SOURCE: PEN Inc.

PEN Inc.

August 22, 2017 08:30 ET

PEN Inc. Announces Second Quarter 2017 Financial Results

Investor Webcast and Business Update Set for Tuesday, August 29, 1 pm ET

MIAMI, FL--(Marketwired - Aug 22, 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 second quarter ended June 30, 2017.

Scott Rickert, PEN's President, Chairman and CEO, said: "The second quarter was an active one at PEN. We commenced the relocation of our Ohio operations to a smaller facility nearby, a move that will allow us to outsource a good portion of our manufacturing and lower our cost structure while providing the flexibility to quickly meet the diverse and dynamic packaging needs of our customers. More importantly, it will allow PEN to focus on our primary mission of building a consumer products company offering compelling products enabled by nanotechnology.

"We are preparing for upcoming relaunch of our key health and safety products, including our environmentally friendly surface protector, which we expect to kick off in the fourth quarter once the relocation is complete. The PEN Design Center has evolved into a true development partner for industrial and commercial customers, and is making a name for itself as a key supplier of inks and pastes for the printed electronics industry and graphene foils used in medical imaging. I am impressed with the contributions of our team members on each of these fronts as we move forward to position PEN for future success."

Second Quarter 2017 Financial Results

During the second quarter of 2017, PEN experienced typical quarterly variation in sales and margins of its health and safety products. The Company generated a loss for the quarter, primarily due to expenses associated with the upcoming relocation of its Product segment operations. Despite the net loss and buildup of inventory in advance of the move, the Company generated positive cash flow from operations during the quarter.

For the three months ended June 30, 2017, total revenues were $2,002,609, compared to revenues of $2,209,828 in the comparable period in 2016.

For the second quarter of 2017, overall gross profit amounted to $656,257 compared to $793,086 for the second quarter of 2016. Gross margin was 33%, compared to 36% in the year ago period. The decrease in gross margin was attributable lower gross margins from the Product segment and the Contract services segment during the quarter.

Operating expenses totaled $1,019,827 in the second quarter of 2017, relatively unchanged from $1,012,110 in the second quarter of 2016. In the second quarter of 2017, salaries, wages and related benefits decreased by 41% due to personnel reductions related to the Company's ongoing efforts to reduce costs. This was offset by increases in selling and marketing expenses associated with higher social media costs, commissions and trade show expenses, professional fees related to contract services that are part of the relocation of the Product segment operations, and an increase in research and development expenses related to work on specialty coatings for new markets and potential enhancements of the surface protector and fortifier product.

Operating loss was $363,570 in the second quarter of 2017, compared to an operating loss of $219,024 in the second quarter of 2016.

Other income was $42,380 in the second quarter of 2017, compared to $93,333 in the second quarter of 2016.

Net loss for the three months ended June 30, 2017 amounted to $321,190 or ($0.11) per basic and diluted share, as compared to a net loss of $125,691 or ($0.04) per basic and diluted share, for the three months ended June 30, 2016.

Basic and diluted earnings per share were based on 3,046,341 and 3,002,658 weighted average shares outstanding, respectively, for the three months ended June 30, 2017 and 2016.

PEN Brands' Health and Safety Products - Product Segment

Sales from PEN's Product segment for the second quarter of 2017 were $1,754,336, down from $1,916,124 for the three months ended June 30, 2016. The decrease in revenue reflects the normal variation in the timing of purchases of health and safety products by the Company's large customers.

Gross margin in the Product segment in the second quarter of 2017 was 38%, compared to 41% 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 second quarter of 2017 were $248,273 compared to $293,704 in the second quarter of 2016.

Gross margin from the Contract services segment in the second quarter of 2017 was negative 7%, compared to 0% in the year ago period.

First Half 2017 Results

For the six months ended June 30, 2017, total revenues were $4,218,959 up slightly from revenues of $4,188,989 in the first half of 2016. Gross profit was $1,589,574 in the first half 2017, up 4% from gross profit of $1,524,210 in the first half of 2016. Gross margin was 38%, up from 36% in the first half of 2016. Net loss for first half of 2017 amounted to $226,778 or ($0.07) per basic and diluted share, as compared to net loss of $245,626, or ($0.08) per basic and diluted share, for the first half of 2016. Basic and diluted earnings per share were based on 3,044,393 and 3,000,152 weighted average shares outstanding, respectively, for the six months ended June 30, 2017 and 2016.

Financial Condition

As of June 30, 2017, PEN held cash and cash equivalents of $176,212 as compared to $189,128 at December 31, 2016. As of June 30, 2017, PEN had a working capital deficit of $1,188,809 compared to a working capital deficit of $1,072,691 at December 31, 2016.

During the first half of 2017, PEN generated $180,244 in cash flow from operations. As of June 30, 2017, the Company had short-term debt of $1,004,577 compared to $1,070,137 as of December 31, 2016.

Investor webcast and business update: Tuesday, August 29th, 1 pm EDT

PEN will host an investor webcast on Tuesday, August 29th at 1 pm EDT to discuss second quarter results, provide a business update and take questions from investors. Participants can register 20 minutes prior to the event at: http://services.choruscall.com/links/penc170829.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, CLARITY ULTRASEAL® nanocoating products for glass and ceramics and an environmentally friendly surface protector, fortifier, and cleaner. 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  
   
    June 30, 2017     December 31, 2016  
    (Unaudited)        
ASSETS                
CURRENT ASSETS:                
  Cash   $ 176,212     $ 189,128  
  Accounts receivable, net     815,405       722,845  
  Accounts receivable - related party     15,242       10,474  
  Inventory     1,344,625       1,035,499  
  Prepaid expenses and other current assets     56,680       75,080  
  Total Current Assets     2,408,164       2,033,026  
                 
OTHER ASSETS:                
  Property, plant and equipment, net     640,750       709,627  
  Other assets     111,150       51,078  
  Total Other Assets     751,900       760,705  
                 
Total Assets   $ 3,160,064     $ 2,793,731  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
                 
CURRENT LIABILITIES:                
  Bank revolving line of credit   $ 919,068     $ 979,688  
  Current portion of notes payable     85,509       90,449  
  Accounts payable     1,603,230       1,078,527  
  Accounts payable - related parties     20,887       52,887  
  Deferred revenue     37,081       -  
  Accrued expenses     931,198       904,166  
                 
  Total Current Liabilities     3,596,973       3,105,717  
                 
LONG-TERM LIABILITIES:                
  Notes payable, net of current portion     246,345       266,110  
                 
  Total Long-Term Liabilities     246,345       266,110  
                 
Total Liabilities     3,843,318       3,371,827  
                 
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; 1,643,908 and 1,367,431 issued and outstanding at June 30, 2017 and December 31, 2016, respectively     164       136  
  Class B common stock: $0.0001 par value, 2,500,000 shares authorized; 1,416,976 and 1,402,104 issued and outstanding at June 30, 2017 and December 31, 2016, respectively     142       140  
  Class Z common stock: $0.0001 par value, 300,000 shares authorized; 0 and 262,631 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively     -       26  
  Additional paid-in capital     5,443,385       5,321,769  
  Accumulated deficit     (6,126,945 )     (5,900,167 )
                 
Total Stockholders' Deficit     (683,254 )     (578,096 )
                 
Total Liabilities and Stockholders' Deficit   $ 3,160,064     $ 2,793,731  
                 
                 
                 
PEN INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF OPERATIONS  
   
    For the Three Months Ended     For the Six Months Ended  
    June 30,     June 30,  
    2017     2016     2017     2016  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
REVENUES:                                
  Products   $ 1,754,336     $ 1,916,124     $ 3,750,825     $ 3,609,550  
  Contract services     248,273       293,704       468,134       579,439  
                                   
  Total Revenues     2,002,609       2,209,828       4,218,959       4,188,989  
                                 
COST OF REVENUES:                                
  Products     1,080,347       1,123,716       2,116,182       2,058,642  
  Contract services     266,005       293,026       513,203       606,137  
                                   
  Total Cost of Revenues     1,346,352       1,416,742       2,629,385       2,664,779  
                                 
GROSS PROFIT     656,257       793,086       1,589,574       1,524,210  
                                 
OPERATING EXPENSES:                                
  Selling and marketing expenses     172,143       71,963       236,870       119,332  
  Salaries, wages and related benefits     266,222       451,502       566,436       865,239  
  Research and development     146,431       78,850       215,153       164,613  
  Professional fees     186,769       139,274       401,023       245,632  
  General and administrative expenses     248,262       270,521       464,248       496,529  
                                   
  Total Operating Expenses     1,019,827       1,012,110       1,883,730       1,891,345  
                                 
LOSS FROM OPERATIONS     (363,570 )     (219,024 )     (294,156 )     (367,135 )
                                 
OTHER (EXPENSE) INCOME:                                
  Interest expense     (8,326 )     (28,136 )     (33,914 )     (56,270 )
  Other income, net     50,706       121,469       101,292       177,779  
                                   
  Total Other Income     42,380       93,333       67,378       121,509  
                                 
NET LOSS   $ (321,190 )   $ (125,691 )   $ (226,778 )   $ (245,626 )
                                 
NET LOSS PER COMMON SHARE:                                
  Basic   $ (0.11 )   $ (0.04 )   $ (0.07 )   $ (0.08 )
  Diluted   $ (0.11 )   $ (0.04 )   $ (0.07 )   $ (0.08 )
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                                
  Basic     3,046,341       3,002,658       3,044,393       3,000,152  
  Diluted     3,046,341       3,002,658       3,044,393       3,000,152  
                                   
                                   
                                   
PEN INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
   
    For the Six Months Ended  
    June 30,  
    2017     2016  
    (unaudited)     (unaudited)  
CASH FLOWS FROM OPERATING ACTIVITIES                
  Net loss   $ (226,778 )   $ (245,626 )
  Adjustments to reconcile net loss to net cash provided by operating activities:                
    Change in inventory obsolescence reserve     38,420       24,108  
    Depreciation and amortization expense     68,877       94,256  
    Amortization of deferred lease incentives     3,564       6,415  
    Gain on sale of property and equipment     -       (21,866 )
    Gain on sale of accounts payable     -       (33,511 )
    Gain on settlement of accrued salary     -       (36,973 )
    Stock-based compensation     102,620       99,620  
    Change in operating assets and liabilities:                
      Accounts receivable     (92,560 )     3,552  
      Accounts receivable - related party     (4,768 )     3,358  
      Inventory     (347,546 )     (296,385 )
      Prepaid expenses and other assets     (41,672 )     84,473  
      Accounts payable     542,128       421,725  
      Accounts payable - related parties     (32,000 )     13,765  
      Accrued expenses     132,878       (35,055 )
      Deferred revenue     37,081       (21,692 )
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES     180,244       60,164  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Proceeds from sales of property and equipment     -       21,866  
Purchases of property plant and equipment     -       (4,000 )
                 
NET CASH PROVIDED BY INVESTING ACTIVITIES     -       17,866  
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
  Deposit on stock purchase     -       50,000  
  Proceeds from bank lines of credit     3,556,000       3,361,000  
  Repayment of bank lines of credit     (3,707,030 )     (3,421,147 )
  Repayment of bank loans     (37,190 )     (37,190 )
  Repayment of loan to third party     (4,940 )     (2,000 )
                 
NET CASH USED IN FINANCING ACTIVITIES     (193,160 )     (49,337 )
                 
NET (DECREASE) INCREASE IN CASH     (12,916 )     28,693  
                 
CASH, beginning of year     189,128       262,519  
                 
CASH, end of period   $ 176,212     $ 291,212  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                
Cash paid during the period for interest                
  Interest   $ 33,914     $ 56,270  
  Income taxes   $ -     $ 5,132  
                 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
  Reclassification of accrued salary to notes payable - long-term   $ 17,425     $ 51,239  
  Accrued director fees settled with common stock   $ 19,000     $ -  

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