SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-68213
SARATOGA HOLDINGS I, INC.
(Exact name of registrant as specified in its charter)
Texas
(State or other jurisdiction of
incorporation or organization)
78-2896910
(I.R.S. Employer
Identification Number)
301 Congress Avenue, Suite 1550, Austin, Texas 78701
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 478-5717
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, $.001 Par Value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Report on Form 10-KSB
or any amendment to this Report on Form 10-KSB. X
---
The issuer's revenues for its most recent fiscal year ended December
31, 1999 were ($31,000).
The aggregate market value of the voting stock (which consists solely
of shares of Common Stock) held by non-affiliates of the Registrant as of
April 28, 2000 (based upon the average bid and asked price) was $122,416.67.
Issuers involved in Bankruptcy Proceedings During the Past Five Years.
Not Applicable.
The number of shares of the issuer's Common Stock, par value $.001 per
share, outstanding as of May 10, 2000 was 3,766,667 of which 391,733 shares
were held by non-affiliates.
Documents Incorporated by Reference. None.
Transitional Small Business Issuer Format. Yes No X
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<PAGE>
PART I
Item 1: The Business
General
Saratoga Holdings I, Inc. ("Saratoga Holdings") is in the business of
acquiring, reselling portfolios of delinquent and defaulted accounts receivables
(charge-offs). In addition, the Company intends to pursue expansion of its
business through the acquisition of additional portfolios and the acquisition of
contingency debt collection agencies. The Company currently has no charge-offs
under its ownership or control.
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 information from these sources, Saratoga Holdings believes that there
are many sources of delinquent accounts receivable and that it will yet be able
to purchase additional portfolios according to its business strategy. Saratoga
Holdings anticipates that it may also 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 is not licensed as a debt collection company and does
not collect receivables directly. Instead, it retains contingency collection
companies 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 6
months through the purchase of already existing collection agencies.
The management of Saratoga Holdings has been investigating other
relationships with collection agencies and, based on discussions with them, and
the fact that there are approximately 6,500 collection agencies in the United
States, believes that it will have the option of retaining other agencies to
collect its receivables upon agreeable terms. See Item 1: The Business -
Customers and Suppliers.
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.
1
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Generally, collection companies spend approximately four to six months
attempting to collect a portfolio of receivables. The portfolio collection
process includes the following steps:
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
o 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. In addition, Saratoga Holdings anticipates that
it may expand its operations in several ways, including the following:
o The Company 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 The Company 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 The Company may acquire portfolios of delinquent receivables
and subdivide receivables into two or more separate portfolios
to be sold or retained for collection.
o The Company 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
2
<PAGE>
respect to any specific merger, acquisition or other business combination. At
this time, Saratoga Holdings has no intention of acquiring a business in an
unrelated industry.
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. Notwithstanding this fact, there are numerous
portfolios available for sale, many of which are identified in industry
bulletins and periodicals. Therefore, notwithstanding the competition for
portfolios, Saratoga Holdings believes that, once it has the available resources
to purchase a new portfolio, it could complete the transaction within
approximately seven to ten days.
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. Saratoga Holdings
purchased its first portfolio from The Premium Group through a related
transaction. See Item 3: Legal Matters. An agreement with Premium Recoveries for
the collection of accounts receivable terminated on December 31, 1999. Based
upon the fact that there are over 6,500 collection agencies in the United States
and based upon its conversations with at least two other collection agencies,
Saratoga Holdings believes that it will be able to retain a new collection
agency within approximately a seven day period on the same or similar terms as
its previous agreement with Premium Recoveries as these services are needed.
Saratoga Holdings has identified several collection companies which would be
candidates
3
<PAGE>
and has spoken with at least two of them. Saratoga Holdings does not anticipate
collecting accounts receivable directly unless it acquires a licensed debt
collection company through a business combination.
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 retains licensed debt
collection companies to collect its receivables in exchange for a commission on
as an needed basis. 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. However, the Company only contracts with
licensed debt collections companies that indemnify the Company against
violation. 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. Saratoga Holdings estimates that both of its employees will devote
approximately one-third or more of their time to the affairs of Saratoga
Holdings.
Item 2: Properties
Saratoga Holdings has no property or office of its own. It is
utilizing, without charge, the address and telephone number of a related
corporation, Saratoga Resources, Inc., a Texas Corporation ("Saratoga-Texas"),
as its office. Currently Saratoga Holdings has no plans for office facilities in
the future.
Item 3: Legal Matters
The Company has filed suit in the District Court of Travis County,
Texas against Randall B. Johnson (a former officer and director of the Company)
and The Premium Group alleging breach of fiduciary duty and fraud arising out of
the related party transaction described in Note 6 on Page F-9. Management
intends to pursue this case vigorously.
Item 4: Submission of Matters to a Vote of Security Holders
During the applicable period there have been no matters submitted to a
vote of the security holders, through the solicitation of proxies or otherwise.
4
<PAGE>
PART II
Item 5: Market for Common Equity and Related Stockholder Matters
Fiscal Year 1999 High Low
---------------- ---- ---
Quarter ended March 31 -0- -0-
Quarter ended June 30 -0- -0-
Quarter ended September 30 -0- -0-
Quarter ended December 31 $0.125 $0.125
Item 6: Management's Discussion and Analysis or Plan of Operation
As of December 31, 1999, Saratoga Holdings has no operations or assets
other than a portfolio of accounts receivable with an aggregate unpaid balance
of $3,935.98 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 its
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.
On June 25, 1999, the Company entered into a Service Agreement with
Lone Star Capital ("Lone Star") under which the Company is to act (on behalf of
Lone Star with respect to receivables) as the sole purchase and sales agent,
responsible for locating, purchasing, marketing for sale, and closing each
transaction, through its current business relationships. The distribution of
proceeds from each sale of receivables to be as follows: (1) an amount to Lone
Star equal to the cost basis of the port folio sold; (2) after this amount, the
excess divided as follows: (a) Lone Star to receive a further priority
distribution to the extent of funds available in an amount (hereafter called
"Initial Payment") equal to 4% of the purchasing price of the receivable for
each 30 days that funds from Lone Star are in use, prorated daily' in the event
that funds on a particular transaction are in use less than 30 days, Lone Star
is to receive as an initial payment a full 4% of the purchase price of such
receivables. After the distribution of the Initial Payment to Lone Star, if
there are excess funds remaining from the transaction, the balance shall be
divided 40% to Lone Star and 60% to the Company.
On June 25, 1999, the Company entered into an exclusive agreement with
The Premium Group ("Premium") under which Premium is to act as the Company's
exclusive agent in location, purchasing and selling of receivables on behalf of
Lone Star. The Company is to pay the Premium Group a fee under this agreement
equal to 50% of the profits due to the Company on each sale under the terms of
the Company's agreement with Lone Star.
Saratoga Holdings may purchase additional receivables 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.
5
<PAGE>
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.
Information about portfolios for sale is available from various sources,
including a daily publication titled the Debt Sales Bulletin which is published
by Faulkner & Gray. Based upon its review of this report and other research,
Saratoga Holdings believes that it would take seven to ten days to locate a
suitable portfolio and to close on the purchase of that new portfolio.
Liquidity
Because Saratoga Holdings has limited cash, its independent accountants
believe there is substantial doubt about its ability to continue as a going
concern. A wholly owned subsidiary of the parent has provided 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.
As of the date of this filing, Saratoga Holdings has borrowed
$38,406.53 on the revolving line of credit. [Saratoga Holdings anticipates that
it will borrow on the line of credit in the near future and intends to repay the
line of credit pursuant to the terms of the note which becomes due and payable
on April 11, 2001. Saratoga Holdings does not intend to repay any amounts
outstanding under the line of credit prior to April 11, 2000 or to make the
repayment of this indebtedness a criteria for consideration of an acquisition.
Saratoga Holdings hopes that eventually it will be able to support some
of its operations though the collection of accounts receivable. Saratoga
Holdings may attempt to borrow money to use toward the purchase of additional
receivables or to enter into a joint venture. Saratoga Holdings would offer the
accounts receivable purchased with the proceeds of the loan as collateral for
the loan.
Item 7: Financial Statements
[The Rest of this Page Intentionally Left Blank.]
6
<PAGE>
SARATOGA HOLDINGS I, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
----
<S> <C>
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-9
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
Stockholders
Saratoga Holdings I, Inc.
We have audited the accompanying balance sheets of Saratoga Holdings I, Inc. as
of December 31, 1999 and 1998, and the related statements of operations, changes
in stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Saratoga Holdings,
Inc. as of December 31, 1999 and 1998, and the results of operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has limited cash, working capital and
available sources of financing, raising substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
FASKE LAY & CO., L.L.P.
Austin, Texas
May 23, 2000
F-2
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<TABLE>
<CAPTION>
SARATOGA HOLDINGS I, INC.
BALANCE SHEET
DECEMBER 31,
(in thousands, except per share amounts)
1999 1998
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<S> <C> <C>
Assets
Current assets:
Cash $ - $ 1
Investment in past due accounts receivable 4 10
Organization costs, net of accumulated amortization 15 -
-------- --------
Total assets $ 19 $ 11
========= ========
Liabilities and Stockholders' Equity
Liabilities
Accrued expenses $ 2 $ -
Note payable
39 -
-------- --------
Total liabilities 41 -
-------- --------
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 4
Additional paid-in capital 7 7
Retained earnings (33) -
-------- --------
Stockholders' Equity (22) 11
-------- --------
Total liabilities and stockholder's equity $ 19 $ 11
======== ========
</TABLE>
See accompanying notes
F-3
<PAGE>
<TABLE>
<CAPTION>
SARATOGA HOLDINGS I, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
1999 1998
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<S> <C> <C>
Net sales $ - $ -
Cost of sales - -
---------- ----------
Gross profit - -
Costs and expenses
General and administrative 1 -
Selling and marketing 1 -
Development 25 -
Depreciation and amortization 4 -
---------- ----------
Total costs and expenses 31 -
---------- ----------
Income (loss) from operations (31) -
---------- ----------
Other income (expenses)
Interest income - -
Interest expense (2) -
---------- ----------
Other income (expense), net (2) -
---------- ----------
Net income (loss) $ (33) $ -
========== ==========
Net income (loss) per share $ (0.01) $ -
========== ==========
Weighted average shares outstanding 3,766,667 3,766,667
========== ==========
</TABLE>
See accompanying notes
F-4
<PAGE>
<TABLE>
<CAPTION>
SARATOGA HOLDINGS I, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
Additional Total
Number of Common Paid-In Accumulated Stockholders'
Shares Stock Capital Deficit Equity
(Deficit)
------------ ----------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at October 29, 1998 (inception) 3,767 $ 4 $ 7 $ - $ 11
Net loss - - - - -
------------ ----------- ------------ ---------------- ----------------
Balance at December 31, 1998 3,767 4 7 - 11
Net loss - - - (33) (33)
Balance at December 31, 1999 3,767 $ 4 $ 7 $ (33) $ (22)
============ =========== ============ ================ ================
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
SARATOGA HOLDINGS I, INC.
STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------
Period from October 29, 1998 ("inception") to December 31, 1998
(in thousands)
For the Years Ended December 31,
1999 1998
------------------ -------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (33) $ -
Adjustments to reconcile net loss to net cash
used for operating activities:
Investment in past due accounts receivable (10)
Amortization 4
Changes in assets and libilities
Past due accounts receivable collections 6
Accrued liabilities 2
Organization costs (19)
------------------ -------------------
Net cash used for operating activities (40) (10)
------------------ -------------------
Cash flows from financing activities:
Issuance of common stock - 11
Proceeds from note payable 39 -
------------------ -------------------
Net cash provided by financing activities 39 11
------------------ -------------------
Increase (decrease) in cash and cash equivalents (1) 1
Cash and cash equivalents at beginning of year 1 -
------------------ -------------------
Cash and cash equivalents at end of year $ - $ 1
Supplemental cash flow disclosures:
Cash paid for interest $ 2 $ -
Cash paid for income taxes $ - $ -
------------------ -------------------
</TABLE>
See accompanying notes
F-6
<PAGE>
SARATOGA HOLDINGS I, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. Organization and Nature of Operations
Saratoga Holdings I, Inc. (Saratoga Holdings), a Texas corporation, is a
spin-off of Saratoga Resources, Inc., a Delaware Corporation ("Saratoga
Delaware"). As of December 31, 1999, 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-Delaware, Inc., the former parent company of Saratoga Holdings,
purchased 3,766,667 shares of Saratoga Holdings' common stock for $11,300.
Saratoga-Delaware registered 3,465,292 of those shares with the Securities and
Exchange Commission and distributed them to the stockholders of
Saratoga-Delaware. in the form of a dividend, except for 7,366 of those shares
for which the parent company paid cash dividends of $0.003 per share, or $22.10,
due to registration restrictions of the states in which those shares are held.
Saratoga-Texas currently owns 308,741 shares of Saratoga Holdings.
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 has limited cash, working capital and available
sources of financing at December 31, 1999, raising substantial doubt about the
entity's ability to continue as a going concern.
The Company currently has limited expenses other than legal,
accounting and commission which the Company intends to pay with
collections of the past due accounts receivable, as more fully
described in these notes. A related-corporation, SaratogaResources,
Inc., a Texas corporation ("Saratoga-Texas") 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 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.
F-7
<PAGE>
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 No. 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.
As of December 31, 1999 and 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 as 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. Through December 31, 1999 the
Company has collected $6,364 of these accounts receivable.
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 had issued an option to a then 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,
1999, expires November 11, 2001 if not previously exercised. The Company is
currently in litigation with this former officer of the Company.
F-8
<PAGE>
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 common 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 of these
options was estimated at the date of grant using a minimum value option pricing
model with the following weighted-average assumptions for 1999 and 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 1999 and 1998 was not material.
6. Related Party Transactions
Randall Johnson, the former President of Saratoga Holdings, is also a
shareholder, officer and director 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 Thomas F. Cooke, CEO of Saratoga-Texas determined to be the fair market
price. 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 is currently in litigation with
Randall Johnson. See Note 7
The Company has a revolving loan from Saratoga-Texas 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, 1999, $32,943 was outstanding under the loan
agreement.
7. Litigation
The Company has filed suit in the District Court of Travis County, Texas against
Randall B. Johnson and The Premium Group alleging breach of fiduciary duty and
fraud arising out of the related party transaction described in Note 6, above.
Management intends to pursue this case vigorously.
F-9
<PAGE>
Item 8: Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
The disclosure called for by this Item has been previously reported as
that term is defined in Rule 12b-2 under the Exchange Act.
PART III
Item 9: Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The directors and executive officers of Saratoga Holdings and their
respective ages and positions are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C> <C>
Thomas F. Cooke 50 Chief Executive Officer, President, Secretary
and Director
Sandra G. Smith 51 Assistant Secretary
</TABLE>
Thomas F. Cooke is the Sole Director, Chief Executive Officer, the
President and the Secretary of Saratoga Holdings. Other than the office of
President, Mr. Cooke has held these positions with Saratoga Holdings since its
formation on October 29, 1998; Mr. Cooke was elected to the office of President
on May 1, 2000. 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.
Sandra G. Smith is the Assistant Secretary and Office Manager for
Saratoga Holdings. Mrs. Smith was elected Assistant Secretary to Saratoga
Holdings and Saratoga-Texas on July 30, 1999. As stated above, Mrs. Smith serves
as Office Manager; Mrs. Smith has held that position since October 29, 1998.
Prior to this, Mrs. Smith was employed by Saratoga-Delaware.
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.
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.
Item 10: Executive Compensation
Saratoga Holdings has paid no remuneration to its director or officers
and does not anticipate the payment of remuneration.
7
<PAGE>
Item 11: Securities Ownership of Certain Beneficial Owners and Management
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. Saratoga Holdings will has 3,766,667 shares outstanding.
<TABLE>
<CAPTION>
Name and address Number of Shares Percent Beneficially Owned
of Beneficial Owner ---------------- --------------------------
-------------------
<S> <C> <C>
Thomas F. Cooke 2,679,163 71.1%
301 Congress Avenue, Suite 1550
Austin, Texas 78701
Sandra Smith 238,295 6.3%
2000 Dairy Ashford, Suite 410
Houston, Texas 77077
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 89.6%
as a Group
<FN>
- -----------------
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, Inc., a Texas ("Saratoga
Texas") corporation, a company controlled by Mr. Cooke, and 150,000 shares held by wholly owned subsidiaries of
Saratoga-Texas. Shares owned by Saratoga-Texas include 150,000 shares held by its wholly owned subsidiaries.
Shares of Saratoga Holdings held by Mrs. Smith include 218,295 shares of common stock beneficially owned by Kevin
Smith, the spouse of Mrs. Smith. 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.
</FN>
</TABLE>
8
<PAGE>
Ownership of Saratoga-Texas 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
Company 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.
<TABLE>
<CAPTION>
Name and address Number of Shares Percent Beneficially Owned
of Beneficial Owner Of the Parent --------------------------
------------------- ----------------
<S> <C> <C>
Thomas F. Cooke 2,220,422 64.1%
301 Congress Avenue, Suite 1550
Austin, Texas 78701
All Officers and Directors of Saratoga 2,220,422 64.1%
Holdings as a Group
<FN>
- ------------------
Shares of Saratoga-Texas held by Mr. Cooke include 109,148 shares of common stock beneficially owned by June Cooke,
the spouse of Mr. Cooke.
</FN>
</TABLE>
The principals and controlling persons of Saratoga-Texas consist only
of Mr. Cooke and Mr. Kevin Smith.
ITEM 12: Certain Relationships and Related Transactions
Mr. Cooke may be considered to be a promoter of Saratoga Holdings for
purposes of securities laws. A promoter includes anyone who takes initiative in
founding or organizing a business.
Saratoga Holdings is a former wholly owned subsidiary of
Saratoga Resources, Inc., a Delaware corporation ("Saratoga-Delaware") which was
spun off. Mr. Thomas Cooke, the Chief Executive Officer, President, Secretary
and Sole Director of Saratoga Holdings was (prior to the spin off and related
merger of the Saratoga-Delaware) also the President and holder of a majority of
the shares of the former parent Saratoga-Delaware.
9
<PAGE>
purchased 3,766,667 shares of Saratoga Holdings on or about November 12, 1998 at
a price of $0.003 per share and distributed 3,465,292 shares to its
shareholders. Saratoga-Texas and its subsidiary, Lobo Energy, Inc. own 458,741
shares of Saratoga Holdings I, Inc.
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. See Item 3: Legal
Matters.
PART IV
Item 13: Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are incorporated by reference to the filing or
are included following the Index to Exhibits.
Number Description
------ -----------
3.1 Articles of Incorporation of the Company(1)
3.2 Bylaws of Company(1)
23.1 Consent of Accountant
27.1 Financial Data Schedule
- ----------------------------------------
(1) Incorporated by reference to the Company's original registration statement
on Form SB-2, filed with the Securities Exchange Commission on December 1, 1998,
File No. 333-68213.
(b) Reports on Form 8-K
Not applicable.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SARATOGA HOLDINGS I, INC.
/s/ Thomas F. Cook
----------------------------------------------------
Chief Executive Officer, President,
Secretary, Director (Principal Accounting
and Financial Officer)
May 25, 2000
Report of Independent Accountants
Stockholders
Saratoga Holdings I, Inc.
We have audited the accompanying balance sheets of Saratoga Holdings I, Inc. as
of December 31, 1999 and 1998, and the related statements of operations, changes
in stockholders' equity and cash flows for the years then ended. Those
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Saratoga Holdings,
Inc. as of December 31, 1999 and 1998, and the results of operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has limited cash, working capital and
available sources of financing, raising substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
FASKE LAY & CO., L.L.P.
Austin, Texas
May 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Saratoga Holdings I, Inc.
</LEGEND>
<CIK> 0001074436
<NAME> Saratoga Holdings I, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19
<CURRENT-LIABILITIES> 41
<BONDS> 0
0
0
<COMMON> 11
<OTHER-SE> (33)
<TOTAL-LIABILITY-AND-EQUITY> 19
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 31
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (33)
<INCOME-TAX> 0
<INCOME-CONTINUING> (31)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
