PEN Inc. Announces First Quarter 2017 Financial Results

MIAMI, FL--(Marketwired - May 23, 2017) - PEN Inc. (OTCQB: PENC) ("PEN" or "the Company"), a global leader in developing, commercializing and marketing consumer and industrial products enabled by nanotechnology, reported financial results for its first quarter ended March 31, 2017.

For the quarter ended March 31, 2017, PEN recorded double digit sales growth, improved gross margin and delivered its first profitable quarter since 2014. 

Scott Rickert, PEN's President, Chairman and CEO, said: "We got off to a solid start in 2017, generating healthy revenue growth, profitable operations, positive operating cash flow and a much-improved cash position. 

"Our financial results for the quarter reflect the hard work we have done to increase our sales, and right-size operations over the last several years, first in Texas and more recently in Ohio. I know many investors wish that both the sales growth and the streamlining could have happened faster, and, as an investor, I agree. As the Chief Executive, however, I know that changes of this magnitude in any organization do not happen overnight. I am truly impressed with how nimble PEN has become, thanks to solid planning and execution by our team members throughout the organization. 

"Looking forward, we see additional opportunities to refocus operations in Ohio and are moving forward with our plan to rebrand and reintroduce some of our key health and safety products into the market later this year. I am confident in our ability to grow PEN over time."

First Quarter 2017 Financial Results

For the three months ended March 31, 2017, total revenues were $2,216,350, up 12% over revenues of $1,979,161 in the comparable period in 2016.

For the first quarter of 2017, overall gross profit amounted to $933,317, up 28% from $731,124 for the first quarter of 2016. Gross margin was 42%, compared to 37% in the year ago period. The increase in gross margin was attributable higher gross margin from the Product segment, which was partially offset by lower gross margin from the Contract services segment during the quarter. 

Operating expenses totaled $863,903 in the first quarter of 2017, down 2% from $879,235 in the first quarter of 2016. The decrease was due to lower salaries, wages and related benefits, research and development expenses and general and administrative expenses, offset by higher professional fees and selling and marketing expenses. 

Operating income was $69,414 in the first quarter of 2017, compared to an operating loss of $148,111 in the first quarter of 2016.

Other income was $24,998 in the first quarter of 2017, compared to $28,176 in the first quarter of 2016. 

Net income for the three months ended March 31, 2017 amounted to $94,412 or $0.03 per basic and diluted share, as compared to a net loss of $119,935 or ($0.04) per basic and diluted share, for the three months ended March 31, 2016. 

Basic and diluted earnings per share were based on 3,034,659 and 2,997,646 weighted average shares outstanding, respectively, for the three months ended March 31, 2017 and 2016. 

PEN Brands' Health and Safety Products - Product Segment

Sales from PEN's Product segment for the first quarter of 2017 were $1,996,489, up 18% from $1,693,426 for the three months ended March 31, 2016, due to a renewed focus on sales and increased sales of coatings products.

Gross margin in the Product segment in the first quarter of 2017 was 48%, compared to 45% in the year ago period, primarily due to differences in the assortment of products sold. 

PEN Design Center - Contract Services Segment

Revenues from the Contract services segment for the first quarter of 2017 were $219,861 compared to $285,735 in the first quarter of 2016. 

Gross margin from the Contract services segment in the first quarter of 2017 was negative 12%, compared to negative 10% in the year ago period. 

Financial Condition

As of March 31, 2017, PEN held cash and cash equivalents of $305,402 as compared to $189,128 at December 31, 2016. As of March 31, 2017, PEN had a working capital deficit of $917,040 compared to a working capital deficit of $1,072,691 at December 31, 2016. 

During the first quarter of 2017, PEN generated $151,188 in cash flow from operations. As of March 31, 2017, the Company had short-term debt of $1,095,450 compared to $1,070,137 as of December 31, 2016. 

Investor webcast and business update: Thursday, June 1st, 1 pm EDT

PEN will host an investor webcast on Thursday, June 1st at 1 pm EDT to discuss first quarter results, provide a business update and take questions from investors. Participants can register 20 minutes prior to the event at: https://services.choruscall.com/links/penc170601.html

Questions for the event may be submitted in advance to ir@pen-technology.com.

About PEN Inc.

PEN Inc. (OTCQB: PENC) is a leader in developing, commercializing, and marketing consumer and industrial products enabled by nanotechnology that solve everyday problems for customers in the health, transportation, military, sports, and safety industries. Through PEN's wholly-owned subsidiary PEN Brands LLC (formerly Nanofilm Ltd.), the Company develops, manufactures and sells products based on nanotechnology including the ULTRA CLARITY^® brand eyeglass cleaner, CLARITY DEFOG IT^™ brand defogging products and CLARITY ULTRASEAL^® nanocoating products for glass and ceramics. The Company also sells an environmentally friendly surface protector, fortifier, and cleaner through a wholly-owned subsidiary, PEN Technology, LLC. The Company's Applied Nanotech, Inc. subsidiary in Austin, Texas functions as the Design Center conducting contract services for government and private customers and new product development for PEN focusing on innovative and advanced product solutions in the areas of safety, health, and sustainability. For more information about PEN, visit www.penc.us.

Safe Harbor Statement

This press release contains forward-looking statements that involve risks and uncertainties concerning our business, products, and financial results. Actual results may differ materially from the results predicted. More information about potential risk factors that could affect our business, products, and financial results are included in our annual report on Form 10-K for the fiscal year ended December 31, 2016, and in reports subsequently filed by us with the Securities and Exchange Commission ("SEC"). All documents are available through the SEC's Electronic Data Gathering Analysis and Retrieval System (EDGAR) at www.sec.gov or from our website listed above. We hereby disclaim any obligation to publicly update the information provided above, including forward-looking statements, to reflect subsequent events or circumstances.

PEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
			March 31,				December 31,
			2017				2016
			(Unaudited)
	ASSETS
CURRENT ASSETS:
	Cash		$	305,402			$	189,128
	Accounts receivable, net			919,184				722,845
	Accounts receivable - related party			32,395				10,474
	Inventory			1,016,542				1,035,499
	Prepaid expenses and other current assets			87,499				75,080
	Total Current Assets			2,361,022				2,033,026
OTHER ASSETS:
	Property, plant and equipment, net			671,813				709,627
	Other assets			77,793				51,078
	Total Other Assets			749,606				760,705
Total Assets			$	3,110,628			$	2,793,731
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
	Bank revolving line of credit		$	1,007,456			$	979,688
	Current portion of notes payable			87,994				90,449
	Accounts payable			1,258,949				1,078,527
	Accounts payable - related parties			41,887				52,887
	Accrued expenses			881,776				904,166
	Total Current Liabilities			3,278,062				3,105,717
LONG-TERM LIABILITIES:
	Notes payable, net of current portion			264,940				266,110
	Total Long-Term Liabilities			264,940				266,110
Total Liabilities				3,543,002				3,371,827
Commitments and Contingencies (See Note 11)
STOCKHOLDERS' DEFICIT:
	Preferred stock, $0.0001 par value, 20,000,000 shares authorized; no shares issued and outstanding			-				-
	Class A common stock: $0.0001 par value, 7,200,000 shares authorized; 1,371,277 and 1,367,431 issued and outstandingat March 31,2017 and December 31, 2016, respectively			137				136
	Class B common stock: $0.0001 par value, 2,500,000 sharesauthorized; 1,404,668 and 1,402,104 issued and outstanding at March 31, 2017 and December 31, 2016, respectively			140				140
	Class Z common stock: $0.0001 par value, 300,000 sharesauthorized; 262,631 and 262,631 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively			26				26
	Additional paid-in capital			5,373,078				5,321,769
	Accumulated deficit			(5,805,755	)			(5,900,167	)
Total Stockholders' Deficit				(432,374	)			(578,096	)
Total Liabilities and Stockholders' Deficit			$	3,110,628			$	2,793,731

PEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
			For the Three Months Ended
			March 31,
			2017				2016
			(unaudited)				(unaudited)
REVENUES:
	Products (including related party sales of $53,314 and $47,692 forthe three months ended March 31, 2017 and 2016, respectively)		$	1,996,489			$	1,693,426
	Contract services			219,861				285,735
	Total Revenues			2,216,350				1,979,161
COST OF REVENUES:
Products				1,035,835				934,926
Contract services				247,198				313,111
Total Cost of Revenues				1,283,033				1,248,037
GROSS PROFIT				933,317				731,124
OPERATING EXPENSES:
	Selling and marketing expenses			64,727				47,369
	Salaries, wages and related benefits			300,214				413,737
	Research and development			68,722				85,763
	Professional fees			214,254				106,358
	General and administrative expenses			215,986				226,008
	Total Operating Expenses			863,903				879,235
INCOME (LOSS) FROM OPERATIONS				69,414				(148,111	)
OTHER (EXPENSE) INCOME:
	Interest expense			(25,588	)			(28,134	)
	Other income, net			50,586				56,310
	Total Other Income			24,998				28,176
NET INCOME (LOSS)			$	94,412			$	(119,935	)
NET INCOME (LOSS) PER COMMON SHARE:
	Basic		$	0.03			$	(0.04	)
	Diluted		$	0.03			$	(0.04	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
	Basic			3,034,659				2,997,646
	Diluted			3,034,659				2,997,646

PEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
				For the Three Months Ended
				March 31,
				2017				2016
				(unaudited)				(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
		Net loss		$	94,412			$	(119,935	)
		Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		Change in inventory obsolescence reserve			27,204				14,012
		Depreciation and amortization expense			37,814				47,180
		Amortization of deferred lease incentives			1,782				(3,208	)
		Gain on sale of property and equipment			-				(21,866	)
		Stock-based compensation			51,310				47,310
		Change in operating assets and liabilities:
		Accounts receivable			(196,339	)			153,024
		Accounts receivable - related party			(21,921	)			(1,445	)
		Inventory			(8,247	)			(135,203	)
		Prepaid expenses and other assets			(39,134	)			3,118
		Accounts payable			180,422				16,194
		Accounts payable - related parties			(11,000	)			58,897
		Accrued expenses			34,885				(128,450	)
		Deferred revenue			-				(21,692	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES					151,188				(92,064	)
CASH FLOWS FROM INVESTING ACTIVITIES
		Proceeds from sales of property and equipment			-				21,866
NET CASH PROVIDED BY INVESTING ACTIVITIES					-				21,866
CASH FLOWS FROM FINANCING ACTIVITIES
		Proceeds from bank lines of credit			1,774,000				1,670,000
		Repayment of bank lines of credit			(1,787,864	)			(1,708,512	)
		Repayment of bank loans			(18,595	)			(18,596	)
		Repayment of loan to third party			(2,455	)			-
NET CASH USED IN FINANCING ACTIVITIES					(34,914	)			(57,108	)
NET INCREASE (DECREASE) IN CASH					116,274				(127,306	)
CASH, beginning of year					189,128				262,519
CASH, end of period				$	305,402			$	135,213
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
		Cash paid during the period for interest
		Interest		$	25,588			$	28,134
		Income taxes		$	-			$	-
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
		Reclassification of accrued salary to notes payable - long-term		$	17,425			$	-