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, 2003
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 Small Business Issuer 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
Small Business Issuer'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 19, 2003, 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
September 30, 2003 December 31,
(Unaudited) 2002
---------------- ----------------
Current assets:
Cash and cash equivalents $ 2,117 $ 48,581
Restricted cash and cash equivalents -- 8,500,000
Marketable equity securities -- 1,310
Accrued interest receivable -- 17,419
Other current assets 5,923 --
---------------- ----------------
Total current assets 8,040 8,567,310
Property and equipment, net of accumulated depreciation of
$5,398 in 2003 and $3,752 in 2002 5,580 7,227
Investment in oil and gas properties 516,550 616,550
---------------- ----------------
$ 530,170 $ 9,191,087
================ ================
LIABILITES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable, bank $ -- $ 8,500,000
Accounts payable 53,111 23,035
Accrued expenses 41,902 66,459
Due to related parties 129,026 68,993
---------------- ----------------
Total current liabilities 224,039 8,658,487
Other liabilities -- 100,000
Due to related parties 686,628 614,239
---------------- ----------------
910,667 9,372,726
---------------- ----------------
Minority interest -- --
---------------- ----------------
Stockholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized;
19,998,644 shares issued; 15,610,463 shares outstanding 199,986 199,986
Additional paid-in-capital 9,487,981 9,487,981
Deficit accumulated during development stage (1,292,092) (1,093,032)
Less treasury stock (4,388,181 shares at cost) (8,776,362) (8,776,362)
Other comprehensive income (10) (212)
---------------- ----------------
(380,497) (181,639)
---------------- ----------------
$ 530,170 $ 9,191,087
================ ================
See notes to condensed consolidated financial statements.
1
RANGER INDUSTRIES, INC. AND SUBSIDARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Nine Three Nine
Months Months Months Months From Inception
Ended Ended Ended Ended (March 18, 1998)
---------------- --------------- --------------- --------------- through
September 30, 2003 September 30, 2002 September 30, 2003
--------------------------------- -------------------------------- -------------------
Revenues $ - $ 50,000 $ - $ - $ 200,000
--------------- --------------- --------------- --------------- -------------------
Operating costs and expenses:
Loss on investment in oil and
gas properties 100,000 100,000 - - 256,130
Administrative 8,206 31,194 4,087 28,511 148,765
Salaries and wages 30,000 90,000 28,000 90,000 380,000
Bad debt expense 30,000 30,000 - - 30,000
Stock-based compensation - - - - 19,919
Consulting and professional fees 13,572 47,388 1,121 46,104 357,566
---------------- --------------- --------------- --------------- -------------------
Total operating expenses 181,778 298,582 33,208 164,615 1,192,380
---------------- --------------- --------------- --------------- -------------------
Other income (expense):
Interest income - 46,829 65,285 280,964 774,398
Interest expense ( 11,992) ( 103,518) ( 119,342) ( 433,417) ( 1,172,515)
Other income (expense) ( 1,069) 6,211 ( 24,693) ( 24,693) ( 115,314)
Gain on extinguishment of debt 100,000 100,000 - - 201,719
---------------- --------------- --------------- --------------- -------------------
( 86,939) ( 49,522) ( 78,750) ( 177,146) ( 311,712)
---------------- --------------- --------------- --------------- -------------------
Loss before income taxes ( 94,839) ( 199,060) ( 111,958) ( 341,761) ( 1,304,092)
Income tax expense - - - - -
Minority interest in loss on joint
venture - - - - 12,000
---------------- --------------- --------------- --------------- ------------------
Net loss ($ 94,839) ($ 199,060) ($ 111,958) ($ 341,761) ($ 1,292,092)
================ =============== =============== =============== ===================
Basic and diluted loss per share ($ .006) ($ .01) ($ .01) ($ .02) ($ .16)
================ =============== =============== =============== ===================
Weighted average shares
outstanding, basic and diluted 15,610,463 15,610,463 15,610,463 15,610,463 8,119,455
================ =============== =============== =============== ===================
See notes to condensed consolidated financial statements.
2
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
2003 2002 September 30, 2003
---------------- ------------- ------------------
Cash flows from operating activities:
Net loss ($ 199,060) ($ 341,761) ($ 1,292,092)
--------------- ---------------- -----------------
Adjustments to reconcile net loss to net cash flows
from operating activities:
Gain on extinguishment of debt ( 100,000) - ( 201,719)
Loss on sale of marketable equity securities 1,335 24,693 37,676
Loss on investment in oil and gas properties 100,000 - 256,130
Provision for bad debt 30,000 - 30,000
Stock-based compensation - - 19,919
Depreciation 1,647 1,555 5,398
Minority interest in loss of joint venture - - ( 12,000)
Change in assets and liabilities:
Account receivable ( 30,000) - ( 30,000)
Other assets ( 5,921) ( 43,060) 29,099
Accrued interest receivable 17,419 - 40,922
Accounts payable and accrued expenses 5,507 ( 22,666) ( 286,253)
--------------- ---------------- -----------------
Total adjustments 19,987 ( 39,478) ( 110,828)
--------------- ---------------- -----------------
Net cash flows from operating activities ( 179,073) ( 381,239) ( 1,402,920)
--------------- ---------------- -----------------
Cash flows from investing activities:
Acquisition of marketable equity securities ( 9,399) ( 225,033) ( 349,580)
Proceeds from sale of marketable equity securities 9,586 213,542 311,904
Acquisition of property and equipment - ( 2,742) ( 10,978)
Acquisition of oil and gas properties - ( 59,462) ( 760,680)
Cash acquired in business combination - - 10,233,478
Proceeds from restricted certificate of deposit 8,500,000 - 8,500,000
Purchase of restricted certificate deposit - - ( 8,500,000)
--------------- ---------------- -----------------
Net cash flows from investing activities 8,500,187 ( 73,695) 9,424,144
--------------- ---------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of stock - - 1
Proceeds from note payable, bank - - 8,500,000
Payment of note payable, bank ( 8,500,000) - ( 8,500,000)
Acquisition of treasury shares - - ( 8,776,362)
Advances from related party 132,422 371,920 757,254
--------------- --------------- -----------------
Net cash flows from financing activities ( 8,367,578) 371,920 ( 8,019,107)
--------------- ---------------- -----------------
Net change in cash and cash equivalents ( 46,464) ( 83,014) 2,117
Cash and cash equivalents at beginning of period 48,581 101,234 -
--------------- ---------------- -----------------
Cash and cash equivalents at end of period $ 2,117 $ 18,220 $ 2,117
=============== ================ =================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 117,867 $ 414,080 $ 1,110,244
=============== ================ =================
See notes to condensed consolidated financial statements.
3
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2003
(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 opinion 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.
Since October 2000, the Company acquired assets in the oil and gas
industry through joint venture investments and has subsequently pursued
exploration and development of those and other similar properties.
In February 2001, Bumgarner merged with Ranger Industries, Inc.'s
("Ranger") 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 was collateralized by an equivalent amount in cash
and cash equivalents.
In May 2003, the Company incorporated Ranger Oil & Gas AR, Inc. ("Ranger
O&G"), a wholly-owned subsidiary, whose primary purpose is oil and gas
exploration, development, and production in Arkansas. Ranger O&G is
currently inactive.
4
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
1. Nature of business, basis of presentation and summary of significant
accounting policies (continued):
Nature of business and basis of presentation (continued):
In September 2003, Bumgarner acquired an additional 1.415% equity interest
(20% working interest) in Henryetta Joint Venture (Henryetta") from
Inter-Oil & Gas, Inc. ("InterOil"). Bumgarner acquired InterOil's share of
all existing or potential claims, all debts and equity or royalty
participation interests in existing or future wells or mineral leases
associated with Henryetta or its investors in exchange for a 2% overriding
royalty interest in any wells drilled and put into production on a
specified lease currently associated with the Joshua I well. Pursuant to
this agreement, the Company confirmed its intent to extend the specified
lease and to drill at least one additional well on the referenced lease as
soon as funds are available to do so. In addition, the Company agreed to
pay surface damages up to a limit of $2,000 per one acre location
regardless of the number of wells on this leased area. Pursuant to this
agreement, InterOil also granted the Company use of right-of-way between
well sites and use of available water at no cost to the Company.
Management's plan of operations:
Ranger has generated losses since inception and has not yet generated
revenues from its primary business activities. Currently management can
control expenses and has drastically curtailed expenditures and drilling
activities until such time as funding can be obtained. If Ranger does not
achieve any funding, Ranger will only finance its administrative
activities; Ranger believes it has adequate resources to fund
administrative costs at these reduced levels at least through March 2004,
principally through related party borrowings and consulting fees. The
Company paid the $8,500,000 note payable in February 2003 and consequently
will reduce future net interest expense by approximately $180,000 in 2003.
Management is pursuing several opportunities for funding including several
merger opportunities and lending arrangements, any one of which, if
successful, can be expected to produce the cash required to undertake the
drilling necessary to produce oil and gas from the proved reserves
reflected in the geological surveys. In addition, management is actively
involved in several business consulting opportunities which may yield
revenues sufficient to support an increased level of operating costs in
2004. Although management has not been successful in completing any of
these significant funding activities to date, management continues to
believe it will be successful, there can be no assurances that the Company
will achieve its objectives in these financing and consulting endeavors.
5
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
1. Nature of business, basis of presentation and summary of significant
accounting policies (continued):
Management's plan of operations (continued):
Without funding and successful drilling of one or more wells capable of
producing oil and gas in commercial quantities or the acquisition of
producing wells, it is not likely that Ranger will be able to achieve
positive cash flow. As described in previous reports, the Company has been
seeking such funding for more than a year, and there can be no assurance
that the Company will be able to obtain any such funding on reasonable
terms, if at all.
Recent accounting pronouncements:
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. The statement amends and
clarifies accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. This statement is designed to improve financial reporting such
that contracts with comparable characteristics are accounted for
similarly. The statement, which is generally effective for contracts
entered into or modified after June 30, 2003, is not anticipated to have a
significant effect on the Company's financial position or results of
operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
This statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. This statement is effective for financial
instruments entered into or modified after May 31, 2003, and is otherwise
effective at the beginning of the first interim period beginning after
June 15, 2003. The Company currently has no such financial instruments
outstanding or under consideration and therefore adoption of this standard
currently has no financial reporting implications.
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Valuable Interest Entities. This interpretation clarifies rules
relating to consolidation where entities are controlled by means other
than a majority voting interest and instances in which equity investors do
not bear the residual economic risks. This interpretation is effective
immediately for variable interest entities created after January 31, 2003
and for interim and annual periods beginning after December 15, 2003 for
interests acquired prior to February 1, 2003. The Company currently has no
ownership in variable interest entities and therefore adoption of this
standard currently has no financial reporting implications.
6
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
2. Investment in oil and gas properties:
In October 2000, the Company acquired a 74.415% working interest in
Henryetta Joint Venture, ("Henryetta JV") which was formed as a general
partnership under Oklahoma law. In September 2003, the Company acquired
an additional 20% working interest in Henryetta JV. The Company owns
leasehold interests in Okfuskee county, Oklahoma. The properties at
present have no producing oil or gas wells. The Company eventually
expects to drill at least three additional exploratory wells at a total
cost of $1,800,000. The Henryetta JV automatically terminates, unless
renewed, in 2010.
The Henryetta JV commenced drilling of the Joshua #1 well on Lease B in
April 2001. During 2001, the Company experienced difficulties with Joshua
#1 and has recorded a charge to operations of $156,130 to write-down
certain assets considered to be impaired in connection with that well.
Upon resumption of drilling activities, the Company anticipates drilling
a second well adjacent to Joshua #1 at a cost of approximately $150,000.
Prior to July 2003, all of the interests held by the Henryetta JV were in
undeveloped acreage in Coal, Pontotoc and Okfuskee counties, in south
central and central Oklahoma, respectively, consisting of primarily four
leases from private landowners. In the quarter ending September 30, 2003,
Leases C and D expired and a portion of the leased acreage in Lease B.
The Company did not renew the expired leases on the unproved properties.
Since the Company had not previously begun drilling on these properties,
an impairment loss of $100,000 was recognized and included in the
accompanying statement of operations for the three and nine months ended
September 30, 2003.
The Henryetta JV expects to drill additional wells on Lease B as soon as
funds are available. Thereafter, and subject to adequate financing, the
Henryetta JV expects to drill an exploratory well on Lease A.
The Company has an investment in a second joint venture also in Central
Oklahoma. The Company is expanding its prospect lease base to include
both a key 60 acre track adjacent to the Henryetta JV Lease B properties
and another group of properties in two other central Oklahoma counties.
The new properties are known collectively as the OK'ee Mac Joint Venture
("OK'ee Mac JV"). In the aggregate, the OK'ee Mac JV properties are
believed to contain oil and gas reserves of the same order of magnitude
as those being developed in the Henryetta JV. Key leases on individual
properties are in place and others are being negotiated.
7
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
2. Investment in oil and gas properties (continued):
Oklahoma has a procedure called "forced pooling" by which an oil and gas
operator can apply to the Oklahoma Corporation Commission to force other
landowners to pool their mineral interests with the interests of that
operator. If either of the Joint Ventures is not able to lease the
remaining working interests on reasonable terms or renew existing leases,
they intend to apply to force pool the remaining working interests on
terms similar to the leases which it has obtained from the other property
owners, including royalty interest no greater than 20%.
8
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
2. Investment in oil and gas properties (continued):
The following table summarizes the Henryetta Joint Venture's current
interest in its two leases.
---------------------------------------- ---------- -------------------- ------------ ---------------------- ------------- --------
Nature of Reserves Gross Acres Net Acres (1) Primary lease Lessor
Land Description (1) (to the Joint Venture) term Royalty
---------------------------------------- ---------- -------------------- ------------ ---------------------- ------------- --------
Lease A
SW1/4SW1/4Section 14, 17T10N, R12E Private Proved undeveloped May
Okfuskee County landowner 20 20 2004 20%
---------------------------------------- ---------- -------------------- ------------ ---------------------- ------------- --------
Lease B
E1/2, SE1/4Section 29, NW1/4Section 33,
in T11N, R11E Okfuskee County Private Proved March
landowner undeveloped 240 240 2004 20%
---------------------------------------- ---------- -------------------- ------------ ---------------------- ------------- --------
(1) A "gross acre" is an acre in which a working interest is owned. The number of gross acres is the total number of acres in which
a working interest is owned. The disclosure of net acres subject to lease reflects lease status as of September 30, 2003. A
"net acre" is deemed to exist when the sum of fractional ownership working interests in gross acres equals one. The number of
net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof.
9
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
2. Investment in oil and gas properties (continued):
The following table summarizes the OK'ee Mac Joint Venture's interest in
its three leases.
------------------------------------------------ ---------- --------- ------------ ----------------------- --------------- ---------
Nature of Gross Net Acres (1) Primary Lessor
Land Description Reserves Acres (1) (to the Joint Venture) lease term Royalty
------------------------------------------------ ---------- --------- ------------ ----------------------- --------------- ---------
Lease A
SW 1/4 and SW 1/4 NW 1/4 of Section 29,
SE 1/4 NE 1/4 and E 1/2 SE 1/4 of Section 30
and N 1/2 NW 1/4 of Section 32 all in 11N-13E
Okmulgee, County Private
landowner Unproved 400 78.6071 October 2003(4) 20%
------------------------------------------------ ---------- --------- ------------ ----------------------- --------------- ---------
Lease C
NW1/4and N1/2SW1/4of Section 15 all in Private
10N-12E Okfuskee County landowner Unproved 240 71.0227 October 2003(4) 20%
------------------------------------------------ ---------- --------- ------------ ----------------------- --------------- ---------
Lease H
E1/2SE1/4of Section 34 and SW1/4and W1/2SE1/4
and W1/2NE1/4 and NW1/4of Section 35 all in Private
10N - 13E McIntosh County landowner Unproved 560 20 October 2003(4) 20%
------------------------------------------------ ---------- --------- ------------ ----------------------- --------------- ---------
10
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
2. Investment in oil and gas properties (continued):
Supplemental information with respect to oil and gas properties is as
follows:
Capitalized costs, net relating to oil and gas exploration and development
activities at September 30, 2003:
Property acquisition costs, net $ 21,924
Development costs 494,626
----------------
$ 516,550
================
Costs incurred in oil and gas exploration and development activities for
the nine months ended September 30, 2003 and 2002 and from inception
(March 18, 1998) to September 30, 2003 are::
Nine Months From inception
Ended September 30, (March 18, 1988)
-------------------------------------- to September 30,
2003 2002 2003
------------------- ----------------- ------------------
Property acquisition costs, net ($ 100,000) $ 14,136 $ 21,924
Development costs - 45,326 494,626
------------------- --------------- ------------------
($ 100,000) 59,462 $ 516,550
================== =============== ==================
Note: Substantially all oil and gas costs incurred are attributable to the
majority interest in the Henryetta JV.
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 for the Henryetta JV. 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. The OK'ee Mac JV is unproved, in the initial
development stage and only land acquisition costs have been incurred. All
of the Company's reserves are located in Oklahoma.
11
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
2. Investment in oil and gas properties (continued):
Reserve Information (continued):
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.
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
(MBbls) (MMcf)
------------- ---------------
Beginning of year:
Proved, developed reserves - -
============= =============
Proved, undeveloped reserves 232 2,801
============= =============
End of period:
Proved, developed reserves - -
============= =============
Proved, undeveloped reserves 232 2,801
============= =============
12
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
2. Investment in oil and gas properties (continued):
Reserve Information (continued):
Standardized measure of discounted future net cash flows at September 30,
2003:
Henryetta
------------------
Future cash inflows $ 11,599,427
Future production costs ( 391,300)
Future development costs ( 394,810)
Future income tax expenses ( 3,676,528)
------------------
Future net cash flows 7,136,789
10% annual discount for estimated timing
of cash flows ( 1,699,042)
------------------
Standardized measures of discounted future net
cash flows relating to proved oil and gas
reserves at beginning and end of period $ 5,437,747
==================
As noted in Note 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.
3. Related party transactions:
Due to related parties:
Due to related parties of $129,026 and $686,628, current and long-term
respectively, as of September 30, 2003 represent unsecured advances from
the President of the Company and entities affiliated through partial common
ownership or control. These advances generally bear interest at 8% and
mature December 31, 2004. Interest expense on these related party advances
aggregated $35,489 and $19,337 for the nine months ended September 30, 2003
and 2002, respectively. Of these amounts, $179,026 represents accrued
payroll to the President as of September 30, 2003. Payment of $50,000 of
the accrued payroll has been deferred to December 31, 2004 with the
remainder of $129,026 due on demand.
13
RANGER INDUSTRIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
AND FROM INCEPTION (MARCH 18, 1998) THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
3. Related party transactions (continued):
Extinguishment of debt:
In October 2000, the Company had agreed to pay a fee aggregating $100,000
in connection with the Company's investment in the Henryetta JV. During the
three months ended September 30, 2003, an officer of Ranger Oil & Gas, an
inactive subsidiary, forgave this $100,000 balance due to him. This
extinguishment of debt is included in other income (expense) in the
accompanying statement of operations. There have been no payments made to,
and there are no balances due to this officer as of September 30, 2003.
4. Partnership agreements
Under the terms of the Henryetta JV agreement, the Company is responsible
for 100% of any further capital expenditures and is entitled to its
pro-rata share of all distributions. In September 2003, the Company
acquired an additional 1.415% equity interest (20% working interest) in
Henryetta.
Under the terms of the OK'ee Mac JV agreement, the Company expects to fund
100% of the exploration and development costs 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.
5. Income taxes:
Income tax expense consists of the following for the nine months ended
September 30:
2003 2002
--------------- ---------------
Deferred tax benefit of operating loss carryforward $ 69,000 $ 128,000
Increase in valuation allowance ( 69,000) ( 128,000)
--------------- ---------------
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 $480,000 and $380,000 reduced by valuation allowances
of $480,000 and $380,000 as of September 30, 2003 and 2002, respectively.
since management cannot presently determine that it is more likely than not
that such deferred tax assets will be realized. Net operating loss
carryforwards of approximately $1,300,000 expire 2003 through 2002.
14
ITEM 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
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, 2002 (our "Annual Report"). Ranger has had no revenues from its
primary business activities in either of its two most recent fiscal years or the
subsequent three fiscal quarters. Consequently Ranger is providing a Plan of
Operations as required by Item 303(a) of Regulation S-B in lieu of a
Management's Discussion and Analysis.
Plan of Operations
------------------
Background. Prior to its acquisition of Bumgarner through a merger that occurred
in February 2001, Ranger did not have any business activity. At the time of that
merger, Ranger's financial resources were solely its cash on hand.
As described more completely in our Annual Report, Ranger's business activities
changed in February 2001 when it acquired Bumgarner. In October 2000, Bumgarner
had acquired a 74.415% working interest in the Henryetta Joint Venture
("Henryetta") and in December 2001 commenced participation in the OK'ee Mac
Joint Venture, in each case with the same affiliated company. In September 2003,
Bumgarner acquired an additional 20% working interest in Henryetta.
In addition to its primary business activities, Ranger has engaged in consulting
activities that resulted in revenues of $150,000 in 2001, no revenues during
2002 and $50,000 for the nine months ended September 30, 2003.
In May 2003, the Company incorporated Ranger Oil & Gas AR, Inc. ("Ranger O&G"),
a wholly-owned subsidiary whose primary purpose is oil and gas exploration,
development and production in Arkansas. Ranger O&G is currently inactive.
Anticipated Operations in 2003. Ranger's principal goal during 2003 is to
provide the Joint Ventures and Ranger O&G with sufficient capital so that they
can achieve their lease acquisition and drilling objectives. At September 30,
2003, however, Ranger has insufficient available working capital to accomplish
these objectives, as described in the following table:
----------------------------------------------------
Liquid Assets $ 2,117
----------------------------------------------------
Current Assets $ 25,540
----------------------------------------------------
Current Liabilities $ 224,039
----------------------------------------------------
Working Capital Deficit ($ 198,499)
----------------------------------------------------
15
ITEM 2. Management's Discussion and Analysis or Plan of Operation (continued):
----------------------------------------------------------------------
Ranger has generated losses since inception and has not yet generated revenues
from its primary business activities. Currently management can control expenses
and has drastically curtailed expenditures and drilling activities until such
time as funding can be obtained. If Ranger does not achieve any funding, Ranger
will only finance its administrative activities; Ranger believes it has adequate
resources to fund administrative costs at these reduced levels at least through
March 2004, principally through related party borrowings and consulting fees.
The Company paid the $8,500,000 note payable in February 2003 and consequently
will reduce future net interest expense by approximately $180,000 in 2003.
Ranger is actively seeking to acquire funding in excess of $2,000,000 to permit
the Company to actively resume development of oil and gas properties in
Henryetta Joint Venture and to resume acquisition of leases and exploratory
development operations with OK'ee Mac Joint Venture. The Company recognized an
impairment loss related to its investment in oil and gas properties,
specifically lease acquisition costs. An impairment loss was provided for costs
related to expired leases, not subsequently renewed by the Company in which no
drilling had taken place.
Management is pursuing several opportunities for funding including several
merger opportunities and lending arrangements, any one of which, if successful,
can be expected to produce the cash required to undertake the drilling necessary
to produce oil and gas from the proved reserves reflected in the geological
surveys. In addition, management is actively involved in several business
consulting opportunities which may yield revenues sufficient to support an
increased level of operating costs in 2004. Although management has not been
successful in completing any of these significant funding activities to date,
management continues to believe it will be successful, there can be no
assurances that the Company will achieve its objectives in these financing and
consulting endeavors.
Ranger performed consulting engagements for unaffiliated parties in the first
and third quarters of 2003 and earned fees of $50,000. As an interim measure,
pending adequate financing to pursue our contemplated oil and gas activities, we
may seek and perform additional consulting activities.
Based on its engineering analysis of geological data, Ranger believes that,
through the Henryetta and OK'ee Mac Joint Ventures, it has oil and gas resources
that merit the expenditures planned by the Company for development of these
properties. Ranger notes that its director who was operating the Henryetta and
OK'ee Mac Joint Ventures passed away following the end of the first quarter. As
of September 2003, Ranger has selected a new oil and gas operator for the joint
ventures.
Without funding and successful drilling of one or more wells capable of
producing oil and gas in commercial quantities or the acquisition of producing
wells, it is not likely that Ranger will be able to achieve positive cash flow.
As described in previous reports, the Company has been seeking such funding for
more than a year, and there can be no assurance that the Company will be able to
obtain any such funding on reasonable terms, if at all.
16
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.
Item 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15(e) under the Securities Exchange Act of
1934, as of the end of the period covered by the report, the Company
carried out an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. This
evaluation was carried out under the supervision and with the
participation of the Company's management, the person serving as the
Company's Chairman/Chief Executive Officer/Principal Financial and
Accounting Officer, who concluded that the Company's disclosure
controls and procedures are effective. There have been no significant
changes in the Company's internal controls or in other factors, which
could significantly affect internal controls subsequent to the date the
Company carried out its evaluation.
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed
in the Company reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to
be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's
Chief Executive Officer/Principal Financial Officer as appropriate, to
allow timely decisions regarding required disclosure.
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 or second quarters 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 19, 2003
on Interim Unaudited Financial Information
31. Certification Pursuant To Sarbanes-Oxley Section 302
32. Certification Pursuant To 18 U.S.C. Section 1350 (*)
* A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
(b) Reports on Form 8-K:
none
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 19, 2003 /s/ Charles G. Masters
-----------------------------------
Charles G. Masters, President,
Principal Executive Officer and Principal
Financial and Accounting Officer
19