PEN Inc. Announces Third Quarter 2017 Financial Results

– Investor Webcast and Business Update Set for Tuesday, November 21, 1 pm ET

MIAMI, Nov. 15, 2017 (GLOBE NEWSWIRE) — 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 third quarter ended September 30, 2017.

Scott Rickert, PEN’s President, Chairman and CEO, said: “During the third quarter, we relocated our Ohio operations to a facility nearby with a much smaller footprint.  Although we incurred some one-time charges related to the relocation which impacted this quarter’s financial results, this move will ultimately lower our cost structure and provide for operating leverage in the future. It will also allow us to focus on what PEN does best—developing groundbreaking formulas, providing outstanding customer service and meeting the flexible packaging needs of our customers.

“We will soon begin the rollout of our rebranded environmentally friendly surface protector to customers in the hospitality industry and related markets.  While it will take some time for sales to ramp, we are excited to be actively marketing this revolutionary product that addresses the growing need for safe and effective products that protect us from disease.  The PEN Design Center continues to distinguish itself as a valuable development partner, especially in the area of nuclear medicine.  I am pleased with our progress in executing our business plan and look forward to closing the year with a fully streamlined organization positioned for future growth.”  

Third Quarter 2017 Financial Results

During the third quarter of 2017, PEN’s revenues and gross margins were relatively stable.  The Company generated a loss for the quarter, which includes the impact of a one-time, non-cash loss on the sale of equipment associated with the relocation of its Ohio operations. The Company generated over $100,000 in cash flow from operations during the quarter.

For the three months ended September 30, 2017, total revenues were $2,028,261, compared to revenues of $2,006,838 in the comparable period in 2016.

For the third quarter of 2017, overall gross profit amounted to $632,982 compared to $631,083 for the third quarter of 2016.  Gross margin was 31%, relatively unchanged from the year ago period. 

Operating expenses totaled $681,113 in the third quarter of 2017, down from $866,855 in the third quarter of 2016.  In the third quarter of 2017, salaries, wages and related benefits decreased by 33% due to personnel reductions related to the Company’s ongoing efforts to reduce costs.  Selling and marketing expenses decreased by 64% as a result of heavy spending earlier in the year, and general and administrative expenses decreased by 22% due to several factors, including the end of amortization of intangibles, and personnel reductions. These reductions were partially offset by minor increases in professional fees and research and development expenses attributable to further work on specialty coatings for new markets and evaluating different parameters and potential enhancements of the surface protector and fortifier product.      

Operating loss was $48,131 in the third quarter of 2017, compared to an operating loss of $235,772 in the third quarter of 2016.

Other expense was $76,599 in the third quarter of 2017, due primarily to a $122,050 loss on disposal of fixed assets, which was partially offset by other income. This compares to other income of $24,870 in the third quarter of 2016. 

Net loss for the three months ended September 30, 2017 amounted to $124,730 or ($0.04) per basic and diluted share, as compared to a net loss of $210,902, or ($0.07) per basic and diluted share, for the three months ended September 30, 2016. 

Basic and diluted earnings per share were based on 3,062,759 and 3,020,062 weighted average shares outstanding, respectively, for the three months ended September 30, 2017 and 2016. 

PEN Brands’ Health and Safety Products – Product Segment

Sales from PEN’s Product segment for the third quarter of 2017 were $1,772,960, relatively unchanged from $1,781,755 for the three months ended September 30, 2016. During the third quarter of 2017, the Company recorded a one-time adjustment to its cooperative advertising liability which increased Product segment revenue by approximately $346,000.  In addition, certain orders from PEN’s large customers that were expected to be filled in the third quarter of 2017 were postponed until the fourth quarter of 2017.

Gross margin in the Product segment in the second quarter of 2017 was 37%, relatively unchanged from the year-ago period. 

PEN Design Center – Contract Services Segment

Revenues from the Contract services segment for the third quarter of 2017 were $255,301 compared to $225,083 in the third quarter of 2016.  

Gross margin from the Contract services segment in the third quarter of 2017 was negative 7%, compared to negative 15% in the year ago period.  The improvement in gross margin from was attributable to increased revenue and fixed costs that were unchanged.

Nine Months 2017 Results

For the nine months ended September 30, 2017, total revenues were $6,427,220 up slightly from revenues of $6,195,827 in the first nine months of 2016. Gross profit was $2,222,556 in the first nine months of 2017, up from gross profit of $2,155,293 in the first nine months of 2016. Gross margin was 36%, up from 35% in the first nine months of 2016. Net loss for first nine months of 2017 amounted to $351,508 or ($0.12) per basic and diluted share, as compared to net loss of $456,528, or ($0.15) per basic and diluted share, for the first nine months of 2016. Basic and diluted earnings per share were based on 3,051,826 and 3,000,837 weighted average shares outstanding, respectively, for the nine months ended September 30, 2017 and 2016. 

Financial Condition

As of September 30, 2017, PEN held cash and cash equivalents of $73,927 as compared to $189,128 at December 31, 2016.  As of September 30, 2017, PEN had a working capital deficit of $1,033,150 compared to a working capital deficit of $1,072,691 at December 31, 2016. 

During the first nine months of 2017, PEN generated $283,581 in cash flow from operations.  As of September 30, 2017, the Company had short-term debt of $769,211 compared to $1,070,137 as of December 31, 2016. 

Investor webcast and business update:  Tuesday, November 21st, 1 pm EST

PEN will host an investor webcast on Tuesday, November 21st at 1 pm EST to discuss third 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/penc171121.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.

Contact Information
Elaine Ketchmere
PEN Inc.
ir@pen-technology.com
(844) 273-6462

             
PEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
             
    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2017     2016     2017     2016  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
REVENUES:                                
                                 
Products   $ 1,772,960     $ 1,781,755     $ 5,523,785     $ 5,391,305  
Contract services     255,301       225,083       723,435       804,522  
                                 
Total Revenues     2,028,261       2,006,838       6,247,220       6,195,827  
                                 
COST OF REVENUES:                                
Products     1,121,039       1,116,987       3,237,221       3,175,629  
Contract services     274,240       258,768       787,443       864,905  
                                 
Total Cost of Revenues     1,395,279       1,375,755       4,024,664       4,040,534  
                                 
GROSS PROFIT     632,982       631,083       2,222,556       2,155,293  
                                 
OPERATING EXPENSES:                                
Selling and marketing expenses     20,933       57,942       257,803       177,274  
Salaries, wages and related benefits     253,615       375,794       820,051       1,241,033  
Research and development     82,544       71,921       297,697       236,534  
Professional fees     135,261       118,818       536,284       364,450  
General and administrative expenses     188,760       242,380       653,008       738,909  
                                 
Total Operating Expenses     681,113       866,855       2,564,843       2,758,200  
                                 
LOSS FROM OPERATIONS     (48,131 )     (235,772 )     (342,287 )     (602,907 )
                                 
OTHER (EXPENSE) INCOME:                                
Interest expense     (20,124 )     (26,000 )     (54,038 )     (82,270 )
Loss on disposal of fixed assets     (122,050 )           (122,050 )      
Other income, net     65,575       50,870       166,867       228,649  
                                 
Total Other (Expense) Income     (76,599 )     24,870       (9,221 )     146,379  
                                 
NET LOSS   $ (124,730 )   $ (210,902 )   $ (351,508 )   $ (456,528 )
                                 
NET LOSS PER COMMON SHARE:                                
Basic   $ (0.04 )   $ (0.07 )   $ (0.12 )   $ (0.15 )
Diluted   $ (0.04 )   $ (0.07 )   $ (0.12 )   $ (0.15 )
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                                
Basic     3,062,759       3,020,062       3,051,826       3,006,837  
Diluted     3,062,759       3,020,062       3,051,826       3,006,837  
                                 

             
PEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
             
    September 30, 2017     December 31, 2016  
    (unaudited)        
ASSETS            
CURRENT ASSETS:                
Cash   $ 73,927     $ 189,128  
Accounts receivable, net     819,306       722,845  
Accounts receivable – related party     14,226       10,474  
Inventory     1,133,502       1,035,499  
Prepaid expenses and other current assets     42,314       75,080  
Total Current Assets     2,083,275       2,033,026  
                 
OTHER ASSETS:                
Property, plant and equipment, net     400,778       709,627  
Other assets     89,325       51,078  
Total Other Assets     490,103       760,705  
                 
Total Assets   $ 2,573,378     $ 2,793,731  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
CURRENT LIABILITIES:                
Bank revolving line of credit   $ 689,232     $ 979,688  
Current portion of notes payable     79,979       90,449  
Accounts payable     1,606,816       1,078,527  
Accounts payable – related parties     20,887       52,887  
Deferred revenue     70,180        
Accrued expenses     649,331       904,166  
                 
Total Current Liabilities     3,116,425       3,105,717  
                 
LONG-TERM LIABILITIES:                
Notes payable, net of current portion     227,397       266,110  
                 
Total Long-Term Liabilities     227,397       266,110  
                 
Total Liabilities     3,343,822       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; 1,648,708 and 1,367,431 issued and outstanding at September 30, 2017 and December 31, 2016, respectively     165       136  
Class B common stock: $0.0001 par value, 2,500,000 shares authorized; 1,420,176 and 1,402,104 issued and outstanding at September 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 September 30, 2017 and December 31, 2016, respectively           26  
Additional paid-in capital     5,480,924       5,321,769  
Accumulated deficit     (6,251,675 )     (5,900,167 )
                 
Total Stockholders’ Deficit     (770,444 )     (578,096 )
                 
Total Liabilities and Stockholders’ Deficit   $ 2,573,378     $ 2,793,731  
                 

       
PEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
       
    For the Nine Months Ended  
    September 30,  
    2017     2016  
    (unaudited)     (unaudited)  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (351,508 )   $ (456,528 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Change in inventory obsolescence reserve     50,390       34,184  
Bad debt expense           12,034  
Depreciation and amortization expense     97,646       136,598  
Amortization of deferred lease incentives     5,346       9,623  
Gain on sale of property and equipment, net     (527 )     (21,866 )
Gain on settlement of accounts payable           (33,511 )
Gain on settlement of accrued salary           (36,973 )
Loss on disposal of property and equipment     124,729        
Stock-based compensation     140,160       151,856  
Change in operating assets and liabilities:                
Accounts receivable     (96,461 )     452,113  
Accounts receivable – related party     (3,752 )     (28,352 )
Inventory     (148,393 )     (212,461 )
Prepaid expenses and other assets     (5,481 )     76,634  
Accounts payable     545,714       41,557  
Accounts payable – related parties     (32,000 )     14,823  
Accrued expenses     (112,462 )     70,420  
Deferred revenue     70,180       (21,692 )
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES     283,581       188,459  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Proceeds from sales of property and equipment     87,000       21,866  
Purchases of property, plant and equipment           (4,000 )
                 
NET CASH PROVIDED BY INVESTING ACTIVITIES     87,000       17,866  
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from bank lines of credit     4,964,067       5,193,000  
Repayment of bank lines of credit     (5,383,241 )     (5,522,951 )
Repayment of bank loans     (56,138 )     (55,785 )
Proceeds from sale of common stock           50,000  
Payment of issuance costs related to sale of common stock           (2,000 )
Repayment of loan to third party     (10,470 )     (4,394 )
                 
NET CASH USED IN FINANCING ACTIVITIES     (485,782 )     (342,130 )
                 
NET DECREASE IN CASH     (115,201 )     (135,805 )
                 
CASH, beginning of period     189,128       262,519  
                 
CASH, end of period   $ 73,927     $ 126,714  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                
Cash paid during the period for interest                
Interest   $ 55,554     $ 82,270  
Income taxes   $     $  
                 
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     $