UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
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 NUMBER: 1-5673
------
RANGER INDUSTRIES, INC.
---------------------------------------
Exact name of Registrant as specified in its charter
Connecticut 06-0768904
----------- ----------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
3400 82nd Way North, St. Petersburg, FL 33710
--------------------------------------- -----
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (727) 381-4904
--------------
Former name, former address and former fiscal year, if changed since last
report:
Indicate by check mark whether Ranger (1) has filed all annual, quarterly and
other 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 Ranger was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of November 14, 2001, were 15,610,463 shares, $0.01 par value.
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
PART I. FINANCIAL INFORMATION
ASSETS
Ranger Industries, Inc.
December 31,
2000
As previously
presented and
September 30, 2001 December 31, For Informational
(Unaudited) 2000 Purposes Only
------------ ------------ -------------
Current assets:
Cash and cash equivalents $ 20,415 $ 85 $ 10,233,478
Restricted cash and cash equivalents 56,000
Prepaid expenses and other current assets 25,625 2,000 2,275
Refundable income taxes -- -- 32,755
Accrued interest receivable 14,345 -- --
------------ ------------ ------------
Total current assets 116,385 2,085 10,268,508
Property and equipment 8,236 -- --
Restricted cash and cash equivalents 8,500,000 -- --
Investment in oil and gas properties 675,097 161,316 --
------------ ------------ ------------
$ 9,299,718 $ 163,401 $ 10,268,508
============ ============ ============
LIABILITES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 103,871 $ -- $ 199,344
Accrued expenses, related party -- 50,000 --
Accrued expenses, other -- 3,718 --
Syndication fees payable -- 149,316 --
------------ ------------ ------------
Total current liabilities 103,871 203,034 199,344
------------ ------------ ------------
Note payable, bank 8,500,000 -- --
------------ ------------ ------------
Due to affiliates:
Syndication fee 149,316 -- --
Accruals deferred 59,646
Notes 22,000 -- --
------------ ------------ ------------
230,962
Minority interest 12,000 12,000 --
------------ ------------ ------------
Stockholders' equity:
Common stock 199,986* 14,720* 52,786
Capital in excess of par 9,441,859 -- 12,664,062
Deficit accumulated during development stage (412,598) (66,353) (2,647,684)
Less treasury stock (4,388,181 shares at cost) (8,776,362) -- --
------------ ------------ ------------
452,885 (51,633) 10,069,164
------------ ------------ ------------
$ 9,299,718 $ 163,401 $ 10,268,508
============ ============ ============
(*) $.01 par value 20,000,000 shares authorized; 2001, 19,998,644 shares
issued, 15,610,463 shares outstanding; 2000, 14,720,000 shares issued and
outstanding
See notes to condensed consolidated financial statements.
2
RANGER INDUSTRIES, INC. AND SUBSIDARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Nine
Months Months Three and From Inception
Ended Ended Nine Months (March 18, 1998)
---------------------------- Ended through
Sept. 30, 2001 Sept. 30, 2000 Sept. 30, 2001
---------------------------- -------------- --------------
Revenues $ -- $ -- $ -- $ --
Operating costs and expenses:
Administrative 4,756 15,280 -- 16,913
Salaries and wages 31,700 91,945 20,000 141,945
Stock based compensation -- -- 14,719 14,719
Consulting and professional fees 12,525 162,728 -- 162,728
------------ ------------ ------------ ------------
Total operating expenses 48,981 269,953 34,719 336,305
------------ ------------ ------------ ------------
Interest expense, net of interest income 71,896 76,293 -- 76,293
------------ ------------ ------------ ------------
Loss before income taxes 346,246 -- 412,598
Income taxes:
Current -- -- -- --
Deferred -- -- -- --
------------ ------------ ------------ ------------
Net loss ($ 120,877) ($ 346,246) ($ 34,719) ($ 412,598)
============ ============ ============ ============
Basic loss per share ($ .01) ($ .02) ($ 34.72) ($ .08)
============ ============ ============ ============
Weighted average shares outstanding 15,610,463 15,464,751 1,000 4,971,113
============ ============ ============ ============
See notes to condensed consolidated financial statements.
3
RANGER INDUSTRIES, INC. AND SUBSIDARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months From Inception
Ended September 30, (March 18, 1998)
---------------------------- through
2001 2000 Sept. 30, 2001
------------ ------------ --------------
Cash flows from operating activities:
Net loss ($ 346,245) ($ 34,719) ($ 412,598)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock-based compensation -- 14,719 14,719
Change in assets and liabilities:
Prepaid expenses and other assets 11,395 -- 31,395
Accrued interest receivable (14,345) -- (14,345)
Accounts payable and accrued expenses (539,220) 20,000 (495,501)
------------ ------------ ------------
Total adjustments (542,170) 34,719 (463,732)
------------ ------------ ------------
Net cash used in operating activities (888,415) -- (876,330)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (8,236) -- (8,236)
Advances to related parties (45,471) -- (45,471)
Collection of advances 45,471 -- 45,471
Acquisition of oil and gas properties (513,781) -- (525,781)
Cash acquired in business combination 10,233,478 -- 10,233,478
Deposits to restricted cash (8,556,000) -- (8,556,000)
------------ ------------ ------------
Net cash provided by investing activities 1,155,461 -- 1,143,461
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 8,500,000 -- 8,500,000
Acquisition of treasury shares (8,776,362) -- (8,776,362)
Borrowings from affiliate 31,646 -- 31,646
Repayment of related party debt (2,000) -- (2,000)
------------ ------------ ------------
Net cash used in financing activities (246,716) -- (246,716)
------------ ------------ ------------
Net increase in cash and cash
equivalents 20,330 -- 20,415
Cash and cash equivalents at beginning of period 85 -- --
------------ ------------ ------------
Cash and cash equivalents at end of period
(exclusive of restricted cash of $8,500,000 $ 20,415 $ -- $ 20,415
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 344,673 $ -- $ 344,623
============ ============ ============
See notes to condensed consolidated financial statements.
4
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2001
(UNAUDITED)
1. Nature of business, basis of presentation and summary of significant
accounting policies:
Interim financial statements:
The interim financial statements of Ranger Industries, Inc. and
Subsidiaries which are included herein are unaudited and have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. In the
option of management, these interim financial statements include all the
necessary adjustments to fairly present the results of the interim periods,
and all such adjustments are of a normal recurring nature. The interim
results reflected in the accompanying financial statements are not
necessarily indicative of the results of operations for a full fiscal year.
Nature of business and basis of presentation:
Bumgarner Enterprises, Inc. ("Bumgarner" or the "Company") was incorporated
under the laws of the State of Florida in March 1998. There was no
significant business activity from inception through October 2000. In
October 2000, the Company acquired assets in the oil and gas industry
through a joint venture investment and has subsequently pursued exploration
and development of those and other similar properties.
In February 2001, Bumgarner merged with Ranger Industries, Inc.'s ("Ranger"
or the "Registrant") subsidiary (BEI Acquisition Corporation) in
consideration of Ranger's issuance of 14,720,000 shares for 100% of
Bumgarner's issued and outstanding stock. This transaction was accounted
for in accordance with reverse acquisition accounting principles as though
it were a re-capitalization of Bumgarner and a sale of shares by Bumgarner
in exchange for the net assets of Ranger. In February 2001, Bumgarner
completed a tender offer for 4,225,000 shares of Ranger common stock at
$2.00 per share. Simultaneously, Bumgarner acquired an additional 163,181
shares pursuant to the terms of a related merger and acquisition agreement.
The acquisition was financed through a bank loan in the amount of
$8,500,000, which is collateralized by an equivalent amount in cash and
cash equivalents.
As a result, and following the completion, of the merger:
o Charles G. Masters, the principal shareholder of Bumgarner,
acquired 11,401,000 shares of Ranger common stock (including
400,000 shares held through a trust of which he is the trustee);
and
o The directors of the Registrant resigned and appointed Mr.
Masters, Robert Sherman Jent, and Henry C. Shults, Jr., to the
Registrant's board of directors.
5
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2001
(UNAUDITED)
1. Nature of business, basis of presentation and summary of significant
accounting policies (continued):
Nature of business and basis of presentation (continued):
Since Bumgarner is considered the acquiror for accounting and financial
reporting purposes, the accompanying December 31, 2000 balance sheet has
been restated to reflect the financial position of Bumgarner as of that
date. The accompanying statements of operations for the nine months ended
September 30, 2001 and 2000 include the results of operations and cash
flows of Bumgarner for those periods and the results of operations and cash
flows of Ranger from the date of acquisition (February 6, 2001) through
September 30, 2001. The December 31, 2000 balance sheet of Ranger as
previously presented in its December 31, 2000 annual report on Form 10KSB
has been presented in the accompanying financial statement for
informational purposes only.
Background on Ranger:
In July 1988, Ranger (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 Ranger were canceled, and
4,000,000 shares of Ranger's new $0.01 par value common stock (the "Common
Stock") were distributed to the unsecured creditors. On the Effective Date
of the Plan, Ranger 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 Ranger) and effectuate distributions thereof to Ranger'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.
6
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2001
(UNAUDITED)
1. Nature of business, basis of presentation and summary of significant
accounting policies (continued):
Background on Ranger (continued):
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 Ranger. Pursuant to the terms of the Product Liability
Trust Agreement, residual funds, if any, would revert to Ranger, 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, 2001, 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 Ranger as
described below.
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 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 Ranger, which was
made in May 2000, was $11,002,632.
Oil and gas properties:
The Company uses the successful efforts method of accounting for oil and
gas producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves
and to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, geological and
geophysical costs, and costs of carrying and retaining unproved properties
will be expensed.
7
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2001
(UNAUDITED)
1. Nature of business, basis of presentation and summary of significant
accounting policies (continued):
Oil and gas properties (continued):
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss, if any, will be
recognized at the time of impairment by providing an impairment allowance.
Other unproved properties will be amortized based on the Company's
experience of successful drilling and average holding period. Capitalized
costs of producing oil and gas properties, after considering estimated
dismantlement and abandonment costs and estimated salvage values, will be
depreciated and depleted by the unit-of-production method. Support
equipment and other property and equipment will be depreciated over their
estimated useful lives.
The carrying values of the oil and gas properties as reflected in the
accompanying balance sheet do not reflect the underlying fair values of
such properties.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Income taxes:
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. This method also requires the recognition of future
tax benefits such as net operating loss carryforwards, to the extent that
realization of such benefits is more likely than not. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The deferred tax assets are reviewed
periodically for recoverability and valuation allowances are provided, as
necessary.
8
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2001
(UNAUDITED)
1. Nature of business, basis of presentation and summary of significant
accounting policies (continued):
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries and the Company's 74.415%
interest in Joint Venture Henryetta. All significant intercompany accounts
and transactions have been eliminated in consolidation.
2. Business combinations:
As discussed on Note 1, on February 6, 2001, Ranger merged with Bumgarner,
acquiring 100% of the outstanding shares in exchange for the issuance of
14,200,000 shares of Ranger's stock. As the transaction has been accounted
for as a reverse acquisition (recapitalization of Bumgarner), results of
operations for Ranger are included in the accompanying financial statements
from February 6 through September 30, 2001.
Assets acquired and liabilities assumed from Ranger are as follows:
Cash $ 10,233,478
Other current assets 2,275
Refundable income taxes 32,755
Accounts payable and accrued expenses (641,373)
------------
Net assets acquired $ 9,627,125
============
As also indicated in Note 1, Bumgarner acquired a 74.415% interest in Joint
Venture - Henryetta in October 2000. Consideration for this equity interest
was in the form of a $2,073,728 promissory note payable to Henryetta, which
bears interest at 6% and is payable in full by October 10, 2002. The
Company will forfeit its interest in Henryetta (pro-rata with any unpaid
balance) if the note is not paid by the due date or unless the date is
extended. Since the note is payable to an entity included in the
consolidated financial statements, the note payable, net of a $467,000
principal repayment and related interest, have been eliminated in
consolidation.
9
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2001
(UNAUDITED)
2. Business combinations (continued):
Pro-forma results of operations for the nine months ended September 30,
2001 and 2000 as if these combinations had occurred on January 1, 2000 are
as follows:
Nine Months Ended Sept. 30,
------------------------------
2001 2000
----------- -------------
Net sales $ -- $ --
Net loss ($ 785,877) ($ 1,698,986)
Net loss per share ($ .05) ($ .11)
=========== =============
3. Oil and gas properties:
In October 2000, the Company acquired a 74.415% working interest in Joint
Venture - Henryetta, ("Henryetta" or "Joint Venture") which was formed as a
general partnership under Oklahoma law and owns four leasehold interests in
Okfuskee and Coal counties, Oklahoma. The properties at present have no
producing oil or gas wells, although the first well is complete and is
expected to begin production in the fourth quarter of 2001. The Company
expects to drill at least three additional exploratory wells at a total
cost of $1,800,000. The Joint Venture automatically terminates, unless
renewed, in 2010.
The Company has begun the development of a second joint venture also in
Central Oklahoma. The new properties are known collectively as the OkMac
JV. In the aggregate, the OkMac properties are believed to contain oil and
gas reserves of the same order of magnitude as those being developed in the
Henryetta JV. As with the Henryetta JV, the company's OkMac joint venture
partner is InterOil and Gas Group, Inc. InterOil and Gas Group, Inc. is an
Oklahoma based oil services company controlled by Mr. Henry Shults, a
member of the Ranger Board of Directors. Ranger owns an 80% after payout,
working interest in the OkMac JV. Prior to payout, the company receives
100% of the net revenue. (See Note 4 for additional related party
transactions).
10
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2001
(UNAUDITED)
3. Oil and gas properties (continued):
Supplemental information with respect to oil and gas properties is as
follows:
Capitalized costs relating to oil and gas exploration and development
activities at September 30, 2001:
Unproved oil and gas properties $151,480
Proved oil and gas properties 543,617
--------
$695,097
========
Costs incurred in oil and gas exploration and development activities for
the nine months ended September 30, 2001:
Property acquisition costs:
Proved $ 43,200
Unproved 88,105
Exploration costs --
Development costs 402,476
--------
$533,781
========
Note: Substantially all oil and gas costs incurred are attributable to the
majority interest in the joint venture.
Reserve Information:
The following estimates of proved and proved developed reserve quantities
and related standardized measure of discounted net cash flow are estimates
only, and do not purport to reflect realizable values or fair market values
of the Company's reserves. The Company emphasizes that reserve estimates
are inherently imprecise and that estimates of new discoveries are more
imprecise than those of producing oil and gas properties. Accordingly,
these estimates are expected to change as future information becomes
available. All of the Company's reserves are located in Oklahoma.
Proved reserves are estimated reserves of crude oil (including condensate
and natural gas liquids) and natural gas that geological and engineering
data demonstrate with reasonable certainty to be recoverable in future
years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are those expected to be recovered
through existing wells, equipment, and operating methods.
11
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2001
(UNAUDITED)
3. Oil and gas properties (continued):
The standardized measure of discounted future net cash flows is computed by
applying prices of oil and gas ($25/bbl and $3.50/mcf, respectively, with
no escalation) to the estimated future production of proved oil and gas
reserves, less estimated future expenditures (based on year-end costs) to
be incurred in developing and producing the proved reserves, less estimated
future income tax expenses (based on year-end statutory tax rates, with
consideration of future tax rates already legislated) to be incurred on
pretax net cash flows less tax basis of the properties and available
credits, and assuming continuation of existing economic conditions. The
estimated future net cash flows are then discounted using a rate of 10% a
year to reflect the estimated timing of the future cash flows.
Oil Gas
Beginning of year and period: (MBbls) (MMcf)
----------- -----------
Proved, developed reserves -- --
Proved, undeveloped reserves 89 596
=========== ===========
Total beginning of year and period 89 596
=========== ===========
End of period:
Proved, developed reserves 26 401
Proved, undeveloped reserves 206 2400
=========== ===========
Total end of period 232 2801
=========== ===========
Standardized measure of discounted future
net cash flows at September 30, 2001:
Future cash inflows $ 6,726,826
Future production costs (217,500)
Future development costs (284,810)
Future income tax expenses (2,457,900)
-----------
Future net cash flows 3,766,616
10% annual discount for estimated timing
of cash flows (790,989)
-----------
Standardized measures of discounted future net
cash flows relating to proved oil and gas
reserves at beginning and end of period $ 2,975,627
===========
Ranger share at 74.415% (net after taxes) $ 2,214,313
===========
As noted in Footnote 1 the carrying values of the oil and gas properties as
reflected in the accompanying balance sheet do not reflect the underlying
fair values of such properties.
12
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2001
(UNAUDITED)
4. Related party transactions:
Syndication and other fees:
The Company has agreed to pay one of the partners in the Joint Venture-
Henryetta (Inter-Oil & Gas, Inc. - "Interoil") a syndication fee
aggregating $149,316 in connection with the Company's investment in
Henryetta, which is payable by Interoil to an unrelated third party
pro-rata upon satisfaction of the note discussed in Note 2 (October 2002).
This amount is recorded as a liability in the accompanying consolidated
balance sheet. The OkMac JV has no syndication fee.
Inter-Oil also manages the joint ventures and is reimbursed for any costs
it incurs in that regard. Finally, in addition to the aforementioned fees,
that same partner will earn $25,000 as an operating fee in connection with
the deep wells to be drilled in Coal County and $12,000 for the shallower
wells to be drilled in Okfuskee County.
Due to/from affiliates:
The Company had previously loaned an affiliate funds aggregating $41,000.
Repayment of this amount with interest at 12%, was received in the third
quarter of 2001. Subsequently, the Company received advances from an
affiliate during the quarter ended September 30, 2001. Repayment of these
advances has been deferred and will bear interest at 8%. Furthermore, the
officer of the Company deferred receipt of certain payroll amounts during
the third quarter, which are included in accruals due affiliates in the
accompanying balance sheet.
5. Partnership agreements:
Under the terms of the Joint Venture - Henryetta agreement, and subject to
satisfaction of the promissory note, the Company is responsible for
approximately 93% of expenses and is entitled to 93% of all distributions
until such time as its investment has been recovered. The other partners
will collectively share in the remaining 7%. Thereafter, profits, losses
and distributions shall be allocated 74.415% to the Company, 20% to
Inter-Oil and 5.585% to others.
Under the terms of the OkMac joint venture agreement, the Company expects
to provide 100% of the exploration and development expenses and is entitled
to 100% of all distributions until such time as its investment has been
recovered. Thereafter, profits, losses and distributions will be allocated
80% to the Company, and 20% to InterOil and Gas Group, Inc., the joint
venture partner and project manager.
13
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSES CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2001
(UNAUDITED)
6. Note payable, bank
Note payable, bank consists of an $8,500,000 note collateralized by a
restricted certificate of deposit and certain cash equivalents. The loan
bears interest at 6.4% and matures January 2003.
7. Income taxes:
Income taxes consist of the following:
Deferred tax benefit of operating loss carryforward $ 140,000
Increase in valuation allowance (140,000)
---------
Income tax expense $ --
=========
Income tax expense differs from that which would result from applying
statutory tax rates to pre-tax loss due to the increase in the valuation
allowance.
Deferred tax assets consist of the deferred tax benefit from the operating
loss carryforward of $140,000, reduced by a $140,000 valuation allowance
since management cannot presently determine that it is more likely than not
that such deferred tax assets will be realized. The operating loss
carryfoward of approximately $400,000 will expire in 2015.
14
ITEM 2. Management's Discussion and Analysis or Plan of Operation
-----------------------------------------------------------------
General Discussion.
-------------------
The following discussion should be read in conjunction with Item 1 above,
and the Financial Statements, including the Notes thereto. The following
discussion should also be read in conjunction with the financial statements and
the Plan of Operations contained in the report on Form 10-KSB Ranger Industries,
Inc. ("Ranger") filed with the Securities and Exchange Commission for the year
ended December 31, 2000.
Ranger is a Connecticut corporation organized in 1961. Ranger is the
successor to the Connecticut Leather Company, which was founded in 1932. From
1961 through 1990, Ranger was known as "Coleco Industries, Inc." In 1988,
Ranger, then known as Coleco Industries, Inc., filed a voluntary petition in
bankruptcy. In 1990, Ranger's plan of reorganization (the "Plan") was approved
by the bankruptcy court and became effective as of February 28, 1990, and Ranger
emerged from Chapter 11. From 1990 to 2000, Ranger did not engage in significant
business activities. These events are more fully described in Note 1 to the
Financial Statements included herein and in the Form 10-KSB referenced above.
In December 2000, Ranger entered into an Agreement and Plan of Merger and
Reorganization with Bumgarner Enterprises, Inc., a Florida corporation
("Bumgarner"), and BEI Acquisition Corporation, a Florida corporation and
wholly-owned subsidiary of Ranger (the "Merger"). Pursuant to the Merger
Agreement, Bumgarner commenced a cash Tender Offer on December 29, 2000 and
Merger was completed in February 2001. The acquisition was financed through a
bank loan in the amount of $8,500,000, which is collateralized by an equivalent
amount in cash and cash equivalents. The loan bears interest at 6.4% and matures
January 2003. The Merger and the Tender Offer and the terms thereof are more
fully described in Notes 1 and 2 to the Financial Statements included herein and
in the Form 10-KSB referenced above.
Currently Ranger's activities are being conducted through the Henryetta
Joint Venture, 74.415% of which is owned by Bumgarner, now a wholly-owned
subsidiary of Ranger. The Joint Venture is currently drilling one well (the
Joshua #1) on the Joint Venture's property in Oklahoma. If this well finds oil
and gas in commercial quantities and can be successfully completed for
production, the revenues from this well (together with available working
capital) will be adequate to continue the required drilling activities. However,
if the Joint Venture's drilling and development activities are not successful or
are abandoned, the funds currently available to Ranger and Bumgarner will not be
sufficient to fund additional drilling activities on either the Henryetta or
OkMac properties.
Note of Caution Regarding Forward-looking Statements: This report on Form
10-QSB, including the information incorporated by reference herein, contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Certain statements contained in this report using
the term "may", "expects to", and other terms denoting future possibilities, are
forward looking statements. These statements include, but are not limited to,
those statements relating to development of new products, the financial
condition of Ranger (including its lack of working capital and negative cash
flow). The accuracy of these statements cannot be guaranteed as they are subject
to a variety of risks that are beyond Ranger's ability to predict or control and
which may cause actual results to differ materially from the projections or
estimates contained herein. The business and economic risks faced by Ranger and
Ranger's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors as described herein.
15
Business Activities.
--------------------
The following discussion should be read in conjunction with Item 1 above,
and the Financial Statements, including the Notes thereto.
The business activities of Ranger have changed since February 2001 as a
result of completion of the Merger described above and in the Form 10-KSB
referenced above. As a result of the Merger, Ranger acquired a 74.415% interest
in the Henryetta Joint Venture, a joint venture that owns assets in the oil and
gas industry and is committed to drill for oil and natural gas and assumed a
liability to the Henryetta Joint Venture of $2,073,728. For the foreseeable
future, Ranger intends to participate in the oil and gas industry in the
continental United States directly and through the Henryetta Joint Venture.
Third Quarter 2001 Compared With Third Quarter 2000
---------------------------------------------------
Results of operations during the third quarter of 2001 are not comparable
to those of the third quarter 2000. Expenses for third quarter of 2000 were
limited to minimal salary and stock based compensation. Results for 2001 reflect
general and administrative expenses sufficient to support the drilling
activities which commenced subsequent to the aforementioned merger.
Unrestricted Cash and Working Capital. As a result of the Merger and the
related Tender Offer, Ranger had approximately $650,000 remaining in
unrestricted cash. At September 30, 2001, Ranger had approximately $20,000 in
cash and cash equivalents. Ranger has used this cash for expenses incurred in
completing the Merger and the Tender Offer, and in contributions to the
Henryetta Joint Venture for drilling expenses.
Exploration and development operations. The Company has completed drilling
of the Joshua #1 well, the first element in its program to develop the Henryetta
JV properties. Because of technical difficulties encountered in the drilling
process, the Joshua #1 well was completed only to a depth of 2600 feet. At this
level and above, six pay zones were confirmed. Based on data from the well, an
independent engineering evaluation report places the aggregate proven, developed
and non-developed reserves in these pay zones to be in excess of 2.2 billion
cubic feet of natural gas and 143,000 barrels of oil. Production from the Joshua
31 well is expected to begin in the fourth quarter of 2001.
The Company expects to confirm significant additional reserves in this
field with the drilling of at least three additional wells to a depth of
approximately 5200 feet. The Henryetta JV prospect group is comprised four
separate sites designated as Leases A, B, C and D. The Joshua #1 well is located
on a 480 acre prospect site known as Lease B. Both Lease A and Lease B, the two
smaller development sites in the Henryetta group, are expected to be served by
wells drilled to depths of 6000 feet or less. Wells on the Henryetta sites known
as Lease C and Lease D are scheduled to be drilled to a minimum depth of up to
7000 feet.
16
At September 30, 2001, Ranger's working capital (current assets less
current liabilities) was approximately $12,000.
Working capital does not include $8,500,000 in restricted cash which is not
available to Ranger for general use, but which collateralizes Ranger's
obligation to repay an $8,500,000 loan obtained in connection with completing
the Tender Offer.
The Company is actively seeking additional funding in order to accelerate
its drilling program to keep pace with its aggressive exploration program. As of
the date of this report, several possible funding sources have been identified,
but no firm commitment has been negotiated.
It should be noted that the company faces an extremely tight market in
regard to drilling rig availability. There is no lack of equipment, but there is
an acute shortage of experienced competent crews. The company is in daily
contact with drilling contractors seeking to develop an optimum solution for
this ongoing problem.
Obligation to the Henryetta Joint Venture. Ranger's interest in the
Henryetta Joint Venture derives from Bumgarner. Bumgarner had purchased its
interest in the Joint Venture for $2,073,728, represented entirely by a
promissory note bearing interest at 6% per annum. Ranger has paid $467,000
against the principal amount of this note, and the balance is now due in full on
October 10, 2002. The promissory note requires certain incremental payments to
be made before maturity, including the payments that Ranger has already made.
The Joint Venture consists of three members in addition to Bumgarner and
Inter-Oil & Gas Group. Inter-Oil & Gas Group is the manager of the Joint Venture
and owns a 20% after-payout interest in the Joint Venture. Henry Shults, the
owner of Inter-Oil & Gas Group is also a director of Ranger. At the time
Bumgarner negotiated to acquire the interest in the Henryetta Joint Venture,
there was no affiliation between Mr. Shults and Bumgarner and the transaction
was an arms'-length transaction.
Ranger intends to use its working capital and to raise additional debt and
equity capital to make any future payments required to the Henryetta Joint
Venture. If the Joshua #1 well is successfully completed, Ranger anticipates
that revenues from that well will augment its working capital.
Future Drilling Obligations. The Joshua #1 well is the first of four
exploratory wells the Henryetta Joint Venture expects to drill on its four
leasehold interests. Based on current expectations, the Henryetta Joint Venture
now expects to commence drilling of its second well in the first and second
quarter of 2002, depending on availability of funds.
General and Administrative Obligations. Ranger will also have to fund its
interest and general and administrative expenses during the final two quarters
of the current fiscal year, which Ranger estimates to be approximately $75,000
in addition to the amounts already spent.
Other Business Objectives. Even though it does not currently have the
necessary capital available to it, Ranger is also investigating other oil and
gas drilling activities that, if acquired, will require the expenditure of funds
(which expenditure may be significant). Ranger's ability to fund its future
operations will be dependent upon achieving profitability, generating positive
cash flow from operations or by raising additional debt or equity. As noted
above, Ranger is currently considering alternatives to the raising of debt and
equity capital to provide additional financing for drilling activities during
the current fiscal year and beyond. At the present time, although it has had
positive discussions, no person has committed to provide any portion such
capital. Although Ranger believes that its existing capital resources are
sufficient for the 2001 fiscal year, Ranger may face working capital shortages
thereafter, if its is unable to accomplish profitability from the Joint
Venture's activities, generate positive cash flow from operations, or raise
additional debt or equity.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
--------------------------
There are no material pending legal or regulatory proceedings against
Ranger, and it is not aware of any that are known to be contemplated.
Item 2. Changes in Securities and Use of Proceeds.
--------------------------------------------------
None.
Item 3. Defaults Upon Senior Securities.
----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
------------------------------------------------------------
No matter was submitted during the first quarter of the fiscal year covered
by this report to a vote of security holders, through the solicitation of
proxies or otherwise.
Item 5. Other Information.
--------------------------
None.
ITEM 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits:
15. Letter from Aidman Piser & Company, P.A. dated November 14, 2001
on Interim Unaudited Financial Information
(b) Reports on Form 8-K:
Ranger's Current Report on Form 8-K reporting events of:
February 14, 2001, as amended on April 16, 2001 reporting events under
Item 1 - Change in Control and Item 2 - Acquisition and Disposition of
Assets
April 17, 2001 reporting an event under Item 4 - Change In Accountants
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Ranger
Industries, Inc. has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2001 /s/ Charles G. Masters
--------------------------------
Charles G. Masters, President,
Principal Executive Officer and
Principal Financial and Accounting
Officer
19