FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-15374
Pentech International Inc. 401(k) Plan
(Full title of the plan and address of the plan, if different
from that of the issuer named below)
PENTECH INTERNATIONAL INC.
195 Carter Drive
Edison, New Jersey 08817
(Name of issuer of the securities held pursuant to the
plan and the address of its principal executive office)
<PAGE>
PENTECH INTERNATIONAL INC. 401(k) PLAN
OCTOBER 1, 1997 TO DECEMBER 31, 1997
AND YEAR ENDED DECEMBER 31, 1998
CONTENTS
Page
Independent auditors' report 1
Statements of net assets available for plan benefits 2
Statement of changes in net assets available for
benefits with fund information, year ended
December 31, 1998 3
Statement of changes in net assets available for
benefits with fund information, October 1, 1997
to December 31, 1997 4
Notes to financial statements 5 - 10
Supplemental schedules:
Line 27(a) - Schedule of assets held for investment 12
Line 27(d) - Schedule of reportable transactions 13
Signatures14
<PAGE>
Independent Auditors' Report
Board of Directors
Pentech International Inc. 401(k) Plan
Edison, New Jersey
We have audited the accompanying statements of net assets available
for plan benefits of Pentech International Inc. 401(k) Plan ("Plan")
as of December 31, 1998 and 1997, and the related statements of
changes in net assets available for benefits for the year ended
December 31, 1998 and the period from October 1 to December 31, 1997.
These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets available for
benefits of the Plan as of December 31, 1998 and 1997, and the changes
in net assets available for benefits for the year ended December 31,
1998 and the period from October 1 to December 31, 1997 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The accompanying
supplemental schedules are presented for the purpose of additional
analysis and are not a required part of the basic financial statements
but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974. The fund information
in the statement of changes in net assets available for benefits is
presented for purposes of additional analysis rather than to present
the net assets available for benefits and the changes in net assets
available for benefits of each fund. The supplemental schedules and
fund information have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
June 17, 1999 Drucker, Math & Whitman, P.C.
PENTECH INTERNATIONAL INC. 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1998 AND 1997
1998 1997
Cash $ - $ 6,382
Investments, at fair market value:
Morgan Stanley Dean Witter ( MSDW )
Liquid Asset Fund 39,145 28,263
MSDW U.S. Govenment Money Market Trust 461 -
MSDW Dividend Growth Securities 412,168 379,157
MSDW U.S. Government Securities Trust 37,672 30,299
MSDW Global Dividend Growth 117,108 108,560
Pentech International Inc. Stock 115,559 329,052
Participant loans 18,414 10,624
740,527 892,337
Contributions receivable:
Participants - 10,475
Employer - 2,940
- 13,415
Net assets available for plan
benefits $ 740,527 $ 905,752
See notes to financial statements.
<TABLE>
PENTECH INTERNATIONAL INC. 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
FOR YEAR ENDING DECEMBER 31, 1998
<CAPTION>
Morgan Morgan Morgan Morgan
Morgan Stanley Stanley Stanley Stanley
Stanley Dean Dean Dean Dean Pentech
Dean Witter Witter Witter Witter Inter-
Witter US Gov't Dividend U.S. Global national
Liquid Money Growth Government Dividend Inc. Loan
Cash Assets Market Securities Securities Growth Stock Fund Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Dividends and interest $- $1,315 $ 18 $16,699 $2,028 $10,438 $ - $993 $- $31,491
Realized gain (loss) - - 122 31,240 - 966 (32,308) - - 20
Unrealized gain (loss) - - - 18,211 231 1,620 (210,469) - - (190,407)
0 1,315 140 66,150 2,259 13,024 (242,777) 993 - (158,896)
Contributions:
Participants' 133,736 - - - - - - - - 133,736
Employer's - - - - - - 33,288 - - 33,288
Participant rollover 2,205 - - - - - - - - 2,205
contributions - - - - - - - - - 0
135,941 - - - - - 33,288 - - 169,229
Total additions 135,941 1,315 140 66,150 2,259 13,024 (209,489) 993 - 10,333
Deductions from net assets
attributed to:
Benefits paid (175,558) - - - - - - - - (175,558)
Total deductions (175,558) - - - - - - - - (175,558)
Net increase
(decrease) (39,617) 1,315 140 66,150 2,259 13,024 (209,489) 993 - (165,225)
Net assets available
for benefits:
Beginning of year 6,382 28,263 - 379,157 30,299 108,560 329,052 11,688 12,351 905,752
Transfers 33,235 9,567 321 (33,139) 5,114 (4,476) (4,004) 5,733 (12,351) -
End of year $ - $39,145 $461 $412,169 $37,672 $117,108 $115,559 $ 18,414 $ - $ 740,527
</TABLE>
See notes to financial statements.
<TABLE>
PENTECH INTERNATIONAL INC. 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
OCTOBER 1, 1997 TO DECEMBER 31, 1997
<CAPTION>
Participant directed Employer directed
Dean Dean Dean Pentech Pentech
Dean Witter Witter Witter Inter- Inter-
Witter Dividend U.S. Global national national
Liquid Growth Government Dividend Inc. Inc.
Cash Assets Securities Securities Growth Stock Other Stock Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Dividends and interest $98 $309 $4,467 $455 $8,300 $ - $ - $ - $ - $ 13,629
Realized gain (loss) - - 8,049 128 959 (186) - - - 8,950
Unrealized gain (loss) - - (2,474) 70 (14,300) 20,266 - - - 3,562
Exchange (4,290) 8,751 (4,666) - - (683) - - - (688)
(4,192) 9,060 5,576 653 (5,041) 19,397 - - - 25,453
Less: investment
expenses - - - - - - - - - -
(4,192) 9,060 5,576 653 (5,041) 19,397 - - - 25,453
Contributions:
Participants' (20,568) - 22,544 5,931 16,317 2,027 1,442 - - 27,693
Employer's - - - - - - - 6,412 722 7,134
Participant loan
repayments - - 1,097 206 - 1,097 (2,400) - - -
Participant rollover
contributions - - 21,297 - - - - - - 21,297
(20,568) - 44,938 6,137 16,317 3,124 (958) 6,412 722 56,124
Total additions (24,760) 9,060 50,514 6,790 11,276 22,521 (958) 6,412 722 81,577
Deductions from net assets
attributed to:
Benefits paid (24,548) - 27,367 4,554 12,683 1,937 - - - 21,993
Loans to participants - - - - - - - - - -
Miscellaneous - - - - - - - - - -
Total deductions (24,548) - 27,367 4,554 12,683 1,937 - - - 21,993
Net increase
(decrease) (212) 9,060 23,147 2,236 (1,407) 20,584 (958) 6,412 722 59,584
Net assets available
for benefits:
Beginning of year 6,594 19,203 356,010 28,063 109,967 247,955 22,057 54,101 2,218 846,168
End of year $ 6,382 $ 28,263 $ 379,157 $ 30,299 $108,560 $268,539 $ 21,099 $60,513 $2,940 $ 905,752
</TABLE>
See notes to financial statements.
<PAGE>
PENTECH INTERNATIONAL INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
PERIOD OCTOBER 1, 1997 TO DECEMBER 31, 1997
AND YEAR ENDED DECEMBER 31, 1998
1. Description of the Plan:
The following brief description of the Pentech International
Inc. 401(k) Plan ("Plan") is provided for general information
purposes only. More complete information concerning the Plan
and its provisions can be found in the Plan documents.
General:
The Plan, as amended and restated, began on April 1, 1993 and is
a defined contribution plan covering all eligible employees of
Pentech International Inc. ("Company"). Employees are eligible
to participate when they have completed six months of service
and have reached age twenty and one-half. The Plan is subject
to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA). The Plan was amended and restated on April 1,
1995 to exclude collective bargaining employees. The Plan was
amended and restated on April 1, 1996 to include an employer
matching provision. The amount of the employer match is a
percentage of the participants contributions (up to a maximum
of 6% of compensation), and is such percentage as is determined
by the employer. For the period from October 1 to December 31,
1997 and the year ended December 31, 1998, the employer matching
was 33% of the participants contributions, limited to the 6%
maximum.
The Plan was amended effective October 1, 1997 to change the
Plan year end from September 30 to December 31. Accordingly,
financial statements have been prepared for the period from
October 1 to December 31, 1997.
Administration of Plan assets:
The assets of the Plan are administered under a trust agreement
between the Plan and a trustee designated by the Company.
Administrative expenses of the Plan are paid by the Company.
Investment expenses, i.e. commissions, are charged to
participants' accounts at the time of withdrawal. No investment
expenses were incurred during the periods presented.
Contributions:
Employee contributions are made in the form of a salary
reduction by withholding an elected percentage from the
employee's salary each pay period. Participants may elect to
contribute up to 20% of their gross annual compensation subject
to deferral and non-discrimination limitations under the
Internal Revenue Code.
PENTECH INTERNATIONAL INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
PERIOD OCTOBER 1, 1997 TO DECEMBER 31, 1997
AND YEAR ENDED DECEMBER 31, 1998
1. Description of the Plan: (continued)
Contributions: (continued)
The Company makes a matching contribution, as described above,
or may make a profit sharing contribution, or both, as
determined by the Company. Such Company contributions are
subject to the provisions and limitations prescribed by the
Plan. Company matching contributions are invested in Company
stock, while Company profit sharing contributions, if any, are
invested in the same funds in which the participants chose to
invest their contributions.
Participants' accounts:
Each participant's account is credited with the participant's
and the Company's contributions, if any, and forfeitures of
terminated participants' nonvested amounts are used to reduce
Company contributions. Income and profits attributable to the
assets of the Plan are allocated among the participants'
accounts in relation to their account balances. The benefit to
which a participant is entitled is the benefit that can be
provided from the participant s vested account.
Vesting:
Participants are immediately vested in their salary reduction
contributions plus actual earnings thereon. Vesting in the
Company matching and profit sharing contributions, if any, plus
earnings thereon is based on years of service as follows: Less
than 2 years, none; 2 years but less than 3, 20%; 3 years but
less than 4, 40%; 4 years but less than 5, 60%; 5 years but less
than 6, 80%; 6 years or greater, 100%.
Investment options:
Upon enrollment in the Plan, a participant may direct employee
contributions in 5% increments in any of six investment options:
Morgan Stanley Dean Witter Liquid Asset Fund - Funds are
invested in a money market account which earns a market interest
rate.
Morgan Stanley Dean Witter U.S. Government Money Market Trust -
Funds are invested in U.S. Government obligations which earns a
market interest rate.
Morgan Stanley Dean Witter Dividend Growth Securities Fund -
Funds are invested in shares of a registered investment company
that invests mainly in common stocks.
PENTECH INTERNATIONAL INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
PERIOD OCTOBER 1, 1997 TO DECEMBER 31, 1997
AND YEAR ENDED DECEMBER 31, 1998
1. Description of the Plan: (continued)
Investment options: (continued)
Morgan Stanley Dean Witter Global Dividend Growth Fund - Funds
are invested in shares of a registered investment company that
invests mainly in U.S. and foreign common stocks.
Morgan Stanley Dean Witter U.S. Government Securities Fund -
Funds are invested in a registered investment company that
invests mainly in U.S. Government Securities.
Pentech International Inc. Stock - Funds are invested in common
stock of Pentech International Inc.
Participants may change their investment options at any time by
contacting Morgan Stanley Dean Witter directly.
Payment of benefits:
The distribution of Plan benefits, as defined, is permitted upon
the earlier of retirement, death, disability, separation of
service with the Company or attainment of age 59 and one half. Withdrawal
will also be available in certain hardship situations, as
defined in the Plan document. Distribution of account balances
may be made in either a lump-sum amount, or in installments over
a fixed reasonable period not to exceed the life expectancy of
the participant. Distributions must commence at age 70 and one half even if
the participant does not retire.
Loans receivable from Plan participants:
A participant of the Plan who needs temporary financial
assistance may request a loan from the Plan. A minimum of
$1,000 may be borrowed in $250 increments, subject to statutory
restrictions (may not exceed the lesser of $50,000 or 50% of the
vested account balance). The participant may have only one loan
outstanding at any time. Loans bear interest at market rates.
Loan repayments are made by payroll deduction; the participant
may prepay principal and interest at any time.
Plan termination:
Although it has not expressed any intent to do so, the Company
has the right to terminate the Plan at any time. In the event
of Plan termination, the time and manner of distribution of
vested benefits shall be subject to the discretion of the Plan
administrator. If the Plan is terminated by the Company, all
employer contributions plus earnings become fully vested.
PENTECH INTERNATIONAL INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
PERIOD OCTOBER 1, 1997 TO DECEMBER 31, 1997
AND YEAR ENDED DECEMBER 31, 1998
2. Summary of significant accounting policies:
Basis of accounting:
The accompanying financial statements have been prepared on the
accrual basis of accounting. Purchases and sales of securities
are recorded on trade dates. Dividend income is accrued on the
ex-dividend date. Unrealized gains and losses from security
transactions are reported on the specific cost method.
Investment valuation:
Investments are valued at fair market value based upon market
quotations.
Benefit payments:
Benefits are recorded when paid.
Contributions refundable:
Contributions to the Plan made by certain participants are
deemed to be excess contributions as a result of the Plan s
failure to satisfy the Actual Deferral Percentage test. Such
refundable contributions are recorded as a reduction of
contributions received and a Plan liability if the refunds are
issued within two and one-half months of the Plan s year end.
Excess contributions not refunded within this time limit are
recorded when the refunds are issued. Excess contributions for
the Plan year ended December 31, 1998 were $11,551. These
contributions were refunded in April, 1999 and are included as
a reduction of contributions received for the plan year ending
December 31, 1999. For the period October 1 to December 31,
1997, there were no excess contributions to the Plan.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires the Plan
administrator to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
PENTECH INTERNATIONAL INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
PERIOD OCTOBER 1, 1997 TO DECEMBER 31, 1997
AND YEAR ENDED DECEMBER 31, 1998
3. Investments:
The fair value of individual investments which represent 5% or
more of the Plan s net assets available for benefits are as
follows:
Shares Fair value
December 31, 1998:
Morgan Stanley Dean Witter
Liquid Asset Fund 39,145 $ 39,145
Morgan Stanley Dean Witter
Dividend Growth Securities 6,717 412,168
Morgan Stanley Dean Witter
U.S. Government Securities Trust 4,095 37,672
Morgan Stanley Dean Witter
Global Dividend Growth 8,872 117,108
Pentech International Inc. Stock 127,549 115,559
Shares Fair value
December 31, 1997:
Morgan Stanley Dean Witter
Dividend Growth Securities 6,977 $ 379,157
Morgan Stanley Dean Witter
Global Dividend Growth 8,325 108,560
Pentech International Inc. Stock 114,453 329,052
As of May 31, 1999, the December 31, 1998 value of the Plan s
investment in Company stock declined by $27,869 due to a decline
in the share price of the stock.
4. Tax status:
The Company has received a determination letter dated April 1998
from the Internal Revenue Service that the Plan is qualified
under Sections 401(a) and 401(k) and that the related trust is
exempt from federal income taxes under Section 501(a) of the
Internal Revenue Code.
5. Party-in-interest transactions:
All expenses incurred in the operation and administration of the
Plan are borne by the Company.
Certain Plan investments are shares of mutual funds managed by
Morgan Stanley Dean Witter. Morgan Stanley Dean Witter is the
trustee as defined by the Plan, and therefore these transactions
qualify as party-in-interest transactions.
PENTECH INTERNATIONAL INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
PERIOD OCTOBER 1, 1997 TO DECEMBER 31, 1997
AND YEAR ENDED DECEMBER 31, 1998
5. Party-in-interest transactions: (continued)
For the year ended December 31, 1998, the Plan purchased 33,702
and sold 21,877 shares of Company stock in the public market;
127,549 shares were held as investments at December 31, 1998.
For the period October 1 to December 31, 1997, the Plan
purchased 2,814 and sold 733 shares of Company stock in the
public markets; 114,453 shares were held as investments at
December 31, 1997.
SUPPLEMENTAL SCHEDULES
<PAGE>
PENTECH INTERNATIONAL INC. 401(k) PLAN
LINE 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT
DECEMBER 31, 1998 AND 1997
Market
Shares Cost value
December 31, 1998:
Morgan Stanley Dean Witter ( MSDW )
Liquid Asset Fund 39,145 $ 39,145 $ 39,145
MSDW U.S. Government
Money Market Fund 461 461 461
MSDW Dividend Growth
Securities 6,717 288,786 412,168
MSDW U.S. Government
Securities Trust 4,095 37,220 37,672
MSDW Global Dividend
Growth 8,872 116,572 117,108
Pentech International Inc.
Stock 127,549 323,137 115,559
Participant loans, bearing
interest of 9 1/4 - 9 1/2% - - 18,414
$ 805,321 $ 740,527
December 31, 1997:
MSDW Liquid Asset Fund 28,263 $ 28,263 $ 28,263
MSDW Dividend Growth
Securities 6,977 273,986 379,157
MSDW U.S. Government
Securities Trust 3,329 30,077 30,299
MSDW Global Dividend
Growth 8,325 109,644 108,560
Pentech International Inc.
Stock 114,453 331,643 329,052
Participant loans, bearing
interest of 9 1/4 - 9 1/2% - - 10,624
Total investments $773,613 $ 885,955
PENTECH INTERNATIONAL INC. 401(k) PLAN
LINE 27(D) - SCHEDULE OF REPORTABLE TRANSACTIONS
PERIOD FROM OCTOBER 1 TO DECEMBER 31, 1997
AND YEAR ENDED DECEMBER 31, 1998
Year ended December 31, 1998:
Nature Amount
Sold Morgan Stanley Dean Witter Dividend
Growth Securities Fund $82,348
Purchased Morgan Stanley Dean Witter
Global Dividend Growth Fund 58,303
Purchased Pentech International Inc. Stock 59,059
Period October 1 to December 31, 1997:
Nature Amount
Purchased Morgan Stanley Dean Witter
Dividend Growth Securities Fund $44,939
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the trustee (or other persons who administer the employee
benefit plan) has duly caused this annual report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: June 29, 1999
PENTECH INTERNATIONAL INC.
401(k) PLAN
s/David Melnick
David Melnick, Plan Administrator
s/Libby Melnick
Libby Melnick, Plan Administrator
s/William Visone
William Visone, Plan Administrator
