Nocopi (NNUP) 10-Q 2024 Q3 Quarterly report

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 September 30, 2024

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: 10,523,108 shares of common stock, par value $0.01, as of November 7, 2024.

NOCOPI TECHNOLOGIES, INC.

INDEX

	PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements	1
Statements of Comprehensive Loss for Three Months and Nine Months Ended September 30, 2024 and September 30, 2023	1
Balance Sheets at September 30, 2024 and December 31, 2023	2
Statements of Cash Flows for Nine Months Ended September 30, 2024 and September 30, 2023	3
Statements of Stockholders’ Equity for Three Months and Nine Months Ended September 30, 2024 and September 30, 2023	4
Notes to Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3. Quantitative and Qualitative Disclosures About Market Risk	16
Item 4. Controls and Procedures	16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings	17
Item 1A. Risk Factors	17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	17
Item 3. Defaults Upon Senior Securities	17
Item 4. Mine Safety Disclosures	17
Item 5. Other Information	17
Item 6. Exhibits	17
SIGNATURES	18

 i

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Nocopi Technologies, Inc.

Statements of Comprehensive (Loss

(unaudited)

	Three Months ended September 30						Nine Months ended September 30
	2024			2023			2024			2023
Revenues
Licenses, royalties and fees	$	151,500		$	136,900		$	327,000		$	410,100
Product and other sales		516,900			438,200			1,198,700			1,356,300
Total revenues		668,400			575,100			1,525,700			1,766,400
Cost of revenues
Licenses, royalties and fees		59,300			62,700			162,000			171,200
Product and other sales		228,800			247,300			587,500			648,300
Total cost of revenues		288,100			310,000			749,500			819,500
Gross profit		380,300			265,100			776,200			946,900
Operating expenses
Research and development		43,600			39,800			127,100			119,900
Sales and marketing		91,600			71,200			236,500			218,600
General and administrative		727,400			833,800			3,196,900			1,258,300
Total operating expenses		862,600			944,800			3,560,500			1,596,800
Net loss from operations		(482,300	)		(679,700	)		(2,784,300	)		(649,900	)
Other income (expenses)
Other income		84,000			—			84,000			—
Interest income		153,000			69,800			432,900			192,300
Interest expense and bank charges		(5,800	)		(4,000	)		(17,300	)		(9,000	)
Total other income (expenses)		231,200			65,800			499,600			183,300
Net loss before income taxes		(251,100	)		(613,900	)		(2,284,700	)		(466,600	)
Income taxes benefit		—			(160,600	)		—			(122,700	)
Net loss	$	(251,100	)	$	(453,300	)	$	(2,284,700	)	$	(343,900	)
Net loss per common share
Basic	$	(.02	)	$	(.05	)	$	(.22	)	$	(.04	)
Diluted	$	(.02	)	$	(.05	)	$	(.22	)	$	(.04	)
Weighted average common shares outstanding
Basic and diluted		10,508,488			9,667,845			10,503,615			9,390,067

See accompanying notes to these condensed financial statements.

1 

Nocopi Technologies, Inc.

Balance Sheets

 (unaudited)

	September 30			December 31
	2024			2023
Assets
Current assets
Cash and cash equivalents	$	10,940,900		$	2,269,200
Accounts receivable less $12,000 allowance for credit losses		1,253,500			1,120,700
Inventory, net of allowance of $79,700 and $126,900, respectively		351,500			448,000
Interest receivable		—			160,000
Short-term investments		—			7,985,600
Prepaid and other current assets		129,700			121,800
Total current assets		12,675,600			12,105,300
Fixed assets
Leasehold improvements		81,500			81,500
Furniture, fixtures and equipment		179,700			169,800
Fixed assets, gross		261,200			251,300
Less: accumulated depreciation and amortization		240,500			214,800
Total fixed assets		20,700			36,500
Other assets
Long-term receivable		1,428,400			1,838,500
Operating lease right of use – building		51,800			17,600
Other assets		1,480,200			1,856,100
Total assets	$	14,176,500		$	13,997,900
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	68,400		$	27,500
Accrued expenses		186,200			94,600
Stock compensation payable		3,584,700			1,347,100
Operating lease liability – current		51,800			17,600
Total current liabilities		3,891,100			1,486,800
Other liabilities
Accrued expenses – non-current		99,900			128,600
Total other liabilities		99,900			128,600
Stockholders' equity
Common stock, $0.01 par value Authorized – 75,000,000 shares Issued and outstanding – 10,523,108 shares		105,200			105,000
Paid-in capital		21,734,600			21,647,100
Accumulated deficit		(11,654,300	)		(9,369,600	)
Total stockholders' equity		10,185,500			12,382,500
Total liabilities and stockholders' equity	$	14,176,500		$	13,997,900

See accompanying notes to these condensed financial statements.

2 

Nocopi Technologies, Inc.

Statements of Cash Flows

(unaudited)

	Nine Months ended September 30
	2024			2023
Operating Activities
Net loss	$	(2,284,700	)	$	(343,900	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization		25,700			32,500
Stock-based compensation		2,325,300			420,600
Amortization of operating lease right of use-building		48,800			37,700
Inventory reserve		(47,200	)		(16,100	)
(Increase) decrease in assets
Accounts receivable		(132,800	)		(254,300	)
Inventory		143,700			118,000
Interest receivable		160,000			—
Prepaid and other current assets		(7,900	)		2,100
Long-term receivables		410,100			469,400
Increase (decrease) in liabilities
Accounts payable		40,900			(500	)
Accrued expenses		62,900			26,500
Operating lease liability		(48,800	)		(37,700	)
Taxes on income		—			(287,100	)
Net cash provided by operating activities		696,000			167,200
Investing Activities
Additions to fixed assets		(9,900	)		(28,500	)
Sale of short-term investment		7,985,600			—
Net cash provided by (used in) investing activities		7,975,700			(28,500	)
Financing Activities
Issuance of common stock		—			5,000,000
Net cash provided by financing activities		—			5,000,000
Increase in cash and cash equivalents		8,671,700			5,138,700
Cash and Cash Equivalents
Beginning of period		2,269,200			5,337,800
End of period	$	10,940,900		$	10,476,500
Supplemental non-cash schedule of activities:
Right of use asset and liability	$	83,000		$	—

See accompanying notes to these condensed financial statements.

3 

Nocopi Technologies, Inc.

Statements of Stockholders’ Equity

For Three Months and Nine Months ended September 30, 2024 and September 30, 2023

(unaudited)

	Common stock				Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance at December 31, 2023		10,501,178	$	105,000	$	21,647,100	$	(9,369,600	)	$	12,382,500
Net loss		—		—		—		(1,028,200	)		(1,028,200	)
Balance at March 31, 2024		10,501,178		105,000		21,647,100		(10,397,800	)		11,354,300
Net loss		—		—		—		(1,005,400	)		(1,005,400	)
Balance at June 30, 2024		10,501,178	$	105,000	$	21,647,100	$	(11,403,200	)	$	10,348,900
Issuance of common stock for services		21,930		200		87,500		—			87,700
Net loss		—		—		—		(251,100	)		(251,100	)
Balance at September 30, 2024		10,523,108	$	105,200	$	21,734,600	$	(11,654,300	)	$	10,185,500

	Common stock				Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance at December 31, 2022		9,251,178	$	92,500	$	16,659,600	$	(7,933,700	)	$	8,818,400
Net income		—		—		—		30,300			30,300
Balance at March 31, 2023		9,251,178		92,500		16,659,600		(7,903,400	)		8,848,700
Net income		—		—		—		79,100			79,100
Balance at June 30, 2023		9,251,178	$	92,500	$	16,659,600	$	(7,824,300	)	$	8,927,800
Issuance of common stock		1,250,000		12,500		4,987,500		—			5,000,000
Net loss		—		—		—		(453,300	)		(453,300	)
Balance at September 30, 2023		10,501,178	$	105,000	$	21,647,100	$	(8,277,600	)	$	13,474,500

See accompanying notes to these condensed 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. (the “Company”). These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in 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, 2023, as filed with the Securities and Exchange Commission on March 25, 2024 (the “2023 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 the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The Notes to Financial Statements included in the 2023 Annual Report should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three months and nine months ended September 30, 2024 may not be necessarily indicative of the operating results expected for the full year.

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 220 in reporting comprehensive income (loss).  Comprehensive income (loss) 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 (loss).  Since the Company has no items of other comprehensive income (loss), comprehensive income (loss) is equal to net income (loss).

Reclassifications

Certain reclassifications have been made to the 2023 Statement of Cash Flows in order to conform to the 2024 Statement of Cash Flows presentation.

Recently Issued Accounting Pronouncements Not Yet Adopted

As of September 30, 2024, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company's financial statements.

Recently Adopted Accounting Pronouncements

As of September 30, 2024 and for the period then ended, there are no recently adopted accounting standards that have a material effect on the Company's financial statements.

Note 2. Stock Based Compensation

The 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. On June 17, 2024, the Company’s shareholders approved the Nocopi Technologies, Inc. 2024 Incentive Compensation Plan (the “2024 Plan”), which allows the Company to issue equity awards to directors, officers, other employees and consultants of the Company. As of September 30, 2024, 1,649,769 restricted stock units (“RSUs”) have been granted under the 2024 Plan. As of September 30, 2024, the unamortized value related to grants under the 2024 Plan was $1,410,000.   

5 

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

As part of an employment agreement, the Company granted (the “Prior Grant”) to an executive a one-time equity award of 1,000,000 restricted stock units (“RSUs”) of the Company’s common stock valued at $3,580,000, fair value, which award was originally set to vest in its entirety on August 18, 2024. The fair market value of the restricted stock award was determined based on the closing price of the Company’s common stock on the grant date and was expensed on a straight-line basis to general and administrative expense as stock-based compensation over the one-year vesting term. The Company recorded stock-based compensation expense of $479,300 and $2,259,500   for the three and nine months ended September 30, 2024, respectively. Under the original terms of the award, to the extent the Company had not established an employee equity compensation plan on or prior to August 18, 2024, the restricted shares may have been converted, at the election of the executive, in full or in part, into cash compensation, at a rate of $3.58 per share of common stock, which was the fair market value of the common stock on October 10, 2023, which was the date the Board of Directors approved the grant. Since the issuance of the restricted stock can be settled in cash, the monthly expense was credited to a liability account, stock compensation liability, instead of equity.

On August 16, 2024, the executive agreed to cancel and forfeit the Prior Grant and, in lieu of the Prior Grant, the Company granted the executive 1,649,769 RSUs (“Replacement Grant”), pursuant to and subject to the 2024 Plan and an award agreement, as approved by the Board of Directors. The fair market value of the replacement grant was $3,580,000, which was determined based on the closing price of the Company’s common stock on the grant date. The shares of common stock underlying the Replacement Grant shall vest ratably and quarterly over a two-year period beginning on the Replacement Grant date, August 16, 2024. The cancellation and issuance of the Replacement Grant is treated as a modification of an award under FASB ASC 718. This modification resulted in an incremental fair value of $1,410,000, calculated as the difference between the fair value of the Replacement Grant and the fair value of the Prior Grant on the modification date. The incremental fair value will be recognized as additional compensation expense on a straight-line basis over the new two-year vesting period. The Company will relieve the stock compensation liability on a proportional basis as the Replacement Grant vests.

Note 3. Cash and Cash Equivalents

Cash and cash equivalents
	September 30 2024		December 31 2023
Cash and cash equivalents
Cash and money market funds	$	10,940,900	$	2,269,200
Cash and cash equivalents	$	10,940,900	$	2,269,200

Note 4. Inventories

Schedule of inventories
	September 30 2024			December 31 2023
Inventories consist of the following:
Raw materials	$	411,500		$	534,500
Work in process		—			11,900
Finished goods		19,700			28,500
Inventory gross		431,200			574,900
Less: Allowance		(79,700	)		(126,900	)
Inventory	$	351,500		$	448,000

Note 5. Short-term Investments 

Schedule of short term investments
	September 30		December 31
	2024		2023
Short-term investments
U.S. Treasury Bills	$	—	$	7,985,600
Short-term investments	$	—	$	7,985,600

All U.S. Treasury Bills have matured as of September 30, 2024.

Total interest income recognized for U.S. Treasury Bills was $49,700 and $42,500 for the three months ended September 30, 2024 and 2023, respectively and $229,400 and $129,800 for the nine months ended September 30, 2024 and 2023, respectively. Interest receivable was $0 and $160,000 for the nine months ended September 30, 2024 and for the year ended December 31, 2023, respectively. 

6 

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 6. Long-term Receivables

As of September 30, 2024, the Company had long-term receivables of $1,428,400 from two of the three licensees representing the present value of fixed guaranteed royalty payments that will be payable over varying periods of two through five years that commenced in the second half of 2022 and terminate in the second quarter of 2028. The fixed guaranteed royalty payments result from amendments to license agreements with two existing licensees and a license agreement with a new licensee. The receivable represents the present value of the fixed minimum annual payments due under the license agreements, discounted at the Company's incremental borrowing rate of 4%. 

The three agreements grant licenses for the use of certain patented ink technology as it exists at the time that it is granted which is considered functional intellectual property. Under Topic 606, a performance obligation to transfer a license for functional intellectual property is satisfied at a point in time and the fixed consideration could be recognized upfront when the Company transfers control of the licensee if certain criteria are met. Specifically, the minimum royalty guarantee could be recognized upfront if the following conditions are met:

· The royalty payment is fixed or determinable

· Collection of the royalty payment is considered probable

· The licensee has the ability to benefit from the licensed technology

The Company determined that the above conditions were met upon execution of the 2022 license agreements and recognized $2,810,600 of royalty revenue net of imputed interest of $131,300 for the year ended December 31, 2022. The commissions are payable over the term of the license agreements and are due when payments are received by the Company. As of September 30, 2024, the accrued commission payable balance was approximately $139,400, which is included in accrued expenses. 

The current portion of the three license agreements in the amount of $565,300 and $624,600, is included in accounts receivable on the balance sheets as of September 30, 2024 and December 31, 2023, respectively.

The following table summarizes the future minimum payments due under the three license agreements as of September 30, 2024:

Schedule of future minimum payments
Year Ending December 31:
	2024	$	160,500
	2025		570,000
	2026		570,000
	2027		557,500
	2028		260,000
	Total	$	2,118,000

The Company has evaluated the collectability of the long-term receivables and believes them to be fully collectible as of September 30, 2024. However, there can be no assurance that the receivables will not be impaired in the future due to changes in the licensees’ financial condition or other factors. 

The long-term receivables are recorded at its present value as of September 30, 2024, and the receivable and imputed interest will be amortized over the term of the license agreements using the effective interest method. The unamortized balance of the long-term receivables as of September 30, 2024 and December 31, 2023 was $1,428,400 and $1,838,500. The unamortized imputed interest balance as of September 30, 2024 was $124,300, which will be recognized as interest income through June 30, 2028. Interest income was $4,300 and $2,000 for the three months ended September 30, 2024 and 2023, respectively and $11,200 and $16,000 for the nine months ended September 30, 2024 and 2023, respectively.

7 

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 7. Stockholders’ Equity

On September 11, 2023, the Company entered into a stock purchase agreement in connection with a private placement for total gross proceeds of $5.0 million. The stock purchase agreement provided for the issuance of an aggregate of 1,250,000 shares of the Company’s common stock to an investor at a purchase price of $4.00 per share. In addition, as consideration for general advisory services until the third anniversary, the Company agreed to issue an aggregate total of 65,790 shares of common stock with a total fair market value on the date of grant of $263,160, which shares shall be issued as follows: one-third (21,930 shares) on September 11, 2024, which was issued on such date, one-third (21,930 shares) on September 11, 2025 and one-third (21,930 shares) on September 11, 2026. The Company expenses the value of the stock grant, which is determined to be the fair market value of the shares at the date of grant, straight-line over the term of the advisory agreement. For the three and nine months ended September 30, 2024, the Company recognized $22,100 and $65,800, respectively of consulting expense associated with this issuance. On September 11, 2023, the sale pursuant to the Purchase Agreement closed. No placement fees or commissions were paid in connection with this transaction.

During the three months ended September 30, 2024 the Company issued 21,930 shares of its common stock for advisory services with a fair value of $87,700, which was fully expensed upon issuance.

The Company recognized share-based compensation of $501,400 and $420,600 for the three months ended September 30, 2024 and 2023 and $2,325,300 and $420,600 for the nine months ended September 30, 2024 and 2023. 

At September 30, 2024, the Company had no warrants outstanding.

Note 8. Income Taxes

There was no income tax benefit for the net losses for the three and nine months ended September 30, 2024 and September 30, 2023 due to the recording of a full valuation allowance as management has determined that it is more likely than not that that the realization of the net deferred tax assets would not be realized. However, the income tax benefit of $160,600 and $122,700 for the three and nine months ended September 30, 2023 is a result of a reversal of tax accruals.

The components for federal and state income tax expense are:

Schedule of federal and state income tax expense
	Nine Months ended September 30
	2024		2023
Current federal taxes	$	—	$	(122,700	)
Current state taxes		—		—
Income tax expense (benefit)	$	—	$	(122,700	)

There was no change in unrecognized tax benefits during the period ended September 30, 2024 and there was no accrual for uncertain tax positions as of September 30, 2024. Tax years from 2021 through 2023 remain subject to examination by U.S. federal and state jurisdictions. The Federal net operating loss carryforward of $144,563   will not expire but is subject to 80% utilization of current year taxable income. The Pennsylvania State net operating loss carryforward is currently $2,039,134 as of September 30, 2024 and will begin to expire in 2024 and is subject to 40% utilization of current year taxable income but will be phased in to reach 80% utilization beginning in 2025.

Note 9. Loss per Share

In accordance with FASB ASC 260, Earnings per Share, basic loss per common share is computed using net loss divided by the weighted average number of common shares outstanding for the periods presented. Diluted loss per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Since the Company did not have any common stock equivalents outstanding as of September 30, 2024 and September 30, 2023 and had net losses for the three and nine months then ended, basic and diluted earnings (loss) per share were the same.

8 

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 10. Major Customer and Geographic Information

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

Schedule of revenues as percentage of revenue
	Three Months ended September 30						Nine Months ended September 30
	2024			2023			2024			2023
Customer A		75	%		69	%		71	%		69	%
Customer B		17	%		18	%		16	%		17	%

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

Schedule of non-affiliated customers with accounts receivable
	September 30			December 31
	2024			2023
Customer A		19	%		—
Customer B		73	%		82	%

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

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

Schedule of revenue by geographic region
	Three Months ended September 30				Nine Months ended September 30
	2024		2023		2024		2023
North America	$	143,600	$	140,700	$	296,100	$	414,300
South America		—		600		600		600
Asia		503,400		409,900		1,162,700		1,286,600
Australia		21,400		23,900		66,300		64,900
	$	668,400	$	575,100	$	1,525,700	$	1,766,400

9 

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 11. Leases

The Company conducts its operations in leased facilities under a non-cancelable operating lease, which was originally set to expire in April 2024. The lease has been extended for 13 months for a new term that began on May 1, 2024 and will expire on May 31, 2025.

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, the Company has capitalized the present value of the minimum lease payments commencing May 1, 2024, using an estimated incremental borrowing rate of 6.5%. The minimum lease payments do not include common area annual expenses which are considered to be non-lease components.

As of May 1, 2024 the operating lease right-of-use asset and operating lease liability amounted to $83,046 with no cumulative-effect adjustment to the opening balance of accumulated deficit.

There are no other material operating leases. The 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 nine months ended September 30, 2024 was $19,800 and $50,800, respectively. Total lease expense under operating leases for the three and nine months ended September 30, 2023 was $13,300 and $40,000, respectively.

Undiscounted future minimum lease payments as of September 30, 2024, by year and in aggregate are as follows:

Schedule of maturities of lease liabilities
		Operating Leases
	2024	$	21,400
	2025		35,700
			57,100
	Less interest		(5,300	)
	Total	$	51,800

Note 12. Employee Retention Tax Credit

The CARES Act, signed into law on March 27, 2020 with subsequent amendments, provides for refundable employee retention credit to employers whose operations were suspended due to COVID-19 or whose revenue significantly decreased. On June 15, 2023, the Company filed a Form 941-X to claim a refundable employee retention credit for the first quarter and third quarter 2021 payroll in the total amount of $84,000. In the quarter ended September 30, 2024, the Company received such credit and recorded the credit as other income in the accompanying Statement of Comprehensive Loss.

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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:

· Expected operating results, such as revenue, expenses and capital expenditures

· 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, and 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 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.

· Strategic actions, including business acquisitions and our success in integrating acquired businesses.

· 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 occurrence of hostilities, political instability or catastrophic events.

· Developments and changes in laws and regulations, including increased regulation of our industry through legislative action and revised rules and standards.

· Security breaches, cybersecurity attacks and other significant disruptions in our information technology systems.

· 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 Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2023.

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Any forward-looking statement made by us in this Report on Form 10-Q 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, 2023, filed with the Securities and Exchange Commission on March 25, 2024.

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.

 Results of Operations

The 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.

The 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 the 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 the 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 the 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 the 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 the Company agrees to revise such terms, revenues from the customer may be adversely affected.

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Revenues for the third quarter of 2024 were $668,400 compared to $575,100 in the third quarter of 2023, an increase of $93,300, or approximately 16%. Licenses, royalties and fees increased by $14,600, or approximately 11%, to $151,500 in the third quarter of 2024 from $136,900 in the third quarter of 2023. The increase in licenses, royalties and fees in the third quarter of 2024 compared to the third quarter of 2023 is due primarily to higher royalties from the Company’s licensees in entertainment and toy products markets. We cannot assure you that the marketing and product development activities of the Company’s licensees or other businesses in the entertainment and toy products market will produce a significant increase in revenues for the Company, nor can the timing of any potential revenue increases be predicted, particularly given the uncertain economic conditions presently being experienced.

Product and other sales increased by $78,700, or approximately 18%, to $516,900 in the third quarter of 2024 from $438,200 in the third quarter of 2023. Sales of ink increased in the third quarter of 2024 compared to the third quarter of 2023 due primarily to more ink shipments to the third party authorized printer used by two of the Company’s major licensees in the entertainment and toy products market. In the third quarter of 2024, the Company derived revenues of approximately $648,600 from our licensees and their authorized printers in the entertainment and toy products market compared to revenues of approximately $566,100 in the third quarter of 2023.

 For the first nine months of 2024, revenues were $1,525,700, representing a decrease of $240,700, or approximately 14%, from revenues of $1,766,400 in the first nine months of 2023. Licenses, royalties and fees decreased by $83,100, or approximately 20%, to $327,000 in the first nine months of 2024 from $410,100 in the first nine months of 2023. The decrease in licenses, royalties and fees is due primarily to lower royalties from the Company’s licensees in the entertainment and toy products market. We cannot assure you that the marketing and product development activities of the Company’s licensees or other businesses in the entertainment and toy products market will produce a significant increase in revenues for the Company, nor can the timing of any potential revenue increases be predicted, particularly given the uncertain economic conditions presently being experienced.

Product and other sales decreased by $157,600, or approximately 13%, to $1,198,700 in the first nine months of 2024 from $1,356,300 in the first nine months of 2023. Sales of ink decreased in the first nine months of 2024 compared to the first nine of 2023 due primarily to lower ink shipments to the third party authorized printer used by two of the Company’s major licensees in the entertainment and toy products market. The Company derived revenues of approximately $1,469,300 from licensees and their authorized printers in the entertainment and toy products market in the first nine months of 2024 compared to revenues of approximately $1,687,700 in the first nine months of 2023.  

The Company’s gross profit increased to $380,300 in the third quarter of 2024, or approximately 57% of revenues, from $265,100 in the third quarter of 2023, or approximately 46% of revenues. Licenses, royalties and fees have historically carried a higher gross profit than product and other sales, which generally consist of supplies or other manufactured products which incorporate the Company’s technologies or equipment used to support the application of its technologies. These items (except for inks which are manufactured by the Company) are generally purchased from third-party vendors and resold to the end-user or licensee and carry a lower gross profit than licenses, royalties and fees.

For the first nine months of 2024, gross profit was $776,200, or approximately 51% of revenues, compared to $946,900, or approximately 54% of revenues, in the first nine months of 2023. The lower gross profit in the first nine months of 2024 compared to the first nine months of 2023 was primarily due to a decrease in gross profit from both licenses, royalties and fees and product and other sales.

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 increased to approximately 61% in the third quarter of 2024 compared to approximately 54% in the third quarter of 2023 and decreased to approximately 50% of revenues from licenses, royalties and fees in the first nine months of 2024 from approximately 58% in the first nine months of 2023.

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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 increased to approximately 56% of revenues in the third quarter of 2024 compared to approximately 44% of revenues in the third quarter of 2023. For the first nine months of 2024, the gross profit, expressed as a percentage of revenues, decreased to approximately 51% of revenues from product and other sales compared to approximately 52% of revenues from product and other sales in the first nine months of 2023

Research and development expenses increased in the third quarter of 2024 to $43,600 from $39,800 in the third quarter of 2023 and to $127,100 in the first nine months of 2024 from $119,900 in the first nine months of 2023 due primarily to higher employee related and lab expenses in the third quarter and first nine months of 2024 compared to the third quarter and first nine months of 2023.

Sales and marketing expenses increased to $91,600 in the third quarter of 2024 from $71,200 in the third quarter of 2023 and increased to $236,500 in the first nine months of 2024 from $218,600 in the first nine months of 2023. The increase in the third quarter and first nine months of 2024 compared to the third quarter and first nine months of 2023 is due primarily to higher commission and employee related expenses in the third quarter of 2024 compared to the third quarter of 2023.

General and administrative expenses decreased in the third quarter of 2024 to $727,400 from $833,800 in the third quarter of 2023 and increased to $3,196,900 in the first nine months of 2024 from $1,258,300 in the first nine months of 2023. The decrease in the third quarter is due primarily to lower employee related expenses and professional fees in the third quarter of 2024 compared to the third quarter of 2023. The increase in the first nine months is due primarily to higher stock-based compensation, higher professional fees, and higher employee related expenses in the first nine months of 2024 compared to the first nine months of 2023.

For the third quarter of 2024, there was no income tax benefit for the net losses for the third quarter of 2024 due to the recording of a full valuation allowance since it is more likely than not that that the realization of the net deferred tax assets would not be realized. Income taxes in the third quarter of 2024 include federal and state income taxes. The state income taxes result from limitations placed on income tax net operating loss deductions by the Commonwealth of Pennsylvania.

The net loss of $251,100 in the third quarter of 2024 compared to a net loss of $453,300 in the third quarter of 2023 resulted primarily from a higher gross profit on a higher level of licenses, royalties and fees and product sales, lower operating expenses and higher interest income, other income and no income tax benefit in the third quarter of 2024 compared to the third quarter of 2023. The net loss of $2,284,700 in the first nine months of 2024 compared to a net loss of $343,900 in the first nine months of 2023 resulted primarily from a lower gross profit on a lower level of license, royalties, and fees and product sales in the first nine months of 2024 compared to the first nine months of 2023, higher operating expense, interest income, other income and no income tax benefit in the first nine months of 2024 compared to the first nine months of 2023.

Plan of Operation, Liquidity and Capital Resources

During the first nine months of 2024, the Company’s cash increased to $10,940,900 at September 30, 2024 from $2,269,200 at December 31, 2023. During the first nine months of 2024, the Company generated $696,000 from its operating activities and provided $7,975,700 from investing activities.

During the first nine months of 2024, the Company’s revenues decreased approximately 16% primarily as a result of lower sales of ink to an authorized printer of the Company’s licensees in the entertainment and toy products market and lower royalty revenues from the Company’s licensees in the entertainment and toy products market. Our total overhead expenses increased in the first nine months of 2024 to $3,560,500 compared to $1,596,800 in the first nine months of 2023, the Company’s interest and other income increased and the Company’s income tax expense decreased in the first nine months of 2024 compared to the first nine months of 2023. As a result of these factors, the Company generated a net loss of $2,284,700 in the first nine months of 2024 compared to a net loss of $343,900 in the first nine months of 2023. The Company had positive operating cash flow of $696,000 and $7,985,600 from the sale of short-term investments during the first nine months of 2024. At September 30, 2024, the Company had positive working capital of $8,784,500 and stockholders’ equity of $10,185,500. For the full year of 2023, the Company had a net loss of $1,435,900 and had negative operating cash flow of $19,300. At December 31, 2023, the Company had working capital of $10,618,500 and stockholders’ equity of $12,382,500.

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Our plan of operation for the twelve months beginning with the date of this Quarterly Report on Form 10-Q consists of concentrating available human and financial resources to continue to capitalize on the specific business relationships the 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 the 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.

The 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 the Company to generate additional revenues and positive cash flow.

Our future growth strategy includes expanding our business through acquisitions of other companies with competing or complementary services, technologies or businesses in order to expand our product and service offerings to grow our free cash flow. We are currently actively engaged in the process to identify acquisition candidates and negotiate transactions. As of the date of this Quarterly Report on Form 10-Q, we have no agreements to make any acquisition. We expect to fund our business expansion through the issuance of debt or equity securities, the payment of cash, the exchange of services, or any combination thereof.

The 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. 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 the 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 in 2024 and beyond and its effect on the global economy, geopolitical instability including the Russia-Ukraine war and conflicts in the Middle East and the supply chain disruptions related to both as well as the record inflation and significantly higher interest rates currently being experienced in the United States along with the probability of an economic recession both in the United States and globally. As a result, our revenues, results of operations and liquidity may be further negatively impacted in future periods.

Contractual Obligations

As of September 30, 2024, 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 25, 2024, other than those appearing elsewhere in this Quarterly Report on Form 10-Q.

Recently Adopted Accounting Pronouncements

As of September 30, 2024 and for the period then ended, there are no recently adopted accounting standards that have a material effect on the Company’s financial statements.

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Recently Issued Accounting Pronouncements Not Yet Adopted

As of September 30, 2024, there were no recently issued accounting standards not yet adopted that would have a material effect on the Company’s financial statements

Off-Balance Sheet Arrangements

The 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. The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the 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 September 30, 2024. Based on this evaluation, the Company’s Principal Executive Officer and Principal Financial Officer concluded that, as of September 30, 2024, the Company’s disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by the 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 the Company’s management, including the 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 (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

Information about risk factors for the quarter ended September 30, 2024 does not differ materially from that set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023.

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

None.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable

Item 5.  Other Information

From time to time, certain of our executive officers and directors have, and we expect they will in the future, enter into, amend or terminate written trading arrangements pursuant to Rule 10b5-1 of the Securities and Exchange Act or otherwise.

For the quarter ended September 30, 2024, none of our officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act and/or any “non-Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K.

Item 6.  Exhibits

(a) Exhibits

Exhibit Number	Description	Location
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.	Furnished herewith
101.INS	Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover page formatted as Inline XBRL and contained in Exhibit 101

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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: November 13, 2024	/s/ Michael S. Liebowitz
	Michael S. Liebowitz
	Chairman of the Board, President & Chief Executive Officer (Principal Executive Officer)
DATE: November 13, 2024	/s/ Debra E. Glickman
	Debra E. Glickman
	Chief Financial Officer (Principal Financial and Accounting Officer)

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