-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, OX7PrtJNz2/p74bt/lTDf72kE4lmStR9PNbNul3KJZmsXwBwjm4zYkWi9T+kWQRh EtRfylv3ZQA5SkuegAOPoQ== 0000760461-95-000002.txt : 19950516 0000760461-95-000002.hdr.sgml : 19950516 ACCESSION NUMBER: 0000760461-95-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 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: 95538986 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 March 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 March 31, 1995; 10,858,258 shares of common stock, par value $.01 per share. Page 1 of 15 There is no Exhibit Index. INDEX Part I. Financial Information: Item 1. Financial Statements Page Condensed Consolidated Balance Sheets as of March 31, 1995 and September 30, 1994 3-4 Condensed Consolidated Statements of Operations for the three and six months ended March 31, 1995 and 1994 5 Condensed Consolidated Statements of Cash Flows for the three and six months ended March 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 12-13 Part II. Other Information: Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 PART I. FINANCIAL INFORMATION
PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (000's omitted) (Substantially all pledged or assigned) March 31, 1995 September 30, 1994 (unaudited) Current Assets: Cash $ 190 $ 698 Accounts receivable, net of allowances for doubtful accounts of $76 at March 31, 1995 and $55 at September 30, 1994 11,840 13,130 Inventories (Note 1) 24,987 21,327 Income taxes receivable 301 369 Prepaid expenses and other 2,049 1,308 Total current assets 39,367 36,832 Furniture and equipment (Note 1) 7,337 6,890 Less accumulated depreciation 2,331 1,889 5,006 5,001 Other assets: Trademarks, net of amortization (Note 1) 286 289 Due from officer 122 78 Deposits on equipment 47 455 367 $44,828 $42,200 See notes to condensed consolidated financial statements. PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (000's omitted) March 31, 1995 September 30, 1994 (unaudited) Current liabilities: Notes payable, banks (Note 2) $14,923 $ 9,163 Bankers' acceptances payable (Note 2) 2,214 1,860 Accounts payable 1,688 1,425 Accrued expenses 2,255 2,932 Total current liabilities 21,080 15,380 Deferred income taxes 400 340 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; 10,858,258 shares issued and outstanding at March 31, 1995 and 11,692,958 at September 30, 1994 109 117 Capital in excess of par 6,053 6,512 Retained earnings 18,405 20,894 Treasury stock (1,219) (1,043) 23,348 26,480 $44,828 $42,200 See notes to condensed consolidated financial statements. PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (000's omitted except for per share amounts) Three Months Ended Six Months Ended March 31 March 31 1995 1994 1995 1994 Net sales $12,249 $11,153 $21,893 $23,227 Cost of sales 7,954 6,821 14,162 14,750 Gross profit 4,295 4,332 7,731 8,477 Selling, general and administrative expenses 3,380 3,049 5,860 5,688 Loss on Mexican affiliate 350 Interest expense 319 144 476 298 Interest (income) (8) (1) (17) (4) 3,691 3,192 6,669 5,982 Income before taxes 604 1,140 1,062 2,495 Income taxes 229 426 404 948 Net income $ 375 714 $ 658 $ 1,547 Net income per share $ .04 $ .06 $ .06 $ .13 primary and fully diluted See notes to condensed consolidated financial statements. PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (000's omitted) Six Months Ended March 31, 1995 1994 Cash flows from operating activities: Net income $ 658 $ 1,547 Adjustments to reconcile net income to net cash (used in) operating activities: Depreciation and amortization 486 408 (Increase) decrease in: Accounts receivable 1,290 5,441 Accounts receivable-other - (1,151) Inventories (3,660) (7,067) Prepaid expenses and other (741) 482 Income taxes receivable/payable 68 (437) Due from officer (44) (22) Increase (decrease) in: Bankers' acceptances payable 354 (1,192) Accounts payable 263 415 Accrued expenses (677) (446) Deferred income taxes payable 60 307 Total adjustments (2,601) (3,262) Net cash (used in) operating activities (1,943) (1,715) Cash flows (used in) investing activities: (Purchase) of furniture/equipment (447) (382) (Increase) in trademarks (41) (25) (Increase) in equipment deposits (47) (3) Net cash (used in) investing activities (535) (410) See notes to condensed consolidated financial statements. PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (000's omitted) Six Months Ended March 31, 1995 1994 Cash flows from financing activities: Net increase in notes payable $ 5,760 $ 1,520 Payments to acquire treasury stock (3,782) (227) Proceeds from the issuance of Common Stock and exercise of options 10 Payments to retire Common Stock options (8) Net cash provided by financing activities 1,970 1,303 Net decrease in cash and cash equivalents (508) (822) Cash and cash equivalents, beginning of period 698 843 Cash and cash equivalents, end of period $ 190 $ 21 Supplemental disclosures of cash flow information: Non-cash financing activities: Issuance of Common Stock pursuant to exercise of options $ 606 Acquisition of treasury stock $ 606 Retirement of treasury stock $ 606 Cash paid during the period for: Interest $ 476 $ 298 Income taxes $ 276 $ 1,097 See notes to condensed consolidated financial statements. PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (The information for the three and six months ended March 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 pencils. 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 financial position at March 31, 1995, the results of operations for the three and six month periods ended March 31, 1995 and 1994 and cash flows for the six month periods ended March 31, 1995 and 1994. Inventory: Inventory is stated at the lower of cost or market (first-in, first-out). Interim inventories are based on a calculated 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 incurred. PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (con't) Trademarks: The costs thereof are being amortized over a five-year period on a straight-line basis. 2. Notes payable, bank: Rate March 31, 1994 Rate September 30, 1994 Notes payable 8.20% $ 8,000,000 7.75% $ 9,163,000 Notes payable 8.15% 5,000,000 Notes payable 9.00% 1,923,000 $14,923,000 Bankers' acceptances payable $ 2,214,000 $ 1,860,000 The above were collateralized by a security interest in substantially all of the assets of the Company. A credit line of $27,000,000 is available to the Company at the discretion of the banks. This $27,000,000 is subject to limitation based upon eligible inventory and accounts receivable as defined by the banks. 3. Common Stock: From October 1994 through March 1995, the Company purchased 890,400 shares of its Common Stock for prices ranging from $3.50 to $5.375 per share. As of March 31, 1995, 252,000 shares of Common Stock remained in treasury. In February 1994, options to purchase an aggregate of 175,000 shares of Common Stock were exercised at prices ranging from $3.19 to $3.51 per share resulting in the issuance of 175,000 shares of Common Stock. The persons paid the exercise price of those options by delivery of 91,506 shares of Common Stock with a value of $606,250 to the Company. These 91,506 shares of Common Stock have PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (con't) been retired. In March 1994, options to purchase an aggregate of 2,000 shares of Common Stock were exercised at $5.125 per share, resulting in the issuance of 2,000 shares of Common Stock and proceeds of $10,250. 4. Contingency: At March 31, 1995 the registrant was contingently liable for outstanding letters of credit of $6,916,000. 5. Income taxes: Three Months Ended Six Months Ended March 31, 1995 March 31, 1995 Federal: Current $ 165,000 $ 283,000 Deferred 28,000 57,000 State: Current 34,000 61,000 Deferred 2,000 3,000 $ 229,000 $ 404,000 Income tax at Federal statutory rate applied to income before taxes $ 205,000 $ 361,000 Add: state income taxes 36,000 64,000 Less: effect of deduction of state income taxes for Federal purposes (12,000) (21,000) Income taxes provided $ 229,000 $ 404,000 PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (con't) Effective October 1, 1993, the Company adopted FASB Statement No. 109, Accounting for Income Taxes. Under Statement 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement 109, income tax expense was determined using the deferred method. Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the differences originated. As permitted by Statement 109, the Company has elected not to restate the financial statements for prior years. The effect of the change on pretax income from continuing operations for the three and six months ended March 31, 1994 was not material. Significant components of the Company's deferred tax liability as of March 31, 1995 and September 30, 1994 are as follows: March 31, September 30, 1995 1994 Deferred tax liability: Depreciation $778,000 $698,000 Deferred tax assets: Reserve for lawsuit 99,000 99,000 Inventory reserve 37,000 37,000 Reserve for returns and allowances 124,000 124,000 Unicap 16,000 16,000 Loss on foreign affiliate 96,000 76,000 Other 6,000 6,000 378,000 358,000 Deferred income tax liability $400,000 $340,000 Net 6. Related party transactions: In December 1993, the Company sublet premises, which it originally used as its primary offices and leased from a Company controlled by two officers/shareholders (the "sublease"). The Company's lease of those premises expires September 30, 1995, is triple net and provides for a base rent of $3,930 per month. The sublease, to an unaffiliated company, is for $2,750 per month and expires June 30, 1995.
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 March 31, 1995 10% and decreased 6% for the six months ended March 31, 1995 as compared to the same periods a year ago. The three months increase was principally due to the continued successful introduction of new products, while the six month decrease was principally related to the loss of one large holiday order with one customer in the first quarter of this year. Gross profit as a percentage of net sales decreased in the three months ended March 31, 1995 to 35.1% from 38.8% in the same 1994 period, and decreased to 35.3% in the six month period ended March 31, 1995 from 36.5% in the same 1994 period. The changes in gross profit for the three months ended March 31, 1995 was principally due to an increase in direct shipment business, a higher percentage of chalk business, an acceleration of closeout shipments into the earlier quarters and overall product mix. Selling, general and administrative (SG&A) expenses as a percentage of sales increased during the three months ended March 31, 1995 to 27.6% from 27.3% in the prior year. SG&A expenses increased to 26.8% of sales during the six months ended March 31, 1995 from 24.5% of sales in the year earlier period. The increase was primarily due to royalty expenses associated with the new licensed products and the lower sales for the year associated with a similar level of fixed SGA expenses. There was a significant increase in interest expense due to the funds used to finance the stock buy back program and higher interest rates. During the three months ended March 31, 1995, net income decreased to $375,000, or $.04 per share, from $714,000, or $.06 per share, for the three months ended March 31, 1994, a decrease of 47%. During the six months ended March 31, 1995 net income decreased to $658,000 or $.06 per share, from $1,547,000, or $.13 per share, in the year earlier period, a decrease of 57%. These decreases were primarily related to lower sales, the writedown of the Mexican affiliate and higher interest costs. (2) Material Changes in Financial Condition Working capital decreased $3,165,000 to $18,287,000 during the six months ended March 31, 1995. This decrease ws primarily related to the Company funding its two 500,000 share repurchase programs with its working capital. On a long-term basis, the Company's liquidity is strong due to its continuing profitability, relatively stable credit facilities, the quality of its receivables, the largely finished nature of its inventory, and the level of its shareholders' equity as compared to its traditional borrowing needs. The Company is prohibited, without the consent of its primary lenders, 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: May 12, 1995 By: /s/ David Melnick David Melnick, President and Principal Financial Officer ptk\10q-mar.95 EX-27 2
5 1000 6-MOS SEP-30-1995 MAR-31-1995 190 0 11,840 76 24,987 39,367 7,337 2,331 44,828 21,080 0 109 0 0 23,348 44,828 12,249 12,249 7,954 3,380 0 0 311 604 229 375 0 0 0 375 .04 .04
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