NOCOPI TECHNOLOGIES, INC.
1996 REPORT TO SHAREHOLDERS
April 28, 1997
Dear Shareholders:
Your company's consolidated revenues for the year ended December 31, 1996 were
$3,640,300 compared to $3,019,700 in 1995 and $1,761,700 in 1994. Revenues in
1996 were 21% better than 1995 and 71% higher than 1994. The revenue growth over
the past three years is encouraging. However, the net loss in 1996 did not
follow our improved revenue performance. In 1996, the loss was $408,300 as
compared to a $241,900 loss for 1995. The primary reason for the additional loss
relates to lower revenues realized from our Georgia Pacific license agreement
and unforeseen delays in anticipated revenues from our 3M agreement.
We believe that a significant portion of Nacopi's increased sales performance is
attributed to a growing number of domestic and international businesses that
recognize the estimated $200 billion dollars a year lost to counterfeiting,
fraud and diversion activities must be brought under control. Technology-based
solutions, such as those developed and sold by Nocopi, can provide them with
effective weapons to use as counter-measurers in their fight to preserve and
protect their proprietary product revenues.
These positive market conditions help create the very solid foundation that
supports our enthusiastic confidence for the future of our company. There is an
abundance of new and exciting security application opportunities. Nocopi is
recognized as the leading provider of interactive solutions, and we are well
positioned to capture our share of the increased market potential.
Sugartown Square, 230 Sugartown Road, Wayne, PA 19087
Telephone 610 687-2000 Fax 610 687-9194
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NOCOPI TECHNOLOGIES, INC.
1996 REPORT TO SHAREHOLDERS
This past year has been a frustrating one for Nocopi's shareholders, directors
and managers. All of us have had to cope with the disappointment in the results
of the reverse stock split. Let's step back for a moment and re-examine the
reasons for the split.
In 1996, The Board of Directors recommended to the shareholders that Nocopi's
common stock be reverse split on a 1 for 5 basis. The recommendation was
predicated on the fact that 70 million outstanding shares of common stock, used
as a divisor to calculate reported earnings per share would produce a very low
EPS. The result had a negative impact on the market valuation of the share
price. Low earnings per share would make it unlikely that the company could
reach and maintain a share price that would be high enough to realize our common
objective for inclusion in the NASDAQ Small Cap Market or National Market System
listings.
Consequently, the board recommended a reverse 1 for 5 split that had the effect
of reducing the outstanding shares of the company from 70 million to 14 million.
The anticipated basis for EPS improvement would help build a platform of support
for a potentially higher market valuation for Nocopi's shares.
The shareholders understood the rationale of the board's proposal and
overwhelmingly voted to approve the 1 for 5 reverse stock split. They shared in
the belief that these conclusions were the correct and necessary actions to
properly position Nocopi in the financial marketplace. Unfortunately, this has
not been the case, and it has resulted in a regrettable dilution in the
company's capitalization.
Many of you have called our office for more information in an effort to have a
better understanding of the current situation and prospectus for the future. As
owners of the company you are entitled to turn to Nocopi for information.
Management will always, to the best of their ability, try to provide the answers
to your questions.
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NOCOPI TECHNOLOGIES, INC.
1996 REPORT TO SHAREHOLDERS
The agreements that we have entered into with Georgia-Pacific, 3M Corporation
and Globe Ticket are an important facet of our marketing and sales programs. The
revenues generated from the resulting license fees are key elements in our
financial business plans. The following status report for each partner will
update you on this important segment of our business activities.
GEORGIA - PACIFIC Our license agreement gave Georgia-Pacific the exclusive right
to sell Rub & Reveal check stock to check printers. Their existing check stock
product lines are designed to be marketed and sold to large volume wide-web
check printers like Deluxe and Harland. Offset press printers do not use
Georgia-Pacific products because the majority of their customers purchase in
smaller quantities. Georgia-Pacific's small volume pricing would position offset
produced checks in non-competitive price ranges.
However, there are thousands of offset printers in the U.S. who include checks
in their product lines. They represent a large market opportunity for Nocopi,
and we have developed new products that are compatible with their production
facilities. Based on these circumstances, we approached Georgia-Pacific and
suggested that we re-negotiate our license agreement. Georgia-Pacific agreed to
open the offset market to Nocopi direct sales, and to encourage development of
wide-web business, Nocopi granted a continuation to Georgia-Pacific to sell
selected wide-web, large volume, check printers Nocopi treated paper on a
no-license-fee basis for twelve months. Both companies have agreed to return to
the bargaining table in November 1997.
3M CORPORATION Our business with 3M has experienced a longer than anticipated
start-up curve. They had to build and train an international marketing and
direct sales organization capable of marketing and selling covertly coded
pressure sensitive labels that incorporate Nocopi technology. These new 3-M
labels are designed to protect a myriad of products from counterfeiters and
diverters. In November 1996 3M renewed the joint venture license agreement for
two more years. We are confident the 3M product lines will begin to achieve
significant market penetration.
GLOBE TICKET Globe and Nocopi have worked together since 1992. Globe uses Nocopi
technology that includes Rub & Reveal, ColorBloc, and pen-activated inks to
provide their customers with the tools to authenticate event tickets and
passes. Some of their major customers have included The NFL, Collegiate
Football, 1996 Summer Olympics, and a variety of theaters, concert halls, and
amusement and theme parks. The license revenue that Nocopi receives from Globe
has increased each year, and they recently renewed their licensce agreement
through September 1999.
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NOCOPI TECHNOLOGIES, INC.
1996 REPORT TO SHAREHOLDERS
Nocopi has demonstrated that it has the ability to identify market needs and
then create products that are designed to satisfy these needs. If the needs have
a broad-based appeal they will present new business opportunities that
high-volume sales potential. We believe that two product development
breakthroughs, perfected in 1996, match this description.
The restructured license agreement with Georgia-Pacific opened the offset check
printing market for us. For the first time we can market and sell product to
these printers on a direct basis. The key factor that allowed this transition to
occur relates to a successful new product development. In 1996, Nocopi developed
the technology that created a Rub & Reveal ink product that is compatible with
the offset printing process. This new ink means that offset printers are no
longer dependent on Georgia-Pacific paper to print Rub & Reveal checks. They can
now incorporate Rub & Reveal in their product line offerings to provide their
customers with an extra measure of safety and protection against fraud and
counterfeiting. This should create new sales and marketing opportunities for
Nocopi that could develop into a substantial source of revenue for the company.
In 1993, Nocopi's Research and Development Group created technology that
allowed fax machine transmissions to be sent to a recipient on a secure basis.
The message printed by the receiving fax machine could not be read until the
designated person that fax was sent to, personally activated the fax paper.
However, the technology was limited to thermal fax machines, and it was felt
that the development had limited marketability because plain paper fax machines
were replacing thermal machines. Consequently, the R&D project continued, and in
1996 a successful process was unveiled that permitted plain paper fax machines
to receive secure transmissions.
Two new products have evolved from the technology, SecretFax(Trademark) allows a
plain paper inkjet fax machine to receive transmissions that must be activated
by the recipient before it can be read. SecurPrint(Trademark) enables an inkjet
printer to produce documents on which, at the discretion of the author, a
portion of, or all of the document's copy remains hidden until the specific
addressee activates the document.
We believe this new product line has an encouraging potential, and it is our
intention to develop marketing and sales strategies to successfully introduce
these new products in 1997.
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NOCOPI TECHNOLOGIES, INC.
1996 REPORT TO SHAREHOLDERS
Euro-Nocopi S.A., with headquarter offices in Paris, has been operating in
Europe since 1995. Business is conducted in three offices that are located in
England, France and Germany. They market and sell Nocopi's technologies and
products under an exclusive license agreement.
In 1996 Dr. Arshavir Gundjian, Senior Vice President, Technology & Technical
Sales Worldwide, was appointed to serve as Director General of Euro-Nocopi S.A.
His time is divided between Europe and the United States. Dr. Gundjian has been
affiliated with Nocopi since 1985 and has served as a member of the Board of
Directors since 1991. There is great potential for Nocopi's products in Europe,
and Dr. Gundjian's experience and guidance will be a valuable asset that will be
utilized to help the business to continue to grow and prosper.
We are very pleased to announce that Mr. Leonard M. Lodish has agreed to join
Nocopi as a Marketing Consultant. Mr. Lodish is the Samuel R. Harrell Professor
in the Marketing Department of the Wharton School, University of Pennsylvania.
He holds a Ph.D., Marketing and Operations Research, and an AB in Mathematics
from Kenyon College. Professor Lodish's primary research and consulting areas of
expertise are in strategic and tactical marketing planning, marketing support
systems, and marketing and sales strategy. He has consulted with numerous major
firms world wide, including Procter & Gamble, Syntax Laboratories, Merck & Co.
and Pepsi Cola.
Ray B. Mundt, who remains on the board, relinquished his position as Chairman of
the Board in February 1997. Mr. Mundt has served on the Board of Directors since
1989 and was appointed Chairman of the Board in 1990. This change reflects his
election as Chairman and Chief Executive Officer of Unisource Worldwide, which
became a listed company on the New York Stock Exchange in January 1997. Nocopi
shareholders will want to join us in expressing to Mr. Mundt sincere
appreciation for the tremendous effort that he has put forth as Chairman of
Nocopi. Everyone extends best wishes to him in his new assignment at Unisource.
We know that all of the shareholders will join Nocopi's management and employees
in extending a warm welcome to Edward N. Patrone, who succeeds Ray Mundt as
Chairman of the Board of Nocopi Technologies, Inc. Mr. Patrone was formerly
Presidents of Paper Corporation of America, a subsidiary of Alco Standard
Corporation, until his retirement in May 1991. Mr. Patrone also serves as a
Director of CompuCom Systems, Inc., Prime Source Corporation and Chestnut Hill
College. He become a director of Nocopi in June 1996.
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NOCOPI TECHNOLOGIES, INC.
1996 REPORT TO SHAREHOLDERS
In this 1996 Report to Shareholders we have acknowledged that last year was a
disappointment for all of us who are associated with Nocopi. We traveled on some
rough roads, rode over a few bumps, and were forced to follow a few detour
signs. However, we have experience in coping with temporary detours, and we know
that we are on course and heading in the right direction. In this report, we
have tried to emphasize the positive factors that give us a high level of
confidence in the future. Your management is determined that Nocopi will emerge
as a stronger company with improved product lines and expanded market
opportunities.
We look forward to being with you at our Annual Shareholders Meeting which will
be held at the The Desmond Hotel, 1 Liberty Boulevard, Malvern, PA, on June 9,
1997. The meeting will start at 9:30 a.m.
Thanking you for your continued support and encouragement.
Sincerely,
Norman A. Gardner, President &
Chief Executive Officer
April 28, 1997