Investor Webcast and Business Update Set for August 30, 1 pm ET
MIAMI, FL--(Marketwired - August 22, 2016) - 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 and six months ended June 30, 2016.
Scott Rickert, PEN's President, Chairman and CEO, said: "In the second quarter of 2016, we continued our efforts to build a consumer products business supported by innovative, environmentally-friendly products enabled by nanotechnology. We made tangible progress in our strategy to expand our CLARITY™ branded products into the mass market retail channel with a win from a well-recognized regional grocery chain, and the latest addition to the CLARITY™ product family, CLARITY™FREE alcohol-free eyeglass cleaner, has been well received by our optical customers. Our Design Center in Austin, Texas is seeing strong interest for our new inkjet multifunctional copper ink for 3D printed electronics and has begun selling graphene foils for use in medical imaging.
"Although revenue was slightly below year ago levels, gross margin remained healthy and we continued to cut costs and become more efficient, allowing for a meaningful reduction in net loss for the quarter. As we continue to execute on our business plan and further streamline our cost structure, I believe we can achieve the turnaround our entire team has worked so hard to complete."
Product Segment - Optical, Surface Treatments & Coatings and Related Products
Sales from PEN's Product segment for the second quarter of 2016 were $1,916,124, up 3% from $1,862,133 for the three months ended June 30, 2015, primarily due to increased sales of optical products resulting from customer education that occurred in the first quarter. For the six months ended June 30, 2016, Product segment sales were $3,609,550, down 16% from the first half of 2015, primarily attributable to a reduction in sales of the anti-fog products. Due to variability in the timing of purchases by large customers, the Company's revenue from the product segment can fluctuate significantly from quarter to quarter.
Gross margin in the Product segment in the second quarter of 2016 was 41%, compared to 42% in the year ago period, primarily due to differences in the assortment of optical products sold. In the first half of 2016, gross margin was 43%, compared to 42% in the year ago period. Product segment margins in the first half of 2016 increased despite the 16% decline in sales due primarily to cost cutting in manufacturing.
Nanotechnology R&D Contract Services Segment
Revenues from Research and development services for the second quarter of 2016 were $293,704, compared to $451,216 in the second quarter of 2015. In the first half of 2016, revenues from Research and development services were $579,439, compared to $1,081,643 in the year ago period. The decrease in revenue from Research and development services was primarily due to fewer research contracts in part attributable to the Company's decision not to seek government research contracts that include a cost share.
Gross margin from Research and development services in the second quarter of 2016 was 0%, compared to negative 1% in the year ago period. In the first half of 2016, gross margin from Research and development services was negative 4.6% compared to 10% in the year ago period. The increase in gross margins from the research development segment for the second quarter of 2016 as compared to the first half of 2016 was attributable to personnel reductions and to the shift away from cost share research contracts.
Second Quarter 2016 Financial Results
For the three months ended June 30, 2016, total revenues were $2,209,829 compared to revenues of $2,313,349 in the comparable period in 2015.
For the second quarter of 2016, overall gross profit amounted to $793,086, up from $779,083 for the second quarter of 2015. Gross margin was 36%, compared to 34% in the year ago period. The slight increase in gross margin was attributable to the higher proportion of revenue from the Product segment during the quarter.
Operating expenses totaled $1,009,816 in the second quarter of 2016, down 23% from $1,309,538 in the second quarter of 2015. The decrease was due to lower salaries, wages and related benefits, research and development expenses and professional fees, which were partially offset by increases in selling and marketing expenses and general and administrative expenses. The Company continues to look for ways to reduce costs even as it looks to expand sales and marketing efforts for the balance of 2016.
Operating loss was $216,729 in the second quarter of 2016, compared to an operating loss of $530,455 in the second quarter of 2015.
Other income was $93,332 in the second quarter of 2016, compared to other expense of $35,839 in the second quarter of 2015. The increase was primarily related to rental income for subleased office space in Austin along with several non-recurring items.
Net loss for the three months ended June 30, 2016 amounted to $125,692 or ($0.04) per basic and diluted share, as compared to a net loss of $582,578 or ($0.20) per basic and diluted share, for the three months ended June 30, 2015.
Basic and diluted earnings per share were based on 3,002,658 and 2,974,658 weighted average shares outstanding, respectively, for the three months ended June 30, 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.
Six Month Results
For the six months ended June 30, 2015, total revenues were $4,188,990 down 22% from revenues of $5,381,090 in the first half of 2015. Gross profit was $1,524,210 in the first half of 2016, down 21% from gross profit of $1,931,721 in the first half of 2015. Gross margin was 36%, unchanged from the first half of 2015. Net loss for first half of 2016 amounted to $245,627 or ($0.08) per basic and diluted share, as compared to net loss of $767,970, or ($0.26) per basic and diluted share, for the first half of 2015. Basic and diluted earnings per share were based on 3,000,152 and 2,971,283 weighted average shares outstanding, respectively, for the six months ended June 30, 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 June 30, 2016, PEN held cash and cash equivalents of $291,292 as compared to $262,519 at December 31, 2015. As of June 30, 2016, PEN had a working capital deficit of $944,175 compared to a working capital deficit of $889,657 at December 31, 2015.
During the first half of 2016, PEN generated cash flow from operations of $60,164, primarily due to an increase in accounts payable and a decrease in prepaid expenses, which were partially offset by the net loss for the period along with an increase in inventory ahead of anticipated sales in the remainder of 2016. The Company generated $21,866 in cash flow from investing activities in the first half of 2016, which was related to the sale of property and equipment in the Research and development services segment.
As of June 30, 2016, the Company had short-term debt of $1,315,982 compared to $1,363,128 as of December 31, 2015.
Recent Event
In July 2016, the Company issued 17,793 shares of Class A common stock at a price of $2.81 to a private investor for gross proceeds of $50,000. The Company also issued a warrant to purchase up to 712 shares of Class A common stock at an exercise price of $2.81 per share to the firm that assisted in placing the shares with that investor.
Commenting on the investment, Dr. Rickert noted, "We are gratified that an investor chose to make this commitment to our growth."
The entire Form 10Q and related financial statements are available at www.sec.gov or the company's website, www.penc.us.
Investor webcast and business update: Tuesday, August 30, 1 pm EDT
PEN will host an investor webcast on Tuesday, August 30 at 1 pm ET to discuss second quarter results, provide a business update and take questions from investors. Participants can register for the event at: http://event.on24.com/wcc/r/1249306/37D5981C87476B482E7801F45E9DD62E.
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 optical, 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 research and development 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, 2015, 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.
Financial Tables
| PEN INC. AND SUBSIDIARIES | |||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||
| June 30, 2016 | December 31, 2015 | ||||||||
| (Unaudited) | |||||||||
| ASSETS | |||||||||
| CURRENT ASSETS: | |||||||||
| Cash | $ | 291,212 | $ | 262,519 | |||||
| Accounts receivable, net | 1,096,800 | 1,100,352 | |||||||
| Accounts receivable - related party | 8,626 | 11,984 | |||||||
| Inventory | 1,355,662 | 1,083,385 | |||||||
| Prepaid expenses and other current assets | 112,662 | 194,950 | |||||||
| Total Current Assets | 2,864,962 | 2,653,190 | |||||||
| OTHER ASSETS: | |||||||||
| Property, plant and equipment, net | 807,102 | 897,358 | |||||||
| Other assets | 29,918 | 32,103 | |||||||
| Total Other Assets | 837,020 | 929,461 | |||||||
| TOTAL ASSETS | $ | 3,701,982 | $ | 3,582,651 | |||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||||
| CURRENT LIABILITIES: | |||||||||
| Bank revolving line of credit | $ | 1,228,601 | $ | 1,288,748 | |||||
| Current portion of notes payable | 87,380 | 74,380 | |||||||
| Accounts payable | 1,596,840 | 1,259,865 | |||||||
| Accounts payable - related parties | 40,829 | 27,064 | |||||||
| Accrued expenses | 805,485 | 871,098 | |||||||
| Deposit on stock purchase | 50,000 | - | |||||||
| Deferred revenue | - | 21,692 | |||||||
| Total Current Liabilities | 3,809,135 | 3,542,847 | |||||||
| LONG-TERM LIABILITIES: | |||||||||
| Notes payable, net of current portion | 311,188 | 312,139 | |||||||
| Total Long-term Liabilities | 311,188 | 312,139 | |||||||
| Total Liabilities | 4,120,323 | 3,854,986 | |||||||
| Commitments and Contingencies | |||||||||
| STOCKHOLDERS' EQUITY (DEFICIT): | |||||||||
| Preferred stock, $.0001 par value, 20,000,000 shares authorized; No shares issued and outstanding | - | - | |||||||
| Class A common stock: $.0001 par value, 7,200,000 shares authorized; 1,343,334 and 1,336,759 issued and outstanding at June 30, 2016 and December 31, 2015, respectively | 134 | 134 | |||||||
| Class B common stock: $.0001 par value, 2,500,000 shares authorized; 1,397,902 and 1,395,678 issued and outstanding at June 30, 2016 and December 31, 2015, respectively | 140 | 139 | |||||||
| Class Z common stock: $.0001 par value, 300,000 shares authorized; 262,631 and 262,631 issued and outstanding at June 30, 2016 and December 31, 2015, respectively | 26 | 26 | |||||||
| Additional paid-in capital | 5,171,151 | 5,071,532 | |||||||
| Accumulated deficit | (5,589,792 | ) | (5,344,166 | ) | |||||
| Total Stockholders' Deficit | (418,341 | ) | (272,335 | ) | |||||
| Total Liabilities and Stockholders' Deficit | $ | 3,701,982 | $ | 3,582,651 | |||||
| PEN INC. AND SUBSIDIARIES | ||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||
| REVENUES: | ||||||||||||||||||
| Products (including related party sales of $48,604 and $32,291 for the three months ended June 30, 2016 and 2015, respectively, and $96,296 and $77,118 for the six months ended June 30, 2016 and 2015, respectively) | $ | 1,916,124 | $ | 1,862,133 | $ | 3,609,550 | $ | 4,299,447 | ||||||||||
| Research and development services | 293,704 | 451,216 | 579,439 | 1,081,643 | ||||||||||||||
| Total Revenues | 2,209,828 | 2,313,349 | 4,188,989 | 5,381,090 | ||||||||||||||
| COST OF REVENUES: | ||||||||||||||||||
| Products | 1,123,716 | 1,078,428 | 2,058,642 | 2,485,147 | ||||||||||||||
| Research and development services | 293,026 | 455,838 | 606,137 | 964,222 | ||||||||||||||
| Total Cost of Revenues | 1,416,742 | 1,534,266 | 2,664,779 | 3,449,369 | ||||||||||||||
| GROSS PROFIT | 793,086 | 779,083 | 1,524,210 | 1,931,721 | ||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||
| Selling and marketing expenses | 71,963 | 48,902 | 119,332 | 131,111 | ||||||||||||||
| Salaries, wages and related benefits | 451,502 | 599,609 | 865,239 | 1,187,439 | ||||||||||||||
| Research and development | 78,850 | 250,353 | 164,613 | 445,555 | ||||||||||||||
| Professional fees | 139,274 | 163,499 | 245,632 | 344,051 | ||||||||||||||
| General and administrative expenses | 268,226 | 247,175 | 491,397 | 513,570 | ||||||||||||||
| Total Operating Expenses | 1,009,815 | 1,309,538 | 1,886,213 | 2,621,726 | ||||||||||||||
| LOSS FROM OPERATIONS | (216,728 | ) | (530,455 | ) | (362,002 | ) | (690,005 | ) | ||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||||
| Interest expenses | (28,136 | ) | (36,355 | ) | (56,270 | ) | (64,084 | ) | ||||||||||
| Other income, net | 121,469 | 516 | 177,779 | 7,347 | ||||||||||||||
| Total Other Income/(Expense) | 93,333 | (35,839 | ) | 121,509 | (56,737 | ) | ||||||||||||
| Loss before income taxes | (123,396 | ) | (566,294 | ) | (240,494 | ) | (746,742 | ) | ||||||||||
| Income tax expense | (2,295 | ) | (16,284 | ) | (5,132 | ) | (21,228 | ) | ||||||||||
| NET INCOME | $ | (125,691 | ) | $ | (582,578 | ) | $ | (245,626 | ) | $ | (767,970 | ) | ||||||
| LOSS PER COMMON SHARE: | ||||||||||||||||||
| Basic | $ | (0.04 | ) | $ | (0.20 | ) | $ | (0.08 | ) | $ | (0.26 | ) | ||||||
| Diluted | $ | (0.04 | ) | $ | (0.20 | ) | $ | (0.08 | ) | $ | (0.26 | ) | ||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||||
| Basic | 3,002,658 | 2,974,658 | 3,000,152 | 2,971,283 | ||||||||||||||
| Diluted | 3,002,658 | 2,974,658 | 3,000,152 | 2,971,283 | ||||||||||||||
| PEN INC. AND SUBSIDIARIES | |||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| For the Six Months Ended | |||||||||||
| June 30, | |||||||||||
| 2016 | 2015 | ||||||||||
| (Unaudited) | (Unaudited) | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net (loss) income | $ | (245,626 | ) | $ | (767,970 | ) | |||||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | |||||||||||
| Change in inventory obsolescence reserve | 24,108 | (6,650 | ) | ||||||||
| Depreciation and amortization expense | 94,256 | 127,167 | |||||||||
| Amortization of deferred lease incentives | 6,415 | (3,208 | ) | ||||||||
| Gain on sale of property and equipment | (21,866 | ) | - | ||||||||
| Gain on settlement of A/P | (33,511 | ) | - | ||||||||
| Gain on settlement of accrued salary | (36,973 | ) | - | ||||||||
| Stock-based compensation | 99,620 | 89,620 | |||||||||
| Change in operating assets and liabilities: | |||||||||||
| Accounts receivable | 3,552 | (317,446 | ) | ||||||||
| Accounts receivable related party | 3,358 | 28,266 | |||||||||
| Inventory | (296,385 | ) | 347,940 | ||||||||
| Prepaid expenses and other assets | 84,473 | (22,956 | ) | ||||||||
| Accounts payable | 421,725 | (240,543 | ) | ||||||||
| Account payable related party | 13,765 | - | |||||||||
| Accrued expenses | (35,055 | ) | (42,584 | ) | |||||||
| Deferred revenue | (21,692 | ) | 545 | ||||||||
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | 60,164 | (807,819 | ) | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Proceeds from sales of property and equipment | 21,866 | - | |||||||||
| Purchases of property and equipment | (4,000 | ) | (227,592 | ) | |||||||
| NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | 17,866 | (227,592 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Deposit on stock purchase | 50,000 | - | |||||||||
| Proceeds from bank line of credit | 3,361,000 | 4,257,500 | |||||||||
| Repayment of bank lines of credit | (3,421,147 | ) | (3,882,895 | ) | |||||||
| Proceeds from bank loan | - | 371,901 | |||||||||
| Repayment of bank loans | (37,190 | ) | (6,198 | ) | |||||||
| Repayment of loan to third party | (2,000 | ) | - | ||||||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (49,337 | ) | 740,308 | ||||||||
| NET (DECREASE) INCREASE IN CASH | 28,693 | (295,103 | ) | ||||||||
| CASH, beginning of year | 262,519 | 464,735 | |||||||||
| CASH, end of period | $ | 291,212 | $ | 169,632 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest | $ | 56,270 | $ | 64,010 | |||||||
| Income taxes | $ | 5,132 | $ | 4,944 | |||||||
| 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 | $ | 41,770 | |||||||