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Document and Entity Information

v2.4.0.8
Document and Entity Information
9 Months Ended
Sep. 30, 2014
Jul. 31, 2014
Document And Entity Information    
Entity Registrant Name PEN INC.  
Entity Central Index Key 0000891417  
Document Type 10-Q  
Document Period End Date Sep. 30, 2014  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   0
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2014  

Consolidated Balance Sheets

v2.4.0.8
Consolidated Balance Sheets (USD $)
Sep. 30, 2014
Dec. 31, 2013
CURRENT ASSETS:    
Cash $ 254,429 $ 100,367
Accounts receivable, net 1,089,697 1,524,303
Accounts receivable - related party 9,112 17,224
Inventory 1,255,890 1,484,456
Prepaid expenses and other current assets 426,588 107,718
Total Current Assets 3,035,716 3,234,068
OTHER ASSETS:    
Property and equipment, net 803,276 672,704
Intangible assets, net 2,387,198   
Other assets 37,197 73,504
Total Other Assets 3,227,671 746,208
TOTAL ASSETS 6,263,387 3,980,276
CURRENT LIABILITIES:    
Bank revolving line of credit    199,919
Current portion of bank term loan    60,000
Convertible notes payable, net 66,666   
Convertible notes payable - related parties, net 80,001   
Accounts payable 1,424,102 721,860
Accrued expenses 1,077,572 344,271
Income taxes payable 50,000   
Deferred revenue 120,871   
Total Current Liabilities 2,819,212 1,326,050
LONG-TERM LIABILITIES:    
Bank term loan, net of current portion    515,000
Other long-term liabilities    127,914
Total Long-term Liabilities    642,914
Total Liabilities 2,819,212 1,968,964
STOCKHOLDERS' EQUITY:    
Preferred stock, $.0001 par value, 20,000,000 shares authorized; No shares issued and outstanding      
Additional paid-in capital 4,454,735 3,083,413
Accumulated deficit (1,063,592) (1,104,665)
Total Stockholders' Equity 3,444,175 2,011,312
Total Liabilities and Stockholders' Equity 6,263,387 3,980,276
Class A Common Stock [Member]
   
STOCKHOLDERS' EQUITY:    
Common stock value 23,232 2,767
Class B Common Stock [Member]
   
STOCKHOLDERS' EQUITY:    
Common stock value 25,073 25,070
Class Z Commmon Stock [Member]
   
STOCKHOLDERS' EQUITY:    
Common stock value $ 4,727 $ 4,727

Consolidated Balance Sheets (Parenthetical)

v2.4.0.8
Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2014
Dec. 31, 2013
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, shares authorized 20,000,000 20,000,000
Preferred stock, shares issued      
Preferred stock, shares outstanding      
Class A Common Stock [Member]
   
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 1,300,000,000 1,300,000,000
Common stock, shares issued 232,316,856 27,670,187
Common stock, shares outstanding 232,316,856 27,670,187
Class B Common Stock [Member]
   
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 400,000,000 400,000,000
Common stock, shares issued 250,731,549 250,698,105
Common stock, shares outstanding 250,731,549 250,698,105
Class Z Commmon Stock [Member]
   
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 47,273,470 47,273,470
Common stock, shares outstanding 47,273,470 47,273,470

Consolidated Statements of Operations (Unaudited)

v2.4.0.8
Consolidated Statements of Operations (Unaudited) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
SALES:        
Third parties $ 1,913,911 $ 2,391,073 $ 7,446,232 $ 6,529,367
Related party 40,810 44,353 147,862 174,626
Total Sales 1,954,721 2,435,426 7,594,094 6,703,993
COST OF SALES 1,340,759 1,524,087 4,172,427 4,148,487
GROSS PROFIT 613,962 911,339 3,421,667 2,555,506
OPERATING EXPENSES:        
Selling and marketing expenses 42,033 57,878 186,062 201,108
Salaries, wages and contract labor 574,213 313,733 1,448,933 961,106
Research and development 131,371 267,135 426,740 727,021
Professional fees 249,503 81,998 568,225 272,511
General and administrative expenses 265,563 175,094 622,085 557,064
Total Operating Expenses 1,262,683 895,838 3,252,045 2,718,810
INCOME (LOSS) FROM OPERATIONS (648,721) 15,501 169,622 (163,304)
OTHER INCOME (EXPENSES):        
Interest income    6    35
Interest expense (1,806) (15,521) (19,230) (72,051)
Other income, net 12,124 30,813    37,678
Total Other Income/(Expense) 10,318 15,298 (19,230) (34,338)
Income (loss) before income taxes (638,403) 30,799 150,392 (197,642)
Income tax benefit (expense) 159,726    (55,901)   
NET INCOME (LOSS) (478,677) 30,799 94,491 (197,642)
Net (income) loss attributable to former non-controlling interest 29,790 (4,478) (53,418) 28,692
NET INCOME (LOSS) ATTRIBUTABLE TO PEN INC. $ (448,887) $ 26,321 $ 41,073 $ (168,950)
NET INCOME (LOSS) PER COMMON SHARE:        
Basic $ 0.00 $ 0.00 $ 0.00 $ 0.00
Diluted $ 0.00 $ 0.00 $ 0.00 $ 0.00
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:        
Basic 401,181,389 325,641,762 351,098,340 325,641,762
Diluted 401,181,389 325,641,762 351,098,340 325,641,762

Statements of Changes in Stockholders' Equity (Unaudited)

v2.4.0.8
Statements of Changes in Stockholders' Equity (Unaudited) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Balance     $ 2,011,312  
Shares deemed issued in reverse merger     1,235,282  
Common stock issued for services     89,320  
Accretion of Class A shares issuable based on market conditions     13,770  
Net income (478,677) 30,799 94,491 (197,642)
Balance 3,444,175   3,444,175  
Class A Common Stock [Member]
       
Balance     2,767  
Balance, shares     27,670,187  
Shares deemed issued in reverse merger     20,336  
Shares deemed issued in reverse merger, shares     203,363,059  
Common stock issued for services     129  
Common stock issued for services, shares     1,283,610  
Accretion of Class A shares issuable based on market conditions         
Balance 23,232   23,232  
Balance, shares 232,316,856   232,316,856  
Class B Common Stock [Member]
       
Balance     25,070  
Balance, shares     250,698,105  
Shares deemed issued in reverse merger         
Common stock issued for services     3  
Common stock issued for services, shares     33,444  
Accretion of Class A shares issuable based on market conditions         
Balance 25,073   25,073  
Balance, shares 250,731,549   250,731,549  
Class Z Commmon Stock [Member]
       
Balance     4,727  
Balance, shares     47,273,470  
Shares deemed issued in reverse merger         
Common stock issued for services         
Accretion of Class A shares issuable based on market conditions         
Balance 4,727   4,727  
Balance, shares 47,273,470   47,273,470  
Additional Paid-In Capital [Member]
       
Balance     3,083,413  
Shares deemed issued in reverse merger     1,214,946  
Common stock issued for services     89,188  
Accretion of Class A shares issuable based on market conditions     13,770  
Net income     53,418  
Balance 4,454,735   4,454,735  
Accumulated Deficit [Member]
       
Balance     (1,104,665)  
Shares deemed issued in reverse merger         
Common stock issued for services         
Accretion of Class A shares issuable based on market conditions         
Net income     41,073  
Balance $ (1,063,592)   $ (1,063,592)  

Consolidated Statements of Cash Flows (Unaudited)

v2.4.0.8
Consolidated Statements of Cash Flows (Unaudited) (USD $)
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income (loss) $ 94,491 $ (197,642)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Change in inventory obsolescence reserve 26,535 217,206
Change in value of equity credits    (160)
Depreciation and amortization expense 171,502 165,213
Amortization of deferred lease incentives (9,623) (9,623)
Stock based compensation 103,090   
Change in operating assets and liabilities:    
Accounts receivable 713,604 (640,927)
Accounts receivable related party 8,112 68,304
Inventory 202,031 (275,765)
Prepaid expenses and other assets (230,562) (137,359)
Accounts payable (179,688) 166,324
Accrued expenses 101,003 77,135
Income taxes payable 50,000   
Deferred revenue (25,596)   
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,024,899 (567,294)
CASH FLOWS FROM INVESTING ACTIVITIES    
Cash acquired in acquisition 48,121   
Purchases of property and equipment (144,039) (37,796)
NET CASH USED IN INVESTING ACTIVITIES (95,918) (37,796)
CASH FLOWS FROM FINANCING ACTIVITIES    
Repayment of bank line of credit, net (774,919)   
Repayment of bank loans    (740,084)
NET CASH USED IN FINANCING ACTIVITIES (774,919) (740,084)
NET INCREASE (DECREASE) IN CASH 154,062 (1,345,174)
CASH, beginning of year 100,367 1,540,581
CASH, end of period 254,429 195,407
Cash paid during the period for interest    
Interest 19,230 72,051
Income taxes      
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:    
Liabilities assumed in share exchange 1,689,070   
Less: assets acquired in share exchange 496,693   
Net liabilities assumed 1,192,377   
Fair value of shares exchanged 1,235,282   
Increase in intangible assets $ 2,427,659   

Organization and Basis of Presentation

v2.4.0.8
Organization and Basis of Presentation
9 Months Ended
Sep. 30, 2014
Accounting Policies [Abstract]  
Organization and Basis of Presentation

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

 

Organization

 

PEN Inc. (“we”, “us”, “our”, “PEN” or the “Company”), a Delaware company, develops and sells a portfolio of nano-layer coatings, nano-based cleaners, and nano-composite products based on its proprietary technology and is a global leader in nanotechnology research and development focused on generating revenues through performing research services.

 

Through our wholly owned subsidiary, Nanofilm Holding, Inc., and its subsidiary Nanofilm, Ltd., we develop, manufacture and sell products based on technology which permits the fabrication of oriented, ultra-thin films of organic or polymeric crystals, and also produces a line of personal lens cleaners and accessories. These products are marketed internationally primarily to customers in the eyeglass industry.

 

Through our wholly-owned subsidiary, Applied Nanotech, Inc., we primarily conduct research and development services for customers.

 

On August 27, 2014 (the “Effective Date”), Applied Nanotech Holdings, Inc., a Texas corporation (the “Applied Nanotech”), together with its wholly owned direct subsidiaries, PEN and NanoMerger Sub Inc., a Delaware corporation (“Merger Sub”), completed a combination (the “Combination”) with NanoHolding Inc. (“Nano”). The Combination included three parts: (i) a redomestication of Applied Nanotech from Texas to Delaware by way of Applied Nanotech’s merger into PEN, (ii) a subsequent merger of Nano into Merger Sub, with Merger Sub (n/k/a Nanofilm Holding Inc.) the surviving entity, and (iii) a subsequent exchange of 100% of Carl Zeiss, Inc.’s interest in Nanofilm Ltd., Nano’s wholly owned subsidiary (“Nanofilm”), for stock in PEN. Nanofilm is a company formed under the laws of the Ohio on June 14, 1995 as a limited liability company.

 

Immediately prior to the effective date, outstanding convertible notes of Applied Nanotech were converted into common stock, for which an aggregate of 32,379,288 shares of PEN Class A common stock were issued, and 11,164,620 shares of PEN Class A common stock were issued to directors of the Company in payment of accrued fees. PEN also issued 1,500,000 shares of Class A common stock in satisfaction of a note held by the former CFO of the Company. Accordingly, immediately prior the Effective Date, the Company had 203,363,059 PEN Class A shares outstanding.

 

On the Effective Date, the merger was accounted for as a reverse merger and recapitalization of Nano (See Note 3). On the Effective Date, the pre-merger shares of Nanoholdings, Inc. were exchanged for an aggregate of 27,670,187 shares of Class A common stock of PEN and 250,698,105 shares of Class B common stock of PEN. .Additionally, the Class Z member interests of Nanofilm (the non-controlling interests) were exchanged for 47,273,470 Class Z shares of PEN. The effect of these exchanges is reflected retroactively in the accompanying consolidated financial statements for all periods presented.

 

On the Effective Date, the merger was accounted for as a reverse merger and recapitalization of Nano (See Note 3).

 

Basis of Presentation

 

The Company’s consolidated financial statements include the financial statements of its wholly-owned subsidiaries, Applied Nanotech, Inc., EZ Diagnostix, Inc. (inactive), Nanofilm Holding Inc, and Nanofilm, Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

The consolidated financial statements for the three and nine month periods ended September 30, 2014 and 2013 have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments necessary to present fairly our financial position, results of operations, and cash flows as of September 30, 2014 and 2013, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. The consolidated balance sheet as of December 31, 2013, has been derived from the audited consolidated balance sheet of Nano as of that date.

 

The Company’s historical results of operations include an allocation of the net income (loss) of Nanofilm, Ltd. to the 14.5% non-controlling interest of Nanofilm, Ltd. up to the effective date of the merger when the holder of that non-controlling interest exchanged its membership interest for shares of PEN Inc. resulting in Nanofilm, Ltd. becoming a wholly-owned subsidiary of the Company. As a result of the exchange, the non-controlling interest is reflected retroactively for all periods presented in additional paid-in capital of the Company including $(28,692) and $53,418 for the nine months ended September 30, 2013 and 2014, respectively.

 

Certain information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with a reading of the audited consolidated financial statements and footnotes of Nano as of December 31, 2013 and 2012 and for the years ended December 31, 2013 and 2012 included in our July 2, 2014 Definitive Proxy Statement, as filed with the U.S. Securities and Exchange Commission Report on Form 8-K, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed with the U.S. Securities and Exchange Commission.

 

The results of operations for the three and nine month periods ended September 30, 2014, are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made in the prior period’s consolidated financial statements to conform to the current period’s presentation.

Summary of Significant Accounting Policies

v2.4.0.8
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2014
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates for the nine months ended September 30, 2014 and 2013 include the allowance for doubtful accounts on accounts receivable, the allowance for obsolete inventory, the useful life of property and equipment, assumptions used in assessing impairment of long-term assets, the fair value of assets acquired and liabilities assumed in the merger, estimates of income taxes, and the fair value of any equity transactions.

 

Fair value of financial instruments and fair value measurements

 

The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 

Level 2-Inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, loans and lines of credit, accounts payable, accrued expenses, and other payables approximate their fair market value based on the short-term maturity of these instruments.

 

The Company analyzes all financial instruments with features of both liabilities and equity under the FASB’s accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

    Stock Appreciation Rights Plan A     Equity Credits Issued  
Balance at December 31, 2013   $ 58,999     $ 25,079  
Equity credits forfeited     -       -  
Balance at September 30, 2014   $ 58,999     $ 25,079  

 

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

 

Cash and cash equivalents

 

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents.

 

Accounts receivable

 

The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated with the allowance for doubtful accounts is recognized as general and administrative expense. At September 30, 2014 and December 31, 2013, outstanding accounts receivable are shown net of allowance for doubtful accounts of $15,891 and $16,017, and sales discount reserve of $7,307 and $10,555, respectively.

 

Inventory

 

Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method.

 

Intangible assets

 

Intangible assets, consisting of patents, patent pending technologies and other technologies being amortized on a straight-line method over the estimated useful life of 5 years.

 

Impairment of long-lived assets

 

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the three and nine months ended September 30, 2014 and 2013.

 

Revenue recognition

 

Pursuant to the guidance of ASC Topic 605, the Company recognizes sales when persuasive evidence of an arrangement exists, delivery has occurred or services have been provided, the purchase price is fixed or determinable and collectability is reasonably assured.

 

Types of revenue:

 

  Net product sales by our subsidiary Nano,
     
  Reimbursements under agreements to perform research and development for government agencies and others by our subsidiary, Applied Nanotech We do not perform research contracts that are contingent upon successful results. Larger projects are sometimes broken down in phases to allow the customer to determine at the end of each phase if they wish to move to the next phase. The agreements with federal government agencies generally provide that, upon completion of a technology development program, the funding agency is granted a royalty-free license to use any technology developed during the course of the program for its own purposes, but not any preexisting technology that we use in connection with the program. We retain all other rights to use, develop, and commercialize the technology. Agreements with nongovernmental entities generally allow the entity the first opportunity to license the technology from us upon completion of the project.
     
  Product sales and other miscellaneous revenues from our subsidiary, Applied Nano such as the sale of conductive inks and thermal management materials.

 

Revenue Recognition Criteria

 

  Net product sales by our subsidiary Nano, are recognized when the product is shipped to the customer and title is transferred.
     
  Revenue from research and development government contracts is recognized when it is earned pursuant to the terms of the contract. Long-term projects grants that usually range from $500,000 to $1,000,000 in total and usually extend for a period of approximately two years, are generally based on reimbursement of costs. These projects are usually billed monthly based on costs, hours, or some other measure of activity during the month. As a general rule, we recognize revenue on these contracts based on the activity level of the contract during the period as compared with total estimated activity. This generally would be a measure of proportional performance on the contract, such as cost incurred compared with total expected cost. The recognition of revenue may not correspond with the billings allowable under the contract. To the extent that billings exceed revenue earned, a portion of the revenue is deferred until such time as it is earned. Short-term project grants that usually are less than $100,000 and usually extend for a period of approximately 6 months, are billed at periodic intervals as specified in the contract.
     
  Revenue from research and development non-governmental contracts is recognized when it is earned pursuant to the terms of the contract. Each contract is unique and tailored to the needs of the customer and goals of the project. Some contracts may call for a monthly payment for a fixed period of time. Other contracts may be for a fixed dollar amount with an unspecified time period, although there is frequently a targeted completion date. These contracts generally involve some sort of up-front payment. Some contracts may call for the delivery of samples, or may call for the transfer of equipment or other items developed during the project to the customer. As a general rule, we recognize revenue on long term contracts based on the activity level of the contract during the period as compared with total estimated activity. This generally would be a measure of proportional performance on the contract, such as cost incurred compared with total expected cost. However, to the extent there are other significant contract provisions such as the delivery of more than a nominal amount of samples or delivery of equipment, we would modify this as appropriate. For other short term contracts, generally less than $50,000, we recognize revenue when it is billed under the terms of the contract.
     
  Revenue from other product sales is recognized at the time the product shipped. The Company’s subsidiary Applied Nanotech’s primary business is research and development and the licensing of its technology, not the sale of products. Product sales are generally insignificant in number, and are generally limited to the sale of conductive inks, thermal management materials, samples, proofs of concepts, prototypes, or other items resulting from its research.
     
  Other miscellaneous revenue is recognized as deemed appropriate given the facts of the situation and is generally not material.

 

Sales incentives and consideration paid to customers

 

The Company accounts for certain promotional costs such as sales incentives and cooperative advertising as a reduction of sales. For the three and nine months ended September 30, 2014 and 2013, the Company recorded approximately $30,030 and $32,954, and $95,538 and $102,977, respectively, as a reduction of sales related to these costs.

 

Cost of sales

 

Cost of sales includes inventory costs, labor and related benefits, depreciation, overhead and shipping and handling costs incurred.

  

Shipping and handling costs

 

Shipping and handling costs incurred relating to the purchase of inventory are included in inventory which is charged to cost of sales as product are sold. Shipping and handling costs charged to customers are included in sales. For the three months ended September 30, 2014 and 2013 and for the nine months ended September 30, 2014 and 2013, shipping and handling costs incurred for product shipped to customers are included in cost of sales and amounted to $42,047 and $61,488, and $151,955 and $187,176, respectively.

 

Research and development

 

Research and development costs incurred in the development of the Company’s products and under other Company sponsored research and development projects are expensed as incurred. Costs such as direct labor, direct costs, and other allocated costs incurred to perform research and development service pursuant to government and private research projects are in included in cost of sales. For the three months ended September 30, 2014 and 2013 and for the nine months ended September 30, 2014 and 2013, research and development costs incurred in the development of the Company’s products were $131,371 and $267,135, and $426,740 and $727,021, respectively, and are included in operating expenses on the accompanying consolidated statements of operations.

 

Advertising costs

 

The Company participates in various advertising programs. All costs related to advertising of the Company’s products are expensed in the period incurred. For the three months ended September 30, 2014 and 2013 and for the nine months ended September 30, 2014 and 2013, advertising costs charged to operations were $23,360 and $29,936, and $115,474 and $139,946, respectively and are included in sales and marketing on the consolidated accompanying statements of operations. These advertising expenses do not in include cooperative advertising sales incentives and which have been deducted from sales.

 

Federal and state income taxes

 

The Company accounts for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

 

Prior to the February 24, 2014, the Company’s subsidiary, Nanofilm, operated as a limited liability company and passed all income and loss to each member based on their proportionate interest in Nanofilm. After February 24, 2014, the date on which Nanofilm reorganized by creating a corporation parent, Nanoholding Inc., approximately 85.5% of the net income (loss) of Nanofilm, was passed through to the majority member, Nanoholding Inc. After the effective date of the merger, 100% of the net income (loss) of Nanofilm is passed through to the Company.

 

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of Accounting Standards Codification (ASC) 740 Income Taxes. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of September 30, 2014 and December 31, 2013 and, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. Tax years that remain subject to examination are the years ending on and after December 31, 2010. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of September 30, 2014.

 

Income (loss) per share of common stock

 

ASC 260 “Earnings Per Share”, requires dual presentation of basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. As of September 30, 2014, potential non-contingent dilutive common shares consist of common stock options (using the treasury stock method). As of September 30, 2014, 6,800,000 contingently common shares issuable based on certain market conditions (see Note 8) are not included in the potential dilutive shares in calculating the diluted EPS.

 

The following table presents a reconciliation of basic and diluted net income (loss) per common share:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
Net income (loss) attributable to common shareholders for basic and diluted net income (loss) per common share   $ (448,887 )   $ 26,321     $ 41,073     $ (168,950 )
Weighted average ordinary shares outstanding - basic     401,181,389       325,641,762       351,098,340       325,642,762  
Effect of dilutive securities:                                
Stock options     -       -       -       -  
Weighted average ordinary shares outstanding - diluted     401,181,389       325,641,762       351,098,340       325,642,762  
Net income per ordinary share - basic   $ 0.00     $ 0.00     $ 0.00     $ 0.00  
Net income per ordinary share - diluted   $ 0.00     $ 0.00     $ 0.00     $ 0.00  

 

The Company’s aggregate common stock equivalents at September 30, 2014 and 2013 include the following:

 

    September 30, 2014     September 30, 2013  
Stock options     5,525,825       -  
Total     5,525,825       -  

 

Segment reporting

 

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chairman and chief executive officer (“CEO”) of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company classified the reportable operating segments into (i) the development, manufacture and sale of personal lens cleaners and accessories and ultra-thin films of organic or polymeric crystals (the “Nanofilm Segment”) and (ii) the performance of nanotechnology research and development services for government and private entities and any related sales of related products.

Acquisition

v2.4.0.8
Acquisition
9 Months Ended
Sep. 30, 2014
Business Combinations [Abstract]  
Acquisition

NOTE 3 – ACQUISITION

 

Effective August 27, 2014, pursuant to the reverse merger and recapitalization as discussed in Note 1, the Company and Nano merged. Both Nano and Applied Nanotech were interested in the Combination because of the opportunity to commercialize new products enabled by nanotechnology. The fact that Applied Nanotech was public will facilitate access to growth capital. The strong intellectual property portfolio of Applied Nanotech, combined with the experience of the Nano team, is to be the platform for the Company to expand its product offerings and commercialize the acquired technologies.

 

On the Effective Date, the merger was accounted for as a reverse merger and recapitalization of Nano using the acquisition method in accordance with ASC 805-10 and related subsections since the shareholders of Nano and its subsidiary, the legal acquiree, owned 61.6% of the aggregate outstanding common shares of PEN immediately following the completion of the merger, had its current officers assume all corporate and day-to-day management offices of PEN including chief executive officer and chief financial officer, and board members of Nano control a majority of the board after the Combination. Accordingly, Nano was deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a reverse merger with Nano as the acquiring company. Accordingly, the assets and liabilities and the historical operations that will be reflected in the PEN consolidated financial statements after the Effective Date are those of Nano and Subsidiary and are recorded at the historical cost basis of Nano. Applied Nanotech’s assets and liabilities are recorded at their fair values as of the effective date and the results of operations of Applied Nanotech are consolidated with results of operations of Nano starting on the Effective Date.

 

To determine the fair value of the consideration given to acquire Applied Nanotech, the accounting acquiree, the Company analyzed the fair value of Nano, the accounting acquirer. Accordingly, the acquisition-date fair value of the consideration transferred by the Nano for its interest in Applied Nanotech was based on the number of equity interests that Nano issued to give the owners of Applied Nanotech the same percentage equity interest in the combined entity that resulted from the reverse merger. The Company used the fair value of Nano since it was determined to be a better indicator of the fair value of the consideration given to acquire Applied Nanotech.

 

In connection with the acquisition, the fair value of equity consideration given to acquire Applied Nanotech was $1,235,282 and is reflected as 203,363,059 Class A common shares deemed issued to the pre-merger shareholders of Applied Nanotech and replacement options to purchase 5,525,825 Class A common shares of PEN. The purchase price exceeded the fair value of net liabilities acquired by $2,427,659. The Company applied the $2,427,659 of the excess to intangible assets consisting and patents, patents pending and other technologies, which will be amortized over a 60-month period. The results of operations of Applied Nanotech are included in the consolidated results of operations of the Company from the Effective Date of August 27, 2014 to September 30, 2014.

 

In connection with the Combination, for the nine months ended September 30, 2014, the Company incurred acquisition related costs of approximately $235,000 which, pursuant to ASC 805, are expensed and included in professional fees on the accompanying consolidated statement of operations.

 

In connection with the merger, the Company entered into an at will employment agreement with the former CEO of Applied Nanotech, The Company determined that the consideration under this employment agreement did not quality as additional purchase consideration

 

The fair value of the assets acquired and liabilities assumed from Applied Nanotech are as follows:

 

    At August 27, 2014  
Assets acquired:        
Cash   $ 48,121  
Accounts receivable     278,997  
Prepaid expenses     34,383  
Property and equipment     117,574  
Intangible assets     2,427,659  
Other     17,618  
Total assets     2,924,352  
Liabilities assumed:        
Accounts payable     881,930  
Convertible notes payable, net     146,667  
Accrued expenses and other current liabilities     514,006  
Deferred revenue     146,467  
Total liabilities     1,689,070  
         
Purchase price   $ 1,235,282  

 

The estimates of fair values and the purchase price allocation is subject to change pending the finalization of the valuation of assets acquired and liabilities assumed.

 

The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Applied Nanotech had occurred as of the beginning of the following periods:

 

    Nine Months Ended September 30, 2014     Nine Months Ended September 30, 2013  
Net Revenues   $ 9,523,149     $ 9,894,689  
Net Loss   $ (2,157,791 )   $ (2,613,950 )
Net Loss per Share   $ (0.01 )   $ (0.01 )

 

Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and is not intended to be a projection of future results.

Inventory

v2.4.0.8
Inventory
9 Months Ended
Sep. 30, 2014
Inventory Disclosure [Abstract]  
Inventory

NOTE 4 – INVENTORY

 

At September 30, 2014 and December 31, 2013, inventory consisted of the following:

 

    September 30, 2014     December 31, 2013  
Raw materials   $ 939,478     $ 1,055,667  
Finished goods     610,620       696,461  
      1,550,098       1,752,128  
Less: reserve for obsolete inventory     (294,208 )     (267,672 )
Inventory, net   $ 1,255,890     $ 1,484,456  

Bank Loans and Lines of Revolving Credit Facility

v2.4.0.8
Bank Loans and Lines of Revolving Credit Facility
9 Months Ended
Sep. 30, 2014
Debt Disclosure [Abstract]  
Bank Loans and Lines of Revolving Credit Facility

NOTE 5 – BANK LOANS AND LINES OF REVOLVING CREDIT FACILITY

 

In April 2014, Nanofilm entered into a $1,500,000 revolving credit line agreement (the “Revolving Note”) with Mackinac Commercial Credit, LLC. (the “Lender”). The unpaid principal balance of this Revolving Note is payable on demand, is secured by all of Nanofilm’s assets, and bears interest computed at a rate of interest (the “Effective Rate”) which is equal to 7.0% above the LIBOR Rate, as defined, payable monthly. Nanofilm shall pay to Lender a late charge of 5.0% of any monthly payment not received by Lender within 10 calendar days after said payment is due. The Company, at any time or from time to time upon three business days’ written notice to Lender, prepay the Note in whole provided that (i) if Borrower prepays the Revolving Note in full and terminates the Revolving Note after the date hereof, or (ii) Lender, after the date hereof, terminates the Revolving Note after default, then Borrower shall pay, in addition to all other amounts due to Lender and/or paid by the Company, a termination premium equal to 2.0% of the maximum loan amount. Nanofilm used $988,000 of proceeds of the Revolving Note to payoff certain other indebtedness of the Company to Fifth Third Bank. Without the Lender’s consent, so long as the obligation remains outstanding, in addition to other covenants as defined in the Revolving Note, Nanofilm shall not a) merge or consolidate with any other company, except for the Combination and shall not suffer a change of control; b) make an capital expenditures, as defined, materially affecting the business; c) declare of pay cash dividends upon any of its stock, or distribute any of its property, make any loans, make investments, redeem, retire or acquire any of its stock, d) become liable for the indebtedness of anyone else, as defined, and e) incur indebtedness, other than trade payables.

 

At September 30, 2014, the Company had $0 in borrowings outstanding under the Revolving Note with $1,500,000 available for borrowing under such note. The weighted average interest rate during the period was approximately 6.8%.

Convertible Notes Payable

v2.4.0.8
Convertible Notes Payable
9 Months Ended
Sep. 30, 2014
Debt Disclosure [Abstract]  
Convertible Notes Payable

NOTE 6 – CONVERTIBLE NOTES PAYABLE

 

In connection with the reverse merger, the Company assumed certain 8% convertible notes payable dated from April 2014 to August 2014, with an aggregate principal amount of $50,000, which are due on July 15, 2015. These Notes will automatically convert into shares of Class A Common Stock of PEN Inc. on the later of (i) the day 180 days after the Note dates which range from April to August 2014, (ii) the day 60 days after the closing under the Merger & Exchange Agreement which closed effective August 27, 2014, or (iii) October 15, 2014. Principal and accrued interest will be converted into shares using a conversion price equal to 75% of the average closing price of the Company’s Class A Common Stock for the twenty trading days immediately preceding the conversion date.

 

Pursuant to ASC Topic 470-20-525 (Debt with conversion and other options), since these convertible notes had fixed conversion percentages of 75% of the stock price, the Company determined it had a fixed maximum amounts that can be settled for the debt. Accordingly, the Company accrued a put premium amount aggregating $16,666 since these convertible notes are convertible for the conversion premium. At September 30, 2014, principal amount due under these convertible notes amounted to $50,000.

 

At September 30, 2014 and December 31, 2013, aggregate convertible notes payable consisted of the following:

 

    September 30,2014     December 31,2013  
Convertible notes payable   $ 50,000     $ -  
Put premium     16,666       -  
Total   $ 66,666     $ -  

Related Party Transactions

v2.4.0.8
Related Party Transactions
9 Months Ended
Sep. 30, 2014
Related Party Transactions [Abstract]  
Related Party Transactions

NOTE 7 – RELATED PARTY TRANSACTIONS

 

Sales to related party

 

During the three and nine months ended September 30, 2014 and 2013, the Company engaged in certain sales transactions with a company which is a beneficial shareholder and related to a director of the Company. These transactions were conducted during the normal course of the Company’s business on terms consistent with similar transactions with unrelated parties. Sales to the related party totaled $40,810 and $44,353 for the three months ended September 30, 2014 and 2013, respectively. Sales to the related party totaled $147,862 and $174,626 for the nine months ended September 30, 2014 and 2013, respectively. Accounts receivable from the related party totaled $9,112 and $17,224 at September 30, 2014 and December 31, 2013, respectively.

 

Convertible notes payable – related parties

 

In connection with the reverse merger, the Company assumed certain 8% convertible notes payable from related parties dated from April 2014 to August 2014, with an aggregate principal amount of $60,000, which are due on the Note dates which range from April to May 2014. These Notes will automatically convert into shares of Class A Common Stock of PEN Inc. on the later of (i) the day 180 days after the Note dates which range from April to August 2014, (ii) the day 60 days after the closing under the Merger & Exchange Agreement which closed effective August 27, 2014, or (iii) October 15, 2014. Principal and accrued interest will be converted into shares using a conversion price equal to 75% of the average closing price of the Company’s Class A Common Stock for the twenty trading days immediately preceding the conversion date.

 

Pursuant to ASC Topic 470-20-525 (Debt with conversion and other options), since these convertible notes had fixed conversion percentages of 75% of the stock price, the Company determined it had a fixed maximum amounts that can be settled for the debt. Accordingly, the Company accrued a put premium amount aggregating $20,001 since these convertible notes are convertible for the conversion premium. At September 30, 2014, principal amount due under these convertible notes amounted to $60,000.

 

At September 30, 2014 and December 31, 2013, aggregate convertible notes payable to related parties consisted of the following:

 

    September 30,2014     December 31,2013  
Convertible notes payable – related parties   $ 60,000     $ -  
Put premium     20,001       -  
Total   $ 80,001     $ -  

 

Other

 

A board member is a principal in an investment advisory firm which the Company paid approximately $107,000 and $197,000 in fees and expenses during the three and nine months ended September 30, 2014.

Stockholders' Equity

v2.4.0.8
Stockholders' Equity
9 Months Ended
Sep. 30, 2014
Equity [Abstract]  
Stockholders' Equity

NOTE 8 – STOCKHOLDERS’ EQUITY

 

Description of Preferred and Common Stock

 

The Company is authorized to issue up to a total of 1,820,000,000 shares of capital stock, consisting of 20,000,000 shares of Preferred Stock, par value $0.0001 per share (“preferred stock”), 1,300,000,000 shares of Class A Common Stock, par value $0.0001 per share (“Class A common stock”), 400,000,000 shares of Class B Common Stock, par value $0.0001 per share (“Class B common stock”), and 100,000,000 shares of Class Z Common Stock, par value $0.0001 per share (“Class Z common stock”).

 

Preferred Stock

 

The preferred stock may be issued in one or more series. The Company’s board of directors are authorized to issue the shares of preferred stock in such series and to fix from time to time before issuance thereof the number of shares to be included in any such series and the designation, powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of such series.

 

Common Stock – General

 

The rights of each share of Class A common stock, each share of Class B common stock and each share of Class Z common stock are the same with respect to dividends, distributions and rights upon liquidation.

 

Class A Common Stock

 

Holders of the Class A common stock are entitled to one vote per share in the election of directors and other matters submitted to a vote of the stockholders.

 

Class B Common Stock

 

Conversion Rights. Shares of Class B common stock can be converted, one-for-one, into shares of Class A common stock at any time at the option of the holder. Shares of Class B common stock will automatically be converted into shares of Class A common stock if the shares of Class B common stock are not owned by the Company’s chief executive officer, his spouse, or their descendants and their spouses, or by entities or trusts wholly-owned by them.

 

Voting Rights Holders of PEN Class B common stock are entitled to 100 votes per share in the election of directors and other matters submitted to a vote of the stockholders.

 

Class Z Common Stock

 

Conversion Rights. Shares of Class Z common stock can be converted, one-for-one, into shares of Class A common stock at any time at the option of the holder. Shares of Class Z common stock will automatically be converted into shares of Class A common stock if the shares of Class Z common stock are not owned by Zeiss or an entity wholly owned by the ultimate parent of Zeiss. In addition, if Zeiss and other permitted holders of shares of Class Z common stock sell or convert more than one-half of the shares of Class Z common stock that are received in the Combination, all shares of Class Z common stock will automatically convert into Class A common stock.

 

Voting Rights. Holders of PEN Class Z common stock do not vote in the election of directors or otherwise, but they do have the right to designate a director to the PEN Board, have anti-dilution rights described below and have consent rights with respect to certain amendments to PEN’s certificate of incorporation.

 

Other Rights. The Class Z common stock has anti-dilutive rights that, subject to limited exceptions, permit holders of Class Z common stock to purchase additional shares or equity rights issued by PEN (on the same terms as made available to third parties by PEN) to maintain their economic ownership percentage. The holders of Class Z common stock are also entitled to receive a copy of any notice sent to the holders of Class A common stock or Class B common stock, as and when the notice is sent to such holders.

 

Issuances of Common Stock

 

On the Effective Date, the pre-merger shares of Nanoholdings, Inc. were exchanged for an aggregate of 27,670,187 shares of Class A common stock of PEN and 250,698,105 shares of Class B common stock of PEN. Additionally, the Class Z member interests of Nanofilm (the non-controlling interests) were exchanged for 47,273,470 Class Z shares of PEN. The effect of these exchanges is reflected retroactively in the accompanying consolidated financial statements for all periods presented.

 

Immediately prior to the Effective Date, outstanding convertible notes of Applied Nanotech were converted into common stock, for which an aggregate of 32,379,288 shares of PEN Class A common stock were issued, and 11,164,620 shares of PEN Class A common stock were issued to directors of the Company in payment of accrued fees. PEN also issued 1,500,000 shares of Class A common stock in satisfaction of a note held by the former CFO of the Company. Accordingly, immediately prior the Effective Date, the Company had 203,363,059 PEN Class A shares outstanding. These 203,363,509 Class A common shares are reflected as shares deemed issued as merger consideration in the accompanying consolidated financial statements.

 

On September 1, 2014, the Company issued 1,200,000 shares of Class A common stock to the former chief financial officer of Applied Nanotech pursuant to a Stock Grant Agreement dated in February 2014. These shares were valued on the measurement date of September 1, 2014 of $0.0686 per shares for a total value of $82,320. For the three and nine months ended September 30, 2014, in connection with the issuance of these shares, the Company recorded stock- based compensation of $82,320 and $82,320, respectively.

 

On September 24, 2014, the Company issued 83,610 shares of Class A common stock and 33,444 shares of Class B common stock to directors for services rendered. These shares are valued were valued on the date of grant of September 24 2014 of $0.0598 per shares for a total value of $7,000. .For the three and nine months ended September 30, 2014, in connection with the issuance of these shares, the Company recorded stock- based compensation of $7,000 and $7,000, respectively.

 

Contingently issuable Class A common shares

 

On August 27, 2014, the Company entered into a Restricted Stock Agreement with Dr. Zvi Yaniv, the former Chief Operating Officer and President, of Applied Nanotech, and a current employee of the Company granting Dr. Yaniv 6,800,000 shares of Class A common stock, subject to forfeiture. All these shares become vested and not subject to forfeiture on the earlier of a change of control of us, Dr. Yaniv’s death, or if more than 180 days after closing, the average trading price of the shares during a measurement period of ten consecutive trading days reaches certain price thresholds. At a $0.10 price, one million of the shares vest, with additional tranches of one million shares vesting if the price reaches $0.15, $0.20, $0.25 and $0.30. The last 1.8 million shares vest at a $0.35 price threshold. Any shares that have not vested five years after the Effective Date will be forfeited. We also entered into a Piggyback Registration Rights Agreement that will allow Dr. Yaniv, subject to other customary terms and conditions, to register shares that are no longer subject to forfeiture if we are registering our shares. Pursuant to ASC 718-10 and related subsections, these shares were valued on the date of grant of August 27, 2014 at $0.0729 per shares for a total value of $492,720. The Company estimates the fair value of the awards with market conditions using a Binomial simulation, which utilizes several assumptions including the risk-free interest rate, the volatility of the Company’s stock and the exercise behavior of award recipients. The grant-date fair value of $492,720 of the awards will be recognized over the requisite service period of 3 years, which represents the derived service period for the stock grant as determined by the Binomial simulation. For the three and nine months ended September 30, 2014, in connection with the amortization of the fair value of this stock grant, the Company recorded stock- based compensation of $13,770 and $13,770, respectively.

 

In connection with a Stock Grant Agreement with the former chief financial officer of Applied Nanotech dated in February 18, 2014, the Company shall issue 1,200,000 shares of Class A common stock on or around February 27, 2015 and 889,580 shares on January 31, 2015. These shares were valued on the date of grant of February 18, 2014 at $0.059 per shares for a total value of $123,285 which is included in accrued expenses on the accompanying consolidated balance sheet.

Concentrations

v2.4.0.8
Concentrations
9 Months Ended
Sep. 30, 2014
Risks and Uncertainties [Abstract]  
Concentrations

NOTE 9 – CONCENTRATIONS

 

Concentrations of credit risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable and cash deposits and investments in cash equivalent instruments.

 

The Company places its cash in banks at levels that, at times, may exceed federally insured limits. There were no balances in excess of FDIC insured levels as of September 30, 2014 and December 31, 2013. The Company has not experienced any losses in such accounts through June 30, 2014.

 

Customer concentrations

 

Customer concentrations for the three and nine months ended September 30, 2014 and 2013 are as follows:

 

    Sales  
    For the three months ended
September 30,
    For the nine months ended September 30,  
    2014     2013     2014     2013  
Customer A     28 %     28 %     24 %     31 %
Customer B     0 %     22 %     23 %     12 %
Customer C     10 %     9 %     11 %     13 %
Total     38 %     59 %     58 %     56 %

 

    Accounts Receivable  
    As of     As of  
    September 30, 2014     December 31, 2013  
Customer A     53 %     35 %
Customer B     13 %     32 %
Customer C     11 %     8 %
Total     77 %     75 %

 

A reduction in sales from or loss of such customers would have a material adverse effect on our consolidated results of operations and financial condition.

 

Geographic concentrations of sales

 

For the nine months ended September 30, 2014 and 2013, total sales in the United States represent 89% and 85% of total sales, respectively. No other geographical area accounting for more than 10% of total sales during the nine months ended September 30, 2014 and 2013.

 

Vendor concentrations

 

For the nine months ended September 30, 2014, the Company purchased 51% of its inventory from four suppliers (24%, 9%, 9% and 9%, respectively). For the nine months ended September 30, 2013, the Company purchased 34% of its inventory from two suppliers (24% and 10%, respectively).

Equity Credits

v2.4.0.8
Equity Credits
9 Months Ended
Sep. 30, 2014
Equity Credits  
Equity Credits

NOTE 10 – EQUITY CREDITS

 

During 1997, Nano established The Equity Credit Incentive Program. This program enables select employees the opportunity to purchase equity credits that increase in value based upon an increase in Nano’s revenue over a base year of 1996. Eligible credits can be redeemed after two years at the equity credit value for that year. Under certain circumstances, the equity credits are convertible into Nano equity on a one-for-one basis.

 

The maximum number of credits available for issuance is 385,000. In the nine months ended September 30, 2014, no equity credits were forfeited and no units were redeemed. As of September 30, 2014, 77,700 equity credits were issued and outstanding with an approximate value of $0.3228 per credit and, as of December 31, 2013, 77,700 equity credits were issued and outstanding with an approximate value of $0.3228 per credit. A long-term employee receivable of $0 and $35,880 is included in other assets at September 30, 2014 and December 31, 2013, respectively. The receivable relates to the purchases of 44,250 and 99,000 equity credits in 2009 and 2008, respectively, whereby participants are guaranteed no less than their purchase price of $0.3206 and $0.2817 per credit, respectively, a portion of which were forfeited during 2012 and 2011. In August 2014, the remaining $13,705 receivable was collected from the employees. At September 30, 2014 and December 31, 2013, $25,079 and $25,079 respectively, was accrued representing the redemption value associated with the equity credits outstanding for both years. For the nine months ended September 30, 2014 and 2013, a gain (loss) from the change in value of the equity credits was $0 and $(167), respectively, and is included in operating expenses on the accompanying statements of operations. Under the terms of the Plan, due to the August 2014 merger, the Company has 6 months from the Effective Date in which to allow the equity credit participants the option to convert the equity credits into Class A common shares of Pen Inc.

Stock Appreciation Plan

v2.4.0.8
Stock Appreciation Plan
9 Months Ended
Sep. 30, 2014
Stock Appreciation Plan  
Stock Appreciation Plan

NOTE 11 – STOCK APPRECIATION PLAN

 

From June 1, 1988, until December 31, 1997, when the plan was terminated, Nanofilm had in place a Stock Appreciation Rights Plan A (the “Plan”), intended to provide employees, directors, members of a technical advisory board and certain independent contractors selected by the Board with equity-like participation in the growth of Nanofilm. The maximum number of stock appreciation rights that could be granted by the Board was 1,000,000.

 

There were 235,782 fully vested stock appreciation rights (“SARS”) outstanding under the terms of the Plan at September 30, 2014 and December 31, 2013. The SARS unit value is based on the book value of the Company as of the last fiscal year end multiplied by a SARS multiplier stipulated in the SARS plan. However, in the event of an initial public offering (“IPO”) of Nano, the SARS are redeemable based on a value equal to offering price of the stock in an IPO times the total outstanding shares of the Company just subsequent to the completion of the IPO, multiplied by the SARS multiplier. The SARS multiplier is to be adjusted, as the Board determines, to reflect changes in the capitalization of Nanofilm. Generally, the SARS are redeemable in cash, at their then fair value as computed pursuant to the plan, in the event of termination of employment or business relationship, death, permanent and total disability, or sale of Nano (as defined). Upon an IPO, SARS are to be redeemed by applying 70% of the redemption value to purchase common shares, with the remaining 30% being distributed in cash to the participant.

 

The August 2014 Combination does not qualify as an IPO under the Plan; however, a future underwritten registered offering may qualify.

 

The accrued redemption value associated with the stock appreciation rights amounted to $58,999 and $58,999, at September 30, 2014 and December 31, 2013, respectively. If the Company completes an IPO, the value of SARS calculated based on the IPO formula may cause a material increase in the value of the liability.

Segment Reporting

v2.4.0.8
Segment Reporting
9 Months Ended
Sep. 30, 2014
Segment Reporting [Abstract]  
Segment Reporting

NOTE 12 – SEGMENT REPORTING

 

The Company’s principal operating segments coincide with the types of products to be sold. The products from which revenues are derived are consistent with the reporting structure of the Company’s internal organization. The Company’s two reportable segments for the nine months ended September 30, 2014 were i) the Nanofilm Segment and ii) the Research and Development Segment. For the 2013 periods, the Company only operated in the Nanofilm Segment. The Company’s chief operating decision-maker has been identified as the Chairman and CEO, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Segment information is presented based upon the Company’s management organization structure as of September 30, 2014 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to the reportable segments disclosed. There are no inter-segment revenue transactions and, therefore, revenues are only to external customers. As the Company primarily generates its revenues from customers in the United States, no geographical segments are presented.

 

Segment operating profit is determined based upon internal performance measures used by the chief operating decision-maker. The Company derives the segment results from its internal management reporting system. The accounting policies the Company uses to derive reportable segment results are the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics, including net revenues, gross profit and operating income (loss). Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. The Company manages certain operating expenses separately at the corporate level and does not allocate such expenses to the segments. Segment income from operations excludes interest income/expense and other income or expenses and income taxes according to how a particular reportable segment’s management is measured. Management does not consider impairment charges, and unallocated costs in measuring the performance of the reportable segments.

 

Segment information available with respect to these reportable business segments for the three and nine months ended September 30, 2014 and 2013 was as follows:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
Revenues:                                
Nanofilm segment   $ 1,721,307     $ 2,435,426     $ 7,360,680     $ 6,703,993  
Research and development segment     233,414       -       233,414       -  
Total segment and consolidated revenues     1,954,721       2,435,426       7,594,094       6,703,993  
Gross profit:                                
Nanofilm segment     591,105       911,339       3,398,810       2,555,506  
Research and development segment     22,857       -       22,857       -  
Total segment and consolidated gross profit     613,962       911,339       3,421,667       2,555,506  
                                 
Income (loss) from operations                                
Nanofilm segment   $ (355,391 )   $ 15,501     $ 462,952     $ (163,304 )
Research and development segment     (11,370 )     -       (11,370 )     -  
Total segment income (loss)     (366,761 )     15,501       451,582       (163,304 )
Unallocated costs     (281,960 )     -       (281,960 )     -  
Total consolidated income (loss) from operations   $ (648,721 )   $ 15,501     $ 169,622     $ (163,304 )
                                 
Depreciation and amortization:                                
Nanofilm segment   $ 82,644     $ 55,071     $ 167,010     $ 165,213  
Research and development segment     4,492       -       4,492       -  
Total segment depreciation and amortization     87,136       55,071       171,502       165,213  
Unallocated depreciation     -       -       -       -  
Total consolidated depreciation and amortization     87,136       55,071       171,502       165,213  
                                 
Capital additions:                                
Nanofilm segment   $ 136,981     $ 7,685     $ 144,039     $ 37,796  
Research and development segment     -       -       -       -  
Total segment capital additions     136,981       7,685       144,039       37,796  
Unallocated capital additions     -       -       -       -  
Total consolidated capital additions   $ 136,981     $ 7,685     $ 144,039     $ 37,796  

 

    September 30, 2014     December 31, 2013  
Segment tangible assets:                
Nanofilm segment   $ 690,194     $ 672,704  
Research and development segment     113,082       -  
Total consolidated tangible assets   $ 803,276     $ 672,704  

 

The Company does not allocate any general and administrative expenses, other income or income taxes to its reportable segments because these activities are managed at a corporate level.

Subsequent Events

v2.4.0.8
Subsequent Events
9 Months Ended
Sep. 30, 2014
Subsequent Events [Abstract]  
Subsequent Events

NOTE 13 – SUBSEQUENT EVENTS

 

On October 26, 2014, the Company issued 1,330,998 shares of Class A common stock and 242,036 shares of Class B common stock upon the automatic conversion in accordance with their terms of $50,000 of aggregate principal amount of related party convertible promissory notes (See Note 7), $15,000 of principal amount of a convertible promissory note (See Note 6), and accrued interest of $2,798. The notes converted based on 75% of the average closing price of the Company’s common shares for the 20 day trading period ending on the last trading day prior to October 26, 2014 resulting in a conversion price of $0.0431.

Summary of Significant Accounting Policies (Policies)

v2.4.0.8
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2014
Accounting Policies [Abstract]  
Use of estimates

Use of estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates for the nine months ended September 30, 2014 and 2013 include the allowance for doubtful accounts on accounts receivable, the allowance for obsolete inventory, the useful life of property and equipment, assumptions used in assessing impairment of long-term assets, the fair value of assets acquired and liabilities assumed in the merger, estimates of income taxes, and the fair value of any equity transactions.

Fair value of Financial Instruments and Fair Value Measurements

Fair value of financial instruments and fair value measurements

 

The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 

Level 2-Inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, loans and lines of credit, accounts payable, accrued expenses, and other payables approximate their fair market value based on the short-term maturity of these instruments.

 

The Company analyzes all financial instruments with features of both liabilities and equity under the FASB’s accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

    Stock Appreciation Rights Plan A     Equity Credits Issued  
Balance at December 31, 2013   $ 58,999     $ 25,079  
Equity credits forfeited     -       -  
Balance at September 30, 2014   $ 58,999     $ 25,079  

 

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

Cash and Cash Equivalents

Cash and cash equivalents

 

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents.

Accounts Receivable

Accounts receivable

 

The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated with the allowance for doubtful accounts is recognized as general and administrative expense. At September 30, 2014 and December 31, 2013, outstanding accounts receivable are shown net of allowance for doubtful accounts of $15,891 and $16,017, and sales discount reserve of $7,307 and $10,555, respectively.

Inventory

Inventory

 

Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method.

Intangible Assets

Intangible assets

 

Intangible assets, consisting of patents, patent pending technologies and other technologies being amortized on a straight-line method over the estimated useful life of 5 years.

Impairment of Long-Lived Assets

Impairment of long-lived assets

 

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the three and nine months ended September 30, 2014 and 2013.

Revenue Recognition

Revenue recognition

 

Pursuant to the guidance of ASC Topic 605, the Company recognizes sales when persuasive evidence of an arrangement exists, delivery has occurred or services have been provided, the purchase price is fixed or determinable and collectability is reasonably assured.

 

Types of revenue:

 

  Net product sales by our subsidiary Nano,
     
  Reimbursements under agreements to perform research and development for government agencies and others by our subsidiary, Applied Nanotech We do not perform research contracts that are contingent upon successful results. Larger projects are sometimes broken down in phases to allow the customer to determine at the end of each phase if they wish to move to the next phase. The agreements with federal government agencies generally provide that, upon completion of a technology development program, the funding agency is granted a royalty-free license to use any technology developed during the course of the program for its own purposes, but not any preexisting technology that we use in connection with the program. We retain all other rights to use, develop, and commercialize the technology. Agreements with nongovernmental entities generally allow the entity the first opportunity to license the technology from us upon completion of the project.
     
  Product sales and other miscellaneous revenues from our subsidiary, Applied Nano such as the sale of conductive inks and thermal management materials.

 

Revenue Recognition Criteria

 

  Net product sales by our subsidiary Nano, are recognized when the product is shipped to the customer and title is transferred.
     
  Revenue from research and development government contracts is recognized when it is earned pursuant to the terms of the contract. Long-term projects grants that usually range from $500,000 to $1,000,000 in total and usually extend for a period of approximately two years, are generally based on reimbursement of costs. These projects are usually billed monthly based on costs, hours, or some other measure of activity during the month. As a general rule, we recognize revenue on these contracts based on the activity level of the contract during the period as compared with total estimated activity. This generally would be a measure of proportional performance on the contract, such as cost incurred compared with total expected cost. The recognition of revenue may not correspond with the billings allowable under the contract. To the extent that billings exceed revenue earned, a portion of the revenue is deferred until such time as it is earned. Short-term project grants that usually are less than $100,000 and usually extend for a period of approximately 6 months, are billed at periodic intervals as specified in the contract.
     
  Revenue from research and development non-governmental contracts is recognized when it is earned pursuant to the terms of the contract. Each contract is unique and tailored to the needs of the customer and goals of the project. Some contracts may call for a monthly payment for a fixed period of time. Other contracts may be for a fixed dollar amount with an unspecified time period, although there is frequently a targeted completion date. These contracts generally involve some sort of up-front payment. Some contracts may call for the delivery of samples, or may call for the transfer of equipment or other items developed during the project to the customer. As a general rule, we recognize revenue on long term contracts based on the activity level of the contract during the period as compared with total estimated activity. This generally would be a measure of proportional performance on the contract, such as cost incurred compared with total expected cost. However, to the extent there are other significant contract provisions such as the delivery of more than a nominal amount of samples or delivery of equipment, we would modify this as appropriate. For other short term contracts, generally less than $50,000, we recognize revenue when it is billed under the terms of the contract.
     
  Revenue from other product sales is recognized at the time the product shipped. The Company’s subsidiary Applied Nanotech’s primary business is research and development and the licensing of its technology, not the sale of products. Product sales are generally insignificant in number, and are generally limited to the sale of conductive inks, thermal management materials, samples, proofs of concepts, prototypes, or other items resulting from its research.
     
  Other miscellaneous revenue is recognized as deemed appropriate given the facts of the situation and is generally not material.

Sales Incentives and Consideration Paid to Customers

Sales incentives and consideration paid to customers

 

The Company accounts for certain promotional costs such as sales incentives and cooperative advertising as a reduction of sales. For the three and nine months ended September 30, 2014 and 2013, the Company recorded approximately $30,030 and $32,954, and $95,538 and $102,977, respectively, as a reduction of sales related to these costs.

Cost of Sales

Cost of sales

 

Cost of sales includes inventory costs, labor and related benefits, depreciation, overhead and shipping and handling costs incurred.

Shipping and Handling Costs

Shipping and handling costs

 

Shipping and handling costs incurred relating to the purchase of inventory are included in inventory which is charged to cost of sales as product are sold. Shipping and handling costs charged to customers are included in sales. For the three months ended September 30, 2014 and 2013 and for the nine months ended September 30, 2014 and 2013, shipping and handling costs incurred for product shipped to customers are included in cost of sales and amounted to $42,047 and $61,488, and $151,955 and $187,176, respectively.

Research and Development

Research and development

 

Research and development costs incurred in the development of the Company’s products and under other Company sponsored research and development projects are expensed as incurred. Costs such as direct labor, direct costs, and other allocated costs incurred to perform research and development service pursuant to government and private research projects are in included in cost of sales. For the three months ended September 30, 2014 and 2013 and for the nine months ended September 30, 2014 and 2013, research and development costs incurred in the development of the Company’s products were $131,371 and $267,135, and $426,740 and $727,021, respectively, and are included in operating expenses on the accompanying consolidated statements of operations.

Advertising Costs

Advertising costs

 

The Company participates in various advertising programs. All costs related to advertising of the Company’s products are expensed in the period incurred. For the three months ended September 30, 2014 and 2013 and for the nine months ended September 30, 2014 and 2013, advertising costs charged to operations were $23,360 and $29,936, and $115,474 and $139,946, respectively and are included in sales and marketing on the consolidated accompanying statements of operations. These advertising expenses do not in include cooperative advertising sales incentives and which have been deducted from sales.

Federal and State Income Taxes

Federal and state income taxes

 

The Company accounts for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

 

Prior to the February 24, 2014, the Company’s subsidiary, Nanofilm, operated as a limited liability company and passed all income and loss to each member based on their proportionate interest in Nanofilm. After February 24, 2014, the date on which Nanofilm reorganized by creating a corporation parent, Nanoholding Inc., approximately 85.5% of the net income (loss) of Nanofilm, was passed through to the majority member, Nanoholding Inc. After the effective date of the merger, 100% of the net income (loss) of Nanofilm is passed through to the Company.

 

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of Accounting Standards Codification (ASC) 740 Income Taxes. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of September 30, 2014 and December 31, 2013 and, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. Tax years that remain subject to examination are the years ending on and after December 31, 2010. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of September 30, 2014.

Income (Loss) Per Share of Common Stock

Income (loss) per share of common stock

 

ASC 260 “Earnings Per Share”, requires dual presentation of basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. As of September 30, 2014, potential non-contingent dilutive common shares consist of common stock options (using the treasury stock method). As of September 30, 2014, 6,800,000 contingently common shares issuable based on certain market conditions (see Note 8) are not included in the potential dilutive shares in calculating the diluted EPS.

 

The following table presents a reconciliation of basic and diluted net income (loss) per common share:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
Net income (loss) attributable to common shareholders for basic and diluted net income (loss) per common share   $ (448,887 )   $ 26,321     $ 41,073     $ (168,950 )
Weighted average ordinary shares outstanding - basic     401,181,389       325,641,762       351,098,340       325,642,762  
Effect of dilutive securities:                                
Stock options     -       -       -       -  
Weighted average ordinary shares outstanding - diluted     401,181,389       325,641,762       351,098,340       325,642,762  
Net income per ordinary share - basic   $ 0.00     $ 0.00     $ 0.00     $ 0.00  
Net income per ordinary share - diluted   $ 0.00     $ 0.00     $ 0.00     $ 0.00  

 

The Company’s aggregate common stock equivalents at September 30, 2014 and 2013 include the following:

 

    September 30, 2014     September 30, 2013  
Stock options     5,525,825       -  
Total     5,525,825       -  

Segment Reporting

Segment reporting

 

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the Chairman and chief executive officer (“CEO”) of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company classified the reportable operating segments into (i) the development, manufacture and sale of personal lens cleaners and accessories and ultra-thin films of organic or polymeric crystals (the “Nanofilm Segment”) and (ii) the performance of nanotechnology research and development services for government and private entities and any related sales of related products.

Summary of Significant Accounting Policies (Tables)

v2.4.0.8
Summary of Significant Accounting Policies (Tables)
9 Months Ended
Sep. 30, 2014
Accounting Policies [Abstract]  
Schedule of Reconciliation of Fair Value of liabilities Measured Recurring Basis

The Company analyzes all financial instruments with features of both liabilities and equity under the FASB’s accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

    Stock Appreciation Rights Plan A     Equity Credits Issued  
Balance at December 31, 2013   $ 58,999     $ 25,079  
Equity credits forfeited     -       -  
Balance at September 30, 2014   $ 58,999     $ 25,079  

Schedule of Reconciliation of Basic and Diluted Net Income Loss

The following table presents a reconciliation of basic and diluted net income (loss) per common share:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
Net income (loss) attributable to common shareholders for basic and diluted net income (loss) per common share   $ (448,887 )   $ 26,321     $ 41,073     $ (168,950 )
Weighted average ordinary shares outstanding - basic     401,181,389       325,641,762       351,098,340       325,642,762  
Effect of dilutive securities:                                
Stock options     -       -       -       -  
Weighted average ordinary shares outstanding - diluted     401,181,389       325,641,762       351,098,340       325,642,762  
Net income per ordinary share - basic   $ 0.00     $ 0.00     $ 0.00     $ 0.00  
Net income per ordinary share - diluted   $ 0.00     $ 0.00     $ 0.00     $ 0.00  

Scheduel of Aggregate Common Stock Equivalents

The Company’s aggregate common stock equivalents at September 30, 2014 and 2013 include the following:

 

    September 30, 2014     September 30, 2013  
Stock options     5,525,825       -  
Total     5,525,825       -  

Acquisition (Tables)

v2.4.0.8
Acquisition (Tables)
9 Months Ended
Sep. 30, 2014
Business Combinations [Abstract]  
Schedule of Fair Value of Assets Acquired and Liabilities Assumed

The fair value of the assets acquired and liabilities assumed from Applied Nanotech are as follows:

 

    At August 27, 2014  
Assets acquired:        
Cash   $ 48,121  
Accounts receivable     278,997  
Prepaid expenses     34,383  
Property and equipment     117,574  
Intangible assets     2,427,659  
Other     17,618  
Total assets     2,924,352  
Liabilities assumed:        
Accounts payable     881,930  
Convertible notes payable, net     146,667  
Accrued expenses and other current liabilities     514,006  
Deferred revenue     146,467  
Total liabilities     1,689,070  
         
Purchase price   $ 1,235,282  

Schedule Pro Forma Consolidated Results of Operations

The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Applied Nanotech had occurred as of the beginning of the following periods:

 

    Nine Months Ended September 30, 2014     Nine Months Ended September 30, 2013  
Net Revenues   $ 9,523,149     $ 9,894,689  
Net Loss   $ (2,157,791 )   $ (2,613,950 )
Net Loss per Share   $ (0.01 )   $ (0.01 )

Inventory (Tables)

v2.4.0.8
Inventory (Tables)
9 Months Ended
Sep. 30, 2014
Inventory Disclosure [Abstract]  
Schedule of Inventory

At September 30, 2014 and December 31, 2013, inventory consisted of the following:

 

    September 30, 2014     December 31, 2013  
Raw materials   $ 939,478     $ 1,055,667  
Finished goods     610,620       696,461  
      1,550,098       1,752,128  
Less: reserve for obsolete inventory     (294,208 )     (267,672 )
Inventory, net   $ 1,255,890     $ 1,484,456  

Convertible Notes Payable (Tables)

v2.4.0.8
Convertible Notes Payable (Tables)
9 Months Ended
Sep. 30, 2014
Debt Disclosure [Abstract]  
Schedule of Convertible Notes Payable

At September 30, 2014 and December 31, 2013, aggregate convertible notes payable consisted of the following:

 

    September 30,2014     December 31,2013  
Convertible notes payable   $ 50,000     $ -  
Put premium     16,666       -  
Total   $ 66,666     $ -  

Related Party Transactions (Tables)

v2.4.0.8
Related Party Transactions (Tables)
9 Months Ended
Sep. 30, 2014
Related Party Transactions [Abstract]  
Schedule of Convertible Notes Payable To Related parties

At September 30, 2014 and December 31, 2013, aggregate convertible notes payable to related parties consisted of the following:

 

    September 30,2014     December 31,2013  
Convertible notes payable – related parties   $ 60,000     $ -  
Put premium     20,001       -  
Total   $ 80,001     $ -  

Concentration (Tables)

v2.4.0.8
Concentration (Tables)
9 Months Ended
Sep. 30, 2014
Risks and Uncertainties [Abstract]  
Schedule of Sales Percentage

Customer concentrations for the three and nine months ended September 30, 2014 and 2013 are as follows:

 

    Sales  
    For the three months ended
September 30,
    For the nine months ended September 30,  
    2014     2013     2014     2013  
Customer A     28 %     28 %     24 %     31 %
Customer B     0 %     22 %     23 %     12 %
Customer C     10 %     9 %     11 %     13 %
Total     38 %     59 %     58 %     56 %

Schedule of Accounts Receivable

    Accounts Receivable  
    As of     As of  
    September 30, 2014     December 31, 2013  
Customer A     53 %     35 %
Customer B     13 %     32 %
Customer C     11 %     8 %
Total     77 %     75 %

Segment Reporting (Tables)

v2.4.0.8
Segment Reporting (Tables)
9 Months Ended
Sep. 30, 2014
Segment Reporting [Abstract]  
Segment Information Available With Respect To Reportable Business Segments

Segment information available with respect to these reportable business segments for the three and nine months ended September 30, 2014 and 2013 was as follows:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
Revenues:                                
Nanofilm segment   $ 1,721,307     $ 2,435,426     $ 7,360,680     $ 6,703,993  
Research and development segment     233,414       -       233,414       -  
Total segment and consolidated revenues     1,954,721       2,435,426       7,594,094       6,703,993  
Gross profit:                                
Nanofilm segment     591,105       911,339       3,398,810       2,555,506  
Research and development segment     22,857       -       22,857       -  
Total segment and consolidated gross profit     613,962       911,339       3,421,667       2,555,506  
                                 
Income (loss) from operations                                
Nanofilm segment   $ (355,391 )   $ 15,501     $ 462,952     $ (163,304 )
Research and development segment     (11,370 )     -       (11,370 )     -  
Total segment income (loss)     (366,761 )     15,501       451,582       (163,304 )
Unallocated costs     (281,960 )     -       (281,960 )     -  
Total consolidated income (loss) from operations   $ (648,721 )   $ 15,501     $ 169,622     $ (163,304 )
                                 
Depreciation and amortization:                                
Nanofilm segment   $ 82,644     $ 55,071     $ 167,010     $ 165,213  
Research and development segment     4,492       -       4,492       -  
Total segment depreciation and amortization     87,136       55,071       171,502       165,213  
Unallocated depreciation     -       -       -       -  
Total consolidated depreciation and amortization     87,136       55,071       171,502       165,213  
                                 
Capital additions:                                
Nanofilm segment   $ 136,981     $ 7,685     $ 144,039     $ 37,796  
Research and development segment     -       -       -       -  
Total segment capital additions     136,981       7,685       144,039       37,796  
Unallocated capital additions     -       -       -       -  
Total consolidated capital additions   $ 136,981     $ 7,685     $ 144,039     $ 37,796  

 

    September 30, 2014     December 31, 2013  
Segment tangible assets:                
Nanofilm segment   $ 690,194     $ 672,704  
Research and development segment     113,082       -  
Total consolidated tangible assets   $ 803,276     $ 672,704  

Organization and Basis of Presentation (Details Narrative)

v2.4.0.8
Organization and Basis of Presentation (Details Narrative) (USD $)
3 Months Ended 9 Months Ended 0 Months Ended 9 Months Ended 9 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Feb. 18, 2014
Class A Common Stock [Member]
Sep. 30, 2014
Class A Common Stock [Member]
Dec. 31, 2013
Class A Common Stock [Member]
Sep. 30, 2014
Class A Common Stock [Member]
Former CFO [Member]
Sep. 30, 2014
Class A Common Stock [Member]
Former Directors [Member]
Sep. 30, 2014
Class B Common Stock [Member]
Dec. 31, 2013
Class B Common Stock [Member]
Sep. 30, 2014
Class Z Commmon Stock [Member]
Dec. 31, 2013
Class Z Commmon Stock [Member]
Sep. 30, 2014
Class A Common Stock [Member]
Sep. 30, 2014
Nanofilm Ltd [Member]
Aug. 27, 2014
Nanofilm Ltd [Member]
Sep. 30, 2014
Applied Nanotech, Inc [Member]
Sep. 30, 2014
Nano [Member]
Class A Common Stock [Member]
Sep. 30, 2014
Nano [Member]
Class B Common Stock [Member]
Sep. 30, 2014
Nano [Member]
Class Z Commmon Stock [Member]
Percentage of ownership equity                               100.00%        
Outstanding Convertible note converted into common stock                                 32,379,288      
Number of stock issued during period to former CFO               1,500,000                        
Number of stock isued during period for payment of accrued fees to directors         1,200,000       11,164,620                      
Common stock outstanding           232,316,856 27,670,187     250,731,549 250,698,105 47,273,470 47,273,470 203,363,059            
Number of stock shares exchanged during period                                   27,670,187 250,698,105 47,273,470
Percentage of noncontrolling interest of net income loss                             14.50%          
Exchange, the non-controlling interest $ (29,790) $ 4,478 $ 53,418 $ (28,692)                                

Summary of Significant Accounting Policies (Details Narrative)

v2.4.0.8
Summary of Significant Accounting Policies (Details Narrative) (USD $)
3 Months Ended 9 Months Ended 9 Months Ended 0 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Dec. 31, 2013
Sep. 30, 2014
Long Term Projects [Member]
Minimum [Member]
Sep. 30, 2014
Long Term Projects [Member]
Maximum [Member]
Sep. 30, 2014
Short Term Projects [Member]
Feb. 24, 2014
Nanofilm Ltd [Member]
Sep. 30, 2014
Patents [Member]
Sep. 30, 2014
Pending Technologies [Member]
Sep. 30, 2014
Other Technologies [Member]
Allowance for doubtful accounts receivable $ 15,891   $ 15,891   $ 16,017              
Reserve for sales discount 7,307   7,307   10,555              
Estimated useful life of intangible assets                   5 years 5 years 5 years
Sales incentives and cooperative advertising reduction of sales 30,030 32,954 95,538 102,977                
Shipping and handling costs 42,047 61,488 151,955 187,176                
Research and development expense 131,371 267,135 426,740 727,021                
Advertising expense 23,360 29,936 115,474 139,946                
Percentage of net income loss                 85.50%      
Percentage of net income loss after effective date of merger                 100.00%      
Potential non contingent dilutive common shares consist of common stock options     6,800,000                  
Revenue from research and development government contracts earned           500,000 1,000,000 100,000        
Project extended period               6 months        
Revenue from research and development non government contracts earned               $ 50,000        

Summary of Significant Accounting Policies - Schedule of Reconciliation of Fair Value of Liabilities Measured Recurring Basis (Details)

v2.4.0.8
Summary of Significant Accounting Policies - Schedule of Reconciliation of Fair Value of Liabilities Measured Recurring Basis (Details) (USD $)
9 Months Ended
Sep. 30, 2014
Stock Appreciation Rights Plan A [Member]
 
Balance $ 58,999
Equity credits forfeited   
Balance 58,999
Equity Credits Issued [Member]
 
Balance 25,079
Equity credits forfeited   
Balance $ 25,079

Summary of Significant Accounting Policies - Schedule of Reconciliation of Basic and Diluted Net Income Loss (Details)

v2.4.0.8
Summary of Significant Accounting Policies - Schedule of Reconciliation of Basic and Diluted Net Income Loss (Details) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Accounting Policies [Abstract]        
Net income (loss) attributable to common shareholders for basic and diluted net income (loss) per common share $ (448,887) $ 26,321 $ 41,073 $ (168,950)
Weighted average ordinary shares outstanding - basic 401,181,389 325,641,762 351,098,340 325,641,762
Effect of dilutive securities Stock options            
Weighted average ordinary shares outstanding - diluted 401,181,389 325,641,762 351,098,340 325,641,762
Net income per ordinary share - basic $ 0.00 $ 0.00 $ 0.00 $ 0.00
Net income per ordinary share - diluted $ 0.00 $ 0.00 $ 0.00 $ 0.00

Summary of Significant Accounting Policies - Schedule of Aggregate Common Stock Equivalents (Details)

v2.4.0.8
Summary of Significant Accounting Policies - Schedule of Aggregate Common Stock Equivalents (Details)
Sep. 30, 2014
Sep. 30, 2013
Total 5,525,825   
Stock Option [Member]
   
Total 5,525,825   

Acquisition (Details Narrative)

v2.4.0.8
Acquisition (Details Narrative) (USD $)
9 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Jun. 30, 2014
Nano [Member]
Aug. 27, 2014
Applied Nanotech, Inc [Member]
Sep. 30, 2014
Applied Nanotech, Inc [Member]
Class A Common Stock [Member]
Percentage of owned outstanding common share     61.60%    
Fair market value of shares deemed issued in reverse merger $ 1,235,282        
Shares deemed issued in reverse merger, shares         203,363,059
Replacement of options to purchase class A common shares 5,525,825        5,525,825
Purchase price exceeded fair value of net liabilities acquired 2,427,659        
Excess to intangible assets consisting and patents, patents pending and other technologies 2,427,659     2,427,659  
Amortization of intangible assets over period 60 months        
Acquisition related costs $ 235,000        

Acquisition - Schedule of Fair Value of Assets Acquired and Liabilities Assumed (Details)

v2.4.0.8
Acquisition - Schedule of Fair Value of Assets Acquired and Liabilities Assumed (Details) (USD $)
Sep. 30, 2014
Aug. 27, 2014
Applied Nanotech, Inc [Member]
Cash   $ 48,121
Accounts receivable   278,997
Prepaid expenses   34,383
Property and equipment   117,574
Intangible assets 2,427,659 2,427,659
Other   17,618
Total assets   2,924,352
Accounts payable   881,930
Convertible notes payable, net   146,667
Accrued expenses and other current liabilities   514,006
Deferred revenue   146,467
Total liabilities   1,689,070
Purchase price   $ 1,235,282

Acquisition - Schedule Pro Forma Consolidated Results of Operations (Details)

v2.4.0.8
Acquisition - Schedule Pro Forma Consolidated Results of Operations (Details) (Applied Nanotech, Inc [Member], USD $)
9 Months Ended 21 Months Ended
Sep. 30, 2014
Sep. 30, 2014
Applied Nanotech, Inc [Member]
   
Net Revenues $ 9,523,149 $ 9,894,689
Net Loss $ (2,157,791) $ (2,613,950)
Net Loss per Share $ (0.01) $ (0.01)

Inventory - Schedule of Inventory (Details)

v2.4.0.8
Inventory - Schedule of Inventory (Details) (USD $)
Sep. 30, 2014
Dec. 31, 2013
Inventory Disclosure [Abstract]    
Raw materials $ 939,478 $ 1,055,667
Finished goods 610,620 696,461
Inventory, gross 1,550,098 1,752,128
Less: reserve for obsolete inventory (294,208) (267,672)
Inventory, net $ 1,255,890 $ 1,484,456

Bank Loans and Lines of Revolving Credit Facility (Details Narrative)

v2.4.0.8
Bank Loans and Lines of Revolving Credit Facility (Details Narrative) (USD $)
1 Months Ended
Apr. 30, 2014
Sep. 30, 2014
Debt Disclosure [Abstract]    
Revolving credit facility $ 1,500,000 $ 0
Percentage of effective interest rate 7.00%  
Percentage of monthly payment to lender 5.00%  
Percentage of termination premium equal to maximum loan amount 2.00%  
Proceeds from lines of credit 988,000  
Maximum borrowing capacity of line of credit   $ 1,500,000
Long term debt weighted average interest rate   6.80%

Convertible Notes Payable (Details Narrative)

v2.4.0.8
Convertible Notes Payable (Details Narrative) (USD $)
9 Months Ended
Sep. 30, 2014
Dec. 31, 2013
Sep. 30, 2014
Convertible Notes Payable [Member]
Sep. 30, 2014
Convertible Notes Payable [Member]
October 15, 2014 [Member]
Sep. 30, 2014
Convertible Notes Payable [Member]
Debt instruments interest rate         8.00%
Debt instruments face amount         $ 50,000
Debt instruments maturity date     Jul. 15, 2015    
Debt convertion description    

These Notes will automatically convert into shares of Class A Common Stock of PEN Inc. on the later of (i) the day 180 days after the Note dates which range from April to August 2014, (ii) the day 60 days after the closing under the Merger & Exchange Agreement which closed effective August 27, 2014, or (iii) October 15, 2014.

   
Percentage of Principal and accrued interest converted into shares       75.00%  
Accrued a put premium amount 16,666         
Convertible notes amounted $ 50,000         

Convertible Notes Payable - Schedule of Convertible Notes Payable (Details)

v2.4.0.8
Convertible Notes Payable - Schedule of Convertible Notes Payable (Details) (USD $)
Sep. 30, 2014
Dec. 31, 2013
Debt Disclosure [Abstract]    
Convertible notes payable $ 50,000   
Put premium 16,666   
Total $ 66,666   

Related Party Transactions (Details Narrative)

v2.4.0.8
Related Party Transactions (Details Narrative) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Dec. 31, 2013
Sales to the related party $ 40,810 $ 44,353 $ 147,862 $ 174,626  
Accounts receivable - related party 9,112   9,112   17,224
Accrued a put premium amount 16,666   16,666     
Convertible notes payable - related parties, net 80,001   80,001     
Fees and expenses to board member   107,000 197,000    
Related Parties [Member]
         
Accrued a put premium amount 20,001   20,001     
Convertible notes payable - related parties, net 60,000   60,000     
Convertible Notes Payable [Member]
         
Debt instruments maturity date     Jul. 15, 2015    
Debt convertion description    

These Notes will automatically convert into shares of Class A Common Stock of PEN Inc. on the later of (i) the day 180 days after the Note dates which range from April to August 2014, (ii) the day 60 days after the closing under the Merger & Exchange Agreement which closed effective August 27, 2014, or (iii) October 15, 2014.

   
Convertible Notes Payable [Member] | October 15, 2014 [Member]
         
Percentage of principal and accrued interest converted into shares 75.00%   75.00%    
Convertible Notes Payable [Member] | Related Parties [Member]
         
Debt instruments interest rate 8.00%   8.00%    
Debt instruments face amount $ 60,000   $ 60,000    
Debt instruments maturity date     May 31, 2014    
Debt convertion description    

These Notes will automatically convert into shares of Class A Common Stock of PEN Inc. on the later of (i) the day 180 days after the Note dates which range from April to August 2014