U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
<TABLE>
<S> <C> <C> <C>
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 1-5673
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RANGER INDUSTRIES, INC.
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(Exact name of small business issuer as specified in its charter)
Connecticut 06-0768904
- ---------------------------------------------------------------- ----------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Regency Drive, Bloomfield, Connecticut 06002
- ---------------------------------------------------------------- ----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (860) 726-1208
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.0l par value
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(Title of Class)
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Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: NONE.
State the aggregate market value of voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date (March 19, 1999) within the past 60 days:
$1,765,675
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date (March 29, 1999):
5,278,644 shares
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
810748.5
<PAGE>
PART I
Item 1. Business.
Background. Ranger Industries, Inc., a Connecticut corporation (the
"Registrant") was organized in 1961, as the successor to the Connecticut Leather
Company, which was founded in 1932. From 1961 through 1990, the Registrant was
known as "Coleco Industries, Inc." The Registrant's principal executive offices
are located at One Regency Drive, Bloomfield, Connecticut 06002, and its
telephone number is (860) 726-1208.
In 1988, the Registrant, then known as Coleco Industries, Inc.,
filed a voluntary petition in bankruptcy, and in 1990, a plan of reorganization
(the "Plan") was approved by the bankruptcy court and became effective as of
February 28, 1990 (the "Effective Date"), and the Registrant emerged from
Chapter 11 pursuant thereto. In accordance with the Plan:
(i) the Registrant emerged from the Chapter 11 proceeding
with $950,000 in cash and no liabilities,
(ii) $5.5 million was transferred to a product liability trust
(the "Product Liability Trust"), to process and liquidate
product liability claims pending or arising after May 15,
1990, and
(iii) all other assets were transferred to a reorganization trust
(the "Reorganization Trust"), which was responsible for
collecting and liquidating the Registrant's other assets and
distributing them to the Registrant's former creditors in
accordance with the Plan.
The Reorganization Trust made what was expected to be its last
distribution in May, 1996 and was terminated by order of the bankruptcy court on
August 27, 1996. In August 1998, however, the Registrant received an additional
distribution of $45,601 from the former Reorganization Trust's trustee.
The Product Liability Trust contains assets of approximately $12
million as of December 31, 1998. Under the terms of the Product Liability Trust,
the residual funds, if any, remaining after the distribution of Trust assets to
pay product liability claims and expenses would be distributed to the Registrant
on February 28, 2020. The bankruptcy court, in its discretion, is authorized to
permit an earlier payout to the Registrant. The Registrant may apply to the
bankruptcy court for termination of the Product Liability Trust earlier than
originally scheduled (i.e., prior to February 28, 2020), but there can be no
assurance that such application will be successful, or that the Registrant will
otherwise receive any distribution of assets from the Product Liability Trust
prior to 2020, if ever.
810748.5
-1-
<PAGE>
As of December 31, 1998, the Registrant had adjusted net operating
loss carryforwards ("NOLs") of approximately $182 million. The NOLs resulted
principally from operating losses sustained by the Registrant prior to 1990. See
Note 6 of the Notes to the Financial Statements for an explanation of the
possible utility of these NOLs.
Under management that was installed under the Plan and that
remained in control of the Registrant through July 29, 1997, the Registrant
pursued the business of acquiring investments, but that effort proved to be
unsuccessful.
During 1997, Pure Group, Inc., a Delaware corporation ("PGI")
wholly owned by one of the Registrant's current directors, engaged in and won a
proxy contest for control of the Registrant. The current Board of Directors, who
were the nominees of PGI in the proxy contest, took office on July 29, 1997,
pursuant to a settlement agreement dated that date (the "Settlement Agreement")
among PGI, the former members of the Registrant's Board of Directors, and the
Registrant. Thereafter, they were elected as the directors of the Registrant at
the Annual Meeting of Shareholders of the Registrant that was held on August 11,
1997. The Registrant had not held an annual meeting of shareholders at any time
since 1990.
In October 1997, the Registrant received a payment of approximately
$802,000 as a distribution from a bankruptcy proceeding in which the Registrant
had filed a claim in 1983. The Registrant had apparently written off that claim
as worthless prior to the conclusion of the Registrant's bankruptcy proceeding
in 1990. At the time that the payment was received, the Registrant had no other
material liquid assets. As of December 31, 1998, the Registrant had liquid
assets of approximately $759,000, substantially all of it attributable to the
October 1997 distribution and the August 1998 distribution of $45,601 described
above.
As of March 31, 1997, the Registrant had cash on hand of less than
$5,000 and no other financial resources. In connection with the proxy contest,
PGI agreed to lend the Registrant certain funds necessary for the call of an
annual meeting of shareholders. Under the Settlement Agreement, PGI lent the
Registrant approximately $197,000, and thereafter, PGI lent the Registrant an
additional $267,000. The loans were demand loans bearing interest at 2
percentage points above the prime rate. In March 1998, PGI and the Registrant
exchanged the full balance of that debt, plus interest, for 778,644 newly issued
shares of the Registrant's common stock, par value $0.01 per share ("Common
Stock"). As a result, PGI now holds approximately 21% of the outstanding Common
Stock. The exchange enabled the Registrant to conserve its cash for other
corporate purposes. See Item 12, Certain Relationships and Related Transactions.
Item 2. Properties.
As of the Effective Date of the Plan, the Registrant had no
material properties, and it has acquired none since then. The Registrant
currently has the use of office space in Bloomfield,
810748.5
-2-
<PAGE>
Connecticut, and leases space in a public warehouse for the storage of some of
its business records.
Item 3. Legal Proceedings.
In March 1999, one of the Company's inactive subsidiaries received
a Notice of Intent to Levy from the Internal Revenue Service (the "IRS") in
which the IRS alleges a debt of approximately $460,000 in connection with a 1984
tax obligation of that company. The Company believes that the assertions
contained in the Notice of Intent to Levy are without merit, but the Company is
still in the process of evaluating the merits of those assertions.
Item 4. Submission of Matters to a Vote of Securities Holders.
Inapplicable.
810748.5
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<PAGE>
PART II
Item 5. Market for Common Equity and Related Shareholder Matters.
The Common Stock is traded over the counter and quotes have been
reported by the OTC Bulletin Board since February 2, 1997. The table set forth
below reports the high and low closing bid quotations as compiled by National
Quotation Bureau, LLC, of New York, New York (for 1997 prices) and IDD
Information Services (for 1998 prices) for each calendar quarter in the last two
complete fiscal years, and for the first quarter of the current fiscal year,
through the date indicated. The quotations reflect interdealer prices, without
retail markups, markdowns or commissions and may not necessarily represent
actual transactions.
High Bid Low Bid
- --------------------------------------------------------------------------------
1997 - 1st Quarter $ 1.1875 $ 0.2500
1997 - 2nd Quarter 1.7500 0.3125
1997 - 3rd Quarter 1.0625 0.4375
1997 - 4th Quarter 1.5000 0.6250
1998 - 1st Quarter 1.00000 0.40625
1998 - 2nd Quarter 0.93750 0.56250
1998 - 3rd Quarter 0.87500 0.43750
1998 - 4th Quarter 0.75000 0.28125
1999 - 1st Quarter 0.59375 0.28125
(through March 19)
The number of registered holders of the Common Stock as of March
19, 1999, was approximately 1,000.
The Registrant has not paid any cash dividends on its stock since
1974 and has no expectation of doing so in the foreseeable future.
Item 6. Plan of Operation.
The following discussion should be read in conjunction with Item 1,
Business, and the Financial Statements, including the Notes thereto.
810748.5
-4-
<PAGE>
As a result of the receipt of approximately $802,000 in the last
quarter of 1997 and approximately $45,600 in the third quarter of 1998, the
Registrant has sufficient liquidity to meet its current operating expenses for
the foreseeable future. The Registrant's cash on hand was approximately $759,000
as of December 31, 1998, and the Registrant's projected cash operating costs and
expenses, net of interest income, for the fiscal year ending December 31, 1999
are approximately $87,000. The Registrant does not expect to have to raise
additional funds in the next twelve months.
The Registrant's financial resources at the present time, other
than its cash on hand, are (i) a remainder interest in the Product Liability
Trust and (ii) the possible utility of net operating loss carryforwards ("NOLs")
of approximately $182 million as of March 5, 1999. See Note 6, Income Taxes, in
the Condensed Financial Statements included in Part 7 of this Report. The NOLs
have sheltered the Registrant's modest interest income and the income of the
Product Liability Trust. The income of the Product Liability Trust, if any,
continues to be taxable to the Registrant. As more fully discussed in the Notes
to the Financial Statements, the continuing availability of the NOLs is
uncertain.
Year 2000 Issues. The Registrant does not use a computer to
maintain its financial records at this time. The Registrant therefore (i)
considers itself ready to deal with the transition to the year 2000; (ii)
expects to bear no significant costs associated with addressing the Year 2000
problem; and (iii) believes that its Year 2000 issues present it with no
material risks. The Registrant cannot be certain that BankBoston, the bank where
most of the Registrant's cash is kept in the form of accounts, will be free from
Year 2000 difficulties. The Registrant believes, however, that those accounts
are safe from any material risk associated with the Year 2000 problem. Because
the Registrant has no operations and does not use a computer to maintain its
financial records, the Registrant has not considered it necessary to make
contingency plans for dealing with the Year 2000 problem and it has not done so.
Item 7. Financial Statements.
See the "Index to Financial Statements and Schedules," which
appears on page F - 1 hereof.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Inapplicable.
810748.5
-5-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
Directors and Executive Officers. The following table sets forth
the names, ages and business backgrounds of the Registrant's executive officers
and directors, together with all positions and offices held with the Registrant
by such executive officers and directors. All executive officers and directors
first took office on July 29, 1997:
Name, Age and Office Business Background
Morton E. Handel, 63, President of S&H Consulting, Ltd.,
Chief Executive Officer, a privately held investment and
President and Director consulting firm. Chairman of the Board
and director of Marvel Enterprises,
Inc., a publicly held entertainment
company operating in the licensing,
comic book publishing and toy
businesses; director and chairman of
the Audit Committee of CompUSA, a
publicly held retailer of computer
hardware, software, and accessories;
director of Ithaca Industries, Inc., a
publicly held manufacturer of underwear
and hosiery; director of Concurrent
Computer Corporation, a manufacturer of
real-time computers and computer
systems.
Isaac Perlmutter, 55, Independent investor; sole shareholder
Director of Pure Group, Inc.; director of Marvel
Enterprises, Inc., a publicly held
entertainment company operating in the
licensing, comic book publishing and
toy businesses.
Raymond Minella, 49, Principal of Berenson, Minella &
Director Company, an investment banking firm.
Section 16(a) Beneficial Ownership Reporting Compliance. During
1998, Mr. Handel, Mr. Perlmutter and PGI failed to file forms required by
Section 16(a) of the Securities Exchange Act of 1934 on a timely basis. The
number of reports not filed on a timely basis during 1998 and from January 1,
1999 to March 29, 1999 was as follows: three for Mr. Handel (two Forms 4, each
to show a purchase of shares of Common Stock, and a Form 5 to show an
acquisition of shares of Common Stock pursuant to Mr. Handel's employment
agreement; see Note 8 to the Financial Statements), one for Mr. Perlmutter (a
Form 4 to show an acquisition of Common Stock by PGI; see Item 12), and one for
PGI (a Form 3 to show PGI's having become a ten-percent owner; see Items 11 and
12).
810748.5
-6-
<PAGE>
Item 10. Executive Compensation.
Executive Officers. In the three fiscal years ended December 31,
1998, 1997 and 1996, the only executive officers of the Registrant who received
any salary or other compensation from the Registrant were Mr. James B. Rubin and
Mr. Morton E. Handel, as follows:
Fiscal year ended Total annual
Name and Positions December 31, compensation
James T. Rubin, President and Director 1998 0
(through July 29, 1997) 1997 $17,888(1)
1996 50,000
Morton E. Handel, President and Chief 1998 45,063(2)
Executive Officer 1997 0
1996 0
1. For the period from January 1 through July 29, 1997, only.
2. See Note 8 of the Notes to the Financial Statements.
The Registrant's current executive officer, Mr. Handel, served
without any compensation from July 29, 1997 to August 4, 1998.
Compensation of Directors. Each director of the Registrant is paid
an attendance fee of $500 for each regular or special meeting of the Board of
Directors which he attends, in person or by telephone.
810748.5
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<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table lists all persons who have reported to the
Securities and Exchange Commission their beneficial ownership of more than 5% of
the Registrant's Common Stock, and all directors and officers of the Registrant,
as of March 15, 1999:
<TABLE>
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<S> <C> <C>
====================================================================================================================================
Beneficial Owner Number of Shares Percentage1
- ------------------------------------------------------------------------------------------------------------------------------------
Morton E. Handel, President, Chief Executive Officer
and Director 718,167 13.6%
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Massachusetts Financial Services Company 398,930 7.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Isaac Perlmutter, Director(2) 1,136,137 21.5%
- ------------------------------------------------------------------------------------------------------------------------------------
All directors and officers as a group(3) 1,854,304 35.1%
====================================================================================================================================
</TABLE>
1. All percentages have been determined using the number of shares of the
Registrant's Common Stock outstanding as of March 19, 1999, i.e.,
5,278,644 shares.
2. Consists of 1,102,100 shares owned by PGI, which is wholly owned by Mr.
Perlmutter, and 34,037 shares owned by another corporation wholly owned
by Mr. Perlmutter.
3. Consists of shares beneficially owned by Mr. Handel and by Mr.
Perlmutter. Mr. Minella does not own any shares of the Registrant.
Item 12. Certain Relationships and Related Transactions.
From time to time in 1997, PGI (which is wholly owned by Mr.
Perlmutter, who became a director of the Registrant on July 29, 1997) advanced
funds to or for the benefit of the Registrant, and on July 29, 1997, the balance
of such advances stood at approximately $197,000. Prior management agreed on
behalf of the Registrant to repay such advances on demand, and to pay interest
on the outstanding balance at the rate of 2 percentage points over the prime
rate, compounded monthly. Advances made after July 29, 1998, were made on the
same terms and conditions as provided for the advances made prior to Mr.
Perlmutter's election as a director. No cash payments of principal or interest
were made on such indebtedness in 1997, and on February 20, 1998, the
outstanding balance of principal and interest was $483,616. On March 9, 1998,
the Registrant agreed to exchange 778,644 shares of its authorized but
theretofore unissued Common Stock for the $483,616 of debt due PGI. The value
per share used for the purposes of the exchange was $0.6211, which was the
weighted average of the closing price of shares traded for the 30-day period
prior to February 20, 1998.
810748.5
-8-
<PAGE>
Throughout 1996, and the period from January 1 through July 28,
1997, the Registrant had a management services agreement with M.D. Sass
Associates, Inc. ("Sass"), of which the Registrant's president throughout in
such periods, Mr. James B. Rubin, was a Senior Managing Director. The Registrant
incurred costs of $19,200 payable to Sass in 1996, and $9,600 in 1997.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits. The exhibits that are part of this report are listed in
the Exhibit Index at the end of this report.
(b) Reports on Form 8-K. In the last quarter of the year covered by
this report, the Registrant filed no Current Reports on Form 8-K.
810748.5
-9-
<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.
Ranger Industries, Inc.
March 29, 1999 /s/ MORTON E. HANDEL
----------------------------------------------------------
Morton E. Handel
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
March 29, 1999 /s/ MORTON E. HANDEL
----------------------------------------------------------
Morton E. Handel,
President, Chief Executive Officer, Director,
and Acting Chief Financial and Accounting
Officer (principal executive, financial and
accounting officer)
March 29, 1999 /s/ RAYMOND MINELLA
----------------------------------------------------------
Raymond Minella, Director
March 29, 1999 /s/ ISAAC PERLMUTTER
----------------------------------------------------------
Isaac Perlmutter, Director
810748.5
<PAGE>
EXHIBIT INDEX
The following exhibits are a part of this report. All such exhibits are
incorporated herein by reference to other documents on file with the Securities
and Exchange Commission, except those marked with an asterisk.
Exhibit No. Description
3.1 Amended and restated certificate of incorporation of
the Registrant, incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989, SEC File No. 1-5673.
3.2 Amended and restated by-laws of the Registrant,
incorporated herein by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended December
31, 1994, SEC File No. 1-5673.
10.1 Settlement agreement dated July 29, 1997, among the
Registrant, Pure Group, Inc., and Messrs. James B.
Rubin, James Berman and Duncan N. Darrow, incorporated
herein by reference to Exhibit IV of Amendment No. 4
dated July 29, 1997, of Schedule 13D filed by Pure
Group, Inc., and certain other persons with respect to
ownership of the Registrant's Common Stock.
10.2 Employment Agreement dated as of August 4, 1998,
between the Registrant and Morton E. Handel,
incorporated herein by reference to Exhibit 10.2 of the
Registrant's Quarterly Report on Form 10-Q for the three
months ended June 30, 1998.
21* List of subsidiaries.
27* Financial Data Schedule.
810748.5
<PAGE>
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
Index to Financial Statements and Schedules
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Page
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Report of Independent Accountants.................................................................................F-2
Balance Sheets as of December 31, 1998 and 1997...................................................................F-3
Statements of Operations for the years ended December 31, 1998 and 1997...........................................F-4
Statements of Changes in Shareholders' Equity for the years ended December 31, 1998
and 1997........................................................................................................F-5
Statements of Cash Flows for the years ended December 31, 1998 and 1997...........................................F-6
Notes to Financial Statements.....................................................................................F-7
Schedules not included herein have been omitted because they are not applicable
or the required information is shown in the Financial Statements or Notes
thereto.
</TABLE>
815094.2
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors of
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in shareholders' equity and of cash flows, present fairly,
in all material respects, the financial position of Ranger Industries, Inc. (the
"Company") at December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
February 28, 1999
Hartford, CT
815094.2
F-2
<PAGE>
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Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Balance Sheets
December 31, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 759,216 $ 784,800
Prepaid expenses 2,625 -
Income tax receivable 3,436 3,446
--------------- ----------------
765,277 788,246
--------------- ----------------
Other assets 6,802 -
--------------- ----------------
Total assets $ 772,079 $ 788,246
--------------- ----------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and other liabilities $ 18,075 $ 19,918
Deferred income taxes 3,576 -
Accrued interest payable - 16,337
Note payable to Pure Group, Inc. - 196,477
Other amounts owed to Pure Group, Inc. - 265,303
--------------- ----------------
Total current liabilities 21,651 498,035
Non-current liabilities
Deferred income taxes 8,391 -
--------------- ----------------
Total liabilities 30,042 498,035
--------------- ----------------
Stockholders' equity
Common stock - $.01 par value, 20,000,000 shares
authorized, 5,278,644 and 4,000,000 shares issued and outstanding, 52,786 40,000
respectively
Capital in excess of par value 1,661,430 985,000
Unearned compensation (114,937) -
Retained deficit (857,242) (734,789)
--------------- ----------------
Total stockholders' equity 742,037 290,211
--------------- ----------------
Total liabilities and stockholders' equity 772,079 788,246
=============== ===============
The accompanying notes are an integral part of these financial statements.
815094.2
F-3
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Statements of Operations
For the Years Ended December 31, 1998 and 1997
- -------------------------------------------------------------------------------------------------------------------
1998 1997
Net sales $ - $ -
--------------- -------------
Operating costs and expenses
Administrative expenses 110,356 111,697
Legal expenses 32,794 111,243
Proxy contest and annual meeting expenses - 251,781
Other income and expenses
Bad debt recoveries income 2,603 802,160
Interest expense (5,498) (16,337)
Interest income 35,559 8,861
--------------- ------------
(Loss) income before income taxes (110,486) 319,963
--------------- ------------
Provision for income taxes
Current - 8,400
Deferred 11,967 -
--------------- ------------
Net (loss) income (122,453) 311,563
--------------- ------------
Basic (loss) income per share $ (.03) $ .08
--------------- ------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
815094.2
F-4
<PAGE>
<TABLE>
<CAPTION>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1998 and 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Capital in Total
Number Par Excess of Retained Unearned Shareholders'
of Shares Value Par Value Deficit Compensation Equity
(Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 4,000,000 $ 40,000 $ 985,000 $ (1,046,352) $ - $ (21,352)
Net income - - - 311,563 - 311,563
----------- --------- ----------- ---------- ----------- ---------
Balances at December 31, 1997 4,000,000 40,000 985,000 (734,789) - 290,211
Issuance of common stock to PGI 778,644 7,786 475,829 - 483,615
Issuance of common stock in lieu of cash 500,000 5,000 155,000 - (160,000) -
compensation
Amortization of unearned
compensation - - - - 45,063 45,063
Net loss - - - (122,453) (122,453)
Distribution from Ranger Industries, Inc.
reorganization, net - - 45,601 - 45,601
----------- --------- ----------- ---------- ----------- ---------
Balances at December 31, 1998 5,278,644 $ 52,786 $ 1,661,430 $ (857,242) $ (114,937) $ 742,037
----------- --------- ----------- ---------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
815094.2
F-5
<PAGE>
<TABLE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net (loss) income $ (122,453) $ 311,563
----------- -----------
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities
Interest expense settled in shares of Ranger stock 5,498 -
Compensation expense settled in shares of Ranger stock 45,063 -
Deferred income taxes 11,967 -
Changes in assets and liabilities
Bad debt recoveries receivable - 2,931
Prepaid expenses and other assets (9,427) 1,044
Income tax receivable 10 (3,446)
Accounts payable, accrued liabilities and interest payable (1,843) (32,081)
----------- -----------
Total adjustments 51,268 (31,552)
----------- -----------
Net cash (used in) provided by operating activities (71,185) 280,011
---------- -----------
Cash flows from financing activities
Distribution from reorganization trust 45,601 -
Proceeds from note payable to Pure Group, Inc. - 196,477
Other proceeds from Pure Group, Inc. - 265,303
----------- -----------
Net cash provided by financing activities 45,601 461,780
----------- -----------
Net (decrease) increase in cash and cash equivalents (25,584) 741,791
Cash and cash equivalents at beginning of year 784,800 43,009
----------- -----------
Cash and cash equivalents at end of year $ 759,216 $ 784,800
----------- -----------
Supplemental disclosures of cash flow information
Cash paid during the year for
income taxes - $ 13,324
----------- -----------
Noncash transactions
Common stock issued in exchange for the cancellation
of amount owed to PGI $ 483,616 -
----------- ------------
Common stock issued in exchange for employment services $ 160,000 $ -
----------- ------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
815094.2
F-6
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
- -------------------------------------------------------------------------------
1. Organization
In July 1988, Ranger Industries, Inc. (the "Registrant" or the "Company",
and then known as Coleco Industries, Inc.) filed a voluntary petition in
United States Bankruptcy Court under Chapter 11 of the Federal Bankruptcy
Code. Effective February 28, 1990, the bankruptcy court approved a plan of
reorganization (the "Plan"), pursuant to which all then outstanding debt
and equity securities of the Registrant were canceled, and 4,000,000
shares of the Registrant's new $0.01 par value common stock (the "Common
Stock") were distributed to the unsecured creditors. On the Effective Date
of the Plan, the Registrant retained $950,000 in cash for working capital
purposes and was expected to engage in the business of acquiring income
producing properties or businesses.
The Plan provided for the creation of a Reorganization Trust in order to
liquidate the Registrant's remaining assets (other than the $950,000 in
cash retained by the Registrant) and effectuate distributions thereof to
the Registrant's creditors. The Reorganization Trust completed the
distribution of its assets in May 1996 and was terminated by order of the
bankruptcy court on August 27, 1996. Also, see Note 9.
The Plan also provided for the creation of a Product Liability Trust in
order to settle certain personal injury claims (including claims arising
thereafter) against the Registrant. The Product Liability Trust continues
to process and liquidate certain product liability claims. Pursuant to the
terms of the Product Liability Trust Agreement, residual funds, if any,
will revert to the Registrant, as grantor of the trust, upon the earlier
of (a) February 28, 2020, or (b) approval by the bankruptcy court of
earlier termination of the Product Liability Trust.
2. Change In Control
Following the conclusion of a hostile proxy contest (the "Proxy Contest"),
initiated by Pure Group, Inc. ("PGI") during the second quarter of 1997,
the Company's former directors resigned from the Board of Directors
effective July 29, 1997, and new directors were elected. The terms under
which this change in control took place are outlined in a settlement
agreement dated July 29, 1997 between PGI, the Company and the Company's
former directors (the "Settlement Agreement"). Under the terms of the
Settlement Agreement, and as set forth in a demand promissory note dated
July 29, 1997, PGI loaned the Company $196,477 to pay its then outstanding
obligations. The note required the Company to pay interest to PGI at two
percentage points above the prime rate. Additionally, PGI loaned the
Company $251,780 to cover costs incurred in connection with the Proxy
Contest, including the costs of holding the 1997 annual meeting and
$13,523 for working capital purposes. These additional loans of $265,303
were subject to the same terms outlined in the demand promissory note.
Also, see Note 7.
3. Summary of Significant Accounting Policies
The financial statements have been prepared using the accrual basis of
accounting. 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, if
applicable, 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.
815094.2
F-7
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
- -------------------------------------------------------------------------------
Certain amounts from 1997 have been reclassified to conform with the 1998
presentation.
Income
The only source of income is interest income and the recovery of certain
bad debts.
Expenses
Expenses of the Company consist of professional fees and other costs
incurred in connection with the Company's filing requirements and
interest.
Earnings Per Share
In 1997, the Company adopted Statement of Financial Standards No. 128,
"Earnings Per Share". This pronouncement had no impact on the Company's
consolidated financial position, results of operations, or cash flows.
Basic earnings (loss) per share were computed based on the weighted
average number of shares of common shares outstanding. There are no
dilutive securities outstanding and, as such, basic and diluted earnings
per share are the same. Weighted average common shares outstanding were
4,837,691 and 4,000,000 shares during 1998 and 1997, respectively. As
discussed in Note 1, all previously existing debt and equity securities
were canceled on February 28, 1990.
Cash and Cash Equivalents
Cash equivalents consist of short-term highly liquid investments with an
original maturity, when purchased, of three months or less.
4. Bankruptcy Claim Recovery
On October 9, 1997, the Company received $802,160 as a distribution on a
bankruptcy claim filed by the Company's predecessor in 1983.
5. Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in
the financial statements or income tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse. In addition, deferred tax assets are subject to a
valuation allowance to reduce them to net realizable value.
As discussed in Note 1, the assets and liabilities of the Company, except
for $950,000 retained for working capital purposes, were transferred to
the Reorganization and Product Liability Trusts, respectively, effective
February 28, 1990, in accordance with the Plan. Although the matter is not
free from doubt, these Trusts have been treated as grantor trusts.
Accordingly, taxable income or loss associated with the disposition of
assets and the settlement of liabilities by the Trusts are reflected on
the federal income tax return of Ranger Industries, Inc., although such
assets and liabilities are not presented in these financial statements
(also see Note 6).
815094.2
F-8
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
- -------------------------------------------------------------------------------
Tax expense or benefit is attributable to state taxes and Federal
alternative minimum tax due.
At December 31, 1998 and 1997, it was estimated that the Company had
adjusted tax net operating loss carryforwards and future deductions of
approximately $182.2 million and $192 million, respectively, after giving
effect to the Plan and the transactions contemplated thereby, which may be
used to offset future taxable income, subject to several limitations, and
which begin to expire in the year 2002. These amounts include the tax
consequences of the activity of the Reorganization and Product Liability
Trusts, as well as the activity of Ranger Industries, Inc. At December 31,
1998 and 1997, the Company had Alternative Minimum Tax (AMT) loss
carryforwards of approximately $153.9 million and $168 million,
respectively, which will begin to expire in the year 2002. The Company
also had approximately $7.7 million in tax credit carryforwards at
December 31, 1998 and 1997. At the current tax rates, the taxable income
equivalent of the credit carryforwards is approximately $22.6 million.
Under current tax laws, the Internal Revenue Code provides for certain
limitations following an "ownership change". Accordingly, under the
confirmed Plan of Reorganization, the continued availability of the
Company's net operating loss carryforwards and other tax attributes may be
subject to substantial limitations (also see Note 6).
At December 31, 1998, the Company had deferred tax liabilities of $11,967,
as a result of a compensation expense temporary difference, associated
with the stock issued to Mr. Handel (see Note 8). There were no deferred
tax liabilities at December 31, 1997. Additionally, any deferred tax asset
recorded to recognize the tax net operating loss carryforwards would be
subject to a full valuation allowance under the provisions of SFAS 109,
due to the uncertainty of the Company's ability to generate taxable income
to utilize the carryforwards.
6. Treasury Regulation
On January 6, 1992, the Department of the Treasury promulgated new
Treasury Regulations. These regulations interpret Section 269 of the
Internal Revenue Code which permits the Internal Revenue Service to deny
corporations the ability to use tax benefits, such as net operating losses
("NOLs") where control of the corporation was acquired for the principal
purpose of avoiding tax. The regulations provide that if a corporation in
a bankruptcy reorganization that qualifies for an exemption from the
general rule limiting the use of net operating loss carryforwards does not
carry on a significant amount of an active trade or business during and
subsequent to such bankruptcy reorganization, the Internal Revenue Service
will presume, absent a showing of strong evidence to the contrary, that
the principal purpose of the reorganization was to evade or avoid Federal
income tax and that Section 269 should apply. The regulations are only
effective, by their terms, with respect to acquisitions of control of
corporations occurring after August 14, 1990 and, accordingly, they do not
apply to Ranger Industries, Inc.
Despite the inapplicability of these regulations to Ranger, the issue of
essentially inactive reorganized companies with NOLs that survive
bankruptcy intact has now been firmly raised in the eyes of the Internal
Revenue Service. Accordingly, due to the Company's disposition of its
historic toy businesses to Hasbro and the Company's switch to a new
business of acquiring investments, it is possible that the Internal
Revenue Service may assert that the Company has not carried on a
significant trade or business during and subsequent to its reorganization.
If such an assertion is made and ultimately sustained, then the Company
would be unable to utilize its estimated $182.2 million of net operating
loss carryforwards. This could have
815094.2
F-9
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
- -------------------------------------------------------------------------------
a materially adverse effect on the Company's ability to attract outside
investors willing to invest in the Company. Notwithstanding these
regulations, there can be no assurance that the Company will be able to
attract sufficient outside investment to allow it to continue to operate,
once its current working capital is depleted. The financial statements do
not include any adjustments that might result from the resolution of these
uncertainties.
7. PGI Indebtedness
On March 9, 1998, the Company issued 778,644 shares of its $.01 par value
common stock in exchange for the cancellation of the amount owed to PGI as
of February 10, 1998. The exchange value of $.6211/share was determined
using the weighted average of the closing prices of the Company's common
stock for the 30-day period prior to February 20, 1998, the date of the
agreement.
8. Stock Compensation
On August 4, 1998, the Company entered into a five-year Employment
Agreement (the "Agreement") with Mr. Morton E. Handel, whereby Mr. Handel
will serve as the Company's Chief Executive Officer and President. As base
compensation, in lieu of cash, Mr. Handel received 500,000 shares of the
Company's stock, one-fifth of which is immediately vested and
non-forfeitable as of the date of the Agreement. Mr. Handel will vest in
an additional 20 percent of the shares each year over the succeeding four
anniversaries of the Agreement.
The estimated market value of the stock award was $160,000 or $.32 per
share. The Company will incur compensation expense based on the vesting
terms included in the Agreement. For the year ended December 31, 1998, the
Company recognized compensation expense of $45,063, plus related taxes, in
connection with this stock award, which is included in administrative
expenses in the financial statements.
9. Distribution from Ranger Industries, Inc.'s Reorganization Trust
As described in Note 1, the Reorganization Trust made what was expected to
be its final distribution to creditors on May 29, 1996. In August 1998,
however, the Company received an additional distribution of $45,601 from
the former trustee of the Reorganization Trust. This amount has been
reflected as an adjustment to the original capitalization of the Company
and, accordingly, is included in capital in excess of par value at
December 31, 1998.
10. Related Party Transactions
The Company had an agreement with M.D. Sass Associates, Inc. ("SASS") of
which James B. Rubin was Senior Managing Director, under which SASS
provided accounting, administrative, financial, legal, secretarial and
other supportive services at the Company's request. The Company incurred
costs of $4,800 for these services for each of the quarters ended March 31
and June 30, 1997. In connection with the change in control described in
Note 2, this agreement was terminated. All amounts owed to SASS in
connection with this agreement were paid during the quarter ended
September 30, 1997.
815094.2
F-10
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
- -------------------------------------------------------------------------------
Effective August 1, 1990, Mr. Rubin, as Chief Executive Officer, was
entitled to an annual salary of $50,000 through the date of the change in
control (see Note 2). All fees for his services are included in
administrative expenses in the condensed financial statements. All amounts
owed to Mr. Rubin in connection with this agreement were paid during the
quarter ended September 30, 1997.
Also, see Notes 2, 7 and 8 for additional related party transaction
information.
815094.2
F-11
Exhibit 21
List of Subsidiaries
1. Ranger Industries, New York, Inc. (New York)
2. Ranger Industries, Delaware, Inc. (Delaware)
3. Coleco Europe, Inc. (Connecticut)
4. Scrabble Crossword Gameplayers, Inc. (New York)
Each of the Registrant's subsidiaries is inactive.
810748.5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Balance Sheet and
Statement of Operations and Retained Deficit and
is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> $759,216
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 765,277
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<CURRENT-LIABILITIES> 21,651
<BONDS> 0
0
0
<COMMON> 52,786
<OTHER-SE> 689,251
<TOTAL-LIABILITY-AND-EQUITY> 772,079
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 143,150
<OTHER-EXPENSES> 2,603
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (30,061)
<INCOME-PRETAX> (110,486)
<INCOME-TAX> 11,967
<INCOME-CONTINUING> (122,453)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (122,453)
<EPS-PRIMARY> (.03)
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