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Document and Entity Information

v2.4.0.8
Document and Entity Information
9 Months Ended
Sep. 30, 2015
Nov. 13, 2015
Common Class A [Member]
Nov. 13, 2015
Common Class B [Member]
Nov. 13, 2015
Class Z Common Stock [Member]
Entity Registrant Name PEN INC.      
Entity Central Index Key 0000891417      
Document Type 10-Q      
Document Period End Date Sep. 30, 2015      
Amendment Flag false      
Current Fiscal Year End Date --12-31      
Entity Filer Category Smaller Reporting Company      
Entity Common Stock, Shares Outstanding   244,116,851 251,126,667 42,273,470
Trading Symbol PENC      
Document Fiscal Period Focus Q3      
Document Fiscal Year Focus 2015      

Consolidated Balance Sheets

v2.4.0.8
Consolidated Balance Sheets (USD $)
Sep. 30, 2015
Dec. 31, 2014
CURRENT ASSETS:    
Cash $ 190,101 $ 464,735
Accounts receivable, net 1,017,114 1,032,995
Accounts receivable - related party 10,842 38,246
Inventory 1,220,048 1,557,100
Prepaid expenses and other current assets 250,444 200,079
Total Current Assets 2,688,549 3,293,155
OTHER ASSETS:    
Property, plant and equipment, net 930,389 850,847
Intangible assets, net 200,873 239,338
Other assets 40,093 41,841
Total Other Assets 1,171,355 1,132,026
TOTAL ASSETS 3,859,904 4,425,181
CURRENT LIABILITIES:    
Bank revolving line of credit 1,127,090 773,344
Current portion of notes payable 74,380   
Convertible notes payable, net    13,333
Accounts payable 1,322,451 1,426,465
Accounts payable - related parties 14,072   
Accrued expenses 1,006,278 964,587
Deferred revenue 26,414 28,790
Total Current Liabilities 3,570,685 3,206,519
LONG-TERM LIABILITIES:    
Notes payable, net of current portion 320,696   
Total Long-term Liabilities 320,696   
Total Liabilities 3,891,381 3,206,519
Commitments and Contingencies (See Note 13)      
STOCKHOLDERS' EQUITY:    
Preferred stock, $.0001 par value, 20,000,000 shares authorized; No shares issued and outstanding      
Additional paid-in capital 4,914,950 4,640,278
Accumulated deficit (4,999,999) (3,474,919)
Total Stockholders' Equity (31,477) 1,218,662
Total Liabilities and Stockholders' Equity 3,859,904 4,425,181
Common Class A [Member]
   
STOCKHOLDERS' EQUITY:    
Common stock value 23,732 23,474
Common Class B [Member]
   
STOCKHOLDERS' EQUITY:    
Common stock value 25,113 25,102
Class Z Common 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, 2015
Dec. 31, 2014
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      
Common stock, par value $ 0.0001  
Common stock, shares authorized 1,800,000,000  
Common Class A [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 237,162,531 234,744,655
Common stock, shares outstanding 237,162,531 234,744,655
Common Class B [Member]
   
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 400,000,000 400,000,000
Common stock, shares issued 251,126,637 251,017,063
Common stock, shares outstanding 251,126,637 251,017,063
Class Z Common 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, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
REVENUES:        
Products (including related party sales of $38,198 and $40,810 for the three months ended September 30, 2015 and 2014, respectively, and $115,316 and $147,862 for the nine months ended September 30, 2015 and 2014, respectively) $ 1,674,242 $ 1,721,307 $ 5,973,689 $ 7,360,680
Research and development services 336,550 233,414 1,418,193 233,414
Total Revenues 2,010,792 1,954,721 7,391,882 7,594,094
COST OF REVENUES:        
Products 1,009,775 1,130,202 3,494,922 3,961,870
Research and development services 484,568 210,557 1,448,790 210,557
Total Cost of Revenues 1,494,343 1,340,759 4,943,712 4,172,427
GROSS PROFIT 516,449 613,962 2,448,170 3,421,667
OPERATING EXPENSES:        
Selling and marketing expenses 83,488 42,033 214,599 186,062
Salaries, wages and related benefits 554,809 574,213 1,742,248 1,448,933
Research and development 174,736 131,371 620,291 426,740
Professional fees 202,571 249,503 546,622 568,225
General and administrative expenses 234,895 265,563 748,465 622,085
Total Operating Expenses 1,250,499 1,262,683 3,872,225 3,252,045
(LOSS) INCOME FROM OPERATIONS (734,050) (648,721) (1,424,055) 169,622
OTHER INCOME (EXPENSES):        
Interest expenses (26,947) (1,806) (91,031) (19,230)
Other income, net 2,830 12,124 10,177   
Total Other Income/(Expense) (24,117) 10,318 (80,854) (19,230)
(Loss) Income before income taxes (758,167) (638,403) (1,504,909) 150,392
Income tax benefit (expense) 1,057 159,726 (20,171) (55,901)
NET (LOSS) INCOME (757,110) (478,677) (1,525,080) 94,491
Net (Income) Loss attributable to former non-controlling interest    29,790    (53,418)
NET (LOSS) INCOME ATTRIBUTABLE TO PEN INC. $ (757,110) $ (448,887) $ (1,525,080) $ 41,073
NET (LOSS) INCOME 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 535,646,508 401,181,389 535,105,724 351,098,340
Diluted 535,646,508 401,181,389 535,105,724 351,098,340

Consolidated Statements of Operations (Parenthetical)

v2.4.0.8
Consolidated Statements of Operations (Parenthetical) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Income Statement [Abstract]        
Sales revenue from related parties $ 38,198 $ 40,810 $ 115,316 $ 147,862

Consolidated Statements of Cash Flows (Unaudited)

v2.4.0.8
Consolidated Statements of Cash Flows (Unaudited) (USD $)
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES    
Net (loss) income $ (1,525,080) $ 94,491
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:    
Change in inventory obsolescence reserve (6,650) 26,535
Depreciation and amortization expense 190,719 171,502
Amortization of deferred lease incentives (3,208) (9,623)
Stock-based compensation 137,931 103,090
Change in operating assets and liabilities:    
Accounts receivable 15,881 713,604
Accounts receivable related party 27,404 8,112
Inventory 343,702 202,031
Prepaid expenses and other assets (48,617) (230,562)
Accounts payable (104,014) (179,688)
Accounts payable - related parties 14,072   
Accrued expenses 210,346 101,003
Income taxes payable    50,000
Deferred revenue (2,376) (25,596)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (749,890) 1,024,899
CASH FLOWS FROM INVESTING ACTIVITIES    
Cash acquired in acquisition    48,121
Purchases of property and equipment (231,796) (144,039)
NET CASH USED IN INVESTING ACTIVITIES (231,796) (95,918)
CASH FLOWS FROM FINANCING ACTIVITIES    
Proceeds from bank line of credit 6,209,500   
Repayment of bank lines of credit (5,855,754) (774,919)
Proceeds from bank loan 371,901   
Repayment of bank loans (18,595)   
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 707,052 (774,919)
NET (DECREASE) INCREASE IN CASH (274,634) 154,062
CASH, beginning of year 464,735 100,367
CASH, end of period 190,101 254,429
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION    
Interest 91,031 19,230
Income taxes 4,944   
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 assumes    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, 2015
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 performs nanotechnology research and development focused on generating revenues through performing research services.

 

Through our wholly-owned 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 governmental and private customers.

 

On August 27, 2014 (the “Effective Date”), Applied Nanotech Holdings, Inc., a Texas corporation (“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 Holdings 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 Nano 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 December 17, 2014, the Company formed a new wholly-owned subsidiary, PEN Technology LLC, a Florida limited liability company and on December 19, 2014, Nanofilm Holdings Inc. was merged into PEN.

 

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), PEN Technology LLC, and Nanofilm, Ltd. On December 19, 2014, EZ Diagnostix was merged into Applied Nanotech, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

The consolidated financial statements for the three and nine months ended September 30, 2015 and 2014 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, 2015 and 2014, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments.

 

The Company’s historical results of operations include an allocation of the net income 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.

 

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. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2014 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on April 10, 2015.

 

The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year.

Summary of Significant Accounting Policies

v2.4.0.8
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2015
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, 2015 and 2014 include estimates for allowance for doubtful accounts on accounts receivable, the estimates 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 current and deferred income taxes and deferred tax valuation allowances, the fair value of non-cash equity transactions, and the fair value of equity incentives.

 

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 and non-financial instruments with features of both liabilities and equity under the FASB’s accounting standard for such instruments. Under this standard, financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company accounts for three instruments at fair value using level 3 valuation.

 

    At September 30, 2015     At December 31, 2014  
Description   Level 1     Level 2     Level 3     Level 1     Level 2     Level 3  
Intangible assets     -       -     $ 200,873       -       -     $ 239,338  
Stock Appreciation Rights Plan A     -       -     $ 46,146       -       -     $ 46,146  
Equity Credits Issued     -       -     $ 25,178       -       -     $ 25,178  

 

Fair value of financial instruments and fair value measurements (continued)

 

A roll forward of the level 3 valuation of these three financial instruments is as follows:

 

    Intangible 
Assets
    Stock Appreciation
Rights Plan A
    Equity Credits
Issued
 
Balance at December 31, 2014   $ 239,338     $ 46,146     $ 25,178  
Amortization of intangible assets     (38,465 )     -       -  
Change in fair value included in net loss     -       -       -  
Balance at September 30, 2015   $ 200,873     $ 46,146     $ 25,178  

 

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.

 

Inventory

 

Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. At September 30, 2015 and December 31, 2014, inventory consisted of the following:

 

    September 30, 2015     December 31, 2014  
Raw materials   $ 865,251     $ 953,566  
Finished goods     622,813       813,352  
      1,488,064       1,766,918  
Less: reserve for obsolescence     (268,016 )     (209,818 )
Total   $ 1,220,048     $ 1,557,100  

 

Property and equipment

 

Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three to ten years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

 

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 nine months ended September 30, 2015 and 2014.

 

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 Nanofilm.
   
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 Nanotech 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. These projects are usually billed monthly based on costs, hours, or some other measure of activity during the month and revenue is recognized as services are provided. If there is substantive acceptance terms then revenue will not be recognized until acceptance occurs. 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.
     
  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. These projects are usually billed monthly based on costs, hours, or some other measure of activity during the month and revenue is recognized as services are provided. If there is substantive acceptance terms then revenue will not be recognized until acceptance occurs.
     
  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 months ended September 30, 2015 and 2014 and for the nine months ended September 30, 2015 and 2014, the Company recorded approximately $32,747 and $30,030 and $114,440 and $95,538, respectively, as a reduction of sales related to these costs.

 

Cost of sales

 

Cost of sales includes inventory costs, materials and supplies costs, internal labor and related benefits, subcontractor costs, 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, 2015 and 2014 and for the nine months ended September 30, 2015 and 2014, shipping and handling costs incurred for product shipped to customers are included in cost of sales and amounted to $44,980 and $42,047, and $147,002 and $151,955, 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 included in cost of sales. For the three months ended September 30, 2015 and 2014 and for the nine months ended September 30, 2015 and 2014, research and development costs incurred in the development of the Company’s products were $174,736 and $131,371, and $620,291 and $426,740, 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, 2015 and 2014 and for the nine months ended September 30, 2015 and 2014, advertising costs charged to operations were $46,522 and $23,360, and $81,290 and $115,474, respectively and are included in sales and marketing on the consolidated accompanying statements of operations. These advertising expenses do not include cooperative advertising and sales incentives 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, 2015 and December 31, 2014, 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, 2015.

 

Stock-based compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the service period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.

 

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, 2015 and December 31, 2014, 6,800,000 contingently issuable common shares that are issuable based on certain market conditions (see Note 8) are not included in the potential dilutive shares in calculating the diluted EPS. Additionally, potentially dilutive common shares consist of common stock options (using the treasury stock method). These common stock equivalents may be dilutive in the future. Potentially dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:

 

    September 30, 2015     December 31, 2014  
Total stock options     2,078,833       4,357,528  
                 

 

Additionally, there are an unknown quantity of common stock equivalents that result from a potential conversion of equity credits and stock appreciation rights (See Notes 10, 11 and 13).

 

Net loss per share for each class of common stock is as follows:

 

Net (loss) income per common shares outstanding:   Three Months ended 
September 30, 2015
    Three Months ended September 30, 2014     Nine Months ended September 30, 2015     Nine Months ended September 30, 2014  
Class A common stock   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ 0.00  
Class B common stock   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ 0.00  
Class Z common stock   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ 0.00  
                                 
Weighted average shares outstanding:                                
Class A common stock     237,266,529       103,209,814       236,775,059       53,126,765  
Class B common stock     251,106,508       250,698,105       251,057,196       250,698,105  
Class Z common stock     47,273,470       47,273,470       47,273,470       47,273,470  
Total weighted average shares outstanding     535,646,508       401,181,389       535,105,724       351,098,340  

 

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 “Product Segment”) and (ii) the performance of nanotechnology research and development services for government and private entities and any related sales of related products.

 

Reclassification

 

Certain reclassifications have been made in prior year’s consolidated financial statements to conform to the current year’s financial presentation. The reclassifications are primarily within operating expenses to reflect research and development as a separate line item.

 

Recent accounting pronouncements

 

In April 2015, the FASB issued ASU 2015-03, Imputation of Interest (“ASC 835”) which requires debt issuance costs related to a recognized debt liability to be presented as a deduction from the carrying amount of the related debt, consistent with the treatment required for debt discounts. This guidance is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The Company is evaluating the impact of the new guidance on its consolidated financial statements.

 

In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation, which clarifies accounting for share-based payments for which the terms of an award provide that a performance target could be achieved after the requisite service period. That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target could be achieved and still be eligible to vest in the award if and when the performance target is achieved. The updated guidance clarifies that such a term should be treated as a performance condition that affects vesting. As such, the performance target should not be reflected in estimating the grant date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The guidance will be effective for the Company beginning with fiscal year 2016, and may be applied either prospectively or retrospectively. The Company does not anticipate that this guidance will materially impact its condensed consolidated financial statements and related disclosures.

 

There are no other recently issued accounting standards that apply to us or that are expected to have a material impact on our results of operations, financial condition, or cash flows.

Acquisition

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Acquisition
9 Months Ended
Sep. 30, 2015
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.

Bank Loans and Lines of Revolving Credit Facility

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Debt Disclosure [Abstract]  
Bank Loans and Lines of Revolving Credit Facility

NOTE 4 – 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 will pay to Lender a late charge of 5.0% of any monthly payment not received by Lender within 10 calendar days after its due date. The Company may, 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, or (ii) Lender terminates the Revolving Note after default, then Borrower will pay a termination premium equal to 2.0% of the maximum loan amount.

 

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 any capital expenditures, as defined, materially affecting the business; c) declare or 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.

 

On May 1, 2015 Nanofilm entered into an amendment to the Loan and Security Agreement with the Lender to extend the outside maturity date to April 4, 2016 and to permit advances against an expanded borrowing base. The borrowing base was increased by $450,000 through October 31, 2015, with this amount reducing by $7,500 monthly thereafter. In addition, the Company guaranteed Nanofilm’s obligations to the Lender.

 

At September 30, 2015, the Company had $1,127,090 in borrowings outstanding under the Revolving Note with $372,910 available for borrowing under such note. The weighted average interest rate during the period was approximately 7.28%.

Notes Payable

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Sep. 30, 2015
Debt Disclosure [Abstract]  
Notes Payable

NOTE 5 – NOTES PAYABLE

 

On February 10, 2015, Nanofilm entered into a promissory note (the “Equipment Note”) with KeyBank, N.A. (the “Bank”) to borrow up to $373,000. Nanofilm may obtain one or more advances not to exceed $373,000. The unpaid principal balance of this Equipment Note is payable in 60 equal monthly installments payments of principal and interest through June 10, 2020. The Equipment Note is secured by certain equipment, as defined in the Equipment Note, and bears interest computed at a rate of interest of 4.35% per annum based on a year of 360 days. At September 30, 2015, the principal amount due under the Equipment Note amounted to $353,306.

 

On June 3, 2015, in connection with a severance package offered to three employees, the Company entered into three promissory note agreements with such employees which obligates the Company to pay these employees accrued and unpaid deferred salary in an aggregate amount of $41,770. The principal amounts due under these notes shall bear interest at the minimum rate of interest applicable under the internal revenue code (approximately 2.5% at September 30, 2015). All principal and interest payable under two of these notes aggregating $27,420 are due June 3, 2025 and all principal and interest payable under one of these notes amounting to $14,350 are due June 3, 2020.

Convertible Notes Payable

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Debt Disclosure [Abstract]  
Convertible Notes Payable

NOTE 6 – CONVERTIBLE NOTES PAYABLE

 

On February 7, 2015, the Company issued 208,681 shares of Class A common stock upon the automatic conversion in accordance with its terms of $10,000 of principal amount of convertible promissory notes, and accrued interest of $392 (See note 8). Upon conversion, the Company reclassified $3,333 of the conversion premium to additional paid-in capital. At September 30, 2015 and December 31, 2014, aggregate convertible notes payable consisted of the following:

 

    September 30, 2015     December 31, 2014  
Convertible notes payable   $ -     $ 10,000  
Put premium     -       3,333  
Total   $ -     $ 13,333  

Related Party Transactions

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Related Party Transactions
9 Months Ended
Sep. 30, 2015
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, 2015 and 2014, the Company engaged in certain sales transactions with a company which is a 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 $38,198 and $40,810 for the three months ended September 30, 2015 and 2014 and totaled $115,316 and $147,862 for the nine months ended September 30, 2015 and 2014, respectively. Accounts receivable from the related party totaled $10,842 and $38,246 at September 30, 2015 and December 31, 2014, respectively.

 

Other

 

A board member is a principal in an investment advisory firm which the Company expensed $36,000 and $107,000 in fees and expenses during the three months ended September 30, 2015 and 2014 and $108,000 and $197,000 in fees and expenses during the nine months ended September 30, 2015 and 2014, respectively.

Stockholders' Equity

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Stockholders' Equity
9 Months Ended
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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

 

Common stock issued In connection with a Stock Grant Agreement

 

Under a Stock Grant Agreement with the former chief financial officer of Applied Nanotech dated in March 2014, the Company issued 889,580 shares on January 31, 2015 and 1,200,000 shares of Class A common stock in February 2015 for an aggregate of 2,089,580 shares of Class A common stock in satisfaction of amounts due of $123,285 pursuant to the Stock Grant Agreement. These shares were valued on the date of grant at $0.059 per share based on the quoted trading price for a total value of $123,285. In connection with these shares, during the year ended December 31, 2014, the Company recorded compensation expense of $123,285 and at December 31, 2014, included $123,285 in accrued expenses on the accompanying unaudited consolidated balance sheet. Upon issuance of these shares in 2015, the accrued interest was relieved and recorded as equity.

 

Common stock issued for convertible debt and interest

 

On February 7, 2015, the Company issued 208,681 shares of Class A common stock upon the automatic conversion in accordance with its terms of $10,000 of principal amount of a convertible promissory note, and accrued interest on that note of $392 (see note 6). Upon conversion, the Company reclassified $3,333 of the conversion premium to additional paid-in capital.

 

Common shares issued for services

 

On May 4, 2015, the Company issued an aggregate of 119,615 shares of Class A common stock and 47,876 shares of Class B common stock to the Company’s directors as partial payment for their service on the Company’s board. These shares were valued on the date of grant of May 4, 2015 at $0.0418 per share based on the quoted price of the stock for a total value of $7,000.

 

On July 30, 2015, the Company issued an aggregate of 154,320 shares of Class A common stock and 61,728 shares of Class B common stock to the Company’s directors as partial payment for their service on the Company’s board. These shares were valued on the date of grant of July 30, 2015 at $0.0324 per share based on the quoted price of the stock for a total value of $7,000.

 

Stock Options

 

Stock options outstanding are to purchase Class A common stock, Stock option activities for the nine months ended September 30, 2015 are summarized as follows:

 

      Number of
Options
    Weighted 
Average
Exercise
Price
    Weighted Average
Remaining
Contractual Term
(Years)
    Aggregate
Intrinsic
Value
 
Balance Outstanding December 31, 2014       4,357,528     $ 0.50       -     $ -  
Exercised       -       -       -       -  
Forfeited       (2,278,695 )     (0.51 )     -       -  
Balance Outstanding September 30, 2015       2,078,833     $ 0.49       4.20     $ -  
                                   
Exercisable, September 30, 2015       2,078,833     $ 0.49       4.20     $ -  

 

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 $495,720. 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 $495,720 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, 2015, in connection with the amortization of the fair value of this stock grant, the Company recorded stock-based compensation of $41,310 and $123,930, respectively.

Concentrations

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Concentrations
9 Months Ended
Sep. 30, 2015
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, 2015 and December 31, 2014. The Company has not experienced any losses in such accounts through September 30, 2015.

 

Customer concentrations

 

Customer concentrations for the nine months ended September 30, 2015 and 2014 are as follows:

 

    Revenues  
    For the nine months ended 
September 30,
 
    2015     2014  
Customer A     27 %     24 %
Customer B     0 %     23 %
Customer C     11 %     11 %
Total     38 %     58 %

 

    Accounts Receivable  
    As of 
September 30, 2015
    As of 
December 31, 2014
 
Customer A     25 %     31 %
Customer C     13 %     10 %
Total     38 %     41 %

 

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, 2015 and 2014, total sales in the United States represent approximately 92% and 89% of total consolidated revenues, respectively. No other geographical area accounting for more than 10% of total sales during the nine months ended September 30, 2015 and 2014.

 

Vendor concentrations

 

For the nine months ended September 30, 2015, the Company purchased 55% of its inventory from three suppliers (32%, 12% and 11%, respectively). For the nine months ended September 30, 2014, the Company purchased 51% of its inventory from four suppliers (24%, 9%, 9% and 9%, respectively).

Equity Credits

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Equity Credits
9 Months Ended
Sep. 30, 2015
Equity Credits  
Equity Credits

NOTE 10 – EQUITY CREDITS

 

During 1997, Nanofilm established The Equity Credit Incentive Program. This program enabled select employees the opportunity to purchase equity credits that increase in value based upon an increase in Nanofilm’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. During the nine months ended September 30, 2015, no equity credits were forfeited and no units were redeemed. As of September 30, 2015, 77,700 equity credits were issued and outstanding with an approximate value of $0.3240 per credit and, as of December 31, 2014, 77,700 equity credits were issued and outstanding with an approximate value of $0.3240 per credit. At September 30, 2015 and December 31, 2014, $25,178 and $25,178 respectively, was accrued, and included in accrued expenses, representing the redemption value associated with the equity credits outstanding at each period end.

 

Under the terms of the Plan, when the Company completes a registered offering of its common stock, the equity credit participants will have the option to convert the equity credits into Class A common shares of the Company, or in the case of our President, into shares of Class B common stock.

Stock Appreciation Plan

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Stock Appreciation Plan
9 Months Ended
Sep. 30, 2015
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, 2015 and December 31, 2014. 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 $46,146 and $46,146, at September 30, 2015 and December 31, 2014, 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

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9 Months Ended
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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 three and nine months ended September 30, 2015 and 2014 were i) the Product Segment and ii) the Research and Development Segment. For the 2014 period, the Company began operating in the Research and Development Segment beginning after August 27, 2014. 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, 2015 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, 2015 and 2014 was as follows:

 

    Three Months Ended
September 30,
    Nine Months Ended 
September 30,
 
    2015     2014     2015     2014  
Revenues:                                
Product segment   $ 1,674,242     $ 1,721,307     $ 5,973,689     $ 7,360,680  
Research and development segment     336,550       233,414       1,418,193       233,414  
Total segment and consolidated revenues     2,010,792       1,954,721       7,391,882       7,594,094  
                                 
Gross profit (loss):                                
Product segment     664,850       591,105       2,479,150       3,398,810  
Research and development segment     (148,401 )     22,857       (30,980 )     22,857  
Total segment and consolidated gross profit     516,449       613,962       2,448,170       3,421,667  
                                 
Income (loss) from operations                                
Product segment   $ (53,959 )   $ (355,391 )   $ 275,827     $ 462,952  
Research and development segment     (313,546 )     (11,370 )     (612,467 )     (11,370 )
Total segment income (loss)     (367,505 )     (366,761 )     (336,640 )     451,582  
Unallocated costs     (366,545 )     (281,960 )     (1,087,415 )     (281,960 )
Total consolidated (loss) income from operations   $ (734,050 )   $ (648,721 )   $ (1,424,055 )   $ 169,622  
                                 
Depreciation and amortization:                                
Product segment   $ 37,857     $ 82,644     $ 113,571     $ 167,010  
Research and development segment     12,873       4,492       38,683       4,492  
Total segment depreciation and amortization     50,730       87,136       152,254       171,502  
Unallocated depreciation     12,822       -       38,465       -  
Total consolidated depreciation and amortization     63,552       87,136       190,719       171,502  
                                 
Capital additions:                                
Product segment   $ 4,204     $ 136,981     $ 228,410     $ 144,039  
Research and development segment     -       -       3,386       -  
Total segment capital additions     4,204       136,981       231,796       144,039  
Unallocated capital additions     -       -       -       -  
Total consolidated capital additions   $ 4,204     $ 136,981     $ 231,796     $ 144,039  

 

    September 30, 2015     December 31, 2014  
Segment tangible assets:                
Product segment   $ 865,490     $ 750,651  
Research and development segment     64,899       100,196  
Total consolidated tangible assets   $ 930,389     $ 850,847  

Commitments and Contingencies

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Commitments and Contingencies
9 Months Ended
Sep. 30, 2015
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 13 - COMMITMENTS AND CONTINCENGIES

 

Equity Credits

 

Equity credits may become convertible into an unknown amount of capital stock of the Company to be determined by the Company’s board of directors (See Note 10).

 

Stock Appreciation Rights

 

If the Company completes an IPO, the value of stock appreciation rights calculated based on the IPO formula may cause a material increase in the value of the liability (See Note 11).

 

Placement Agency Agreement

 

On March 4, 2015, the Company entered into an 18-month placement agency agreement with INTL FCStone Securities Inc. (“INTL”) to assist the Company in exploring a capital raise. Under the terms of the engagement, the Company paid them $50,000. Their fee if a transaction closes is a minimum of $250,000 (inclusive of the $50,000 which was already paid). If the Company is paid money in connection with a transaction that fails to close, the Company will owe INTL 30% of that payment (net of any expenses the Company incurs).

Summary of Significant Accounting Policies (Policies)

v2.4.0.8
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2015
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, 2015 and 2014 include estimates for allowance for doubtful accounts on accounts receivable, the estimates 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 current and deferred income taxes and deferred tax valuation allowances, the fair value of non-cash equity transactions, and the fair value of equity incentives.

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 and non-financial instruments with features of both liabilities and equity under the FASB’s accounting standard for such instruments. Under this standard, financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company accounts for three instruments at fair value using level 3 valuation.

 

    At September 30, 2015     At December 31, 2014  
Description   Level 1     Level 2     Level 3     Level 1     Level 2     Level 3  
Intangible assets     -       -     $ 200,873       -       -     $ 239,338  
Stock Appreciation Rights Plan A     -       -     $ 46,146       -       -     $ 46,146  
Equity Credits Issued     -       -     $ 25,178       -       -     $ 25,178  

 

A roll forward of the level 3 valuation of these three financial instruments is as follows:

 

    Intangible 
Assets
    Stock Appreciation
Rights Plan A
    Equity Credits
Issued
 
Balance at December 31, 2014   $ 239,338     $ 46,146     $ 25,178  
Amortization of intangible assets     (38,465 )     -       -  
Change in fair value included in net loss     -       -       -  
Balance at September 30, 2015   $ 200,873     $ 46,146     $ 25,178  

 

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.

Inventory

Inventory

 

Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. At September 30, 2015 and December 31, 2014, inventory consisted of the following:

 

    September 30, 2015     December 31, 2014  
Raw materials   $ 865,251     $ 953,566  
Finished goods     622,813       813,352  
      1,488,064       1,766,918  
Less: reserve for obsolescence     (268,016 )     (209,818 )
Total   $ 1,220,048     $ 1,557,100  

Property and Equipment

Property and equipment

 

Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three to ten years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

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 nine months ended September 30, 2015 and 2014.

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 Nanofilm.
   
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 Nanotech 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. These projects are usually billed monthly based on costs, hours, or some other measure of activity during the month and revenue is recognized as services are provided. If there is substantive acceptance terms then revenue will not be recognized until acceptance occurs. 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.
     
  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. These projects are usually billed monthly based on costs, hours, or some other measure of activity during the month and revenue is recognized as services are provided. If there is substantive acceptance terms then revenue will not be recognized until acceptance occurs.
     
  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 months ended September 30, 2015 and 2014 and for the nine months ended September 30, 2015 and 2014, the Company recorded approximately $32,747 and $30,030 and $114,440 and $95,538, respectively, as a reduction of sales related to these costs.

Cost of Sales

Cost of sales

 

Cost of sales includes inventory costs, materials and supplies costs, internal labor and related benefits, subcontractor costs, 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, 2015 and 2014 and for the nine months ended September 30, 2015 and 2014, shipping and handling costs incurred for product shipped to customers are included in cost of sales and amounted to $44,980 and $42,047, and $147,002 and $151,955, 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 included in cost of sales. For the three months ended September 30, 2015 and 2014 and for the nine months ended September 30, 2015 and 2014, research and development costs incurred in the development of the Company’s products were $174,736 and $131,371, and $620,291 and $426,740, 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, 2015 and 2014 and for the nine months ended September 30, 2015 and 2014, advertising costs charged to operations were $46,522 and $23,360, and $81,290 and $115,474, respectively and are included in sales and marketing on the consolidated accompanying statements of operations. These advertising expenses do not include cooperative advertising and sales incentives 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, 2015 and December 31, 2014, 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, 2015.

Stock-based Compensation

Stock-based compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the service period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.

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, 2015 and December 31, 2014, 6,800,000 contingently issuable common shares that are issuable based on certain market conditions (see Note 8) are not included in the potential dilutive shares in calculating the diluted EPS. Additionally, potentially dilutive common shares consist of common stock options (using the treasury stock method). These common stock equivalents may be dilutive in the future. Potentially dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:

 

    September 30, 2015     December 31, 2014  
Total stock options     2,078,833       4,357,528  
                 

 

Additionally, there are an unknown quantity of common stock equivalents that result from a potential conversion of equity credits and stock appreciation rights (See Notes 10, 11 and 13).

 

Net loss per share for each class of common stock is as follows:

 

Net (loss) income per common shares outstanding:   Three Months ended 
September 30, 2015
    Three Months ended September 30, 2014     Nine Months ended September 30, 2015     Nine Months ended September 30, 2014  
Class A common stock   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ 0.00  
Class B common stock   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ 0.00  
Class Z common stock   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ 0.00  
                                 
Weighted average shares outstanding:                                
Class A common stock     237,266,529       103,209,814       236,775,059       53,126,765  
Class B common stock     251,106,508       250,698,105       251,057,196       250,698,105  
Class Z common stock     47,273,470       47,273,470       47,273,470       47,273,470  
Total weighted average shares outstanding     535,646,508       401,181,389       535,105,724       351,098,340  

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 “Product Segment”) and (ii) the performance of nanotechnology research and development services for government and private entities and any related sales of related products.

Reclassification

Reclassification

 

Certain reclassifications have been made in prior year’s consolidated financial statements to conform to the current year’s financial presentation. The reclassifications are primarily within operating expenses to reflect research and development as a separate line item.

Recent Accounting Pronouncements

Recent accounting pronouncements

 

In April 2015, the FASB issued ASU 2015-03, Imputation of Interest (“ASC 835”) which requires debt issuance costs related to a recognized debt liability to be presented as a deduction from the carrying amount of the related debt, consistent with the treatment required for debt discounts. This guidance is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The Company is evaluating the impact of the new guidance on its consolidated financial statements.

 

In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation, which clarifies accounting for share-based payments for which the terms of an award provide that a performance target could be achieved after the requisite service period. That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target could be achieved and still be eligible to vest in the award if and when the performance target is achieved. The updated guidance clarifies that such a term should be treated as a performance condition that affects vesting. As such, the performance target should not be reflected in estimating the grant date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The guidance will be effective for the Company beginning with fiscal year 2016, and may be applied either prospectively or retrospectively. The Company does not anticipate that this guidance will materially impact its condensed consolidated financial statements and related disclosures.

 

There are no other recently issued accounting standards that apply to us or that are expected to have a material impact on our results of operations, financial condition, or cash flows.

Summary of Significant Accounting Policies (Tables)

v2.4.0.8
Summary of Significant Accounting Policies (Tables)
9 Months Ended
Sep. 30, 2015
Accounting Policies [Abstract]  
Schedule of Reconciliation of Fair Value of Level 3 Valuation of Financial Instruments

The Company accounts for three instruments at fair value using level 3 valuation.

 

    At September 30, 2015     At December 31, 2014  
Description   Level 1     Level 2     Level 3     Level 1     Level 2     Level 3  
Intangible assets     -       -     $ 200,873       -       -     $ 239,338  
Stock Appreciation Rights Plan A     -       -     $ 46,146       -       -     $ 46,146  
Equity Credits Issued     -       -     $ 25,178       -       -     $ 25,178  

Schedule of Reconciliation of Fair Value of Asset Liabilities Measured Recurring Basis

A roll forward of the level 3 valuation of these three financial instruments is as follows:

 

    Intangible
Assets
    Stock Appreciation
Rights Plan A
    Equity Credits
Issued
 
Balance at December 31, 2014   $ 239,338     $ 46,146     $ 25,178  
Amortization of intangible assets     (38,465 )     -       -  
Change in fair value included in net loss     -       -       -  
Balance at September 30, 2015   $ 200,873     $ 46,146     $ 25,178  

Schedule of Inventory

Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. At September 30, 2015 and December 31, 2014, inventory consisted of the following:

 

    September 30, 2015     December 31, 2014  
Raw materials   $ 865,251     $ 953,566  
Finished goods     622,813       813,352  
      1,488,064       1,766,918  
Less: reserve for obsolescence     (268,016 )     (209,818 )
Total   $ 1,220,048     $ 1,557,100  

Schedule of Anti-dilutive Per Share Information

Potentially dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:

 

    September 30, 2015     December 31, 2014  
Total stock options     2,078,833       4,357,528  
                 

 

Schedule of Reconciliation of Basic and Diluted Net Income Loss

Net loss per share for each class of common stock is as follows:

 

Net (loss) income per common shares outstanding:   Three Months ended
September 30, 2015
    Three Months ended September 30, 2014     Nine Months ended September 30, 2015     Nine Months ended September 30, 2014  
Class A common stock   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ 0.00  
Class B common stock   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ 0.00  
Class Z common stock   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ 0.00  
                                 
Weighted average shares outstanding:                                
Class A common stock     237,266,529       103,209,814       236,775,059       53,126,765  
Class B common stock     251,106,508       250,698,105       251,057,196       250,698,105  
Class Z common stock     47,273,470       47,273,470       47,273,470       47,273,470  
Total weighted average shares outstanding     535,646,508       401,181,389       535,105,724       351,098,340  

Convertible Notes Payable (Tables)

v2.4.0.8
Convertible Notes Payable (Tables)
9 Months Ended
Sep. 30, 2015
Debt Disclosure [Abstract]  
Schedule of Convertible Notes Payable

At September 30, 2015 and December 31, 2014, aggregate convertible notes payable consisted of the following:

 

    September 30, 2015     December 31, 2014  
Convertible notes payable   $ -     $ 10,000  
Put premium     -       3,333  
Total   $ -     $ 13,333  

Stockholder's Equity (Tables)

v2.4.0.8
Stockholder's Equity (Tables)
9 Months Ended
Sep. 30, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of Stock Option Plan Activity

Stock options outstanding are to purchase Class A common stock, Stock option activities for the nine months ended September 30, 2015 are summarized as follows:

 

      Number of
Options
    Weighted
Average
Exercise
Price
    Weighted Average
Remaining
Contractual Term
(Years)
    Aggregate
Intrinsic
Value
 
Balance Outstanding December 31, 2014       4,357,528     $ 0.50       -     $ -  
Exercised       -       -       -       -  
Forfeited       (2,278,695 )     (0.51 )     -       -  
Balance Outstanding September 30, 2015       2,078,833     $ 0.49       4.20     $ -  
                                   
Exercisable, September 30, 2015       2,078,833     $ 0.49       4.20     $ -  

Concentration (Tables)

v2.4.0.8
Concentration (Tables)
9 Months Ended
Sep. 30, 2015
Risks and Uncertainties [Abstract]  
Concentration Risk, Customer

Customer concentrations for the nine months ended September 30, 2015 and 2014 are as follows:

 

    Revenues  
    For the nine months ended
September 30,
 
    2015     2014  
Customer A     27 %     24 %
Customer B     0 %     23 %
Customer C     11 %     11 %
Total     38 %     58 %

Schedule of Accounts Receivable Percentage

 

    Accounts Receivable  
    As of
September 30, 2015
    As of
December 31, 2014
 
Customer A     25 %     31 %
Customer C     13 %     10 %
Total     38 %     41 %

Segment Reporting (Tables)

v2.4.0.8
Segment Reporting (Tables)
9 Months Ended
Sep. 30, 2015
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, 2015 and 2014 was as follows:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2015     2014     2015     2014  
Revenues:                                
Product segment   $ 1,674,242     $ 1,721,307     $ 5,973,689     $ 7,360,680  
Research and development segment     336,550       233,414       1,418,193       233,414  
Total segment and consolidated revenues     2,010,792       1,954,721       7,391,882       7,594,094  
                                 
Gross profit (loss):                                
Product segment     664,850       591,105       2,479,150       3,398,810  
Research and development segment     (148,401 )     22,857       (30,980 )     22,857  
Total segment and consolidated gross profit     516,449       613,962       2,448,170       3,421,667  
                                 
Income (loss) from operations                                
Product segment   $ (53,959 )   $ (355,391 )   $ 275,827     $ 462,952  
Research and development segment     (313,546 )     (11,370 )     (612,467 )     (11,370 )
Total segment income (loss)     (367,505 )     (366,761 )     (336,640 )     451,582  
Unallocated costs     (366,545 )     (281,960 )     (1,087,415 )     (281,960 )
Total consolidated (loss) income from operations   $ (734,050 )   $ (648,721 )   $ (1,424,055 )   $ 169,622  
                                 
Depreciation and amortization:                                
Product segment   $ 37,857     $ 82,644     $ 113,571     $ 167,010  
Research and development segment     12,873       4,492       38,683       4,492  
Total segment depreciation and amortization     50,730       87,136       152,254       171,502  
Unallocated depreciation     12,822       -       38,465       -  
Total consolidated depreciation and amortization     63,552       87,136       190,719       171,502  
                                 
Capital additions:                                
Product segment   $ 4,204     $ 136,981     $ 228,410     $ 144,039  
Research and development segment     -       -       3,386       -  
Total segment capital additions     4,204       136,981       231,796       144,039  
Unallocated capital additions     -       -       -       -  
Total consolidated capital additions   $ 4,204     $ 136,981     $ 231,796     $ 144,039  

 

    September 30, 2015     December 31, 2014  
Segment tangible assets:                
Product segment   $ 865,490     $ 750,651  
Research and development segment     64,899       100,196  
Total consolidated tangible assets   $ 930,389     $ 850,847  

Organization and Basis of Presentation (Details Narrative)

v2.4.0.8
Organization and Basis of Presentation (Details Narrative)
0 Months Ended 9 Months Ended 0 Months Ended
Sep. 30, 2015
Common Class A [Member]
Dec. 31, 2014
Common Class A [Member]
Aug. 28, 2014
Common Class A [Member]
Former Directors [Member]
Aug. 26, 2014
Common Class A [Member]
Former CFO [Member]
Sep. 30, 2015
Common Class B [Member]
Dec. 31, 2014
Common Class B [Member]
Sep. 30, 2015
Class Z Common Stock [Member]
Dec. 31, 2014
Class Z Common Stock [Member]
Aug. 26, 2014
Common Class A [Member]
Sep. 30, 2015
Nanofilm Ltd [Member]
Aug. 27, 2014
Nanofilm Ltd [Member]
Aug. 26, 2014
Applied Nanotech, Inc [Member]
Aug. 27, 2014
Nano [Member]
Common Class A [Member]
Aug. 27, 2014
Nano [Member]
Common Class B [Member]
Aug. 27, 2014
Nano [Member]
Class Z Common Stock [Member]
Percentage of ownership equity                     100.00%        
Outstanding Convertible note converted into common stock                       32,379,288      
Number of stock issued during period for payment of accrued fees to directors     11,164,620                        
Number of stock issued during period to former CFO       1,500,000                      
Common stock outstanding 237,162,531 234,744,655     251,126,637 251,017,063 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 non controlling interest of net income loss                   14.50%          

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 12 Months Ended 9 Months Ended 0 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Dec. 31, 2014
Sep. 30, 2015
Minimum [Member]
Sep. 30, 2015
Maximum [Member]
Feb. 24, 2014
Nanofilm Ltd [Member]
Sep. 30, 2015
Pending Technologies [Member]
Sep. 30, 2015
Patents [Member]
Sep. 30, 2015
Other Technologies [Member]
Estimated useful lives for property and equipment           3 years 10 years        
Estimated useful life of intangible assets                 5 years 5 years 5 years
Sales incentives and cooperative advertising reduction of sales $ 32,747 $ 30,030 $ 114,440 $ 95,538              
Shipping and handling costs 44,980 42,047 147,002 151,955              
Research and development expense 174,736 131,371 620,291 426,740              
Advertising expense $ 46,522 $ 23,360 $ 81,290 $ 115,474              
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   6,800,000            

Summary of Significant Accounting Policies - Schedule of Reconciliation of Fair Value of Level 3 Valuation of Financial Instruments (Details)

v2.4.0.8
Summary of Significant Accounting Policies - Schedule of Reconciliation of Fair Value of Level 3 Valuation of Financial Instruments (Details) (USD $)
9 Months Ended 12 Months Ended
Sep. 30, 2015
Dec. 31, 2014
Level 1 [Member]
   
Intangible assets      
Stock Appreciation Rights Plan A      
Equity Credits Issued      
Level 2 [Member]
   
Intangible assets      
Stock Appreciation Rights Plan A      
Equity Credits Issued      
Level 3 [Member]
   
Intangible assets 200,873 239,338
Stock Appreciation Rights Plan A 46,146 46,146
Equity Credits Issued $ 25,178 $ 25,178

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

v2.4.0.8
Summary of Significant Accounting Policies - Schedule of Reconciliation of Fair Value of Asset Liabilities Measured Recurring Basis (Details) (USD $)
9 Months Ended
Sep. 30, 2015
Intangible Assets [Member]
 
Balance $ 239,338
Amortization of intangible assets (38,465)
Change in fair value included in net loss   
Balance 200,873
Stock Appreciation Rights Plan A [Member]
 
Balance 46,146
Amortization of intangible assets   
Change in fair value included in net loss   
Balance 46,146
Equity Credits Issued [Member]
 
Balance 25,178
Amortization of intangible assets   
Change in fair value included in net loss