U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 1-5673
---------------------------------------------------------
RANGER INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(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
-----------------------------------------------------
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
- --------------------------------------------------------------------------------
(Title of Class)
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. [X]
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 (February 23, 2000) within the past 60 days: $8,412,840
------------
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date (February 22, 2000):
5,278,644 shares
- -----------------
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
925501.3
<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 $12.5
million as of December 31, 1999. 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. The Registrant expects that the trustee of the Product
Liability Trust will initiate steps during the first half of 2000 to apply to
the bankruptcy court for
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925501.3
<PAGE>
immediate distribution to the Registrant of a significant portion of the assets
of the Product Liability Trust, but there can be no assurance that such
application will be successful.
As of December 31, 1999, the Registrant had adjusted net operating loss
carryforwards ("NOLs") of approximately $177.2 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, 1999, the Registrant had liquid
assets of approximately $743,000, 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.
-2-
925501.3
<PAGE>
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, 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.
Item 4. Submission of Matters to a Vote of Securities Holders.
Inapplicable.
-3-
925501.3
<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/asked quotations as compiled by IDD
Information Services 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/Asked Low/Bid
- --------------------------------------------------------------------------------
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
1999 - 2nd Quarter 0.59375 0.37500
1999 - 3rd Quarter 1.21875 0.31250
1999 - 4th Quarter 1.50000 0.59375
2000 - 1st Quarter 1.87500 1.12500
(through Feb. 18)
The number of registered holders of the Common Stock as of February 18,
2000, 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.
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
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925501.3
<PAGE>
its current operating expenses for the foreseeable future. The Registrant's cash
on hand was approximately $743,000 as of December 31, 1999, and the Registrant's
projected cash operating costs and expenses, net of interest income, for the
fiscal year ending December 31, 2000 are approximately $90,000. 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 $177.2 million as of February 22, 2000. See Notes 5 and 6 in the
Condensed Financial Statements included in Part 7 of this Report. For regular
(i.e., non-alternative minimum) tax purposes, 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 has no operations and does not use a
computer to maintain its financial records at this time. The Registrant (i) has
incurred no significant costs associated with addressing the Year 2000 problem;
(ii) has not experienced any material adverse effects as a result of the Year
2000 issue; 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.
-5-
925501.3
<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, 64, President of S&H Consulting, Ltd., a privately
Chief Executive held investment and consulting firm. Chairman
Officer, of the Board and director of Marvel
President and Director Enterprises, Inc., a publicly held
entertainment company operating in the
licensing, comic book publishing and toy
businesses; director of CompUSA, a publicly
held retailer of computer hardware, software,
and accessories; director of Concurrent
Computer Corporation, a manufacturer of
real-time computers and computer systems.
Isaac Perlmutter, 56, Independent investor; sole shareholder of Pure
Director Group, Inc.; director of Marvel Enterprises,
Inc., a publicly held entertainment company
operating in the licensing, comic book
publishing and toy businesses.
Raymond Minella, 50, Principal of Berenson, Minella & Company, an
Director investment banking firm.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a)
of the Securities Exchange Act of 1934 (the "Exchange Act") requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent stockholders are required by
regulation of the Securities and Exchange Commission to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of Forms 3, 4 and 5 available to it and,
where applicable, written representations from directors, officers and 10%
stockholders that no form is required to be filed, the Company believes that no
director, officer or beneficial owner of more than 10% of its Common Stock
failed to file on a timely basis reports required pursuant to Section 16(a) of
the Exchange Act with respect to 1999.
-6-
925501.3
<PAGE>
Item 10. Executive Compensation.
Executive Officers. In the three fiscal years ended December 31, 1999,
1998 and 1997, 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 1999 $ 0
(through July 29, 1997)
1998 0
1997 17,888(1)
Morton E. Handel, President and Chief 1999 32,000(2)
Executive Officer
1998 45,063(2)
1997 0
1. For the period from January 1 through July 29, 1997, only.
2. See Note 7 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.
-7-
925501.3
<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 February 22, 2000:
<TABLE>
<CAPTION>
<S> <C> <C>
==========================================================================================
Beneficial Owner Number of Shares Percentage(1)
- ------------------------------------------------------------------------------------------
Morton E. Handel, President, Chief Executive Officer
and Director 718,167 13.6%
- ------------------------------------------------------------------------------------------
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 February 22, 2000, 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.
-8-
925501.3
<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.
-9-
925501.3
<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.
February 25, 2000 /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.
February 25, 2000 /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)
February 28, 2000 /s/ Raymond Minella
-------------------------------------
Raymond Minella
Director
February 24, 2000 /s/ Isaac Perlmutter
-------------------------------------
Isaac Perlmutter
Director
<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.
925501.3
<PAGE>
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
Index to Financial Statements and Schedules
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants.................................................................................F-2
Balance Sheets as of December 31, 1999 and 1998...................................................................F-3
Statements of Operations for the years ended December 31, 1999 and 1998...........................................F-4
Statements of Changes in Shareholders' Equity for the years ended December 31, 1999
and 1998........................................................................................................F-5
Statements of Cash Flows for the years ended December 31, 1999 and 1998...........................................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>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders 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, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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.
February 29, 2000
F - 2
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Balance Sheets
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
Assets
Current assets
<S> <C> <C>
Cash and equivalents $742,972 $759,216
Prepaid expenses 13,321 2,625
Income tax receivable - 3,436
------------- -------------
756,293 765,277
------------- -------------
Other assets 4,177 6,802
------------- -------------
Total assets $760,470 $772,079
============= =============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and other liabilities $ 11,005 $ 18,075
Income tax payable 26,900 -
Deferred income taxes 2,992 3,576
------------- -------------
Total current liabilities 40,897 21,651
Non-current liabilities
Deferred income taxes 4,213 8,391
------------- -------------
Total liabilities 45,110 30,042
------------- -------------
Shareholders' equity
Common stock - $.01 par value, 20,000,000 shares
authorized, 5,278,644 shares issued and outstanding 52,786 52,786
Capital in excess of par value 1,661,430 1,661,430
Unearned compensation (82,937) (114,937)
Retained deficit (915,919) (857,242)
------------- -------------
Total shareholders' equity 715,360 742,037
------------- -------------
Total liabilities and shareholders' equity $760,470 $772,079
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Statements of Operations
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1999 1998
Net sales $ - $ -
============ =============
Operating costs and expenses
Administrative expenses 102,459 110,356
Legal expenses 7,815 32,794
Other income and expenses
Bankruptcy claim recovery 49,869 2,603
Interest expense - (5,498)
Interest income 32,127 35,559
------------ -------------
Loss before income taxes (28,278) (110,486)
------------ -------------
Provision for income taxes
Current 35,161 -
Deferred (4,762) 11,967
------------ -------------
30,399 11,967
------------ -------------
Net loss (58,677) (122,453)
------------ -------------
Basic loss per share $ (.01) $ (.03)
============ =============
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
----------------------- Capital in Total
Number Par Excess of Retained Unearned Shareholders'
of Shares Value Par Value Deficit Compensation Equity
<S> <C> <C> <C> <C> <C> <C>
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 compensation 500,000 5,000 155,000 - (160,000) -
Amortization of unearned compensation - - - - 45,063 45,063
Net loss - - - (122,563) - (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
Amortization of unearned compensation - - - - 32,000 32,000
Net loss - - - (58,677) - (58,677)
----------- ---------- ------------ ----------- ------------ -------------
Balances at December 31, 1999 5,278,644 $ 52,786 $ 1,661,430 $ (915,919) $ (82,937) $ 715,360
=========== ========== ============ =========== ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 5
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
Cash flows from operating activities
<S> <C> <C>
Net loss $ (58,677) $ (122,453)
----------------- -----------------
Adjustments to reconcile net loss to net cash
used in operating activities
Interest expense settled in shares of Ranger stock - 5,498
Compensation expense settled in shares of Ranger stock 32,000 45,063
Deferred income taxes (4,762) 11,967
Changes in assets and liabilities
Prepaid expenses and other assets (8,071) (9,427)
Income tax receivable 3,436 10
Accounts payable and other liabilities (7,070) (1,843)
Income tax payable 26,900 -
----------------- -----------------
Total adjustments 42,433 51,268
----------------- -----------------
Net cash used in operating activities (16,244) (71,185)
----------------- -----------------
Cash flows from financing activities
Distribution from reorganization trust - 45,601
----------------- -----------------
Net cash provided by financing activities - 45,601
----------------- -----------------
Net decrease in cash and cash equivalents (16,244) (25,584)
Cash and cash equivalents at beginning of year 759,216 784,800
----------------- -----------------
Cash and cash equivalents at end of year $ 742,972 $ 759,216
================= =================
Supplemental disclosures of cash flow information
Cash paid during the year for
Income taxes $ 7,919 $ 7,086
================= =================
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
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 6
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
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 8.
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. 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.
F - 7
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
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.
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.
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
outstanding shares and, as such, basic and diluted earnings per share are
the same. Weighted average common shares outstanding were 5,278,644 and
4,837,691 shares during 1999 and 1998, 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
During 1999 and 1998, the Company received $49,869 and $2,603,
respectively, of distributions on bankruptcy claims filed by the Company's
predecessor.
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.
F - 8
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
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).
Tax expense or benefit is attributable to state taxes and Federal
alternative minimum tax. The difference between the actual tax provision
and the amount obtained by applying the statutory U.S. federal income tax
rate to income before taxes is primarily attributable to state taxes and
the federal alternative minimum tax associated with the net income of the
product liability trust.
At December 31, 1999 and 1998, it was estimated that the Company had
adjusted tax net operating loss carryforwards and future deductions of
approximately $177.2 million and $177.6 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, 1999 and 1998, the Company had Alternative Minimum
Tax (AMT) loss carryforwards of approximately $153.5 million and $153.9
million, respectively, which will begin to expire in the year 2002. The
Company also had approximately $350,000 and $7.7 million in tax credit
carryforwards at December 31, 1999 and 1998, respectively. At the current
tax rates, the taxable income equivalent of the credit carryforwards was
approximately $999,000.
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, 1999 and 1998, the Company had deferred tax liabilities of
$7,205 and $11,967, respectively, as a result of a compensation expense
temporary difference, associated with the stock issued to Mr. Handel (see
Note 7). 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.
F - 9
<PAGE>
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
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 $177.2 million of net operating
loss carryforwards. This could have 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. 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 was 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 years ended December 31, 1999 and
1998, the Company recognized compensation expense of $32,000 and $45,063,
respectively, plus related taxes, in connection with this stock award,
which is included in administrative expenses in the financial statements.
8. Distribution from Ranger Industries, Inc.'s Reorganization Trust
As described in Note 1, the Reorganziation 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.
9. Related Party Transactions
See Notes 2 and 8 for related party transaction information.
F - 10
Exhibit 21
List of Subsidiaries
1. Ranger Industries, New York, Inc. (New York)
The Registrant's subsidiary is inactive.
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This schedule contains summary financial information extracted from the
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