As filed with the Securities and Exchange Commission on April 13, 1999
Commission File Number 333-68213
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET N.W.
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SARATOGA HOLDINGS I, INC.
(Exact name of Registrant as specified in charter)
TEXAS 74-2896910
(State of incorporation) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification No.)
Thomas F. Cooke
301 Congress Avenue, Suite 1550
Austin, Texas 78701
(512) 478-5717
(Address and telephone number of principal executive offices and
principal place of business or intended principal place of business. Name,
address and telephone number or agent for service.)
Please send copies of all communications to:
J. Rowland Cook
Carol Bellon
Jenkens & Gilchrist, A Professional Corporation
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
(512) 499-3821
Fax: (512) 404-3520
THE SHARES WILL BE SOLD TO THE PUBLIC AS SOON AS REASONABLY POSSIBLE
AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE.* OFFERING PRICE REGISTRATION FEE
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Common Stock Offered as Dividend Shares 3,465,292 $0.003 $10,395.88 **$2.89
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* Arbitrary price as no trading market is contemplated.
**Calculated only for purposes of determining the Registration Fee; $2.97
previously paid.
The registrant hereby amends this registration statement as necessary to delay
its effective date until the registrant files a further amendment, which
specifically states that this registration statement will become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement becomes effective on a date that the Commission
determines.
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PRELIMINARY PROSPECTUS DATED APRIL 13, 1999, SUBJECT TO COMPLETION
SARATOGA HOLDINGS I, INC.
3,465,292 SHARES OF COMMON STOCK
Saratoga Resources, Inc., a Delaware corporation, intends to spin off
its wholly-owned subsidiary, Saratoga Holdings I, Inc., a Texas corporation, by
distributing as a dividend to its own stockholders, one share of the common
stock of Saratoga Holdings for each share of the parent's stock. However,
because California does not appear to provide an exemption from registration for
the distribution of the common stock, the parent will pay the dividend in cash
to stockholders who reside in those states at a rate of $0.003 per share. The
parent's stockholders will not be charged for the dividend shares and neither
Saratoga Holdings nor the parent will receive any proceeds from this
distribution.
Prior to this offering, there has been no public market for the common
stock.
WE URGE YOU TO READ THIS PROSPECTUS CAREFULLY SINCE IT CONTAINS
INFORMATION THAT IS IMPORTANT TO YOU. ALSO, PAY PARTICULAR ATTENTION TO THE
"RISK FACTORS" BEGINNING ON PAGE 5.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is April __, 1999
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY INFORMATION...............................................................4
SARATOGA HOLDINGS ...........................................................................4
THE OFFERING.................................................................................4
RISK FACTORS.................................................................................5
Saratoga Holdings does not have any significant operating history to indicate
whether it will be successful ................................................5
Saratoga Holdings does not have sufficiency of capital to pay its expenses...........5
Our accounts receivable may not be collectible.......................................5
Saratoga Holdings is not a licensed debt collection company .........................5
Our success in collecting accounts receivable is dependent upon a third party........5
The president's affiliation with the collection agency that collects our accounts
receivable and with the company that sold accounts receivable to us creates
a conflict of interest that could be detrimental to Saratoga Holdings ........6
One shareholder of Saratoga Holdings will control all of its policies and procedures.6
Saratoga Holdings has only one employee who has experience with its business.........6
The loss of services of Mr. Cooke would have a detrimental effect on Saratoga
Holdings......................................................................6
Saratoga Holdings is relying on a third party for compliance with federal and state
regulations...................................................................6
There is no trading market for Saratoga Holdings' common stock.......................7
Regulations affecting Saratoga Holdings may make it more difficult to resell its
shares........................................................................7
If you are an affiliate of Saratoga Holdings your ability to sell our shares will
be limited....................................................................7
We cannot predict the effect of resales of our securities on the price of the
common stock..................................................................7
Saratoga Holdings does not have insurance............................................8
There is substantial competition for the purchase of accounts receivable.............8
The year 2000 issue could adversely effect our business..............................8
Stockholders of the parent may be taxed on the dividend..............................8
FORWARD-LOOKING INFORMATION..................................................................8
SARATOGA HOLDINGS............................................................................9
INFORMATION CONCERNING THE PARENT ...........................................................9
USE OF PROCEEDS.............................................................................10
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION.........................................10
Federal Income Tax Consequences ....................................................10
DETERMINATION OF OFFERING PRICE.............................................................11
PLAN OF DISTRIBUTION........................................................................11
Introduction........................................................................11
Method of Distribution and Subsequent Trading.......................................12
Regulations Affecting the Price and Marketability of Saratoga Holdings Stock .......12
DIVIDENDS...................................................................................13
CAPITALIZATION..............................................................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION..................................................14
Liquidity...........................................................................15
The Year Two Thousand...............................................................15
THE BUSINESS................................................................................16
The Industry........................................................................17
Business Strategy...................................................................18
Research and Development Activities.................................................19
Compliance with Environmental Laws..................................................19
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Competition for Accounts Receivable.................................................19
Customers and Suppliers.............................................................19
Government Regulation...............................................................20
Employees...........................................................................20
Properties..........................................................................20
WHERE YOU CAN GET MORE INFORMATION..........................................................20
MANAGEMENT..................................................................................21
Directors and Executive Officers....................................................21
Compensation of Directors and Executive Officers....................................22
PRINCIPAL SHAREHOLDERS......................................................................22
Ownership of the Common Stock of Saratoga Holdings..................................22
Ownership of the Parent's Common Stock..............................................23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................................24
DESCRIPTION OF SECURITIES...................................................................24
Common Stock........................................................................24
Preferred Stock.....................................................................25
Anti-Takeover Provisions............................................................25
Indemnification of Officers and Directors; Limitation of Director Liability.........25
SHARES ELIGIBLE FOR FUTURE SALE.............................................................26
TRANSFER AGENT..............................................................................27
LEGAL MATTERS...............................................................................27
EXPERTS ....................................................................................27
INDEX TO FINANCIAL STATEMENTS..............................................................F-1
INDEPENDENT AUDITOR'S REPORT...............................................................F-2
BALANCE SHEET..............................................................................F-3
NOTES TO FINANCIAL STATEMENTS..............................................................F-7
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Dealer Prospectus Delivery Obligation
Until ___________, 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
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PROSPECTUS SUMMARY INFORMATION
Please read all of this prospectus carefully. It describes Saratoga
Holdings, its finances and products. Federal and state securities laws require
that we include in this prospectus all important information that investors will
need to make an investment decision. You should rely only on the information
contained in this prospectus to make your investment decision. We have not
authorized anyone to provide you with information that is different from what is
contained in this prospectus. The following is a summary of some of the
information contained in this prospectus. However, you should not rely on the
summary but should also read the more detailed information in this prospectus.
SARATOGA HOLDINGS
Saratoga Resources, Inc. incorporated Saratoga Holdings I, Inc. under
the laws of the State of Texas on October 29, 1998 with a view toward the
distribution of the dividend shares as described in this prospectus. Saratoga
Holdings 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. Saratoga Holdings is not a licensed debt
collection agency, and thus has retained a third party to collect those accounts
in exchange for a commission equal to 30% of the amount collected. Saratoga
Holdings had no predecessors and no history prior to its date of incorporation.
Saratoga Holdings' present address is c/o Saratoga Resources, Inc., 301 Congress
Avenue, Suite 1550, Austin, Texas 78701, telephone:
(512) 478-5717.
THE OFFERING
Type of Security Offered Common Stock, $0.001 par value
per share
Number of Outstanding Shares 3,766,667 shares
Common Stock Offered as Dividend Shares 3,465,292 shares
Common Stock Outstanding After Offering 3,766,667 shares
The parent had 3,465,292 shares outstanding as of March 15, 1999. It
will distribute shares of Saratoga Holdings common stock to all of its
stockholders except those residing in California. Instead of 6,308 shares of
Saratoga Holdings' common stock, the parent will pay stockholders in those
states cash in the aggregate amount of approximately $18.92 or $0.003 per share.
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RISK FACTORS
You should consider the common stock of Saratoga Holdings to be an
investment involving a high degree of risk. You should read this entire
prospectus and carefully consider the risk involved with this investment,
including the following factors.
SARATOGA HOLDINGS DOES NOT HAVE ANY SIGNIFICANT OPERATING HISTORY TO INDICATE
WHETHER IT WILL BE SUCCESSFUL
Because of our lack of operating history, there is no assurance that
Saratoga Holdings will be successful or that the stock of Saratoga Holdings will
have any value. Saratoga Holdings was organized in October 1998 and did not
begin operations until after it purchased accounts receivable on November 12,
1998. See "Saratoga Holdings" and "The Business."
SARATOGA HOLDINGS DOES NOT HAVE SUFFICIENCY OF CAPITAL TO PAY ITS EXPENSES
Without the loan and administrative support from its parent, Saratoga
Holdings does not have sufficient capital to conduct its business and presently
has no other credit facilities or identifiable sources of additional capital.
Saratoga Holdings had initial assets totaling $11,300, of which approximately
$10,300 was spent to acquire accounts receivables. The only other current source
of capital is a revolving loan from a subsidiary of the parent to cover expenses
up to $40,000 during the first 18 months of operations. Although Thomas F. Cooke
will control the management of both the parent and Saratoga Holdings immediately
after this offering, he has advised both companies that he plans to treat them
as separate, independent entities. See "Management's Discussion and Analysis of
Financial Condition -- Liquidity."
OUR ACCOUNTS RECEIVABLE MAY NOT BE COLLECTIBLE
There is no assurance that we will be able to collect our receivables
which is our only source of revenue. On November 12, 1998, we acquired 149
accounts receivable having an aggregate unpaid balance of $223,907.05 in
exchange for a purchase price of $10,299.72. We purchased the receivables
without recourse which means that the seller of the receivables will not be
obligated to us for any amount if we are unable to collect any or all of the
them. In addition, the seller did not provide Saratoga Holdings with any
representations as to the character, accuracy or sufficiency of the information
provided to us about the receivables. Therefore, even if the receivables are
uncollectible, we may not have any remedy or recourse against the seller. See
"Saratoga Holdings" and "The Business."
SARATOGA HOLDINGS IS NOT A LICENSED DEBT COLLECTION COMPANY
Saratoga Holdings does not have any license to operate as a debt
collection company. Instead of obtaining the necessary licenses, it has
transferred its accounts receivable to a licensed debt collection company for
collection. There is no assurance that Saratoga Holdings would be able to obtain
the necessary licenses to operate as a debt collection company even if it
applied for them. Therefore, it may always be necessary for it to rely upon a
third party to collect its accounts. See "The Business -- Government
Regulation."
OUR SUCCESS IN COLLECTING ACCOUNTS RECEIVABLE IS DEPENDENT UPON A THIRD PARTY
Our success in collecting the accounts receivable is largely dependent
upon the efforts of a third party debt collection company that is affiliated
with Mr. Johnson, the President of Saratoga Holdings. Saratoga Holdings has
entered into a service agreement that provides that the collection company will
use
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reasonable efforts to collect the receivables and authorizes it to settle any of
the receivables for 50% or more of the outstanding balance. In exchange for the
services provided under the service agreement, the collections company is
entitled to retain 30% of the amount collected as a commission. See "Saratoga
Holdings," "The Business" and "Risk Factors -- Conflict of Interest of the
President."
THE PRESIDENT'S AFFILIATION WITH THE COLLECTION AGENCY THAT COLLECTS OUR
ACCOUNTS RECEIVABLE AND WITH THE COMPANY THAT SOLD ACCOUNTS RECEIVABLE TO US
CREATES A CONFLICT OF INTEREST THAT COULD BE DETRIMENTAL TO SARATOGA HOLDINGS
Randall Johnson, the president of Saratoga Holdings, is also a
shareholder, officer and director of both the company that sold the receivables
to Saratoga Holdings and of the company we have retained to collect the
receivables. We may purchase additional receivables from the same company and
may retain the same collection company to collect any or all of those additional
receivables. Because of Mr. Johnson's conflict of interest, the purchase of the
receivables by Saratoga Holdings and the agreement with the collection company
to collect the accounts receivable may benefit the seller and the collection
company at the expense of Saratoga Holdings. See "Risk Factors -- Only One
Employee has Experience" and "Certain Relationships and Related Transactions."
ONE SHAREHOLDER OF SARATOGA HOLDINGS WILL CONTROL ALL OF ITS POLICIES AND
PROCEDURES
Mr. Thomas F. Cooke, both individually and as the sole director of
Saratoga Holdings, will control Saratoga Holdings' policies and procedures both
before and after the offering. After the sale of the shares and the distribution
of the dividend shares, Thomas F. Cooke, the sole director, chief executive
officer and secretary of Saratoga Holdings, will be the owner of approximately
59% of our common stock and will also control an additional 308,741 shares held
by the parent and 150,000 shares held by the parent's wholly-owned subsidiaries.
See "Principal Shareholders."
SARATOGA HOLDINGS HAS ONLY ONE EMPLOYEE WHO HAS EXPERIENCE WITH ITS BUSINESS
Mr. Johnson is the sole employee of Saratoga Holdings who has any
experience with respect to our business. The loss of the services of Mr. Johnson
could have a material adverse effect on the business. If Mr. Johnson resigned
and we could not find a replacement for him, we could be forced to rely on
outside advisors. However, because Saratoga Holdings has extremely limited
funds, it is unlikely that it would be able to afford to pay any outside
consultant. In addition, Mr. Johnson is not employed by Saratoga Holdings on a
full time basis. We estimate that he will devote approximately one-third of his
time to the affairs of Saratoga Holdings, including the collection of the
receivables. See "Management."
THE LOSS OF SERVICES OF MR. COOKE WOULD HAVE A DETRIMENTAL EFFECT ON SARATOGA
HOLDINGS
The success of our business is dependent upon the continued services of
Mr. Thomas F. Cooke, the sole director, chief executive officer, secretary and
treasurer of Saratoga Holdings. If Mr. Cooke were to resign, Saratoga Holdings
would probably not be successful.
SARATOGA HOLDINGS IS RELYING ON A THIRD PARTY FOR COMPLIANCE WITH FEDERAL AND
STATE REGULATIONS
We are relying on the third party that is collecting our accounts
receivable to comply with all federal and state regulations affecting the
business. This includes compliance with various federal and state statutes,
including the Federal Fair Debt Collection Practices Act which establishes
specific guidelines and procedures which debt collectors must follow in
communicating with consumer debtors, including the time, place and manner of
communications. It also includes compliance with the Fair Credit Reporting Act
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which regulates the consumer credit reporting industry and which may impose
liability on Saratoga Holdings to the extent that the adverse credit information
reported on a consumer to a credit bureau is false or inaccurate. The debt
collection business is also subject to state regulation. Saratoga Holdings is
not licensed as a debt collection company and does not anticipate applying for
any license. Instead, Saratoga Holdings is relying upon an unaffiliated third
party to collect its receivables. If the collection company fails to comply with
applicable statutes and regulations, that could have a material adverse effect
on Saratoga Holdings. See "The Business -- Government Regulation."
THERE IS NO TRADING MARKET FOR SARATOGA HOLDINGS' COMMON STOCK
There is currently no market for trading Saratoga Holdings' common stock
and no assurance that a market will ever develop or, if established, will be
maintained. Saratoga Holdings' common stock does not now, and may never qualify
for listing on the Nasdaq SmallCap Market(SM) or any securities exchange. In the
absence of an over-the-counter market in Saratoga Holdings' common stock, or
listing on an exchange, holders of the common stock will be unable to sell their
shares through normal brokerage channels and may be unable to determine the
value of their securities accurately. Consequently, selling our shares will
probably be more difficult because, for example, smaller quantities of shares
could be bought and sold, and transactions could be delayed. Saratoga Holdings
has not had any discussions with any market makers regarding participation as a
market maker for these securities. See "Description of Securities" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
REGULATIONS AFFECTING SARATOGA HOLDINGS MAY MAKE IT MORE DIFFICULT TO RESELL ITS
SHARES
Because of the low price of our common stock and the fact that it is not
listed on The Nasdaq SmallCap Market(SM) or any exchange, the shares may be
subject to a number of regulations which may affect the price of the shares and
your ability to sell the shares in the secondary market. See "Regulations
Affecting the Price and Marketability of Saratoga Holdings Stock."
IF YOU ARE AN AFFILIATE OF SARATOGA HOLDINGS YOUR ABILITY TO SELL OUR SHARES
WILL BE LIMITED
If you are an affiliate of Saratoga Holdings under the rules and
regulations of the Securities and Exchange Commission you may not sell shares of
Saratoga Holdings' common stock unless you comply with Rule 144 or another
exemption from registration. You will be deemed an affiliate if you are an
officer or director of Saratoga Holdings or if you beneficially own 5% or more
of its securities. Saratoga Holdings believes that the only shareholders who may
be affiliates are Mr. Cooke, Mr. Kevin Smith, a director of the parent, and Mr.
Johnson, the president of Saratoga Holdings. See "Management" and "Principal
Shareholders."
WE CANNOT PREDICT THE EFFECT OF RESALES OF OUR SECURITIES ON THE PRICE OF THE
COMMON STOCK
We are unable to predict the effect that sales made under Rule 144 or
otherwise, may have on the then prevailing market price of our common stock. It
is likely that market sales of large amounts of the shares offered in this
prospectus or other shares of Saratoga Holdings (or the potential for those
sales even if they do not actually occur), will have the effect of depressing
the market price of our common stock. See "Description of Securities -- Shares
Eligible for Future Sale."
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SARATOGA HOLDINGS DOES NOT HAVE INSURANCE
Saratoga Holdings currently does not carry any insurance, but instead
relies on general liability insurance carried by the company it has retained to
collect the receivables. If Saratoga Holdings suffered a liability beyond the
limits of or outside the scope of the collection company's insurance coverage,
it could have an adverse effect on our business.
THERE IS SUBSTANTIAL COMPETITION FOR THE PURCHASE OF ACCOUNTS RECEIVABLE
We compete with other debt collection companies and wholesalers of
accounts receivable for the purchase of quality accounts receivable. Competition
for the purchase of accounts receivable is significant. Various industry sources
list as many as 300 purchasers of bad debt in the United States. There are
numerous companies specializing in the purchase of accounts receivable that have
substantially greater resources and broader geographic coverage than Saratoga
Holdings. See "The Business -- Competition for Accounts Receivable."
If we decided to expand our business into the accounts receivable
management business, we would encounter significant competition. See "The
Business -- Competition For Accounts Receivable."
THE YEAR 2000 ISSUE COULD ADVERSELY EFFECT OUR BUSINESS
If various third parties, including any company collecting our accounts
receivable, do not successfully achieve year 2000 compliance, Saratoga Holdings'
business and results of operations could be adversely affected, resulting from,
among other things, Saratoga Holdings' inability to properly exchange and/or
receive data. In addition, if our transfer agent does not achieve year 2000
compliance, that would have an adverse effect on your ability to trade the
common stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation -- The Year Two Thousand."
STOCKHOLDERS OF THE PARENT MAY BE TAXED ON THE DIVIDEND
There is a risk that the stockholders of the parent may be taxed on the
dividend. The parent will report the amount of the dividend distribution to the
Internal Revenue Service based on the net book value of Saratoga Holdings on the
date of the distribution. However, the Internal Revenue Service may disagree and
attribute a substantially higher fair market value to the common stock. If it
did so, the tax impact on the stockholders of Saratoga Resources would increase
significantly and would not be minimal.
See "Federal Income Tax Consequences of the Distribution."
FORWARD-LOOKING INFORMATION
Some of the statements contained in this prospectus relate to future
expectations, contain projections of results of operations or financial
conditions or include other forward-looking information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and
assumptions. Important factors that may cause actual results to differ from
projections include, for example,
o the success or failure of our efforts to implement our business
strategy
o our ability to collect or resell the receivables on favorable
terms
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o our ability to purchase additional portfolios of past due
accounts receivable
o our ability to engage other collection companies to collect our
receivables
o the effect of changing economic conditions
o our ability to attract and retain qualified employees
o other risks which may be described in our future filings with
the SEC, however we do not promise to update forward-looking
information to reflect, for example, actual results or changes
in assumptions.
SARATOGA HOLDINGS
Saratoga Resources, Inc. incorporated Saratoga Holdings I, Inc. under
the laws of the State of Texas on October 29, 1998 with a view toward beginning
a new debt collection business and making the distribution of the dividend
shares as described in this prospectus. Saratoga Holdings 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. As of November 12, 1998, its total assets consisted of one portfolio
of accounts receivable with a face value of $223,907.05 for which it paid
approximately $10,300 in cash. With respect to this first portfolio, Saratoga
Holdings has retained a third party to collect those accounts in exchange for a
commission equal to 30% of the amount collected. Saratoga Holdings had no
predecessors and no history prior to its date of organization. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and
"The Business."
Saratoga Holdings is a wholly owned subsidiary of Saratoga Resources,
Inc., a Delaware corporation. The parent of Saratoga Holdings is in the business
of oil and natural gas development, through a subsidiary, which is separate and
distinct from Saratoga Holdings' business. The purpose of the spin-off of
Saratoga Holdings is to separate the two businesses so that over time the
management of each of the businesses will be able to focus solely on its own
business. Another purpose of the spin-off is to provide employees of Saratoga
Holdings with stock-based incentives which are tied solely to Saratoga Holdings.
In addition, Saratoga Holdings hopes to enhance access to financing by enabling
the financial community to focus on Saratoga Holdings.
INFORMATION CONCERNING THE PARENT
Saratoga Resources is a Delaware corporation whose main focus is the
development of and exploration for oil and natural gas reserves, primarily in
the Gulf Coast area of the United States. The parent conducts all of its
operations through its subsidiaries, Saratoga Resources, Inc., a Texas
corporation, Lobo Energy, Inc., a Texas corporation, and Lobo Operating, Inc., a
Texas corporation. In 1996, the parent and its subsidiaries entered into a
Compromise and Settlement Agreement providing for the foreclosure sale of all of
its assets. Under the terms of that agreement, all of the parent's material
liabilities were settled. The parent's principal asset at the time of the
completion of the sale consisted of approximately $1,500,000 in cash which was
available for the pursuit of new business opportunities or for other corporate
purposes. The parent and its subsidiaries, as of December 31, 1998, had
approximately $290,000 in cash and $57,000 of other assets, principally
equipment. At December 31, 1998, the parent employed two part-time employees,
including Thomas F. Cooke who serves as the chief executive officer
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and an office manager. The parent, through its subsidiaries, is generating
prospects for oil and natural gas exploration and development through the use of
its extensive database of seismic information and well log information. In
addition, it is evaluating acquisition and merger opportunities in the oil and
gas industry as well as other industries.
Saratoga Resources is a public company and had 3,465,292 shares of
common stock outstanding as of March 25, 1999. As of that date, it had
approximately 1,350 stockholders.
USE OF PROCEEDS
Neither Saratoga Holdings nor its sole shareholder will receive any
proceeds from this offering.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The following discussion is a summary of the material U.S. federal
income tax consequences of the distribution of Saratoga Holdings' shares to its
parent's stockholders. However, it is not a complete discussion of all potential
tax effects that might be relevant to the distribution. It also is limited to
domestic non-corporate stockholders. It may not apply to some classes of
taxpayers, including corporations, nonresident aliens, insurance companies,
tax-exempt organizations, financial institutions, securities dealers, and
broker-dealers. Taxpayers in any of these or similar categories should consult
their own tax advisors regarding the tax consequences of the distribution.
The following summary is based on laws, regulations, rulings, practice
and judicial decisions in effect at the date of this registration statement.
Legislative, regulatory, or interpretive changes, or future court decisions or
interpretations may or may not be retroactive and could affect the tax
consequences described herein. PLEASE CONSULT WITH YOUR OWN TAX ADVISOR AS TO
THE TAX CONSEQUENCES TO YOU OF THE DISTRIBUTION OF SARATOGA HOLDINGS' SHARES.
FEDERAL INCOME TAX CONSEQUENCES
The parent does not intend to request a ruling from the Internal Revenue
Service regarding the federal income tax consequences of the distribution.
However, based on the facts of the proposed transaction, it is the opinion of
management of the parent that the transaction will not qualify as a tax free
spin off under Section 355 of the Internal Revenue Code of 1986. Rather, the
parent will report the transaction as a taxable distribution.
The amount of the distribution for tax purposes is equal to the fair
market value of Saratoga Holdings' common stock on the date of the distribution.
The net book value of Saratoga Holdings on the date of the distribution is
expected to be approximately $0.003 per share. This is the amount that the
parent intends to report as the taxable value of the distribution per share.
Holders of the parent's common stock will be taxed on the distribution
as a dividend to the extent of the parent's consolidated current and accumulated
earnings and profits, computed as of the close of the tax year in which the
distribution occurs. For the year ended December 31, 1998, the parent had no
accumulated consolidated earnings and profits. The parent does not anticipate
having any current consolidated earnings and profits for the year ending
December 31, 1999. Thus, no portion of the distribution should be taxed as an
ordinary dividend.
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Instead, the distribution should first reduce a shareholder's adjusted
basis in the common stock of the parent, but not below zero. If the amount of
the distribution would have the effect of reducing a shareholder's adjusted
basis in his common stock of the parent below zero, the excess will be treated
as a gain from the sale or exchange of property. If the common stock of the
parent is a capital asset in the hands of the shareholder, the gain will be a
capital gain, either long-term or short-term depending upon whether the
shareholder held the parent's common stock for more than 12 months. The maximum
federal income tax rate on long-term capital gains is 20%, while the maximum
federal income tax rate on short-term capital gains is 39.6%.
A shareholder's tax basis in the Saratoga Holdings common stock received
in the distribution will equal the fair market value of the common stock on the
date of the distribution. The holding period for measuring a shareholder's gain
or loss on a subsequent sale of the Saratoga Holdings common stock will
generally begin on the day following the date of the distribution.
The foregoing statements are the opinion of the parent's management. The
Internal Revenue Service is not bound by and may not agree with the position of
management regarding the value of the Saratoga Holdings common stock or the
other matters discussed above. If the Internal Revenue Service were to
successfully assert that a substantially higher value should be placed on the
amount of the distribution, the tax impact would increase significantly and
would not be minimal. The parent would recognize gain to the extent the value
placed on the amount of the distribution exceeded its adjusted basis in the
stock which approximates the net book value of Saratoga Holdings. The
shareholders of the parent would be taxed on the amount determined for the
distribution as a dividend to the extent of any current year or accumulated
earnings and profits of the parent, including any gain recognized by the parent
on the distribution of the Saratoga Holdings' common stock, and would recognize
gain on the balance of the distribution to the extent it exceeded their adjusted
basis in shares of the parent owned by them.
AS A SHAREHOLDER OF THE PARENT YOU ARE URGED TO CONSULT WITH A TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE DISTRIBUTION,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY CHANGE IN THE LAWS.
DETERMINATION OF OFFERING PRICE
There is no market for trading Saratoga Holdings' securities. The net
book value of Saratoga Holdings on the date of the distribution is expected to
be approximately $0.003 per share which is the price that the parent paid for
all of the common stock of Saratoga Holdings that is currently outstanding.
PLAN OF DISTRIBUTION
INTRODUCTION
In October, 1998, the parent purchased 3,766,667 shares of common stock
from Saratoga Holdings for $11,300 in cash. The board of directors of the parent
believes that it will be beneficial to spin off approximately 3,465,292 of those
shares in order to pursue strategic alternatives and to position Saratoga
Holdings for future growth. Saratoga Holdings' management believes that this
transaction has the greatest potential for enhancing the competitive position of
the business and thereby enhancing overall shareholder value. The board of
directors of the parent has declared a stock dividend, and has authorized the
distribution of the dividend shares subject to the effectiveness of the
registration statement covering the shares.
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It is expected that Saratoga Holdings will expend a total of
approximately $26,003 for legal fees, printing, organization costs and other
costs involved in the distribution of the dividend shares to the shareholders of
the parent.
METHOD OF DISTRIBUTION AND SUBSEQUENT TRADING
No underwriters are involved or are expected to be involved in the
offering. The parent will distribute the common stock of Saratoga Holdings to
its shareholders as a dividend for no consideration. It intends to mail
certificates representing the dividend shares on or about ____________, 1999 or
as soon thereafter as reasonably possible to holders of the parent's common
stock of record on _____________, 1999. It will distribute the dividend on the
basis of one share of Saratoga Holdings' common stock for each one share of its
own issued and outstanding common stock. It does not anticipate issuing
certificates for fractional shares. The parent will not require the holders of
the parent's common stock to make any payment or take any other action in
connection with the dividend shares.
There would be approximately 1,350 shareholders of Saratoga Holdings if
the parent distributed Saratoga Holdings' shares to all of the parent's
shareholders. However, because Saratoga Holdings will distribute cash instead of
shares to those shareholders who reside in California, Saratoga Holdings
believes that there will be approximately 1,237 shareholders of Saratoga
Holdings after the distribution. Saratoga Holdings has not applied to register
this offering in any state. If any other state does not have an exemption for
the offering, Saratoga Holdings probably will distribute cash instead of shares
in that state as well. No shares of Saratoga Holdings may be traded in any state
until Saratoga Holdings complies with all of the state's securities laws. In
addition, there is no assurance that any shares of Saratoga Holdings will be
eligible for sale or resale in any jurisdiction.
The parent or Saratoga Holdings will mail a copy of this prospectus to
each holder of record of the parent's common stock on _____________, 1999
together with stock certificates representing the dividend shares or cash, as
applicable. Saratoga Holdings will also mail copies of this prospectus to
brokers and dealers who are known to trade or make a market in the parent's
common stock and to other brokers and dealers who may reasonably be expected in
the future to trade or make a market in Saratoga Holdings' common stock.
However, Saratoga Holdings does not anticipate that an active market for its
common stock will develop within the foreseeable future. Moreover, there can be
no assurance that any trading market will develop at any time.
REGULATIONS AFFECTING THE PRICE AND MARKETABILITY OF SARATOGA HOLDINGS STOCK
Because of the low price of our common stock and the fact that it is not
listed on The Nasdaq SmallCap Market(SM) or any exchange, the shares may be
subject to a number of regulations which may affect the price of the shares and
your ability to sell the shares in the secondary market.
For example, Rule 15g-9 under the Securities Exchange Act may affect the
ability of broker-dealers to sell the shares and may affect your ability to sell
the common stock in the secondary market. Rule 15g-9 generally applies to shares
that are not listed on The Nasdaq SmallCap Market(SM) or any stock exchange. The
rule imposes additional sales practice requirements on broker-dealers that sell
low-priced securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction.
In addition, because the penny stock rules probably will apply to our
shares, investors in this offering probably will find it more difficult to sell
their securities. The Securities and Exchange
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Commission's regulations define a penny stock to be any equity security that has
a market price or exercise price of less than $5.00 per share, subject to some
exceptions. The penny stock rules require a broker-dealer to deliver a
standardized risk disclosure document prepared by the Securities and Exchange
Commission, to provide the customer with additional information including
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, monthly account statements
showing the market value of each penny stock held in the customer's account, and
to make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These requirements probably will reduce the level of trading
activity in the secondary market for the common stock and may severely and
adversely affect the ability of broker-dealers to sell our securities.
DIVIDENDS
Saratoga Holdings has not paid any dividends on its common stock and
does not anticipate paying any dividends in the foreseeable future.
CAPITALIZATION
The following table shows the capitalization of Saratoga Holdings as of
March 25, 1999. The offering will not result in any changes to the
capitalization.
Debt $ 0.00
Shareholder's Equity
Preferred stock, $0.001 par value, 100,000
shares authorized, none issued or outstanding --
Common stock, $0.001 par value, 100,000,000
shares authorized, 3,766,667 issued and outstanding $ 3,766.66
Additional paid in capital $ 7,533.33
Total Shareholder's Equity $ 11,300.00
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Saratoga Holdings has no operations or assets other than, as of December
31, 1998, a portfolio of accounts receivable with an aggregate unpaid balance of
$223,907.05 for which it paid approximately $10,300 in cash. The majority of the
accounts receivable represent consumer debt, mostly relating to past due credit
card obligations.
Effective November 12, 1998, Saratoga Holdings entered into a service
agreement under which it has engaged a debt collection company to collect the
receivables. The service agreement authorizes the collection company to settle
any of the receivables transferred for collection for 50% or more of the
outstanding balance. In exchange for the services provided under the service
agreement, the collection company is entitled to retain a commission equal to
30% of the amount collected.
Based upon the experience of its president, who is also an officer and
director of the seller of the portfolio and of the collection company, Saratoga
Holdings believes that total collection of a portfolio should be approximately
20% to 35% of the face value of the portfolio, depending upon the quality of the
portfolio and the success of collection efforts. This would result in potential
collections of approximately $45,000 to $90,000 of its current portfolio of
receivables. After deducting commissions and expenses, Saratoga Holdings should
receive approximately $31,000 to $63,000, provided, however, no assurance can be
given that these accounts will be collected to this extent. After six to ten
months of collection efforts, Saratoga Holdings intends to sell the balance of
the portfolio and anticipates that it may be able to do so for approximately
half of its original cost of the uncollected receivables.
Saratoga Holdings intends to apply a substantial portion of any amounts
recovered from the collection of the receivables (after payment of the
commissions) to purchase additional receivables. We hope that we will be able to
collect a sufficient amount from the portfolio to reinvest the net collections
in a new portfolio approximately every four to six months. Saratoga Holdings may
purchase additional receivables from the same seller or from other sellers which
include the following:
o the 50 largest banks in the United States;
o other credit agencies and lenders; and
o large wholesalers of accounts receivable that purchase
receivables from lenders.
Saratoga Holdings uses several criteria to select accounts for purchase
in an effort to determine the overall collectibility of the accounts. These
criteria include age, collection experience, and the demographics of the
package. Saratoga Holdings looks for portfolios that are predominately comprised
of accounts with the following characteristics:
o they are less than three years in default;
o they previously have not been placed with a collection
agency; and
o they represent debts originating in states whose
populations generally have higher personal incomes and
less restrictive debt collection laws.
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LIQUIDITY
Because Saratoga Holdings has limited cash, its independent accountants
believe there is substantial doubt about its ability to continue as a going
concern. However, Saratoga Holdings believes that it will be able to meet its
obligations because its only material expenses (other than commissions which
will be paid out of collections) are legal and accounting and, after this
registration statement becomes effective, reporting expenses. A wholly owned
subsidiary of the parent has agreed to provide a revolving line of credit to
Saratoga Holdings up to a maximum of $40,000 at an interest rate of 10% per year
to cover these legal, accounting and reporting expenses for the first 18 months
of operations. The terms of the line of credit are set forth in a note dated
effective November 12, 1998. If Saratoga Holdings does not become profitable,
the lender intends to treat the debt as a capital contribution.
Saratoga Holdings hopes that it will be able to support some of its
operations though the collection of accounts receivable. It began to realize
collections from the efforts of the collection company in March 1999. In
addition to cash collected, Saratoga Holdings may attempt to borrow money to use
toward the purchase of additional receivables. Saratoga Holdings would offer the
accounts receivable purchased with the proceeds of the loan as collateral for
the loan.
THE YEAR TWO THOUSAND
Saratoga Holdings, like many companies, faces the Year 2000 issue. Many
computer programs use two digits rather than four (for example, "98" for 1998)
to define dates. As a result, any programs that have time-sensitive software may
recognize a date using "00" for the year 2000 as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things a temporary inability
to process transactions or engage in other normal business activities.
Saratoga Holdings does not own or operate any computer systems. However,
it uses the computer hardware and software of the parent for general accounting
and business purposes. The parent believes that its computer systems and
software are Year 2000 compliant because it purchased them within the past two
years. However, the parent is in the process of seeking assurances of this fact
from its hardware and software vendors. If any of these systems are not Year
2000 compliant, the parent will modify or replace portions of its hardware and
software prior to the end of this year.
In addition, Saratoga Holdings has gathered information about the Year
2000 compliance status of various third parties, including its transfer agent
and the company that it has retained to collect its current portfolio of
accounts receivable. The collection company has reported to Saratoga Holdings
that it is Year 2000 compliant and the transfer agent has represented that it is
in the process of becoming Year 2000 compliant. To date, Saratoga Holdings is
not aware of any third party with a Year 2000 Issue that would materially impact
its results of operations, liquidity, or capital resources. However, Saratoga
Holdings has no means of ensuring that all third parties will be Year 2000
compliant.
Because Saratoga Holdings does not have any of its own computer hardware
or software, Saratoga Holdings believes that there will be no material cost
involved in its Year 2000 compliance efforts. For that same reason, Saratoga
Holdings has no contingency plan in place.
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THE BUSINESS
Saratoga Holdings is in the business of collecting past-due accounts
receivables. Saratoga Holdings intends to grow its business by reinvesting a
substantial portion of the net collections in the purchase of additional
receivables. Saratoga Holdings has assembled an advisory board consisting of
five experienced individuals to provide it with direction for future growth.
Saratoga Holdings purchased its first portfolio of accounts receivable
from The Premium Group. The Premium Group became involved in the accounts
receivable management business in 1994 under the name Capital Analysis Partners.
Since 1994, The Premium Group has been involved in the purchase and resale of
over $500 million in accounts receivable and is ranked in the top 50 firms in
the United States in this industry based on industry information compiled by
COLLECTIONS & CREDIT RISK magazine. The Premium Group, like Saratoga Holdings,
purchases portfolios of accounts receivable for collection by outside collection
agencies including Premium Recoveries, or for resale to third parties. The
Premium Group typically purchases portfolios through joint ventures with
existing or new investor funds. In addition, it provides consulting services to
debt originators and other accounts receivable management firms to help them
improve their cash flow from operations. As of April 1, 1999, The Premium Group,
in connection with seven joint venture partners, had approximately $560,000 in
assets under collection with outside collection agencies including Premium
Recoveries. The Premium Group employs five individuals who, under the direction
of Mr. Johnson, are responsible for analyzing portfolios, closing the purchase
of portfolios, and post-sale service and support of the portfolios.
Saratoga Holdings expects to purchase a new portfolio of accounts
receivable in June 1999. The management of Saratoga Holdings has reviewed
industry publications which provide information regarding sources of delinquent
accounts receivable and has discussed the possibility of purchasing accounts
receivable with a number of sources including several banks and resellers of
accounts receivable. Based upon these factors, Saratoga Holdings believes that
there are many sources of delinquent accounts receivable and that it will be
able to purchase additional portfolios at the appropriate time. Based upon the
success of the collection efforts on its first portfolio, Saratoga Holdings
anticipates that it may borrow funds in order to purchase a larger portfolio,
using the portfolio as collateral, or it may enter into a joint venture with a
third party investor. Saratoga Holdings has identified and discussed this
possibility with eight third party investors who have expressed interest.
Like The Premium Group, Saratoga Holdings is not licensed as a debt
collection company and does not collect receivables directly. Instead, it has
retained Premium Recoveries to collect the accounts in exchange for a
commission. Saratoga Holdings has chosen not to become licensed because of the
significant cost and time associated with that process. It believes that
outsourcing those services, on a competitive basis, is the most fiscally sound
approach until it is in a position to purchase a higher volume of accounts
receivable. However, Saratoga Holdings plans to perform the collection function
directly within the next 18 months. It intends to acquire the necessary licenses
through the purchase of already existing collection agencies. Saratoga Holdings
has discussed this possibility with approximately 11 collection agencies,
however, it has not as entered into any formal letter of intent.
Saratoga Holdings has a contract with Premium Recoveries for the
collection of its current portfolio. Premium Recoveries is an affiliate of The
Premium Group. It has a staff of seven, all of whom are supervised by Mr.
Johnson. The owners of the Premium Group acquired Premium Recoveries in 1998.
According to industry publications, there are approximately 6,500 collection
agencies in the United States. Premium Recoveries now ranks in the top 150 based
upon industry information compiled by COLLECTION & CREDIT RISK magazine. It is a
member in good standing with the American Collectors Association (ACA).
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Premium Recoveries does not have any agreement with Saratoga Holdings
regarding the collection of any additional portfolios. When it purchases
additional portfolios of accounts receivable, Saratoga Holdings will choose
collection agencies on a case-by-case basis and will exclude interested officers
and directors from the decision making process. Premium Recoveries has indicated
to Saratoga Holdings that it is willing to renew or extend the term of the
collection agreement which Saratoga Holdings to cover new portfolios of accounts
receivable. Saratoga Holdings will determine whether to renew or extend the
agreement based upon the success of collection efforts from its first portfolio.
The management of Saratoga Holdings has been investigating other relationships
with collection agencies and, based on discussions with them, believes that it
will have the option of retaining other agencies to collect its receivables upon
similar terms.
We anticipate that the funds necessary to pursue our business will be
derived from the net proceeds we collect from our first portfolio. Premium
Recoveries has advised us that they have been able to locate an unusually large
percentage of the debtors, 146 of a total of 147. In view of this, they expect
total collections greater than initially projected. Since the best collections
typically occur [IN THE FIRST FOUR TO SIX MONTHS] of the collection effort, they
expect this portfolio to produce from 10% to 20% of the total balance as a
result of normal collections within that period. By transferring uncollected
accounts to attorneys for collection, Premium Recoveries expects to produce
another 10% to 15% from this portfolio. Accordingly, they estimate that the
total collections from the first portfolio might range from approximately
$45,000 to approximately $90,000. After the 30% commission, we expect that this
will provide us with a net payment of approximately $31,000 to $63,000. We
expect to receive a portion of these funds over approximately the next six to
ten months and intend to use them to purchase one or more larger portfolios. We
may enter into a joint venture with other investors or acquire a loan from a
bank in order to purchase larger portfolios. We intend to build our business by
repeating this process and by acquiring collection companies.
THE INDUSTRY
The debt collection industry exists because lenders, including banks and
other credit agencies, create portfolios of past due accounts receivable from
loans which have not been repaid. These past due receivables may be placed with
a collection company, or they may be sold at a discount from their face value.
The face value of the receivables is the total principal balance of the
portfolio of receivables on the date that it was charged off or sold by the
originator. The face value does not include interest which has accrued since the
receivables were charged off. The price of a portfolio of receivables is
determined by the age of the portfolio and by how many times it has been placed
for collection. The age of receivables may range from 180 days since the date of
the last payment by the debtor to seven years since the date of last payment by
the debtor. Generally, the price of 180 day old receivables that have not been
placed for collection is approximately 10 cents on the principal dollar. The
price for five to seven year old receivables that have been placed for
collection three or more times may be as little as one-half cent on the
principal dollar.
Receivables are typically purchased without recourse which means that
the seller of the receivables will not be obligated to the purchaser if the
purchaser is unable to collect the debt. In addition, the sellers typically do
not provide purchasers with any representations as to the character, accuracy or
sufficiency of the information provided to a purchaser about the receivables.
Therefore, even if the purchaser cannot collect the receivables, the purchaser
may not have any remedy or recourse against the seller.
Generally, collection companies spend approximately four to six months
attempting to collect a portfolio of receivables. The portfolio collection
process includes the following steps.
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o The collection company will analyze and score the portfolio to
determine the collectibility of each account, based upon factors
such as demographics and credit ratings.
o The collection company will send each account a letter stating
that all payments and correspondence should be directed to the
collection agency. By federal law, the letter must contain
specific information regarding the type of debt and the balance
due, and a statement that the letter is an attempt to collect the
debt.
o The collection company follows up the letter with phone calls in
which the collection company attempts to negotiate a settlement
of the debt for a percentage of the amount owed.
o The collection company may refer some of the accounts to
collection attorneys who may file a lawsuit. Once a judgment is
rendered in a case, the debtor's assets are identified and
attached, or, in some states, wages may be garnished.
o After the collection company has completed the collection cycle,
and assuming collection efforts as to a particular account have
not been successful, the collection company may sell those
uncollected accounts for approximately one-third to one-half of
the account's original purchase price.
BUSINESS STRATEGY
Saratoga Holdings' current strategy is to grow its business by
reinvesting a substantial portion of its net collections into the purchase of
additional accounts receivable. However, Saratoga Holdings anticipates that it
may expand its operations in several ways, including the following:
o it may participate with other entities in buying large portfolios
of past-due receivables and enter into arrangements with other
companies for the collection and servicing of accounts;
o it may form separate entities, such as limited partnerships,
through which to raise funds for the purchase of portfolios, and
to engage in the collection of portfolios directly or by
contracting this function to third parties;
o it may acquire portfolios of delinquent receivables and subdivide
receivables into two or more separate portfolios to be sold or
retained for collection;
o it may pursue merger and acquisition opportunities in the
receivables collection or other related industries, or enter into
strategic alliances with third parties to further expand Saratoga
Holdings' revenue base.
Saratoga Holdings has a large number of authorized but unissued shares
and could use those shares as a vehicle to achieve a reverse acquisition without
being required to obtain shareholder approval of the transaction; however, at
this time, Saratoga Holdings does not have any agreements or understandings with
respect to any merger, acquisition or other business combination. Saratoga
Holdings does not plan to or anticipate acquiring a business in an unrelated
industry.
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Mr. Thomas Cooke would be central in any efforts Saratoga Holdings makes
to expand its business and in some cases might be in a position to negotiate a
finders' fee or other compensation for those services. Mr. Cooke has represented
to Saratoga Holdings that he will not negotiate any finders' fees, consulting
fees or other special compensation in connection with any efforts he makes to
achieve a business combination. Saratoga Holdings does not intend to rely on
outside business consultants other than collection companies.
RESEARCH AND DEVELOPMENT ACTIVITIES
Saratoga Holdings has not spent any material amount on research or
development activities since its inception on October 29, 1998.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Saratoga Holdings does not believe that it will incur any material cost
relating to efforts to comply with environmental laws.
COMPETITION FOR ACCOUNTS RECEIVABLE
Saratoga Holdings competes with debt collection companies and with
wholesalers of accounts receivable for the purchase of accounts receivable.
Competition for the purchase of accounts receivable is significant. Various
industry sources list as many as 300 purchasers of bad debt in the United
States. There are numerous companies specializing in the purchase of accounts
receivable that have substantially greater resources and broader geographic
coverage than Saratoga Holdings.
If Saratoga Holdings decided to expand its business into the accounts
receivable management business, it would encounter significant competition. The
accounts receivable management industry includes more than 6,500 service
providers, including large national corporations in addition to many regional
and local firms. Most if not all of these companies have substantially greater
resources, offer more diversified services and operate in broader geographic
areas than Saratoga Holdings. More importantly, these companies have greater
resources with which to purchase accounts receivable. In addition, in many
instances, the accounts receivable collection services are performed in-house.
CUSTOMERS AND SUPPLIERS
Saratoga Holdings does not provide goods or services. However, Saratoga
Holdings is currently dependent upon its relationship with The Premium Group,
Inc. as a source of accounts receivable and the services of Premium Recoveries,
Inc. for collection of accounts receivable. Saratoga Holdings does not have any
ongoing contractual commitment from The Premium Group to supply any additional
accounts receivable. Its agreement with Premium Recoveries, Inc. for the
collection of accounts receivable extends for a period of 12 months until
November 11, 1999. After that time, it automatically renews on a month to month
basis and therefore may be canceled by either party upon 30 days written notice.
If its relationship with Premium Recoveries, Inc. were not renewed or were
canceled, Saratoga Holdings would search for another debt collection company to
replace Premium Recoveries, Inc. Saratoga Holdings does not anticipate
collecting accounts receivable directly unless it acquires a licensed debt
collection company through a business combination.
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GOVERNMENT REGULATION
The accounts receivable industry is regulated under various federal and
state statutes. Saratoga Holdings is not licensed as a debt collection company.
Instead of applying for any licenses, Saratoga Holdings has retained a licensed
debt collection company to collect its receivables in exchange for a commission.
Saratoga Holdings is relying upon the debt collection company to comply with
numerous federal and state laws and regulations. These include the Federal Fair
Debt Collection Practices Act which establishes specific guidelines and
procedures which debt collectors must follow in communicating with consumer
debtors, including the time, place and manner of communications. It also
includes the Fair Credit Reporting Act which regulates the consumer credit
reporting industry and which may impose liability on Saratoga Holdings to the
extent that the adverse credit information reported on a consumer to a credit
bureau is false or inaccurate.
The debt collection business is also subject to state regulation.
Saratoga Holdings is not licensed as a debt collection company and does not
anticipate applying for any license. The company that presently is collecting
the receivables for Saratoga Holdings is licensed as a debt collection company
and has agreed that it will comply with all state and federal laws in connection
with its collection of Saratoga Holdings' accounts receivable. If the collection
company fails to comply with applicable statutes and regulations, that could
have a material adverse effect on Saratoga Holdings. There can be no assurance
that additional federal or state legislation, or changes in regulatory
implementation, would not limit the activities of debt collection companies in
the future or significantly increase the cost of regulatory compliance.
EMPLOYEES
Saratoga Holdings currently has two employees, neither of which is full
time.
PROPERTIES
Saratoga Holdings has no property or office of its own. It is utilizing,
without charge, the address and telephone number of the parent as its office.
Currently Saratoga Holdings has no plans for office facilities in the future.
WHERE YOU CAN GET MORE INFORMATION
If you want more information, write or call us at:
Saratoga Holdings I, Inc.
c/o Saratoga Resources, Inc.,
301 Congress Avenue, Suite 1550
Austin, Texas 78701
Telephone: (512) 478-5717
Our fiscal year ends on December 31. We do not presently file reports or
any other information with the Securities and Exchange Commission, however, we
intend to furnish our shareholders annual reports containing audited financial
statements and other appropriate reports. In addition, we intend to become a
reporting company and file annual, quarterly and current reports, proxy
statement or other information with the SEC. You may read and copy any reports,
statements or other information we file at the SEC's public reference room in
Washington D.C. You can request copies of these documents, upon
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payment of a duplicating fee by writing to the SEC. You may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. Our SEC filings are also available to the public on the SEC
Internet site at http://www.sec.gov.
This prospectus contains information concerning Saratoga Holdings as of
December 31, 1998 unless another date is specified. The delivery of this
prospectus at any time does not constitute a representation that the information
contained in it is correct as of any other date, and the delivery of this
prospectus shall not imply that there has not been a change in the business or
affairs of Saratoga Holdings since that date. No dealer, salesman or other
person has been authorized to furnish information or to make any representations
other than what is set forth in this prospectus. You should not rely on any
information or representation other than the information set forth in this
prospectus.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Saratoga Holdings and their
respective ages and positions are as follows:
NAME AGE POSITION
Randall B. Johnson 50 President
Thomas F. Cooke 50 Chief Executive Officer,
Secretary and Director
RANDALL B. JOHNSON has served as president of Saratoga Holdings since
its formation on October 29, 1998. In addition, since 1992, Mr. Johnson has
served as the managing partner of Capital Analysis Partners, which, from 1992
through 1995 was in the business of making venture capital investments ranging
in size from $100,000 to over $5,000,000. In 1994, Capital Analysis Partners
became involved in the accounts receivable management business. In 1997, it
changed its name to CAP Ventures and in 1998 to The Premium Group. Mr. Johnson
continues to serve as the managing partner of The Premium Group. In addition,
since August, 1998, Mr. Johnson has served as the vice president of Premium
Recoveries, Inc., a commercial collection agency located in Austin, Texas and a
subsidiary of The Premium Group.
THOMAS F. COOKE is the sole director, chief executive officer and the
secretary of Saratoga Holdings. Mr. Cooke has held these positions with Saratoga
Holdings since its formation on October 29, 1998. Mr. Cooke was one of the
co-founders of the parent in 1990. He also has been a self employed independent
oil and gas producer for the past 16 years. Mr. Cooke has served as a director
and chairman of the board of the parent since September of 1993, and as chief
executive officer since April 1996. Mr. Cooke also served as chief operating
officer of the parent from 1993 to 1996. Mr. Cooke's employment by the parent
was on a full-time basis prior to the formation of Saratoga Holdings. Mr. Cooke
now divides his time between the two corporations. Mr. Cooke is also a principal
shareholder of the parent.
Both Mr. Johnson and Mr. Cooke may be deemed a parent or promoter of
Saratoga Holdings as those terms are defined in the rules and regulations
promulgated under the Securities Act of 1933.
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Each officer holds office for a term expiring at the next annual meeting
of shareholders and upon the election and qualification of his successor.
Officers serve at the pleasure of the board of directors of Saratoga Holdings.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Saratoga Holdings has paid no remuneration to its director or officers,
other than as provided in the following paragraph, and does not anticipate the
payment of remuneration, other than as provided below, until the board of
directors determines otherwise.
Saratoga Holdings has granted Mr. Johnson a three-year option to
purchase 25,000 shares of Saratoga Holdings' common stock at an exercise price
of $0.50 per share. There are no other outstanding options or warrants to
purchase shares of Saratoga Holdings' common stock.
PRINCIPAL SHAREHOLDERS
Prior to the distribution of the dividend shares, the parent owns 100%
of the issued and outstanding common stock of Saratoga Holdings. After the
distribution of the dividend shares, the parent will own approximately 8.4%.
OWNERSHIP OF THE COMMON STOCK OF SARATOGA HOLDINGS
The following table sets forth information regarding the beneficial
ownership of the common stock of Saratoga Holdings as adjusted to reflect the
distribution of the dividend shares by the following:
o each director of Saratoga Holdings,
o each named executive officer of Saratoga Holdings,
o each person known or believed to own beneficially 5% or more of
the common stock, and
o all directors and executive officers as a group.
Unless otherwise indicated, each person will have sole voting and dispositive
power with respect to his or her shares. Shares of common stock that are not
outstanding but that can be acquired by a person within 60 days upon exercise of
an option or similar right are included in the number of shares beneficially
owned and in computing the percentage for such person but are not included in
the number of shares beneficially owned and in computing the percentage for any
other person. The information in this table assumes that Saratoga Holdings will
have 3,766,667 shares outstanding after the offering.
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT BENEFICIALLY OWNED
------------------- ---------------- --------------------------
<S> <C> <C>
Thomas F. Cooke 2,679,163 71.1%
301 Congress Avenue, Suite 1550
Austin, Texas 78701
Randall B. Johnson 25,000 >1%
308 West Seventh Street, Suite A
Georgetown, Texas 78626
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Kevin M. Smith 238,295 6.3%
2000 Dairy Ashford, Suite 410
Houston, Texas 77077
Saratoga Resources, Inc. 458,741 12.2%
301 Congress Avenue, Suite 1550
Austin, Texas 78701
All Officers and Directors 3,401,199 89.7%
as a Group
</TABLE>
- -----------------
Shares of Saratoga Holdings held by Mr. Cooke include 109,148 shares of
common stock beneficially owned by June Cooke, the spouse of Mr. Cooke, and
308,741 shares owned by Saratoga Resources, a company controlled by Mr. Cooke,
and 150,000 shares held by wholly owned subsidiaries of Saratoga Resources.
Shares owned by Saratoga Resources include 150,000 shares held by its wholly
owned subsidiaries. All shares of Saratoga Holdings held by Mr. Johnson are in
the form of immediately exercisable options to purchase 25,000 shares of common
stock. Shares of Saratoga Holdings held by Mr. Smith include 20,000 shares of
common stock beneficially owned by Sandra Smith, the spouse of Mr. Smith. Mr.
Smith is a director of the parent but not of Saratoga Holdings.
OWNERSHIP OF THE PARENT'S COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of the 3,465,292 issued and outstanding shares of common stock of the
parent by the following:
o each director of Saratoga Holdings,
o each named executive officer of Saratoga Holdings, and
o all directors and executive officers as a group.
NAME AND ADDRESS NUMBER OF SHARES PERCENT
OF BENEFICIAL OWNER OF THE PARENT BENEFICIALLY OWNED
------------------- ---------------- ------------------
Thomas F. Cooke 2,220,422 64.1%
301 Congress Avenue, Suite 1550
Austin, Texas 78701
All Officers and Directors 2,220,422 64.1%
of Saratoga Holdings
as a Group
- ------------------
Shares of the parent held by Mr. Cooke include 109,148 shares of common
stock beneficially owned by June Cooke, the spouse of Mr. Cooke.
23
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Cooke and Mr. Johnson may be considered to be promoters of Saratoga
Holdings for purposes of the securities laws. A promoter includes anyone who
takes initiative in founding or organizing a business.
Saratoga Holdings is a wholly owned subsidiary of Saratoga Resources.
Mr. Thomas Cooke, the chief executive officer, secretary and sole director of
Saratoga Holdings is also the president and holder of a majority of the shares
of the parent. The parent purchased 3,766,667 shares of Saratoga Holdings on or
about November 12, 1998 at a price of $0.003 per share.
Mr. Randall B. Johnson, the president of Saratoga Holdings is also the
managing partner, an officer, director and a shareholder of The Premium Group
and Premium Recoveries, Inc. Saratoga Holdings purchased the receivables for
approximately $10,300 in cash from The Premium Group under the terms of a
Purchase Agreement dated November 12, 1998 between Saratoga Holdings and Premium
Group. At that time, the portfolio of receivables had a face value of
$223,907.05. The Premium Group previously had purchased the receivables in June
1998 for a purchase price of $9,750.
In addition, Saratoga Holdings entered into a services agreement also
dated November 12, 1998 with Premium Recoveries under which Premium Recoveries
has agreed to use its reasonable efforts to collect the receivables in exchange
for a commission equal to 30% of the amount collected. Saratoga Holdings
believes that the 30% commission is standard in the industry.
In addition, Saratoga Holdings has granted to Mr. Johnson a three-year
option to purchase 25,000 shares of its common stock for $0.50 per share.
DESCRIPTION OF SECURITIES
The authorized capital stock of Saratoga Holdings consists of
100,000,000 shares of common stock, $0.001 par value, and 100,000 shares of
undesignated preferred stock, $0.001 par value.
COMMON STOCK
The holders of Saratoga Holdings' common stock are entitled to one vote
per share on all matters submitted to a vote of shareholders voting with the
holders of Saratoga Holdings' preferred stock as a single class, except where
class voting is required by the Texas Business Corporation Act or by a
Certificate of Designation adopted by the Board of Directors. Cumulative voting
in the election of directors is prohibited. Accordingly, the holders of a
majority of the combined number of outstanding shares of common stock and
Saratoga Holdings' preferred stock entitled to vote in any election of directors
may elect all of the directors standing for election.
Holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of funds legally
available therefor, subject to any preferential dividend rights of outstanding
preferred stock. Upon a liquidation, dissolution or winding up of Saratoga
Holdings, the holders of common stock are entitled to receive ratably the net
assets of Saratoga Holdings available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.
The holders of common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock are, and the shares
issued in the offering will be, when issued and paid for, fully paid and
nonassessable.
24
<PAGE>
PREFERRED STOCK
There are 100,000 shares of undesignated preferred stock authorized and
no shares of preferred stock issued or outstanding.
ANTI-TAKEOVER PROVISIONS
Some of Saratoga Holdings' Articles of Incorporation and Bylaws, and the
indemnification agreements with directors and officers of Saratoga Holdings may
be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a shareholder might consider to be in that
shareholder's best interest, including attempts that might result in a premium
over the market price for the shares held by shareholders.
Under the terms of Saratoga Holdings' Articles of Incorporation,
Saratoga Holdings' Board of Directors may issue additional shares of common
stock or establish one or more series of preferred stock having the number of
shares, designations, relative voting rights, dividend rates, liquidation and
other rights, preferences and limitations that the Board of Directors fixes
without shareholder approval. Any additional issuance of common stock or
designation of rights, preferences, privileges and limitations with respect to
preferred stock could have the effect of impeding or discouraging the
acquisition of control of Saratoga Holdings by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the continuity of Saratoga
Holdings' management. Specifically, if in the due exercise of its fiduciary
obligations, the Board of Directors were to determine that a takeover proposal
was not in Saratoga Holdings' best interest, shares could be issued by the Board
of Directors without shareholder approval in one or more transactions that might
prevent or render more difficult or costly the completion of the takeover
transactions by diluting the voting or other rights of the proposed acquiror or
insurgent shareholder group, by putting a substantial voting lock in
institutional or other hands that might undertake to support the position of the
incumbent Board of Directors, by effecting an acquisition that might complicate
or preclude the takeover, or otherwise. Saratoga Holdings' Articles of
Incorporation and Bylaws provide that special meetings of shareholders generally
can be called only by the President or Board of Directors or 10% or more of the
voting shareholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS; LIMITATION OF DIRECTOR LIABILITY
Saratoga Holdings has entered or proposes to enter into indemnification
agreements with all of its directors and executive officers, which, among other
things, indemnify directors of Saratoga Holdings against liability arising from
shareholder claims of a breach of duty by a director if a director votes against
a transaction that would result in a change of control of Saratoga Holdings.
Saratoga Holdings' Articles of Incorporation also provide that its directors
shall not be liable for monetary damages caused by an act or omission occurring
in their capacity as directors. This provision does not eliminate the duty of
care, and, in appropriate circumstances, equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Texas law as
provided in Section 2.02-1 of the Texas Business Corporation Act. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to Saratoga Holdings, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to a director and for payment
of dividends or acts or omissions for which a director is made expressly liable
by applicable statute. The limitations on liability provided for in Saratoga
Holdings' Articles of Incorporation do not restrict the availability of
non-monetary remedies and do not affect a director's responsibilities under any
other law, such as the federal securities laws or state or federal environmental
laws. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors,
25
<PAGE>
officers and controlling persons of Saratoga Holdings under the foregoing
provisions, or otherwise, Saratoga Holdings has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Saratoga Holdings will have outstanding
3,766,667 shares of common stock. The dividend shares distributed to the holders
of the parent's common stock will not be "restricted securities" under Rule 144
and therefore will be freely tradeable in the public market without restriction
or further registration under the Securities Act of 1933, except for any shares
acquired by affiliates of Saratoga Holdings as that term is defined in Rule 144
promulgated under the Securities Act. The remaining 308,741 outstanding shares
of common stock of Saratoga Holdings to be retained by the parent following this
offering will be restricted securities within the meaning of Rule 144 and may be
publicly resold only if registered under the Securities Act or sold in
accordance with an eligible exemption from registration, such as Rule 144. All
of the parent's restricted shares will be available for resale in the public
market commencing on or about November 12, 1999, subject to volume and other
restrictions under Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate of Saratoga
Holdings, who beneficially owns restricted securities acquired from Saratoga
Holdings or an affiliate of Saratoga Holdings at least one year prior to the
sale is entitled to sell within any three-month period a number of shares that
does not exceed the greater of the following:
o 1% of the then outstanding shares of common stock, and
o the average weekly reported trading volume of the common stock
during the four calendar weeks immediately preceding the date on
which notice of such sale is filed with the Securities and
Exchange Commission, provided manner of sale and notice
requirements and requirements as to the availability of current
public information concerning Saratoga Holdings are satisfied.
Under Rule 144(k), a person who has not been an affiliate of Saratoga Holdings
for a period of three months preceding a sale of securities by him, and who
beneficially owns restricted securities acquired from Saratoga Holdings or an
affiliate of Saratoga Holdings at least two years prior to the sale, would be
entitled to sell the shares without regard to volume limitations, manner of sale
provisions, notification requirements or requirements as to the availability of
current public information concerning Saratoga Holdings.
Shares held by persons who are deemed to be affiliates of Saratoga
Holdings, including any shares acquired by affiliates in the offering, are
subject to volume limitations, manner of sale provisions, notification
requirements and requirements as to the availability of current public
information concerning Saratoga Holdings, regardless of how long the shares have
been owned or how they were reacquired. In addition, the sale of any restricted
securities beneficially owned by an affiliate of Saratoga Holdings and not
registered in this offering is subject to the one-year holding requirement of
Rule 144. As defined in Rule 144, an affiliate of an issuer is a person that
directly or indirectly through the use of one or more intermediaries, controls,
or is controlled by, or is under common control with, such issuer. Approximately
71.1% of the common stock of Saratoga Holdings after the distribution will be
beneficially owned by Mr. Cooke, an affiliate of Saratoga Holdings. These shares
will be regarded as unrestricted shares held by an
26
<PAGE>
affiliate and therefor subject to the provisions of Rule 144, other than the
holding period requirement of Rule 144(d). If Mr. Cooke ceases to be an
affiliate of Saratoga Holdings, his shares would be marketable under Rule 144(k)
three months thereafter.
Saratoga Holdings has outstanding non-statutory options to purchase an
aggregate of 25,000 shares of common stock, all of which are exercisable as of
the date of this prospectus. Shares of common stock issued upon exercise of
options may be subject to Rule 144.
Prior to the offering, there has been no public market for the common
stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
common stock in the public market could adversely affect prevailing market
prices and the ability of Saratoga Holdings to raise equity capital in the
future.
Saratoga Resources currently holds all of the issued and outstanding
common stock of Saratoga Holdings. Saratoga Holdings has not paid or declared
any cash dividends with respect to its common stock.
TRANSFER AGENT
The Transfer Agent for the common stock is ChaseMellon Shareholder
Services.
LEGAL MATTERS
Jenkens & Gilchrist, A Professional Corporation, 600 Congress Avenue,
Suite 2200, Austin, Texas 78701 has acted as legal counsel to Saratoga Resources
and Saratoga Holdings in connection with this prospectus and related matters.
EXPERTS
The financial statements of Saratoga Holdings included in this
registration statement and prospectus have been audited by Ernst & Young LLP and
are included in reliance upon the authority of that firm as experts in
accounting and auditing.
27
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Auditors...............................................F-2
Audited Financial Statements
Balance Sheet................................................................F-3
Statement of Operations......................................................F-4
Statement of Changes in Stockholder's Equity.................................F-5
Statement of Cash Flows......................................................F-6
Notes to Financial Statements................................................F-7
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
Saratoga Holdings I, Inc.
We have audited the accompanying balance sheet of Saratoga Holdings I, Inc. as
of December 31, 1998, and the related statements of changes in stockholder's
equity and cash flows for the period from October 29, 1998 ("inception") to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Saratoga Holdings I, Inc. at
December 31, 1998, and the results of its cash flows for the period from October
29, 1998 ("inception") to December 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that Saratoga
Holdings I, Inc. will continue as a going concern. As more fully described in
Note 2, the Company had no operating activities prior to October 29, 1998 and
had limited cash, working capital and available sources of financing at December
31, 1998. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Austin, Texas
March 31, 1999
F-2
<PAGE>
Saratoga Holdings I, Inc.
Balance Sheet
December 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
Current assets - cash ................................................ $ 1
Investment in past due accounts receivable ........................... 10
------
Total assets ......................................................... $ 11
======
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
Additional paid-in capital ........................................... 7
Retained earnings .................................................... --
------
Total liabilities and stockholder's equity ........................... $ 11
======
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Saratoga Holdings I, Inc.
Statement of Operations
For the Period Ended December 31, 1998
Revenues ..................................... $ --
Expenses ..................................... --
---------
Net Income ................................... $ --
=========
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Saratoga Holdings I, Inc.
Statement of Changes in Stockholder's Equity
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK
----------------- ADDITIONAL TOTAL
NUMBER OF PAR PAID-IN STOCKHOLDER'S
SHARES VALUE CAPITAL EQUITY
--------- ----- ---------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1997 .......... -- $ -- $ -- $ --
Issuance of Common Stock ............... 3,767 4 7 11
--------- ----- ---------- -------------
Balances at December 31, 1998 .......... 3,767 $ 4 $ 7 $ 11
========= ===== ========== =============
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Saratoga Holdings I, Inc.
Statement of Cash Flows
Period from October 29, 1998 ("inception") to December 31, 1998
(in thousands)
OPERATING ACTIVITIES
Investment in past due accounts receivable ......................... $ (10)
--------
Net cash used in operating activities .............................. (10)
FINANCING ACTIVITIES
Issuance of common stock ........................................... 11
--------
Net cash provided by financing activities .......................... 11
Net increase in cash ............................................... 1
Cash at beginning of period ........................................ --
--------
Cash at end of period .............................................. $ 1
========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ............................................. $ --
Cash paid for income taxes ......................................... $ --
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
Saratoga Holdings I, Inc.
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION AND NATURE OF OPERATIONS
Saratoga Holdings I, Inc. (Saratoga Holdings), a Texas corporation, is a wholly
owned subsidiary of Saratoga Resources, Inc. As of December 31, 1998, Saratoga
Holdings has no operations other than those related to a portfolio of past due
account receivables purchased on November 12, 1998. Saratoga Holdings 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.
The Company was incorporated on October 29, 1998, and on November 12, 1998,
Saratoga Resources, Inc., the parent company of Saratoga Holdings, purchased
3,766,667 shares of Saratoga Holdings' common stock for $11,300. It is the
intention of Saratoga Resources, Inc. to register 3,465,292 of those shares with
the Securities and Exchange Commission and to distribute them to the
stockholders of Saratoga Resources, Inc. in the form of a dividend, except for
7,366 of those shares for which the parent company intends to pay cash dividends
of $0.003 per share, or $22.10, due to registration restrictions of the states
in which those shares are held.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN
The Company's financial statements have been prepared in conformity with
generally accepted accounting principles, 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 December 31, 1998, 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, as more fully described in these notes. If Saratoga Holdings
is successful in publicly registering its common stock, it will have additional
reporting expenses. A wholly owned subsidiary of Saratoga Resources, Inc. has
agreed to pay Saratoga Holdings' legal, accounting and reporting expenses up to
$40,000 for the first 18 months of Saratoga Holdings' operations subject to
repayment if Saratoga Holdings becomes profitable. This agreement is documented
by a note
F-7
<PAGE>
Saratoga Holdings I, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
dated November 12, 1998 which provides for interest at the rate of 10% per
annum. In addition, Saratoga Holdings hopes that it will be able to support some
of its operations through the collection of accounts receivable.
USE OF ESTIMATES
The preparation of the Company's financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
COMPREHENSIVE INCOME
During 1997, the Financial Accounting Standards Board issued Statement No. 130,
REPORTING COMPREHENSIVE INCOME ("Statement 130"), which establishes standards
for reporting comprehensive income and its components in a full set of financial
statements. The adoption of Statement 130 did not have an effect on the
Company's financial statements as the Company has no elements of comprehensive
income.
STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which prescribes accounting and
reporting standards for all stock-based compensation plans, including employee
stock options. As allowed by Statement No. 123, the Company has elected to
account for its employee stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB
25).
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES. This statement
prescribes the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
F-8
<PAGE>
Saratoga Holdings I, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As of December 31, 1998, the Company did not have any temporary differences.
Accordingly, there are no deferred tax assets or liabilities recorded.
3. INVESTMENT IN PAST DUE ACCOUNTS RECEIVABLE
On November 12, 1998, Saratoga Holdings acquired a portfolio of past due
accounts receivable for approximately $10,300 and recorded it at cost. These
receivables represent amounts previously due various major retail businesses
arising from the sale of various consumer products and are considered a
concentration of credit risk due to their past-due nature. The face amount of
these receivables totals $223,907. The ultimate collection of these receivables
will depend on a variety of factors, many of which are outside the Company's
control. Any collections will reduce the asset balance until it is $-0-, with
any remaining collections recorded as revenue.
4. PREFERRED STOCK
Saratoga Holdings may issue preferred stock in one or more series which will
have such designations, preferences, limitations and relative rights as
authorized by the Board of Directors.
5. STOCK OPTIONS
On November 12, 1998, Saratoga Holdings issued an option to an officer of the
Company to acquire 25,000 shares of its common stock at $0.50 per share. The
option, which was fully vested upon grant but unexercised as of December 31,
1998, expires November 11, 2001 if not previously exercised.
The Company has elected to account for its employee stock options under APB 25
and related interpretations. Under APB 25, because the exercise price of the
Company's employee stock options is greater than the estimated market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and income per share is required by
Statement of Financial Accounting Standards Board No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("SFAS No. 123"), which requires that the information
be determined as if the Company has accounted for its employee stock options
under the fair value method prescribed by SFAS No. 123. The fair value for these
options was estimated at the date of grant using a minimum value
F-9
<PAGE>
Saratoga Holdings I, Inc.
Notes to Financial Statements (continued)
5. STOCK OPTIONS (CONTINUED)
option pricing model with the following weighted-average assumptions for 1998: a
risk-free interest rate of approximately 6%; a dividend yield of 0% and a
weighted-average expected life of three years.
The minimum value option valuation model results in an option value similar to
the option value that would result from using the Black-Scholes option valuation
model with a near zero volatility.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma compensation expense for 1998 was not material.
6. RELATED PARTY TRANSACTIONS
Randall Johnson, the President of Saratoga Holdings, is also a shareholder,
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 seller acquired the receivables in June
1998 for $9,750 and sold them to Saratoga Holdings in November 1998 for $10,300
which Tom Cooke, CEO of Saratoga Resources, Inc., determined to be the fair
market price. Saratoga Holdings may purchase additional receivables from the
same company or other companies and may retain the same company or other
companies to collect any additional receivables. Because of Mr. Johnson's
conflict of interest, the purchase of the receivables by Saratoga Holdings and
the agreement with the collection company to collect the receivables may benefit
the seller and the collections company at the expense of Saratoga Holdings.
The Company has a revolving loan from a subsidiary of its parent to cover
expenses up to $40,000 during its first 18 months of operations. The loan has an
interest rate of 10% and, at December 31, 1998, no amounts were outstanding
under the loan agreement.
F-10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has authority under Articles 2.02(A)(16) and 2.02-1 of
the Texas Business Corporation Act to indemnify its directors and officers to
the extent provided for in that statute. The Registrant's articles of
incorporation and bylaws allow indemnification of directors and officers to the
full extent permitted by those provisions of the Act. The Act provides in part
that a corporation may indemnify a director or officer or other person who was,
is, or is threatened to be made a named defendant or respondent in a proceeding
because the person is or was a director, officer, employee or agent of the
corporation, if it is determined that
o the person conducted himself in good faith;
o reasonably believed, in the case of conduct in his official
capacity as a director or officer of the corporation, that his
conduct was in the corporation's best interests, and, in all
other cases, that his conduct was at least not opposed to the
corporation's best interest; and
o in the case of any criminal proceeding, had no reasonable cause
to believe that his conduct was unlawful.
A corporation may indemnify a person under the Act against judgments,
penalties (including excise and similar taxes), fines, settlement, and
reasonable expenses actually incurred by the person in connection with the
proceeding. If the person is found liable to the corporation or is found liable
on the basis that personal benefit was improperly received by the person, the
indemnification is limited to reasonable expenses actually incurred by the
person in connection with the proceeding, and shall not be made in respect of
any proceeding in which the person shall have been found liable for willful or
intentional misconduct in the performance of his duty to the corporation. A
corporation may also pay or reimburse expenses incurred by a person in
connection with his appearance as a witness or other participation in a
proceeding at a time when he is not a named defendant or respondent in the
proceeding.
Reference is also made to the articles of incorporation, which limit or
eliminate a director's liability for monetary damages to the registrant or its
shareholders for acts or omissions in the director's capacity as a director,
except that the articles of incorporation do not eliminate the liability of a
director for
o a breach of the director's duty of loyalty to the registrant or
its shareholders,
o an act or omission not in good faith that constitutes a breach of
duty of the director to the registrant or an act or omission that
involves intentional misconduct or a knowing violation of the
law,
o a transaction from which a director received an improper benefit,
whether or not the benefit resulted from an action taken within
the scope of the director's office, or
o an act or omission for which the liability of a director is
expressly provided for by an applicable statute. The registrant's
Bylaws further provide that the registrant shall indemnify its
officers and directors to the fullest extent permitted by law.
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ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Following are the estimated expenses which will be incurred by Saratoga
Holdings with respect to the distribution of the dividend shares. Saratoga
Resources has agreed to pay all of these expenses.
Securities and Exchange Commission Registration Fee...................$ 3.00
Printing and Engraving................................................$ 2,500.00
Fees of Transfer Agent................................................$ 500.00
Legal Fees and Expenses...............................................$20,000.00
Accountant's Fees and Expenses........................................$ 3,000.00
Miscellaneous.........................................................$ 00.00
----------
$26,003.00
==========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, the registrant has sold the following securities which
were not registered under the Securities Act of 1933.
1. On November 12, 1998, Saratoga Holdings issued 3,766,667 shares of common
stock to Saratoga Resources for a total cash price of $11,300. This transaction
was exempt from the registration requirements of the Securities Act under
Section 4(2) of the Securities Act because it was a sale that did not involve a
public offering, but rather involved the formation of the corporation by
Saratoga Resources. There was no solicitation or advertising involved in this
issuance.
2. Also on November 12, 1998, Saratoga Holdings granted a three-year option to
its president to acquire 25,000 shares of Saratoga Holdings' common stock at an
exercise price of $0.50 per share. This option agreement is filed as Exhibit
10.7. This transaction was exempt from the registration requirements of the
Securities Act under Section 4(2) and Rule 701 because it was an issuance of an
option to one employee of Saratoga Holdings and because the purpose of the
issuance was compensation. The option which serves as a compensation plan is
filed as Exhibit 10.7.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
3.1 Articles of Incorporation
3.2 Bylaws
*5.1 Opinion of Jenkens & Gilchrist, a Professional Corporation
10.1 Purchase and Sale Agreement dated effective November 12, 1998
between Saratoga Holdings and The Premium Group
10.2 Service Agreement dated as of November 12, 1998 between Saratoga
Holdings and Premium Recoveries, Inc.
*10.3 Form of Indemnification Agreement
10.4 Revolving Promissory Note dated as of November 12, 1998 between
Saratoga Holdings and Saratoga Resources, Inc., a Texas
corporation
10.5 Compromise and Settlement Agreement dated May 7, 1996 between
Saratoga Resources, a Delaware corporation, Saratoga Resources,
Inc., a Texas corporation, Lobo Energy, Inc., a Texas
corporation, Lobo Operating, Inc., a Texas corporation, and
Internationale Nederlanden (U.S.) Capital Corporation
10.6 Purchase and Sale Agreement dated May 7, 1996, by and between
Internationale Nederlanden (U.S.) Capital Corporation and Prime
Energy Corporation
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10.7 Non-Qualified Stock Option Award Agreement for Employee dated
effective November 12, 1998
*23.01 Consent of Jenkens & Gilchrist, a Professional Corporation -
Contained in Exhibit 5.1
23.02 Consent of Ernst & Young LLP
27 Financial Data Schedule
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
A. To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the Commission under Rule 424(b)
if, in the aggregate, the changes in the volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculations of Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information on
the plan of distribution.
B. For determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
C. File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
D. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer under the foregoing provisions or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by a controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this pre-effective
amendment to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Austin and State of Texas
on the 13 day of April, 1999.
SARATOGA HOLDINGS I, INC.
By: /s/RANDALL B. JOHNSON
Randall B. Johnson, President
In accordance with the requirements of the Securities Act of 1933, this
pre-effective amendment to registration statement has been signed below by the
following persons in the capacities and on the dates indicated.
/s/RANDALL B. JOHNSON President April 13, 1999
Randall B. Johnson
/s/THOMAS F. COOKE Chief Executive Officer, Secretary April 13, 1999
Thomas F. Cooke and Director (Principal Accounting
and Financial Officer)
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EXHIBIT 23.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 31, 1999, in Pre-Effective Amendment No. 3 to
the Registration Statement (Form SB-2 No. 33-68213) and related prospectus of
Saratoga Holdings I, Inc. for the Registration of 3,465,292 shares of its common
stock.
/s/ ERNST & YOUNG LLP
Austin, Texas
April 6, 1999
