10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2019

¨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)

(Registrant’s telephone number, including area code): (610) 834-9600

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

Securities registered pursuant to section 12(g) of the Act:

Common Stock, Par Value $0.01

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ¨ Yes þ No

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. þ 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). þ Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ 

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

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

If an emerging growth company, indicate by check mark 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 Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act of 1934) ¨ Yes þ No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $2,325,000 as of June 30, 2019.

As of March 17, 2020, there were 61,044,698 shares outstanding of the registrant’s common stock, $0.01 par value.

Documents Incorporated By Reference

Portions of the registrant’s definitive proxy statement to be filed in conjunction with the registrant’s 2020 annual meeting of stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K. The proxy statement will be filed by the registrant with the Securities and Exchange Commission not later than 120 days after the end of the registrant’s fiscal year ended December 31, 2019.

Table of Contents

			Page
PART I
	Item 1.	Business	1
	Item 1A.	Risk Factors	5
	Item 1B.	Unsolved Staff Comments	6
	Item 2.	Properties	6
	Item 3.	Legal Proceedings	7
	Item 4.	Mine Safety Disclosures	7
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8
	Item 6.	Selected Financial Data	8
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	13
	Item 8.	Financial Statements and Supplementary Data	13
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	13
	Item 9A.	Controls and Procedures	13
	Item 9B.	Other Information	14
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	15
	Item 11.	Executive Compensation	15
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	15
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	15
	Item 14.	Principal Accounting Fees and Services	15
PART IV
	Item 15.	Exhibits, Financial Statement Schedules	16
	Item 16.	Form 10-K Summary	16

i

Forward-Looking Statements

This report on Form 10-K contains forward-looking statements. Forward-looking statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.

Examples of forward-looking statements include, but are not limited to:

·

Expected operating results, such as revenue growth and earnings

·

Anticipated levels of capital expenditures for fiscal year 2020 and beyond

·

Current or future volatility in market conditions

·

Our belief that we have sufficient liquidity to fund our business operations during the next twelve months

·

Strategy for customer retention, growth, product development, market position, financial results and reserves

·

Strategy for risk management

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

·

The extent to which 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.

·

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.

·

The potential impact upon our business of the novel coronavirus COVID-19 pandemic that is affecting almost every country, including the United States.

·

Such other factors as discussed throughout Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in this report.

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.

ii

PART I

Item 1.

Business

Background

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. Our website address is www.nocopi.com.

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.

Entertainment and Toy Technologies and Products

Since 2004, we have marketed our Rub-it & Color technology to the entertainment and toy products market. This technology consists of specialty inks that are produced in a variety of colors and can be revealed by rubbing with a fingernail or other firm object such as a plastic pen cap. Rub-it & Color ink technology can be used for coloring books, activity kits, play sheets, single use place mats, greeting cards, board games, promotional products, or any other paper-based application that’s needs some “fun” factor added. Safe and non-toxic, Rub-it and Color conforms to ASTM D4236 and F-963 and other toxicology tests.

Every child loves to color, and every parent has a horror story about the cleanup. Our patented, revolutionary, and award-winning Rub-it & Color takes out all the messy stuff related to children’s coloring except the fun. No more crayons ground into the carpet and car upholstery. No more spilled paint on the rug. No more messy markers ruining clothes and furniture. Rub-it & Color ink technology can be used for coloring books, activity kits, play sheets, single use place mats, greeting cards, board games, promotional products, or any other paper-based application that’s needs some “fun” factor added. Safe and non-toxic, Rub-it and Color conforms to ASTM D4236 and F-963 and other toxicology tests.

We license our Rub-it & Color technology through various license agreements, including:

A.

License agreement with a licensee who has a significant presence in the entertainment and toy products market. A license agreement, in effect from January 2012 through December 2017, permitted this licensee to exclusively market: (1) a specific line of products incorporating our technologies through a specific distribution channel but permitting us to license the covered technologies to others for applications and sale through channels of distribution not available to this licensee under the terms of the license, and (2) from January 2013 through December 2017, an additional technology on an exclusive basis in certain geographic areas of the world and on a non-exclusive basis in other geographic areas of the world. In early 2018, we entered into a new five-year license agreement with this licensee which permits the licensee to market products incorporating certain of our technologies, including the technologies permitted in the earlier license, on a non-exclusive basis throughout the world.

B.

License agreement containing guaranteed minimum royalties over the initial term of the license, which have been met, with Bendon, Inc. (“Bendon”), an international, well-known children’s coloring and activity book publishing company that permits Bendon to exclusively market products with other characteristics that incorporate our technologies through a distinctly different channel of distribution. This four-year license agreement was completed in June 2015, replacing a previous three-year license agreement. In 2018, amendments to the license agreement were negotiated that (1) extend the license for a period of four years beginning in July 2019 containing guaranteed minimum royalty payments payable over the four-year period and (2) allow Bendon to: (a) market specific new technologies not covered in the license agreement, (b) expand certain rights relative to product content and design that were specifically excluded in the license agreement and (c) market merchandise permitted by the license through all channels of distribution, some of which were previously prohibited in the license agreement.  

1

C.

License agreement with a privately-held designer of creative educational products for children granting the licensee the exclusive right to utilize our Rub-it & Color ink technology in a newly-created vertical market in the United States. In addition to an annual license fee, we receive a royalty based on units of product produced. The license originated in 2011 and was renewed in June 2017 for a period of up to three years.

D.

License agreement with a privately-held children’s meal entertainment program provider that allows the licensee to use our Rub-it & Color ink technology in children’s menus, placemats, butcher paper and certain other products for restaurant use and for sale in certain children’s retail outlets. The license originated in November 2012 and was renewed in December 2014 for a period of six years, expiring in December 2020.

E.

License agreement with a privately-held international publisher of family products and publications based in Australia. The license originated in October 2015 and terminated in December 2018. The license agreement contained guaranteed minimum royalty payments and allowed the licensee to market certain products that incorporate specific technologies of our Company on an exclusive basis in certain countries and on a non-exclusive basis in other countries with the exclusion of the United States, Canada and Mexico. A new license containing guaranteed minimum royalty payments, allowing the licensee to market certain products that incorporate specific technologies of our Company on an exclusive basis in certain countries and on a non-exclusive basis in other countries with the exclusion of the United States, Canada and Mexico, was negotiated in November 2018. The new license, expanding the technologies that the licensee is authorized to incorporate into its products, became effective in January 2019 and terminates in October 2022. The licensee introduced products incorporating our technologies in 2016.

Certain of our license agreements with licensees contain renewal options and/or guaranteed minimum royalties, while others do not. We cannot assure you that any of our existing licenses will be renewed or will generate significant operating revenues for our Company in the future. In each of the years 2019 and 2018, we derived approximately 88% and 92%, respectively, of our total revenues from our licensees and their licensed printers in the entertainment and toy products market. We continue to pursue additional licensing opportunities for our Rub-it & Color ink technology in the large worldwide entertainment and toy products market through direct marketing efforts and attendance at trade shows. We also seek to renew existing license agreements with licensees.

Anti-Counterfeiting and Anti-Diversion Technologies and Products

Continuing developments in copying and printing technologies makes it easier than ever before to counterfeit a wide variety of documents. Product labels and packaging, retail receipts, event and transportation tickets and the like are all susceptible to counterfeiting, and product counterfeiting has long caused losses to manufacturers of brand name products. With improvements in the copying and printing technologies making it easier to counterfeit labeling and packaging, losses to businesses from such counterfeiting appear to have increased substantially.

Our COPIMARK and RUB & REVEAL technologies provide proprietary document authentication systems that are useful to businesses desiring to authenticate a wide variety of printed materials and products. Our COPIMARK system enables businesses to print invisibly on certain areas of a document. When authentication of certain documents is required, the invisible printing can be activated or revealed by use of a special highlighter pen. Other variations of the COPIMARK technology involve multiple color responses from a common pen, visible marks of one color that turn another color with the pen or visible and invisible marks that turn into a multicolored image. Our RUB & REVEAL system permits the invisible printing of an authenticating symbol or code that can be revealed by rubbing a fingernail over the printed area.

Both technologies provide users with the ability to authenticate documents and detect counterfeit documents. Applications include the authentication of documents having intrinsic value, such as merchandise receipts, checks, travelers' checks, gift certificates and event tickets, and the authentication of product labeling and packaging. When applied to product labels and packaging, our systems allow detection of counterfeit products, the labels and packaging of which would not contain the authenticating marks invisibly printed on the packaging or labels of the legitimate product.

Our marketing efforts for these technologies are focused on specific industries we believe may be affected by product counterfeiting. These technologies also combat product diversion (i.e. sale of legitimate products through unauthorized distribution channels or in unauthorized markets). Another of our related technologies, our invisible inkjet technology, permits manufacturers and distributors to track the movement of products from production to ultimate consumption when coupled with proprietary software. We anticipate that the “track and trace” capability provided by this technology will be attractive to brand owners and marketers and we hope that our ongoing marketing initiatives will result in additional revenues in the future; although we cannot assure you that this will occur.

2

We currently participate in the retail receipt and document fraud market through licensing arrangements with seven printers and distributors in the United States and Canada who provide loss prevention products to retailers and other outlets. We market these technologies through the use of licensed printers and distributors and continue to use our available internal sales and technical resources to expand the number of licensees marketing our technologies in this market.

Contrast Technologies, formerly known as Euro-Nocopi, S.A., is a former affiliate of our Company that, since June 2003, has held a perpetual royalty-free license to exploit certain of our anti-counterfeiting and anti-diversion technologies in Europe.

Product Revenue

The following table illustrates the approximate percentage of our Company’s total revenues accounted for by each type of its products for each of the two last fiscal years:

	Year Ended December 31,
Product Type	2019			2018
Entertainment and Toy Technologies and Products		88	%		92	%
Anti-Counterfeiting and Anti-Diversion Technologies and Products		12	%		8	%

Marketing

We have identified two major markets for our technologies and products, the entertainment and toy product market and the anti-counterfeiting/anti-diversion market. Our marketing approach focuses on the sufficient flexibility in our products and technologies and our ability to provide innovative, cost effective technologies for the entertainment and toy products market as well as solutions to a wide variety of counterfeiting, diversion and copier fraud problems. As a technology company, we generate revenues primarily by collecting license fees and royalties from market-specific businesses that incorporate our technologies into their products and, in certain cases, sales of our inks to these licensees and their designated manufacturers. We also license our technologies directly to end-users. Our current marketing efforts are focused on our developed technologies that can be utilized in geographic or market areas not contractually committed to an existing licensee on an exclusive basis. We presently market our technologies through our own employees, sales travel and attendance at trade shows.

Major Customers

During 2019, we made sales or obtained revenues equal to 10% or more of our Company’s 2019 total revenues from two non-affiliated customers who individually accounted for approximately 55% and 18%, respectively, of 2019 revenues of our Company. During 2018, we made sales or obtained revenues equal to 10% or more of our Company’s 2018 total revenues from two non-affiliated customers who individually accounted for approximately 59% and 21%, respectively, of 2018 revenues of our Company.

Additional information concerning our major customers is contained in Note 12 to our Financial Statements, attached as Appendix A to this Annual Report on Form 10-K.

Manufacturing

Our Company operates a small manufacturing facility for the manufacture of its security inks that is located at our corporate headquarters at 480 Shoemaker Road, Suite 104, King of Prussia, Pennsylvania 19406, and we subcontract the manufacture of certain of our applications (mainly certain printing inks and coatings) to third party manufacturers. Our current mix of manufacturing processes are suitable for our Company, for both economic and technical reasons, and we have no plans to alter this mix in the near future. We have established a quality control program that currently entails laboratory analysis of developed technologies; and when warranted, our specially trained technicians travel to third party production facilities to install equipment, train client staff and monitor the manufacturing process.

3

Patents

Our Company has been granted various patents in the United States, Canada, South Africa, Saudi Arabia, Australia, New Zealand, Japan, France, the United Kingdom, Belgium, the Netherlands, Germany, Austria, Italy, Sweden, Switzerland, Luxembourg, and Liechtenstein. We currently have patent protection on substantially all of our security inks including the RUB & REVEAL system, and on our Rub-it & Color technology. Our latest patent protects our newly developed technology that may have applications in the entertainment and toy products market.

In the United States and some other countries, patent applications are automatically published at a specified time after filing. Since we are obligated pay annuities from time to time on our patents to keep them in force, we annually evaluate our patent portfolio to determine which patents we will continue to maintain. In Europe, annuities for European patents are paid by Contrast Technologies, formerly known as Euro-Nocopi, S.A., since Europe is where they hold a perpetual royalty-free license to exploit certain of our anti-counterfeiting and anti-diversion technologies.

Research and Development

We have been involved in the research and development of our technologies since our inception. Although several years ago our adverse financial condition forced us to limit funding for research and development, we are presently actively conducting research and development activities in the following three areas, to the extent feasible: (1) refining our present family of products, (2) developing specific customer applications, and (3) expanding our technology into new areas of implementation. During the years ended December 31, 2019 and December 31, 2018, we expended approximately $165,600 and $153,200, respectively, on research and development. We cannot assure you that we will continue to have funds available to maintain our research and development activities at current or increased levels.

Competition

Our Company has competitors in all segments of our business. The entertainment and toy products markets are highly competitive and includes numerous competitors. The loss prevention market also includes numerous competitors, including large publicly traded and privately-held companies as well as regional paper converters. In the area of document and product authentication and serialization, competitors offer competitive covert and overt surface marking technologies requiring decoding implements or analytical methods to reveal certain information that are marketed for the same anti-counterfeiting and anti-diversion purposes for which our Company markets its covert technologies. These include, among others, biological DNA codes, microtaggants, thermochromic, UV and infrared inks as well as encryption, 2D symbology and laser engraving. Nonetheless, we believe our patented and proprietary technologies provide a unique and cost-effective solution to the problem of counterfeiting and gray marketing in the document and product authentication markets it has traditionally sought to exploit.

We are a small operating company and many of our existing and potential competitors have substantially greater research and product development capabilities and financial, marketing and human resources than we do.

Employees

We currently have four full-time and two part-time employees. We believe that we have good relations with our employees.

Financial Information about Foreign and Domestic Operations

We conduct our business operations solely within the United States; however, we have licensees and customers in Europe, South America, Asia and Australia. These licensees and customers accounted for approximately 66% of our gross revenues in 2019 and approximately 32% of our gross revenues in 2018. Additional information concerning our foreign and domestic operations is contained in Note 12 to our Financial Statements, attached as Appendix A to this Annual Report on Form 10-K.

4

Item 1A.

Risk Factors

Our Company’s operating results, financial condition and stock price are subject to certain risks, some of which are beyond its control. These risks could cause our Company’s actual operating and financial results to differ materially from those expressed in its forward-looking statements, including the risks described below and the risks identified in other documents which are filed and furnished with the United States Securities and Exchange Commission.

Spread of the Novel Strain of Coronavirus (“COVID-19”). 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. The World Health Organization has declared COVID-19 to constitute a global pandemic. Certain state and local governments have reacted by placing significant restrictions on businesses including a closure in Pennsylvania of non-essential businesses that was announced on March 20, 2020. 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.

Access to Capital. Our Company anticipates that it may need to raise additional capital in the future to fund its historical and new business operations. Additional financing may not be available to us, due to, among other things, our Company not having a sufficient income stream, profit level, asset base eligible to be collateralized, or market for its securities. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our existing shareholders may be reduced, and these securities may have rights superior to those of our common stock. If adequate funds are not available to satisfy our long-term capital requirements, or if planned revenues are not generated, we may be required to substantially limit our operations or cease operations altogether. We cannot assure you that, if required, we will be successful in obtaining additional financing in sufficient amounts to fund our ongoing business operations.

Dependence on Major Customers. We are dependent on our licensees to develop new products and markets that will generate increases in its licensing and product revenues. The inability of our licensees to maintain at least current levels of sales of products utilizing our technologies could adversely affect our operating results and cash flow. To the extent that our licensees are adversely affected by negative economic conditions such as those that may result from the present COVID-19 pandemic, our revenues may also be negatively impacted. We derive a significant percentage of our revenues through licensing relationships with two major customers. Revenues obtained directly from these customers and indirectly, through the customers’ third party licensed printers, equaled approximately 84% of our Company’s revenues in 2019. Receivables from these two licensees and their third party authorized printers were approximately 96% of our Company’s net accounts receivable at December 31, 2019. One of the license agreements expires in 2023 and contains guaranteed minimum royalties, which historically are met. The other license agreement expires in 2022. Both license agreements contain renewal options; but there can be no assurances that one or both of the licenses will continue in force at the same or more favorable terms beyond their current termination dates, nor can there be any assurances that the relationships with these two licensees will generate increased revenues for our Company in the future.

Possible Inability to Develop New Business. Our management believes that any significant improvement in our Company’s cash flow must result from increases in revenues from traditional sources and from new revenue sources. Our Company’s ability to develop new revenues may depend on the extent of both its marketing activities and its research and development activities, both of which are limited. We cannot assure you that the resources that our Company can devote to marketing and to research and development will be sufficient to increase its revenues to levels that will enable it to maintain positive operating cash flow in the future.

Inability to Obtain Raw Materials and Products for Resale. Our Company’s adverse financial condition in years prior to 2016 has required it from time to time to significantly defer payments due to (i) vendors who supply raw materials and other components of its security inks, (ii) providers of professional and other services and (iii) certain employees to whom salary and sales commissions are owed. As a result, the Company is required to pay cash in advance of shipment to certain of its suppliers. The inability to obtain materials on a timely basis and the possibility that certain vendors may permanently discontinue supplying our Company with needed products and services may result in delayed shipments to customers and further impact our Company’s ability to service its customers, thereby adversely affecting our Company’s relationships with its customers and licensees. We cannot assure you that our Company will be able to maintain its vendor relationships in an acceptable manner.

5

Uneven Pattern of Quarterly and Annual Operating Results. Our Company’s revenues, which are derived primarily from licensing and sales of products incorporating its technologies as well as royalties from these products, are difficult to forecast; such forecasting difficulty is due to, among other reasons, the long sales cycle of our Company’s technologies, the potential for customer delay or deferral of implementation of our Company’s technologies, the size and timing of inception of individual license agreements, the success of our Company’s licensees and strategic partners in exploiting the market for the licensed products, modifications of customer budgets, and uneven patterns of royalty revenue and product orders. As our revenue base is not substantial, delays in the finalization of license contracts, the implementation of the technology to initiate the revenue stream and the ordering decisions of customers can have a material adverse effect on our Company’s quarterly and annual revenue expectations. As our operating expenses are substantially fixed, income expectations will be subject to a similar adverse outcome. As licensees for the entertainment and toy products markets are added, the predictability of our Company’s revenue stream may be further impacted.

Volatility of Stock Price. The market price for our common stock has historically experienced significant fluctuations and may continue to do so. With the exception of 2007, 2013, 2014 and 2016 through 2019 from its inception, our Company has operated at a loss and it has not produced revenue levels traditionally associated with publicly-traded companies. Our common stock is not listed on a national or regional securities exchange and, consequently, our Company receives limited publicity regarding its business achievements and prospects. Additionally, securities analysts and traders do not extensively follow our stock and it is thinly traded. The market price for our common stock may be affected by announcements of new relationships or modifications to existing relationships. The stock prices of many developing public companies, particularly those with small capitalizations, have experienced wide fluctuations not necessarily related to operating performance. Such fluctuations may adversely affect the market price of our Company’s common stock.

Intellectual Property. Our Company relies on a combination of protections as may be available under applicable domestic, foreign or international patent, trademark and trade secret laws. We also rely on confidentiality, non-analysis and licensing agreements to establish and protect our rights in its proprietary technologies. While we attempt to protect these rights, our technologies may be compromised through reverse engineering, independent invention or other means. In addition, our ability to enforce our intellectual property rights through appropriate legal action has been and will continue to be limited by its tight liquidity. We cannot assure you that our Company will be able to protect the basis of its technologies from discovery by third parties or to preclude third parties from conducting activities that infringe on our Company’s rights. Our Company’s tight liquidity adversely impacts our ability to obtain patent protection on our intellectual property and to maintain protection on previously issued patents. We cannot assure you that we will be able to continue to prosecute new patents and maintain issued patents. As a result, our customer and licensee relationships could be adversely affected, and the value of our technologies and intellectual property (including their value upon liquidation) could be substantially diminished.

Economic Conditions. Our Company’s revenue is susceptible to changes in general economic conditions. Our sales, liquidity and overall results of operations may be negatively affected by decreasing consumer confidence, slowdowns in consumer spending or other downturns in the U.S. economy as a whole or in any geographic markets from which we derive revenue. In addition, these factors may result in decreased customer and licensee demand for our products and may negatively impact our ability to develop new customers and licensees. Due to uncertainties surrounding the worldwide economy, particularly in light of the COVID-19 pandemic, we are unable to predict the effect of such conditions on our customers and licensees. Consequently, we cannot predict the scope or magnitude of the negative effect resulting from ongoing global financial uncertainties or economic slowdowns.

Potential undetected material weakness in internal controls. Our annual report does not include an attestation report of our Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit our Company to provide only management’s attestation in this annual report. As a result, a material weakness in our internal controls may remain undetected for a longer period.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

Our corporate headquarters, research and ink production facilities are located at 480 Shoemaker Road, Suite 104, King of Prussia, Pennsylvania 19406. These premises consist of approximately 6,100 square feet of leased space. Our lease commenced in January 2014 and expires in April 2024. Current monthly rent under this lease is $4,212; this amount escalates an amount of approximately three percent each year. In addition to rent, we are also responsible for our pro-rata share of the operating costs of the building.

6

We incurred leasehold improvement expenditures of approximately $27,800 through March 17, 2020, and we believe that additional leasehold improvement expenditures will not be significant. We consider this space adequate for our current needs and additional space is available as needed.

Item 3.

Legal Proceedings

None.

Item 4.

Mine Safety Disclosures

Not applicable.

7

PART II

Item 5.

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities

Market Information

Our common stock is traded on the OTC Pink tier of the over-the-counter (“OTC”) market under the symbol "NNUP". Investors can find Real-Time quotes and market information on our Company on www.otcmarkets.com. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Shareholders

As of March 17, 2020, there were approximately 530 holders of our common stock, including The Depository Trust Company, which holds shares of our common stock on behalf of an indeterminate number of beneficial owners.

Dividends

Our Company does not pay any cash dividends on its common stock. Our Business Loan Agreement with Santander Bank, N.A. restricts our ability to pay cash dividends on our common stock and it will continue to do so for the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

None.

Recent Sales of Unregistered Securities

Date	Security/Value
October 2019	Common Stock – 720,000 shares of common stock at the price of at $0.035 per share issued for services.

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

Issuer Repurchases of Equity Securities

None.

Item 6.

Selected Financial Data

Not Applicable.

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

8

The following discussion and analysis should be read in conjunction with our 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.

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

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. We cannot predict whether COVID-19 will materially affect our licensing fees or the demand for our products. In addition, certain customers have, from time to time, sought to renegotiate certain provisions of their license agreements and, when our Company agrees to revise such terms, revenues from the customer may be affected.

9

Comparison of the Years ended December 31, 2019 and 2018

Revenues for 2019 were $2,537,400, a decrease of approximately 24%, or $804,300, from $3,341,700 in 2018. Revenues in 2018 included, in accordance with ASU 214-09, Revenue from Contracts with Customers (“Topic 606”), revenue of $1,521,700 representing the present value of guaranteed royalty payments that are payable over a four-year period beginning in the third quarter of 2019 as a result of an amendment to a license agreement with a licensee that, in addition to expanding the technologies that our licensee is permitted to market, provides for a four year extension to the license agreement beginning in July 2019. Since the performance obligation is to grant the license for the use of certain patented ink technology as it exists at the time that it is granted, the promise to grant the license is a performance obligation satisfied at a point in time in accordance with Topic 606. Previously, we recognized revenue from licenses and royalties on a straight-line basis over the term of the related license agreement.

Licenses, royalties and fees decreased in 2019 by approximately 65%, or $1,448,700, to $793,800 from $2,242,500 in 2018. The decrease in licenses, royalties and fees in 2019 compared to 2018 is due primarily to the adoption of Topic 606 described above. See “Plan of Operation, Liquidity and Capital Resources” and “Note 2 to our Financial Statements” for comparative information on the impact of the adoption of Topic 606 to our Company’s financial statements.

Product and other sales increased by $644,400, or approximately 59%, to $1,743,600 in 2019 from $1,099,200 in 2018. The higher level of ink sales in 2019 compared to 2018 is due primarily to higher ink requirements of the licensed third-party printers used by the Company’s licensees in the entertainment and toy products market. Sales of ink to the licensed printers of its licensees in the entertainment and toy products market were approximately $620,300 higher in 2019 compared to 2018. Sales of security ink to the Company’s licensees in the retail receipt and document fraud market increased by approximately $14,800 in 2019 compared to 2018.

Our Company derived $2,223,900, or approximately 88% of total revenues, from licensees and their licensed printers in the entertainment and toy products market in 2019 compared to $3,076,900, or approximately 92% of total revenues, in 2018. The decrease in revenues from our licensees and their authorized printers in the entertainment and toy products market in 2019 compared to 2018 is due primarily to the adoption of Topic 606. Our Company’s licensees in the entertainment and toy products market continue to develop new products for this market and improve their current offerings; however, their sales will be affected by marketplace reaction to the new and improved products, economic conditions that influence this market segment and the economy as a whole. Revenues that the Company derives from these licensees will be similarly affected. We cannot assure you that the marketing and product development activities of licensees in the entertainment and toy products market will produce increased revenues for the Company in future periods, nor can the timing of any potential revenue increases be predicted, particularly given the uncertain economic conditions currently being experienced worldwide as a result of Covid-19.

Gross profit decreased to $1,695,700, or approximately 67% of revenues, in 2019 from $2,780,500, or approximately 83% of revenues, in 2018. The lower gross profit in 2019 compared to 2018 results primarily from both lower licenses, royalties and fees due to the adoption of Topic 606 and higher gross revenues from product and other sales 2019 compared to 2018.

Licenses, royalties and fees have historically carried a higher gross profit than product sales, which generally consist of supplies or other manufactured products that incorporate the Company’s technologies or equipment used to support the application of its technologies. These items (except for inks which are manufactured by our Company) are generally purchased from third-party vendors and resold to the end-user or licensee and carry a lower gross profit than licenses, royalties and fees. The lower gross profit in 2019 compared to 2018 reflects lower gross revenues from licenses, royalties and fees and from product and other sales in 2019 compared to 2018.

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 gross profit from licenses, royalties and fees as well as overall gross profit. Due primarily to the lower revenues in 2019 compared to 2018, the gross profit from licenses, royalties and fees decreased to approximately 79% of revenues from licenses, royalties and fees in 2019 from approximately 95% in 2018.

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. Due to changes in mix of products sold and increases in the prices of certain raw materials, the gross profit from product and other sales increased to approximately 61% of revenues in 2019 from approximately 59% of revenues in 2018.

10

Research and development expenses were $165,600 in 2019 compared to $153,200 in 2018. The increase in 2019 compared to 2018 resulted primarily from higher employee related and product development expenses in 2019 compared to 2018.

Sales and marketing expenses were $329,900 in 2019 compared to $387,300 in 2018. The decrease 2019 compared to 2018 is due primarily to lower commission expense related to a lower level of revenues in 2019 compared to 2018 as a result of the adoption of Topic 606 in 2018.

General and administrative expenses increased to $393,900 in 2019 from $369,400 in 2018. The increase in 2019 compared to 2018 is due primarily to higher corporate relations expenses offset in part by lower patent related and legal expenses in 2019 compared to 2018.

Other income (expenses) in 2019 and 2018 included interest on convertible debentures held by seven investors and interest income on invested funds.

Income taxes in 2019 and 2018 resulted from limitations placed on income tax net operating loss deductions by the Commonwealth of Pennsylvania.

Our net income of $754,900 in 2019 compared to net income of $1,655,400 in 2018 resulted primarily from a lower gross profit on a lower level of revenues in 2019 compared to 2018 related to the adoption of Topic 606 offset in part by lower overhead expenses and income taxes along with positive interest in 2019 compared to 2018.

Our management does not believe that inflation and changing prices have had a significant effect on our revenues and results of operations during the years ended December 31, 2019 and December 31, 2018.

Plan of Operation, Liquidity and Capital Resources

Our cash increased to $688,000 at December 31, 2019 from $400,800 at December 31, 2018. During 2019, our Company generated $360,600 from its operating activities and used $73,400 for capital expenditures.

Our Company’s revenues decreased approximately 24% to $2,537,400 in 2019 from $3,341,700 in 2018 of which an increase of 39%, or $717,400 is attributable to historical operations offset by a decrease of 63%, or $1,521,700, that is attributable the reduction of our Company’s revenues in 2019 compared 2018 as a result of the adoption of Topic 606 in the second quarter of 2018.

Our Company’s total overhead expenses increased in 2019 compared to 2018, our Company’s net interest income increased in 2019 compared to 2018 and our Company’s income tax expense decreased in 2019 compared to 2018. As a result of these factors, our Company generated net income of $754,900 in 2019 compared to $1,655,400 in 2018. Our Company had positive operating cash flow of $360,600 in 2019. At December 31, 2019, our Company had working capital of $1,835,300 and stockholders’ equity of $2,789,700. For the full year of 2018, our Company had net income of $1,655,400 and had positive operating cash flow of $40,900. At December 31, 2018, our Company had working capital of $810,500 and stockholders’ equity of $1,966,700.

Our Company has $97,900 of convertible debentures outstanding that are due during the third quarter of 2020.

In November 2018, our Company obtained a $150,000 revolving line of credit with a bank to provide a source of working capital, if required.

We may need to obtain additional capital in the future to support the working capital requirements associated with our existing revenue base and to fund potential operating losses that could occur if our licensees are unable to at least maintain current levels of sales of products utilizing the Company’s technologies. We cannot assure you that we will be successful in obtaining sufficient additional capital, or if we do so, that the additional capital will enable our Company to continue to operate profitably in the future and develop new revenue sources to have a material positive effect on our Company’s operations and cash flow. Without additional investment, we may be forced to cease operations at an undetermined time in the future if we are unable to sustain revenues at levels approximating revenues achieved in recent years.

11

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 annual 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 expects that revenue growth in this market can be achieved through increased security ink sales to its licensees in this market. We will continue to adjust our production and technical staff as necessary and, subject to available financial resources, invest in capital equipment needed to support potential growth in ink production requirements beyond our current capacity. Additionally, we will pursue opportunities to market our current technologies in specific security and non-security markets. We cannot assure you that these efforts will enable our Company to generate additional revenues and positive cash flow.

Our Company has received and continues to 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 we will be successful in raising 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 due to Covid-19. As a result, our revenues, results of operations and liquidity may be negatively impacted as they were in previous years.

Contractual Obligations

We conduct our operations in leased facilities under a non-cancelable operating lease expiring in 2024. Future minimum lease payments under this operating lease at December 31, 2019 are: $51,600 – 2020; $53,100 – 2021; $54,600 – 2022; $56,200 – 2023 and $18,900 – 2024. Total rental expense under operating leases was $53,300 and $45,100 in each of the years ended December 31, 2019 and December 31, 2018, respectively.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and subsequent related updates. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from operating leases. The Company adopted the standard effective January 1, 2019 under the optional transition method which allows the entity to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the period of adoption. The standard had a material impact on the balance sheet. As of January 1, 2019, the operating lease right of use asset and operating lease liability amounted to $241,000 with no cumulative-effect adjustment.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements. The amendments in this Update relieve businesses and organizations from having to present prior comparative years’ results when they adopt the new standard. It also lets landlords and other lessors avoid breaking out the parts of a rental contract that are not specifically being leased, such as the cost of snow removal services, and account for them separately from the base rent. The amendments in this Update are the same as the effective dates and transition requirements in ASU No. 2016-02, Leases.

Recently Issued Accounting Pronouncements Not Yet Adopted

As of December 31, 2019, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.

12

Off-Balance Sheet Arrangements

None.

Item 7a.

Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 8.

Financial Statements and Supplementary Data

Our Financial Statements are attached as Appendix A (following Exhibits) and included as part of this Form 10-K Report. A list of our Financial Statements is provided in response to Item 15 of this Form 10-K Report.

Item 9.

Changes In And Disagreements With Accountants On Accounting and Financial Disclosure

None.

Item 9a.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our Company evaluated the effectiveness and design and operation of its disclosure controls and procedures. Our Company’s disclosure controls and procedures are the controls and other procedures that we designed to ensure that our Company records, processes, summarizes, and reports in a timely manner the information that it must disclose in reports that our Company files with or submits to the Securities and Exchange Commission. Our principal executive officer and principal financial officer reviewed and participated in this evaluation. Based on this evaluation, our Company made the determination that its disclosure controls and procedures were effective.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2019.

Our Company’s internal control over financial reporting includes policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of our Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our Company are being made only in accordance with authorizations of management and directors of our Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. In addition, the design of any system of controls is based in part on certain assumptions about the likelihood of future events, and controls may become inadequate if conditions change. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

13

This annual report does not include an attestation report of our Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit our Company to provide only management’s attestation in this annual report.

Changes in Company Internal Controls

No change in our Company’s internal control over financial reporting occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9b.

Other Information

Not Applicable.

14

PART III

Item 10.    Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated by reference from the information contained within our Company’s definitive proxy statement for the 2020 Annual Meeting of Stockholders.

Item 11.     Executive Compensation

The information required by this Item is incorporated by reference from the information contained within our Company’s definitive proxy statement for the 2020 Annual Meeting of Stockholders.

Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated by reference from the information contained within our Company’s definitive proxy statement for the 2020 Annual Meeting of Stockholders.

Item 13.    Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated by reference from the information contained within our Company’s definitive proxy statement for the 2020 Annual Meeting of Stockholders.

Item 14.    Principal Accountant Fees and Services

The information required by this Item is incorporated by reference from the information contained within our Company’s definitive proxy statement for the 2020 Annual Meeting of Stockholders.

15

PART IV

Item 15.

Exhibits, Financial Statement Schedules

(a)	The following Audited Financial Statements are filed as part of this Form 10-K Report:
	Report of Independent Registered Public Accounting Firm
	Balance Sheets
	Statements of Operations
	Statement of Stockholders’ Equity
	Statements of Cash Flows
	Notes to Financial Statements
(b)	The following exhibits are filed as part of this report.
	See Exhibit Index.

Item 16.

Form 10-K Summary

None.

16

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NOCOPI TECHNOLOGIES, INC.
Date: March 30, 2020	By:	/s/ Michael A. Feinstein, M.D.
		Michael A. Feinstein, M.D.
		Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Michael A. Feinstein, M.D.	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)	March 30, 2020
Michael A. Feinstein, M.D.
/s/ Rudolph A. Lutterschmidt	Vice President, Chief Financial Officer and Chief Accounting Officer (Principal Financial and Accounting Officer)	March 30, 2020
Rudolph A. Lutterschmidt
/s/ Herman M. Gerwitz	Director	March 30, 2020
Herman M. Gerwitz
/s/ Marc Rash	Director	March 30, 2020
Marc Rash
/s/ Philip B. White	Director	March 30, 2020
Philip B. White

17

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets as of December 31, 2019 and 2018	F-3
Statements of Operations for the Years ended December 31, 2019 and 2018	F-4
Statement of Stockholders’ Equity for the Years ended December 31, 2019 and 2018	F-5
Statements of Cash Flows for the Years ended December 31, 2019 and 2018	F-6
Notes to Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Nocopi Technologies, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Nocopi Technologies, Inc. (the Company) as of December 31, 2019 and 2018, and the related statements of operations, stockholders’ deficiency, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Morison Cogen LLP

We have served as the Company’s auditor since 2001.

Blue Bell, Pennsylvania

March 30, 2020

F-2

Nocopi Technologies, Inc.

Balance Sheets*

	December 31
	2019			2018
Assets
Current assets
Cash	$	688,000		$	400,800
Accounts receivable less $5,000 allowance for doubtful accounts		1,352,300			579,000
Inventory		127,900			133,500
Prepaid and other		135,000			43,600
Total current assets		2,303,200			1,156,900
Fixed assets
Leasehold improvements		24,200			19,700
Furniture, fixtures and equipment		252,500			185,400
		276,700			205,100
Less: accumulated depreciation and amortization		206,600			197,600
		70,100			7,500
Other assets
Long-term receivables		957,000			1,352,200
Operating lease right of use - building		202,000			–
		1,159,000			1,352,200
Total assets	$	3,532,300		$	2,516,600
Liabilities and Stockholders’ Equity
Current liabilities
Convertible debentures	$	97,900		$	128,300
Accounts payable		44,300			16,500
Accrued expenses		231,600			163,000
Income taxes		52,400			38,600
Operating lease liability – current		41,700			–
Total current liabilities		467,900			346,400
Other liabilities
Accrued expenses, non-current		67,000			94,700
Deferred income taxes		47,400			108,800
Operating lease liability – non-current		160,300			–
		274,700			203,500
Commitments and contingencies
Stockholders’ equity
Series A preferred stock, $1.00 par value
Authorized – 300,000 shares
Issued and outstanding – none		–			–
Common stock, $0.01 par value
Authorized – 75,000,000 shares
Issued and outstanding – 2019 - 61,044,698 shares; 2018 - 58,616,716 shares		610,400			586,200
Paid-in capital		12,483,900			12,440,000
Accumulated deficit		(10,304,600	)		(11,059,500	)
		2,789,700			1,966,700
Total liabilities and stockholders’ equity	$	3,532,300		$	2,516,600

*The accompanying notes are an integral part of these financial statements.

F-3

Nocopi Technologies, Inc.

Statements of Operations*

.	Years ended December 31
	2019			2018
Revenues
Licenses, royalties and fees	$	793,800		$	2,242,500
Product and other sales		1,743,600			1,099,200
		2,537,400			3,341,700
Cost of revenues
Licenses, royalties and fees		169,100			115,400
Product and other sales		672,600			445,800
		841,700			561,200
Gross profit		1,695,700			2,780,500
Operating expenses
Research and development		165,600			153,200
Sales and marketing		329,900			387,300
General and administrative		393,900			369,400
		889,400			909,900
Net income from operations		806,300			1,870,600
Other income (expenses)
Interest income		11,700			2,900
Interest expense and bank charges		(10,800	)		(12,300	)
		900			(9,400	)
Net income before income taxes		807,200			1,861,200
Income taxes		52,300			205,800
Net income	$	754,900		$	1,655,400
Net income per common share
Basic	$	.01		$	.03
Diluted	$	.01		$	.03
Weighted average common shares outstanding
Basic		59,443,207			58,616,716
Diluted		59,836,570			58,980,420

*The accompanying notes are an integral part of these financial statements.

F-4

Nocopi Technologies, Inc.

Statement of Stockholders’ Equity*

For the Period January 1, 2018 through December 31, 2019

	Common stock				Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance – January 1, 2018		58,616,716	$	586,200	$	12,440,000	$	(12,811,000	)	$	215,200
Cumulative effect of accounting change at January 1, 2018, Note 2								96,100			96,100
Net income								1,655,400			1,655,400
Balance – December 31, 2018		58,616,716		586,200		12,440,000		(11,059,500	)		1,966,700
Issuance of common stock		720,000		7,100		18,300					25,400
Conversion of debentures and accrued interest to common stock		1,707,982		17,100		25,600					42,700
Net income								754,900			754,900
Balance – December 31, 2019		61,044,698	$	610,400	$	12,483,900	$	(10,304,600	)	$	2,789,700

*The accompanying notes are an integral part of these financial statements.

F-5

Nocopi Technologies, Inc.

Statements of Cash Flows*

	Years ended December 31
	2019			2018
Operating Activities
Net income	$	754,900		$	1,655,400
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		10,800			7,100
Deferred income taxes		(61,400	)		108,800
Other assets		193,200			(1,352,200	)
Other liabilities		174,300			94,700
Common stock issued for services		25,400			–
Cumulative effect of accounting change		–			96,100
		1,097,200			609,900
(Increase) decrease in assets
Accounts receivable		(773,300	)		(286,900	)
Inventory		5,600			(22,900	)
Prepaid and other		(91,400	)		(8,300	)
Increase (decrease) in liabilities
Accounts payable and accrued expenses		108,700			(190,100	)
Income taxes		13,800			38,600
Deferred revenue		–			(99,400	)
		(736,600	)		(569,000	)
Net cash provided by operating activities		360,600			40,900
Investing Activities
Additions to fixed assets		(73,400	)		(500	)
Net cash used in investing activities		(73,400	)		(500	)
Increase in cash		287,200			40,400
Cash
Beginning of year		400,800			360,400
End of year	$	688,000		$	400,800
Cash paid for interest	$	–		$	1,000
Cash paid for taxes	$	100,000		$	44,600
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Operating lease right of use – building	$	241,100		$	–
Operating lease liability	$	(241,100	)	$	–
Accumulated depreciation and amortization	$	1,800		$	–
Furniture, fixtures and equipment	$	(1,800	)	$	–
Convertible debentures	$	30,400		$	–
Accrued expenses	$	12,300		$	–
Common stock	$	(17,100	)	$	–
Paid-in capital	$	(25,600	)	$	–

*The accompanying notes are an integral part of these financial statements.

F-6

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

1.

Organization of the Company

Nocopi Technologies, Inc. (the “Company”) is organized under the laws of the State of Maryland. Its main business activities are the development and distribution of document security products and the licensing of its patented reactive ink technologies for the Entertainment and Toy and the Document and Product Authentication markets in the United States and foreign countries. Our Company operates in one principal industry segment.

2.

Significant Accounting Policies

Financial Statement Presentation – Amounts included in the accompanying financial statements have been rounded to the nearest hundred, except for number of shares and per share information.

Estimates – The preparation of the financial statements in conformity with Accounting Principles Generally Accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

Cash consists of demand deposits with a major U.S. bank.

Accounts receivable and credit policies – Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer. Customer account balances with invoices dated over 90 days old are considered delinquent.

The carrying amount of accounts receivable is reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances that exceed 90 days from invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected.

Inventory consists primarily of ink components and is stated at the lower of cost (determined by the first-in, first-out method) or net realizable value.

Fixed assets are carried at cost less accumulated depreciation and amortization. Furniture, fixtures and equipment are generally depreciated on the straight-line method over their estimated service lives. Leasehold improvements are amortized on a straight-line basis over the shorter of five years or the term of the lease. Major renovations and betterments are capitalized. Maintenance, repairs and minor items are expensed as incurred. Upon disposal, assets and related depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to income.

Patent costs are charged to expense as incurred.

Revenues – On January 1, 2018, our Company adopted ASU 214-09, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective method. Results for periods beginning on or after January 1, 2018 are presented under Topic 606; however, prior period amounts are not adjusted and continue to be reported in accordance with Topic 605, Revenue Recognition, which was in effect for those periods.

The adoption of the new guidance affected our recognition of revenue from licenses and royalties. Under our previous accounting practice, we recognized revenue from licenses and royalties on a straight-line basis over the term of the related license agreement. As a result of our adoption of the new guidance, we will recognize revenue from fixed fee licensees at a point in time when the term begins if the contract provides for patented ink technology only as it exists at the time that it is granted. However, for license agreements that provide for rights to future ink technology, revenue will be recognized over the term of the license agreement.

F-7

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

Revenue for per-unit license agreement will be recognized in the period that the Company receives the related royalty report. Revenue for product sales will be recognized upon shipment to the customer. There are no contract assets or contract liabilities and therefore no unsatisfied performance obligations. The Company does not offer any warranties, however, damaged products can be returned for credit or refund. For disaggregation of revenue by customers and geographic region, see Note 12.

During the second quarter of 2018, we negotiated an amendment to a license agreement with a licensee that, in addition to expanding the technologies that the licensee is permitted to market, provides for a four year extension to the license agreement that contains guaranteed royalties payable in installments over the term of the amendment to the license agreement. Since the performance obligation is to grant the license for the use of certain patented ink technology as it exists at the time that it is granted, the promise to grant the license is a performance obligation satisfied at a point in time in accordance with Topic 606. In accordance with Topic 606, we recorded $1,521,700 net of imputed interest of licenses, royalties and fees and $106,500 of selling expenses in the year ended December 31, 2018 related to the amendment to the license agreement. The related non-current receivable and payable are recorded as other assets and other liabilities on the balance sheet.

Our Company recorded a decrease to the opening balance of the accumulated deficit of $96,100 and a corresponding charge to deferred revenue as of January 1, 2018 due to the cumulative impact of the adoption of Topic 606.

The change in accumulated deficit on our Balance Sheet at December 31, 2018, including the aggregate impact of the change in accounting principles which was effective on January 1, 2018, was as follows:

Accumulated deficit – January 1, 2018	$	(12,811,000	)
Net income		1,655,400
Cumulative effect of accounting change at January 1, 2018		96,100
Accumulated deficit – December 31, 2018	$	(11,059,500	)

Income taxes – Deferred income taxes are provided for all temporary differences and net operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Fair value – The carrying amounts reflected in the balance sheets for receivables, accounts payable and accrued expenses approximate fair value due to the short maturities of these instruments. The carrying amount of the convertible debentures approximates fair value since the interest rate associated with the debt approximates the current market interest rates.

Convertible debentures, for which the embedded conversion feature does not qualify for derivative treatment, are evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, our Company accounts for the value of the beneficial conversion feature as a debt discount, which is then accreted to interest expense over the life of the related debt using the straight-line method, which approximates the effective interest method.

F-8

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

Stock-based payments – Our Company accounts for stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, "Compensation - Stock Compensation", which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. Our Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the vesting period or the requisite service periods using the straight-line method. Our Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC 505-50, "Equity- Based Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, our Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by our Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded as an expense and additional paid in capital in stockholders’ equity over the applicable service periods. Non-employee equity based payments are recorded as an expense over the service period, as if our Company had paid cash for the services. At the end of each financial reporting period, prior to vesting or prior to the completion of the services, the fair value of the equity based payments will be re-measured and the non-cash expense recognized during the period will be adjusted accordingly. Since the fair value of equity based payments granted to non-employees is subject to change in the future, the amount of the future expense will include fair value re-measurements until the equity based payments are fully vested or the service completed. As of June 30, 2018 our Company changed its accounting policy for non-employee equity based payments by adopting FASB ASU 2018-07, which expands Topic 718 to include transactions for acquiring goods and services, from nonemployees.

Earnings per share – Our Company follows FASB ASC 260 resulting in the presentation of basic and diluted earnings per share.Basic earnings per common share are based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e. the exercise prices of the outstanding stock options were greater than the market price of the common stock.

The table below presents the computation of basic and diluted weighted average common shares outstanding:

	2019		2018
Basic shares outstanding		59,443,207		58,616,716
Incremental shares from assumed conversion of warrants		393,363		363,704
Diluted shares outstanding		59,836,570		58,980,420

Comprehensive income – Our Company follows FASB 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.

Recoverability of Long-Lived Assets

Our Company follows FASB ASC 360-35, “Impairment or Disposal of Long-Lived Assets.” The Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Our Company is not aware of any events or circumstances which indicate the existence of an impairment which would be material to our Company’s annual financial statements.

F-9

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and subsequent related updates. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from operating leases. The Company adopted the standard effective January 1, 2019 under the optional transition method which allows the entity to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the period of adoption. The standard had a material impact on the balance sheet. As of January 1, 2019, the operating lease right of use asset and operating lease liability amounted to $241,000 with no cumulative-effect adjustment.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements. The amendments in this Update relieve businesses and organizations from having to present prior comparative years’ results when they adopt the new standard. It also lets landlords and other lessors avoid breaking out the parts of a rental contract that are not specifically being leased, such as the cost of snow removal services, and account for them separately from the base rent. The amendments in this Update are the same as the effective dates and transition requirements in ASU No. 2016-02, Leases.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The adoption on January 1, 2018 of the amendments in this Update did not have a material impact on its financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

As of December 31, 2019, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.

3.

Concentration of Credit Risk

Certain financial instruments potentially subject our Company to concentrations of credit risk. These financial instruments consist primarily of cash and accounts receivables. At December 31, 2019, our Company’s deposits with a financial institution were $438,000 in excess of the FDIC deposit insurance coverage of $250,000. There is a concentration of credit risk with respect to accounts receivable due to the number of major customers.

4.

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.

Convertible Debentures

At December 31, 2019, our Company had convertible debentures totaling $97,900 outstanding, which are due during the third quarter of 2020. The convertible debentures bear interest at 7%. During the third quarter of 2019, our Company’s Board of Directors approved and the holders of $97,900 of the $128,300 of convertible debentures previously outstanding agreed to extend the maturity dates of those convertible debentures for one year to the third quarter of 2020 with no change in the terms or conditions of the debentures. At the option of the lender, the debentures and accrued interest are convertible in whole or part into common stock of our Company at $0.025 per share. During the third quarter of 2019, the holders of approximately $30,400 of previously outstanding convertible debentures elected to convert those debentures plus approximately $12,300 of accrued interest into 1,707,982 shares of restricted stock of our Company.

F-10

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

Our Company also granted warrants to purchase 691,365 shares of our Company’s common stock at $0.02 per share to the holders of the debentures. 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.

6.

Stockholders’ Equity

In October 2019, our Company issued 720,000 shares of restricted common stock to an investor relations firm as a portion of compensation for services. The common stock vests on a pro rata basis over one year. The fair value of the common stock amounting to $25,400 on the inception date of agreement is being amortized to expense over the first year of the engagement.

7.

Other Income (Expenses)

Other income (expenses) in the years ended December 31, 2019 and December 31, 2018 includes interest on convertible debentures held by seven investors.

8.

Income Taxes

There is no provision for federal income taxes for the years ended December 31, 2019 and December 31, 2018 due to the availability of net operating loss carryforwards. At December 31, 2019 and December 31, 2018, our Company had NOL’s approximating $1,622,000 and $2,478,000, respectively. The operating losses at December 31, 2019 are available to offset future taxable income; however, if not utilized, they expire in varying amounts through the year 2032. The utilization of these NOL’s to reduce future income taxes will depend on the generation of sufficient taxable income prior to their expiration. There were no material temporary differences for the years ended December 31, 2019 and December 31, 2018. Our Company has established a 100% valuation allowance of $454,200 and $693,800 at December 31, 2019 and December 31, 2018, respectively, for the deferred tax assets due to the uncertainty of their realization.

F-11

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

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

	Year ended December 31
	2019		2018
Current state taxes	$	52,400	$	93,400
Deferred state taxes		–		108,800
	$	52,400	$	202,200

The reconciliation of the statutory federal rate to our Company’s effective tax rate follows:

	2019						2018
	Amount			%			Amount			%
Income tax at U.S. federal income tax rate	$	158,600			21		$	398,200			21
State tax net of federal tax effect		52,300			7			202,200			7
Utilization of operating losses		(158,600	)		(21	)		(398,200	)		(21	)
	$	52,300			7		$	202,200			7

F-12

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

The components of deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:

	2019			2018
Deferred tax asset for NOL carryforwards	$	454,200		$	693,800
Deferred tax liability - other		(47,400	)		(108,800	)
Valuation allowance		(454,200	)		(693,800	)
	$	(47,400	)	$	(108,800	)

The income tax provision consists of the following:

	2019			2018
Current	$	119,700		$	97,000
Deferred		(67,400	)		108,800
	$	52,300		$	205,800

Our Company has adopted the provisions of FASB ASC 740-10-50-15, “Unrecognized Tax Benefit Related Disclosures.” There were no unrecognized tax benefits as of the date of adoption and no unrecognized tax benefits at December 31, 2019. There was no change in unrecognized tax benefits during the year ended December 31, 2019 and there was no accrual for uncertain tax positions as of December 31, 2019.

Interest and penalties totaling $3,600 in 2018 were recognized as income tax expense in the statement of operations and in the balance sheet. Tax years from 2016 through 2019 remain subject to examination by U.S. federal and state tax jurisdictions.

9.

Related Party Transactions

During the year ended December 31, 2018, our Company paid $235,400 to Michael A. Feinstein, M.D., our Company’s Chairman of the Board and Chief Executive Officer, representing the balance of previously deferred salary owed to him under an employment agreement with our Company. During the five month period ended May 31, 2018, Dr. Feinstein deferred $35,400 of salary. In June 2018, the periodic salary payments provided for in Dr. Feinstein’s employment agreement resumed. At December 31, 2019, there was no remaining deferred salary owed to Dr. Feinstein. There was no interest payable on the deferred salary.

10.

Commitments and Contingencies

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.

F-13

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

Future minimum lease payments under non-cancelable operating leases with initial or remaining terms of one year or more at December 31, 2019 are: $51,600  – 2020; $53,100 – 2021; $54,600 – 2022; $56,200 – 2023 and $18,900 – 2024.

Total lease expense under operating leases was $53,300 and $45,100 in each of the years ended December 31, 2019 and December 31, 2018, respectively.

Maturities of lease liabilities are as follows:

	Operating Leases
Year ending December 31
2020	$	51,600
2021		53,100
2022		54,600
2023		56,200
2024		18,900
Total lease payments		234,400
Less imputed interest		(32,400	)
Total	$	202,000

Our Company has an employment agreement, expiring in May 2021, with Michael A. Feinstein, M.D., its Chairman of the Board and Chief Executive Officer. The employment agreement contains one-year renewal provisions that became effective after the original term. Dr. Feinstein receives base compensation of $120,000 per year effective January 1, 2020 plus a performance bonus determined by our Company’s Board of Directors. Our Company has an employment agreement, expiring in March 2021, with Terry W. Stovold, its Chief Operating Officer, whereby Mr. Stovold receives a salary set by our Company’s Board of Directors, currently set at $75,000, along with a commission of seven percent on sales generated by his efforts. The employment agreement contains one-year renewal provisions that became effective after the original term. Future minimum compensation payments under these employment agreements are: $195,000 to be paid in 2020 and $68,800 to be paid in 2021.

From time to time, our Company may be subject to legal proceedings and claims that arise in the ordinary course of its business.

11.

Stock Options, Warrants and 401(k) Savings Plan

Our Company follows FASB ASC 718, Share Based Payment, which requires that the cost resulting from all share-based payment transactions be recognized in the Company’s financial statements. FASB ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values.

At December 31, 2019, our Company did not have an active stock option plan. Our Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. There was no compensation expense recognized during the years ended December 31, 2019 and December 31, 2018 and there was no unrecognized portion of expense at December 31, 2019.

At December 31, 2019, our Company had 691,365 warrants to purchase common stock of our Company outstanding at an exercise price of $0.02 and expiring at various dates through July 2021. The warrants are held by ten investors who acquired convertible debentures from our Company in 2013 and 2014.

F-14

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

A summary of outstanding warrants follows:

				Weighted
		Exercise		Average
	Number of	Price Range		Exercise
	Shares	Per Share		Price
Outstanding at December 31, 2018 and December 31, 2019	691,365	$0.02		$0.02
Weighted average remaining contractual life (years)	.83
					Weighted
			Exercise		Average
	Number of		Price Range		Exercise
	Shares		Per Share		Price
Exercisable warrants at year end:
2019	691,365	$0.02		$0.02
Weighted average remaining contractual life (years)	.83

The aggregate intrinsic value of warrants outstanding and exercisable as of December 31, 2019 was approximately $38,000. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $0.075 for our Company’s common stock on December 31, 2019. At December 31, 2019, our Company has reserved 6,297,543 shares of common stock for possible future issuance upon exercise of 691,365 warrants and for the conversion of approximately $97,900 of convertible debentures and accrued interest into 5,606,178 shares of common stock.

Our Company sponsors a 401(k) savings plan, covering substantially all employees, providing for employee and employer contributions. Employer contributions are made at the discretion of our Company. There were no contributions charged to expense during 2019 or 2018.

12.

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:

	Year ended December 31
	2019		2018
Customer A		55%		21%
Customer B		18%		59%

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:

	December 31
	2019		2018
Customer A		26%		6%
Customer B		67%		86%

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.

F-15

NOCOPI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

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

	Year ended December 31
	2019		2018
North America	$	856,300	$	2,280,000
South America		–		1,500
Europe		600		200
Asia		1,630,500		1,020,000
Australia		50,000		40,000
	$	2,537,400	$	3,341,700

13.

Subsequent Event

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China. The World Health Organization has declared COVID-19 to constitute a global pandemic. On March 19, 2020 the Governor of Pennsylvania declared a health emergency and issued an order to close all nonessential businesses until further notice. Our operations are deemed to be essential and thus we remain open. However, disruptions to our business operations could occur as a result of quarantines of employees and suppliers in areas affected by the outbreak, facility closures, and travel and logistics restrictions in connection with the outbreak. While we expect this matter to negatively impact its results of operations, cash flow and financial position, the related financial impact cannot be reasonably estimated at this time.

F-16

Exhibit Index

The following Exhibits are filed as part of this Annual Report on Form 10-K:

Exhibit
Number	Description	Location
3.1	Amended and Restated Articles of Incorporation	Incorporated by reference to the Company’s Form 10-Q filed on November 14, 2008
3.2	Amended and Restated Bylaws	Incorporated by reference to the Company’s Form 8-K filed on March 12, 2019
4.1	Form of Certificate of Common Stock	Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on April 7, 2006
4.2	Securities registered under Section 12 of the Exchange Act	Filed herewith
10.1†	Amended Summary Plan Description for Nocopi Technologies, Inc. 401(k) Profit Sharing Plan	Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on April 15, 1999
10.2	Director Indemnification Agreement	Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed on November 15, 1999
10.3	Officer Indemnification Agreement	Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed on November 15, 1999
10.4†	Employment Agreement with Michael A. Feinstein, M.D.	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008
10.5†	Employment Agreement Amendment - Michael A. Feinstein, M.D.	Incorporated by reference to the Company’s Form 8-K filed on December 17, 2019
10.6†	Amended Summary Plan Description for Nocopi Technologies, Inc. 401(k) Profit Sharing Plan	Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 31, 2010
10.7†	Employment Agreement with Terry W. Stovold	Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 30, 2012
10.8	Form of Convertible Debenture Purchase Agreement and Exhibits	Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 11, 2015
10.9	Form of Letter Agreement re: Convertible Debenture Purchase Agreement Election	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2019
10.10	Lease Agreement dated December 12, 2013 relating to premises at 480 Shoemaker Road, King of Prussia, PA 19406	Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 11, 2015
10.11	Lease Extension Agreement dated September 28, 2018	Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 29, 2019
10.12	Business Loan Agreement, Promissory Note and Commercial Security Agreement dated November 28, 2018 between the Company and Santander Bank	Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 29, 2019
10.13	Form of Letter Agreement re: Convertible Debenture Purchase Agreement Election	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2019
14.1	Code of Ethics	Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on March 31, 2005

31.1	Certification of Chief Executive Officer required by Rule 13a-14(a)	Filed herewith
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a)	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	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

———————

† Compensation plans and arrangements for executives and others.

EX-4.2

EXHIBIT 4.2

DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934

Nocopi Technologies, Inc. (the “Company” or “we” or “our”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, our common stock, par value $0.01 per share (the “common stock”).

Description of Common Stock

The following description of our common stock is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to our Amended and Restated Articles of Incorporation (the “articles of incorporation”) and our Amended and Restated Bylaws (the “bylaws”), each of which are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this exhibit is a part. We encourage you to read our articles of incorporation, our bylaws and the applicable provisions of the Maryland General Corporation Law (the “MGCL”) for additional information.

Authorized Share Capital. The Company’s authorized capital stock consists of 75,000,000 shares of common stock, par value $0.01 per share and 300,000 shares of series A preferred stock, par value $1.00 per share.

Voting. Holders of our common stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting with respect to the election of directors.

Dividend Rights. Holders of our common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available for this purpose.

Liquidation Preferences. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to receive on a proportional basis any assets remaining available for distribution after payment of our liabilities.

Other Terms. Holders of common stock have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock. All outstanding shares of the common stock are fully paid and non-assessable.

Anti-Takeover Provisions

Certain of our charter and bylaw, statutory and contractual provisions could make the removal of our management and directors more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock. Furthermore, the existence of the foregoing provisions, as well as the significant common stock beneficially owned by our executive officers, and certain members of our board of directors, could lower the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.

Charter and Bylaw Provisions

In addition to the board of directors’ ability to issue shares of preferred stock, our articles of incorporation and bylaws contain the following provisions that may have the effect of discouraging unsolicited acquisition proposals:

·

prohibit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;

·

empower our board of directors to fill any vacancy on our board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise; and

·

provide that our board of directors is expressly authorized to adopt, amend or repeal our bylaws.

These provisions could lower the price that future investors might be willing to pay for shares of our common stock.

Maryland Law

Business Combination and Fair Price Statute

Under the MGCL, certain business combinations between a Maryland corporation that has 100 or more beneficial owners of its common stock, and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder.

An interested stockholder is:

·

Any person (other than the corporation or any subsidiary) who beneficially owns 10 percent or more of the voting power of the corporation's outstanding voting stock after the date on which the corporation had 100 or more beneficial owners of its stock.

·

An affiliate or associate of the corporation who, at any time within the two-year period immediately before the date in question, was the beneficial owner of 10 percent or more of the voting power of the then outstanding stock of the corporation.

After the five-year period, the business combination generally must be recommended by the board of directors and approved by the affirmative vote of at least 80 percent of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and two-thirds of the votes entitled to be cast by holders of voting stock of the corporation (other than shares held by the interested stockholder). This is not required if:

·

The corporation's common stockholders receive a minimum price (as defined in the statute) for their shares.

·

The consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares.

A person is not an interested stockholder under the statute if the board of directors of the corporation approved in advance the transaction by which the person otherwise would have become an interested stockholder. The statute also permits various exemptions from its provisions, including for business combinations that are approved or exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder.

Control Share Acquisitions

Holders of "control shares" of a Maryland corporation that has 100 or more beneficial owners of its common stock acquired in a "control share acquisition" have no voting rights except to the extent approved by the affirmative vote of two-thirds of the votes entitled to be cast on the matter, excluding votes cast by:

·

The person who makes or proposes to make a control share acquisition.

·

An officer of the corporation.

·

An employee of the corporation who is also a director of the corporation.

Control shares are voting shares of stock which, if aggregated with all other shares of stock previously acquired or directly controlled by the stockholder, would entitle the stockholder to exercise voting power in electing directors within one of the following ranges of voting power:

·

One-tenth or more but less than one-third.

·

One-third or more but less than a majority.

·

A majority or more of all voting power.

Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of issued and outstanding control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition, on satisfaction of certain conditions (including an undertaking to pay expenses and delivering an acquiring person statement), may compel the board of directors to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.

If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value. If voting rights for control shares are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.

The control share acquisition statute does not apply to, among other things:

·

Shares acquired in a merger, consolidation, or statutory share exchange if the corporation is a party to the transaction.

·

Newly issued shares acquired directly from the corporation.

·

Acquisitions approved or exempted by the charter or bylaws of the corporation.

Subtitle 8

Under Subtitle 8 of Title 3 of the Maryland General Corporation Law, a public corporation with a class of equity securities registered under the Securities Exchange Act of 1934 and at least three independent directors can elect to be subject to any or all of following takeover defense provisions:

·

The corporation's board of directors will be divided into three classes.

·

The affirmative vote of at least two-thirds of all the votes entitled to be cast by stockholders generally in the election of directors is required to remove a director.

·

The number of directors may be fixed only by vote of the board of directors.

·

A vacancy on the board may be filled only by the affirmative vote of a majority of the remaining directors in office.

·

The directors elected to fill a vacancy will serve for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies.

·

The request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting is required for stockholders to call a special meeting of stockholders.

The charter of a corporation may contain a provision or the board of directors may adopt a resolution that prohibits the corporation from electing to be subject to any or all of the provisions of Subtitle 8.

Constituency Provision

A corporation may specify in its charter that the board of directors can consider the effect of the potential acquisition of control on:

·

Stockholders.

·

Employees.

·

Suppliers, customers, and creditors of the corporation.

·

The communities in which offices of the corporation are located.

Contractual Provisions

The terms of change of control provisions contained in our president & chief executive officer’s employee agreement may discourage a change in control of our Company.

Our board of directors also has the power to adopt a stockholder rights plan that could delay or prevent a change in control of our Company even if the change in control is generally beneficial to our stockholders. These plans, sometimes called “poison pills,” are oftentimes criticized by institutional investors or their advisors and could affect our rating by such investors or advisors. If our board of directors adopts such a plan, it might have the effect of reducing the price that new investors are willing to pay for shares of our common stock.

Together, these charter, statutory and contractual provisions could make the removal of our management and directors more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock. Furthermore, the existence of the foregoing provisions, as well as the significant common stock beneficially owned by our executive officers and certain members of our board of directors, could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.

Preferred Stock

The common stock is subject to the express terms of the Company’s preferred stock and any series thereof. The board of directors may issue preferred stock with voting, dividend, liquidation and other rights that could adversely affect the relative rights of the holders of the common stock.

Listing

Our shares of common stock are traded on the OTC Pink tier of the over-the-counter market under the symbol “NNUP”.

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 annual report on Form 10-K 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: March 30, 2020

/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 annual report on Form 10-K 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: March 30, 2020

/s/ Rudolph A. Lutterschmidt

Rudolph A. Lutterschmidt

Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32

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 Annual Report of Nocopi Technologies, Inc.  (the "Company") on Form 10-K for the Year ended December 31, 2019 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.

March 30, 2020

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

Michael A. Feinstein, M.D.

/s/ Rudolph A. Lutterschmidt

Rudolph A. Lutterschmidt

XML

Income Taxes (Income Tax Provision) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Current	$ 119,700	$ 97,000
Deferred	(67,400)	108,800
Income taxes	$ 52,300	$ 205,800

XML

Income Taxes (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	$ 1,622,000	$ 2,478,000
Deferred tax assets valuation allowance	454,200	693,800
Unrecognized tax benefits
Change in unrecognized tax benefits during the period
Accrual for uncertain tax positions
Interest and penalties from tax examinations recognized in the statement of operations		3,600
Interest and penalties from tax examinations recognized on the balance sheet		$ 3,600
Minimum [Member]
Operating Loss Carryforwards [Line Items]
Tax years open for examination	2016
Maximum [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards expiration date	Dec. 31, 2032
Tax years open for examination	2019

XML

Major Customer and Geographic Information

12 Months Ended

Dec. 31, 2019

Major Customer and Geographic Information [Abstract]

Major Customer and Geographic Information

12.

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:

	Year ended December 31
	2019		2018
Customer A		55%		21%
Customer B		18%		59%

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:

	December 31
	2019		2018
Customer A		26%		6%
Customer B		67%		86%

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:

	Year ended December 31
	2019		2018
North America	$	856,300	$	2,280,000
South America		–		1,500
Europe		600		200
Asia		1,630,500		1,020,000
Australia		50,000		40,000
	$	2,537,400	$	3,341,700

XML

Line of Credit

12 Months Ended

Dec. 31, 2019

Line of Credit Facility [Abstract]

Line of Credit

4.

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

Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

8.

Income Taxes

There is no provision for federal income taxes for the years ended December 31, 2019 and December 31, 2018 due to the availability of net operating loss carryforwards. At December 31, 2019 and December 31, 2018, our Company had NOL’s approximating $1,622,000 and $2,478,000, respectively. The operating losses at December 31, 2019 are available to offset future taxable income; however, if not utilized, they expire in varying amounts through the year 2032. The utilization of these NOL’s to reduce future income taxes will depend on the generation of sufficient taxable income prior to their expiration. There were no material temporary differences for the years ended December 31, 2019 and December 31, 2018. Our Company has established a 100% valuation allowance of $454,200 and $693,800 at December 31, 2019 and December 31, 2018, respectively, for the deferred tax assets due to the uncertainty of their realization.

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

	Year ended December 31
	2019		2018
Current state taxes	$	52,400	$	93,400
Deferred state taxes		–		108,800
	$	52,400	$	202,200

The reconciliation of the statutory federal rate to our Company’s effective tax rate follows:

	2019					2018
	Amount			%		Amount			%
Income tax at U.S. federal income tax rate	$	158,600			21	$	398,200			21
State tax net of federal tax effect		52,300			7		202,200			7
Utilization of operating losses		(158,600	)		(21)		(398,200	)		(21	)
	$	52,300			7	$	202,200			7

The components of deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:

	2019			2018
Deferred tax asset for NOL carryforwards	$	454,200		$	693,800
Deferred tax liability - other		(47,400	)		(108,800	)
Valuation allowance		(454,200	)		(693,800	)
	$	(47,400	)	$	(108,800	)

The income tax provision consists of the following:

	2019			2018
Current	$	119,700		$	97,000
Deferred		(67,400	)		108,800
	$	52,300		$	205,800

Our Company has adopted the provisions of FASB ASC 740-10-50-15, “Unrecognized Tax Benefit Related Disclosures.” There were no unrecognized tax benefits as of the date of adoption and no unrecognized tax benefits at December 31, 2019. There was no change in unrecognized tax benefits during the year ended December 31, 2019 and there was no accrual for uncertain tax positions as of December 31, 2019.

Interest and penalties totaling $3,600 in 2018 were recognized as income tax expense in the statement of operations and in the balance sheet. Tax years from 2016 through 2019 remain subject to examination by U.S. federal and state tax jurisdictions.

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2019	Mar. 17, 2020	Jun. 30, 2019
Document and Entity Information [Abstract]
Entity Registrant Name	NOCOPI TECHNOLOGIES INC/MD/
Entity Central Index Key	0000888981
Current Fiscal Year End Date	--12-31
Document Type	10-K
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Document Period End Date	Dec. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Public Float			$ 2,325,000
Entity Common Stock Shares Outstanding		61,044,698
Entity Well Known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Incorporation State Country Name	MD
Entity File Number	000-20333

XML

Statement of Stockholders' Equity - USD ($)	Common stock [Member]	Paid-in Capital [Member]	Accumulated Deficit [Member]	Total
Balance at Dec. 31, 2017	$ 586,200	$ 12,440,000	$ (12,811,000)	$ 215,200
Balance, shares at Dec. 31, 2017	58,616,716			58,616,716
Cumulative effect of accounting at January 1, 2018, Note 2			96,100	$ 96,100
Net income			1,655,400	1,655,400
Balance at Dec. 31, 2018	$ 586,200	12,440,000	(11,059,500)	$ 1,966,700
Balance, shares at Dec. 31, 2018	58,616,716			58,616,716
Issuance of common stock	$ 7,100	18,300		$ 25,400
Issuance of common stock shares	720,000
Conversion of debentures and accrued interest to common stock	$ 17,100	25,600		42,700
Conversion of debentures and accrued interest to common stock shares	1,707,982
Net income			754,900	754,900
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			61,044,698

XML

Concentration of Credit Risk

12 Months Ended

Dec. 31, 2019

Risks and Uncertainties [Abstract]

Concentration of Credit Risk

3.

Concentration of Credit Risk

Certain financial instruments potentially subject our Company to concentrations of credit risk. These financial instruments consist primarily of cash and accounts receivables. At December 31, 2019, our Company’s deposits with a financial institution were $438,000 in excess of the FDIC deposit insurance coverage of $250,000. There is a concentration of credit risk with respect to accounts receivable due to the number of major customers.

XML

Stock Options, Warrants and 401(k) Savings Plan (Outstanding Warrants) (Details) - Warrant [Member] - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants outstanding	691,365	691,365
Warrants exercise price	$ 0.02	$ 0.02
Weighted average remaining contractual life (years)	9 months 29 days
Warrants exercisable	691,365	691,365
Weighted average exercise price, exercisable	$ 0.02	$ 0.02
Warrants exercisable, weighted average remaining contractual life (years)	9 months 29 days

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

State Income Tax Expense

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

	Year ended December 31
	2019		2018
Current state taxes	$	52,400	$	93,400
Deferred state taxes		–		108,800
	$	52,400	$	202,200

Reconciliation of the Statutory Fedreal Rate

The reconciliation of the statutory federal rate to our Company’s effective tax rate follows:

	2019					2018
	Amount			%		Amount			%
Income tax at U.S. federal income tax rate	$	158,600			21	$	398,200			21
State tax net of federal tax effect		52,300			7		202,200			7
Utilization of operating losses		(158,600	)		(21)		(398,200	)		(21	)
	$	52,300			7	$	202,200			7

Deferred Tax Assets and Liabilities

The components of deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:

	2019			2018
Deferred tax asset for NOL carryforwards	$	454,200		$	693,800
Deferred tax liability - other		(47,400	)		(108,800	)
Valuation allowance		(454,200	)		(693,800	)
	$	(47,400	)	$	(108,800	)

Federal Income Tax Expense

The income tax provision consists of the following:

	2019			2018
Current	$	119,700		$	97,000
Deferred		(67,400	)		108,800
	$	52,300		$	205,800

XML

Significant Accounting Policies (Details) - USD ($)	Dec. 31, 2019	Jan. 01, 2019	Dec. 31, 2018
Accounting Policies [Abstract]
Operating lease right of use asset	$ 202,000	$ 241,000
Operating lease liability	$ 202,000	$ 241,000

XML

Major Customer and Geographic Information (Revenue by Geographic Region) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 2,537,400	$ 3,341,700
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	856,300	2,280,000
South America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues		1,500
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	600	200
Asia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	1,630,500	1,020,000
Australia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 50,000	$ 40,000

XML

Stock Options, Warrants and 401(k) Savings Plan (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation expense from options not yet recognized	$ 0	$ 0
Employer contributions for 401(k) savings plan charged to expense during period	0	0
Stock option compensation expense	0	$ 0
Warrant intrinsic value	38,000
Warrant intrinsic value exercisable	$ 38,000
Closing stock price	$ 0.075
Common shares reserved for future issue		6,297,543
Value of outstanding convertible debentures and accrued interest possibly converted		$ 97,900
Number of common shares reserved for future debt conversion		5,606,178
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants expiration date	2021-07

XML

Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Maturities of Lease Liabilities

Maturities of lease liabilities are as follows:

	Operating Leases
Year ending December 31
2020	$	51,600
2021		53,100
2022		54,600
2023		56,200
2024		18,900
Total lease payments		234,400
Less imputed interest		(32,400	)
Total	$	202,000

XML

Significant Accounting Policies (Revenues) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Long-term receivable	$ 957,000	$ 1,352,200
Accrued expenses, non-current	67,000	94,700
Accumulated deficit	(11,059,500)	(12,811,000)
Net income	754,900	1,655,400
Cumulative effect of accounting change		96,100
Accumulated deficit	$ (10,304,600)	(11,059,500)
Topic 606 [Member]
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Long-term receivable		1,521,700
Accrued expenses, non-current		$ 106,500

XML

Income Taxes (Deferred Tax Assets and Liabilities) (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Deferred tax asset for NOL carryforwards	$ 454,200	$ 693,800
Deferred tax liability - other	(47,400)	(108,800)
Valuation allowance	(454,200)	(693,800)
Deferred tax liability	$ (47,400)	$ (108,800)

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Stockholders' Equity (Details)	12 Months Ended
	Dec. 31, 2019 USD ($) shares
Class of Stock [Line Items]
Issuance of common stock	$ 25,400
Common stock [Member]
Class of Stock [Line Items]
Issuance of common stock	$ 7,100
Issuance of common stock shares | shares	720,000

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Convertible Debentures

12 Months Ended

Dec. 31, 2019

Convertible Debt [Abstract]

Convertible Debentures

5.

Convertible Debentures

At December 31, 2019, our Company had convertible debentures totaling $97,900 outstanding, which are due during the third quarter of 2020. The convertible debentures bear interest at 7%. During the third quarter of 2019, our Company’s Board of Directors approved and the holders of $97,900 of the $128,300 of convertible debentures previously outstanding agreed to extend the maturity dates of those convertible debentures for one year to the third quarter of 2020 with no change in the terms or conditions of the debentures. At the option of the lender, the debentures and accrued interest are convertible in whole or part into common stock of our Company at $0.025 per share. During the third quarter of 2019, the holders of approximately $30,400 of previously outstanding convertible debentures elected to convert those debentures plus approximately $12,300 of accrued interest into 1,707,982 shares of restricted stock of our Company.

Our Company also granted warrants to purchase 691,365 shares of our Company’s common stock at $0.02 per share to the holders of the debentures. 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.

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Related Party Transactions

12 Months Ended

Dec. 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

9.

Related Party Transactions

During the year ended December 31, 2018, our Company paid $235,400 to Michael A. Feinstein, M.D., our Company’s Chairman of the Board and Chief Executive Officer, representing the balance of previously deferred salary owed to him under an employment agreement with our Company. During the five month period ended May 31, 2018, Dr. Feinstein deferred $35,400 of salary. In June 2018, the periodic salary payments provided for in Dr. Feinstein’s employment agreement resumed. At December 31, 2019, there was no remaining deferred salary owed to Dr. Feinstein. There was no interest payable on the deferred salary.

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Subsequent Events

12 Months Ended

Dec. 31, 2019

Subsequent Events [Abstract]

Subsequent Event

13.        Subsequent Event

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China. The World Health Organization has declared COVID-19 to constitute a global pandemic. On March 19, 2020 the Governor of Pennsylvania declared a health emergency and issued an order to close all nonessential businesses until further notice. Our operations are deemed to be essential and thus we remain open. However, disruptions to our business operations could occur as a result of quarantines of employees and suppliers in areas affected by the outbreak, facility closures, and travel and logistics restrictions in connection with the outbreak. While we expect this matter to negatively impact its results of operations, cash flow and financial position, the related financial impact cannot be reasonably estimated at this time.

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Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Significant Accounting Policies

2.

Significant Accounting Policies

Financial Statement Presentation – Amounts included in the accompanying financial statements have been rounded to the nearest hundred, except for number of shares and per share information.

Estimates – The preparation of the financial statements in conformity with Accounting Principles Generally Accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

Cash consists of demand deposits with a major U.S. bank.

Accounts receivable and credit policies – Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer. Customer account balances with invoices dated over 90 days old are considered delinquent.

The carrying amount of accounts receivable is reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances that exceed 90 days from invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected.

Inventory consists primarily of ink components and is stated at the lower of cost (determined by the first-in, first-out method) or net realizable value.

Fixed assets are carried at cost less accumulated depreciation and amortization. Furniture, fixtures and equipment are generally depreciated on the straight-line method over their estimated service lives. Leasehold improvements are amortized on a straight-line basis over the shorter of five years or the term of the lease. Major renovations and betterments are capitalized. Maintenance, repairs and minor items are expensed as incurred. Upon disposal, assets and related depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to income.

Patent costs are charged to expense as incurred.

Revenues – On January 1, 2018, our Company adopted ASU 214-09, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective method. Results for periods beginning on or after January 1, 2018 are presented under Topic 606; however, prior period amounts are not adjusted and continue to be reported in accordance with Topic 605, Revenue Recognition, which was in effect for those periods.

The adoption of the new guidance affected our recognition of revenue from licenses and royalties. Under our previous accounting practice, we recognized revenue from licenses and royalties on a straight-line basis over the term of the related license agreement. As a result of our adoption of the new guidance, we will recognize revenue from fixed fee licensees at a point in time when the term begins if the contract provides for patented ink technology only as it exists at the time that it is granted. However, for license agreements that provide for rights to future ink technology, revenue will be recognized over the term of the license agreement.

Revenue for per-unit license agreement will be recognized in the period that the Company receives the related royalty report. Revenue for product sales will be recognized upon shipment to the customer. There are no contract assets or contract liabilities and therefore no unsatisfied performance obligations. The Company does not offer any warranties, however, damaged products can be returned for credit or refund. For disaggregation of revenue by customers and geographic region, see Note 12.

During the second quarter of 2018, we negotiated an amendment to a license agreement with a licensee that, in addition to expanding the technologies that the licensee is permitted to market, provides for a four year extension to the license agreement that contains guaranteed royalties payable in installments over the term of the amendment to the license agreement. Since the performance obligation is to grant the license for the use of certain patented ink technology as it exists at the time that it is granted, the promise to grant the license is a performance obligation satisfied at a point in time in accordance with Topic 606. In accordance with Topic 606, we recorded $1,521,700 net of imputed interest of licenses, royalties and fees and $106,500 of selling expenses in the year ended December 31, 2018 related to the amendment to the license agreement. The related non-current receivable and payable are recorded as other assets and other liabilities on the balance sheet.

Our Company recorded a decrease to the opening balance of the accumulated deficit of $96,100 and a corresponding charge to deferred revenue as of January 1, 2018 due to the cumulative impact of the adoption of Topic 606.

The change in accumulated deficit on our Balance Sheet at December 31, 2018, including the aggregate impact of the change in accounting principles which was effective on January 1, 2018, was as follows:

Accumulated deficit – January 1, 2018	$	(12,811,000	)
Net income		1,655,400
Cumulative effect of accounting change at January 1, 2018		96,100
Accumulated deficit – December 31, 2018	$	(11,059,500	)

Income taxes – Deferred income taxes are provided for all temporary differences and net operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Fair value – The carrying amounts reflected in the balance sheets for receivables, accounts payable and accrued expenses approximate fair value due to the short maturities of these instruments. The carrying amount of the convertible debentures approximates fair value since the interest rate associated with the debt approximates the current market interest rates.

Convertible debentures, for which the embedded conversion feature does not qualify for derivative treatment, are evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, our Company accounts for the value of the beneficial conversion feature as a debt discount, which is then accreted to interest expense over the life of the related debt using the straight-line method, which approximates the effective interest method.

Stock-based payments – Our Company accounts for stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, "Compensation - Stock Compensation", which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. Our Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the vesting period or the requisite service periods using the straight-line method. Our Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC 505-50, "Equity- Based Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, our Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by our Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded as an expense and additional paid in capital in stockholders’ equity over the applicable service periods. Non-employee equity based payments are recorded as an expense over the service period, as if our Company had paid cash for the services. At the end of each financial reporting period, prior to vesting or prior to the completion of the services, the fair value of the equity based payments will be re-measured and the non-cash expense recognized during the period will be adjusted accordingly. Since the fair value of equity based payments granted to non-employees is subject to change in the future, the amount of the future expense will include fair value re-measurements until the equity based payments are fully vested or the service completed. As of June 30, 2018 our Company changed its accounting policy for non-employee equity based payments by adopting FASB ASU 2018-07, which expands Topic 718 to include transactions for acquiring goods and services, from non-employees.

Earnings per share – Our Company follows FASB ASC 260 resulting in the presentation of basic and diluted earnings per share.Basic earnings per common share are based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e. the exercise prices of the outstanding stock options were greater than the market price of the common stock.

The table below presents the computation of basic and diluted weighted average common shares outstanding:

	2019		2018
Basic shares outstanding		59,443,207		58,616,716
Incremental shares from assumed conversion of warrants		393,363		363,704
Diluted shares outstanding		59,836,570		58,980,420

Comprehensive income – Our Company follows FASB 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.

Recoverability of Long-Lived Assets

Our Company follows FASB ASC 360-35, “Impairment or Disposal of Long-Lived Assets.” The Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Our Company is not aware of any events or circumstances which indicate the existence of an impairment which would be material to our Company’s annual financial statements.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and subsequent related updates. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from operating leases. The Company adopted the standard effective January 1, 2019 under the optional transition method which allows the entity to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the period of adoption. The standard had a material impact on the balance sheet. As of January 1, 2019, the operating lease right of use asset and operating lease liability amounted to $241,000 with no cumulative-effect adjustment.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements. The amendments in this Update relieve businesses and organizations from having to present prior comparative years’ results when they adopt the new standard. It also lets landlords and other lessors avoid breaking out the parts of a rental contract that are not specifically being leased, such as the cost of snow removal services, and account for them separately from the base rent. The amendments in this Update are the same as the effective dates and transition requirements in ASU No. 2016-02, Leases.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The adoption on January 1, 2018 of the amendments in this Update did not have a material impact on its financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

As of December 31, 2019, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.

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Statements of Operations - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Revenues
Licenses, royalties and fees	$ 793,800	$ 2,242,500
Product and other sales	1,743,600	1,099,200
Total revenues	2,537,400	3,341,700
Cost of revenues
Licenses, royalties and fees	169,100	115,400
Product and other sales	672,600	445,800
Total cost of revenues	841,700	561,200
Gross profit	1,695,700	2,780,500
Operating expenses
Research and development	165,600	153,200
Sales and marketing	329,900	387,300
General and administrative	393,900	369,400
Total operating expenses	889,400	909,900
Net income from operations	806,300	1,870,600
Other income (expenses)
Interest income	11,700	2,900
Interest expense and bank charges	(10,800)	(12,300)
Total other income (expenses)	900	(9,400)
Net income before income taxes	807,200	1,861,200
Income taxes	52,300	205,800
Net income	$ 754,900	$ 1,655,400
Net income per common share
Basic	$ 0.01	$ 0.03
Diluted	$ 0.01	$ 0.03
Weighted average common shares outstanding
Basic	59,443,207	58,616,716
Diluted	59,836,570	58,980,420

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Major Customer and Geographic Information (Non-affiliated Customers) (Details) - Revenue [Member]	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Customer A [Member]
Revenue, Major Customer [Line Items]
Risk percentage	55.00%	21.00%
Customer B [Member]
Revenue, Major Customer [Line Items]
Risk percentage	18.00%	59.00%

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Commitments and Contingencies (Maturities of Lease Liabilities) (Details) - USD ($)	Dec. 31, 2019	Jan. 01, 2019
Lessee Disclosure [Abstract]
2020	$ 51,600
2021	53,100
2022	54,600
2023	56,200
2024	18,900
Total lease payments	234,400
Less imputed interest	(32,400)
Total	$ 202,000	$ 241,000

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Concentration of Credit Risk (Details)	Dec. 31, 2019 USD ($)
Risks and Uncertainties [Abstract]
Cash uninsured by FDIC	$ 438,000

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Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Change in Accumulated Deficit Balance

The change in accumulated deficit on our Balance Sheet at December 31, 2018, including the aggregate impact of the change in accounting principles which was effective on January 1, 2018, was as follows:

Accumulated deficit – January 1, 2018	$	(12,811,000	)
Net income		1,655,400
Cumulative effect of accounting change at January 1, 2018		96,100
Accumulated deficit – December 31, 2018	$	(11,059,500	)

Computation of Basic and Diluted Weighted Average Common Shares Outstanding

The table below presents the computation of basic and diluted weighted average common shares outstanding:

	2019		2018
Basic shares outstanding		59,443,207		58,616,716
Incremental shares from assumed conversion of warrants		393,363		363,704
Diluted shares outstanding		59,836,570		58,980,420

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Major Customer and Geographic Information (Tables)

12 Months Ended

Dec. 31, 2019

Segment Reporting [Abstract]

Revenues from Non-affiliated Customers

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:

	Year ended December 31
	2019		2018
Customer A		55%		21%
Customer B		18%		59%

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:

	December 31
	2019		2018
Customer A		26%		6%
Customer B		67%		86%

Revenue by Geographic Region

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

	Year ended December 31
	2019		2018
North America	$	856,300	$	2,280,000
South America		–		1,500
Europe		600		200
Asia		1,630,500		1,020,000
Australia		50,000		40,000
	$	2,537,400	$	3,341,700

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Other Income (Expenses)

12 Months Ended

Dec. 31, 2019

Other Income and Expenses [Abstract]

Other Income (Expenses)

7.

Other Income (Expenses)

Other income (expenses) in the years ended December 31, 2019 and December 31, 2018 includes interest on convertible debentures held by seven investors.

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Stock Options, Warrants and 401(k) Savings Plan

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Stock Options, Warrants and 401(k) Savings Plan

11.

Stock Options, Warrants and 401(k) Savings Plan

Our Company follows FASB ASC 718, Share Based Payment, which requires that the cost resulting from all share-based payment transactions be recognized in the Company’s financial statements. FASB ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values.

At December 31, 2019, our Company did not have an active stock option plan. Our Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. There was no compensation expense recognized during the years ended December 31, 2019 and December 31, 2018 and there was no unrecognized portion of expense at December 31, 2019.

At December 31, 2019, our Company had 691,365 warrants to purchase common stock of our Company outstanding at an exercise price of $0.02 and expiring at various dates through July 2021. The warrants are held by ten investors who acquired convertible debentures from our Company in 2013 and 2014.

A summary of outstanding warrants follows:

				Weighted
		Exercise		Average
	Number of	Price Range		Exercise
	Shares	Per Share		Price
Outstanding at December 31, 2018 and December 31, 2019	691,365	$0.02		$0.02
Weighted average remaining contractual life (years)	.83
					Weighted
			Exercise		Average
	Number of		Price Range		Exercise
	Shares		Per Share		Price
Exercisable warrants at year end:
2019	691,365	$0.02		$0.02
Weighted average remaining contractual life (years)	.83

The aggregate intrinsic value of warrants outstanding and exercisable as of December 31, 2019 was approximately $38,000. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $0.075 for our Company’s common stock on December 31, 2019. At December 31, 2019, our Company has reserved 6,297,543 shares of common stock for possible future issuance upon exercise of 691,365 warrants and for the conversion of approximately $97,900 of convertible debentures and accrued interest into 5,606,178 shares of common stock.

Our Company sponsors a 401(k) savings plan, covering substantially all employees, providing for employee and employer contributions. Employer contributions are made at the discretion of our Company. There were no contributions charged to expense during 2019 or 2018.

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Income Taxes (State Income Tax Expense) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Current state taxes	$ 52,400	$ 93,400
Deferred state taxes		108,800
Income tax expense	$ 52,400	$ 202,200

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Line of Credit (Details)	12 Months Ended
	Dec. 31, 2019 USD ($)
Line of Credit Facility [Abstract]
Line of credit borrowing capacity	$ 150,000
Interest rate	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.

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Related Party Transactions (Details) - Chief Executive Officer [Member] - USD ($)	5 Months Ended	12 Months Ended
	May 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Related Party Transaction [Line Items]
Amount of salary deferred by related party	$ 35,400	$ 85,000
Amount of deferred salary owed to related party		$ 0
Portions of deferred salary paid to related party			$ 235,400

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Balance Sheets - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Current assets
Cash	$ 688,000	$ 400,800
Accounts receivable less $5,000 allowance for doubtful accounts	1,352,300	579,000
Inventory	127,900	133,500
Prepaid and other	135,000	43,600
Total current assets	2,303,200	1,156,900
Fixed assets
Leasehold improvements	24,200	19,700
Furniture, fixtures and equipment	252,500	185,400
Fixed assets, gross	276,700	205,100
Less: accumulated depreciation and amortization	206,600	197,600
Total fixed assets	70,100	7,500
Other assets
Long-term receivables	957,000	1,352,200
Operating lease right of use - building	202,000
Other assets	1,159,000	1,352,200
Total assets	3,532,300	2,516,600
Current liabilities
Convertible debentures	97,900	128,300
Accounts payable	44,300	16,500
Accrued expenses	231,600	163,000
Income taxes	52,400	38,600
Operating lease liability - current	41,700
Total current liabilities	467,900	346,400
Other liabilities
Accrued expenses, non-current	67,000	94,700
Deferred income taxes	47,400	108,800
Operating lease liability - non-current	160,300
Total other liabilities	274,700	203,500
Commitments and contingencies
Stockholders' equity
Series A preferred stock, $1.00 par value, Authorized - 300,000 shares, Issued and outstanding - none
Common stock, $0.01 par value Authorized - 75,000,000 shares, Issued and outstanding - 2019 - 61,044,698 shares; 2018 - 58,616,716 shares	610,400	586,200
Paid-in capital	12,483,900	12,440,000
Accumulated deficit	(10,304,600)	(11,059,500)
Total stockholders' equity	2,789,700	1,966,700
Total liabilities and stockholders' equity	$ 3,532,300	$ 2,516,600

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Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Operating Activities
Net income	$ 754,900	$ 1,655,400
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	10,800	7,100
Deferred income taxes	(61,400)	108,800
Other assets	193,200	(1,352,200)
Other liabilities	174,300	94,700
Common stock issued for services	25,400
Cumulative effect of accounting change		96,100
Net income adjusted for non-cash operating activities	1,097,200	609,900
(Increase) decrease in assets
Accounts receivable	(773,300)	(286,900)
Inventory	5,600	(22,900)
Prepaid and other	(91,400)	(8,300)
Increase (decrease) in liabilities
Accounts payable and accrued expenses	108,700	(190,100)
Income taxes	13,800	38,600
Deferred revenue		(99,400)
Total increase (decrease) in operating capital	(736,600)	(569,000)
Net cash provided by operating activities	360,600	40,900
Investing Activities
Additions to fixed assets	(73,400)	(500)
Net cash used in investing activities	(73,400)	(500)
Increase in cash	287,200	40,400
Cash
Beginning of year	400,800	360,400
End of year	688,000	400,800
Cash paid for interest		1,000
Cash paid for taxes	100,000	44,600
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Operating lease right of use - building	241,100
Operating lease liability	(241,100)
Accumulated depreciation and amortization	1,800
Furniture, fixtures and equipment	(1,800)
Convertible debentures	30,400
Accrued expenses	12,300
Common stock	(17,100)
Paid-in capital	$ (25,600)

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Stockholders' Equity

12 Months Ended

Dec. 31, 2019

Stockholders' Equity Note [Abstract]

Stockholders' Equity

6.

Stockholders’ Equity

In October 2019, our Company issued 720,000 shares of restricted common stock to an investor relations firm as a portion of compensation for services. The common stock vests on a pro rata basis over one year. The fair value of the common stock amounting to $25,400 on the inception date of agreement is being amortized to expense over the first year of the engagement.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

10.

Commitments and Contingencies

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.

Future minimum lease payments under non-cancelable operating leases with initial or remaining terms of one year or more at December 31, 2019 are: $51,600  – 2020; $53,100 – 2021; $54,600 – 2022; $56,200 – 2023 and $18,900 – 2024.

Total lease expense under operating leases was $53,300 and $45,100 in each of the years ended December 31, 2019 and December 31, 2018, respectively.

Maturities of lease liabilities are as follows:

	Operating Leases
Year ending December 31
2020	$	51,600
2021		53,100
2022		54,600
2023		56,200
2024		18,900
Total lease payments		234,400
Less imputed interest		(32,400	)
Total	$	202,000

Our Company has an employment agreement, expiring in May 2021, with Michael A. Feinstein, M.D., its Chairman of the Board and Chief Executive Officer. The employment agreement contains one-year renewal provisions that became effective after the original term. Dr. Feinstein receives base compensation of $120,000 per year effective January 1, 2020 plus a performance bonus determined by our Company’s Board of Directors. Our Company has an employment agreement, expiring in March 2021, with Terry W. Stovold, its Chief Operating Officer, whereby Mr. Stovold receives a salary set by our Company’s Board of Directors, currently set at $75,000, along with a commission of seven percent on sales generated by his efforts. The employment agreement contains one-year renewal provisions that became effective after the original term. Future minimum compensation payments under these employment agreements are: $195,000 to be paid in 2020 and $68,800 to be paid in 2021.

From time to time, our Company may be subject to legal proceedings and claims that arise in the ordinary course of its business.

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Commitments and Contingencies (Operating Leases) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Jan. 01, 2019
Commitments and Contingencies Disclosure [Abstract]
Operating lease right of use asset	$ 202,000		$ 241,000
Operating lease liability	$ 202,000		$ 241,000
Incremental borrowing rate			6.00%
Lease expiration	Dec. 31, 2024
Future minimum payments due under operating leases:
2020	$ 51,600
2021	53,100
2022	54,600
2023	56,200
2024	18,900
Lease expense	$ 53,300	$ 45,100

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Income Taxes (Reconciliation of the Statutory Fedreal Rate) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Amount:
Income tax at U.S. federal income tax rate	$ 158,600	$ 398,200
State tax net of federal tax effect	52,300	202,200
Utilization of operating losses	(158,600)	(398,200)
Total	$ 52,300	$ 202,200
Percent:
Income tax at U.S. federal income tax rate	21.00%	21.00%
State tax net of federal tax effect	7.00%	7.00%
Utilization of operating losses	(21.00%)	(21.00%)
Total	7.00%	7.00%

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Convertible Debentures (Details) - Convertible Debt [Member] - USD ($)	3 Months Ended
	Sep. 30, 2019	Dec. 31, 2019
Debt Instrument [Line Items]
Debt outstanding		$ 97,900
Convertible debentures extended for one year		$ 97,900
Interest rate		7.00%
Conversion price		$ 0.025
Debt converted	$ 30,400
Interest converted	$ 12,300
Shares issued	1,707,982
Stock purchased through warrants		691,365
Price per share of warrants		$ 0.02

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Balance Sheets (Parenthetical) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 5,000	$ 5,000
Preferred stock, par value	$ 1.00	$ 1.00
Preferred stock, shares authorized	300,000	300,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	61,044,698	58,616,716
Common stock, shares outstanding	61,044,698	58,616,716

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Organization of the Company

12 Months Ended

Dec. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization of the Company

1.

Organization of the Company

Nocopi Technologies, Inc. (the “Company”) is organized under the laws of the State of Maryland. Its main business activities are the development and distribution of document security products and the licensing of its patented reactive ink technologies for the Entertainment and Toy and the Document and Product Authentication markets in the United States and foreign countries. Our Company operates in one principal industry segment.

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Major Customer and Geographic Information (Non-affiliated Customers with Accounts Receivable) (Details) - Accounts Receivable [Member]	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Customer A [Member]
Concentration Risk [Line Items]
Risk percentage	26.00%	6.00%
Customer B [Member]
Concentration Risk [Line Items]
Risk percentage	67.00%	86.00%

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Commitments and Contingencies (Employment Agreements) (Details) - Employment Agreement [Member]	12 Months Ended
	Dec. 31, 2019 USD ($)
Other Commitments [Line Items]
Future minimum compensation payments due year 2020	$ 195,000
Future minimum compensation payments due year 2021	$ 68,800
Chief Executive Officer [Member]
Other Commitments [Line Items]
Employment contract, expiration date	2021-05
Annual base compensation owed to employee per employment agreement	$ 120,000
Chief Operating Officer [Member]
Other Commitments [Line Items]
Employment contract, expiration date	2021-03
Annual base compensation owed to employee per employment agreement	$ 75,000
Commission rate owed to employee expressed as percentage of sales	7.00%

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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Financial Statement Presentation

Financial Statement Presentation – Amounts included in the accompanying financial statements have been rounded to the nearest hundred, except for number of shares and per share information.

Estimates

Estimates – The preparation of the financial statements in conformity with Accounting Principles Generally Accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

Cash

Cash consists of demand deposits with a major U.S. bank.

Accounts receivable and credit policies

Accounts receivable and credit policies – Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer. Customer account balances with invoices dated over 90 days old are considered delinquent.

The carrying amount of accounts receivable is reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances that exceed 90 days from invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected.

Inventory

Inventory consists primarily of ink components and is stated at the lower of cost (determined by the first-in, first-out method) or net realizable value.

Fixed assets

Fixed assets are carried at cost less accumulated depreciation and amortization. Furniture, fixtures and equipment are generally depreciated on the straight-line method over their estimated service lives. Leasehold improvements are amortized on a straight-line basis over the shorter of five years or the term of the lease. Major renovations and betterments are capitalized. Maintenance, repairs and minor items are expensed as incurred. Upon disposal, assets and related depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to income.

Patent costs

Patent costs are charged to expense as incurred.

Revenues

Revenues – On January 1, 2018, our Company adopted ASU 214-09, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective method. Results for periods beginning on or after January 1, 2018 are presented under Topic 606; however, prior period amounts are not adjusted and continue to be reported in accordance with Topic 605, Revenue Recognition, which was in effect for those periods.

The adoption of the new guidance affected our recognition of revenue from licenses and royalties. Under our previous accounting practice, we recognized revenue from licenses and royalties on a straight-line basis over the term of the related license agreement. As a result of our adoption of the new guidance, we will recognize revenue from fixed fee licensees at a point in time when the term begins if the contract provides for patented ink technology only as it exists at the time that it is granted. However, for license agreements that provide for rights to future ink technology, revenue will be recognized over the term of the license agreement.

Revenue for per-unit license agreement will be recognized in the period that the Company receives the related royalty report. Revenue for product sales will be recognized upon shipment to the customer. There are no contract assets or contract liabilities and therefore no unsatisfied performance obligations. The Company does not offer any warranties, however, damaged products can be returned for credit or refund. For disaggregation of revenue by customers and geographic region, see Note 12.

During the second quarter of 2018, we negotiated an amendment to a license agreement with a licensee that, in addition to expanding the technologies that the licensee is permitted to market, provides for a four year extension to the license agreement that contains guaranteed royalties payable in installments over the term of the amendment to the license agreement. Since the performance obligation is to grant the license for the use of certain patented ink technology as it exists at the time that it is granted, the promise to grant the license is a performance obligation satisfied at a point in time in accordance with Topic 606. In accordance with Topic 606, we recorded $1,521,700 net of imputed interest of licenses, royalties and fees and $106,500 of selling expenses in the year ended December 31, 2018 related to the amendment to the license agreement. The related non-current receivable and payable are recorded as other assets and other liabilities on the balance sheet.

Our Company recorded a decrease to the opening balance of the accumulated deficit of $96,100 and a corresponding charge to deferred revenue as of January 1, 2018 due to the cumulative impact of the adoption of Topic 606.

The change in accumulated deficit on our Balance Sheet at December 31, 2018, including the aggregate impact of the change in accounting principles which was effective on January 1, 2018, was as follows:

Accumulated deficit – January 1, 2018	$	(12,811,000	)
Net income		1,655,400
Cumulative effect of accounting change at January 1, 2018		96,100
Accumulated deficit – December 31, 2018	$	(11,059,500	)

Income taxes

Income taxes – Deferred income taxes are provided for all temporary differences and net operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Fair value

Fair value – The carrying amounts reflected in the balance sheets for receivables, accounts payable and accrued expenses approximate fair value due to the short maturities of these instruments. The carrying amount of the convertible debentures approximates fair value since the interest rate associated with the debt approximates the current market interest rates.

Convertible debentures

Convertible debentures, for which the embedded conversion feature does not qualify for derivative treatment, are evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, our Company accounts for the value of the beneficial conversion feature as a debt discount, which is then accreted to interest expense over the life of the related debt using the straight-line method, which approximates the effective interest method.

Stock-based payments

Stock-based payments – Our Company accounts for stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, "Compensation - Stock Compensation", which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. Our Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the vesting period or the requisite service periods using the straight-line method. Our Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC 505-50, "Equity- Based Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, our Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by our Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded as an expense and additional paid in capital in stockholders’ equity over the applicable service periods. Non-employee equity based payments are recorded as an expense over the service period, as if our Company had paid cash for the services. At the end of each financial reporting period, prior to vesting or prior to the completion of the services, the fair value of the equity based payments will be re-measured and the non-cash expense recognized during the period will be adjusted accordingly. Since the fair value of equity based payments granted to non-employees is subject to change in the future, the amount of the future expense will include fair value re-measurements until the equity based payments are fully vested or the service completed. As of June 30, 2018 our Company changed its accounting policy for non-employee equity based payments by adopting FASB ASU 2018-07, which expands Topic 718 to include transactions for acquiring goods and services, from nonemployees.

Earnings per share

Earnings per share – Our Company follows FASB ASC 260 resulting in the presentation of basic and diluted earnings per share.Basic earnings per common share are based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e. the exercise prices of the outstanding stock options were greater than the market price of the common stock.

The table below presents the computation of basic and diluted weighted average common shares outstanding:

	2019		2018
Basic shares outstanding		59,443,207		58,616,716
Incremental shares from assumed conversion of warrants		393,363		363,704
Diluted shares outstanding		59,836,570		58,980,420

Comprehensive income

Comprehensive income – Our Company follows FASB 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.

Recoverability of Long-Lived Assets

Recoverability of Long-Lived Assets

Our Company follows FASB ASC 360-35, “Impairment or Disposal of Long-Lived Assets.” The Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Our Company is not aware of any events or circumstances which indicate the existence of an impairment which would be material to our Company’s annual financial statements.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and subsequent related updates. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from operating leases. The Company adopted the standard effective January 1, 2019 under the optional transition method which allows the entity to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the period of adoption. The standard had a material impact on the balance sheet. As of January 1, 2019, the operating lease right of use asset and operating lease liability amounted to $241,000 with no cumulative-effect adjustment.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements. The amendments in this Update relieve businesses and organizations from having to present prior comparative years’ results when they adopt the new standard. It also lets landlords and other lessors avoid breaking out the parts of a rental contract that are not specifically being leased, such as the cost of snow removal services, and account for them separately from the base rent. The amendments in this Update are the same as the effective dates and transition requirements in ASU No. 2016-02, Leases.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The adoption on January 1, 2018 of the amendments in this Update did not have a material impact on its financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

Recently Issued Accounting Pronouncements Not Yet Adopted

As of December 31, 2019, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.

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Stock Options, Warrants and 401(k) Savings Plan (Tables)

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Warrants Outstanding

A summary of outstanding warrants follows:

				Weighted
		Exercise		Average
	Number of	Price Range		Exercise
	Shares	Per Share		Price
Outstanding at December 31, 2018 and December 31, 2019	691,365	$0.02		$0.02
Weighted average remaining contractual life (years)	.83
					Weighted
			Exercise		Average
	Number of		Price Range		Exercise
	Shares		Per Share		Price
Exercisable warrants at year end:
2019	691,365	$0.02		$0.02
Weighted average remaining contractual life (years)	.83

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Significant Accounting Policies (Basic and Diluted Weighted Average Common Shares Outstanding) (Details) - shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Accounting Policies [Abstract]
Basic shares outstanding	59,443,207	58,616,716
Incremental shares from assumed conversion of warrants	393,363	363,704
Diluted shares outstanding	59,836,570	58,980,420