Nocopi Q2 Revenue Rose 22% Driven by Strong Specialty Reactive Ink Sales; Net Income Declined to $71,000, Reflecting the Accounting Impact of a Four-Year License Extension and COVID-Related Pressures

KING OF PRUSSIA, Pa., Aug. 14, 2020 (GLOBE NEWSWIRE) -- Nocopi Technologies, Inc. (OTC Pink: NNUP), a developer of specialty reactive inks used in entertainment, toy and educational products as well as in document and product authentication technologies to combat fraud, today announced results for its second quarter ended June 30, 2020 (Q2’20).

Q2 Highlights

• Revenues rose 22% to $627,300, driven by a 61% increase in Product sales.
• Despite an increase in earned royalties in Q2’20 compared to the year-ago period, Nocopi reported revenues from licenses, royalties and fees of $107,100 in Q2’20. This sum does not include approximately $100,000 in quarterly minimum guaranteed royalties received in cash and previously recorded as revenues pursuant to an amended and extended four-year licensing agreement with a major customer. Q2’19 revenue from licenses, royalties and fees were $192,000.
• Gross profit decreased 11% to $321,500 on increased product and shipping costs and a lower percentage of higher-margin royalty income within Nocopi’s revenue mix.
• Net income decreased to $70,800 from $148,900 in Q2’19, largely due to the accounting impact of the aforementioned licensing agreement, higher operating expenses and a lower gross margin.
• Working Capital, including $1.05M of cash, increased to $2.1M at 6/30/20 compared to working capital of $1.9M at 3/31/20 Q1’20 and $1.8M at year-end 2019.
• Book value increased to $2.9M at 6/30/20 compared to $2.2M a year ago and $2.8M at 3/31/20.

Q2’20 Results
Q2’20 revenues rose 22% to $627,300 reflecting a 61% increase in product and other sales, principally due to higher specialty ink shipments to the entertainment and toy product market, offset by a 47% decline in licenses, royalties and fees, principally due to the accounting impact of quarterly guaranteed royalties.  Pursuant to a four year extended licensing agreement, which went into effect on July 1, 2019, Nocopi expects to receive approximately $100,000 in minimum guaranteed royalty payments each quarter, through Q2’23, which payments will not be recorded as revenue.

Gross profit decreased to $321,500, or 51% of revenues in Q2’20, from $361,000, or 70% of revenues in Q2 ’19, principally due to the smaller relative contribution from higher-margin royalty revenue and to a lesser extent the impact of higher raw material costs and increased shipping expense largely due to effects of the COVID-19 pandemic.

Q2’20 operating expenses increased to $247,900 from $200,600 in Q2 ’20, reflecting increased operational and administrative expense including higher professional fees. In late 2019, Nocopi expanded its ink production operations and staffing to support expected future growth.

Reflecting lower gross profit and higher operating expenses Nocopi’s net income declined to $70,800, or $0.001 per diluted share, in Q2’20 vs. $148,900, or $0.003 per diluted share, in Q2’19.

Nocopi Chairman and CEO Michael Feinstein commented, “Nocopi achieved double digit revenue growth for the fourth consecutive quarter reflecting strong demand for specialty inks and the COVID-19-related shifting of some ink shipments from Q1 to Q2 due to temporary printing plant closures.

“While the COVID-19 pandemic impacted both our top- and bottom-line performance in Q2, we remained solidly profitable in the period. Though we achieved higher earned royalties in Q2’20 versus the year ago period, the accounting treatment of a four-year license extension in 2018 reduced our royalty-related revenues from this customer by approximately $100,000 in the recent quarter.

“Despite macro disruptions, first half 2020 specialty ink purchases from our overseas printing partners rose 61% over those in the year-ago period. Importantly, this increase in ink and other product sales is an excellent indicator of future royalty income as Nocopi earns per unit royalties on retail sales of most entertainment products incorporating our ink technologies. This high-margin revenue source plays an important role in enhancing our gross margin and future profitability.

“While there are no certainties in the current COVID-19 economic environment, recent business partner activity and their growth plans for new products and geographic expansion provide a favorable outlook for our company over the next few quarters while also confirming our solid competitive position.

“From a balance sheet perspective, Nocopi remains in very strong position, with working capital of $2.1M, including $1.1M in cash. Our growing financial strength offers provides us both security to endure further possible COVID-19 business or economic impacts and flexibility to act opportunistically should any attractive investment or M&A situations present themselves.”

About Nocopi Technologies (www.nocopi.com)
Nocopi develops and markets specialty reactive inks for unique, mess-free applications in the entertainment, toy and educational product markets. Nocopi also develops and markets document and product authentication technologies designed to combat fraudulent document reproduction, product counterfeiting and/or unauthorized product diversion. Nocopi derives revenue from technology licensing agreements as well as from the sale of its proprietary inks and other products to licensees and/or their licensed printers. Nocopi’s products and systems include trade secrets as well as patented technologies.

Safe Harbor for Forward-Looking Statements
This release may contain projections and other "forward-looking statements" relating to Nocopi’s business, that are often identified by the use of "believes," "expects" or similar expressions. Forward-looking statements involve a number of estimates, assumptions, risks and uncertainties that may cause actual results to differ materially from those anticipated. Forward-looking statements may address uncertainties regarding customer preferences or demand for products incorporating Nocopi technology that underlie the company’s revenue expectations, the company’s ability to develop new products and new product applications, the financial condition of customers and the timeliness of their payments, the impact of fluctuations in currencies, global trade and shipping markets, etc. Actual results could differ from those projected due to numerous factors and uncertainties, and Nocopi can give no assurance that such statements will prove to be correct nor that Nocopi’s actual results of ‎operations, financial condition and performance will not differ materially from those reflected or implied by its forward-‎looking statements. Investors should refer to the risk factors outlined in Nocopi’s Form 10-K, 10-Q and other SEC reports available at www.sec.gov/edgar. Forward-looking statements are made as of the date of this news release; Nocopi assumes no obligation to update these statements.

Twitter – Investors: @NNUP_IR

Investor & Media Contacts
Chris Eddy or David Collins
Catalyst IR
212-924-9800 or [e-mail]

Nocopi Technologies, Inc.
Statements of Operations*
(unaudited)

		Three Months ended June 30								Six Months ended June 30
		2020				2019				2020				2019
Revenues
Licenses, royalties and fees*		$	107,100			$	192,000			$	271,700			$	382,500
Product and other sales			520,200				324,100				875,900				543,000
			627,300				516,100				1,147,600				925,500
Cost of revenues
Licenses, royalties and fees			58,600				31,600				108,300				56,800
Product and other sales			247,200				123,400				448,800				213,700
			305,800				155,000				557,100				270,500
Gross profit			321,500				361,100				590,500				655,000
Operating expenses
Research and development			41,900				39,400				83,000				77,400
Sales and marketing			86,000				74,300				170,000				143,200
General and administrative			120,000				86,900				259,700				181,000
			247,900				200,600				512,700				401,600
Net income from operations			73,600				160,500				77,800				253,400
Other income (expenses)
Interest income			4,300				1,500				8,100				2,600
Interest expense, bank charges and accretion of interest			(2,100	)			(2,700	)			(4,600	)			(5,400	)
			2,200				(1,200	)			3,500				(2,800	)
Net income before income taxes			75,800				159,300				81,300				250,600
Income taxes			5,000				10,400				(42,100	)			16,300
Net income		$	70,800			$	148,900			$	123,400			$	234,300
Basic and diluted net income per common share		$	.00			$	.00			$	.00			$	.00
Weighted average common shares outstanding
Basic			61,044,698				58,616,716				61,044,698				58,616,716
Diluted			61,605,985				58,973,280				61,577,129				58,988,005

* Q2’20 revenues from licenses, royalties and fees do not reflect approximately $100,000 in quarterly minimum guaranteed royalties received in cash during Q2’20. These royalties were previously recorded as revenues pursuant to an amended and extended four-year licensing agreement with a major customer. Pursuant to the agreement, which went into effect on July 1, 2019, Nocopi expects to receive approximately $100,000 in minimum guaranteed royalty payments each quarter, through Q2’23, which payments will not be recorded as revenue.

Nocopi Technologies, Inc.
Balance Sheets

		June 30				December 31
		2020				2019
		(unaudited)				(audited)
Assets
Current assets
Cash		$	1,052,700			$	688,000
Accounts receivable less $5,000 allowance for doubtful accounts			1,141,500				1,352,300
Inventory			277,500				127,900
Prepaid and other			95,100				135,000
Total current assets			2,566,800				2,303,200
Fixed assets
Leasehold improvements			27,800				24,200
Furniture, fixtures and equipment			279,400				252,500
			307,200				276,700
Less: accumulated depreciation and amortization			215,200				206,600
			92,000				70,100
Other assets
Long-term receivable			766,000				957,000
Operating lease right of use – building			181,500				202,000
			947,500				1,159,000
Total assets		$	3,606,300			$	3,532,300
Liabilities and Stockholders' Equity
Current liabilities
Convertible debentures		$	97,900			$	97,900
Accounts payable			87,800				44,300
Accrued expenses			214,800				231,600
Income taxes			57,600				52,400
Operating lease liability, current			43,100				41,700
Total current liabilities			501,200				467,900
Other liabilities
Accrued expenses, non-current			53,600				67,000
Deferred income taxes			–				47,400
Operating lease liability, non-current			138,400				160,300
			192,000				274,700
Stockholders' equity
Common stock, $0.01 par value
Authorized – 75,000,000 shares
Issued and outstanding – 61,044,698 shares			610,400				610,400
Paid-in capital			12,483,900				12,483,900
Accumulated deficit			(10,181,200	)			(10,304,600	)
Total stockholders' equity			2,913,100				2,789,700
Total liabilities and stockholders' equity		$	3,606,300			$	3,532,300

Nocopi Technologies, Inc.
Statements of Cash Flows*
(unaudited)

		Six Months ended June 30
		2020				2019
Operating Activities
Net income		$	123,400			$	234,300
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			9,100				2,300
Deferred income taxes			(47,400	)			(54,400	)
Other assets			211,500				(27,800	)
Other liabilities			(33,900	)			208,300
			262,700				362,700
(Increase) decrease in assets
Accounts receivable			210,800				(258,800	)
Inventory			(149,600	)			(31,400	)
Prepaid and other			39,900				(9,600	)
Increase (decrease) in liabilities
Accounts payable and accrued expenses			26,700				65,100
Taxes on income			5,200				(22,300	)
			133,000				(257,000	)
Net cash provided by operating activities			395,700				105,700
Investment Activities
Additions to fixed assets			(31,000	)			–
Net cash used in investing activities			(31,000	)			–
Increase in cash			364,700				105,700
Cash at beginning of year			688,000				400,800
Cash at end of period		$	1,052,700			$	506,500
Supplemental Disclosure of Non Cash Investing and Financing Activities
Accumulated depreciation and amortization		$	500			$	–
Furniture, fixtures and equipment		$	(500	)		$	–
Operating lease right of use – building		$	–			$	241,100
Operating lease liability		$	–			$	(241,100	)