U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ending September 30, 2000.
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ____________.
Commission file number 333-68213
SARATOGA HOLDINGS I, INC.
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(Exact name of small business issuer as specific in its charter)
Texas 78-2896910
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(State of other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
2304 Hancock Drive, Suite 5, Austin, Texas 78756
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(Address of principal executive offices)
(512) 371-1171
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(Issuer's telephone number)
310 Congress Avenue, Suite 1550, Austin, Texas 78701
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(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes[X] No [ ]
State the number of shares outstanding of the Issuer's class of common
equity, as of the latest practicable date: common stock, $0.001 par value as of
September 30, 2000: 3,791,667 shares
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
SARATOGA HOLDINGS I, INC.
FORM 10-QSB
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 2000 and December 31, 1999.......3
Statements of Operations for the Three months
ended September 30, 2000 and 1999...................................4
Statements of Operations for the Nine months
ended September 30, 2000 and 1999...................................5
Statements of Cash Flows for the Nine months ended
September 30, 2000 and 1999.........................................6
Notes to Financial Statements.......................................7
Item 2. Management's Discussion and Analysis or
Plan of Operations........................................12
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K...........................13
2
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SARATOGA HOLDINGS, INC.
BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
September 30, December 31,
2000 1999
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ASSETS: (unaudited)
<S> <C> <C>
Cash $ 7 $ -
Investment in past due accounts receivable - 4
Organization costs, net of accumulated amortization 12 15
------- --------
Total assets $ 19 $ 19
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 22 $ 2
Accrued expenses 5 -
Note payable 68 39
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Total liabilities 96 41
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Preferred stock, par value $.001, 100,000 shares authorized;
none outstanding - -
Common stock, par value $.001, 100,000,000 shares
authorized; 3,791,667 shares issued and outstanding 4 4
Additional paid-in capital 14 7
Retained earnings (deficit) (95) (33)
------- -------
Total stockholders' equity (77) 22
------- -------
Total liabilities and stockholders equity $ 19 $ 19
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
3
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SARATOGA HOLDINGS I, INC.
STATEMENT OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
Three months ended September 30,
2000 1999
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Revenues
Net sales $ - $ -
Cost of sales - -
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Gross profit - -
Costs and expenses
General and administrative 25 3
Selling and marketing - -
Development - -
Depreciation and amortization 1 -
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Total costs and expenses 26 3
------ ------
Income (loss) from operations (26) (3)
Other income (expenses)
Other income 17 -
Interest expense (1) -
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Other income (expense), net (16) -
--------- ------ ------
Net income (loss) $(10) $ (3)
====== =======
Net income (loss) per share $(0.01) $ (0.00)
======= =======
Weighted average shares outstanding 3,791,667 3,766,667
========= =========
The accompanying notes are an integral part of these unaudited financial
statements.
4
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SARATOGA HOLDINGS I, INC.
STATEMENT OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
Nine months ended September 30,
2000 1999
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Revenues
Net sales $ 15 $ -
Cost of sales - -
------ ------
Gross profit 15 -
Costs and expenses
General and administrative 61 11
Selling and marketing - -
Development -
Depreciation and amortization 3 -
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Total costs and expenses 64 11
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Income (loss) from operations (49) (11)
Other income (expenses)
Other income 17 -
Interest expense (4) -
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Other income (expense), net 13 -
------ -------
Net income (loss) $ (36) $ (11)
====== =======
Net income (loss) per share $(0.01) $ (0.00)
======= =======
Weighted average shares outstanding 3,791,667 3,766,667
========= =========
The accompanying notes are an integral part of these unaudited financial
statements.
5
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SARATOGA HOLDINGS I, INC.
STATEMENT OF CASH FLOWS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
For the nine months ended September 30,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (36) $ (11)
Adjustments to reconcile net loss to net cash
used for operating activities:
Amortization 3 -
Changes in assets and liabilities - (1)
Past due accounts receivable collections, net 4 -
Accrued liabilities - 11
Organization costs - -
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Net cash used for operating activities (29) (1)
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Cash flows from financing activities:
Note payable 30 -
Common stock 6 -
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Net cash provided by financing activities 36 -
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Increase (decrease) in cash and cash equivalents 7 (1)
Cash and cash equivalents at beginning of period - 1
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Cash and cash equivalents at end of period $ 7 $ 0
======= ======
Supplemental cash flow disclosures:
Cash paid for interest $ 3 $ -
======= =======
Cash paid for income taxes $ - $ -
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
6
<PAGE>
SARATOGA HOLDINGS I, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
1. Interim Presentation
The interim consolidated financial statements are prepared pursuant to the
requirements for reporting on Form 10-QSB. The December 31, 1999 balance sheet
data was derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The interim
financial statements and notes thereto should be read in conjunction with the
financial statements and notes included in the Company's Form 10-KSB for the
year ended December 31, 1999. In the opinion of management, the interim
financial statements reflect all adjustments of a normal recurring nature
necessary for a fair statement of the results of the interim periods presented.
The current period results of operations are not necessarily indicative of
results which ultimately will be reported for the full year ended December 31,
2000.
2. 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 September 30, 2000, Saratoga Holdings had no operations other
than those related to the purchase, sale and management of portfolios of
delinquent accounts receivable. 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, 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 Resources,
Inc., a new Texas Corporation ("Saratoga Texas"), owns 308,741 shares of
Saratoga Holdings.
3. 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 September 30, 2000, raising substantial doubt about the
entity's ability to continue as a going concern.
7
<PAGE>
SARATOGA HOLDINGS I, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2000 AND 1999
3. Summary of Significant Accounting Policies (continued)
The Company currently has limited expenses other than legal, accounting and
commissions which the Company intends to pay with collections of the past due
accounts receivable, as more fully described in these notes. A
related-corporation, Saratoga Texas has agreed to pay Saratoga Holdings' legal,
accounting, reporting expenses and overhead expenses up to $80,000 subject to
repayment if Saratoga Holdings becomes profitable or otherwise has the ability
to repay. 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.
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).
8
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SARATOGA HOLDINGS I, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2000 AND 1999
3. Summary of Significant Accounting Policies (continued)
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 September 30, 2000 and 1999, the Company did not have any temporary
differences. Accordingly, there are no deferred tax assets or liabilities
recorded.
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 September
30, 2000, expires November 11, 2001 if not previously exercised. As part of a
settlement agreement on litigation between the company and its former officer,
this option was voided. See Note 6.
On May 3, 2000, Saratoga Holdings issued warrant agreements for the purchase of
25,000 shares of its common stock at $0.25 per share each to advisory board
members, James F. O'Donnell, Kenneth D. Taylor, and A. Bryan Spires. On May 17,
2000, James F. O'Donnell exercised his rights to purchase 25,000 shares and was
issued common stock in exchange for his payment to the company of $6,250.00. A.
Bryan Spires and Kenneth D. Taylor have not at the date of this filing exercised
their right under the warrant agreement. The agreements, unless exercised, will
expire on May 3, 2001.
9
<PAGE>
SARATOGA HOLDINGS I, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2000 AND 1999
5. Stock Options (Continued)
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 2000 and 1999: 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 2000 and 1999 was not material.
6. Related Party Transactions
Randall Johnson, the former 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 Thomas F. Cooke, CEO of Saratoga Texas,
determined to be the fair market price. Saratoga Holdings entered into an
exclusive agent agreement with The Premium Group, a Texas Partnership on June
25, 1999. The purpose of the agreement was to assist Saratoga Holdings in the
location, purchasing, and selling of receivables. The Company was formerly in
litigation with Randall Johnson and The Premium Group. See Note 7.
10
<PAGE>
SARATOGA HOLDINGS I, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2000 AND 1999
6. Related Party Transactions (Continued)
The Company has a revolving loan from a related corporation to cover expenses up
to $80,000 during initial operations. The loan has an interest rate of 10% and,
at September 30, 2000, $68,236 was outstanding under the loan agreement and
interest of $5,683 has been accrued.
7. Litigation
In August 2000, the Company settled its suit alleging fraud and breach of
fiduciary duty, and dropped any and all claims against the defendants, in the
200th Judicial District Court of Travis County, Texas, in Cause No. GN-000642
Saratoga Holdings I, Inc. et al vs. Randall B. Johnson et al.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
Saratoga Holdings I, Inc. ("Saratoga Holdings") is in the business of acquiring
and reselling portfolios of delinquent and defaulted accounts receivable
("Charge Offs"). In addition, the Company intends to pursue expansion of its
business through the acquisition of additional portfolios and acquisition of
contingency debt collection agencies. The Company currently has no Charge Offs
under its ownership or control.
On 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 was entitled to retain a commission equal to 30% of the
amount collected. These accounts were sold January 6, 2000 for an net amount of
$14,911.64.
On June 25, 1999, the Company entered into an exclusive agreement (the "Service
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. 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. The Company
currently has no Charge Offs under its ownership or control.
Saratoga Holdings may purchase additional receivables from other sellers which
include the following:
* the 50 largest banks in the United States;
* other credit agencies and lenders; and
* 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:
* they are less than three years in default;
* they have not been placed with a collection agency more than two time;
and
* they represent debts originating in states whose populations generally
have higher personal incomes and less restrictive debt collection
laws.
12
<PAGE>
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
related entity, Saratoga Resources, Inc., a Texas corporation, has provided a
revolving line of credit to Saratoga Holdings up to a maximum of $80,000 at an
interest rate of 10% per year to cover 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 is not
able to pay the lender, the lender may treat the debt as a capital contribution.
As of the date of this filing, Saratoga Holdings has borrowed $68,236 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, 2001. The Company will retire this
indebtedness as soon as the funds are available.
Saratoga Holdings hopes that eventually it will be able to support some of its
operations through 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.
PART II -- OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Number Description
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27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
13
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SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SARATOGA HOLDINGS I, INC.
Dated: December 22, 2000 By: /s/ Thomas F. Cooke
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Thomas F. Cooke
Chief Executive Officer and Principal
Financial Officer
