UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE
ACT
For the transition period from to
------------- -------------
Commission File Number: 1-5673
............................ RANGER INDUSTRIES, INC. ...........................
(Exact name of small business issuer as specified in its charter)
Connecticut 06-0768904
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Regency Drive
......................... Bloomfield, Connecticut 06002 ........................
(Address of principal executive offices)
................................ (860) 726-1208 ................................
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date (March 31, 2000): 5,278,644 shares
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
951991.2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Condensed Balance Sheets
March 31, 2000 and December 31, 1999
- --------------------------------------------------------------------------------
March 31,
2000 December 31,
(Unaudited) 1999
Assets
Current assets
Cash and equivalents $ 697,671 $ 742,972
Prepaid expenses 10,791 13,321
Prepaid taxes 4,471 -
----------- -----------
712,933 756,293
----------- -----------
Other assets 3,530 4,177
----------- -----------
Total assets $ 716,463 $ 760,470
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and other liabilities $ 20,232 $ 11,005
Income tax payable - 26,900
Deferred income taxes 2,992 2,992
----------- -----------
Total current liabilities 23,224 40,897
Non-current liabilities
Deferred income taxes 3,413 4,213
----------- -----------
Total liabilities 26,637 45,110
----------- -----------
Shareholders' equity
Common stock - $.01 par value, 20,000,000 shares
authorized, 5,278,644 shares issued and outstanding 52,786 52,786
Capital in excess of par value 1,661,430 1,661,430
Unearned compensation (75,047) (82,937)
Retained deficit (949,343) (915,919)
----------- -----------
Total shareholders' equity 689,826 715,360
----------- -----------
Total liabilities and shareholders' equity $ 716,463 $ 760,470
=========== ===========
The accompanying notes are an integral part of these condensed financial statements.
-1-
951991.2
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Condensed Statements of Operations
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
- --------------------------------------------------------------------------------
2000 1999
Net sales $ - $ -
----------- -----------
Operating costs and expenses
Administrative expenses 27,507 24,253
Legal expenses 606 4,000
Other income and expenses
Bankruptcy claim recovery - 47,517
Interest income 9,008 7,668
----------- -----------
Income (loss) before income taxes (19,105) 26,932
----------- -----------
Provision for income taxes
Current 15,119 9,800
Deferred (800) (800)
----------- -----------
14,319 9,000
----------- -----------
Net income (loss) (33,424) 17,932
----------- -----------
Basic income (loss) per share $ (0.01) $ 0.01
=========== ===========
Weighted average common stock outstanding 5,278,644 5,278,644
----------- -----------
The accompanying notes are an integral part of these condensed financial statements.
-2-
951991.2
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Condensed Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
- --------------------------------------------------------------------------------
2000 1999
Cash flows from operating activities
Net income (loss) $ (33,424) $ 17,932
--------- ---------
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Compensation expense settled in shares of Ranger stock 7,890 7,890
Deferred income taxes (800) (800)
Changes in assets and liabilities
Bankruptcy claim recovery - (47,517)
Prepaid expenses and other assets 3,177 (7,234)
Prepaid taxes (4,471) 3,436
Accounts payable and other liabilities 9,227 11,777
Income tax payable (26,900) 3,114
--------- ---------
Total adjustments (11,877) (29,334)
--------- ---------
Net cash used in operating activities (45,301) (11,402)
--------- ---------
Cash and cash equivalents at beginning of period 742,972 759,216
--------- ---------
Cash and cash equivalents at end of period $ 697,671 $ 747,814
========= =========
The accompanying notes are an integral part of these condensed financial statements.
-3-
951991.2
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Financial Data Schedule
10-QSB for the First Quarter 2000
(Unaudited)
- --------------------------------------------------------------------------------
1. Organization
In July 1988, Ranger Industries, Inc. (the "Registrant" or the "Company",
and then known as Coleco Industries, Inc.) filed a voluntary petition in
United States Bankruptcy Court under Chapter 11 of the Federal Bankruptcy
Code. Effective February 28, 1990, the bankruptcy court approved a plan of
reorganization (the "Plan"), pursuant to which all then outstanding debt
and equity securities of the Registrant were canceled, and 4,000,000
shares of the Registrant's new $0.01 par value common stock (the "Common
Stock") were distributed to the unsecured creditors. On the Effective Date
of the Plan, the Registrant retained $950,000 in cash for working capital
purposes and was expected to engage in the business of acquiring income
producing properties or businesses.
The Plan provided for the creation of a Reorganization Trust in order to
liquidate the Registrant's remaining assets (other than the $950,000 in
cash retained by the Registrant) and effectuate distributions thereof to
the Registrant's creditors. The Reorganization Trust completed the
distribution of its assets in May 1996 and was terminated by order of the
bankruptcy court on August 27, 1996.
The Plan also provided for the creation of a Product Liability Trust in
order to settle certain personal injury claims (including claims arising
thereafter) against the Registrant. The Product Liability Trust continues
to process and liquidate certain product liability claims. Pursuant to the
terms of the Product Liability Trust Agreement, residual funds, if any,
will revert to the Registrant, as grantor of the trust, upon the earlier
of (a) February 28, 2020, or (b) approval by the bankruptcy court of
earlier termination of the Product Liability Trust.
2. Management's Representation
The accompanying condensed financial statements should be read in
conjunction with the Notes to Financial Statements and Management's
Discussion and Analysis of Financial Condition and results of operations
included in the Company's 1999 Annual Report filed on Form 10-KSB and in
this form 10-QSB report.
In the opinion of management, all adjustments necessary for a fair
presentation of the results for the interim periods have been made.
3. Bankruptcy Claim Recovery
In April 1999, the Company received $47,517 as a distribution on a
bankruptcy claim filed by the Company's predecessor in 1983. Total
bankruptcy claim recovery received in 1999 was $49,869.
-4-
951991.2
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Financial Data Schedule
10-QSB for the First Quarter 2000
(Unaudited)
- --------------------------------------------------------------------------------
4. Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in
the financial statements or income tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse. In addition, deferred tax assets are subject to a
valuation allowance to reduce them to net realizable value.
As discussed in Note 1, the assets and liabilities of the Company, except
for $950,000 retained for working capital purposes, were transferred to
the Reorganization and Product Liability Trusts, respectively, effective
February 28, 1990, in accordance with the Plan. Although the matter is not
free from doubt, these Trusts have been treated as grantor trusts.
Accordingly, taxable income or loss associated with the disposition of
assets and the settlement of liabilities by the Trusts are reflected on
the federal income tax return of Ranger Industries, Inc., although such
assets and liabilities are not presented in these financial statements.
Tax expense or benefit is attributable to state taxes and Federal
alternative minimum tax. The difference between the actual tax provision
and the amount obtained by applying the statutory U.S. federal income tax
rate to income before taxes is primarily attributable to state taxes and
the federal alternative minimum tax associated with the net income of the
product liability trust.
At March 31, 2000 and December 31, 1999, it was estimated that the Company
had adjusted tax net operating loss carryforwards and future deductions of
approximately $177.0 million and $177.2 million, respectively, after
giving effect to the Plan and the transactions contemplated thereby, which
may be used to offset future taxable income, subject to several
limitations, and which begin to expire in the year 2002. These amounts
include the tax consequences of the activity of the Reorganization and
Product Liability Trusts, as well as the activity of Ranger Industries,
Inc. At March 31, 2000 and December 31, 1999, the Company had Alternative
Minimum Tax (AMT) loss carryforwards of approximately $152.4 million and
$153.5 million, respectively, which will begin to expire in the year 2002.
The Company also had approximately $385,000 in tax credit carryforwards at
both March 31, 2000 and December 31, 1999, which will expire at December
31, 2000. At the current tax rates, the taxable income equivalent of the
credit carryforwards was approximately $1.1 million.
Under current tax laws, the Internal Revenue Code provides for certain
limitations following an "ownership change". Accordingly, under the
confirmed Plan of Reorganization, the continued availability of the
Company's net operating loss carryforwards and other tax attributes may be
subject to substantial limitations.
At March 31, 2000 and December 31, 1999, the Company had deferred tax
liabilities of $6,405 and $7,205, respectively, as a result of a
compensation expense temporary difference, associated with the stock
issued to Mr. Handel (see Note 6). Additionally, any deferred tax asset
recorded to recognize the tax net operating loss carryforwards would be
subject to a full valuation
-5-
951991.2
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Financial Data Schedule
10-QSB for the First Quarter 2000
(Unaudited)
- --------------------------------------------------------------------------------
allowance under the provisions of SFAS 109, due to the uncertainty of the
Company's ability to generate taxable income to utilize the
carryforwards.
5. Treasury Regulation
On January 6, 1992, the Department of the Treasury promulgated new
Treasury Regulations. These regulations interpret Section 269 of the
Internal Revenue Code which permits the Internal Revenue Service to deny
corporations the ability to use tax benefits, such as net operating
losses ("NOLs") where control of the corporation was acquired for the
principal purpose of avoiding tax. The regulations provide that if a
corporation in a bankruptcy reorganization that qualifies for an
exemption from the general rule limiting the use of net operating loss
carryforwards does not carry on a significant amount of an active trade
or business during and subsequent to such bankruptcy reorganization, the
Internal Revenue Service will presume, absent a showing of strong
evidence to the contrary, that the principal purpose of the
reorganization was to evade or avoid Federal income tax and that Section
269 should apply. The regulations are only effective, by their terms,
with respect to acquisitions of control of corporations occurring after
August 14, 1990 and, accordingly, they do not apply to Ranger Industries,
Inc.
Despite the inapplicability of these regulations to Ranger, the issue of
essentially inactive reorganized companies with NOLs that survive
bankruptcy intact has now been firmly raised in the eyes of the Internal
Revenue Service. Accordingly, due to the Company's disposition of its
historic toy businesses to Hasbro and the Company's switch to a new
business of acquiring investments, it is possible that the Internal
Revenue Service may assert that the Company has not carried on a
significant trade or business during and subsequent to its
reorganization. If such an assertion is made and ultimately sustained,
then the Company would be unable to utilize its estimated $177.0 million
of net operating loss carryforwards. This could have a materially adverse
effect on the Company's ability to attract outside investors willing to
invest in the Company. Notwithstanding these regulations, there can be no
assurance that the Company will be able to attract sufficient outside
investment to allow it to continue to operate, once its current working
capital is depleted. The financial statements do not include any
adjustments that might result from the resolution of these uncertainties.
6. Stock Compensation
On August 4, 1998, the Company entered into a five-year Employment
Agreement (the "Agreement") with Mr. Morton E. Handel, whereby Mr. Handel
will serve as the Company's Chief Executive Officer and President. As
base compensation, in lieu of cash, Mr. Handel received 500,000 shares of
the Company's stock, one-fifth of which was immediately vested and
non-forfeitable as of the date of the Agreement. Mr. Handel will vest in
an additional 20 percent of the shares each year over the succeeding four
anniversaries of the Agreement.
The estimated market value of the stock award was $160,000 or $.32 per
share. The Company will incur compensation expense based on the vesting
terms included in the Agreement. For each of the quarters ended March 31,
2000 and 1999, the Company recognized compensation expense of $7,890,
plus related taxes, in connection with this stock award, which is
included in administrative expenses in the accompanying condensed
financial statements.
-6-
951991.2
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Financial Data Schedule
10-QSB for the First Quarter 2000
(Unaudited)
- --------------------------------------------------------------------------------
7. Distribution from Ranger Industries, Inc.'s Reorganization Trust
As described in Note 1, the Reorganziation Trust made what was expected to
be its final distribution to creditors on May 29, 1996. In August 1998,
however, the Company received an additional distribution of $45,601 from
the former trustee of the Reorganization Trust. This amount has been
reflected as an adjustment to the original capitalization of the Company
and, accordingly, is included in capital in excess of par value at
December 31, 1998.
8. Subsequent Event
On May 8, 2000, an order of the United States Bankruptcy Court for the
Southern District of New York was docketed pursuant to which the trustee
of the Product Liability Trust was authorized (i) to obtain insurance
covering all claims made against the Product Liability Trust where the
injury giving rise to the claim occurred between May 15, 1990 and May 15,
2020, and (ii) after paying $1,156,000 for the insurance premiums, to make
a cash distribution to Ranger Industries, Inc. of all of the remaining
funds in the Product Liability Trust other than $600,000 which shall
remain in the Product Liability Trust to pay for the administrative
expenses of the Product Liability Trust.
As of March 31, 2000, there was approximately $12.6 million, prior to the
$1,156,000 and $600,000 referred to above, in the Product Liability Trust.
The cash distribution will be reflected as an adjustment to the original
capitalization of the Company and, accordingly, will be recorded in
capital in excess of par value in the quarter ended June 30, 2000.
-7-
951991.2
Item 2. Plan of Operation
The following discussion should be read in conjunction with the
Financial Statements, including the Notes thereto.
As a result of the receipt of approximately $802,000 of
bankruptcy claim recovery in the last quarter of 1997, approximately $45,600
from the Reorganization Trust (see Note 7, Distribution from Ranger Industries,
Inc.'s Reorganization Trust, in the Condensed Financial Statements included in
this Report) in the third quarter of 1998 and approximately $47,500 of
bankruptcy claim recovery in the second quarter of 1999 (see Note 3, Bankruptcy
Claim Recovery, in the Condensed Financial Statements included in this Report),
the Registrant has sufficient liquidity to meet its current operating expenses
for the foreseeable future. In addition, the Registrant anticipates receiving a
distribution from the product liability trust (the "Product Liability Trust") of
approximately $10.8 million in the near future. The Registrant's cash on hand
was approximately $698,000 as of March 31, 2000, and the Registrant's projected
cash operating costs and expenses, net of interest income and bankruptcy claim
recovery, for the fiscal year ending December 31, 2000 are approximately
$40,000. The Registrant does not expect to have to raise additional funds in the
next twelve months.
The Registrant's financial resources at the present time, other
than its cash on hand, are the possible utility of net operating loss
carryforwards ("NOLs") of approximately $177.0 million as of March 31, 2000.
(See Note 4, Income Taxes, in the Condensed Financial Statements included in
this Report.) The NOLs result primarily from operating losses sustained by the
Registrant prior to 1990 and have sheltered the Registrant's modest interest
income and the income of the Product Liability Trust from Federal income
taxation and, until 1999, from state income taxation. The income of the Product
Liability Trust, if any, continues to be taxable to the Registrant. As more
fully discussed in the Notes to the Financial Statements, the continuing
availability of the NOLs is uncertain.
As of March 31, 2000, the Product Liability Trust contained
assets of approximately $12.6 million. Under the terms of the Product Liability
Trust, the residual funds, if any, remaining after the distribution of Product
Liability Trust assets to pay product liability claims and expenses would be
distributed to the Registrant on February 28, 2020. On May 8, 2000, a final and
non-appealable order of the United States Bankruptcy Court for the Southern
District of New York authorized an earlier payout to the Registrant. Pursuant to
such order, the trustee of the Product Liability Trust is authorized to
distribute approximately $10.8 million from the Product Liability Trust to the
Registrant.
In accordance with his employment agreement and upon receipt by
the Registrant of a significant distribution from the Product Liability Trust,
Mr. Morton E. Handel is entitled to receive a bonus and the balance of the
shares granted to him by the Registrant vest.
The Registrant does not anticipate that it will perform any
product research and development in the next twelve months.
-8-
951991.2
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 8, 2000, an order of the United States Bankruptcy Court for the Southern
District of New York (the "Order") became final and non-appealable. The Order
authorizes the trustee of the Product Liability Trust (i) to obtain insurance
covering all claims made against the Product Liability Trust where the injury
giving rise to the claim occurred between May 15, 1990 and May 15, 2020 and (ii)
after paying $1,156,000 for premiums to obtain that insurance coverage, to make
a cash distribution to the Registrant of all of the remaining funds in the
Product Liability Trust other than $600,000 which shall remain in the Product
Liability Trust to pay the administrative expenses of the Product Liability
Trust.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K:
The Registrant filed a Form 8-K on May 10, 2000 to report that an order
of the United States Bankruptcy Court of New York became final and
non-appealable.
-9-
951991.2
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Ranger Industries, Inc., the Registrant
Date: May 15, 2000 By: /s/ Morton E. Handel
------------------------------------
Morton E. Handel
President, Chief Executive Officer and
Acting Chief Financial Officer
951991.2