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