SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934
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 of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Regency Drive
......................Bloomfield, Connecticut 06002.............................
(Address of principal executive offices)
.................................(860) 726-1208.................................
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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
-----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date (May 14, 1998): 4,788,644 shares
Transitional Small Business Disclosure Format (check one): Yes No /X/
-----
712867.7
<PAGE>
RANGER INDUSTRIES, INC.
(formerly Coleco Industries, Inc.)
CONDENSED BALANCE SHEETS
March 31, 1998 and December 31, 1997
-------------
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and equivalents $ 763,241 $ 784,800
Prepaid expenses 11,493 --
Income tax receivable 3,446 3,446
----------- ----------
Total assets $ 778,180 $ 788,246
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and other liabilities $ 25,182 $ 19,918
Accrued interest payable -- 16,337
Note payable to Pure Group, Inc. -- 196,477
Other amounts owed to Pure Group, Inc. -- 265,303
----------- -----------
Total liabilities 25,182 498,035
----------- -----------
Stockholders' equity:
Common stock 47,886 40,000
Capital in excess of par value 1,460,729 985,000
Retained deficit (755,617) (734,789)
Total liabilities and stockholders' equity $ 778,180 $ 788,246
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
2
714781.2
<PAGE>
RANGER INDUSTRIES, INC.
(formerly Coleco Industries, Inc.)
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
for the quarters ended March 31, 1998 and 1997
(Unaudited)
---------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net sales $ -- $ --
----------- -----------
Operating costs and (expenses):
Administrative expenses 10,262 33,424
Legal expenses 11,830 15,600
Other income (expenses):
Interest expense (5,498) --
Interest income 9,262 7
----------- -----------
Loss before income taxes (18,328) (49,017)
----------- -----------
Provision for income taxes 2,500 --
----------- -----------
Net comprehensive loss (20,828) (49,017)
----------- -----------
Basic loss per share (.01) (.01)
Weighted average common shares outstanding 4,192,780 4,000,000
=========== ==========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
3
714781.2
<PAGE>
RANGER INDUSTRIES, INC.
(formerly Coleco Industries, Inc.)
CONDENSED STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1998 and 1997
(Unaudited)
---------------
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net comprehensive loss $(20,828) $(49,017)
Adjustments to reconcile net comprehensive loss to
net cash used in operating activities:
Prepaid expenses (11,493) (25,206)
Accounts payable, accrued liabilities and interest
payable 10,762 34,785
Total adjustments (731) 9,579
Net cash used in operating activities (21,559) (39,438)
Cash and cash equivalents at beginning of period 784,800 43,009
Cash and cash equivalents at end of period $763,241 $ 3,571
======== =======
Noncash transactions:
Common stock issued in exchange for the
cancellation of amount owed to PGI $483,616 $ --
========
</TABLE>
The accompanying notes are an integral part
of the condensed financial statements.
4
714781.2
<PAGE>
RANGER INDUSTRIES, INC.
(formerly Coleco Industries, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
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. Change In Control:
Following the conclusion of a hostile proxy contest (the "Proxy Contest"),
initiated by Pure Group, Inc. ("PGI") during the second quarter of 1997,
the Company's former directors resigned from the Board of Directors
effective July 29, 1997, and new directors were elected. The terms under
which this change in control took place are outlined in a settlement
agreement dated July 29, 1997 between PGI, the Company and the Company's
former directors (the "Settlement Agreement"). Under the terms of the
Settlement Agreement, and as set forth in a demand promissory note dated
July 29, 1997, PGI loaned the Company $196,477 to pay its then outstanding
obligations. The note required the Company to pay interest to PGI at two
percentage points above the prime rate (8.5% at December 31, 1997).
Additionally, PGI loaned the Company $251,780 to cover costs
5
714781.2
<PAGE>
2. Change in Control, Continued:
incurred in connection with the Proxy Contest, including the costs of
holding the 1997 annual meeting, and $13,523 for working capital purposes.
These additional loans of $265,303 were subject to the same terms outlined
in the demand promissory note. Also, see Note 6.
3. 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 1997 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 result for the interim period have been made.
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 Federal and state taxes due.
6
714781.2
<PAGE>
RANGER INDUSTRIES, INC.
(formerly Coleco Industries, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
------
4. Income Taxes, Continued:
At March 31, 1998 and December 31, 1997, it was estimated that the Company
had adjusted tax net operating loss carryforwards and future deductions of
approximately $192 million 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, 1998 and December 31,
1997, the Company had Alternative Minimum Tax (AMT) loss carryforwards of
approximately $168 million which will begin to expire in the year 2002.
The Company also had approximately $7.7 million in tax credit
carryforwards at March 31, 1998 and December 31, 1997. At the current
regular tax rates, the taxable income equivalent of the credit
carryforwards is approximately $22.6 million.
Under current tax laws, the Internal Revenue Code provides for certain
limitations following an "ownership change". Accordingly, under the
confirmed Plan of Reorganization, the continued availability of the
Company's net operating loss carryforwards and other tax attributes may be
subject to substantial limitations (also see Note 5).
At March 31, 1998 and December 31, 1997, the only remaining book and tax
base differentials related to the claim settlement activities of the
Product Liability Trust. 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. The Company's tax liabilities are attributable to state
minimum taxes and federal alternative minimum tax.
7
714781.2
<PAGE>
RANGER INDUSTRIES, INC.
(formerly Coleco Industries, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
------
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 $192 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 consolidated financial statements do not include any adjustments that
might result from the resolution of these uncertainties.
8
714781.2
<PAGE>
RANGER INDUSTRIES, INC.
(formerly Coleco Industries, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
------
6. PGI Indebtedness:
On March 9, 1998, the Company issued 788,644 shares of its $.01 par value
common stock in exchange for the cancellation of the amount owed to PGI as
of February 10, 1998. The exchange value of $.6211/share was determined
using the weighted average of the closing prices of the Company's common
stock for the 30-day period prior to February 20, 1998, the date of the
agreement.
7. Related Party Transactions:
The Company had an agreement with M.D. Sass Associates, Inc. ("SASS") of
which James B. Rubin is Senior Managing Director, under which SASS
provided accounting, administrative, financial, legal, secretarial and
other support services at the Company's request. The Company incurred
costs of $4,800 for these services for the quarter ended March 31, 1997.
In connection with the change in control described in Note 2, this
agreement was terminated. All amounts owed to SASS in connection with this
agreement were paid during the quarter ended September 30, 1997.
Effective August 1, 1990, Mr. Rubin, as Chief Executive Officer, was
entitled to an annual salary of $50,000, through the date of the change in
control (see Note 2). All fees for his services are included in
administrative expenses in the 1997 financial statements. All amounts owed
to Mr. Rubin in connection with this agreement were paid during the
quarter ended September 30, 1997.
Also, see Notes 2 and 6.
9
714781.2
<PAGE>
PART I (cont'd)
Item 2. Management's Discussion and Analysis or Plan of Operation.
Overview. The Registrant emerged from a Chapter 11 bankruptcy
proceeding in 1990 with $950,000 in cash and no liabilities. In the years from
1990 through 1996, the Registrant's only material source of revenue was interest
on its cash, except that in the last quarter of 1996, the Registrant received a
distribution of approximately $75,000 from a trust (the "Reorganization Trust")
which was established in the bankruptcy proceeding to liquidate the Registrant's
assets and distribute the net proceeds to the claimants in the bankruptcy
proceeding. In the period from 1990 through 1996, the Registrant's expenses
always exceeded earnings. As of December 31, 1996, the Registrant had a retained
deficit of approximately $1,046,000, and, as of that date, had no business and
no material financial resources. Current management gained control of the
Registrant in a proxy contest that ended in the third quarter of 1997. In the
fourth quarter of 1997, the Registrant received approximately $800,000 from a
bankruptcy claim filed by the Registrant in 1983.
As a result of the receipt of $800,000 in the last quarter of 1997, the
Registrant now has sufficient liquidity to meet its current operating expenses
for the foreseeable future. The Registrant's cash on hand was approximately
$763,000 as of March 31, 1998, and the Registrant's projected operating costs
and expenses for the fiscal year ending December 31, 1998, are approximately
$100,000. Average annual operating expenses in the years 1994 - 1996 were
approximately $174,000. Operating expenses in 1997 were substantially higher
than in the prior years because of the expenses incurred in connection with the
proxy contest.
Business Plans, Liquidity and Financial Resources. The Registrant's
financial resources at the present time, other than its cash on hand, are (i) a
remainder interest in the Product Liability Trust which would become payable to
the Registrant, if ever, in 2020, and (ii) the possible utility of net operating
loss carryforwards of approximately $192 million as of March 31, 1998. See Note
4, Income Taxes, in the Condensed Financial Statements (unaudited) included in
Part I of this Report.
Product Liability Trust. The Product Liability Trust processes and
liquidates product liability claims asserted and makes distributions to holders
of settled or adjudicated claims. The trust contained assets of approximately
$12 million as of March 31, 1998. Under the terms of the Product Liability
Trust, the residual funds, if any, remaining after distribution of all Trust
assets to pay product liability claims and expenses would be distributed to the
Registrant on February 28, 2020. The bankruptcy court is authorized to permit an
earlier payout in its discretion, and the Registrant may apply to the bankruptcy
court seeking early termination of the Trust. The Registrant does not expect to
consider making such an application until claims against the Trust are settled.
712867.7
10
<PAGE>
NOL'S. The NOL's have sheltered the Registrant's modest interest
income and the income of the Product Liability Trust. The income of the Product
Liability Trust, if any, continues to be taxable to the Registrant. As more
fully discussed in the Notes to the Financial Statements, the continuing
availability of the NOL's is uncertain.
Changes in Financial Condition. The Registrant's financial condition is
set forth in the Balance Sheets as of March 31, 1998 and December 31, 1997. The
changes in financial condition between the two dates resulted mainly from the
exchange of debt owed to a shareholder which is an affiliate of a director of
the Registrant for the Registrant's issuance to such shareholder of 788,644
shares of its Common Stock. Interest income (net of interest expense) in the
quarter ended March 31, 1988 ("First Quarter '98") was approximately $3,764,
compared to $7 for the quarter ended March 31, 1997 ("First Quarter '97"),
because of the interest earned on the $800,000 bankruptcy distribution received
in the fourth quarter of 1997. Interest expense for the balance of 1998 is
expected to be immaterial. Net comprehensive loss for the First Quarter '98 was
approximately ($21,000), compared to approximately ($49,000) in the First
Quarter '97, principally because of current management's success in reducing
operating costs.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
The Registrant issued 788,644 shares (the "Exchange Shares") of its
authorized but theretofore unissued common stock, $0.01 par value (the "Common
Stock") on March 9, 1998, in exchange for aggregate indebtedness owed by the
Registrant to an affiliate of a director in the amount of $483,616. The exchange
rate was $0.6211 per share, which was based upon the average price per share
quoted on the OTC Bulletin Board for the 30 days ended February 20, 1998. The
issuance of the Exchange Shares is exempt under Section 4(2) from the
registration requirements of the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27. Financial Data Schedule for First Quarter of 1998.
(b) Reports on Form 8-K: None.
712867.7
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to signed on its behalf by the undersigned, thereunto duly
authorized.
Ranger Industries, Inc., the Registrant
Date: May 14, 1998 By: /s/ Morton E. Handel
---------------------
Morton E. Handel, President, Chief Executive
Officer and Acting Chief Financial Officer
712867.7
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary
financial information extracted from the
Balance Sheet and Statement of Operations and
Retained Deficit and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000021610
<NAME> RANGER INDUSTRIES, INC.
<S> <C>
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<PERIOD-TYPE> 3-mos
<CASH> 763,241
<SECURITIES> 0
<RECEIVABLES> 3,446
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 778,180
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 778,180
<CURRENT-LIABILITIES> 25,182
<BONDS> 0
0
0
<COMMON> 47,886
<OTHER-SE> 705,112
<TOTAL-LIABILITY-AND-EQUITY> 778,180
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 22,092
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,764)
<INCOME-PRETAX> (18,328)
<INCOME-TAX> 2,500
<INCOME-CONTINUING> (20,828)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,828)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
