U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING MARCH 31, 1999
[ ] TRANSACTION REPORT PURSUANT SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSACTION PERIOD FROM __________ TO __________.
Commission file number 333-68213
SARATOGA HOLDINGS I, INC.
(Exact name of small business issuer as specific in its charter)
TEXAS 78-2896910
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 CONGRESS AVENUE, SUITE 1550, AUSTIN, TEXAS 78701
(Address of principal executive offices)
(512) 478-5717
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes[ ] No[X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of the issuer's class of common
equity, as of the latest practicable date: common stock, $0.001 par value as of
May 17, 1999: 3,766,667 shares
Transactional Small Business Disclosure Format (check one); Yes [X] No [ ]
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PART I
ITEM 1. FINANCIAL STATEMENTS
Saratoga Holdings I, Inc.
Unaudited Financial Statements
Three Months Ended March 31, 1999
INDEX TO UNAUDITED FINANCIAL STATEMENTS
Unaudited Financial Statements
Balance Sheets.........................................................3
Statement of Operations................................................4
Statement of Cash Flows................................................5
Notes to Financial Statements..........................................6
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Saratoga Holdings I, Inc.
Balance Sheets
MARCH 31, DECEMBER 31,
1999 1998
--------------------------
(UNAUDITED)
ASSETS
Current assets - cash ............................ $ 2,000 $ 1,000
Investment in past due accounts receivable ....... 9,000 10,000
----------------------
Total assets ..................................... $11,000 $11,000
======================
LIABILITIES AND STOCKHOLDER'S EQUITY
Preferred stock, par value $.001; 100,000
shares authorized; none outstanding ............ $ -- $ --
Common stock, par value $.001; 100,000,000
shares authorized; 3,766,667 shares issued
and outstanding ................................ 4,000 4,000
Additional paid-in capital ....................... 7,000 7,000
Retained earnings ................................ -- --
----------------------
Total liabilities and stockholder's equity ....... $11,000 $11,000
----------------------
======================
SEE ACCOMPANYING NOTES.
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Saratoga Holdings I, Inc.
Statement of Operations
(Unaudited)
Three Months Ended March 31, 1999
Revenues ................................................ $ --
Expenses ................................................ --
---------
Net income .............................................. $ --
=========
Basic and diluted earnings per share .................... $ 0.00
=========
Weighted-average number of common shares outstanding .... 3,767
SEE ACCOMPANYING NOTES
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Saratoga Holdings I, Inc.
Statement of Cash Flows
(Unaudited)
Three Months ended March 31, 1999
OPERATING ACTIVITIES ....................................... $ --
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in operating assets and liabilities:
Investment in past due accounts receivable ............. 1,000
------
Net cash provided by operating activities .................. 1,000
------
Net increase in cash ....................................... 1,000
Cash at beginning of period ................................ 1,000
------
Cash at end of period ...................................... $2,000
======
SEE ACCOMPANYING NOTES.
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1. ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Saratoga Holdings I, Inc. (the Company), a Texas corporation, is a wholly owned
subsidiary of Saratoga Resources, Inc. As of March 31, 1999, the Company has no
operations other than those related to a portfolio of past due account
receivables purchased on November 12, 1998. Accordingly, no prior year
comparable numbers are presented for the statements of operations and cash
flows. The Company is in the business of purchasing portfolios of accounts
receivable at a discount and of collecting receivables or reselling them in the
same or in differently configured portfolios. Effective May 17, 1999, the
Company's registration statement on Form SB-2 was declared effective by the
Securities and Exchange Commission and, accordingly, the Company is subject to
the reporting requirements of Section 15(d) of the Securities Exchange Act of
1934. It is the intention of Saratoga Resources, Inc. to distribute the shares
of the Company to the stockholders of Saratoga Resources, Inc. in the form of a
dividend, but such distribution has not yet occurred.
The accompanying unaudited financial statements are those of the Company, and
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation for
the periods indicated have been included. Operating results for the three month
period ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999. The balance sheet at
December 31, 1998 has been derived from the audited financial statements at that
date, but does not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. The
accompanying financial statements should be read in conjunction with the audited
financial statements (including the notes thereto) for the year ended December
31, 1998.
2. GOING CONCERN
The Company's financial statements have been prepared in conformity with
generally accepted accounting principles for interim financial information,
which contemplates continuation of the Company as a going concern. However, the
Company had no operating activities prior to November 12, 1998 and had limited
cash, working capital and available sources of financing at March 31, 1999,
raising substantial doubt about the entity's ability to continue as a going
concern.
The Company currently has limited expenses other than legal, accounting and
commissions which the Company intends to pay with collections of the past due
account receivable. A wholly owned subsidiary of Saratoga Resources, Inc. has
agreed to pay the Company's legal, accounting and reporting expenses up to
$40,000 for the first 18 months of the Company's operations subject to repayment
if the Company becomes profitable. This agreement is documented by a note dated
November 12, 1998 which provides for interest at the rate of 10% per annum. In
addition, the Company hopes that it will be able to support some of its
operations through the collection of accounts receivable.
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3. RELATED PARTY TRANSACTION AND SUBSEQUENT EVENTS
On May 17, 1999, the Company's registration statement on Form SB-2 was declared
effective by the Securities and Exchange Commission, publicly registering the
stock of Saratoga Holdings proposed to be spun off by Saratoga Resources, its
parent.
Randall Johnson, the President of the Company, is also a stockholder, officer
and director of both the company that sold the past due accounts receivable to
Saratoga Holdings and of the company that Saratoga Holdings has hired to collect
the receivables (the Premium Group). The Premium Group's primary role will be to
provide management expertise and strategic direction to the company including
for the acquisition of companies and consolidation of collection companies. On
June 14, 1999, the Company agreed to the following compensation, upon the
closing of one or more acquisitions of collection companies by the Company
resulting in pro forma after tax earnings of $4 million, issuance to the Premium
Group collectively 376,668 shares of common stock of the Company as well as
warrants to purchase an additional 376,668 shares. Half of these warrants, at an
exercise price of 110% of the average Company stock price 90 days after the
first acquisition, will vest one year after the first acquisition and expire two
years later. The remaining half of the warrants, at an exercise price of 200% of
the average Company stock price 90 days after the first acquisition, will vest
two years after the first acquisition and expire two years later. In exchange
for these shares and warrants, the Company received an option to acquire all of
the equity ownership of the Premium Group within 90 days of an acquisition, at a
price based on the EBITDA of the acquired companies. If no acquisition has been
made by December 31, 1999, the agreement expires.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Overview. Since the incorporation of Saratoga Holdings I, Inc. ("SHI")
in November 1998, management has sought new business opportunities relating
to the acquisition, resale, management, and collection of portfolios of
delinquent and defaulted accounts receivables.
SHI has entered into a strategic alliance with The Premium Group
("Premium"), a regional collection agency located in Georgetown, Texas. In
accordance with this agreement, Premium will act as the exclusive agent to
assist SHI in the location, purchase, and sale of receivables. Using its current
customer base and extensive contacts within the industry, Premium will assist
SHI in the acquisition of these portfolios. This agreement will serve to allow
SHI to negotiate for larger portfolios and to take advantage of associated
volume discounts.
Additionally, SHI is currently negotiating with investment bankers to
raise approximately $40 million to be dedicated to the acquisition of regional
and national collection agencies, as described in the "Business Strategy"
section of the Prospectus of SHI's filing on Form SB-2.
YEAR 2000 ISSUE
The Registrant utilizes software and related technologies that may be
affected by the Year 2000 problem, which is common to most businesses. The
Registrant is addressing the effect of the potential Year 2000 problem on all
its critical systems and with all of its critical vendors, customers and
clients. At this time, critical information systems throughout the Registrant
are Year 2000 compliant. No extra costs were incurred in obtaining this
compliance. Management has determined that no critical business areas will be
adversely affected by Year 2000 issues, but the Registrant continues to work
with its vendors, customers and others to ensure a smooth transition. Based on
the foregoing, management does not consider any contingency plan to be
necessary, and management believes that any costs and risks related to Year 2000
compliance will not have a material adverse impact on the liquidity or financial
position of the Registrant. If the Registrant hereafter engages in acquisitions
or business combinations, such as the purchase of the consumer debt accounts
receivable in 1999, management will address possible new Year 2000 problems
related to such transactions at the time of such transactions.
FORWARD-LOOKING STATEMENTS
Statements contained herein that relate to the Registrant's future
performance, including without limitation statements with respect to the
Registrant's anticipated results for any portion of 1999, shall be deemed
forward looking statements within the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. A number of factors affecting the
Registrant's business and operations could cause actual results to differ
materially from those contemplated by the forward looking statements. Those
factors include, but are not limited to, demand and competition for the
Registrant's products and services, changes in the requirements of clients and
customers, and changes in general economic conditions that may affect demand for
the Registrant's products and services or otherwise affect results of operations
or the value of the Registrant's assets. The forward-looking statements that are
included in this report were prepared by management and have not been audited
by, examined by, compiled by or subjected to agreed-upon procedures by
independent accountants, and no third party has independently verified or
reviewed such statements. Readers of this report should consider these facts in
evaluating the information and are cautioned not to place undue reliance on the
forward-looking statements contained herein.
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PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a)Exhibits
10.8 - Letter of Intent dated June 14, 1999 between the Company, The
Premium Group and Randall B. Johnson.
b)Reports on Form 8-K
The Company did not file any reports on Form 8-K during the period covered
by this report.
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SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SARATOGA RESOURCES, INC., A DELAWARE
CORPORATION
Date: June 30, 1999
_____________________________________
Thomas F. Cooke, Chief Executive
Officer and Principal Financial Officer
EXHIBIT 10.8
SARATOGA HOLDINGS I, INC.
A Wholly Owned Subsidiary
June 14, 1999
Randall B. Johnson
The Premium Group
308 West Seventh Street
Georgetown, Texas 78622
Dear Mr. Johnson:
This letter will serve as a letter of intent to document the agreement we have
negotiated for The Premium Group and Randall B. Johnson (Premium) role as
management consultants to Saratoga Holdings I, Inc, (Holdings). Premium's
primary role is to provide management expertise and strategic direction to
Holdings for the acquisition of collection companies and consolidation of
collection companies. In that regard, Premium's responsibilities will include:
o Assisting in the completion of the SEC registration.
o Assisting in the review and due diligence of each candidate company.
o Providing expertise to Holdings regarding various industry issues.
o Assisting in the discussion regarding private placement financing.
In return for Premium's role as management consultants to Holdings, Holdings
agrees on the following compensation:
Upon the closing of one or more acquisitions of collection companies by
Holdings, resulting in pro forma after tax earnings of $4 million, the Premium
will be issued 376,668 shares of common stock in Saratoga Holdings I. For
acquisitions less than $4 million, Premium will receive a pro-rata portion of
approximately 376,668 shares. In addition, Premium must remain active in its
role through the first acquisition and continue to take an active role to
include total acquisitions of no less than $4 million.
In addition, upon the closing of the first acquisition of one or more collection
companies by Holdings, the Premium group will be issued 376,668 warrants for
common stock in Saratoga Holdings I Inc. The warrants would be exercisable in
two stages, with one-half (188,334 warrants) exercisable beginning one year from
the date of the first acquisition of one or more collection companies and
expiring three years from the date of the first acquisition of one or more
collection companies, and the second one-half exercisable beginning two years
after the date of the first acquisition of one or more collection companies and
expiring four years after the date of the first acquisition of one or more
collection companies. All warrants will be treated in the same manner as the
common stock of Holdings subject to dilutions and adjustments. The strike prices
would be calculated as follows:
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SARATOGA HOLDINGS I, INC.
A Wholly Owned Subsidiary
For the first 188,334 warrants, the strike price would be calculated as 110% of
the average closing price of the stock on the NASDAQ (or other) exchange for the
30 days beginning on the first day of the month beginning not less than 90 days
following the closing of the purchase. For the second 188,334 warrants, the
strike price for the warrants shall be calculated as 200% of the average closing
price of the stock on the NASDAQ (or other) exchange for the 30 days beginning
on the first day of the month beginning not less than 90 days following the
closing of the purchase.
Randall B. Johnson will serve as President of Holdings up and through the first
acquisition at which time Holdings will negotiate a mutually agreed upon
employment contract for Randall B. Johnson as President of Holdings.
The owners of Premium and its affiliates shall be deemed to grant to Holdings a
90-day option from the date of the first acquisition of one or more collection
agencies to acquire all of the equity ownership or assets of Premium at an
EBITDA multiple equal to that of Holdings initial acquisition of one or more
collection agencies. The obligations of Holdings under this agreement are
subject in their entirety to the approval of Holdings financial
partner/investor.
If no acquisitions of collection agencies has been made by Holdings by December
31, 1999, this letter shall terminate and the parties shall have no further
obligation here under, unless extended by mutual agreement.
If this is Premium's understanding of our agreement, please signify by
countersigning below.
Saratoga Holdings I, Inc. Agreed
The Premium Group
By _____________________ By ____________________
Chairman Managing Partner
Agreed
Randall B. Johnson
By ____________________
