U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING MARCH 31, 2000.
[ ] TRANSACTION REPORT PURSUANT SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSACTION PERIOD FROM __________ TO ____________.
Commission file number 333-68213
SARATOGA HOLDINGS I, INC.
(Exact name of small business issuer as specific in its charter)
TEXAS 78-2896910
(State of other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
301 CONGRESS AVENUE, SUITE 1550, AUSTIN, TEXAS 78701
(Address of principal executive offices)
(512) 478-5717
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of the Issuer's class of common
equity, as of the latest practicable date: common stock, $0.001 par value as of
June 10, 2000: 3,766,667 shares
Transactional Small Business Disclosure Format (check one);
Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS: Begin on Next Page.
1
<PAGE>
SARATOGA HOLDINGS I, INC.
FINANCIAL STATEMENTS
(unaudited)
MARCH 31, 2000 AND 1999
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Unaudited Financial Statements
Balance Sheet................................................................F-2
Statement of Operations......................................................F-3
Statement of Changes in Stockholder's Equity.................................F-4
Statement of Cash Flows......................................................F-5
Notes to Financial Statements................................................F-6
F-1
<PAGE>
<TABLE>
<CAPTION>
SARATOGA HOLDINGS I, INC.
BALANCE SHEET (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31,
(in thousands, except per share amounts)
2000 1999
<S> <C> <C>
Assets
Current assets:
Cash $ - $ 1
Investment in past due accounts receivable - 10
Organization costs, net of accumulated amortization 14 -
------ -----
Total assets $ 14 $ 11
====== =====
Liabilities and Stockholders' Equity
Liabilities
Accounts Payable $ 22
Accrued expenses $ 3 $ -
Note payable 38 -
------ -----
Total liabilities 63 -
------ -----
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 (60) -
------ -----
Stockholders' Equity (49) 11
Total liabilities and stockholder's equity $ 14 $ 11
====== =====
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
SARATOGA HOLDINGS I, INC.
STATEMENTS OF OPERATIONS (unaudited)
--------------------------------------------------------------------------------
(in thousands, except per share amounts)
Three months ended March 31,
2000 1999
-------- --------
<S> <C> <C>
Net sales $ 15 $ -
Cost of sales - -
------------ -------------
Gross profit 15 -
Costs and expenses
General and administrative 15 -
Selling and marketing - -
Development - -
Depreciation and amortization 1 -
------------ -------------
Total costs and expenses 16 -
------------ -------------
Income (loss) from operations (1) -
------------ -------------
Other income (expenses)
Interest income - -
Interest expense (1) -
------------ -------------
Other income (expense), net (1) -
------------ -------------
Net income (loss) $ (2) $ -
============ =============
Net income (loss) per share $ (0.01) $ -
============ =============
Weighted average shares outstanding 3,766,667 3,766,667
============ =============
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
SARATOGA HOLDINGS I, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
--------------------------------------------------------------------------------
(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 $ - $ 1
Net loss - - - - -
Balance at December 31, 1998 3,767 4 7 - 11
Net loss - - - (58) (58)
----------- ----------- -------------- --------------- ----------------
Balance at December 31, 1999 3,767 4 7 (58) (47)
Net loss - - - (2) (2)
----------- ----------- -------------- --------------- ----------------
Balance at March 31, 2000 3,767 $ 4 $ 7 $ (60) $ (49)
=========== =========== ============== =============== ================
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
SARATOGA HOLDINGS I, INC.
STATEMENT OF CASH FLOWS (unaudited)
--------------------------------------------------------------------------------
For the three months ended March 31,
2000 1999
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2) $ -
djustments to reconcile net loss to net cash
used for operating activities:
Investment in past due accounts receivable
Amortization 1
Changes in assets and liabilities
Past due accounts receivable collections 4
Accrued liabilities (3)
Organization costs
-
-------------------- --------------------
Net cash used for operating activities - -
-------------------- --------------------
Cash flows from financing activities:
Payment of note payable, net (1) -
-------------------- --------------------
Net cash provided by financing activities (1)
Increase (decrease) in cash and cash equivalents (1) 1
Cash and cash equivalents at beginning of quarter 1 -
-------------------- --------------------
Cash and cash equivalents at end of quarter $ - $ 1
==================== ====================
Supplemental cash flow disclosures:
Cash paid for interest $ 1 $ -
Cash paid for income taxes $ - $ -
</TABLE>
F-5
<PAGE>
SARATOGA HOLDINGS I, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
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 March 31, 2000, Saratoga Holdings has 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.
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 March 31, 2000, 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, 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.
F-6
<PAGE>
SARATOGA HOLDINGS I, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (continued)
MARCH 31, 2000 AND 1999
2. Summary of Significant Accounting Policies (continued)
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).
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 March 31, 2000 and 1999, the Company did not have any temporary
differences. Accordingly, there are no deferred tax assets or liabilities
recorded.
F-7
<PAGE>
SARATOGA HOLDINGS I, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (continued)
MARCH 31, 2000 AND 1999
3. 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.
4. 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 March 31,
2000, expires November 11, 2001 if not previously exercised. The Company is
currently in litigation with this former officer of the Company.
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.
F-8
<PAGE>
SARATOGA HOLDINGS I, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (continued)
MARCH 31, 2000 AND 1999
5. 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 is currently in
litigation with Randall Johnson and The Premium Group. See Note 6.
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 March 31, 2000, $37,936 was outstanding under the loan agreement and interest
of $3,018 has been accrued.
6. Litigation
The Company has filed suit 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. The Company has sued Johnson, its former president and
his business partnership for breach of fiduciary duty and fraud arising from
Johnson's self-dealing and profit taking in transactions that offered profitable
business opportunities to the Company. Management of the Company intends to
pursue this case vigorously. No counterclaims have been filed against the
Company and none are anticipated. Management believes that the Company has no
exposure for its conduct in its relationship with Johnson or his affiliated
businesses.
F-9
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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:
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 have not been placed with a collection agency more than two
time; and
o they represent debts originating in states whose populations
generally have higher personal incomes and less restrictive debt
collection laws.
2
<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
$37,935.52 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 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.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
The Company has filed suit 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. The Company has sued Johnson, its former president and
his business partnership for breach of fiduciary duty and fraud arising from
Johnson's self-dealing and profit taking in transactions that offered profitable
business opportunities to the Company. Management of the Company intends to
pursue this case vigorously. No counterclaims have been filed against the
Company and none are anticipated. Management believes that the Company has no
exposure for its conduct in its relationship with Johnson or his affiliated
businesses. See Related Party Transactions, page F-9.
ITEM 2 CHANGES IN SECURITIES.
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
3
<PAGE>
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5 OTHER INFORMATION.
The Company has hired Faske Lay & Co., L.L.P. to be its principal independent
accountant.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following Exhibit is attached hereto:
Number Description
------ -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company filed
(on March 27, 2000) a report on 8-K related to Item 4 - Changes in
Registrant's Certifying Accountants.
4
<PAGE>
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., A TEXAS CORPORATION
Dated June 16, 2000
/s/ Thomas F. Cooke
----------------------------------------------
Thomas F. Cooke
Chief Executive Officer and Principal
Financial Officer
5
