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 September 30, 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 (November 6, 2000): 5,278,644 shares
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
NY/310853.1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Condensed Balance Sheets
September 30, 2000 and December 31, 1999
- ----------------------------------------------------------------------------------------------------------
September 30,
2000 December 31,
(Unaudited) 1999
Assets
Current assets
Cash and equivalents $ 10,146,900 $ 742,972
Prepaid expenses 3,128 13,321
Income taxes receivable 355 -
------------- ------------
10,150,383 756,293
Other assets - 4,177
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Total assets $ 10,150,383 $ 760,470
============= ============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and other liabilities $ 13,721 $ 11,005
Income tax payable - 26,900
Deferred income taxes - 2,992
------------- ------------
Total current liabilities 13,721 40,897
Non-current liabilities
Deferred income taxes - 4,213
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Total liabilities 13,721 45,110
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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 12,664,062 1,661,430
Unearned compensation - (82,937)
Retained deficit (2,580,186) (915,919)
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Total shareholders' equity 10,136,662 715,360
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Total liabilities and shareholders' equity $ 10,150,383 $ 760,470
============= ============
The accompanying notes are an integral part of these condensed financial statements.
-1-
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Condensed Statements of Operations
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
- -----------------------------------------------------------------------------------------------
2000 1999
Net sales $ - $ -
---------------- --------------
Operating costs and expenses
Administrative expenses 14,471 28,844
Legal and settlement expenses 18,435 2,815
Other income and expenses
Bankruptcy claim recovery - 2,033
Interest income 139,589 8,210
---------------- --------------
Income (loss) before income taxes 106,683 (21,416)
---------------- --------------
Provision for income taxes
Current 12,466 4,700
Deferred - (1,100)
---------------- --------------
12,466 3,600
---------------- --------------
Net income (loss) 94,217 (25,016)
---------------- --------------
Basic income (loss) per share $ .02 $ (.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-
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Condensed Statements of Operations
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
- -----------------------------------------------------------------------------------------------
2000 1999
Net sales $ - $ -
---------------- --------------
Operating costs and expenses
Administrative expenses 1,790,667 78,075
Legal and settlement expenses 73,079 6,815
Other income and expenses
Bankruptcy claim recovery - 49,550
Interest income 211,509 23,439
---------------- --------------
Income (loss) before income taxes (1,652,237) (11,901)
---------------- --------------
Provision for income taxes
Current 12,030 22,500
Deferred - (2,400)
---------------- --------------
12,030 20,100
---------------- --------------
Net loss (1,664,267) (32,001)
---------------- --------------
Basic loss per share $ (.32) $ (.01)
---------------- --------------
Weighted average common stock outstanding 5,278,644 5,278,644
---------------- --------------
The accompanying notes are an integral part of these condensed financial statements.
-3-
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Condensed Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
2000 1999
Cash flows from operating activities
Net loss $ (1,664,267) $ (32,001)
------------- ----------
Adjustments to reconcile net loss to net cash
used in operating activities
Compensation expense settled in shares of Ranger stock 82,937 23,934
Deferred income taxes (7,205) (2,400)
Changes in assets and liabilities
Bankruptcy claim recovery - (2,033)
Prepaid expenses and other assets 14,370 (942)
Prepaid taxes (355) -
Income tax receivable - 3,436
Accounts payable and other liabilities 2,716 (8,931)
Income tax payable (26,900) 14,239
------------- ----------
Total adjustments 65,563 27,303
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Net cash used in operating activities (1,598,704) (4,698)
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Cash flows from financing activities
Distribution from product liability trust 11,002,632 -
------------- ----------
Net cash provided by financing activities 11,002,632 -
------------- ----------
Net increase (decrease) in cash and cash equivalents 9,403,928 (4,698)
Cash and cash equivalents at beginning of period 742,972 759,216
------------- ----------
Cash and cash equivalents at end of period $ 10,146,900 $ 754,518
============= ==========
The accompanying notes are an integral part of these condensed financial statements.
-4-
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Condensed Financial Statements
September 30, 2000 and December 31, 1999
(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. 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. As of September 30, 2000, the Product
Liability Trust continues to process and liquidate certain product
liability claims after the Bankruptcy Court's approval of a distribution
of the majority of its assets to the Company as described in Note 7.
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 for the nine month period ended
September 30, 1999 was $49,550.
-5-
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Condensed Financial Statements
September 30, 2000 and December 31, 1999
(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
(also see Note 5).
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 September 30, 2000 and December 31, 1999, it was estimated that the
Company had adjusted tax net operating loss carryforwards and future
deductions of approximately $178.4 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 September 30, 2000 and December 31, 1999, the
Company had Alternative Minimum Tax (AMT) loss carryforwards of
approximately $153.7 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 September 30, 2000 and
December 31, 1999, which will expire on 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 September 30, 2000 and December 31, 1999, the Company had deferred tax
liabilities of $-0- 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 allowance under the provisions of SFAS 109,
due to the uncertainty of the Company's ability to generate taxable income
to utilize the carryforwards.
-6-
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Condensed Financial Statements
September 30, 2000 and December 31, 1999
(Unaudited)
- --------------------------------------------------------------------------------
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 $178.4 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 then vested in
an additional 20 percent of the shares each year. The estimated market
value of the stock award was $160,000 or $.32 per share at the date of the
award. The Company previously incurred compensation expense based on the
vesting terms included in the Agreement. As more fully described in Note
7, the Company received a distribution from the Product Liability Trust in
May 2000. In accordance with the Agreement, this distribution caused Mr.
Handel to become immediately vested in any remaining unvested shares.
Accordingly, the Company recognized $75,047, plus related taxes, in the
quarter ended June 30, 2000, which is included in administrative expenses
in the accompanying condensed financial statements. Since then, there is
no remaining unearned compensation related to this stock award.
-7-
Ranger Industries, Inc.
(formerly Coleco Industries, Inc.)
Notes to Condensed Financial Statements
September 30, 2000 and December 31, 1999
(Unaudited)
- --------------------------------------------------------------------------------
7. Distribution from Ranger Industries, Inc.'s Product Liability
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. The amount of the net
distribution to the Company, which was made in May 2000, was $11,002,632.
This cash distribution is reflected as an adjustment to the original
capitalization of the Company and, accordingly, is recorded in capital in
excess of par value at September 30, 2000.
In accordance with the Employment Agreement (see Note 6), Mr. Handel was
entitled to receive $1,650,395 as a bonus due to this distribution to the
Company by the Product Liability Trust. This amount was paid to Mr. Handel
in June 2000 and is reflected in Administrative Expenses in the
accompanying condensed statements of operations for the nine month period
ended September 30, 2000.
8. Legal Fees
The Company agreed, with its prior law firm, to pay certain legal fees
only if it received a distribution from the Product Liability Trust
sufficient to cover such fees. As described in Note 7, that distribution
from the Product Liability Trust occurred in the quarter ended June 30,
2000. Accordingly, the Company paid its prior law firm the agreed-upon
fees of approximately $37,000 in the quarter ended June 30, 2000. This
amount is reflected in Legal and Settlement Expenses in the accompanying
condensed financial statements for the nine month period ended September
30, 2000.
-8-
Item 2. Plan of Operation
The following discussion should be read in conjunction with the
Financial Statements, including the Notes thereto.
The Registrant has sufficient liquidity to meet its current
operating expenses for the foreseeable future. The Registrant's cash on hand was
approximately $10.0 million as of September 30, 2000, and the Registrant's
projected cash operating costs and expenses, net of interest income and
bankruptcy claim recovery, for the remainder of 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 $178.4 million as of September 30, 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.
The Registrant does not anticipate that it will perform any
product research and development in the next twelve months.
NY/310853.1
-9-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K: None.
NY/310853.1
-10-
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: November 10, 2000 By: /s/ Morton E. Handel
------------------------------------
Morton E. Handel
President, Chief Executive Officer and
Acting Chief Financial Officer
NY/310853.1