10-K/A 1 form10ka-103971_ronc.txt 10-K/A U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (Amendment No. 1) (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, 2008 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. 1-1031 RONSON CORPORATION --------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEW JERSEY 22-0743290 ----------------------- ------------------------------------ (State of incorporation) (I.R.S. Employer Identification No.) 3 RONSON ROAD, P.O. BOX 3000, WOODBRIDGE, N.J. 07095 ---------------------------------------------- ---------- (Address of principal executive office) (Zip Code) Registrant's telephone number (732) 636-2430 -------------- Securities registered pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock par value Over-the-Counter Pink Sheets $1.00 per share Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes |_| No |X| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| Indicate 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| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act). Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X| Indicate by the check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| EXPLANATORY NOTE Ronson Corporation (the "Company") is filing this Amendment No. 1 to its Annual Report on Form 10-K (this "Form 10-K/A") for the fiscal year ended December 31, 2008 (the "2008 10-K"), which was originally filed on April 15, 2009, to address comments from the staff (the "Staff") of the Securities and Exchange Commission in connection with the Staff's regular periodic review of the Company's filings. As a result of comments received from the Staff, the Company has reevaluated its classification of debt and has determined that the Company should restate its consolidated financial statements for the year ended December 31, 2008 included in our 2008 10-K to reclassify certain Long-Term Debt as Current Liabilities and to make corresponding revisions to Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company's independent accounting firm has also reissued their "Report of Independent Registered Public Accounting Firm" in connection with the restatements, which is included with the consolidated financial statements. In addition, this Form 10-K/A also includes the restatement of selected financial data included in Item 6, revision of Item 9A - Controls and Procedures and revision of the Section 302 Certifications included as Exhibit 31; Section 302 Certifications and the Section 906 Certification, included as Exhibit 32, are currently dated. Except as discussed above, the Company has not modified or updated disclosures presented in the 2008 10-K in this Form 10-K/A, except as required to reflect the effects of the items discussed above. Accordingly, this Form 10-K/A does not reflect events occurring after the filing of the 2008 10-K or modify or update those disclosures affected by subsequent events or discoveries and information contained in the 2008 10-K and not affected by these restatements and reclassifications are unchanged. Events occurring after the filing of the 2008 10-K or other disclosures necessary to reflect subsequent events have been or will be addressed in the Company's reports filed subsequent to the 2008 10-K. This Form 10-K/A should be read in conjunction with the Company's filings made with the Securities and Exchange Commission subsequent to the filing of the 2008 10-K, including any amendments to those filings. 2 Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- RESULTS OF OPERATIONS --------------------- 2008 Compared to 2007 The Company's Net Sales of $24,187,000 in the year 2008 were lower as compared to $26,246,000 in 2007. The Company had a Loss from Operations of $(1,427,000) in the year 2008 as compared to Earnings From Operations of $38,000 in the year 2007. The Company's Net Loss was $(1,652,000) in the year 2008 as compared to $(597,000) in the year 2007. Ronson Consumer Products ------------------------ (in thousands) Year Ended December 31 2008 2007 ---- ---- Net sales $12,524 $13,883 Earnings (loss) before interest, other items, intercompany charges, and taxes (1,116) 269 Nonrecurring Loss (93) -- Loss before intercompany charges and taxes (1,655) (254) Net Sales of consumer products at Ronson Consumer Products Corporation ("RCPC"), Woodbridge, New Jersey, and Ronson Corporation of Canada Ltd. ("Ronson-Canada"), Mississauga, Ontario, (together "Ronson Consumer Products") decreased by 10% in 2008 as compared to 2007 primarily due to decreased sales of the Company's Ronsonol lighter fuel and Multi-Fill butane fuel. The sales decrease of 10% in 2008 consisted of a sales decrease of about 13% due to lower unit volume of products sold partially offset by an increase of higher average net selling prices of about 3%. The Net Sales at Ronson Consumer Products were significantly reduced in the fourth quarter because: 1) reduced loan availability under the Company's revolving line of credit restricted the ability of Ronson Consumer Products to acquire the raw materials to produce the products to meet customer orders, and 2) the decline in the economy reduced customer purchases. Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products increased to 71% in 2008 from 62% in 2007. The increase in the Cost of Sales percentage in 2008 was primarily due to substantially increased material costs due to the substantially higher prices of oil used in fuels for butane refills and Ronsonol as well as other purchased components, to write-downs to lower-of-cost-or-market of certain inventory items, and to the lower net sales in 2008. The amount of the Cost of Sales at Ronson Consumer Products increased in 2008 by 3%. The increase in the amount of Cost of Sales was composed of the following, in percent: Decreased unit volume of products sold (8)% Increased unit costs of products sold * 6 % Increased manufacturing costs 2 % Inventory write-down 3 % ---- Total increase in amount of Cost of Sales 3 % ==== * The increase in unit costs of products sold was due primarily to increases in oil prices. 3 Selling, Shipping and Advertising Expenses, as a percentage of Net Sales, at Ronson Consumer Products increased to 27% in 2008 from 26% in 2007 primarily because reduced selling personnel costs were more than offset by the decreased Net Sales. General and Administrative Expenses, as a percentage of Net Sales, was 8% in 2008 and 7% in 2007. Interest Expense at Ronson Consumer Products decreased to $389,000 in 2008 from $406,000 in 2007. The Interest Expense at Ronson Consumer Products in 2008 included increased interest expense of $35,000 due to the default rate charged by Wells Fargo Bank, National Association ("Wells Fargo"). Ronson Aviation --------------- (in thousands) Year Ended December 31, 2008 2007 ---- ---- Net sales $11,663 $12,363 Earnings before interest, other items, intercompany charges, and taxes 1,326 1,612 Nonrecurring Loss (52) -- Earnings before intercompany charges and taxes 1,079 1,539 Net Sales at Ronson Aviation decreased in 2008 by 6% as compared to 2007 primarily because increased sales of aircraft fuel in 2008 due to higher oil prices in 2008 were substantially offset by lower sales of aircraft (none were sold in 2008)and by reduced sales of aircraft maintenance services. Ronson Aviation's Cost of Sales, as a percentage of Net Sales, increased to 79% in 2008 from 77% in 2007. The increase in the Cost of Sales Percentage in 2008 was primarily due to the increased cost of aircraft fuel sold caused by higher oil prices. The increase in the dollar amount of cost of sales of aircraft fuel due to higher oil prices was approximately equal to the amount of higher sales of aircraft fuel due to price increases. Ronson Aviation's Selling, Shipping and Advertising Expenses and General and Administrative Expenses, as a percentage of Net Sales, decreased to 8% in 2008 as compared with 9% in 2007 primarily due to decreased personnel costs because of reductions in management incentive compensation to the Company's officers related to both 2008 and 2007. Interest Expense at Ronson Aviation increased to $207,000 in 2008 from $44,000 in 2007. In 2006 and through November 2007, Ronson Aviation capitalized much of its interest cost as part of the cost of construction of its new 19,200 sq. ft. hangar. The hangar was placed in service in November 2007 and, accordingly,the interest costs are no longer being capitalized. The interest expense at Ronson Aviation in 2008 included increased interest expense of $48,000 due to the default rate charged by Wells Fargo. Other Items ----------- The General and Administrative Expenses of Corporate and Others decreased to $1,637,000 in 2008 as compared to $1,815,000 in 2007 primarily because of reduced personnel costs and reduced professional fees in 2008 as compared to 2007. The Nonrecurring Loss on Extinguishment of Debt of $145,000 in 2008 ($93,000 at Ronson Consumer Products and $52,000 at Ronson Aviation) was the 4 result of repayment of Short-term Debt and Long-term Debt with the new Wells Fargo financing on May 30, 2008. The Nonrecurring Loss on Extinguishment of Debt was composed of the following: Unamortized balance of deferred financing costs $106,000 Early termination fee paid to CIT Group/Commercial Services, Inc. 31,000 Difference between book value of Long-term Leases with Bank of America Leasing and payoff amount 3,000 Legal fees and other 5,000 -------- Total $145,000 ======== Other-Net included pension expenses related to the Company's frozen defined benefit plans of $273,000, $220,000 and $315,000, in the years ended December 31, 2008, 2007, and 2006, respectively. 2007 Compared to 2006 The Company's Net Sales of $26,246,000 in the year 2007 were lower as compared to $29,244,000 in 2006. The Company's Earnings from Operations were $38,000 in the year 2007 as compared to $1,093,000 in the year 2006. The Company's Earnings (Loss) before Income Taxes were a loss of $(834,000) in the year 2007 as compared to earnings of $289,000 in the year 2006. There were two significant events that negatively affected the Company's Earnings before Income Taxes in 2006 and 2007. Both events are nonrecurring. These were: Event #1 - There was a sizable sale of about $960,000 in 2006 of Ronson fuels to a distributor in China, intended solely for the China domestic market. Contrary to our understanding, the distributor shortly thereafter returned the fuels back into the U.S. domestic market to a third party without authorization. The unauthorized return of Ronson fuels to a third party and their sales into the U.S. market by that third party significantly reduced domestic sales in 2006 and 2007. Event #2 - Results in 2006 and 2007 also reflected the effects of the Company's investment of approximately $3.3 million in a new 19,200 sq. ft. hangar at Ronson Aviation. The $3.3 million expenditure met the County's requirement for an additional investment by Ronson Aviation to extend Ronson Aviation's favorable lease with Mercer County for an additional twenty-five years. The new hangar, completed near the end of 2007, tied up sizable cash funds during construction and did not contribute revenue or earnings to the Company until the very end of 2007. Ronson Consumer Products ------------------------ (in thousands) Year Ended December 31, 2007 2006 ---- ---- Net sales $13,883 $16,870 Earnings before interest, other items, intercompany charges, and taxes 269 1,243 Earnings (loss) before intercompany charges and taxes (254) 946 Net Sales of consumer products at Ronson Consumer Products decreased by 18% in 2007 as compared to 2006 primarily due to decreased sales of the 5 Company's Ronsonol lighter fuel and Multi-Fill butane fuel, and to the sale in April 2006 to a distributor in China discussed above. The sales decrease of 18% in 2007 consisted of a sales decrease of about 21% due to lower unit volume of products sold partially offset by an increase of higher average net selling prices of about 3%. The April 2006 sale to the distributor in China was at reduced selling prices. Cost of Sales, as a percentage of Net Sales, at Ronson Consumer Products increased to 62% in 2007 from 61% in 2006. The increase in the Cost of Sales percentage in 2007 was primarily due to increased material costs due to the effects of large increases in the price of oil. The amount of the Cost of Sales at Ronson Consumer Products decreased in 2007 by 16%. The decrease in the amount of Cost of Sales was composed of the following, in percent: Decreased unit volume of products sold (18)% Increased unit costs of products sold * 4 % Decreased manufacturing costs (2)% ----- Total decrease in amount of Cost of Sales (16)% ===== * The increase in unit costs of products sold was due primarily to increases in oil prices. Selling, Shipping and Advertising Expenses, as a percentage of Net Sales, at Ronson Consumer Products increased to 26% in 2007 from 22% in 2006 primarily due to decreased Net Sales. General and Administrative Expenses, as a percentage of Net Sales, were unchanged at 7% in 2007 and 2006. Interest Expense at Ronson Consumer Products increased to $406,000 in 2007 from $290,000 in 2006 primarily due to increased average Long-term Debt, and, to a lesser extent, increased average Short-term Debt. Ronson Aviation --------------- (in thousands) Year Ended December 31, 2007 2006 ---- ---- Net sales $12,363 $12,374 Earnings before interest, other items, intercompany charges, and taxes 1,612 1,660 Earnings before intercompany charges and taxes 1,539 1,606 Net Sales at Ronson Aviation were unchanged in 2007 as compared to 2006 primarily because reduced sales of new aircraft was substantially offset by higher sales of fuel and other aviation services in 2007 from 2006. Ronson Aviation's Cost of Sales, as a percentage of Net Sales, was unchanged at 77% in 2007 and 2006. Ronson Aviation's Cost of Sales in 2008 will include the costs related to the new hangar, including depreciation. Ronson Aviation's Selling, Shipping and Advertising Expenses and General and Administrative Expenses, as a percentage of Net Sales, increased to 9% in 2007 as compared with 7% in 2006 primarily due to increased personnel costs. Interest Expense at Ronson Aviation increased to $44,000 in 2007 from $24,000 in 2006. In 2006 and through November 2007, Ronson Aviation 6 capitalized much of its interest costs as part of the cost of construction of its new hangar. Other Items ----------- The General and Administrative Expenses of Corporate and Others increased to $1,815,000 in 2007 as compared to $1,719,000 in 2006 primarily because the benefits costs in 2006 were reduced by $99,000, the value of the President's vacation time previously earned, but not used, that he waived in 2006. Effective for the year ended December 31, 2007, the Company is required (as are other public companies of similar size) to comply with the provisions of Section 404 of the Sarbanes-Oxley Act related to the Company's internal control over financial reporting. (Refer to Item 9A(T) below.) The costs in the initial-year of compliance are expected to be significantly higher than those in future years. In the fourth quarter of 2007, the Company incurred $72,000 in initial-year compliance costs, which is included in General and Administrative Expenses in the Consolidated Statements of Operations. In the segment data presented in Note 11 of the Notes to Consolidated Financial Statements, $29,000 is included in each of Ronson Consumer Products and Ronson Aviation and $14,000 is included in Corporate and Others. The Company expects that the balance of the initial-year SOX 404 compliance costs will be incurred in the first quarter of 2008 and total about $50,000. The net Other Charges of $28,000, $91,000, and $95,000, in 2007, 2006, and 2005, respectively, were the legal fees incurred as a result of the two lawsuits filed by the same stockholder. The net shareholder litigation expenses were included in General and Administrative Expenses in the Consolidated Statements of Operations. These litigation expenses were net of the associated insurance reimbursements. This litigation was settled in December 2007 and the costs will not continue. Other-Net included pension expenses related to the Company's frozen defined benefit plans of $220,000, $315,000, and $308,000, in the years ended December 31, 2007, 2006, and 2005, respectively. Other-Net included $90,000 in fees charged by Bank of America in the first half of 2006 (none in 2007) due to terms of a loan amendment dated January 11, 2006 (which extended the loan agreements to January 31, 2007). Under the terms of the extension, fees were due to Bank of America, beginning on February 28, 2006, at the end of each month in which the Bank of America loans had not been repaid. The Bank of America loans were repaid on July 31, 2006. Other-Net also included the amortization of $149,000 and $40,000 in 2007 and 2006, respectively, in deferred costs incurred to complete the CIT and Capital One financing. The costs are being amortized over the terms of the loans. Income Taxes ------------ In accordance with Statement of Financial Accounting Standards ("SFAS") #109, "Accounting for Income Taxes", in 2008, 2007, and 2006, the Company recognized deferred income tax expense (benefits) of $(1,051,000), 7 $(244,000), and $130,000, respectively, primarily due to the Earnings (Losses) before Taxes. Current income taxes in the years ended December 31, 2008, 2007, and 2006, were presented net of credits of $24,000, $17,000, and $17,000, respectively, arising from the utilization of available tax losses and loss carryforwards in accordance with SFAS #109. In 2008, 2007 and 2006, current income tax expenses (benefits) were as follows (in thousands): Year Ended December 31, 2008 2007 2006 ---- ---- ---- Federal $ -- $ (1) $ -- State 10 13 20 Foreign 9 (5) 72 ---- ---- ---- Total $ 19 $ 7 $ 92 ==== ==== ==== At December 31, 2008, the Company had net operating loss carryforwards for federal income tax purposes of approximately $7,471,000 and federal and state alternative minimum tax credit carryforwards of $102,000. (Refer to Note 2 of the Notes to Consolidated Financial Statements.) For purposes of financial reporting, the Company's effective income tax rates were benefits of 38% in 2008 and 28% in 2007, and expense of 77% in 2006. The changes in the effective tax rate in 2007 and 2006 were primarily due to increases in the valuation allowance related to deferred tax assets. In 2006 and 2007, the Company reviewed the likelihood that, using a tax planning strategy, it would be able to utilize net operating loss carryforwards of Prometcor, Inc. for purposes of State of New Jersey income taxes. The determination was made that a portion was not likely to be utilized. Therefore, in 2006 and 2007, the Company increased the valuation reserve related to deferred income tax assets resulting in increased Income Tax Expenses. FINANCIAL CONDITION ------------------- The Company's Stockholders' Equity decreased to a deficit of $94,000 at December 31, 2008, from equity of $2,987,000 at December 31, 2007. The decrease in Stockholders' Equity in 2008 was primarily due to the Net Loss of $1,652,000 in 2008 and to an increase of $1,398,000 in the Net Pension Loss component of Accumulated Other Comprehensive Loss. The Net Pension Loss increased primarily due to reductions in 2008 in the values of the assets held by the Ronson Corporation Retirement Plan. The Company had a deficiency in working capital of $8,337,000 at December 31, 2008, as compared to a deficiency of $2,436,000 at December 31, 2007. The increase of $5,901,000 in the working capital deficiency was primarily due to the Loss Before Income Taxes in 2008 of $2,684,000 and by the classification as current of $3,208,000 of the Wells Fargo term loans and the $2,088,000 of the Capital One mortgage loan (refer to Note 4 of the Notes to Consolidated Financial Statements). The Company's independent registered public accountants report on the Company's financial statements for the year ended December 31, 2008, includes a statement that there is substantial doubt about the Company's ability to continue as a going concern. The Company has incurred losses from operations and has a Stockholders' Deficiency and a working capital deficiency. (Refer 8 to Note 1 to Consolidated Financial Statements on Going Concern and Managements' Response.) On May 30, 2008, the Company and RCPC, Ronson Aviation, and Ronson-Canada (collectively, the "Borrowers") entered into a secured, revolving credit facility with Wells Fargo. The credit facility consists of (1)a revolving line of credit of up to $4.0 million, subsequently reduced to $2,000,000, (2)a Real Estate Term Loan of $2,922,500 and (3)an Equipment Term Loan of $837,500. Availability under the credit facility is determined based on the value of the Borrowers' receivables and inventory, and other factors, as set forth in the credit and security agreement. The Company is a guarantor of the obligations under the credit facility. Amounts advanced under the credit facility are secured by substantially all of the assets of the Company and its subsidiaries, other than (1)the real property owned by RCPC in Woodbridge, New Jersey and (2) 34% of the Company's interest in Ronson-Canada. The term of the credit facility is 60 months. The revolving line of credit had a balance of $1,472,000 at December 31, 2008. Initially, the revolving line of credit bore interest at 1/2% over the Wells Fargo prime rate, or, at the Company's option, a portion could bear interest at LIBOR plus 3%. The Equipment Term Loan is payable in 60 equal monthly principal payments of about $14,000 plus interest. The Real Estate Term Loan is payable in 60 equal monthly principal payments of about $16,000 plus interest. The interest rate for the Equipment Term Loan, originally the prime rate plus .75%, was increased in the fourth quarter 2008, to the prime rate plus 3.75%, effective July 1, 2008. Similarly, the interest rate for the Real Estate Term Loan, originally the prime rate plus 1%, was increased to the prime rate plus 4%, effective July 1, 2008. In November 2008, Wells Fargo advised the Company and its subsidiaries that Events of Default under the Credit Agreement had occurred. These events of default included the Company's not meeting financial covenants and the Company's not meeting all of the requirements of the Post-Closing Agreement dated May 30, 2008. The revolving credit facility with Wells Fargo required the Company, for the quarter ended September 30, 2008, to maintain Tangible Net Worth (Deficit) (as defined in the facility) of not less than $(1,500,000), to achieve Net Income (Loss) (as defined in the facility) for the period from January 1, 2008 to such date of not less than $(437,000) and to achieve Net Cash Flow (as defined in the facility) for the period from January 1, 2008 to such date of $(280,000). The Company's actual performance for the quarter resulted in: o Tangible Net Worth (Deficit) of $(2,576,000) (consisting of Book Net Worth (Deficit) of $2,556,000 minus Intangible Assets of $4,673,000, as defined in the facility); o Net Income (Loss) for the nine-month period of $(986,000) (consisting of net income from continuing operations, including extraordinary losses but excluding extraordinary gains); o Net Cash Flow for the nine-month period of $(680,000) (consisting of Net Income, plus depreciation and amortization of $561,000 and periodic pension expense of $208,000, plus write off of deferred loan costs of $145,000, minus unfinanced capital expenditures of $106,000, pension plan payments of $110,000 and current 9 maturities of long-term debt of $392,000, as defined in the facility). Accordingly, the Company was not in compliance with its covenants to Wells Fargo as of September 30, 2008, regarding Tangible Net Worth, Net Income and Net Cash Flow. As a result of the events of default, Wells Fargo increased the interest rate charged on the loans outstanding under the credit agreement by 3%. These increases were assessed retroactively to July 1, 2008. The revolving credit facility with Wells Fargo required the Company, for the quarter ended December 31, 2008, to maintain Tangible Net Worth (Deficit) (as defined in the facility) of not less than $(1,150,000), to achieve Net Income (Loss) (as defined in the facility) for the period from January 1, 2008 to such date of not less than $(50,000) and to achieve Net Cash Flow (as defined in the facility) for the period from January 1, 2008 to such date of $50,000. The Company's actual performance for the quarter resulted in: o Tangible Net Worth (Deficit) of $(5,583,000) (consisting of Book Net Worth (Deficit) of $(94,000) minus Intangible Assets of $5,759,000, as defined in the facility); o Net Income (Loss) for the twelve-month period of $(1,652,000) (consisting of net income from continuing operations, including extraordinary losses but excluding extraordinary gains); o Net Cash Flow for the twelve-month period of $(1,275,000) (consisting of Net Income, plus depreciation and amortization of $761,000 and periodic pension expense of $277,000, plus write off of deferred loan costs of $145,000, minus unfinanced capital expenditures of $135,000, pension plan payments of $155,000 and current maturities of long-term debt of $516,000, as defined in the facility). Accordingly, the Company was not in compliance with its covenants to Wells Fargo as of December 31, 2008, regarding Tangible Net Worth, Net Income and Net Cash Flow. On February 20, 2009, the Company received from Wells Fargo additional notification of Wells Fargo's reservation of rights and remedies relating to previously disclosed events of default which would permit Wells Fargo to accelerate the Company's outstanding indebtedness owed to Wells Fargo. These events of default extend to maintaining financial covenant compliance relating to minimum net income, net cash flow and tangible net worth requirements of the Company's last completed fiscal quarter, failure to obtain certain waivers and other agreements with third parties required under the credit facility, and failure to meet certain financial reporting due dates. Wells Fargo has instituted certain restrictions and reduced loan availability and has required the Company to engage a consultant to review its operations and cash requirements, but has not accelerated any payments under the credit facility and has continued to lend to the Company. Under cross-default provisions in the Company's mortgage loan from Capital One, the events of default under the Wells Fargo facility are an event of default under the mortgage loan. Capital One has not accelerated any payments under the mortgage loan. At December 31, 2008, the amounts of 10 the outstanding indebtedness to Wells Fargo and Capital One were $5,042,000 and $2,133,000, respectively. As a result of the Events of the Default under the Wells Fargo agreement discussed above and the likelihood that the Company would not attain compliance with the Wells Fargo financial covenants within one year, the long-term portion of the Equipment Term Loan ($578,000) and the long-term portion of the Real Estate Term Loan ($2,630,000) have been included in the Current Portion of Long-term Debt. Under cross default provision of the Capital One mortgage loan agreement, these events of default under the Wells Fargo agreement could result in an event of default under the Capital One mortgage agreement. Therefore, the portion of the loan due after December 31, 2008, $2,088,000, has also been included in the Current Portion of Long-term Debt. On March 30, 2009, the Company and RCPC, Ronson Aviation, and Ronson-Canada entered into a forbearance agreement with Wells Fargo, under which Wells Fargo has agreed not to assert existing events of default under the Borrowers' credit facilities with Wells Fargo through April 24, 2009, or such earlier date determined under the forbearance agreement. The forbearance period may terminate earlier if, among other events, the Borrowers breach the forbearance agreement, additional events of default occur under the credit facilities with Wells Fargo, the Borrowers fail to employ a Chief Restructuring Officer or the Borrowers fail actively to pursue alternative financing or divestiture of the Company's aviation division. During the forbearance period, Wells Fargo will make available to the domestic Borrowers an overadvance facility in the amount of up to $500,000 to supplement the Borrowers' credit line, the maximum amount of which will be adjusted to $2 million. During the forbearance period, the Borrowers will continue to be obligated for interest at the default rate under the credit and term loan facilities with Wells Fargo, except for interest on overadvances that accrue at the bank's prime rate plus 8% per annum, in addition to a forbearance fee in the amount of $450,000 which will be charged as an advance under the credit line upon the earlier of the end of the forbearance period or payment of all amounts owed to Wells Fargo. On March 30, 2009, the Company retained Joel Getzler, of Getzler Henrich & Associates LLC ("Getzler Henrich"), as Chief Restructuring Officer, with responsibility for operations, finance, accounting and related administrative issues, subject to the authority and reporting to the Company's Board of Directors. Getzler Henrich is a corporate turnaround and restructuring firm which, in addition to its operational restructuring focus, is experienced in restructuring, lender/credit relationship management and financing. Mr. Getzler will act as Chief Restructuring Officer for the period during which Wells Fargo continues to make revolving advances to the Borrowers in an amount sufficient to fund their cash flow needs. The Company will be obligated for fees and expenses to Getzler Henrich in connection with services provided by Mr. Getzler and his associates. Under the engagement letter, the Company will pay to Getzler Henrich a fee in the amount of $15,000 per week for the services of Mr. Getzler as Chief Restructuring Officer and hourly fees for Mr. Getzler's associates, the aggregate amount of which will not exceed $130,000 for the initial four-week term under the Engagement Agreement. In addition, Getzler Henrich will be entitled to a signing bonus in the amount of $200,000. During the term of the engagement agreement, payments against accrued amounts, including the signing bonus, will be made to Getzler Henrich in the 11 amount of $10,000 each week. All accrued amounts, together with the amount of $190,000 owed to Getzler Henrich in fees prior to the appointment of Mr. Getzler, will become due upon specified liquidity events, but no later than August 31, 2009, or earlier, if the Company is not in compliance under the engagement agreement. All amounts owed to Getzler Henrich are secured by a collateral interest in those assets pledged to Wells Fargo, subordinated to the interest of Wells Fargo. During the term of the engagement agreement, payment of salaries, fees, perks and expenses to members of the Company's Board of Directors, including its President and Chief Executive Officer, will be deferred. The Company announced that it has initiated plans to divest Ronson Aviation. The Company is in the process of procuring purchasers so as to maximize the value of Ronson Aviation, permit it to satisfy outstanding indebtedness, including to Wells Fargo, and provide working capital to support and focus on its consumer products business. The Company's objective is to consummate a transaction prior to the end of the second quarter, subject to identifying and reaching agreement with a prospective purchaser, obtaining shareholder approval and meeting other conditions that may be contained in definitive documentation once negotiated. In 2008 and to date in 2009, the Company has taken steps to reduce its costs and expenses. Certain salaries to officers were reduced. The Company's officers accepted reductions in the management incentive compensation totaling $79,000 related to operating results in 2007 that had been due to be paid in 2008 and $44,000 in management incentive compensation related to operating results in 2008. In the first quarter of 2009, the Company reduced its workforce by about 15 persons, or 17% of the Company's staff. The Company reduced certain of the health benefits provided to its employees, and the Company deferred payment of the Company's contribution to its defined contribution pension plan. In addition, certain employees have temporarily assumed payment of costs of Company vehicles and costs of life and other insurance. All payments to directors of the Company, including officers who are directors, have been deferred. The Company continues to review its costs and expenses in order to implement additional reductions. Pending consummation of a transaction, the Company will continue to effect cost reductions and seek sources of financing, without which the Company will not be able to fund current operations beyond the forbearance period. The Company does not have a commitment from Wells Fargo to extend the forbearance period beyond its current duration. In the event of acceleration of its indebtedness to Wells Fargo and its outstanding mortgage loans, as a result of existing defaults, the Company would not have sufficient cash resources to pay such amounts. There can be no assurance that the Company will be able to obtain an extension of its arrangements with Wells Fargo, arrange additional financing or complete its divestiture plans, within its anticipated time frame or on terms acceptable to it. Should the sale of Ronson Aviation be consummated at or near the values expected by management, the Company will substantially reduce its outstanding debt and improve working capital. (Refer to Note 16 of the Notes to Consolidated Financial Statements.) Management believes that the improved financial condition will allow the Company to support and focus on its consumer products business. The Company expects that its manufacturing and delivery to customers will return to prior levels. Based on the amount of the loans outstanding and levels of accounts receivable and inventory at December 31, 2008, the Company's subsidiaries had 12 unused borrowings available at December 31, 2008, of about $135,000 under the Wells Fargo line of credit described above, of which approximately $70,000 was utilized on January 2, 2009 to meet the debt service requirements and fees of Wells Fargo. The Company's results of operations and cash flow in 2009 will be adversely affected by the lack of working capital. In the first quarter of 2009, the Company was not consistently able to purchase the materials necessary for Ronson Consumer Products to meet its customers' orders, and sales have been adversely affected. The overadvance from Wells Fargo has resulted in significantly reducing the shortfall in raw materials in the second quarter; however, sales at Ronson Consumer Products will continue to be adversely affected in the second quarter. In addition, the Company has incurred substantial legal and consulting costs related to the Wells Fargo agreement and the consulting and engagement agreements with Getzler Henrich. In the third quarter of 2008, the Company's President and CEO provided a loan to the Company of $275,000. In the first quarter of 2009, the Company's President and CEO increased the loan by $25,000 to $300,000. The Company's Accounts Receivable were lower at December 31, 2008, as compared to December 31, 2007, due to the reduced sales in the fourth quarter 2008, described above. The Company's inventory was lower at December 31, 2008, as compared to December 31, 2007, because of the Company's reduced access to funds to purchase materials for Ronson Consumer Products. Other Current Assets were lower at December 31, 2008, as compared to December 31, 2007, primarily due to a reduction in prepaid insurance and to reduced restricted cash balances. The Company's Other Assets increased at December 31, 2008, as compared to December 31, 2007, primarily due to increased Deferred Income Tax Assets due to the Loss before Income Taxes in 2008. The Company's Other Long-term Liabilities increased at December 31, 2008 as compared to December 31, 2007, due to the net pension loss in 2008 (refer to Note 6 of Notes to Consolidated Financial Statements). The Company's Capital Expenditures were $1,097,000 in 2007 primarily at Ronson Aviation for the construction of its new 19,200 sq. ft. hangar. Ronson Aviation expended a total of approximately $3,285,000 on the new hangar. By mid-November 2007, Ronson Aviation began utilizing the new hangar and receiving additional revenues and operating earnings from the new hangar's operations. In February 2009, the Company received notice from the Nasdaq Stock Market that trading in the Company's common stock on the Nasdaq Capital Market would be suspended on February 27, 2009. The Company does not comply with the minimum stockholders' equity requirement for continued listing. The Company's common stock is now traded on the Over-the-Counter Pink Sheets. The Company's capital commitments including long-term debt and leases are discussed more fully in Notes 4 and 5 of the Notes to Consolidated Financial Statements. A summary of the maturities of contractual obligations and other commitments is as follows (in thousands): 13 Payments Due by Period ---------------------- Contractual Less than 2-3 4-5 After Obligations Total 1 Year Years Years 5 Years -------- -------- -------- -------- -------- Long-term debt $ 5,890 $ 5,750 $ 83 $ 57 $ -- Capital lease obligations 35 17 18 -- -- Operating leases 1,110 436 477 197 -- Other long-term obligations (1) 1,266 1,266 -- -- -- Total contractual obligations $ 8,301 $ 7,469 $ 578 $ 254 $ -- Pension obligations (2) $ 242 $ 927 $ 558 (1) Other long-term obligations include amounts due under an employment agreement, the forbearance fee due to Wells Fargo, and the Chief Restructuring Officer fees and signing bonus. (2) The payments of pension obligations assume necessary required contributions are made annually and that the plan incurs no actuarial or asset gains or losses. No estimate of contributions after five years can be made at this time because actuarial gains and losses cannot be estimated at this time. The Company will continue to incur interest expenses related to its outstanding short-term and long-term debt. In the years ended December 31, 2008, 2007, and 2006, the Company's interest expenses were $671,000, $533,000 and $476,000, respectively. Management expects its interest expenses (excluding interest related to capital lease obligations) in the years ending December 31, 2009, through 2012 to be approximately (in thousands): 2009 $553 2010-2011 (2 years) $565 2012-2013 (2 years) $393 After 2013 --- The estimated interest payments assume: 1) that the long-term debt and capitalized lease obligations are repaid according to the maturities with the mortgage loan amortization adjusted to conform with the revised terms effective August 12, 2008; 2) the Company's revolving loans will continue through 2012 at the same terms and at the average balances of 2008; 3) interest rates remain at the December 31, 2008 levels; and 4) interest expense related to capitalized lease obligations is excluded because it is included in the table of Contractual Obligations above. Each of these assumptions is subject to potentially significant changes based on future conditions and events. The Company expects that its interest expense will be reduced substantially if and when the sale of Ronson Aviation is completed. The Company has no off-balance sheet financing arrangements other than the operating leases discussed above, no guarantees of the obligations of others, and no unconsolidated subsidiaries or special purpose entities. Item 9A(T) - CONTROLS AND PROCEDURES ----------------------- a) Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have 14 evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this annual report. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this annual report, the Company's disclosure controls and procedures were adequate, are designed to ensure that material information related to the Company (including its consolidated subsidiaries) would be made known to the above officers, are effective and provide reasonable assurance that they will meet their objectives. The Company's CEO and CFO reviewed whether the restatement of the Company's consolidated financial statements for the fiscal year ended December 31, 2008, as described in the Explanatory Note above and Note 17 to the consolidated financial statements, affected their conclusions that the Company's disclosure controls and procedures, as of December 31, 2008, were effective in timely alerting them to material company information required to be included in our periodic filings with the SEC. In connection with their review, our CEO and CFO noted that our decision to restate our financial results did not call into question whether the relevant information was recorded, processed, summarized or reported within the time periods specified in the SEC's rules and forms. It also did not involve any issue about whether information required to be disclosed was accumulated and communicated to our CEO and CFO to allow timely decisions regarding required disclosure. Rather, the restatements resulted from an interpretation of the guidance provided in Emerging Issues Task Force Statement 86-30 that resulted in the incorrect classification of certain liabilities as long-term when they properly should have been classified as current. Therefore, based on that review, the Company's management, including the CEO and CFO determined that its prior conclusions, that the Company's disclosure controls and procedures were effective as of December 31, 2008, had not changed. Management's Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. 15 Management, including the CEO and CFO, has conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2008, based on the criteria for effective internal control described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission. Based on its assessment, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2008. This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report. This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. b) Changes in Internal Controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls in the last fiscal quarter or subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. RONSON CORPORATION RONSON CORPORATION Dated: November 20, 2009 By: /s/ Louis V. Aronson II ------------------------ Louis V. Aronson II, President & Chief Executive Officer and Director Dated: November 20, 2009 By: /s/ Daryl K. Holcomb -------------------- Daryl K. Holcomb, Vice President, Chief Financial Officer & Controller Dated: November 20, 2009 By: /s/ Erwin M. Ganz ----------------- Erwin M. Ganz, Treasurer, Assistant Secretary and Director Dated: November 20, 2009 By: /s/ Justin P. Walder -------------------- Justin P. Walder, Secretary and Director Dated: November 20, 2009 By: /s/ Barbara L. Collins ---------------------- Barbara L. Collins, Director Dated: November 20, 2009 By: /s/ Edward E. David ------------------- Edward E. David, Director Dated: November 20, 2009 By: /s/ John H. Bess ---------------- John H. Bess, Director Dated: November 20, 2009 By: /s/ Gerard J. Quinnan --------------------- Gerard J. Quinnan, Director 17 RONSON CORPORATION FIVE-YEAR SELECTED FINANCIAL DATA ---------------------------------------------------- Dollars in thousands (except per share data)
2008 2007 2006 2005 2004 ---- ---- ---- ---- ---- Net sales $ 24,187 $ 26,246 $ 29,244 $ 26,563 $ 28,483 Earnings (loss) from continuing operations $ (1,652) $ (597) $ 67 $ (333) $ 193 Total assets $ 14,837 $ 15,401 $ 14,720 $ 12,654 $ 13,942 Long-term obligations $ 2,486 $ 3,790 $ 4,020 $ 2,717 $ 2,898 Per common share (1,2): Earnings (loss) from continuing operations: Basic $ (0.32) $ (0.12) $ 0.01 $ (0.07) $ 0.04 Diluted $ (0.32) $ (0.12) $ 0.01 $ (0.07) $ 0.04 Cash dividends declared (3) $ -- $ -- $ -- $ 0.02 $ 0.03
(1) Basic Net Earnings (Loss) per Common Share provides for quarterly cumulative preferred dividends with no conversion of preferred shares to common shares. Diluted Earnings (Loss) per Common Share assumes no provision for the quarterly cumulative preferred dividends with full conversion of all preferred shares to common shares in 2004 and includes the dilutive effect of outstanding stock options. The stock options were anti-dilutive for the years ended December 31, 2008, 2007 and 2005, and therefore, were excluded from the computation of Diluted Net Earnings (Loss) per Common Share for those years. (2) A 5% stock dividend on the Company's outstanding common stock was declared on February 1, 2008, and issued on April 15, 2008. Previously, 5% stock dividends on the Company's outstanding common stock were issued on April 16, 2007, and on April 15, 2006, 2005, and 2004. (3) Cash dividends of $0.01 per share were paid on March 15, 2005, and on June 17, 2005. Cash dividends of $0.01 per share were paid on June 18, September 18, and December 17, 2004. 18 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Board of Directors and Stockholders of Ronson Corporation We have audited the accompanying consolidated balance sheets of Ronson Corporation and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2008. 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 in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 financial position of Ronson Corporation and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 17 to the consolidated financial statements, these statements have been restated. DEMETRIUS & COMPANY, L.L.C. Wayne, New Jersey April 15, 2009 Except as to the restatement discussed in Note 17 of the consolidated financial statements, which is as of November 18, 2009 19 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- Dollars in thousands ASSETS ------ December 31, ----------------- 2008 2007 ---- ---- CURRENT ASSETS: Cash and cash equivalents ................................ $ 84 $ 78 Accounts receivable, less allowances for doubtful accounts of: 2008, $56 and 2007, $67 ........................... 1,288 1,743 Inventories: Finished goods ........................................ 1,382 2,106 Work in process ....................................... 22 45 Raw materials ......................................... 435 925 ------- ------- 1,839 3,076 Other current assets ..................................... 897 1,291 ------- ------- TOTAL CURRENT ASSETS ................... 4,108 6,188 PROPERTY, PLANT AND EQUIPMENT: Land ..................................................... 6 6 Buildings and improvements ............................... 8,802 8,812 Machinery and equipment .................................. 6,947 6,875 Construction in progress ................................. 126 125 ------- ------- 15,881 15,818 Less accumulated depreciation and amortization ........... 10,038 9,500 ------- ------- 5,843 6,318 OTHER ASSETS ............................................. 4,886 2,895 ------- ------- $14,837 $15,401 ======= ======= See notes to consolidated financial statements. 20 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- Dollars in thousands (except share data) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------
December 31, ---------------------------- 2008 2007 ---- ---- CURRENT LIABILITIES: Short-term debt .......................................... $ 1,747 $ 3,126 Current portion of long-term debt ........................ 5,750 423 Current portion of lease obligations ..................... 13 242 Accounts payable ......................................... 2,902 3,086 Accrued expenses ......................................... 2,033 1,747 ----------- ------------ TOTAL CURRENT LIABILITIES .............. 12,445 8,624 LONG-TERM DEBT ........................................... 140 3,097 LONG-TERM LEASE OBLIGATIONS .............................. 19 457 OTHER LONG-TERM LIABILITIES .............................. 2,327 236 COMMITMENTS AND CONTINGENCIES ............................ -- -- STOCKHOLDERS' EQUITY: Preferred stock, no par value, authorized 5,000,000 shares Common stock, par value $1 2008 2007 ----- ----- Authorized shares .......... 11,848,106 11,848,106 Reserved shares ............ 25,513 11,026 Issued (including treasury). 5,172,577 5,172,577 5,173 5,173 Additional paid-in capital ............................... 29,998 29,997 Accumulated deficit ...................................... (30,893) (29,241) Accumulated other comprehensive loss ..................... (2,775) (1,345) ------------ ------------ 1,503 4,584 Less cost of treasury shares: 2008 and 2007, 89,038 ................................ 1,597 1,597 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY ............. (94) 2,987 ------------ ------------ $ 14,837 $ 15,401 ============ ============
See notes to consolidated financial statements. 21 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- Dollars in thousands (except per share data)
Year Ended December 31, -------------------------------------------------- 2008 2007 2006 ---- ---- ---- NET SALES ..................................... $ 24,187 $ 26,246 $ 29,244 ------------ ------------ ------------ Cost and expenses: Cost of sales ............................. 18,053 18,075 19,807 Selling, shipping and advertising ......... 3,373 3,642 3,714 General and administrative ................ 3,566 3,900 4,014 Depreciation and amortization ............. 622 591 616 ------------ ------------ ------------ 25,614 26,208 28,151 ------------ ------------ ------------ EARNINGS (LOSS) BEFORE INTEREST AND OTHER ITEMS ............................... (1,427) 38 1,093 ------------ ------------ ------------ Other expense: Interest expense .......................... 671 533 476 Nonrecurring loss on extinguishment of debt 145 -- -- Other-net ................................. 441 339 328 ------------ ------------ ------------ 1,257 872 804 ------------ ------------ ------------ EARNINGS (LOSS) BEFORE INCOME TAXES ........... (2,684) (834) 289 Income tax provision (benefits) ............... (1,032) (237) 222 ------------ ------------ ------------ NET EARNINGS (LOSS) ........................... $ (1,652) $ (597) $ 67 ============ ============ ============ NET EARNINGS (LOSS) PER COMMON SHARE: Basic ......................................... $ (0.32) $ (0.12) $ 0.01 ============ ============ ============ Diluted ....................................... $ (0.32) $ (0.12) $ 0.01 ============ ============ ============
See notes to consolidated financial statements. 22 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended December 31, 2008, 2007 and 2006 Dollars in thousands
Accumulated Compre- Additional Other Treasury hensive Common Paid-in Accumulated Comprehensive Stock Income Stock Capital Deficit Loss (at cost) Total (Loss) -------- -------- --------- -------- --------- ---------- ---------- Balance at December 31, 2005 $ 5,088 $ 30,069 $ (28,711) $ (1,545) $ (1,597) $ 3,304 -------- -------- --------- -------- --------- ---------- Net earnings - 2006 67 67 $ 67 ---------- Translation adjustment, net of tax (48) Other comprehensive loss on swap (13) Pensions, net of tax 356 ---------- Other comprehensive income 295 295 295 ---------- Comprehensive income $ 362 ========= Adjustment to initially apply FASB Statement No. 158, net of tax (39) (39) Shares issued for: Stock options exercised 56 (9) 47 Stock option purchased (48) (48) -------- -------- --------- -------- --------- ---------- Balance at December 31, 2006 5,144 30,012 (28,644) (1,289) (1,597) 3,626 -------- -------- --------- -------- --------- ---------- Net loss - 2007 (597) (597) $ (597) ---------- Translation adjustment, net of tax 28 Pensions, net of tax (91) Pensions, PSC, net of tax 7 ---------- Other comprehensive loss (56) (56) (56) ---------- Comprehensive loss $ (653) ========== Shares issued for: Stock options exercised 29 (3) 26 Stock option purchased (24) (24) Stock option expense 12 12 -------- -------- ---------- --------- --------- ---------- Balance at December 31, 2007 5,173 29,997 (29,241) (1,345) (1,597) 2,987 -------- -------- ---------- --------- --------- ---------- Net loss - 2008 (1,652) (1,652) $ (1,652) ---------- Translation adjustment, net of tax (37) Pensions, net of tax (1,398) Pensions, PSC, net of tax 5 ---------- Other comprehensive loss (1,430) (1,430) (1,430) ---------- Comprehensive loss $ (3,082) ========== Stock option expense 1 1 -------- -------- --------- --------- --------- ---------- Balance at December 31, 2008 $ 5,173 $ 29,998 $ (30,893) $ (2,775) $ (1,597) $ (94) ======= ======== ========= ======== ======== ==========
SHARE ACTIVITY ---------------------- Common Treasury Stock Stock ---------- --------- Balance at December 31, 2005 5,088,216 89,038 Shares issued for: Stock options exercised 55,883 --------- --------- Balance at December 31, 2006 5,144,099 89,038 Shares issued for: Stock options exercised 28,478 --------- --------- Balance at December 31, 2007 5,172,577 89,038 Shares issued for: Stock options exercised --------- --------- Balance at December 31, 2008 5,172,577 89,038 ========= ========= See notes to consolidated financial statements. 23 RONSON CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- Dollars in thousands
Year Ended December 31, ---------------------------------- 2008 2007 2006 ---- ---- ---- Cash Flows from Operating Activities: Net earnings (loss) ....................................... $(1,652) $ (597) $ 67 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ......................... 761 740 656 Stock option expense .................................. 1 12 -- Deferred income tax provision (benefits) .............. (1,051) (244) 130 Write-off previously deferred loan costs .............. 106 -- -- Net changes in assets and liabilities: Accounts receivable ................................ 418 144 (49) Inventories ........................................ 1,237 (281) (240) Other current assets ............................... 318 (105) (185) Accounts payable ................................... (147) 715 231 Accrued expenses ................................... 81 (263) 129 Other non-current assets and other long-term liabilities ...................................... (314) (136) (221) Net change in pension-related accounts ................ 119 (11) (398) Exchange (gain) loss .................................. -- -- (78) ------- ------- ------- Net Cash Provided by (Used in) Operating Activities (123) (26) 42 ------- ------- ------- Cash Flows from Investing Activities: Capital expenditures ...................................... (117) (1,097) (2,185) Proceeds from sale of property, plant & equipment ......... -- -- 12 ------- ------- ------- Net Cash Used in Investing Activities .............. (117) (1,097) (2,173) ------- ------- ------- Cash Flows from Financing Activities: Proceeds from short-term debt ............................. 1,747 985 2,526 Proceeds from long-term debt .............................. 3,761 499 3,145 Proceeds from issuance of common stock .................... -- 26 47 Payments of long-term debt ................................ (1,409) (347) (1,518) Payments of long-term lease obligations ................... (667) (277) (255) Payments of short-term debt ............................... (3,126) (2) (1,883) Cost of stock option agreement ............................ -- (24) (48) ------- ------- ------- Net Cash Provided by Financing Activities .......... 306 860 2,014 ------- ------- ------- Effect of Exchange Rate Changes on Cash and Cash Equivalents ......................................... (60) 47 (3) ------- ------- ------- Net (Increase) Decrease in Cash and Cash Equivalents .. ... 6 (216) (120) Cash and Cash Equivalents at Beginning of Year ............ 78 294 414 ------- ------- ------- Cash and Cash Equivalents at End of Year .................. $ 84 $ 78 $ 294 ======= ======= =======
See notes to consolidated financial statements. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation - The consolidated financial statements include the accounts of Ronson Corporation (the "Company") and its subsidiaries, all of which are wholly owned. Its principal subsidiaries are Ronson Consumer Products Corporation ("RCPC"), Woodbridge, New Jersey; Ronson Corporation of Canada Ltd. ("Ronson-Canada"), Mississauga, Ontario, Canada (these together are "Ronson Consumer Products"); and Ronson Aviation, Inc. ("Ronson Aviation"), Trenton, New Jersey. All significant intercompany accounts and transactions have been eliminated in consolidation. Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 period. Actual results could differ from those estimates. Going Concern and Management's Response - The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company had a Loss from Operations of $1,427,000 and a Net Loss of $1,652,000 for the year ended December 31, 2008. At December 31, 2008, the Company had both a deficiency in working capital and a Stockholders' Deficit. In addition, the Company was in violation of certain provisions of certain short-term and long-term debt covenants at December 31, 2008 (refer to Note 3). As a result of the violations of certain debts covenant, the long term portion, $5,246,000, of three loans was classified as Current Portion of Long-Term Debt (refer to Note 17 below). The Company's losses and difficulty in generating sufficient cash flow to meet its obligations and sustain its operations, as well as existing events of default under its credit facilities and mortgage loans, raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. On March 30, 2009, the Company and its wholly-owned subsidiaries entered into a forbearance agreement with their principal lender, Wells Fargo Bank, National Association ("Wells Fargo"), under which Wells Fargo has agreed not to assert existing events of default under the borrowers' credit facilities with Wells Fargo through April 24, 2009, or such earlier date determined under the forbearance agreement. The forbearance period may terminate earlier if, among other events, the borrowers breach the forbearance agreement, additional events of default occur under the credit facilities with Wells Fargo, the borrowers fail to employ a Chief Restructuring Officer or the borrowers fail actively to pursue alternative financing or divestiture of the Company's aviation division. During the forbearance period, Wells Fargo will make available to the domestic borrowers an overadvance facility in the amount of up to $500,000 to supplement the Borrowers' credit line, the maximum amount of which will be adjusted to $2 million. During the forbearance period, the borrowers will continue to be obligated for interest at the default rate under the credit and term loan facilities with Wells Fargo, except for interest on overadvances that accrue at the bank's prime rate plus 8% per annum, in addition to a forbearance fee in the amount of $450,000 which will be charged as an advance under the credit line upon 25 the earlier of the end of the forbearance period or repayment of all amounts owed to Wells Fargo. On March 30, 2009, the Company also announced that it has initiated plans to divest Ronson Aviation, its wholly-owned subsidiary engaged as a fixed-base operator at Trenton-Mercer Airport. Ronson Aviation provides aircraft fueling and servicing, avionics sales, aircraft repairs and maintenance, hangar and office leasing and related services. The Company is in the process of procuring purchasers so as to maximize the value of Ronson Aviation, permit it to satisfy outstanding indebtedness, including to Wells Fargo, and provide working capital to support and focus on its consumer products business. The Company's objective is to consummate a transaction prior to the end of the second quarter of 2009, subject to identifying and reaching agreement with a prospective purchaser, obtaining shareholder approval and meeting other conditions that may be contained in definitive documentation once negotiated. In 2008 and to date in 2009, the Company has taken steps to reduce its costs and expenses. Certain salaries to officers were reduced. The Company's officers accepted reductions in the management incentive compensation totaling $79,000 related to operating results in 2007 that had been due to be paid in 2008 and $44,000 in management incentive compensation related to operating results in 2008. In the first quarter of 2009, the Company reduced its workforce by about 15 persons, or 17% of the Company's staff. The Company reduced the health benefits provided to its employees, and deferred payment of the Company's contribution to its defined contribution pension plan. In addition, certain employees have temporarily assumed payment of costs of Company vehicles and costs of life and other insurance. All payments to directors of the Company, including officers who are directors, have been deferred. The Company continues to review its costs for additional reductions. Pending consummation of a transaction, the Company will continue to effect cost reductions and seek sources of financing, without which the Company will not be able to fund current operations beyond the forbearance period. The Company does not have a commitment from Wells Fargo to extend the forbearance period beyond its current duration. In the event of acceleration of its indebtedness to Wells Fargo and its outstanding mortgage loans as a result of existing defaults, the Company would not have sufficient cash resources to pay such amounts. There can be no assurance that the Company will be able to obtain an extension of its arrangements with Wells Fargo, arrange additional financing or complete its divestiture plans, within its anticipated time frame or on terms acceptable to it. Allowances for Doubtful Accounts and Sales Incentives - Management must make estimates of the uncollectibility of accounts receivable. Management specifically analyzes accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Estimated sales incentives are calculated and recorded at the time related sales are made and are based primarily on historical rates and in consideration of recent promotional activities. In the Company's financial statements, the allowance for sales incentives is classified as reductions of accounts receivable and net sales. Self-insurance - The Company does not self-insure any significant insurable risks. The Company accounts for potential losses due to the deductible on its product liability insurance coverage for consumer products claims with an accrual of potential losses based on open claims and prior years' loss experience. 26 Inventories - Inventories are valued at the lower of average cost or market. Property and Depreciation - Property, plant and equipment are carried at cost and are depreciated over their estimated useful lives using the straight-line method. Capitalized leases are amortized over their useful lives using the straight-line method. Leasehold improvements are amortized over their estimated useful lives or the remaining lease terms, whichever is shorter. Buildings and improvements include: buildings and improvements with useful lives of 5-50 years, land improvements with useful lives of 5-20 years, and leasehold improvements with useful lives of 3-20 years. Machinery and equipment includes production equipment with useful lives of 5-20 years, office furniture and equipment with useful lives of 2-15 years, autos and trucks with useful lives of 3-5 years, and tools, dies and molds with useful lives of 3-5 years. Foreign Currency Translation - All balance sheet accounts of the Company's foreign subsidiary, Ronson-Canada, are translated at the current exchange rate as of the end of the year. All income statement accounts are translated at average currency exchange rates. Stockholders' Equity accounts are translated at historical exchange rates. The resulting translation adjustment is recorded as part of Accumulated Other Comprehensive Loss in Stockholders' Equity. Transaction gains and losses are not significant in the periods presented. Fair Value of Financial Instruments - The Company's financial instruments include cash, cash equivalents, accounts receivable, accounts payable, accrued expenses, other current liabilities and short-term and long-term debt. The book values of cash, cash equivalents, accounts receivable, accounts payable, accrued expenses, other current liabilities, and short-term debt are representative of their fair values due to the short-term maturity of these instruments. The Company's term loans with Wells Fargo are at variable interest rates and, therefore, their book values are considered representative of their fair values. The Company's mortgage loan with Capital One, N.A. ("Capital One") has an approximate fair market value of $2,237,000 at December 31, 2008 as compared to its book value of $2,133,000. The book value of the Company's other long-term debt is considered to approximate its fair value based on current market rates and conditions (refer to Note 4). Derivative Financial Instruments - Prior to July 31, 2006, the Company utilized a derivative instrument, an interest rate swap, to modify the Company's exposure to interest rate risk. The Company accounted for this derivative instrument under the Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 required that all derivative instruments be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. For derivatives that are designated as a hedge and used to hedge an existing asset or liability, both the derivative and hedged item are recognized at fair value with any changes recognized immediately in the Consolidated Statements of Operations. By policy, the Company has not historically entered into derivative financial instruments for trading purposes or for speculation. Impairment of Long-Lived Assets - The Company periodically evaluates whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value will be recovered through the estimated undiscounted future cash flows resulting from the use of the 27 asset. In the event the sum of the estimated undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. Declaration of 5% Common Stock Dividend - The Company's Board of Directors, on February 1, 2008, declared a 5% stock dividend on the Company's outstanding common stock. The 5% stock dividend was payable on April 15, 2008, to stockholders of record March 28, 2008. The 5% stock dividend increased the outstanding common shares of the Company by about 241,000 to about 5,084,000 shares. Revenue Recognition - Net Sales are recognized by Ronson Consumer Products on the date of shipment of the product to domestic customers and on the date title for the goods has been transferred on shipments to foreign customers, prior to which an arrangement exists, the price is fixed, and it has been determined that collectibility is reasonably assured. Net Sales at Ronson Aviation are recognized on the date of delivery of the product or service to customers. For aircraft, this occurs at the time the title for the aircraft has been transferred and the sales proceeds received. For aircraft fueling, repairs and other aircraft services, delivery occurs only after an arrangement exists, the price is fixed, and collectibility is reasonably assured. Research and Development Costs - Costs of research and new product development are charged to operations as incurred and amounted to approximately $299,000, $371,000, and $376,000, for the years ended December 31, 2008, 2007 and 2006, respectively. Shipping and Handling Costs - The Company records shipping and handling costs within Selling, Shipping, and Advertising Expenses. Such costs amounted to about $1,507,000, $1,538,000, and $1,660,000, for the years ended December 31, 2008, 2007, and 2006, respectively. Advertising Expenses - Costs of advertising are expensed as incurred and amounted to approximately $143,000, $175,000, and $202,000, for the years ended December 31, 2008, 2007 and 2006, respectively. Accrued Expenses - On December 31, 2008 and 2007, Accrued Expenses included accrued vacation pay and other compensation of $655,000 and $691,000, respectively. No other item amounted to greater than 5% of total current liabilities. At December 31, 2008 and 2007, Accrued Expenses included accrued expenses of discontinued operations of $320,000 and $318,000, respectively. Other Current Assets - On December 31, 2008 and 2007, Other Current Assets included deferred income tax assets of $547,000 and $623,000, respectively. No other item amounted to greater than 5% of total current assets. Stock Options - The Company accounts for stock-based compensation under the provisions of SFAS No. 123 (Revised 2004) "Share-Based Payment" ("SFAS 123R"). SFAS 123R requires the recognition of the fair value of stock-based compensation in net income. The fair value of the Company's stock option awards are estimated using a Black-Scholes option valuation model. The fair value of stock-based awards is amortized over the vesting period of the award. Per Common Share Data - The calculation and reconciliation of Basic and Diluted Earnings (Loss) per Common Share were as follows (in thousands except per share data): 28 Year Ended December 31, 2008 Per Share Loss Shares Amount ------- ------ -------- BASIC ............................ $(1,652) 5,084 $(0.32) Effect of dilutive securities, stock options (1) ......... -- -- ------- ----- DILUTED .......................... $(1,652) 5,084 $(0.32) ======= ======= ====== Year Ended December 31, 2007 Per Share Loss Shares Amount ------- ------ -------- (2) (2) BASIC ........................... $(597) 5,067 $(0.12) Effect of dilutive securities, stock options(1) ......... -- -- ----- ----- DILUTED ......................... $(597) 5,067 $(0.12) ===== ===== ====== Year Ended December 31, 2006 Per Share Earnings Shares Amount -------- ------ -------- (2) (2) BASIC .......................... $ 67 5,026 $ 0.01 Effect of dilutive securities, stock options .............. -- 40 ----- ----- DILUTED ........................ $ 67 5,066 $ 0.01 ===== ===== ====== (1) The stock options were anti-dilutive for the years ended December 31, 2008 and 2007 and, therefore, were excluded from the calculation and reconciliation of Diluted Loss per Common Share for those years. The numbers of potentially anti-dilutive securities were 1,000 and 11,000 in the years ended December 31, 2008 and 2007, respectively. (2) Information as to the number of shares and per share amounts has been retroactively adjusted to reflect the 5% stock dividend on common stock declared February 1, 2008. At December 31, 2008, the Company had outstanding approximately 5,084,000 shares of common stock. Recent Accounting Pronouncements In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements,("SFAS No. 157") which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The provisions of SFAS No. 157 related to financial assets and financial liabilities were effective during 2008. With respect to certain nonfinancial assets and nonfinancial liabilities, SFAS No. 157 is effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company does not expect that the adoption of SFAS No. 157 with respect to 29 nonfinancial assets and nonfinancial liabilities will have a material impact on its consolidated financial statements. In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 160 clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements, consolidated net income should be adjusted to include the net income attributed to the non-controlling interest and consolidated comprehensive income shall be adjusted to include the comprehensive income attributed to the non-controlling interest. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption of SFAS No. 141(R) or SFAS No. 160 is prohibited. The Company does not expect that the adoption of SFAS No. 141(R) or SFAS No. 160 with respect to nonfinancial assets and nonfinancial liabilities will have a material impact on its consolidated financial statements. In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect that the adoption of SFAS No. 161 will have a material impact on its consolidated financial statements. In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets ("FSP FAS 142-3"). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under FSP FAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other generally accepted accounting principles. FSP FAS 142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008. The Company has not yet determined the effect on its consolidated financial statements, if any, that will occur upon adoption of FSP FAS 142-3. In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and provides entities with a framework for selecting the principles used in preparation of financial statements that are presented in conformity with GAAP. The current GAAP hierarchy has been criticized because it is directed to the auditor rather than the entity, it is complex, and it ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as FASB Statements of Financial Accounting Standards, below industry practices that are widely recognized as generally accepted but that are not subject to due process. The Board believes the GAAP hierarchy should be directed to entities because it is the entity (not its auditors) that is responsible for selecting accounting principles for financial statements that are presented in conformity 30 with GAAP. The adoption of FASB 162 is not expected to have a material impact on the Company's financial statements. In October 2008, the FASB issued Emerging Issues Task Force ("EITF") 08-6 Equity Method Investment Accounting Considerations, which addresses how the initial carrying value of an equity method investment should be determined, how an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment should be performed, and the proper accounting of an equity method investee's issuance of shares. The Company's management believes that this will not have a material impact on the Company's consolidated financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. Note 2. INCOME TAXES: At December 31, 2008, the Company had, for federal income tax purposes, net operating loss carryforwards of approximately $7,471,000, expiring as follows: $1,478,000 in 2010 to 2012; $1,379,000 in 2018 to 2020; and $4,614,000 in 2021 to 2028. The Company also had available federal and state alternative minimum tax credit carryforwards of approximately $102,000. The income tax expenses (benefits) consisted of the following (in thousands): Year Ended December 31, 2008 2007 2006 ---- ---- ---- Current: Federal ........................ $ -- $ (1) $ -- State .......................... 10 13 20 Foreign ........................ 9 (5) 72 ------- ------- ------- 19 7 92 ------- ------- ------- Deferred: Federal ........................ (957) (206) 76 State .......................... (95) (36) 60 Foreign ........................ 1 (2) (6) ------- ------- ------- (1,051) (244) 130 ------- ------- ------- Income tax expenses (benefits), net $(1,032) $ (237) $ 222 ======= ======= ======= Current income taxes in the years ended December 31, 2008, 2007, and 2006, were presented net of credits of $24,000, $17,000, and $17,000, respectively, arising from the utilization of available tax losses and loss carryforwards in accordance with SFAS #109. The reconciliation of estimated income taxes attributed to continuing operations at the United States statutory tax rate to reported income tax expense (benefits) was as follows (in thousands): 31
Year Ended December 31, 2008 2007 2006 ---- ---- ---- Tax expense amount computed using statutory rate $ (913) $ (284) $ 99 State taxes, net of federal benefit ............ (103) (23) 4 Operations outside the US ...................... 21 (7) 11 Discontinued operations and other .............. (37) 77 108 ------- ------- ------- Income tax expense (benefits), net ........... $(1,032) $ (237) $ 222 ======= ======= =======
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below (in thousands):
December 31, 2008 2007 ---- ---- Deferred income tax assets: Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 and valuation reserves for financial reporting purposes .............................................. $ 118 $ 140 Compensation and compensated absences, principally due to the accrual for financial reporting purposes .. .................... 231 246 Accrual of projected environmental costs, principally related to Prometcor's compliance with NJDEP requirements .................. 199 199 Net operating loss carryforwards ............................................ 3,107 2,086 Alternative minimum tax credit carryforwards ................................ 102 113 Unrecognized net loss on pension plan ....................................... 1,830 901 Other ....................................................................... 367 351 ------ ------ Total gross deferred income tax assets .................................... 5,954 4,036 Less valuation allowance .................................................. 91 163 ------ ------ Net deferred income tax assets ............................................ 5,863 3,873 ------ ------ Deferred income tax liabilities: Pension expense, due to contributions in excess of net accruals .............................................................. 996 1,044 Other ....................................................................... 169 131 ------ ------ Total gross deferred income tax liabilities ............................... 1,165 1,175 ------ ------ Net deferred income taxes ................................................ $4,698 $2,698 ====== ======
A valuation allowance has been established based on the likelihood that a portion of the deferred income tax assets will not be realized. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The ultimate realization of the deferred income tax assets will require aggregate taxable income of approximately $7,150,000 in the years prior to the expiration of the net operating loss carryforwards in 2028. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced. 32 The net deferred income tax assets were classified in the Consolidated Balance Sheets as follows (in thousands): December 31, 2008 2007 ---- ---- Current: Other current assets .................... $ 348 $ 424 Current assets of discontinued operations 199 199 ------ ------ Total current ........................... 547 623 ------ ------ Long-Term: Other assets ............................ 3,429 1,332 Other assets of discontinued operations . 722 743 ------ ------ Total long-term ......................... 4,151 2,075 ------ ------ Total net deferred income tax assets ....... $4,698 $2,698 ====== ====== On January 1, 2007, the Company adopted the provisions of FIN 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109". Implementation of FIN 48 did not result in a cumulative effect adjustment to retained earnings. The Company's policy is to report interest and penalties, if any, related to income taxes in Interest Expense and General and Administrative Expenses, respectively. Note 3. SHORT-TERM DEBT: Composition (in thousands): December 31, 2008 2007 ---- ---- Revolving loans, Wells Fargo(a) $1,472 $ -- Revolving loans, CIT .......... -- 2,596 Note Payable, Bank of the West -- 500 Other (b) ..................... 275 30 ------ ------ $1,747 $3,126 ====== ====== (a) On May 30, 2008, the Company and RCPC, Ronson Aviation and Ronson-Canada (collectively, the "Borrowers") entered into a secured revolving credit facility with Wells Fargo. The credit facility consisted of (1) a revolving line of credit of up to $4.0 million, (2) a Real Estate Term Loan of $2,922,500 and (3) an Equipment Term Loan of $837,500. Availability under the credit facility is determined based on the value of the Borrowers' receivables and inventory, and other factors, as set forth in the credit and security agreement. The Company is a guarantor of the obligations under the credit facility. Amounts advanced under the credit facility are secured by substantially all of the assets of the Company and its subsidiaries, other than (1) the real property owned by RCPC in Woodbridge, New Jersey and (2) 34% of the Company's interest in Ronson-Canada. The term of the credit facility is 60 months. The revolving line of credit had a balance of $1,472,000 at December 31, 2008. The revolving line of credit bore interest at 1/2% over the Wells Fargo prime rate (3.25% at December 31, 2008), or, at the Company's option, a portion may bear interest at LIBOR plus 3%. The Company paid fees to Wells Fargo that are customary for facilities of this type. The credit facility contains minimum tangible net worth, minimum net income, minimum net cash flow and other financing covenants, certain restrictions 33 on capital expenditures, as well as affirmative and negative covenants and events of default customary for facilities of this type. The Company applied $2,940,000 of the proceeds of the credit facility to pay off its prior credit facility with CIT Group/Commercial Services, Inc; $399,000 to EPIC Aviation, LLC; $502,000 to Bank of the West; and $577,000 to Banc of America Leasing. As a result of the repayment of the Short-term Debt and Long-term Debt with the new Wells Fargo financing on May 30, 2008, the Company recorded a Nonrecurring Loss on Extinguishment of Debt of $145,000 in 2008. The Nonrecurring Loss on Extinguishment of Debt was composed of the following: Unamortized balance of deferred financing costs $106,000 Early termination fee paid to CIT Group/Commercial Services, Inc. 31,000 Difference between book value of Long-term Leases with Bank of America Leasing and payoff amount 3,000 Legal fees and other 5,000 -------- Total $145,000 ======== On November 21, 2008, Wells Fargo advised the Company and its subsidiaries that Events of Default under the credit agreement dated May 30, 2008, had occurred. These events of default included the Company's not meeting financial covenants as follows: 1) the minimum Tangible Net Worth as of September 30, 2008, 2) the minimum Net Income for the nine months ended September 30, 2008, and 3) the minimum Net Cash Flow for the nine months ended September 30, 2008, and the Company's not meeting all of the requirements of the Post-Closing Agreement dated May 30, 2008. As a result of the events of default, Wells Fargo increased the interest rate charged on the loans outstanding under the credit agreement by 3%. These increases were assessed retroactively to July 1, 2008. In addition, in November and December, Wells Fargo reduced the amounts available to be borrowed under the revolving line of credit. In December 2008, Wells Fargo required that the Company engage a consultant to review and monitor the Company's operation and Wells Fargo increased its monitoring of the line of credit. Based on the amount of the loans outstanding and the levels of accounts receivable and inventory at December 31, 2008, the Company's subsidiaries had unused borrowings available at December 31, 2008 of about $135,000 under the Wells Fargo line of credit described above, of which approximately $70,000 was utilized on January 2, 2009 to meet the debt service requirements and fees of Wells Fargo. (Refer to Note 4 below for information regarding the book value of assets pledged as collateral for the debt above.) On March 30, 2009, the Company, its subsidiaries and Wells Fargo entered into a forbearance agreement. (Refer to Note 16. Subsequent Events below.) (b) Refer to Note 14. Related Party Transactions below. At December 31, 2008, the weighted average interest rate for the total short-term debt was 6.12%. 34 Note 4. LONG-TERM DEBT: Composition (in thousands): December 31, 2008 2007 ---- ------ Mortgage loan payable, Capital One (a) $2,133 $2,160 Note payable, lessor (b) ............. 160 189 Term loans payable, Wells Fargo (c) .. 3,570 -- Term notes payable, CIT .............. -- 689 Note payable, supplier ............... -- 440 Term notes payable, other ............ 27 42 ------ ------ 5,890 3,520 Less portion in current liabilities .. 5,750 423 ------ ------ Balance of long-term debt ............ $ 140 $3,097 ====== ====== (a) In September 2006, RCPC entered into a mortgage loan agreement with Capital One for $2,200,000. The mortgage loan had a balance of $2,133,000 at December 31, 2008 and is secured by a first mortgage on the property of RCPC at 3 and 6 Ronson Road, Woodbridge, NJ and the guarantees of the Company and Ronson Aviation. In connection with a waiver of a covenant violation at December 31, 2007 provided to the Company by Capital One, effective April 1, 2008, the interest rate on the mortgage loan was increased to 8.00%, monthly installments were increased to $17,081, the final installment on November 1, 2016 was increased to $1,746,000, and the debt service coverage ratio was modified. On August 12, 2008, Capital One provided the Company with a modification of the mortgage loan because the Company did not meet a minimum Earnings before Income Taxes covenant for the six months ended June 30, 2008. In connection with the modification, the interest rate on the mortgage loan was increased to 9.00% effective 9/1/08, 9.50% effective 1/1/09, 10.00% effective 4/1/09, 10.50% effective 7/1/09, and 11.00% effective 10/1/09. The final due date of the mortgage was changed to January 1, 2010, from the prior due date of November 1, 2016. The mortgage modification also eliminated the prepayment penalty on the agreement until April 1, 2009, when it is partially reinstated. Based on current interest rates, under the terms of the original mortgage loan prior to the modification, the prepayment penalty would have been as much as $700,000. As stated in Note 3 above, the Company was notified in November 2008 that events of Default under the Wells Fargo credit agreement had occurred. Under cross default provisions of the Capital One mortgage loan agreement, these Events of Default under the Wells Fargo agreement could result in an event of default under the Capital One mortgage loan agreement. Therefore, the portion of the loan due after December 31, 2008, $2,088,000 has been included in the Current Portion of Long-Term Debt. (b) As part of the lease agreement for its warehouse, effective March 1, 2004, RCPC entered into a term note payable to the lessor in the original amount of $440,000. The note bears interest at the rate of 8.25% and is payable in monthly installments of $3,787 including interest through February 2013. The note is secured by the leasehold improvements in the warehouse. (c) On May 30, 2008, the Company obtained two term loans from Wells Fargo as part of the new credit facility (refer to Note 3 above), an Equipment Term Loan in the original amount of $837,500 with a balance of $745,000 as of December 31, 2008, and a Real Estate Term Loan in the original amount of $2,922,500 with a balance of $2,825,000 as of December 31, 2008. The Equipment Term Loan is payable 35 in 60 equal monthly principal payments of about $14,000 plus interest. The Real Estate Term Loan is payable in 60 equal monthly principal payments of about $16,000 plus interest. The interest rate for the Equipment Term Loan, originally the prime rate plus .75%, was increased in the fourth quarter 2008, to the prime rate plus 3.75%, effective July 1, 2008. Similarly, the interest rate for the Real Estate Term Loan, originally the prime rate plus 1%, was increased to the prime rate plus 4%, effective July 1, 2008. As a result of the Events of Default discussed in Note 3 above and the likelihood that the Company would not attain compliance with the financial covenants within one year, the long-term portion of the Equipment Term Loan ($578,000) and the long-term portion of the Real Estate Term Loan ($2,630,000) have been included in the Current Portion of Long-Term Debt. At December 31, 2008, fixed assets with a net book value of $4,825,000, accounts receivable and inventories of $3,151,000, and other noncurrent assets with a net book value of $337,000 were pledged as collateral for the debt detailed in Notes 3 and 4 above. Net assets of consolidated subsidiaries, excluding intercompany accounts, amounted to approximately $1,500,000 at December 31, 2008, substantially all of which were restricted as to transfer to the Company and its subsidiaries due to various covenants of their debt agreements at December 31, 2008. Long-term debt matures as follows: 2009, $454,000; 2010, $2,490,000; 2011, $406,000; 2012, $413,000; and 2013, $2,127,000. Note 5. LEASE OBLIGATIONS: Lease expenses consisting principally of office and warehouse rentals, totaled $579,000, $604,000, and $573,000 for the years ended December 31, 2008, 2007 and 2006, respectively. At December 31, 2008, the Company's future minimum lease payments under operating and capitalized leases with initial or remaining noncancellable lease terms in excess of one year are presented in the table below (in thousands):
Operating Capitalized Total Leases Leases ------ ------ ------- Year Ending December 31: 2009 ......................................... $ 453 $ 436 $ 17 2010 ......................................... 326 312 14 2011 ......................................... 169 165 4 2012 ......................................... 140 140 -- 2013 ......................................... 57 57 -- ------ ------ ------ Total obligations ............................ $1,145 $1,110 35 ====== ====== Less: Amount representing interest ..... 3 ------ Present value of capitalized lease obligations $ 32 ======
36 Capitalized lease property included in the Consolidated Balance Sheets is presented below (in thousands): December 31, 2008 2007 ------ ------ Machinery and equipment ......... $ 62 $1,499 Less accumulated amortization ... 25 335 ------ ------ $ 37 $1,164 ====== ====== The Company has accounted for step rent provisions so that rent abatements are amortized over the life of the lease on a straight-line basis. The amounts due under escalation charges (which are all related to operating expenses, real estate taxes and utilities) are expensed as incurred and included in minimum lease payments. The capital improvements funding provided to the Company by the lessor for the Company's South Brunswick, New Jersey warehouse, was capitalized in leasehold improvements and the debt included in long-term debt as reported in Note 4 above. Note 6. RETIREMENT PLANS: The Company and its subsidiaries have trusteed retirement plans covering substantially all employees. The Company's funding policy is to make minimum annual contributions as required by applicable regulations. The Plan covering union members generally provides benefits of stated amounts for each year of service. The Company's salaried pension plan provides benefits using a formula which is based upon employee compensation. On June 30, 1985, the Company amended its salaried pension plan so that benefits for future service would no longer accrue. A defined contribution plan was established on July 1, 1985, in conjunction with the amendments to the salaried pension plan. Plan assets primarily included common stocks (65%), fixed income securities (12%), cash and money market accounts (12%), a guaranteed annuity contract (7%), and 241,033 shares of common stock of the Company (4%). The stock of the Company held by the Plan was valued at $106,000 and $371,000 at December 31, 2008 and 2007, respectively. The benefit obligations below are equal to the accumulated benefit obligations. The following table sets forth the Plan's aggregate funded status and amounts recognized in the Company's Consolidated Balance Sheets (in thousands):
Year Ended December 31, 2008 2007 ------- ------- Change in Benefit Obligation: Benefit obligation at beginning of year ...................... $ 4,527 $ 4,678 Service cost ................................................. 20 24 Interest cost ................................................ 268 257 Actuarial loss ............................................... 858 19 Benefits paid ................................................ (513) (451) ------- ------- Benefit obligation at end of year ............................ 5,160 4,527 ------- ------- Change in Plan Assets: Fair value of plan assets at beginning of year................ 4,674 4,961 Actual return on plan assets ................................. (1,448) (74) Employer contributions ....................................... 155 238 Benefits paid ................................................ (513) (451) ------- ------- Fair value of plan assets at end of year ..................... 2,868 4,674 ------- ------- Funded status at end of year ................................. $(2,292) $ 147 ======= ======= Amounts recognized in the Consolidated Balance Sheets consist of: Non-current Assets ........................................... $ -- $ 147 Current Liabilities .......................................... 205 -- Long-term Liabilities ........................................ 2,087 -- ------- ------- Net amount recognized ........................................ $ 2,292 $ 147 ======= =======
37 The weighted-average assumptions used in the benefit obligations were as follows: Year Ended December 31, 2008 2007 ---- ---- Discount rate .......................................... 6.30% 5.92% The Company's Consolidated Statements of Operations included pension expense consisting of the following components (in thousands): Year Ended December 31, 2008 2007 2006 ---- ---- ---- Components of net periodic benefit cost: Service cost ........................ $ 20 $ 24 $ 26 Interest cost ....................... 268 257 262 Expected return on plan assets ...... (257) (273) (202) Amortization of prior service cost .. 5 5 5 Recognized net actuarial loss ....... 239 213 255 ----- ----- ----- Net pension expense ................. $ 275 $ 226 $ 346 ===== ===== ===== The detail of amounts included in Accumulated Other Comprehensive Loss is included in Note 12, Accumulated Other Comprehensive Loss. The weighted-average assumptions used in computing the net periodic benefit cost were as follows: Year Ended December 31, 2008 2007 2006 ---- ---- ---- Discount rate .................................. 5.92% 5.50% 5.50% Expected long-term rate of return on plan assets 5.50% 5.50% 5.00% The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2009 are $418,000 and $5,000, respectively. The estimated prior service cost for the other defined benefit postretirement plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2009 is $1,000. Contributions to the pension plan during 2009 are expected to be approximately $242,000. Investment objectives for the Company's U.S. plan assets are to: (1) optimize the long-term return on plan assets at an acceptable level of risk; (2) maintain diversification across asset classes; (3) maintain control of the risk level within each asset class; and (4) focus on a long-term return objective. 38 The Plan engages investment managers to manage the Plan's investments in equities, other than in the Company's stock and fixed income securities. Investment guidelines are established with each investment manager. Unless exceptions have been approved, investment managers are prohibited from buying or selling commodities, futures, or option contracts, as well as from short selling of securities. The Company does not expect to make further investments in the guaranteed annuity contract or in the stock of the Company. To determine the expected long-term rate of return assumption on plan assets, the Company uses a conservative estimate of future returns. The benefit payments expected to be paid in the next ten years, in thousands, are as follows: 2009 $ 434 2010 445 2011 442 2012 458 2013 456 2014-2018 2,335 The Company contributes to its defined contribution plan at the rate of 1% of each covered employee's compensation. The Company also contributes an additional amount equal to 50% of a covered employee's contribution to a maximum of 1% of compensation. Expenses of about $62,000, $64,000, and $62,000 for this plan were recorded in 2008, 2007, and 2006, respectively. These Company contributions in 2009 are being deferred. Note 7. COMMITMENTS AND CONTINGENCIES: In December 1989 the Company adopted a plan to discontinue the operations of its wholly owned subsidiary, Ronson Metals Corporation, subsequently renamed Prometcor, Inc. ("Prometcor"). Upon the cessation of operations, Prometcor began its compliance with the environmental requirements of all applicable laws with the objective of selling the property previously used in the discontinued operations. The full extent of the costs and time required for completion is not determinable until the remediation, if any is required, and confirmatory testing related to the remaining groundwater matter have been completed and accepted by the New Jersey Department of Environmental Protection ("NJDEP"). The liability for these estimated costs and expenses as recorded in the financial statements at December 31, 2008, was approximately $500,000 based on the lower limit of the range of costs as projected by the Company and its consultants. The estimated upper limit of the range of costs was discounted at approximately $600,000 above the lower limit. The long-term portion of the environmental liability related to Prometcor was discounted at the rate of 6% per annum. The aggregate undiscounted amount was approximately $273,000 as compared to the discounted amount of $181,000. The current portion, which would be expended in the year a plan is approved by the NJDEP, is $317,000. The undiscounted amount of the long-term portion is expected to be expended at the rate of about $24,000 in the first year following the approval by the NJDEP of a plan; about $11,000/year for an additional eighteen years; and about $10,000/year for an additional ten years. 39 In 1999 Ronson Aviation completed the installation of a new fueling facility and ceased use of most of its former underground storage tanks. The primary underground fuel storage tanks formerly used by Ronson Aviation were removed in 1999 as required by the NJDEP. Related contaminated soil was removed and remediated. In 2000 initial groundwater tests were completed. Ronson Aviation's environmental consultants have advised the Company that preliminary results of that testing indicate that no further actions should be required. The extent of groundwater contamination cannot be determined until final testing has been completed and accepted by the NJDEP. The Company intends to vigorously pursue its rights under the leasehold and under the statutory and regulatory requirements. Since the amount of additional costs, if any, and their ultimate allocation cannot be fully determined at this time, an estimate of additional loss, or range of loss, if any, that is reasonably possible, cannot be made. Thus, the effect on the Company's financial position or results of future operations cannot yet be determined, but management believes that the effect will not be material. The Company is involved in various lawsuits and claims. While the amounts claimed may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on facts currently available including the insurance coverage that the Company has in place, management believes that the outcome of these lawsuits and claims will not have a material adverse effect on the Company's financial position. The Company has an employment contract with an officer of the Company which expires on December 31, 2009. Base salary in the year 2009 under the contract is $544,341, with future increases subject to the Company reporting operating earnings in the year prior to each increase; however, in the first quarter of 2009 Mr. Louis V. Aronson accepted reductions totaling 12%. The base salary in 2007 reflected a 5% reduction offered and accepted by Mr. Louis V. Aronson effective November 16, 2007; a 7% reduction offered and accepted by Mr. Louis V. Aronson effective October 1,2005; and the increases due to Mr. Aronson under the terms of the contract on January 1, 2008, January 1, 2007, and January 1, 2006, were waived by him. The contract also provides for additional compensation and benefits, including a death benefit equal to two years' salary. The Company has purchased term life insurance for which the Company is the sole beneficiary to provide coverage for a substantial portion of the potential death benefit. Note 8. PREFERRED STOCK: In 1998 the Company declared a dividend of one Preferred Stock Purchase Right ("Right") for each outstanding share of the Company's common stock. The Rights are not presently exercisable. Each Right entitles the holder, upon the occurrence of certain specified events, to purchase from the Company one one-thousandth of a share of Series A Preferred Stock at a purchase price of $20 per share. The Rights further provide that each Right will entitle the holder, upon the occurrence of certain other specified events, to purchase from the Company, common stock having a value of twice the exercise price of the Right and, upon the occurrence of certain other specified events, to purchase from another person into which the Company was merged or which acquired 50% or more of the Company's assets or earnings power, common stock of such other person having a value of twice the exercise price of the Right. The Rights may be generally redeemed by the Company at a price of $0.01 per Right. The Rights had been due to expire on October 22, 2008. On October 10, 2008, the expiration date of the Rights was extended to September 1, 2011. 40 Note 9. STOCK OPTIONS: The Company has an incentive stock option plan which provides for the grant of options to purchase shares of the Company's common stock. The options may be granted to officers, directors and other key employees of the Company and its subsidiaries at not less than 100% of the fair market value on the date on which options are granted. On November 27, 2001, the stockholders approved the adoption of the Company's 2001 Incentive Stock Option Plan which provides for the grant of options for up to 175,888 shares of common stock. Options granted under the plan are exercisable after six months from the date of the grant and within five years of the grant date, at which time such options expire. All options are vested on the date of the grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model average assumptions:
Year Ended December 31, 2008 2007 2006 ---- ---- ---- Risk-free interest rate 3.25% 3.44% 4.69% Dividend yield 0% 0% 0% Volatility factor - expected market price of Company's common stock 0.81 0.67 0.63 Weighted average expected life of options 5 years 5 years 5 years
A summary of the Company's stock option activity and related information for the three years ended December 31, 2008, were as follows:
Weighted Average Number of Options Exercise Price ------------------ --------------- Outstanding at 12/31/05 .................. 97,750 $ 0.851 Exercised .............................. (55,882) $ 0.852 Expired ................................ (7,739) $ 0.856 ------ Outstanding at 12/31/06 .................. 34,129 $ 0.849 Granted ................................ 11,026 $ 1.846 Exercised .............................. (28,478) $ 0.849 Expired ................................ (5,651) $ 0.849 ------ Outstanding at 12/31/07 .................. 11,026 $ 1.846 Granted ................................ 20,000 $ 0.453 Expired ................................ (5,513) $ 1.846 ------ Outstanding at 12/31/08 .................. 25,513 $ 0.754 ======= ========== Exercisable at 12/31/08 .................. 5,513 $ 1.846 ======= ==========
Weighted average fair value of options granted during the year for options on which the exercise price: Equals the market price on the grant date $0.273 Exceeds the market price on the grant date N/A The weighted average exercise price for options outstanding as of December 31, 2008, was $0.754 per share. The weighted average contractual life of those options was 4.5 years. 41 Note 10. STATEMENTS OF CASH FLOWS: Certificates of deposit that have a maturity of less than 90 days are considered cash equivalents for purposes of the accompanying Consolidated Statements of Cash Flows. Supplemental disclosures of cash flow information are as follows (in thousands): Year Ended December 31, 2008 2007 2006 ---- ---- ---- Cash Payments for: Interest $598 $629 $502 Income taxes 2 87 152 Financing & Investing Activities Not Affecting Cash: Capital lease obligations incurred -- 14 49 Equipment financed by seller 18 -- 55 Note 11. INDUSTRY SEGMENTS INFORMATION: The Company has two reportable segments: consumer products and aviation services. The Company's reportable segments are strategic business units that offer different products and services. The consumer products segment produces packaged fuels, flints, refillable lighters and multi-purpose lighters, torches, a candle, a penetrant spray lubricant, and a spot remover, which are distributed through distributors, food brokers, mass merchandisers, drug chains, convenience stores, and automotive and hardware representatives. Ronson Consumer Products is a principal supplier of packaged flints and lighter fuels in the United States and Canada. The aviation services segment represents the fueling and servicing of fixed wing aircraft and helicopters, and rental of hangar and office space. The aircraft products and services are sold through Company sales personnel. Ronson Aviation provides a wide range of general aviation services to the general public and to government agencies located in the vicinity of its facilities in Trenton, New Jersey. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss before intercompany charges and income taxes. 42 Financial information by industry segment is summarized below (in thousands):
2008 2007 2006 ---- ---- ---- Net sales: Consumer Products .................................................. $ 12,524 $ 13,883 $ 16,870 Aviation Services ................................................... 11,663 12,363 12,374 -------- -------- -------- Consolidated .......................................................... $ 24,187 $ 26,246 $ 29,244 ======== ======== ======== Earnings (loss) before interest, other items, and intercompany charges: Consumer Products ................................................... $ (1,116) $ 269 $ 1,243 Aviation Services ................................................... 1,326 1,612 1,660 -------- -------- -------- Total Reportable Segments ........................................... 210 1,881 2,903 Corporate and others ................................................ (1,637) (1,815) (1,719) Other charges ....................................................... -- (28) (91) -------- -------- -------- Consolidated .......................................................... $ (1,427) $ 38 $ 1,093 ======== ======== ======== Interest expense: Consumer Products ................................................... $ 389 $ 406 $ 290 Aviation Services ................................................... 207 44 24 -------- -------- -------- Total Reportable Segments ........................................... 596 450 314 Corporate and others ................................................ 75 83 162 -------- -------- -------- Consolidated .......................................................... $ 671 $ 533 $ 476 ======== ======== ======== Depreciation and amortization: Consumer Products ................................................... $ 415 $ 498 $ 412 Aviation Services ................................................... 256 193 199 -------- -------- -------- Total Reportable Segments ........................................... 671 691 611 Corporate and others ................................................ 57 49 45 -------- -------- -------- Consolidated .......................................................... $ 728 $ 740 $ 656 ======== ======== ======== Earnings (loss) before intercompany charges and taxes: Consumer Products ................................................... $ (1,655) $ (254) $ 946 Aviation Services ................................................... 1,079 1,539 1,606 -------- -------- -------- Total Reportable Segments ........................................... (576) 1,285 2,552 Corporate and others ................................................ (1,963) (2,091) (2,172) Other charges ....................................................... -- (28) (91) Nonrecurring loss ................................................... (145) -- -- -------- -------- -------- Consolidated .......................................................... $ (2,684) $ (834) $ 289 ======== ======== ======== Segment assets: Consumer Products ................................................... $ 6,600 $ 7,829 $ 7,640 Aviation Services ................................................... 5,201 5,302 4,506 -------- -------- -------- Total Reportable Segments ........................................... 11,801 13,131 12,146 Corporate and others ................................................ 2,115 1,329 1,550 Discontinued operations ............................................. 921 941 1,024 -------- -------- -------- Consolidated .......................................................... $ 14,837 $ 15,401 $ 14,720 ======== ======== ======== Segment expenditures for long-lived assets: Consumer Products ................................................... $ 87 $ 118 $ 155 Aviation Services ................................................... 22 990 2,032 -------- -------- -------- Total Reportable Segments ........................................... 109 1,108 2,187 Corporate and others ................................................ 26 3 102 -------- -------- -------- Consolidated .......................................................... $ 135 $ 1,111 $ 2,289 ======== ======== ========
43 Geographic information regarding the Company's net sales and long-lived assets was as follows (in thousands): Year Ended December 31, 2008 2007 2006 ---- ---- ---- Net sales (1): United States ............. $21,722 $23,892 $25,831 Canada .................... 2,400 2,047 1,949 Other foreign countries ... 65 307 1,464 ------- ------- ------- $24,187 $26,246 $29,244 ======= ======= ======= December 31, 2008 2007 ---- ---- Long-lived assets: United States ....... $5,799 $6,267 Canada .............. 44 51 ------ ------ $5,843 $6,318 ====== ====== (1) Net sales are attributed to countries based on location of customer. Information regarding the Company's net sales by product category was as follows (in thousands):
Year Ended December 31, 2008 2007 2006 ---- ---- ---- Packaged fuels, flints, lighters and torches . $12,441 $13,831 $16,803 Other consumer products ...................... 83 52 67 Aircraft ..................................... -- 1,269 1,796 Aviation fuels and other aviation products and services ..................................... 11,663 11,094 10,578 ------- ------- ------- $24,187 $26,246 $29,244 ======= ======= =======
In the financial information by industry segment above, Corporate and Others is primarily composed of general and administrative expenses of the parent company. Expense categories included salaries and benefits costs; professional fees; the pension expense of the former defined benefit plans (included only in Earnings (Loss) before Intercompany Charges and Taxes) and shareholder relations expenses, among others. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. For the year ended December 31, 2006, Net Sales which amounted to approximately $3,809,000, of Consolidated Net Sales were made by Ronson Consumer Products to one customer. As of December 31, 2008 and 2007, accounts receivable from that customer amounted to approximately 12% and 13%, respectively, of Consolidated Accounts Receivable. No customer accounted for more than 10% of Net Sales for the years ended December 31, 2008 and 2007, and no other customer accounted for more than 10% of Consolidated Accounts Receivable at December 31, 2008 and 2007. 44 Note 12. ACCUMULATED OTHER COMPREHENSIVE LOSS: Comprehensive loss (income) is included in the Statements of Consolidated Stockholders' Equity. The components of Accumulated Other Comprehensive Loss as shown on the Consolidated Balance Sheets were as follows (in thousands):
Foreign Accumulated Currency Net Cash Other Translation Pension Prior Service Flow Hedging Comprehensive Adjustments Loss Cost Adjustment Loss ----------- ------- ------------- ---------- ------------- Balance at December 31, 2005 ..... $ (61) $ 1,619 $ -- $ (13) $ 1,545 Adjustment to initially apply FASB Statement No. 158 .............. -- -- 65 -- 65 Current period loss (gain) ....... 81 (335) -- 21 (233) Recognized as components of net periodic benefit cost .......... -- (257) -- -- (257) Income tax expense (benefit) ..... (33) 236 (26) (8) 169 ------- ------- ------- ------- ------- Balance at December 31, 2006 ..... (13) 1,263 39 -- 1,289 Current period loss (gain) ....... (46) 365 (8) -- 311 Recognized as components of net periodic benefit cost .......... -- (213) (6) -- (219) Income tax expense (benefit) ..... 18 (61) 7 -- (36) ------- ------- ------- ------- ------- Balance at December 31, 2007 ..... (41) 1,354 32 -- 1,345 Current period loss (gain) ....... 60 2,563 -- -- 2,623 Recognized as components of net periodic benefit cost .......... -- (239) (6) -- (245) Income tax expense (benefit) ..... (23) (926) 1 -- (948) ------- ------- ------- ------- ------- Balance at December 31, 2008 ..... $ (4) $ 2,752 $ 27 $ -- $ 2,775 ======= ======= ======= ======= =======
Note 13. CONCENTRATIONS: Due to an increase in FDIC insured limits, at December 31, 2008, the Company did not have cash deposits in banks in excess of those insured limits. The Company periodically reviews the financial condition of the bank to minimize its exposure. Ronson Consumer Products currently purchases lighter products and torches from manufacturers in Peoples Republic of China and Taiwan. Since there are a number of sources of similar lighter products, management believes that other suppliers could provide lighters on comparable terms. A change of suppliers, however, might cause a delay in delivery of the Company's lighter products and torches and, possibly, a short-term loss in sales which could have a short-term adverse effect on operating results. Note 14. RELATED PARTY TRANSACTIONS: Prior to 2005, Mr. Carl W. Dinger III, a minority shareholder, entered into a consulting agreement and an option agreement with the Company whereby Mr. Dinger would provide certain consulting services. The option and consulting agreements expired July 7, 2007 and were not renewed. Notwithstanding, Mr. Dinger received compensation for these services in the amounts of $39,060 and $78,120, during the years ended December 31, 2007 and 2006, respectively. 45 In addition, Mr. Dinger had granted the Company an option to acquire his shares in the Company. For the years 2007 and 2006, the option cost was $4,000 a month. Effective January 1, 2005, Mr. Dinger owned 590,082 shares of the Company, for which Mr. Dinger would receive $5.35 per share as the exercise price. Mr. Dinger had also granted the Company's Board of Directors an irrevocable proxy to vote these shares during the term of the option. The Company's cost for the option agreement was $24,000 and $48,000 during each of the years ended December 31, 2007 and 2006, respectively. The Company incurred costs for consulting services under an agreement with a director of the Company (two in 2006) of $21,000, $24,000, and $31,000, in the years ended December 31, 2008, 2007 and 2006, respectively. The Company incurred costs for printing services from Michael Graphics, Inc., of $50,000, $62,000, and $67,000 in the years ended December 31, 2008, 2007, and 2006, respectively. A greater than 10% shareholder of Michael Graphics, Inc., is the son-in-law of the Company's president. In the third quarter of 2008, the Company's President and CEO provided loans to the Company totaling $275,000, due on demand with interest at the prime rate minus one-half percent (2.75% at December 31, 2008). Note 15. QUARTERLY FINANCIAL DATA: Presented below is a schedule of selected quarterly consolidated financial information for each of the two years in the period ending December 31, 2008.
(Dollars in thousands, except per share amounts) First Second Third Fourth Total Quarter Quarter Quarter Quarter Year --------- -------- -------- -------- -------- Year ended December 31, 2008 Net sales $ 6,596 $ 6,715 $ 5,455 $ 5,421 $ 24,187 Gross profit(a) $ 1,799 $ 1,816 $ 1,115 $ 929 $ 5,659 Net Loss $ (261) $ (238) $ (487) $ (666) $ (1,652) Loss per share Basic $ (0.05) $ (0.05) $ (0.10) $ (0.13) $ (0.32) Diluted $ (0.05) $ (0.05) $ (0.10) $ (0.13) $ (0.32) Other income (expense) included in net loss(b),(c) $ -- $ (87) $ -- $ -- $ (87) Year ended December 31, 2007 Net sales $ 6,097 $ 6,543 $ 6,606 $ 7,000 $ 26,246 Gross profit(a) $ 1,939 $ 1,850 $ 1,806 $ 2,130 $ 7,725 Net Loss $ (92) $ (245) $ (198) $ (62) $ (597) Loss per share Basic $ (0.02) $ (0.05) $ (0.04) $ (0.01) $ (0.12) Diluted $ (0.02) $ (0.05) $ (0.04) $ (0.01) $ (0.12) Other income (expense) included in net loss (b),(d) $ 21 $ 5 $ (37) $ (6) $ (17)
46 (a) Net Sales, less Cost of Sales, less a portion of Depreciation and Amortization (b) Items are presented net of income tax effect (c) The cost included in second quarter of 2008 was the charge recognized due to the Company's refinancing of former loans (d) The costs included in the 2007 quarters were the legal fees incurred as a result of the derivative action and a second lawsuit filed by the same shareholder, net of related insurance reimbursements Note 16. SUBSEQUENT EVENTS: On March 30, 2009, the Company and its wholly-owned subsidiaries entered into a forbearance agreement with their principal lender, Wells Fargo, under which Wells Fargo has agreed not to assert existing events of default under the Borrowers' credit facilities with Wells Fargo through April 24, 2009, or such earlier date determined under the Forbearance Agreement. The forbearance period may terminate earlier if, among other events, the Borrowers breach the forbearance agreement, additional events of default occur under the credit facilities with Wells Fargo, the Borrowers fail to employ a Chief Restructuring Officer or the Borrowers fail actively to pursue alternative financing or divestiture of the Company's aviation division. During the forbearance period, Wells Fargo will make available to the domestic Borrowers an overadvance facility in the amount of up to $500,000 to supplement the Borrowers' credit line, the maximum amount of which will be adjusted to $2 million. During the forbearance period, the Borrowers will continue to be obligated for interest at the default rate under the credit and term loan facilities with Wells Fargo, except for interest on overadvances that accrue at the bank's prime rate plus 8% per annum, in addition to a forbearance fee in the amount of $450,000 which will be charged as an advance under the credit line upon the earlier of the end of the Forbearance Period or repayment of all amounts owed to Wells Fargo. (Refer to Notes 3 and 4 above.) On March 30, 2009, the Company also announced that it has initiated plans to divest Ronson Aviation, its wholly-owned subsidiary engaged as a fixed-base operator at Trenton-Mercer Airport. Ronson Aviation provides aircraft fueling and servicing, avionics sales, aircraft repairs and maintenance, hangar and office leasing and related services. The Company is in the process of procuring purchasers so as to maximize the value of Ronson Aviation, permit it to satisfy outstanding indebtedness, including to Wells Fargo, and provide working capital to support and focus on its consumer products business. The Company's objective is to consummate a transaction prior to the end of the second quarter of 2009, subject to identifying and reaching agreement with a prospective purchaser, obtaining shareholder approval and meeting other conditions that may be contained in definitive documentation once negotiated. The unaudited proforma information is presented for informational purposes only and is not intended to be indicative of either future results of our operations or results that might have been achieved had the sale actually occurred in the reported period. The proforma adjustments include the sale of the net assets of Ronson Aviation and the repayment of the credit facility with Wells Fargo. 47 The unaudited proforma consolidated balance sheet as of December 31, 2008 gives effect to the sale of the net assets of Ronson Aviation as if the transaction occurred on December 31, 2008, the last day of the Company's fiscal year.
PROFORMA HISTORICAL ADJUSTMENTS PROFORMA ---------- ----------- --------- ASSETS Current Assets Cash and cash equivalents $ 84 $ 3,656 $ 3,740 Accounts receivable, net 1,288 1,288 Inventories 1,839 (272) 1,567 Other current assets 897 (194) 703 -------- -------- -------- Total Current Assets 4,108 3,190 7,298 -------- -------- -------- Property, plant and equipment, at cost 15,881 (7,639) 8,242 Less accumulated depreciation and amortization 10,038 (4,077) 5,961 -------- -------- -------- 5,843 (3,562) 2,281 Other assets 4,886 (1,333) 3,553 -------- -------- -------- $ 14,837 $ (1,705) $ 13,132 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current Liabilities Short-term debt $ 1,747 $ (1,472) $ 275 Current portion of long-term debt and leases 5,763 (3,575) 188 Accounts payable 2,902 (25) 2,877 Accrued expenses 2,033 439 2,472 -------- -------- -------- Total Current Liabilities 12,445 (4,633) 7,812 -------- -------- -------- Long-term debt and leases 159 (7) 152 Other long-term liabilities 2,327 2,327 Stockholders' Equity (Deficiency) Common stock 5,173 5,173 Additional paid-in capital 29,998 29,998 Accumulated deficit (30,893) 2,935 (27,958) Accumulated other comprehensive loss (2,775) (2,775) -------- -------- -------- 1,503 2,935 4,438 Less cost of treasury shares 1,597 1,597 -------- -------- -------- Total Stockholders' Equity (Deficiency) (94) 2,935 2,841 -------- -------- -------- $ 14,837 $ (1,705) $ 13,132 ======== ======== ========
The unaudited proforma consolidated statement of operations for the year ended December 31, 2008 gives effect to the sale of the net assets of Ronson Aviation as if the transaction occurred on January 1, 2008, the first day of the Company's fiscal year. 48
PROFORMA HISTORICAL ADJUSTMENTS PROFORMA ---------- ----------- --------- Net Sales $ 24,187 $(11,663) $ 12,524 -------- -------- -------- Cost and expenses: Cost of sales 18,053 (9,172) 8,881 Selling, shipping and advertising 3,373 (26) 3,347 General and administrative 3,566 (923) 2,643 Depreciation and amortization 622 (216) 406 -------- -------- -------- 25,614 (10,337) 15,277 -------- -------- -------- Loss from Operations (1,427) (1,326) (2,753) -------- -------- -------- Other (income) expense: Interest expense 671 (183) 488 Gain on sale of assets (4,604) (4,604) Other-net 586 (92) 494 -------- -------- -------- 1,257 (4,879) (3,622) -------- -------- -------- Earnings (Loss) Before Income Taxes (2,684) 3,553 869 Income tax expense (benefit) (1,032) 2,062 1,030 -------- -------- -------- Net Earnings (Loss) $ (1,652) $ 1,491 $ (161) ======== ======== ========
Assets and liabilities expected to be included in the sale comprise the following at December 31, 2008: Inventory $ 272 Other current assets 47 Property and equipment, net 3,562 Other assets 2 ------- 3,883 Accounts payable and accrued expenses 64 Lease obligations 12 ------- 76 ------- $ 3,807 ======= Note 17. RESTATEMENT: The Company has reviewed and revised its classification as Long-Term Debt of the portion of the loans from Wells Fargo and Capital One that would have been due, according to the terms of the agreements, after December 31, 2009. Because of the Company's failure to meet some of its financial covenants under the Wells Fargo credit agreement resulting in events of default under the agreement and the cross-default provisions of the Capital One mortgage loan agreement and the likelihood that the Company would not attain compliance with the applicable financial covenants within one year, the Company adjusted the Current Portion of Long-Term Debt and Long-Term Debt in the Consolidated Balance Sheet at December 31, 2008, by classifying as current the amount previously classified as long-term as follows (in thousands): 49 As Previously Reported Adjustment Restated -------- ---------- -------- Current Portion of Long-Term Debt $ 454 $ 5,296 $ 5,750 Total Current Liabilities 7,149 5,296 12,445 Long-Term Debt 5,436 (5,296) 140 The adjustment is composed of the previously reported long-term portion of the Long-Term Debt, as follows (in thousands): Wells Fargo Equipment $ 578 Real Estate 2,630 ------ Subtotal 3,208 ------ Capital One 2,088 ------ $5,296 ====== The following Notes to the Consolidated Financial Statements have been restated to reflect the above adjustments. Note 1: Basis of Presentation and Summary of Significant Accounting Policies Note 4: Long-Term Debt Note 16: Subsequent Events 50