FORM 10-K
                      SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
      SECURITIES EXCHANGE ACT OF 1934

     For the fiscal year ended September 30, 1998

                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
      SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to            
        

Commission file No. 0-15374

                           PENTECH INTERNATIONAL INC.             
       
              (Exact Name of Registrant as Specified in Charter)

      Delaware                                           
23-2259391       
(State or other jurisdiction of                        (I.R.S.
Employer
Incorporation or Organization)                        
Identification Number)

195 Carter Drive, Edison, New Jersey                      08817   
        
(Address of principal executive offices                 (Zip
Code)

Registrant's telephone number, including area code       (732)
287-6640    

Securities registered pursuant to Section 12(b) of the Act:      
None     

Securities registered pursuant to Section 12(g) of the Act:

                   Common Stock, par value $.01 per share         
          
                                (Title of Class)

     Indicate by check mark whether the registrant (i) 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 (ii) has been
subject to
such filing requirements for the past 90 days. Yes    X      No   
   

     Indicate by check mark if disclosure of delinquent filers
pursuant to
Item 405 of Regulation S-K is not contained herein, and will not
be
contained, to the best of registrant's knowledge, in definitive
proxy or
information statements incorporated by reference in Part III of
this     
Form 10-K or any amendment to this Form 10-K [X]

     The aggregate market value of the shares of Common Stock
held by non-
affiliates of the registrant on December 21, 1998, was
approximately
$7,408,269 based on the average of the bid and asked quotations
of the
registrant's Common Stock, par value $.01 share, as reported by
NASDAQ on
December 21, 1998.

     On December 21, 1998, there were outstanding 12,570,258
shares of the
registrant's Common Stock.

     The Proxy Statement of the registrant to be filed on or
before January
29, 1999 is incorporated herein by reference.
                                  PART I


Item 1. BUSINESS.

     (a)  Pentech International Inc. (the "Company") was formed
in
April 1984 to design and market writing and drawing instruments
and
other stationery products.  In November 1989, the Company formed
a
wholly-owned subsidiary, Sawdust Pencil Co. ("Sawdust"), to
manufacture certain of the Company's writing instruments.  The
Company and its wholly-owned subsidiaries are collectively
referred
to herein as the "Company."

     (b)  The Company primarily operates in one business segment: 
the manufacture and marketing of pens, markers, pencils, other
writing instruments and activity kits, primarily to major mass
market retailers located in the United States, under the
"Pentech"
name or licensed trademark brand.  For financial information
relating to this business segment, please refer to the financial
statements contained elsewhere herein.

     (c)  The Company's product line consists of pens, markers,
pencils, activity products and miscellaneous products.  These
products compete on the basis of special features, packaging
design, quality and price, or a combination of these
characteristics.  The Company believes its reputation and ability
to develop innovative products and marketing programs for its
products, through the  industry experience and marketing
expertise
of its management, are principal success factors.

     The Company has also had an ongoing program to secure select
license agreements with licensors of established trademarks to
utilize with certain of the Company's products.  The Company
views
its licenses as an important ingredient in offering a strong
product line with strong consumer appeal.

     (i)  The Company markets its product line on a direct basis
as
well as through approximately 100 independent, nonexclusive,
sales
representatives throughout the United States.  Generally sales
initiated by the sales representatives are made directly to
retail
chains including mass merchants, chain drug stores, grocery
stores,
warehouse clubs, and office supply super stores.  The Company
also
has limited sales to the stationery, military and college store
markets and some sales through distributors and wholesalers. 
Additionally, the Company sells its products in Canada, Europe,
Mexico and other selected countries, generally through a variety
of
distribution arrangements.







     The percentages of revenues contributed by the following
classes of products over the Company's last three fiscal years
are
as follows:
                                                       
                                                       
                                        Activity     
Miscellaneous
           Pens   Markers   Pencils     Products      Products    


FY 1996    21.1%   21.7%     36.4%        16.0%            4.8%
FY 1997    27.8%   19.2%     33.4%        14.4%            5.2%
FY 1998    18.8%   26.5%     42.0%        11.7%            1.0%

     (ii)  The Company conducts market research to stay abreast
of
consumer trends and to gauge the demand for new writing
instruments
and related products.  Once the Company identifies a product for
marketplace introduction it either selects a suitable overseas
manufacturer to manufacture the product or elects to manufacture
the product itself.

     The Company's domestic pencil and marker manufacturing
facility, Sawdust, is presently being utilized by the Company to
manufacture a significant portion of the Company's writing
instruments.  Sawdust's capacity (on a two shift basis) is
approximately $34,500,000 (wholesale value) of pencils, markers
and
other writing instruments.  During the Company's fiscal year
ended
September 30, 1998 ("Fiscal 1998"), the Company manufactured
approximately $23,926,000 wholesale value of products at Sawdust,
which represents 69% of its current capacity and approximately
42%
of the Company's current sales requirements.  During its fiscal
year ended September 30, 1997 ("Fiscal 1997"), the Company
manufactured 39% of the wholesale value of the products it sold.

     An important part of the product development process is
packaging.  The Company leverages its unique packaging style to
reinforce its image as a marketer of modern, well-designed, high
quality, and reasonably priced writing instruments and children's
activity products.

     (iii)  The Company utilizes foreign manufacturers to supply
a
large percentage of the products it sells.  It acquires a
majority
of its products from contract manufacturers located in Taiwan,
China, Korea, Italy, India and other foreign countries.  Such
products are manufactured to the Company's order.  The Company
generally acquires its imported products pursuant to purchase
orders, which typically provide for delivery within 60 to 90 days
after the order.  Prior to fiscal 1997, the Company financed a
large percentage of its purchases pursuant to letters of credit. 
The present policy is to establish with a majority of its vendors
payment terms ranging from 30 to 60 days and finance the
remainder
pursuant to letters of credit.

     To date, the Company has experienced limited supply
shortages
with respect to these imported products.  The Company has
occasionally incurred additional costs by shipping goods into its
warehouse via airfreight, as opposed to by ship when the
manufacturers did not timely deliver products or the Company
required faster delivery.  The Company is unable to predict
whether
it will experience similar or more severe product shortages in
the
future.  The Company has successfully developed alternative
sources
of supply for virtually all of its important items to ensure
timely
deliveries in the event of a disruption in deliveries due to a
dispute with any overseas manufacturer or any other reason.  The
Company has achieved this through building Sawdust and developing
multiple sources in Taiwan, China, Korea, Italy, India and other
foreign countries.  As a result, the loss of any one overseas
manufacturer would probably not create any long-term disruptions
in
the Company's ability to ship its goods to its customers on a
timely basis.  Management believes that it is not now dependent, 
upon any one manufacturer for its product lines.  It believes
that
products of quality comparable to its present products could, if
necessary, be acquired from a variety of overseas manufacturers
at
comparable rates.

     The Company obtains raw materials for Sawdust from domestic
and foreign suppliers.  It has not faced material supply
shortages,
and it generally has multiple sources for most of its product
requirements.  Due to a determination by the United States
International Trade Commission that certain manufacturers of
Chinese pencils were dumping these pencils in the United States,
the Company has been required to pay "Dumping Duties" to acquire
pencils from certain of its Chinese suppliers of pencils.  The
Company has also been developing additional sources for its
supply
of certain of its pencils, which, to date, it has been successful
in doing.  In some instances, this has resulted in increased
costs
to the Company for the wood for its pencils.  Recently, certain
of
the Company's Chinese suppliers of pencils and related products
have been the subject of a redetermination which, in certain
instances, increased the amount of Dumping Duties the Company has
or may be required to pay.  The Company has accrued for any
additional duties which may arise from this redetermination.

     (iv)  The Company generally markets its products under the
individual product's name and either the Company's name or the
trademark of one of its licensors.  In the event opportunities
present themselves which the Company determines are advantageous
for it to import certain products in bulk on a private label
basis
(i.e., store brand), the Company may capitalize on such
opportunity.  In such event, the Company may request an advance
deposit from the customer before effecting such transaction,
depending on the credit worthiness of the customer.  This,
historically, has been a small segment of the Company's business.

     The Company's marketing efforts include the development of
special promotions in connection with purchases of merchandise by
certain major chain stores.  These promotions often feature
advertising allowances, free goods and free displays or permit
the
sale of several of the Company's products at one favorable price. 
The funding for these special promotions is substantially derived
from the revenues to be received from the sales themselves, and
generally the Company is not required to allocate a large portion
of its working capital to such efforts.  The Company also has
designed point of purchase product displays which it offers to
its
customers.

     The Company has entered into license agreements with
entities
such as Lucasfilm, Ltd (Star Wars), The Walt Disney Company
(Mickey
Mouse and Winnie the Pooh), the NBA (National Basketball
Association), the NHL (National Hockey League), the NFL (National
Football League), and Coca-Cola Company, using these trademark
names on the Company's products.  In most situations, the
licensor
requires an advance royalty, a royalty against net sales for 
licensed products and a minimum royalty.  Generally, the Company
satisfies the minimum royalty; occasionally it does not.  In such
a case, the Company must pay the minimum royalty and possibly
incur
losses as  a result thereof.  The Company evaluates its licenses
carefully and attempts to minimize such losses.  These licenses
have terms ranging from one to three years and are renewed by
mutual consent from both parties.

     Except when the Company uses trademarks owned by others, the
Company follows a policy of registering with the U.S. Patent and
Trademark Office trademarks covering the names of items in its
product line and proposed names for new items.  The Company has
been awarded trademarks in the past.  There is no assurance that
any pending trademarks will be registered.  

     (v)  The business of the Company has certain seasonal
aspects. 
Sales tend to increase during the months of May through August,
because retailers buy in anticipation of fall school opening, and
to decrease during the months of September through December. The
Company has been developing marketing programs to reduce this
seasonality.

     (vi)  The Company maintains a warehouse in North Brunswick,
NJ, for a portion of its inventory.

     Generally, the Company does not require any of its customers
to post letters of credit or to advance any deposits on orders,
except in certain instances, depending upon the creditworthiness
of
the customer, for special orders.  The Company analyzes each
special order customer independently to determine whether any
deposits should be paid.  The Company considers credit rating,
location, and amount of order, among other factors, to determine
whether a deposit is required.  Normal credit terms are "net 30
days."  The Company, in certain instances, follows the industry
practice of "School Dating," which is the shipment of products
from
May through August, for which payment is not due until September
or
October.  The Company reviews its credit practices regularly and
currently attempts to insure 80% of its receivables through
credit
insurance.  In the past, the Company has experienced a limited
amount of bad debts from its customers, usually as a result of a
bankruptcy.  In such a case the Company's policy has been to
liquidate its claims as promptly as reasonable under the
circumstances. This has been further ameliorated since the
Company
obtained credit insurance.  The Company believes it has
sufficient
resources to manage its credit functions.

     (vii)  The Company's primary customers include major mass
market retailers in the United States.  In Fiscal 1998, one
customer accounted for 12% of the Company's revenues.  While the
loss of this customer could have a material adverse impact upon
the
Company in the short-term, the Company believes such impact would
be minimized in the long-term since the Company could either
reduce
its expenses related to this customer or sell all or a portion of
these products to other customers.  

     Certain of the Company's customers include:

          -  Office Max            -  Walgreen Drug
          -  Walmart               -  Eckerd
          -  Target                -  Staples

     The above list of customers does not include independent
distributors nor products the Company sells to the stationery,
military and college store markets.  

     The Company advertises in trade journals on a limited basis
and maintains display booths for use at trade shows.  It owns
several booths that attractively display its line of products for
such trade shows.  The Company has no current plans for any other
major advertising campaign, however it is investigating
additional
advertising avenues.

     The Company warrants its merchandise against manufacturing
defects.  In the event of any such returns the Company evaluates
the problem and attempts to rectify the problem for the customer,
if possible.  The Company  believes it maintains adequate product
liability insurance.

     (viii)  As of December 16, 1998 and December 11, 1997, the
Company's backlog of firm written orders was approximately
$1,600,000 and $2,100,000, respectively.  This backlog is
comprised
of the normal delay between receipt and processing of orders and
orders for delayed delivery.  All orders were delivered or are
expected to be filled within the applicable fiscal year.

     (x)  The industry in which the Company is engaged is highly
competitive.  The Company competes with a large number of
companies, including such well-known companies as Bic Pen
Company,
Papermate, RoseArt Industries, Inc. and Newell.  Some of the
Company's competitors have far greater financial resources and
sales.  The Company generally competes on the basis of the
special
features of its products, quality, packaging design (which
includes
the individual product's name and the Company's name and logo or
the trademark of one of the Company's licensors) and price.

     (xiii)  As of November 30, 1998, the Company had
approximately
208 employees.  The Company's sales are made primarily by
independent sales organizations which are compensated exclusively
on a commission basis with commissions ranging from two and one
half to seven percent.  The Company does not anticipate a
substantial increase in the number of its employees in the near
future.  The Company considers its relations with its employees
to
be good.  In December 1992, the production and maintenance
employees of the Company's wholly-owned subsidiary, Sawdust,
voted
to join Local 478 of the International Brotherhood of Teamsters
(the "Union").  In the Company's fiscal year ended September 30,
1996 ("Fiscal 1996"), Sawdust renewed its labor agreement with
the
Union for the benefit of these employees, which agreement expires
August 31, 1999.

     (d)  The Company exported approximately 5.8% of its sales,
primarily to customers in Canada, Europe and Mexico, during
Fiscal
1998.

Item 2.  PROPERTIES.

     The Company's present executive offices are located at 195
Carter Drive, Edison, New Jersey 08817, where it occupies general
office, sales and warehouse space of approximately 40,500 square
feet pursuant to a five year lease, with an unaffiliated party,
expiring March 1, 2003.

     The Company extended its lease for five years commencing
June
1, 1995 (the "Sawdust Lease") with an unaffiliated company for
approximately 50,000 square feet for Sawdust's premises.  These
premises are located at 44 National Road, Edison, New Jersey
08817. 
The Sawdust Lease, which is triple net, currently requires annual
rental payment of  $179,256 with yearly increment additions in
each
subsequent year of the Sawdust Lease's term.  The Sawdust Lease
contains an option to renew on terms providing for moderate
increases in rent for up to an additional five years.

     The Company entered into a five year lease for a warehouse
at
1101 Corporate Road, North Brunswick, New Jersey (the "Warehouse
Lease") with an unaffiliated company for approximately 130,000
square feet, which commenced on September 1, 1995.  The Warehouse
Lease provides for annual base rent of approximately $436,000 per
year.

     The Company entered into a year-to-year lease for a sales
office in Madison, Wisconsin (the "Madison Lease").  The Madison
Lease, which is with an unaffiliated party, is for approximately
1,885 square feet and commenced May 1, 1997.  The Madison Lease
calls for annual rental of $28,321, which increases by 3.5
percent
each subsequent lease year until termination.

     The Company entered into a month-to-month lease for a studio
at 75 Broad Street, Red Bank, New Jersey with an unaffiliated
company for approximately 2,400 square feet which commenced on
April 1, 1997.  The Studio Lease provides for monthly rent of
$3,600.

Item 3.  LEGAL PROCEEDINGS.

     In June 1997, the Company commenced an action against Cooper
and Dunham LLP and Lewis H. Eslinger (collectively, "Defendants")
in the Supreme Court of the State of New York and County of New
York for legal malpractice, gross negligence, misrepresentation
and
breach of contract in connection with the adverse, multi-million
dollar judgment resulting from a patent infringement case which
the
defendants had been retained to pursue.  On April 10, 1998, the
Company terminated this action and received a payment of
$1,250,000.  All actions arising from the patent infringement
case
have now been discontinued with prejudice.

     There are no other legal proceedings to which the Company is
a party or known to be contemplated that are deemed material by
the
Company at the present time, and the Company knows of no material
legal proceedings pending or threatened, or judgments entered,
against any director or officer of the Company in his capacity as
such.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.

     Not applicable.


<PAGE>
                         PART II



Item 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND
          RELATED STOCKHOLDER MATTERS.


     (a)  The shares of Common Stock are traded on the National
Association of Securities Dealers Automatic Quotation System
("NASDAQ") National Market System under the symbol PNTK.  The
following table shows the closing high and low "bid" prices of
these shares as reported by NASDAQ during the Company's last two
fiscal years presented on a calendar year basis.  Such quotations
represent prices between dealers without retail markups,
markdowns
or commissions and may not represent actual transactions.


                         High                          Low


1997

1st Quarter              1 3/16                          21/32
2nd Quarter              1 3/4                          1 1/16
3rd Quarter              2 7/16                         1 3/8
4th Quarter              3 1/16                         2 5/16


1998      

1st Quarter              3 1/16                        2 1/2
2nd Quarter              2 31/32                       1 1/8
3rd Quarter              2                             1 1/8
4th Quarter              1 13/16                       15/16


     On December 24, 1998, the closing "bid" and "ask" prices for
the Common Stock were $.78125 and $.8125 respectively, as
reported
by NASDAQ.

     (b)  On December 22, 1998, the number of shareholders of
record of the Common Stock was 449.  The Company is aware that it
has a substantial number of additional shareholders who hold
their
shares of Common Stock in "street name."

     (c)  The Company has not declared a cash dividend in the
past
and is not permitted to do so without the consent of its lender.
See Item 7.  "Management's Discussion and Analysis of Financial
Condition and Results of Operations."


Item 6.  SELECTED FINANCIAL DATA

     The following summary of financial information should be
read
in conjunction with the Financial Statements and notes thereto
included elsewhere in this Form 10-K.



                       STATEMENT OF OPERATIONS DATA


                          Fiscal Years Ended September 30,
                          -------------------------------
                    1998     1997       1996      1995     1994
                    ----     ----       ----      ----     ----
                      ($ 000s omitted except per share amounts)

Net
sales          $ 57,485  $ 60,806   $ 61,679  $ 54,892  $ 62,136

Net (loss)
income           (3,504)      600     (5,317)   (1,059)    4,701

Basic and diluted
net (loss)
income
per share         ($.28)     $.05      ($.51)    ($.10)     $.40 

Weighted
average 
number 
of shares
outstanding      12,537    12,297     10,497    10,661    11,855 

Dividends             -         -          -         -         -


















                            BALANCE SHEET DATA


                               September 30,



                 1998    1997        1996      1995      1994
                 ----    ----        ----      ----      ----
                              ($ 000s omitted)


Working
 capital      $ 12,883 $ 15,452    $ 13,676  $ 16,928  $ 21,451

Total
 assets         41,583   42,503      48,189    44,518    42,558

Notes and
 bankers'
 acceptances
 payable
 (included
 in current
 liabil-
 ities)         18,618   17,238      22,841    17,011    11,023

Long-
 term
 debt            2,000    2,300       2,300        -          -


Share-
 holders'
 equity         14,758   17,591      16,028    21,345    26,479


Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS
         OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

     Fiscal 1998 Compared to Fiscal 1997

     Net sales for Fiscal 1998 were $57,485,045 as compared to
$60,806,386 for Fiscal 1997, reflecting a decrease of $3,321,341
or
approximately 5.5%.  Sales from three of the Company's licensed
products were down from the previous year as were sales from
promotional and holiday programs.  This was offset, in part, by
the
success of the children's activity products as well as commodity
programs.

     In Fiscal 1998, the Company had a loss from operations of
$2,339,443 as compared to income from operations of $2,155,227 in
Fiscal 1997.  The Company's gross profit of 28.1% in Fiscal 1998
decreased from 34.3% in Fiscal 1997.  The Company's gross profit
decreased principally due to the decline in licensee products
which
historically offer higher margins and to a lesser extent to an
inventory write-down and the effect of a large return of
promotional back-to-school products.  The Company also made an
investment to gain shelf space for its activity product line
through aggressive pricing and various other promotions.

     The Company's selling, general and administrative ("SG&A")
expenses increased during Fiscal 1998 to $18,474,161 from
$17,988,791 in Fiscal 1997, reflecting an increase of $485,370. 
SG&A expenses as a percentage of sales also increased from 29.6%
to
32.1%.  The increase was primarily related to higher promotional
costs associated with the Company's launch of its activity
product
line to new retail stores.  The Company incurred higher bad debt
expense as a result of bankruptcies of two customers.  The
Company
also incurred additional costs for the development of products
for
two of its new licenses.  Warehouse and freight expenses also
increased as a percentage of sales due to a decline in the
average
order size as a result of increased sales to the office
superstores.  Finally, the percentage of SG&A expenses to
revenues
increased as a result of higher levels of fixed costs incurred
but
there was lower sales volume.

     In the second quarter of Fiscal 1998, the Company as part of
the settlement of a lawsuit, was awarded $965,000, net of legal
fees.

     During Fiscal 1998, the Company's average level of
short-term
borrowings remained unchanged from the prior year at
approximately 
$16,000,000.  This was due to the sale of assets, related to the
cosmetic product line, plus the litigation settlement offset by
an
increase in inventory levels and the operating loss.  The
Company's
effective interest rate decreased from 8.7% to 8.4%.  In
addition,
interest incurred on the settlement note from the patent
infringement lawsuit was lower than the prior year as a result of
quarterly principal payments, which began in January 1998.  As a
result, the Company's interest expense decreased during Fiscal
1998
to $1,528,779 from $1,583,750.

     During Fiscal 1998, the Company increased its valuation
allowance against its deferred tax assets from $965,565 to
$2,614,202.  The increase of $1,648,637 was recorded due to the
uncertainty of the Company's ability to fully utilize federal and
state net operating loss carryforwards.

     Based on the above, the Company recognized a net loss of
$3,504,303 in Fiscal 1998 as compared to net income of $600,014
in
Fiscal 1997.

     Fiscal 1997 Compared to Fiscal 1996

     Net sales for Fiscal 1997 were $60,806,386 as compared to
$61,679,499 for Fiscal 1996, reflecting a decrease of $873,113 or
approximately 1.4%.  Sales of the Company's children's activity 
and licensed products lines grew, but this was offset by declines
in sales in some of its older product lines which the Company had
been deemphasizing.  The Company increased its sales through the
office superstore channel which were offset by some softness with
its traditional mass merchandiser channel.

     In Fiscal 1997, the Company had income from operations of
$2,155,227 as compared to a loss from operations of $872,603 in
Fiscal 1996.  The Company's gross profit of 34.3% in Fiscal 1997
increased from 30.2% in Fiscal 1996.  The Company's gross profit
increased primarily due to improved product mix featuring less
slower moving items, improved manufacturing costs, improved
profitability of its cosmetic line (now discontinued) and higher
gross profit on its licensed items.

     The Company's SG&A expenses decreased during Fiscal 1997 to
$17,988,791 from $19,521,690 in Fiscal 1996, reflecting a
decrease
of $1,532,899.  SG&A as a percentage of sales also decreased from
31.7% to 29.6%.  This decrease was primarily related to certain
non-recurring expenses from the prior year including higher legal
and consulting fees due to litigation during that year, a
bankruptcy of a customer, higher warehouse costs due to
relocation
costs of its distribution center and certain relocation costs of
key new hires.  Offsetting these decreases were higher royalty
fees
for sales of licensed products and higher software costs used for
the Company's computer operating system.

     In the second quarter of Fiscal 1997, the Company recorded a
$687,000 write-down of its cosmetic line to its net realizable
value.  This was due to the Company's decision to dispose of this
product line and focus on its core stationery line of products. 
As
discussed in a subsequent section, the Company reached an
agreement
to sell this line of business in November 1997.

     During Fiscal 1997, the Company decreased its short-term
borrowings to an average level of $16,080,000 from $18,507,000 in
Fiscal 1996.  This decrease was due to the decrease in the
Company's inventory levels as well as to improved profitability. 
Offsetting the decline in average borrowings was an increase in
interest annual rates under the terms of the Company's new
financing arrangement which began in January of 1997.  The
Company's effective annual interest rate increased from 7.8% to
8.7%.  In addition, the Company incurred higher interest costs
due
to interest on the settlement note payable resulting from
settlement of the patent infringement case.  As a result, the
Company's interest expense increased during Fiscal 1997 to
$1,583,750 from $1,447,499.

     During Fiscal 1997, the Company reduced its valuation
allowance against its deferred tax assets $277,626 from
$1,243,191
to $965,565 resulting in a net benefit from income taxes.

     Based on the above, the Company recognized net income of
$600,014 in Fiscal 1997 as compared to a net loss of $5,317,408
in
Fiscal 1996.

     (b)  Liquidity and Capital Resources

     Cash and cash equivalents increased to $759,349 at September
30, 1998 from $648,812 at September 30, 1997.  Accounts
receivable
decreased to $14,327,195 at September 30, 1998 from $16,293,286
at
September 30, 1997, primarily due to lower fourth quarter sales
volume and stronger collection efforts.  The Company believes
that
its allowance for doubtful accounts and its accrual for returns
and
advertising allowances are adequate given the Company's detailed
review of its accounts receivable aging, its review of subsequent
cash receipts, its use of credit limits and its on-going credit
evaluation and account monitoring.  In addition, the Company has
credit insurance on most of its major accounts receivable. 
Inventory increased to $20,015,241 at September 30, 1998 from
$18,480,924 the year before.  This was due to lower than
forecasted
sales volume and the Company's decision to stock higher levels of
certain commodity products.  The decrease to $3,562,283 for
equipment at September 30, 1998 from $3,963,831 at September 30,
1997 primarily reflects the sale of the fixed assets related to
the
Company's cosmetics product line.  Notes payable at September 30,
1998 were $18,618,186 as compared to $17,238,066 at September 30,
1997.  This was primarily due to the increased inventory levels
and
funding of the operating loss.

     Net cash used in operating activities for the Fiscal 1998
was
$1,309,440 as compared to $2,352,104 for Fiscal 1997.  This
change
was primarily due to the operating loss, and to a lesser extent,
the decrease in accounts receivable and the increase in accounts
payable offset by the increase in inventory.

     Cash used in investing activities during Fiscal 1998 of
$9,643
was lower than $911,897 in the prior year due to the decrease in
fixed asset additions and the sale of the cosmetic assets.

     The cash provided by financing activities during Fiscal 1998
was $1,429,620 as compared to cash used in financing activities
of
$3,150,995 in Fiscal 1997.  The increase in cash provided by
financing activities was primarily due to the increase in notes
payable.  As a result of these activities, cash and cash
equivalents increased $110,537 during Fiscal 1998 as compared to
a
decrease of $6,414,996 during Fiscal 1997.

     The Company's working capital decreased to $12,882,941 at
September 30, 1998 from $15,452,308 at September 30, 1997.  This
decrease was primarily due to the net loss incurred during Fiscal
1998.

     In January 1997, the Company entered into a three year
$30,000,000 revolving credit facility with BankAmerica Business
Credit, Inc. ("BABC") (the "Credit Agreement").  The amount of
drawings under the facility is subject to limitations based upon
eligible inventory and accounts receivable as described in the
Credit Agreement.  The Credit Agreement is collateralized by a
security interest in substantially all of the assets of the
Company.  In addition, in accordance with the Credit Agreement,
the
Company has agreed, among other things, to the maintenance of
certain minimum amounts of tangible net worth and minimum
interest
coverage ratios.  The Company was in violation of its tangible
net
worth and interest coverage covenants at March 31, 1998, June 30,
1998 and September 30, 1998, but such  violations were waived by
BABC.  In January 1999, the Company and BABC entered into an
agreement to amend the original loan agreement (the "Amendment"). 
This amendment, among other things, reduced the revolving credit
facility to $25,000,000, modified the financial covenants for
Fiscal 1999 to allow the Company to be in compliance based upon
the
Company's operating plan, lowered the maximum inventory advance
and
allowed for a seasonal over-advance.  

     The note issued in connection with the legal settlement
referred to above requires $100,000 quarterly principal payments
through April 1, 2004.  

     The Company continued several actions to increase its
liquidity during Fiscal 1998.  It established a policy of
obtaining
30 to 60 days vendor credit to finance a majority of its
purchases;
previously these purchases had been financed pursuant to letters
of
credit. It continues to reduce the number of items held in
inventory and has taken steps to reduce its headcount.

     In the second quarter of Fiscal 1997, the Board of Directors
voted to dispose of its cosmetics product line and to focus its
efforts primarily on its writing instruments business.  The main
reason for this decision was to better utilize the Company's cash
flow towards its writing instruments business.   In November
1997,
the Company reached an agreement to sell the fixed assets and
inventory of its cosmetics product line to Fun Cosmetics, Inc.
("Fun") (a company significantly owned by a former employee) for
its net book value of $758,000.  This amount was paid during
Fiscal
1998.  The Company also received 200,000 shares of Common Stock
of
Fun.

     As a result of the seasonal nature of the Company's
business,
the Company's use of credit increases significantly in the months
of May, June, July and August as the Company finances its
inventory
and receivables, and declines in September and October after
collection of the invoices from its Back-to-School sales.

     The Company anticipates that its revolving credit line
provided by the Credit Agreement, together with anticipated cash
flow from operations, will be sufficient to provide liquidity on
both a short-term and long-term basis to finance current and
future
operations.  The Company believes these resources are sufficient
to
support its operating expenses.

     With respect to the Year 2000 issue, the Company is in the
process of ensuring that all internal computer equipment, 
manufacturing, distribution and business equipment will be Year
2000 compliant.  Upon completion of that review, the Company will
make a full assessment of the risk associated with the Year 2000
issue and determine whether the consequences will have a material
effect on the Company's business.  In addition, if necessary,
upon
completion of the assessment, the Company will develop a
contingency plan.  The Company utilizes a third party software
package to run its internal operating and accounting systems and
has purchased the Year 2000 compliant version of this software
and
was placed in operation in December 1998.  In addition, all
telecommunications equipment and computer applications are Year
2000 compliant.  The Company is also contacting its vendors and
customers in order to asses any third party risk.  The Company
does
not expect the costs associated with becoming Year 2000 compliant
to be material and believes that it will be absorbed, for the
most
part, in its normal information technology budget.

     (c) Safe Harbor Statement

     Statements which are not historical facts, including
statements about the Company's confidence and strategies and its
expectations about new and existing products, technologies and
opportunities, market and industry segment growth, demand and
acceptance of new and existing products are forward looking
statements that involve risks and uncertainties.  These include,
but are not limited to, product demand and market acceptance
risks;
the impact of competitive products and pricing; the results of
financing efforts; the loss of any significant customers of any
business; the effect of the Company's accounting policies; the
effects of economic conditions and trade, legal, social, and
economic risks, such as import, licensing, and trade
restrictions;
the results of the Company's business plan and the impact on the
Company of its relationship with its lender.

Item 8.  FINANCIAL STATEMENTS. 

     This information is contained on pages F-1 through F-25
hereof.

Item 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON        
      
          ACCOUNTING AND FINANCIAL DISCLOSURE.

     None.



PART III


     The information required by this section will be
incorporated
by reference to the Proxy Statement of the Company to be filed
with
the Securities and Exchange Commission on or before January 29,
1999.


                                  PART IV


Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K.

     (a) (1)  Financial Statements
                                                            Page

Independent Auditors' Report............................    F-1

Consolidated Balance Sheets as of September 30, 1998 and 
1997....................................................    F-2-3

Consolidated Statements of Operations for the 
years ended September 30, 1998, 1997 and 1996 ..........    F-4

Consolidated Statements of Shareholders' Equity for
the years ended September 30, 1998, 1997 and 1996.......    F-5

Consolidated Statements of Cash Flows for the 
years ended September 30, 1998, 1997, and 1996..........    F-6-7

Notes to Consolidated Financial Statements..............   
F-8-27


     (a) (2)  Financial Statement Schedules

Schedule II - Valuation and Qualifying Accounts and
Reserves...............................................     F-28

     All other schedules are omitted because they are not
applicable,
not required, or because the required information is included in
the
financial statements or notes thereto.


     (a) (3)  Exhibits

3.1       The Company's Certificate of Incorporation, as amended,
          incorporated by reference to Exhibit 3.1 to
Registration
          Statement No. 2-95102-NY of the Company ("Form S-18").

3.2       The Company's By-laws incorporated by reference to
Exhibit
          3.2 of Form S-18.

10.1      1989 Stock Option Plan incorporated by reference to
Exhibit
          4.2 to the Registration Statement No. 33-27009 on Form
S-8.

10.2      1993 Stock Option Plan incorporated by reference 
          to Exhibit 4.1 to the Registration Statement No.
33-67802
          on Form S-8.

10.3      1995 Stock Option Plan is incorporated by reference to
          Exhibit 4.1 to the Registration Statement No. 333-30595
          filed on Form S-8.

10.4      Loan and Security Agreement dated as of January 13,
1997,
          among the Company, Pentech Cosmetics, Inc., Sawdust
Pencil
          Co. and BankAmerica Business Credit, Inc. incorporated
by
          reference to Exhibit 10.7 of the Company's Form 10-K
Annual
          Report for it fiscal year ended September 30, 1996.

10.5      Waiver and First Amendment to Loan and Security
          Agreement among the Company, Pentech Cosmetics, Inc.,
          Sawdust Pencil Co. and BankAmerica Business Credit,
          Inc. dated as of January 11, 1999.


10.6      Agreement for Sale and Purchase of Assets dated as of
          November 1997, among the Company, Pentech Cosmetics,
Inc.,
          Fun Cosmetics, Inc. and David Blau incorporated by
          reference to Exhibit 10.11 of the Company's Form 10-K
          Annual Report for its fiscal year ended September 30,
1997.

10.7      Settlement Agreement dated March, 1998 between the
Company,
          Cooper & Dunham, L.L.P. and Lewis H. Esligner.

10.8      Subsidiaries of the Company.

11.0      Consent of Ernst & Young LLP dated January 11, 1999.






<PAGE>
                                SIGNATURES



     Pursuant to the requirements of Section 13 or 15(d) 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.



January 12, 1999                   By:  s/David Melnick       
                                        David Melnick,
                                        President and 
                                        Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act
of
1934, as amended, this Report has been signed below by the
following persons in the capacities and on the dates indicated.


s/ Norman Melnick   Chairman of the Board    January 12, 1999
Norman Melnick      of Directors 


s/ David Melnick    President and Chief      January 12, 1999
David Melnick       Executive Officer and 
                    Director (principal
                    operating officer)


s/ John F. Kuypers  Executive Vice President-
John F. Kuypers     Sales and Director       January 12, 1999


s/ Richard S. Kalin Secretary and Director   January 12, 1999
Richard S. Kalin    


s/ Roy L. Boe       Director                 January 12, 1999
Roy L. Boe


s/ Robert K. Semel  Director                 January 12, 1999
Robert Semel   


s/ William Visone   (principal accounting    January 12, 1999
William Visone       officer)



N:\ANNE\PTK\10K-98.10

                      REPORT OF INDEPENDENT AUDITORS



Board of Directors
Pentech International, Inc.


We have audited the accompanying consolidated balance sheets of
Pentech International, Inc. and subsidiaries as of September 30,
1998 and 1997 and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the
three years in the period ended September 30, 1998.  Our audits
also included the financial statement schedule listed in the
Index
at Item 14(a).  These financial statements and schedule are the
responsibility of the Company's management.  Our responsibility
is
to express an opinion on these financial statements and schedule
based on our audits. 

We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and
perform the audit 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Pentech International, Inc. and
subsidiaries
as of September 30, 1998 and 1997, and the consolidated results
of
its operations and its cash flows for each of the three years in
the period ended September 30, 1998, in conformity with generally
accepted accounting principles.  Also, in our opinion, the
related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in
all material respects the information set forth therein.


                                        s/ERNST & YOUNG LLP
                                        ERNST & YOUNG LLP  

MetroPark, New Jersey
December 21, 1998, except
for Notes 3 (b) and 13 as 
to which the date is 
January 11, 1999.






               PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

                        Consolidated Balance Sheets

                              Assets (Note 3)

                                               September 30,
                                           1998            1997
                                           ----            ----
Current Assets:
  Cash and cash equivalents           $   759,349     $   648,812
  Accounts receivable, net
   of allowance for doubtful 
   accounts ($128,814 and $30,087
   in 1998 and 1997, respect-
   ively)                              14,327,195      16,293,286
  Inventory (Note 2)                   20,015,241      18,480,924
  Income taxes receivable (Note 5)        448,087         422,446
  Deferred tax assets (Note 5)                  -         271,180
  Prepaid expenses and other            1,436,415       1,648,035
  Available-for-Sale Security          
  (Notes 1 and 13)                        621,875               - 
                                       ----------      ----------
Total current assets                   37,608,162      37,764,683
                                       ----------      ----------

Equipment:
  Equipment and furniture               8,934,327       8,895,443
  Less accumulated depreciation        (5,372,044)    
(4,931,612)
                                       ----------      ----------
                                        3,562,283       3,963,831
                                       ----------      ----------
Other assets:
  Deferred tax assets, long term
  (Note 5)                                      -         363,835
  Trademarks, net of 
   amortization                           239,530         269,708
  Due from officer                        173,512         141,512
                                       ----------      ----------
                                          413,042         775,055
                                       ----------      ----------
                                      $41,583,487     $42,503,569
                                       ==========      ==========







See accompanying notes.




                 PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

                         Consolidated Balance Sheets

                     Liabilities and Shareholders' Equity

                                              September 30,
                                          1998            1997
                                         -----            ----

Current liabilities:
  Notes payable (Note 3)              $18,618,186     $17,238,066
  Accounts payable                      2,455,073       1,333,605
  Accrued expenses (Note 11)            3,351,962       3,440,704
  Settlement note payable (Note 8)        300,000         300,000
                                       ----------      ----------
Total current liabilities              24,725,221      22,312,375
                                       ----------      ----------
Other liabilities:
  Royalty payable, long-term (Note 8)     100,000         300,000
  Settlement note payable, 
   long-term (Note 8)                   2,000,000       2,300,000
                                       ----------      ----------
                                        2,100,000       2,600,000
                                       ----------      ----------
Commitments and contingencies
  (Note 6)
Shareholders' equity 
  (Notes 1 and 4):
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; issued and outstanding
  12,570,258 and 12,504,258 in
  1998 and 1997, respectively             125,703         125,043
Capital in excess of par                6,837,983       6,789,143
Retained earnings                       7,172,705      10,677,008
Unrealized gain on available-for-
 sale security
 (Notes 1 and 13)                         621,875               -
                                       ----------      ----------
                                       14,758,266      17,591,194
                                       ----------      ----------
                                      $41,583,487     $42,503,569
                                       ==========      ==========
See accompanying notes.







                 PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

                    Consolidated Statements of Operations


                                  Year ended September 30,
                                1998          1997         1996
                                ----          ----         ----

Net sales (Note 9)         $57,485,045  $60,806,386  $61,679,499
Cost of sales               41,350,327   39,975,368   43,030,412
                            ----------   ----------   ----------
Gross profit                16,134,718   20,831,018   18,649,087

Selling, general and
 administrative expenses    18,474,161   17,988,791   19,521,690
Loss from cosmetics
 operation (Note 7)                  -      687,000            -
                            ----------   ----------   ----------
(Loss) income from
 operations                 (2,339,443)   2,155,227     (872,603)
                            ----------   ----------   ----------
Other (income) expense:
(Income) loss from 
  litigation (Note 14)        (965,542)           -    4,433,920
 Interest expense            1,528,779    1,583,750    1,447,499
 Interest income               (33,392)      (9,660)     (39,661)
                            ----------   ----------   ----------
                               529,845    1,574,090    5,841,758
                            ----------   ----------   ----------
(Loss) income before
 taxes                      (2,869,288)     581,137   (6,714,361)

Income tax expense (benefit) 
 (Note 5)                      635,015      (18,877)  (1,396,953)
                            ----------   ----------   ----------
Net (loss) income          $(3,504,303) $   600,014 $ (5,317,408)
                            ==========   ==========   ==========
Basic and diluted
 (loss) earnings per common
 share (Note 1)               ($.28)        $.05           ($.51)
                            ==========   ==========   ==========




See accompanying notes.                










                                Pentech International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
                              Consolidated Statements of Shareholders' Equity
                               Years ended September 30, 1998, 1997 and 1996

                             Common Stock                         
             
                                                          Capital                Unrealized Gain
                            Number of Shares              in                     on Available-
                                                          Excess   Retained      for-Sale 
                          Authorized  Issued     Amount   of Par   Earnings      Security    
                          ----------  ------     ------   -------  --------      -------------
<S>                      <C>         <C>        <C>      <C>        <C>           <C> 
Balance, September 
  30, 1995                20,000,000 10,496,758 $104,968 $5,845,781 $15,394,402   $       -
Net loss                                                             (5,317,408)
                          ---------- ----------  ------- ---------  ----------   -------------
Balance, September 
  30, 1996                20,000,000 10,496,758  104,968 5,845,781  10,076,994             - 
Issuance of Common
  Stock                               2,007,500   20,075   943,362

Net income                                                             600,014
                          ---------- ----------  ------- ---------  ----------   -------------
Balance, September
  30, 1997                20,000,000 12,504,258  125,043 6,789,143  10,677,008               -

Issuance of Common Stock                 66,000      660    48,840

Net loss                                                          (3,504,303)        

Unrealized gain on
 available-for-sale 
 security                                                                         621,875

Balance, September 30,    ---------- ----------  ------- ---------   ---------    ------------
  1998                    20,000,000 12,570,258 $125,703 $6,837,983 $ 7,172,705  $621,875
                          ========== ==========  ======= =========   =========    ============
See accompanying notes.
</TABLE>


<PAGE>
                   PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                                             Year ended September 30,
                                       1998            1997       1996
Cash flows from operating            --------        --------     ---------
activities
Net (loss) income                 $ (3,504,303)   $   600,014    $(5,317,408)
Adjustments to reconcile
 net (loss) income  to net cash 
 (used in) provided by
 operating activities:
  Depreciation and amortiza-
   tion                              1,042,795      1,099,627     1,044,920
  Provision for losses on
   accounts receivable                 134,974         15,401       401,620
  Paradise Settlement                        -              -     4,000,000
  Deferred income taxes                635,015        290,099      (699,701)
  Provision for loss from
   cosmetics operation                       -        687,000            -
     
  Change in assets and 
   liabilities:
     Decrease (increase) in
      accounts receivable            1,746,117     (1,771,187)    (2,488,160)
    (Increase) decrease in 
      inventory                     (1,957,743)      (152,916)     4,116,474   
    Decrease (increase) in 
      prepaid expenses and other       118,620       (605,228)       184,622
    (Increase) in due from                            
      officer                          (32,000)       (32,001)    
         - 
    (Decrease) in bankers'
      acceptances payable                    -     (1,488,757)      (353,228)
    Increase (decrease) in
      accounts payable               1,121,468       (331,698)      (789,706)
    (Decrease) increase in
      accrued expenses                 (88,742)      (386,426)       713,405
    (Decrease) in settlement
      payables                        (500,000)    (1,000,000)             -
    Change in income                               
      taxes payable/
      receivable                       (25,641)       723,968         676,627
                                      --------     ----------        ---------
    Net cash (used in) provided            
      by operating         
      activities                    (1,309,440)    (2,352,104)      1,489,465

See accompanying notes.


                   PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

                  Consolidated Statements of Cash Flows (cont'd)

                             Year ended September 30,
                                       1998             1997      1996
Cash flows from investing              ----             ----      ----
 activities
Sale of cosmetics assets            758,426                 -        -  
Purchase of equipment and           
 furniture                         (697,884)         (793,006)    (488,176)
Increase in trademarks              (70,185)         (118,891)    (120,876)
                                    -------         ---------    ---------
 Net cash used in investing          (9,643)         (911,897)    (609,052)
 activities

Cash flows from financing
 activities
Net increase (decrease) in
 notes payable                    1,380,120        (4,114,432)   6,183,395
Proceeds from the issuance
 of Common Stock                     49,500           963,437

Net cash provided                 ---------         ---------    ----------
 by (used in) financing                            
 activities                       1,429,620        (3,150,995)   6,183,395
Net increase (decrease)           ---------         ---------    ---------
 in cash and cash equi-
 valents                            110,537        (6,414,996)   7,063,808

Cash and cash equivalents,                             
 beginning of year                  648,812         7,063,808            0   

Cash and cash equivalents,        ---------         ---------    ---------
 end of year                     $  759,349        $  648,812   $7,063,808
                                  =========         =========    =========

Supplemental disclosures 
 of cash flow information
Non-cash investing activities:
 Increase in fair value
  of available for 
  sale equity security            $ 621,875
  Purchase of fixed assets by
   capital lease                                   $   72,050
  Cash paid during the 
   year for:
   Interest                       $1,454,840        1,773,920   $1,319,958
   Income taxes                            -           30,931      140,000

See accompanying notes. 


               PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

                Notes to Consolidated Financial Statements
                            September 30, 1998

1.  Summary of Significant Accounting Policies

Organization

     Pentech International, Inc. (the "Company") was formed in
April 1984.  A wholly-owned subsidiary, Sawdust Pencil Co.
("Sawdust"), was formed in November 1989.  The Company and its
subsidiary are engaged in the production, design, and marketing
of
writing and drawing instruments.  In October 1993, the Company
formed another wholly-owned subsidiary, Pentech Cosmetics, Inc.,
to
manufacture and distribute cosmetic pencils.  During Fiscal 1997,
the Company decided to dispose of this product line.  The Company
primarily operates in one business segment:  the manufacture and
marketing of pens, markers, pencils, other writing instruments
and
activity kits, primarily to major mass market retailers located
in
the United States, under the "Pentech" name or licensed trademark
brand.  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.  

Cash Equivalents

     The Company considers all time deposits with a maturity of
three months or less to be cash equivalents.

Inventory and Cost of Sales

     Inventory is stated at the lower of cost (first-in,
first-out)
or market.  Cost of sales for imported products includes the
invoice cost, duty, freight in, display and packaging costs. Cost
of domestically manufactured products includes raw materials,
labor, overhead and packaging costs.











               PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

            Notes to Consolidated Financial Statements (cont'd)
                            September 30, 1998

1. Summary of Significant Accounting Policies (cont'd)

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 between 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.

Trademarks

     Costs related to trademarks are being amortized over a five
year period on a straight-line basis.

Revenue recognition

     Revenue is recognized upon shipment of product to the
customer.

Fair Value of Financial Instruments.

     The fair value for cash and accounts receivable approximate
carrying amounts due to the short maturity of these instruments. 
The fair value amounts for notes payable approximate carrying
amounts due to the variable interest rates.

Use of Estimates

     The preparation of financial statements in conformity with
generally accepted accounting principles 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 financial statements and the
reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those estimates.

(Loss) Earnings Per Share:

     In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings Per Share, which was adopted
by
the Company in December 1997.  SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share.  Unlike primary earnings
per
share, basic earning per share excludes any dilutive effects of
options, warrants and convertible securities.  Diluted earnings
per
share is very similar to the previously reported fully diluted
earnings per share.  All earnings per share for all periods have
been presented, and where appropriate, restated to conform to the
SFAS No. 128 requirements.


                 PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (cont'd)
                              September 30, 1998

1.   Summary of Significant Accounting Policies (cont'd)

     The following table sets forth the computation of basic and
diluted earnings per share:


                                   YEAR ENDED SEPTEMBER 30,
                               1998           1997         1996


Numerator:
 Net (loss) income         $(3,504,303)     $600,014   $(5,317,408)
                            ==========       =======     =========

Denominator:
 Denominator for basic
   earnings per share-
   weighted average
   shares                   12,537,258    12,297,124    10,496,758


Effect of dilutive
 securities:
 Employee stock             
  options                            0       194,043            0
                            ----------    ----------     ----------
Denominator for diluted
 earnings per share -
 adjusted weighted
 average shares and
 assumed conversions:       12,537,258    12,491,167   10,496,758
                            ==========    ==========   ==========

Basic and diluted
 (loss) income 
  per share                   ($.28)         $.05         ($.51)
                            ==========    ==========   ==========














                 PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (cont'd)
                              September 30, 1998

1.   Summary of Significant Accounting Policies (cont'd)


Stock Based Compensation 

     Statement of Financial Accounting Standards No. 123,
"Accounting
for Stock Based Compensation," encourages, but does not require
companies to record compensation cost for stock-based employee
compensation plans at fair value.  The Company has elected to
follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued
to Employees" (APB 25) and related interpretations in accounting
for
its employee stock options.  Under APB 25, because the exercise
price
of the Company's employee stock options equals the market price
of the
underlying stock on the date of grant, no compensation expense is
recognized.

Impact of Recently Issued Accounting Standards

     In June 1997, the Financial Accounting Stands Board issued
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS No.130"), which is effective for
years
beginning after December 15, 1997.  SFAS No. 130 establishes
standards
for reporting and display of comprehensive income and its
components
(revenues, expenses, gain, and losses) in a full set of general-
purpose financial statements.  This Statement requires that all
items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements.  The Company will adopt the new
requirements in
Fiscal 1999.  The adoption of this statement would have resulted
in
the Company reporting $621,875 of additional comprehensive income
to
its existing net loss of $3,504,303, resulting in a net
comprehensive
loss of $2,882,428 for the fiscal year ended September 30, 1998.

     In June 1997, the Financial Accounting Standards Board
issued
Statement of Financial Accounting Standards No. 131 "Disclosures
about
Segments of an Enterprise and Related Information" which is
effective
for years beginning after December 15, 1997 and in June 1998, the
Financial Accounting Standards Board issued Statement of
Financial
Accounting Standards No. 133 "Accounting for Derivative
Instruments
and Hedging Activities" which is effective for years beginning
after
June 15, 1998.  The Company has completed its review of both SFAS
131
and SFAS 133 and has concluded that the adoption of these
statements
would not have any effect on the Company and its reporting.






                 PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (cont'd)
                              September 30, 1998


2.  Inventory 
                                            1998           1997

Raw materials                           $ 6,634,833    $6,245,696
Work-in-process                           1,641,162     1,579,274
Finished goods                           12,849,246    11,865,954
Allowance for slow-
moving items                             (1,110,000)   (1,210,000)
                                         ----------    ----------
                                        $20,015,241   $18,480,924
                                         ==========    ==========

3.  Notes Payable

                                           1998            1997
Revolving line of credit
 interest payable monthly   
 at prime plus .5% (9% at
 September 30, 1998 and 1997)           $ 4,618,186    $ 4,238,066

Revolving line of credit,
 interest payable monthly at
 libor plus 2.5% (ranging from 7.813%
 to 8.188% at September 30, 1998
 and 8.128% at September 30, 1997)       14,000,000    13,000,000
                                         ----------    ----------
                                        $18,618,186   $17,238,066
                                         ==========   ==========






















                 PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (cont'd)
                              September 30, 1998

3.  Notes Payable (cont'd)

     (a)  In January 1997, the Company entered into a three year
$30,000,000 Revolving Credit Agreement with BankAmerica Business
Credit, Inc. (the "Credit Agreement").  Borrowings under the
Credit
Agreement are subject to limitations based upon eligible
inventory and
accounts receivable as defined in the Credit Agreement. 
Borrowing
under the Credit Agreement accrues interest, at the Company's
option,
at either prime plus .5% or libor plus 2.5%.

     The Credit Agreement is collateralized by a security
interest in
substantially all of the assets of the Company.  In connection
with
the Credit Agreement, the Company has agreed, among other things,
to
the maintenance of certain minimum amounts of tangible net worth,
interest coverage ratios and cannot declare a cash divided
without the
consent of BankAmerica Business Credit, Inc.  The Company was in
violation of its tangible net worth and interest rate coverage
covenants at March 31, 1998, June 30, 1998 and September 30,
1998.

     (b)  On January 11, 1999, the Company and BABC further
entered
into an agreement to amend the original loan agreement ("the
Amendment").  This amendment, among other things, waived
compliance
with the aforementioned violated covenants, reduced the revolving
credit facility to $25,000,000, modified the financial covenants
for
Fiscal 1999 to allow the Company to be in compliance based upon
the
current operating plan, lowered the maximum inventory advance and
allowed for a seasonal over-advance. 

     The weighted average interest rate during the periods on the
outstanding short-term borrowings was 8.4% and 8.7% for fiscal
years
ended September 30, 1998 and 1997, respectively.

4.  Shareholders' Equity

Stock Options

     During Fiscal 1997, the Company granted options (outside of
the
plans discussed herein) covering in the aggregate 20,000 shares
of
common stock at an exercise price of $1.19 per share
(representing
fair market value at date of grant).  In addition, 175,000 shares
were
cancelled.

     During Fiscal 1996, the Company granted options covering in
the
aggregate 175,000 shares of common stock at an exercise price of
$3.125 per share (representing fair market value at date of
grant). 
During these periods, no options were exercised. At September 30,
1998, 195,000 options remain outstanding at prices ranging from
$1.19
to $3.125 per share, of which all are presently exercisable.



                 PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (cont'd)

4. Shareholders' Equity (cont'd)

Stock Option Plans

     On January 5, 1989, the Company adopted a stock option plan
("1989 Plan").  The 1989 Plan provides for options and limited
stock
appreciation rights ("Limited SARs") to be granted in tandem to
issue
up to 600,000 shares of common stock. Limited SARs may only be
granted
in conjunction with related options.

     The exercise price of options granted may not be less than
the
fair market value of the shares on the date of the grant (110% of
such
fair market value for a holder of more than 10% of the Company's
voting securities), nor may options be exercised more than ten
years
from date of grant (5 years for a holder of more than 10% of the
Company's voting securities).  No SARs have been granted.  The
1989
Plan will terminate on January 5, 1999.

     On April 14, 1993, the Company adopted a Stock Option Plan
("1993
Plan").  The 1993 Plan provides for the issuance of incentive and
nonstatutory stock options to employees, consultants, advisors
and/or
directors for a total up to 700,000 shares of common stock.  The
exercise price of options granted may not be less than the fair
market
value of the shares on the date of grant (110% of such fair
market
value for a holder of more than 10% of the Company's common
stock),
nor may options be exercised more than five years from date of
grant. 
The 1993 Plan will terminate on January 4, 2003.

     On May 9, 1995, the Company adopted a Stock Option Plan
("1995
Plan").  The 1995 Plan provides for the issuance of incentive and
nonstatutory stock options to employees, consultants, advisors
and/or
directors for a total of up to 700,000 shares of Common Stock. 
The
determination of the exercise price of the options granted under
the
1995 Plan are the same as those of the 1993 Plan.  The 1995 Plan
will
terminate on January 4, 2005.

     On November 26, 1996, the Board of Directors offered to
cancel
and reissue certain options (at a reduced level) in the 1989 and
1993
Plans at the fair market value of the Company's Common Stock on
such
date.  Upon acceptance by the option holders, the vesting period
began
one year from the date of the offer and the options become
exercisable
ratably over a period of three years and expire four years from
the
date of issuance.

                             PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements (Cont'd)
                                          September 30, 1998


4. Shareholders' Equity (cont'd)


     The table below presents option information for the 1989
Plan:
<TABLE>

                   Year ended          Year ended             Year ended
                 Sept. 30, 1998       Sept. 30, 1997        Sept. 30, 1996
               Price range Shares    Price range Shares    Price range  Shares
               ----------- ------    ----------- ------    -----------  ------
<S>            <C>         <C>        <C>          <C>        <C>           <C>           
Outstanding,
 beginning of 
 year           $0.75       285,600   $3.125-7.875 351,000    $4.00-$7.875  392,000

Options granted  1.50-2.875 105,000    0.75        285,600    3.125         180,000

Cancelled        0.75       (72,000)   3.125-7.875 (351,000) 4.00-6.50      (221,000)

Exercised        0.75        (48,000)     
                -----------  -------    -----------  -------- ----------    -------
Outstanding,
 end of year    $0.75-2.875  270,600    0.75        285,600   $3.125-7.875  351,000
                -----------  -------    ----------- -------   -----------   -------

Eligible for
 exercise 
 currently      $0.75         51,200              -        -   $4.50-7.875  118,600
                ==========   =======    ===========  =======   ============ =======
 
</TABLE>






                             PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements (cont'd)
                                          September 30, 1998

     4. Shareholders' Equity (cont'd)

          The table below presents option information for the 1993 Plan:
<TABLE>
                   Year ended               Year ended         Year ended
                 Sept. 30, 1998           Sept. 30, 1997      Sept. 30, 1996
              Price range   Shares     Price range   Shares  Price Range    Shares
              -----------   ------     -----------   ------  -----------    ------
<S>          <C>           <C>        <C>           <C>      <C>            <C> 
Outstanding,
 beginning of
 year         $0.75-5.50    440,500    $3.125-6.125  647,500  $4.50-6.125   668,750

Options
 granted               -          -     0.75 -0.875  385,500   3.125         20,000

Cancelled      0.75-4.50   (112,000)    3.125-6.125 (592,500)  4.50-6.125  (41,250)

Exercised      0.75        ( 18,000)
              ---------    -------      -----------  -------   -----------  -------
Outstanding,
 end of year  $0.75-5.50    310,500     0.75 -5.50   440,500  $3.125-6.125  647,500
               =========    =======     ===========  =======   ===========  =======

Eligible for
 exercise
 currently      $0.75-5.50     96,000     $4.50 -5.50   43,000 $4.50-6.125  301,500
                 =========    =======     ===========  =======  =========== =======

</TABLE>






                              PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements (cont'd)
                                           September 30, 1998



4. Shareholders' Equity (cont'd)

     The table below presents option information for the 1995 Plan:
   
<TABLE>
                       Year Ended                  Year Ended                Year Ended
                      Sept. 30, 1998              Sept. 30,1997            Sept. 30, 1996
                   Price range    Shares      Price range  Shares         Price range    Shares
                   -----------    ------      -----------  ------        -----------    ------
<S>                <C>            <C>         <C>            <C>         <C>            <C>        
    Outstanding,
     beginning of
     year           $0.75-2.9375   123,000     $3.00          10,000             -           -

    Options granted  1.625-1.688     9,500      0.75-2.9375  123,000      $3.00         10,000

    Cancelled        1.4375-2.9375 (57,498)     3.00         (10,000)

    Exercised                   -        -                -        -             -           -
                    -------------   ------      -----------   -------         -----     ------
    Outstanding, 
     end of year    $ 0.75-2.9375   75,002     $0.75-2.9375   123,000         $3.00     10,000 
                     ============   ======      ===========   =======         =====     ======
    Eligible for
     exercise
     currently      $ 0.75-2.9375   29,750       1.4375        12,000            -           -
                     ===========    ======      ===========   =======         =====     ======

</TABLE>






               PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

            Notes to Consolidated Financial Statements (Cont'd)
                            September 30, 1998

4. Shareholders' Equity (cont'd) 

     The Financial Accounting Standards Board has issued
Financial
Accounting Standard No. 123 "Accounting for Stock-Based
Compensation" ("FAS 123").  FAS 123 took 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  prior permitted accounting
method, such disclosures must include the effects of all awards
granted in the fiscal year beginning October 1, 1995.  The
Company
has elected to follow Accounting Principles Board Opinion No. 25. 
"Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. 
Under APB 25, because the exercise price of the Company's
employee
stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized.

     Pro forma information regarding net income and earnings per
share is required by Statement No. 123, and has been determined
as
if the Company had accounted for its employee stock options under
the fair value method of that Statement.  This fair value for
these
options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions:

     Risk-free interest rate                 4.34%
     Expected dividend yield                    0%
     Expected stock price volatility         .658%
     Expected life of options            3-5 years

     The weighted average fair value of options granted during
Fiscal 1998 and Fiscal 1997 is $.74 and $.78 per share,
respectively.

     The Black-Scholes option valuation model was developed for
use
in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable.  In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. 
Because
the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can mutually affect
the
fair value estimate, in management's opinion, the existing models
do not necessarily provide a reliable single measure of the fair
value of its employee stock options.  For purposes of pro forma
disclosures, the estimated fair value of the options is amortized
to expense over the options' vesting period.  The Company's pro
forma information is as follows (in thousands except for earnings
per share amounts):



                 PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Cont'd)
                              September 30, 1998


4. Shareholders' Equity (cont'd) 


                      Sept. 30, 1998     Sept. 30, 1997

              As reported   Pro forma  As reported Pro forma


Net (loss) income   ($3,504)  ($3,594)  $ 600     $ 491
(Loss) earnings 
  per share         ($  .28)  ($  .29)  $ .05     $ .04



























<PAGE>
                 PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements (Cont'd)
                              September 30, 1998



5. Income Taxes


                           1998            1997         1996
                           ----            ----         ----
Expense/(Benefit)        
                         
Federal:
  Current            $        -        $(309,276)  $  (697,252)
  Deferred              349,002          273,730      (421,047)
State:
  Current                     -              300             -
  Deferred              286,013           16,369      (278,654)
                        -------          -------     --------- 
                     $  635,015        $ (18,877)  $(1,396,953)
                        =======          =======     ========= 


     Reconciliations of the statutory federal income tax rate of 
34% to the effective tax rates are as follows:

                             1998          1997          1996
                             ----          ----          ----
Statutory tax rate        (34.00%)       34.00%        (34.00%)
State income taxes, net
  of federal tax (benefit)
  expense                  (4.84%)        1.86          (6.00)
IRS audit adjustment                      5.32
Permanent differences                     1.37%          9.99
Increase (decrease) in 
  valuation allowance      57.46%       (47.77%)        18.5%
Other                       2.14%        (6.65%)          .7%
                           ------        -----          ----- 
Effective tax rate         22.13%        (3.25%)       (20.80%)
                           ======        =====          =====










                  PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements (Cont'd)
                               September 30, 1998
5. Income Taxes (cont'd)

    Significant components of the Company's deferred tax assets
and
liabilities as of September 30, 1998 and 1997 are as follows:

                                               September 30,
                                         1998               1997
                                         ----               ----
Current deferred tax liability:
  State taxes on deferred
   federal items                      $  (68,687)     $ (149,823)
                                          ------         -------
Current deferred tax assets:
  Bad debts                               55,390           12,938
  Inventory reserve                      477,300          520,300
  Reserve for returns and               
   allowances                            303,528          313,042
  Unicap                                   7,787           12,813
  Cosmetics fixed asset reserve                           123,410
                                         -------          -------
  Total current deferred               
   tax assets                            844,005          982,503
Valuation allowance on current
  deferred tax assets                   (775,318)       (561,500)
                                         -------          ------- 
                                          68,687          421,003
                                         -------          -------
  Net current deferred tax assets      $       -      $   271,180
                                         =======          =======
Long-term deferred tax liabilities:
  Depreciation                         $(932,290)     $ (832,800)
                                         -------          ------- 
Long-term deferred tax assets:
  Reserve for litigation               1,053,500        1,290,000 
  State net operating loss 
   carryforwards                         535,598          310,700

Federal net operating loss carry-
 forward                               1,182,076                -
                                       ---------        ---------
Total long-term deferred
  tax assets                           2,771,174        1,600,700
Valuation allowance on
  long-term deferred
  tax assets                          (1,838,884)        (404,065)
                                       ---------         --------
                                         932,290        1,196,635
                                       ---------        ---------
  Net long-term deferred tax
   assets                             $        -         $ 363,835
                                       =========          ========

               PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

            Notes to Consolidated Financial Statements (Cont'd)
                            September 30, 1998

5. Income Taxes (cont'd)

     The Company has generated state net operating loss
carryforwards of $5,951,094, which will expire in varying amounts
beginning on September 30, 2001.  The Company has also generated
a
federal net operating loss carry-forward of $3,476,694, which
will
expire on September 30, 2013.

     In 1996, the Company recorded a valuation allowance of
$1,243,191 against deferred tax assets due to the uncertainty of
its ability to recognize a full tax benefit for future payments
against the litigation reserve and its ability to fully utilize
the
state net operating loss carry-forwards.  In 1997, approximately
$277,000 of the valuation allowance was recognized as a tax
benefit.  In 1998, the Company increased the valuation allowance
to
$2,614,202 due to the uncertainty of its ability to fully utilize
the federal and state net operating loss carry-forward.

6.  Commitments and Contingencies                                 

Letters of Credit

    The Company was contingently liable for outstanding letters
of
credit of $53,520 at September 30, 1998.

Leases

    Rent expense for the years ended September 30, 1998, 1997 and
1996 amounted to $1,056,934, $1,024,491 and $940,650
respectively.

    In May 1990, the Company entered into a 60 month lease for
manufacturing space.  The lease provides for all real estate
taxes
and operating expenses to be paid by the Company and it contains
options to renew for two 60 month periods.  The Company exercised
its first option and extended the lease for an additional 60
months
commencing in June 1995.

    In March 1993, the Company entered into a 60 month lease for
office, warehouse and manufacturing space.  The lease provides
for
all real estate taxes and operating expenses to be paid by the
Company and it contains an option to renew for an additional 60
month period.  In October 1997, the Company exercised its option
to
renew.

    In August 1995, the Company entered into a 60 month lease for
its 130,000 square foot distribution center.  The lease provides
for all real estate taxes and operating expenses to be paid by
the
Company and it contains two options to renew for two five year
periods.


               PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

            Notes to Consolidated Financial Statements (Cont'd)
                            September 30, 1998


6. Commitments and Contingencies (cont'd)

     Future minimum rental payments under operating leases are as
follows:

     1999                 $785,364
     2000                  715,268
     Thereafter            413,368
                         ---------
                        $1,914,000
                         =========


Concentration of Labor

    In December 1992, the production and maintenance employees of
the Company's wholly owned subsidiary, Sawdust, voted to join
local
478 of the International Brotherhood of Teamsters (the "Union"). 
In the Company's fiscal year ended September 30, 1996 ("Fiscal
1996"), Sawdust renewed its labor agreement with the Union for
the
benefit of these employees, which agreement expires August 31,
1999.  As of September 30, 1998, 49% of the Company's employees
were members of the Union.  The Company has maintained a
favorable 
relationship with the union.


7. Loss from cosmetics operation:

    During the second quarter of 1997, the Board of Directors
determined to discontinue its cosmetics operation and focus its
efforts primarily on its writing instruments business.  The loss
from cosmetics operation reported in the second quarter reflects
the write-down of certain assets of this operation to their
estimated net realizable value (Note 13).  















               PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

            Notes to Consolidated Financial Statements (Cont'd)
                            September 30, 1998


8. Paradise Settlement


    In October 1987, the Company commenced an action against Leon
Hayduchok, All-Mark Corporation and Paradise Creations, Inc.,
(collectively, "Paradise") in the United States District Court
for
the Southern District of New York which resulted in an adverse
multi-million dollar judgment against Pentech.  In December 1996,
the parties to such litigation entered into a settlement
agreement
providing, among other things, for Pentech to pay $500,000 at the
date of signing, deliver a $3,000,000 promissory note plus
interest
at the rate of 7% per annum (the "Note") and enter into a five
year
non-exclusive license to sell such products for a 10% royalty,
with
an aggregate minimum royalty of $500,000 (the "Paradise
Settlement").  The Company paid Paradise the $500,000 at the date
of signing in January 1997 and a required payment against the
Note
of $400,000 in February 1997.  In addition, the Note required
$100,000 quarterly principal payments commencing January 1, 1998. 
Quarterly principal payments were made in December 1997 and in
April, July and October 1998.  The Company also has paid $200,000
against the minimum royalty. 


9.  Major Customer and Concentration of Credit Risk

     For the years ended September 30, 1998, 1997 and 1996, the
Company had one customer who accounted for 12%, 13% and 11%,
respectively, of net sales.  Concentration of credit risk with
respect to trade receivables is generally limited due to the
Company's use of credit limits, credit insurance and ongoing
credit
evaluations and account monitoring procedures.


10.   401(k) Plan

    The Company adopted a defined contribution 401(k) plan
effective April 1, 1993, covering substantially all employees not
covered under a collective bargaining agreement.  The plan
provides
employees an opportunity to make pre-tax payroll contributions to
the plan.  The plan was amended on April 1, 1996 to incorporate
an
employer discretionary match of 1/3 of the first 6% of employee
contributions.  For the years ended September 30, 1998, 1997,
1996
the Company contributed $32,558, $36,273 and $16,941,
respectively.







               PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

            Notes to Consolidated Financial Statements (Cont'd)
                            September 30, 1998

11.  Accrued Expenses
                                          September 30,
                                       1998         1997
                                       ----         ----
Accrued returns and advertising       
  rebates                          $ 1,878,847   $1,833,450
Accrued royalties                      346,940      637,477
Other accrued expenses               1,126,175      969,777
                                     ---------    ---------
                                   $ 3,351,962   $3,440,704
                                     =========    =========
12.  Private Placement 

    In January 1997, the Company completed a private offering of
20 Units, each Unit consisting of 100,000 shares of Common Stock
of
the Company for $50,000 per Unit (the "Private Offering").  The
Company received net proceeds of $963,000 from the Private
Offering.  Officers and directors of the Company acquired 52.5%
of
the Units sold in the Private Offering and participated on the
same
terms as the other investors in the Private Offering.  The terms
of
the Private Offering were established by a Special Committee of
the
Board of Directors who did not participate in the Private
Offering. 
The Company was required by its banks (at that time) to raise
funds
in the Private Offering in order to fund the $500,000 payment
referred to in Note 8 and to enable the Company to fund its
requirements for capital expenditures.

13. Sale of Cosmetic Assets/Available-for-Sale Security

    In November 1997, the Company entered into an agreement to
sell the fixed assets and inventory of its Cosmetics subsidiary
to
an outside company, Fun Cosmetics Inc. ("Fun") (significantly
owned
by a former employee) for its net book value of $758,000 plus
200,000 shares of Fun.  In December 1997, $100,000 was received
as
a down payment, $150,000 was received at closing and a note was
issued for approximately $508,000 bearing interest at a rate of
9%
per annum.  The terms of the note provided that the principal be
reduced by $150,000 a month commencing February 1998, until paid. 
This note was paid in full in March 1998.  At the time of sale,
the
Company assigned no value to the shares received since the
acquiring company was a start-up company with minimal assets and
was still seeking financing.  Since November 1997, Fun has raised
additional equity and funding and has become a non-reporting
company whose shares are listed on the NASD Electronic Bulletin
Board.  At September 30, 1998, the value of this stock (based on
quoted market prices) was $3.11 a share.  The price as of January
11, 1999 was $4.125 a share.  The Company has the right to begin
selling its shares in Fun in January 1999.  However, due to the
historically low level of trading activity, the number of shares
the Company owns and the fact that the shares are unregistered,
there is no assurance the Company will realize the current market
value.


               PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

            Notes to Consolidated Financial Statements (Cont'd)
                            September 30, 1998

14. Income from Lawsuit Settlement:

    In June 1997, the Company commenced an action against Cooper
and Dunham LLP and Lewis H. Eslinger (collectively, "Defendants")
in the Supreme Court of the State of New York and County of New
York for legal malpractice, gross negligence, misrepresentation
and
breach of contract in connection with the adverse, multi-million
dollar judgment resulting from a patent infringement case which
the
defendants had been retained to pursue.  On April 10, 1998, the
Company terminated this action and received a payment of
$1,250,000.  All actions arising from the patent infringement
case
have now been discontinued with prejudice.

15. Fourth Quarter Results (unaudited)

    The results for the quarter ended September 30, 1998 was
impacted by several events including a write down of inventory, a
large return of promotional back to school products and, to a
lesser extent, foreign exchange losses from its Canadian and
European operations and the results of a sales and use tax audit.

    The gross profit for the fourth quarter was also effected by
the decline in licensed products, including the effects from the
National Basketball Association lockout.

16. Impact of Year 2000 (unaudited)

    With respect to the Year 2000 issue, the Company is in the
process of ensuring that all internal computer equipment, 
manufacturing, distribution and business equipment will be Year
2000 compliant.  Upon completion of that review, the Company will
make a full assessment of the risk associated with the Year 2000
issue and determine whether the consequences will have a material
effect on the Company's business.  In addition, if necessary,
upon
completion of the assessment, the Company will develop a
contingency plan.  The Company utilizes a third party software
package to run its internal operating and accounting systems and
has purchased the Year 2000 compliant version of this software
which was placed in operation in December 1998.  In addition, all
telecommunications equipment and computer applications are Year
2000 compliant.  The Company is also contacting its vendors and
customers in order to asses any third party risk.  The Company
does
not expect the costs associated with becoming Year 2000 compliant
to be material and believes that it will be absorbed, for the
most
part, in its normal information technology budget.









                  PENTECH INTERNATIONAL, INC. AND SUBSIDIARIES

          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES

                 Years Ended September 30, 1998, 1997 and 1996


Column A                Column B     Column C   Column D     Column E
--------                --------     --------   --------     --------
                                       Charged
                          Balance at   to Costs               Balance
                          Beginning       and                 End of
Description               of Period    Expenses Deductions(1) Period 


Year ended September 
 30, 1998
Allowance for doubtful
 accounts                $   30,087  $  134,974   $36,247  $ 128,814
                          =========   =========   =======  =========
Allowance for slow 
 moving items            $1,210,000  $  300,000  $400,000 $1,110,000
                          =========   =========   =======  =========
Valuation allowance
 for deferred taxes      $  965,565  $1,648,637         - $2,614,202
                          =========   =========   =======  =========
Year ended September
 30, 1997
Allowance for doubtful
 accounts                $  402,513  $   15,401  $387,827  $  30,087
                          =========   =========   =======  =========

Allowance for slow
 moving items            $1,386,000  $  400,000  $576,000 $1,210,000
                          =========   =========   ======= =========

Valuation allowance 
for deferred taxes       $1,243,191  $  237,009  $514,635  $ 965,565
                          =========   =========   =======  =========

Year ended September 
 30, 1996
Allowance for doubtful
 accounts                $   70,314  $  401,620  $ 69,421  $ 402,513
                          =========   =========   =======  =========
Allowance for slow 
 moving items            $1,386,000           -         -  $1,386,000
                          =========   =========   =======   =========
Valuation allowance
 for deferred taxes      $        -  $1,243,191  $      -  $1,243,191
                          =========   =========   =======   =========

(1) Amount represents various accounts written off during the
year, net
    of recoveries.



<PAGE>
                               EXHIBIT INDEX



Exhibit 10.5   Waiver and First Amendment to Loan and Security
               Agreement among the Company, Pentech Cosmetics,
               Inc., Sawdust Pencil Co. and BankAmerica Business
               Credit, Inc. dated as of January 11, 1999.



Exhibit 10.7   Settlement Agreement dated March 1998 between the  
               Company, Cooper & Dunham, L.L.P. and Lewis H.
               Eslinger.



Exhibit 21     Subsidiaries of the Company.



Exhibit 23.1   Consent of Ernst & Young LLP dated January 11,
               1999.