-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UroC1cYvpWct6JcZ7wU/CADH6CpyU5Z6IpuRELzTOXhivQKvgGqD+TNgZEyQD6re EYv36lrd3wP3t9o5DwrVvQ== 0000760461-96-000003.txt : 19960216 0000760461-96-000003.hdr.sgml : 19960216 ACCESSION NUMBER: 0000760461-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENTECH INTERNATIONAL INC CENTRAL INDEX KEY: 0000760461 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 232259391 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15374 FILM NUMBER: 96518392 BUSINESS ADDRESS: STREET 1: 195 CARTER DRIVE CITY: EDISON STATE: NJ ZIP: 08817 BUSINESS PHONE: 9082876640 MAIL ADDRESS: STREET 2: 195 CARTER DR CITY: EDISON STATE: NJ ZIP: 08817 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from to . Commission file number 0-15374 PENTECH INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 23-2259391 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 195 Carter Drive, Edison, New Jersey 08817 (Address of principal executive offices) (Zip Code) (908) 287-6640 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of December 31, 1995: 10,496,758 shares of common stock, par value $.01 per share. INDEX Part I. Financial Information: Item 1. Financial Statements (Unaudited) Page Condensed Consolidated Balance Sheets as of December 31, 1995 and September 30, 1995 3-4 Condensed Consolidated Statements of Operations for the three months ended December 31, 1995 and 1994 5 Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 1995 and 1994 6-7 Notes to Condensed Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II. Other Information: Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 PART I. FINANCIAL INFORMATION
PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (000's omitted) (Substantially all pledged or assigned) December 31, 1995 September 30, 1995 (unaudited) Current Assets: Cash $ 1,052 $ - Accounts receivable, net of allowances for doubtful accounts of $88 at December 31, 1995 and $70 at September 30, 1995 10,574 12,451 Inventories (Note 1) 23,089 22,844 Income taxes receivable 1,951 1,823 Prepaid expenses and other 1,151 1,227 Deferred Tax Asset 800 991 Total current assets 38,617 39,336 Furniture and equipment (Note 1) 7,641 7,542 Less accumulated depreciation 2,964 2,737 4,677 4,805 Other assets: Trademarks, net of amortization (Note 1) 245 267 Due from officer 110 110 355 377 $43,649 $44,518 See notes to condensed consolidated financial statements. PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (000's omitted) December 31, 1995 September 30, 1995 (unaudited) Current liabilities: Notes payable, banks (Note 2) $15,853 $15,169 Bankers' acceptances payable (Note 2) 1,186 1,842 Accounts payable 1,604 2,383 Accrued expenses 2,749 3,014 Total current liabilities 21,392 22,408 Deferred income taxes 782 765 Commitments and contingencies (Notes 4 and 5) Shareholders' equity (Note 3): Preferred stock, par value $.10 per share; authorized 500,000 shares; issued and outstanding none Common stock, par value $.01 per share; authorized 20,000,000 shares; 10,496,758 shares issued and outstanding at December 31, 1995 and September 30, 1995, re- spectively 105 105 Capital in excess of par 5,846 5,846 Retained earnings 15,524 15,394 21,475 21,345 $43,649 $44,518 See notes to condensed consolidated financial statements. PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended December 31, 1995 1994 Net sales $11,892 $ 9,644 Cost of sales 7,656 6,208 Gross profit 4,236 3,436 Selling, general and administrative expenses 3,713 2,480 Loss on Mexican affiliate 350 Interest expense 324 157 Interest (income) (11) (9) 4,026 2,978 Income before taxes 210 458 Income taxes 80 175 Net income $ 130 $ 283 Net income per share- primary and fully diluted $.01 $ .03 See notes to condensed consolidated financial statements. PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended December 31, 1995 1994 Cash flows from operating activities: Net income $ 130 $ 283 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 257 240 (Increase) decrease in: Accounts receivable 1,877 1,997 Inventories (245) (1,136) Prepaid expenses and other 76 (240) Income taxes receivable/ payable (128) 95 Increase (decrease) in: Bankers' acceptances payable (656) (500) Accounts payable (779) (356) Accrued expenses (265) (190) Deferred income taxes payable\receivable 208 30 Total adjustments 345 (60) Net cash provided by operating activities 475 223 Cash flows from investing activities: (Purchase) of furniture/equipment (99) (192) (Increase) in deposits (47) (Increase) in trademarks (8) (6) Net cash (used in) investing activities (107) (245) See notes to condensed consolidated financial statements. PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) Three Months Ended December 31, 1995 1994 Cash flows from financing activities: Net increase in notes payable $ 684 $ 3,735 Payment to retire common stock options (8) Payments to acquire treasury stock (3,746) Net cash provided by (used in) financing activities 684 (19) Net increase (decrease) in cash and cash equivalents 1,052 (41) Cash and cash equivalents, beginning of period -0- 698 Cash and cash equivalents, end of period $ 1,052 $ 657 Supplemental disclosures of cash flow information and non-cash financing activities: Cash paid during the period for: Interest $ 324 $ 157 Income taxes $ -0- $ 50 See notes to condensed consolidated financial statements.
PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (The information for the three months ended December 31, 1995 and 1994 is unaudited.) 1. Summary of significant accounting policies: Organization: Pentech International, Inc. (the "Company") was formed in April 1984. A wholly-owned subsidiary, Sawdust Pencil Company ("Sawdust") was formed in November 1989 and commenced operations in January 1991. The Company and its subsidiary are engaged in the production, design and marketing of writing and drawing instruments. In October 1993, the Company formed a wholly-owned subsidiary, Pentech Cosmetics, Inc. to manufacture and distribute cosmetic products. The Company's fiscal year ends September 30. Principles of consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Unaudited financial statements: All unaudited financial information includes all adjustments (consisting of normal recurring adjustments) which the Company considers necessary for a fair presentation of the financial position at December 31, 1995 and the results of operations and the statements of cash flows for the three month period ended December 31, 1995 and 1994. Inventory: Inventory is stated at the lower of cost or market (first-in, first-out). Interim inventories are based on an estimated gross profit percentage by product, calculated monthly. Equipment and depreciation: Equipment is stated at cost. Depreciation is provided by the straight-line method over the estimated useful lives of the assets, which range from five to ten years. Major improvements to existing equipment are capitalized. Expenditures for maintenance and repairs which do not extend the life of the assets are charged to expense as PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (The information for the three months ended December 31, 1995 and 1994 is unaudited.) incurred. Trademarks: The costs thereof are being amortized over a five-year period on a straight-line basis. 2. Notes payable, bank: December 31, September 30, Rate 1995 Rate 1995 Notes payable(a) 7.8125% $ 9,750,000 7.875% $ 9,000,000 8.50% 6,103,000 8.75% 6,169,000 $15,853,000 15,169,000 Bankers' acceptances $ 1,186,000 None $ 1,842,000 payable(a) (a) Collateralized by a security interest in substantially all of the assets of the Company. A credit line of $34,000,000 is available at the bank's discretion. This $34,000,000 is subject to limitation based upon eligible inventory and accounts receivable as defined by the bank. 3. Common Stock: From October 1994 through December 1994, the Company purchased 880,400 shares of its common stock at prices ranging from $3.5 to $5.375 per share. As of December 31, 1994, 826,400 shares of common stock remained in treasury. The Company has completed both of its 500,000 share repurchase programs. 4. Contingency: At December 31, 1995 the Company was contingently liable for outstanding letters of credit of $2,317,017. PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (The information for the three months ended December 31, 1995 and 1994 is unaudited.) Three Months Ended December 31 1995 1994 5. Income taxes: Federal: Current $ 51,000 $118,000 Deferred 16,000 29,000 State: Current 12,000 27,000 Deferred 1,000 1,000 $ 80,000 $175,000 Income tax at Federal statutory rate applied to income before taxes $ 71,000 $ 156,000 Add: state income taxes 13,000 28,000 Less: effect of deduction of state income taxes for Federal purposes (4,000) (9,000) Income taxes provided $ 80,000 $ 175,000 PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (The information for the three months ended December 31, 1995 and 1994 is unaudited.) Significant components of the Company's deferred tax liability as of December 31, 1995 and September 30, 1995 are as follows: December 31, September 30, 1995 1995 Deferred tax liability: Depreciation $782,000 $ 765,000 Deferred tax assets: Reserve for lawsuit 141,000 141,000 Inventory reserve 520,000 520,000 Reserve for returns and allowances 51,000 260,000 Unicap 34,000 34,000 Bad debts 45,000 27,000 Other 9,000 9,000 800,000 991,000 Deferred income tax asset $ 18,000 $226,000 Net 6. New authoritative accounting pronouncements: The Financial Accounting Standards Board has issued Financial Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 123 will take effect for transactions entered into during the fiscal year beginning October 1, 1996; with respect to disclosures required for entities that elect to continue to measure compensation cost using a prior permitted accounting method, such disclosures must include the effects of all awards granted in the fiscal year beginning October 1, 1995. The Company's election under FAS 123 has not been determined and the effect of adoption of FAS 123 on the Company's financial statements has not be determined. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (1) Material Changes in Results of Operations Net sales increased in the three months ended December 31, 1995 23.3% compared to the same period in 1994. This was principally due to the success of the Company's licensed products. Gross profit as a percentage of net sales remained unchanged in the three month period ended December 31, 1995 at 35.6% compared to the same 1994 period. Selling, general and administrative ("SG&A") expenses as a percentage of sales increased to 31.2% from 25.7% in the three months ended December 31, 1995 compared to the same prior period. The three month period increase was caused principally by the higher royalty expenses and the cost to move into the Company's new distribution facility. In addition, interest expense increased compared to same prior period due to the increased borrowings for the stock buyback programs. During the three months ended December 31, 1995, net income decreased to $130,000 or $.01 per share, from $283,000 or $.03 per share, for the three months ended December 31, 1994. This is a decrease of 54%. This decrease in net income is principally due to higher SG&A expenses and interest costs. (2) Material Changes in Financial Condition Working capital increased $297,000 to $17,225,000 during the three months ended December 31, 1995. This increase was primarily due to the net income generated for the period. On a long-term basis, the Company's liquidity is strong due to its continuing profitability, relatively stable credit facilities, its strong current ratio, the quality of its receivables, the largely finished nature of its inventory, and the size of its shareholders' equity as compared to its traditional borrowing needs. The Company is prohibited, without the consent of its primary lender, from declaring cash dividends. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (b) None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PENTECH INTERNATIONAL, INC. Dated: February 14, 1996 By: /s/ David Melnick David Melnick, Principal Operating Officer ptk\10-q-dec.95 EX-27 2
5 1000 3-MOS SEP-30-1996 DEC-31-1995 1,052 0 10,574 88 23,089 38,617 7,641 2,964 43,649 21,392 0 0 0 105 21,370 43,649 11,892 11,892 7,656 3,713 0 0 324 210 80 130 0 0 0 130 .01 .01
-----END PRIVACY-ENHANCED MESSAGE-----