Nocopi Technologies Inc/MD – ‘10QSB’ for 9/30/99

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Quarterly Report — Small Business   —   Form 10-QSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10QSB       Quarterly Report                                      14     57K 
 2: EX-3.5      Amended Bylaws                                         1      7K 
 3: EX-10.19    Indemnification Agreement                              9     49K 
 4: EX-10.20    Indemnification Agreement                             12     48K 
 5: EX-27       Financial Data Schedule                                1      6K 

10QSB   —   Quarterly Report
Document Table of Contents

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 U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-QSB

(Mark One)                                                                      

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

For the quarterly period ended September 30, 1999.

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

        For the transition period from _________________ to ______________

Commission file number 0-20333

 NOCOPI TECHNOLOGIES, INC.
 (Exact name of small business issuer as
 specified in its charter)

   MARYLAND                                     87-0406496
---------------------------------              ---------------------------------
   (State or other jurisdiction                (IRS Employer Identification No.)
of incorporation or organization)                                               

 537 Apple Street, West Conshohocken, PA 19428
----------------------------------------------
(Address of principal executive offices)

(610) 834-9600
----------------------------------------------
 (Issuer's telephone number)

Check whether the issuer has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such  
shorter period that the registrant was required to file such reports), and (2)  
has been subject to such filing requirements for the past 90 days.              
Yes __X__ No _____                                                              

   State the number of shares outstanding of each of the issuer's classes of
common equity, as of November 1, 1999: Common stock, par value $.01 per share   
33,797,332 shares.                                                              

Transitional Small Business Disclosure Format (check one): Yes ____   No __X__  

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 NOCOPI TECHNOLOGIES, INC.

 INDEX

Part I.    FINANCIAL INFORMATION                                            PAGE

Item 1.   Financial Statements                                      

                Statements of Operations                                       1
Three Months and Nine Months Ended              
September 30, 1999 and September 30, 1998       

                Balance Sheet                                                  2
September 30, 1999                              

                Statements of Cash Flows                                       3
Nine Months Ended September 30, 1999            
and September 30, 1998.                         

                Notes to Financial Statements                                4-5

      Item 2.   Management's Discussion and Analysis                        6-10
of Financial Condition and Results of Operations

Part II.   OTHER INFORMATION                                                  11

           Signatures                                                         12

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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS                                              

 NOCOPI TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
 (UNAUDITED)

                                                        [Enlarge/Download Table]


                                       THREE MONTHS ENDED            NINE MONTHS ENDED        
                                          SEPTEMBER 30,                 SEPTEMBER 30,         
                                  ---------------------------   ----------------------------- 
                                    1999                1998       1999                1998   
                                    ----                ----       ----                ----   
REVENUES                                                                                      
                                                                                              
 LICENSES, ROYALTIES AND FEES      $289,500          $497,300   $1,091,000         $1,402,200 
 PRODUCT AND OTHER SALES             52,800           116,400      302,900            553,700 
                                   --------          --------   ----------         ---------- 
                                    342,300           613,700    1,393,900          1,955,900 

COST OF SALES                                                                                 
 LICENSES, ROYALTIES AND FEES        89,700            83,300      293,800            284,000 
 PRODUCT AND OTHER SALES             49,500           103,800      255,200            520,100 
                                   --------          --------   ----------         ---------- 
                                    139,200           187,100      549,000            804,100 
                                   --------          --------   ----------         ---------- 
  GROSS PROFIT                      203,100           426,600      844,900          1,151,800 

OPERATING EXPENSES                                                                            
 RESEARCH AND DEVELOPMENT            50,600            97,200      176,100            312,000 
 SALES AND MARKETING                146,500           201,200      529,900            610,000 
 GENERAL AND ADMINISTRATIVE         127,500           221,900      663,000            685,900 
                                   --------          --------   ----------         ---------- 
                                    324,600           520,300    1,369,000          1,607,900 
                                   --------          --------   ----------         ---------- 
  LOSS FROM OPERATIONS             (121,500)          (93,700)    (524,100)          (456,100)

OTHER INCOME (EXPENSES)                                                                       
 AMORTIZATION                                                                          (6,300)
 INTEREST INCOME                     11,500            16,800       35,400             78,000 
 INTEREST AND BANK CHARGES           (3,900)           (4,100)     (11,300)           (26,300)
 EQUITY IN NET INCOME (LOSS) OF                                                               
  UNCONSOLIDATED AFFILIATE            4,200                         (2,100)           (21,000)
                                   --------          --------   ----------         ---------- 
                                     11,800            12,700       22,000             24,400 
                                   --------          --------   ----------         ---------- 
  NET LOSS                        ($109,700)         ($81,000)   ($502,100)         ($431,700)
                                  =========          ========    =========          ========= 

LOSS PER COMMON SHARE               ($.00)            ($.00)      ($.01)              ($.01)  

WEIGHTED AVERAGE COMMON                                                                       
  SHARES OUTSTANDING             33,743,999        33,587,332   33,657,332         33,587,332 

SEE NOTES TO FINANCIAL STATEMENTS.

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 NOCOPI TECHNOLOGIES, INC.
 BALANCE SHEET
 (UNAUDITED)
                                                                 SEPTEMBER 30,
                                                                1999
                                                                ------------

ASSETS

CURRENT ASSETS                                                                  
CASH AND CASH EQUIVALENTS                                        $    994,400 
ACCOUNTS RECEIVABLE LESS ALLOWANCE                                     87,000 
PREPAID AND OTHER                                                      31,300 
                                                                ------------
TOTAL CURRENT ASSETS                                               1,112,700

FIXED ASSETS                                                                    
LEASEHOLD IMPROVEMENTS                                                 39,500 
FURNITURE, FIXTURES AND EQUIPMENT                                     456,500 
                                                                ------------
                                                                     496,000
LESS: ACCUMULATED DEPRECIATION                                        420,600 
                                                                ------------
                                                                      75,400

OTHER ASSETS                                                                    
INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATE                208,000 
PATENTS, NET OF ACCUMULATED AMORTIZATION                              508,700 
OTHER                                                                   4,500 
                                                                ------------
                                                                     721,200
                                                                ------------
 TOTAL ASSETS                                                   $  1,909,300
                                                                ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES                                                             
CURRENT DEBT OBLIGATIONS                                         $    125,000 
ACCOUNTS PAYABLE                                                      141,300 
ACCRUED EXPENSES                                                      184,100 
ACCRUED COMMISSIONS                                                   143,600 
DEFERRED REVENUE                                                      150,400 
                                                                ------------
TOTAL CURRENT LIABILITIES                                            744,400

COMMITMENTS AND CONTINGENCIES                                                   

STOCKHOLDERS' EQUITY                                                            
COMMON STOCK, $.01 PAR VALUE                                                  
AUTHORIZED - 75,000,000 SHARES                                              
ISSUED AND OUTSTANDING - 33,757,332 SHARES                           337,600
PAID-IN CAPITAL                                                    10,428,000 
ACCUMULATED OTHER COMPREHENSIVE LOSS                                  (26,100)
ACCUMULATED DEFICIT                                                (9,574,600)
                                                                ------------
                                                                   1,164,900
                                                                ------------
 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                     $  1,909,300
                                                                ============

SEE NOTES TO FINANCIAL STATEMENTS.

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 NOCOPI TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
 (UNAUDITED)

                                                                [Download Table]


                                                             NINE            
                                                  MONTHS ENDED SEPTEMBER 30, 
                                                      1999           1998    
                                                  -----------    ----------- 
                                                                             
OPERATING ACTIVITIES                                                         
 NET LOSS                                         ($  502,100)   ($  431,700)
 ADJUSTMENTS TO RECONCILE NET LOSS TO                                        
  CASH FROM OPERATING ACTIVITIES                                             
  DEPRECIATION                                         46,800         65,700 
  AMORTIZATION                                         49,400         54,000 
  ALLOWANCE FOR DOUBTFUL ACCOUNTS                                      5,400 
  EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATE        2,100         21,000 
  STOCK AND STOCK OPTION COMPENSATION                  23,500          7,500 
                                                  -----------    ----------- 
                                                     (380,300)      (278,100)

(INCREASE) DECREASE IN ASSETS                                                
 ACCOUNTS RECEIVABLE                                   43,800        (98,300)
 PREPAID AND OTHER                                     21,100         24,600 
INCREASE (DECREASE) IN LIABILITIES                                           
 ACCOUNTS PAYABLE AND ACCRUED EXPENSES                (19,800)      (108,600)
 DEFERRED REVENUE                                      28,100         62,900 
                                                  -----------    ----------- 
                                                       73,200       (119,400)
                                                  -----------    ----------- 
  CASH (USED IN) OPERATING ACTIVITIES                (307,100)      (397,500)

INVESTING ACTIVITIES                                                         
 ADDITIONS TO FIXED ASSETS                            (17,500)       (42,300)
 ADDITIONS TO PATENTS                                 (36,600)       (18,100)
 ADVANCES (TO) FROM AFFILIATE, NET                    (17,300)      (102,600)
                                                  -----------    ----------- 
  CASH (USED IN) INVESTING ACTIVITIES                 (71,400)      (163,000)

FINANCING ACTIVITIES                                                         
 REPAYMENT OF NOTES                                                 (825,000)
                                                  -----------    ----------- 
  CASH (USED) IN FINANCING ACTIVITIES                               (825,000)
                                                  -----------    ----------- 
  DECREASE IN CASH AND CASH EQUIVALENTS              (378,500)    (1,385,500)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD     1,372,900      2,714,600 
                                                  -----------    ----------- 
CASH AND CASH EQUIVALENTS - END OF PERIOD         $   994,400    $ 1,329,100 
                                                  ===========    =========== 

SEE NOTES TO FINANCIAL STATEMENTS.

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 NOCOPI TECHNOLOGIES, INC.

 NOTES TO FINANCIAL STATEMENTS
 (UNAUDITED)

NOTE 1. FINANCIAL STATEMENTS                                                    

 The accompanying interim financial statements have been prepared by the
Company without audit. These statements include all adjustments (consisting only
of normal recurring adjustments) which management believes necessary for a fair 
presentation of the statements and have been prepared on a consistent basis     
using the accounting policies described in the summary of Accounting Policies   
included in the Company's 1998 Annual Report. Certain information and footnote  
disclosures normally included in financial statements prepared in accordance    
with generally accepted accounting principles have been condensed or omitted.   
The Notes to Financial Statements included in the 1998 Annual Report should be  
read in conjunction with the accompanying interim financial statements. The     
interim operating results are not necessarily indicative of the operating       
results expected for the full year.                                             

NOTE 2. COMPREHENSIVE INCOME (LOSS)                                             

In accordance with SFAS No. 130, Reporting Comprehensive Income,      
comprehensive loss is as follows:                                               

                                        Three Months Ended
                                       September 30,
                                       -------------------------
                                       1999           1998
                                       ----           ----
Net loss                                       ($109,700)      ($81,000)        
Currency translation adjustment                    4,900         11,100         
                                      ---------      ---------
Comprehensive loss                             ($104,800)      ($69,900)        
                                      =========      =========

                                       Nine Months Ended
                                       September 30,
                                       -------------------------
                                       1999           1998
                                       ----           ----
Net loss                                       ($502,100)     ($431,700)        
Currency translation adjustment                  (13,200)        12,900         
                                      ---------      ---------
Comprehensive loss                             ($515,300)     ($418,800)        
                                      =========      =========

3. SEVERANCE EXPENSE                                                            

 In the first quarter of 1999, the Company accrued $150,000 in severance
obligations relative to the February 1999 resignation of its President and Chief
Executive Officer. The severance was payable in installments of approximately   
$15,000 per month commencing March 1, 1999. During the third quarter of 1999,   
the severance agreement was modified by mutual consent of the parties resulting 
in the reduction of $30,900 in remaining severance obligations which has been   
recognized as a third quarter 1999 reduction in severance expense.              

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4. COMMITMENTS AND CONTINGENCIES                                                

On November 4, 1999 a lawsuit was filed by Norman Gardner, a former   
director and officer of the Company, in the Court of Common Pleas for Montgomery
County, Pennsylvania against the Company, its directors, and Michael McGovern,  
its chief operating officer. The suit alleges breach of an employment agreement 
and violation of Pennsylvania's wage and hour laws in failing to pay            
compensation. The amount sought in the action is $671,173 in actual damages plus
any assessed punitive damages and costs. The suit was brought following the     
Company's termination of the agreement pursuant to its terms. The Company       
believes it has adequate defenses, intends to defend these claims vigorously and
is in the process of preparing its answer, which may include the filing of      
counterclaims. Given the early stage of this action it is not possible to assess
the likely outcome and, accordingly, no amounts are recorded on the books of the
Company at September 30, 1999 in anticipation of a loss as a result of this     
contingency.                                                                    

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ITEM 2.                                                                         

 NOCOPI TECHNOLOGIES, INC.

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

RESULTS OF OPERATIONS                                                           

    The Company's revenues are derived from royalties paid by licensees of the
Company's technologies, fees for the provision of technical services to         
licensees and from the direct sale of products which incorporate or deliver the 
Company's technologies, such as pressure sensitive labels and ink jet printing  
equipment. Royalties consist of guaranteed minimum royalties payable by the     
Company's licensees in certain cases and additional royalties which typically   
vary with the licensee's sales or production of products incorporating the      
licensed technology. Service fee and sales revenues vary directly with the      
number of units of service or product provided.                                 

     Because the Company's fixed costs are a relatively high percentage of total
costs, its 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 amounts of the Company's revenues and the mix among the
various sources of revenue are subject to substantial fluctuation. The Company  
has a relatively small number of substantial customers rather than a large      
number of small customers. Accordingly, changes in the revenue received from a  
significant customer can have a substantial effect on the Company's total       
revenue and on its revenue mix and overall financial performance. Such changes  
may result from a customer's product development delays, engineering changes,   
changes in product marketing strategies and the like. In addition, certain      
customers have, from time to time, sought to renegotiate certain provisions of  
their license agreements and, when the Company agrees to revise terms, revenues 
from the customer may be affected.                                              

   Revenues for the third quarter of 1999 were $342,300 compared to $613,700
in the third quarter of 1998, a decline of $271,400 or 44%. Licenses, royalties 
and fees declined by $207,800 or 42%, to $289,500 in the third quarter of 1999  
from $497,300 in the third quarter of 1998. During the third quarter of 1999,   
the Company's largest customer, Paxar Corporation, terminated its arrangement   
with the Company whereby it incorporated the Company's technologies into labels 
it produced and sold to a major apparel manufacturer. The loss of this customer 
accounted for $168,400 or 81% of the decline in licenses, royalties and fees.   
Additionally, the termination of license agreements during the second half of   
1998 and first half of 1999 with five other licensees negatively affected third 
quarter 1999 revenues from licenses, royalties and fees. Product and other sales
declined by $63,600 to $52,800 in the third quarter of 1999 from $116,400 in the
third quarter of 1998. The decline is due primarily to lower sales of           
pressure-sensitive labels and ink-jet printing equipment.                       

  For the first nine months of 1999, revenues were $1,393,900, $562,000 or
29% lower than revenues of $1,955,900 in the first nine months of 1998.         
Licenses, royalties and fees declined by $311,200, or 22%, to $1,091,000 in the 
first nine months of 1999 from $1,402,200 in the first nine months of 1998. The 
loss of revenues from Paxar Corporation, due to lower volumes in the first six  

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months of 1999 and the license termination in the third quarter, accounted for  
$214,200 or 69% of the decline in licenses, royalties and fees. The termination 
of certain other license agreements during 1998 and 1999 accounted for the      
balance of the decline.                                                         

    The Company's gross profit declined 52% to $203,100, or 59% of revenues in
the third quarter of 1999 from $426,600, or 70% of revenues in the third quarter
of 1998. The decline in the gross margin, both as a percentage of revenues and  
in absolute dollars, is due primarily to the substantial reduction in revenues  
derived from licenses, royalties and fees. Certain components of cost of sales  
related to licenses, royalties and fees, such as production labor and rent, are 
substantially fixed. The variable component of these costs of sales, primarily  
ink and chemicals, is a small percentage of the related revenues. As these      
revenues decline, the gross margin is negatively impacted, both in absolute     
dollars and as a percentage of revenues. Product sales, which primarily consist 
of manufactured products, which incorporate the Company's technologies,         
equipment to support the application of its technologies or other products      
purchased for re-sale, are generally purchased from third-party vendors and sold
to the end-user or licensee. These products carry a significantly lower gross   
margin than licenses, royalties and fees.                                       

    The gross profit for the first nine months of 1999 was $844,900, or 61% of
revenues, compared to $1,151,800, or 59% of revenues, in the first nine months  
of 1998. The factors described above, relative to the third quarter gross       
margin, affected the first nine months as well.                                 

   Research and development expenses declined to $50,600 and $176,100 in the
third quarter and first nine months of 1999, respectively, from $97,200 and     
$312,000 in the comparable periods of 1998. The reductions were due primarily to
lower compensation expenses resulting from modifications to compensation        
arrangements with certain individuals including lower travel expenses.          

     Sales and marketing expenses declined to $146,500 and $529,900 in the third
quarter and first nine months, respectively, of 1999 from $201,200 and $610,000 
in the comparable 1998 periods. The decline relates primarily to lower          
commission expenses on the lower revenues and lower travel expenses in 1999     
compared to 1998.                                                               

General and administrative expenses declined to $127,500 in the three 
months ended September 30, 1999 from $221,900 in the three months ended         
September 30, 1998. For the first nine months of 1999, general and              
administrative expenses were $663,000 compared to $685,900 in the first nine    
months of 1998. The substantial reduction in third quarter 1999 general and     
administrative expenses compared to the third quarter of 1998 is due primarily  
to lower salary expense as a result of the resignation of the Company's         
President and Chief Executive Officer in February 1999. In the first quarter of 
1999, the Company charged to expense $150,000 in related severance obligations. 
During the third quarter of 1999, the severance arrangement was modified by     
mutual consent of the parties resulting in a reduction in severance expense of  
$30,900, which was recognized in the third quarter of 1999.                     

Other income (expense) includes interest on the $125,000 Series B 9%  
Subordinated Convertible Promissory Notes due March 31, 2000. The decline in    
interest income in the third quarter and first nine months of 1999 compared to  
the third quarter and first nine months of 1998 relates to lower levels of cash 
invested as cash was utilized during 1998 to fund operations and to repay       
$825,000 of the convertible notes.                                              

     Equity in net income (loss) of affiliate represents the proportionate share
in the income of Euro-Nocopi attributable to the Company's approximate 18%      
ownership share of Euro-Nocopi.                                                 

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The net loss increased in the third quarter of 1999 to $109,700 in the
third quarter of 1999 from $81,000 in the third quarter of 1998 due primarily to
the lower gross profit resulting from the sales decline, partially offset by a  
$195,700 reduction in overhead expenses. The increase in the loss of $502,100   
for the first nine months of 1999 compared to the loss of $431,700 in the first 
nine months of 1998 relates primarily to the same factors as the third quarter. 

LIQUIDITY AND CAPITAL RESOURCES                                                 

   The Company's cash and cash equivalents declined to $994,400 at September
30, 1999 from $1,372,900 at December 31, 1998. The cash was used primarily to   
fund operations over the nine-month period including reimbursable expenses on   
behalf of its European affiliate.                                               

 During the third quarter of 1999, the Company's largest customer, Paxar
Corporation, terminated its license arrangement with the Company. As the loss of
this customer will have a material adverse effect on the Company's results of   
operations and upon its liquidity and capital resources, the Company believes   
that the condition arising from this event raises substantial doubts about the  
Company's ability to continue as a going concern. The Board of Directors of the 
Company is in the process of reviewing strategic alternatives to provide        
increased liquidity, improve cash flow and enhance stockholder value. These     
potential alternatives include an investment in the Company by a strategic      
partner, the pursuit of strategic alliances, acquisitions or the sale of all or 
part of the business. There can be no assurances that the Company will be       
successful in accomplishing such a transaction or, if so achieved, that the     
transaction will have a material positive effect on the Company's business      
operations and cash flow. While the financial statements have been prepared     
assuming the Company will continue as a going concern, a further deterioration  
in its liquidity or its inability to effect a transaction described above may   
require the write-off, in a future period, of intangible assets, principally    
patents, whose current carrying value is $513,200.                              

On November 4, 1999 a lawsuit was filed by Norman Gardner, a former   
director and officer of the Company, in the Court of Common Pleas for Montgomery
County, Pennsylvania against the Company, its directors, and Michael McGovern,  
its chief operating officer. The suit alleges breach of an employment agreement 
and violation of Pennsylvania's wage and hour laws in failing to pay            
compensation. The amount sought in the action is $671,173 in actual damages plus
any assessed punitive damages and costs. The suit was brought following the     
Company's termination of the agreement pursuant to its terms. The Company       
believes it has adequate defenses, intends to defend these claims vigorously and
is in the process of preparing its answer, which may include the filing of      
counterclaims. Given the early stage of this action it is not possible to assess
the likely outcome and, accordingly, no amounts are recorded on the books of the
Company at September 30, 1999 in anticipation of a loss as a result of this     
contingency.                                                                    

The Company is aware of Year 2000 potential problems. These potential 
problems exist because many computer software applications use two digits to    
designate a year. Any computer hardware and programs that have date sensitive   
software may recognize a date using "00" as the year 1900 rather than the year  
2000. The inability to properly process dates beyond 1999 may cause computer    
systems to process information incorrectly or not at all. As its internal       
information systems consist primarily of third party software systems, the      
Company intends to purchase and install available Year 2000 compliant upgrade   
versions during the fourth quarter of 1999. The Company has determined that the 
vendor's upgrade software is available and is Year 2000 complaint. The Company  
estimates the costs to purchase and install the upgrades at less than $10,000.  
The Company continues to communicate with vendors, financial institutions and   
others to assure their compliance to Year 2000 issues. However, there can be no 

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assurance that the systems of other companies on which the Company relies will  
be converted in a timely manner.                                                

  The foregoing contains forward-looking information within the meaning of
the Private Securities Litigation Act of 1995. Such forward-looking statements  
involve certain risks and uncertainties including the particular factors        
described in this Management Discussion and Analysis. In each case, actual      
results may differ materially from such forward-looking statements. The Company 
does not undertake to publicly update or revise its forward-looking statements  
even if experience or future changes make it clear that any projected results   
(expressed or implied) will not be realized.                                    

FACTORS THAT MAY AFFECT FUTURE GROWTH AND STOCK PRICE                           

     The Company's operating results and stock price are dependent upon a number
of factors, some of which are beyond the Company's control. These include:      

 Uneven Pattern of Quarterly and Annual Operating Results. The Company's
revenues, which are derived primarily from licensing and royalties, are         
difficult to forecast due to the long sales cycle for the Company's             
technologies, the potential for customer delay or deferral of implementation of 
the Company's technologies, the size and timing of inception of individual      
license agreements, the success of the 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 
the Company's revenue base is not substantial, delays in finalizing license     
contracts, implementing the technology to initiate the revenue stream and       
customer ordering decisions can have a material adverse effect on the Company's 
quarterly and annual revenue expectations and, as the Company's operating       
expenses are substantially fixed, income expectations will be subject to a      
similar adverse outcome.                                                        

New Business Opportunities. The Company, with limited research and    
development resources, is compelled to develop new technologies that it believes
will enhance and expand its position in the anti-counterfeiting and             
anti-diversion marketplace it serves. There can be no assurance that the        
resources expended in this effort will generate significant revenues for the    
Company.                                                                        

   Intellectual Property. The Company relies on a combination of protections
provided under applicable international patent, trademark and trade secret laws.
It also relies on confidentiality, non-analysis and licensing agreements to     
establish and protect its rights in its proprietary technologies. While the     
Company actively attempts to protect these rights, the Company's technologies   
could possibly be compromised through reverse engineering or other means. There 
can be no assurance that the Company will be able to protect the basis of its   
technologies from discovery by unauthorized third parties, thus adversely       
affecting its customer and licensee relationships.                              

     Volatility of Stock Prices. The market price for the Company's common stock
has historically experienced significant fluctuations and may continue to do so.
The Company has, since its inception, operated at a loss and has not produced   
revenue levels traditionally associated with publicly traded companies. The     
Company's common stock is not listed on a national or regional securities       
exchange and, consequently, the Company receives limited publicity regarding its
business achievements and prospects, nor do securities analysts and traders     
extensively follow it. The market price 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 the     
Company's common stock.                                                         

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    Adverse Liquidity. As a result of the loss of a number of customers during
the past eighteen months including, in the third quarter of 1999, the Company's 
largest customer, the Company is experiencing a period of adverse liquidity     
during which it will be required to reduce expenses while the Company's Board of
Directors explore options to restructure the Company's operations, including    
seeking a potential business combination. The requirements to conserve cash may 
cause the Company to limit its discretionary research and development and sales 
and marketing expenditures, thus impeding the Company's ability to develop new  
technologies and markets. These factors may negatively impact the Company's     
efforts to increase its customer base and revenues.                             

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 PART II - OTHER INFORMATION

Item 1.   Legal Proceedings                                                     

   On November 4, 1999 a suit was filed by Norman Gardner, a former director
and officer of the Company, in the Court of Common Pleas for Montgomery County, 
Pennsylvania against the Company, its directors, and Michael McGovern, its chief
operating officer. The suit alleges breach of an employment agreement and       
violation of Pennsylvania's wage and hour laws in failing to pay compensation.  
The amount sought in the action is $671,173 in actual damages plus any assessed 
punitive damages and costs. The suit was brought following the Company's        
termination of the agreement pursuant to its terms. The Company intends to      
defend these claims vigorously and is in the process of preparing its answer.   
Given the early stage of this action it is not possible to assess the likely    
outcome.                                                                        

Item 2. Changes in Securities                                                   

Not Applicable                                                        

Item 3. Defaults Upon Senior Securities                                         

Not Applicable                                                        

Item 4. Submission of Matters to a Vote of Security Holders                     

Not Applicable                                                        

Item 5. Other Information                                                       

Not Applicable                                                        

Item 6. Exhibits and Reports on Form 8-K                                        

(a) Exhibit 3.5 - Amendments to Bylaws                      

(b). Exhibit 10.19 - Director Indemnification Agreement     

(c). Exhibit 10.20 - Officer Indemnification Agreement      

(d). Exhibit 27 - Financial Data Schedule                   

         (e). No Current Reports on Form 8-K have been filed by the Registrant
during the quarter ended September 30, 1999.                                    

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SIGNATURES

Pursuant to the requirement 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:  November 15, 1999            /s/ Jack H. Halperin                        
            --------------------
      Jack H. Halperin
           Chairman of the Board

DATE: November 15, 1999             /s/ Rudolph A. Lutterschmidt                
                    ----------------------------
                Rudolph A. Lutterschmidt
                                Vice President & Chief Financial Officer

12

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10QSB’ Filing		Date		First		Last			Other Filings
		3/31/00		9					10QSB,  NT 10-K
		11/16/99
Filed on:		11/15/99		14					DEF 14A,  PRRN14A
		11/4/99		7		13
		11/1/99		1					SC 13D/A
For Period End:		9/30/99		1		13
		3/1/99		6
		12/31/98		10					10KSB,  NT 10-K
		9/30/98		2		9			10QSB
									List all Filings

7 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 3/25/24  Nocopi Technologies Inc./MD       10-K       12/31/23   61:3.3M                                   Edgar Tech & Bus… Inc/FA
 4/28/23  Nocopi Technologies Inc./MD       10-K/A     12/31/22    3:200K                                   Edgar Tech & Bus… Inc/FA
 3/31/23  Nocopi Technologies Inc./MD       10-K       12/31/22   58:3.1M                                   Edgar Filing LLC/FA
 4/29/22  Nocopi Technologies Inc./MD       10-K/A     12/31/21   12:380K                                   Edgar Filing LLC/FA
 3/30/22  Nocopi Technologies Inc./MD       10-K       12/31/21   52:2.7M                                   Edgar Filing LLC/FA
 4/30/21  Nocopi Technologies Inc./MD       10-K/A     12/31/20    3:157K                                   Edgar Filing LLC/FA
 3/30/21  Nocopi Technologies Inc./MD       10-K       12/31/20   54:2.7M                                   Edgar Filing LLC/FA