SOURCE: PEN Inc.

PEN Inc.

March 30, 2017 05:30 ET

PEN Inc. Announces Fourth Quarter and Full Year 2016 Financial Results

MIAMI, FL--(Marketwired - Mar 30, 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 fourth quarter and full year ended December 31, 2016.

For the year ended December 31, 2016, PEN generated positive cash flow from operations and achieved a significant reduction in net loss.

Scott Rickert, PEN's President, Chairman and CEO, said: "We closed 2016 on a strong note, generating over $400,000 in operating cash flow for the year and significantly reducing net loss despite a decline in sales from our traditional health and safety products.

"I am impressed with the progress we have made in right-sizing operations and positioning the Company for future success. Our new leadership in Ohio, supported by a top-notch team, has been instrumental in putting us on the path to transforming a niche optical products business into PEN Brands -- a nanotechnology company focused on developing products in the areas of health, safety and sustainability for a broad range of retail and institutional customers. 

"Looking ahead, we plan to further streamline our Ohio operations and reenergize sales and marketing as we rebrand several of our existing products into the market over the next twelve months. We remain confident that our environmentally-friendly surface protector has the potential to revolutionize the household cleaning products industry. I am excited about the opportunities for PEN in the year ahead, and believe that we have the products, technology and team in place to build a high-growth company that solves big problems in large addressable markets." 

Fourth Quarter 2016 Financial Results

For the three months ended December 31, 2016, total revenues were $1,919,830 compared to revenues of $2,293,190 in the comparable period in 2015.

For the fourth quarter of 2016, overall gross profit amounted to $650,394, compared to $892,769 for the fourth quarter of 2015. Gross margin was 34%, compared to 39% in the year ago period. The decrease in gross margin was attributable lower gross margins from the Product and Contract services segments during the quarter. 

Operating expenses totaled $794,507 in the fourth quarter of 2016, down 35% from $1,212,466 in the fourth quarter of 2015. The decrease was due to lower salaries, wages and related benefits, research and development expenses and selling and marketing expenses. Operating expenses for the fourth quarter of 2015 include a non-cash impairment charge of certain intangible assets acquired in the business combination totaling $188,051. There was no such expense in the fourth quarter of 2016. 

Operating loss was $144,113 in the fourth quarter of 2016, compared to an operating loss of $319,697 in the fourth quarter of 2015.

Other income was $44,640 in the fourth quarter of 2016, compared to other expense of $24,470 in the fourth quarter of 2015. The increase was primarily related to rental income for subleased office space in Austin. 

Net loss for the three months ended December 31, 2016 amounted to $99,473 or ($0.03) per basic and diluted share, as compared to a net loss of $344,167 or ($0.12) per basic and diluted share, for the three months ended December 31, 2015. 

Basic and diluted earnings per share were based on 3,029,202 and 2,980,868 weighted average shares outstanding, respectively, for the three months ended December 31, 2016 and 2015. All share and per share information has been adjusted to reflect a 1-for-180 reverse stock split effective January 26, 2016.

PEN Brands' Health and Safety Products - Product Segment

Sales from PEN's Product segment for the fourth quarter of 2016 were $1,720,642, down 12% from $1,946,459 for the three months ended December 31, 2015. 

Gross margin in the Product segment in the fourth quarter of 2016 was 40%, 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 fourth quarter of 2016 were $199,188 compared to $346,731 in the fourth quarter of 2015. 

Gross margin from the Contract services segment in the fourth quarter of 2016 was negative 17%, compared to 4% in the year ago period. 

Full Year Results

For the year ended December 31, 2016, total revenues were $8,115,657 down 16% from revenues of $9,685,072 in 2015. Gross profit was $2,805,687 in 2016, down 16% from gross profit of $3,340,939 in 2015. Gross margin was 35%, relatively unchanged from 2015. Net loss 2016 amounted to $556,001 or ($0.18) per basic and diluted share, as compared to net loss of $1,869,247, or ($0.63) per basic and diluted share, for 2015. Basic and diluted earnings per share were based on 3,012,460 and 2,974,847 weighted average shares outstanding, respectively, for years ended December 31, 2016 and 2015. All share and per share information has been adjusted to reflect a 1-for-180 reverse stock split effective January 26, 2016.

Financial Condition

As of December 31, 2016, PEN held cash and cash equivalents of $189,128 as compared to $262,519 at December 31, 2015. As of December 31, 2016, PEN had a working capital deficit of $1,072,691 compared to a working capital deficit of $889,657 at December 31, 2015. 

During 2016, PEN had positive cash flow from operations, generating $444,453 in cash flow from operations. The Company generated $19,586 in cash flow from investing activities in 2016, which was primarily related to the sale of property and equipment in Contract services segment. As of December 31, 2016, the Company had short-term debt of $1,070,137 compared to $1,363,128 as of December 31, 2015. 

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 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  
           
  December 31,     December 31,  
  2016     2015  
               
ASSETS              
CURRENT ASSETS:              
  Cash $ 189,128     $ 262,519  
  Accounts receivable, net   722,845       1,100,352  
  Accounts receivable - related party   10,474       11,984  
  Inventory   1,035,499       1,083,385  
  Prepaid expenses and other current assets   75,080       194,950  
  Total Current Assets   2,033,026       2,653,190  
               
OTHER ASSETS:              
  Property, plant and equipment, net   709,627       897,358  
  Other assets   51,078       32,103  
  Total Other Assets   760,705       929,461  
               
TOTAL ASSETS $ 2,793,731     $ 3,582,651  
               
LIABILITIES AND STOCKHOLDERS' DEFICIT              
               
CURRENT LIABILITIES:              
  Bank revolving line of credit $ 979,688     $ 1,288,748  
  Current portion of notes payable   90,449       74,380  
  Accounts payable   1,078,527       1,259,865  
  Accounts payable - related parties   52,887       27,064  
  Accrued expenses   904,166       871,098  
  Deferred revenue   -       21,692  
               
  Total Current Liabilities   3,105,717       3,542,847  
               
LONG-TERM LIABILITIES:              
  Notes payable, net of current portion   266,110       312,139  
               
  Total Long-Term Liabilities   266,110       312,139  
               
  Total Liabilities   3,371,827       3,854,986  
               
Commitments and Contingencies              
               
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; 1,367,431 and 1,336,759 issued and outstanding at December 31, 2016 and 2015, respectively   136       134  
  Class B common stock: $0.0001 par value, 2,500,000 shares authorized; 1,402,104 and 1,395,678 issued and outstanding at December 31, 2016 and 2015, respectively   140       139  
  Class Z common stock: $0.0001 par value, 300,000 shares authorized; 262,631 shares issued and outstanding at December 31, 2016 and 2015   26       26  
  Additional paid-in capital   5,321,769       5,071,532  
  Accumulated deficit   (5,900,167 )     (5,344,166 )
               
Total Stockholders' Deficit   (578,096 )     (272,335 )
               
Total Liabilities and Stockholders' Deficit $ 2,793,731     $ 3,582,651  
               
               
               
PEN INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF OPERATIONS  
                       
  For the Three Months Ended     For the Years Ended  
  December 31,     December 31,  
  2016     2015     2016     2015  
  (Unaudited)     (Unaudited)              
REVENUES:                              
  Products $ 1,720,642     $ 1,946,459     $ 7,111,947     $ 7,920,148  
  Contract services   199,188       346,731       1,003,710       1,764,924  
                               
  Total Revenues   1,919,830       2,293,190       8,115,657       9,685,072  
                               
COST OF REVENUES:                              
  Products   1,036,450       1,066,584       4,212,079       4,561,506  
  Research and development services   232,986       333,837       1,097,891       1,782,627  
                               
  Total Cost of Revenues   1,269,436       1,400,421       5,309,970       6,344,133  
                               
GROSS PROFIT   650,394       892,769       2,805,687       3,340,939  
                               
OPERATING EXPENSES:                              
  Selling and marketing expenses   42,755       65,574       220,029       280,173  
  Salaries, wages and related benefits   272,503       472,708       1,513,536       2,214,956  
  Research and development   53,868       124,055       290,402       744,346  
  Professional fees   148,787       113,962       513,237       660,584  
  General and administrative expenses   276,594       248,116       1,015,503       1,016,752  
  Impairment loss   -       188,051       -       188,051  
                               
  Total Operating Expenses   794,507       1,212,466       3,552,707       5,104,862  
                               
LOSS FROM OPERATIONS   (144,113 )     (319,697 )     (747,020 )     (1,763,923 )
                               
OTHER INCOME (EXPENSES):                              
  Interest expenses   (22,820 )     (26,848 )     (105,090 )     (117,879 )
  Other income, net   67,460       2,378       296,109       12,255  
                               
  Total Other Income/(Expense)   44,640       (24,470 )     191,019       (105,324 )
                               
NET LOSS $ (99,473 )   $ (344,167 )   $ (556,001 )   $ (1,869,247 )
                               
NET LOSS PER COMMON SHARE:                              
  Basic $ (0.03 )   $ (0.12 )   $ (0.18 )   $ (0.63 )
  Diluted $ (0.03 )   $ (0.12 )   $ (0.18 )   $ (0.63 )
                               
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                              
  Basic   3,029,202       2,980,868       3,012,460       2,974,847  
  Diluted   3,029,202       2,980,868       3,012,460       2,974,847  
                                 
                                 
                                 
PEN INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
           
  For Years Ended  
  December 31,  
  2016     2015  
               
CASH FLOWS FROM OPERATING ACTIVITIES              
  Net loss $ (556,001 )   $ (1,869,247 )
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities:              
    Change in inventory obsolescence reserve   56,861       (35,652 )
    Bad debt expense   12,021       641  
    Impairment loss   -       188,051  
    Depreciation and amortization expense   182,986       252,899  
    Amortization of deferred lease incentives   12,830       (12,830 )
    Change in value of stock appreciation rights   -       6,962  
    Change in value of equity credits   -       (11,024 )
    Gain on sale of property and equipment   (23,586 )     -  
    Loss on disposal of property and equipment   8,745       -  
    Gain on settlement of accounts payable   (50,879 )     -  
    Gain on settlement of accrued salary   (36,973 )     -  
    Stock-based compensation   202,240       241,240  
    Change in operating assets and liabilities:              
      Accounts receivable   365,486       (67,998 )
      Accounts receivable - related party   1,510       26,262  
      Inventory   (8,975 )     509,367  
      Prepaid expenses and other assets   100,895       14,867  
      Accounts payable   (130,459 )     (166,600 )
      Accounts payable - related parties   25,823       27,064  
      Accrued expenses   303,621       98,888  
      Deferred revenue   (21,692 )     (7,098 )
               
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   444,453       (804,208 )
               
CASH FLOWS FROM INVESTING ACTIVITIES              
  Proceeds from sales of property and equipment   23,586       -  
  Purchases of property and equipment   (4,000 )     (248,123 )
               
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES   19,586       (248,123 )
               
CASH FLOWS FROM FINANCING ACTIVITIES              
  Proceeds from sale of common stock   50,000       -  
  Payment of issuance costs related to sale of common stock   (2,000 )     -  
  Proceeds from bank line of credit   6,815,000       8,156,000  
  Repayment of bank lines of credit   (7,319,231 )     (7,640,596 )
  Proceeds from bank loan   -       371,901  
  Repayment of bank loans   (74,380 )     (37,190 )
  Repayment of loan to third party   (6,819 )     -  
               
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES   (537,430 )     850,115  
               
NET DECREASE IN CASH   (73,391 )     (202,216 )
               
CASH, beginning of period   262,519       464,735  
               
CASH, end of period $ 189,128     $ 262,519  
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION              
Cash paid during the period for interest              
  Interest $ 105,090     $ 117,879  
  Income taxes $ -     $ -  
               
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:              
  Common stock issued for convertible notes and accrued interest $ -     $ 13,725  
  Common stock issued for accrued expenses $ -     $ 123,285  
  Reclassification of accrued salary to notes payable - long-term $ 51,239     $ 51,808  
                 

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