant outstanding

The following table summarizes our Company’s warrant position at March 31, 2021 and December 31, 2020:

					Weighted Average
	Number		Exercise		Exercise
	of Shares		Price		Price
Outstanding warrants -
December 31, 2020		141,365	$	0.02	$	0.02
Outstanding warrants -
March 31, 2021		141,365	$	0.02	$	0.02
Weighted average remaining
contractual life (years)		.27
Exercisable warrants -
March 31, 2021		141,365	$	0.02	$	0.02

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

Components for State Income Tax Expense

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

	Three months ended
	March 31,
		2021		2020
Current state taxes	$	7,300	$	300
Deferred state taxes		—		(47,400	)

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Major Customer and Geographic Information (Tables)

3 Months Ended

Mar. 31, 2021

Segment Reporting [Abstract]

Company's Revenues As Percentage Of Revenue

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

	Three Months ended March 31
	2021			2020
Customer A		67	%		43	%
Customer B		—			21	%
Customer C		19	%		19	%

Schedule of Non-affiliated Customers with Accounts Receivable More Than 10%

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:

	March 31			December 31
	2021			2020
Customer A		30	%		25	%
Customer C		65	%		65	%

Company's Revenue by Geographic Region

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

	Three Months ended March 31
	2021		2020
North America	$	169,700	$	183,400
South America		1,500		1,400
Asia		413,500		335,500
Australia		26,700		—
	$	611,400	$	520,300

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Leases (Tables)

3 Months Ended

Mar. 31, 2021

Lessee Disclosure [Abstract]

Maturities of Lease Liabilities

Maturities of lease liabilities were as follows:

	Operating Leases
Year ending December 31
2021	$40,000
2022	54,600
2023	56,200
2024	18,900
Total lease payments	169,700
Less imputed interest	(20,300)
Total	$149,400

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Stock Based Compensation (Details Narrative)	Mar. 31, 2021 USD ($)
Share-based Payment Arrangement [Abstract]
Unrecognized portion of expense related to stock option grants	$ 0

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Line of Credit (Details Narrative)	3 Months Ended
	Mar. 31, 2021 USD ($)
Line of Credit Facility [Abstract]
Line of credit	$ 150,000
Interest rate	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.

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Stock Warrants (Warrants Activity) (Details) - Warrant [Member] - $ / shares	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Warrants
Outstanding warrants at beginning	141,365	141,365
Exercise price at beginning	$ 0.02	$ 0.02
Weighted average exercise price	$ 0.02	$ 0.02
Weighted average remaining contractual life (years)	3 months 8 days
Exercisable	141,365
Exercisable price	$ 0.02
Exercisable weighted average exercise price	$ 0.02

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Stock Warrants (Details Narrative) - Warrant [Member] - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Debt Instrument [Line Items]
Outstanding warrants	141,365	141,365
Exercise price	$ 0.02	$ 0.02
Intrinsic value	$ 19,800
Intrinsic value exercisable	$ 19,800
Stock price	$ 0.16

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Income Taxes (Components for State Income Tax Expense) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Tax Disclosure [Abstract]
Current state taxes	$ 7,300	$ 300
Deferred state taxes		(47,400)
Income tax expense (benefit)	$ 7,300	$ (47,100)

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Income Taxes (Details Narrative)	3 Months Ended
	Mar. 31, 2021 USD ($)
Income Tax Contingency [Line Items]
Reversal accrued income taxes	$ 47,400
Unrecognized tax benefits
Uncertain tax positions
Minimum [Member]
Income Tax Contingency [Line Items]
Tax years open for examination	2017
Maximum [Member]
Income Tax Contingency [Line Items]
Tax years open for examination	2020

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Earnings per Share (Details Narrative) - shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Weighted average common shares outstanding
Number of incremental common shares resulting from the assumed conversion of warrants	123,913	486,212

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Major Customer and Geographic Information (Schedule of Revenues from Non-affiliated Customers) (Details) - Revenue [Member]	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Customer A [Member]
Revenue, Major Customer [Line Items]
Risk percentage	67.00%	43.00%
Customer B [Member]
Revenue, Major Customer [Line Items]
Risk percentage	0.00%	21.00%
Customer C [Member]
Revenue, Major Customer [Line Items]
Risk percentage	19.00%	19.00%

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Major Customer and Geographic Information (Schedule of Non-affiliated Customers with Accounts Receivable) (Details) - Accounts Receivable [Member]	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Customer A [Member]
Concentration Risk [Line Items]
Risk percentage	30.00%	25.00%
Customer C [Member]
Concentration Risk [Line Items]
Risk percentage	65.00%	65.00%

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Major Customer and Geographic Information (Schedule of Revenue by Geographic Region) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 611,400	$ 520,300
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	169,700	183,400
South America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	1,500	1,400
Asia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	413,500	335,500
Australia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 26,700	$ 0

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Leases (Maturities of Lease Liabilities) (Details) - USD ($)	Mar. 31, 2021	Jan. 01, 2019
Lessee Disclosure [Abstract]
2021	$ 40,000
2022	54,600
2023	56,200
2024	18,900
Total lease payments	169,700
Less imputed interest	(20,300)
Total	$ 149,400	$ 241,100

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Leases (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020	Jan. 01, 2019
Lessee Disclosure [Abstract]
Lease expense	$ 13,300	$ 13,300
Incremental borrowing rate				6.00%
Operating lease right-of-use asset	149,400		$ 160,300	$ 241,100
Operating lease liability	$ 149,400			$ 241,100