U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: April 30, 2000
Commission File Number:0-29081
SARATOGA INTERNATIONAL HOLDINGS CORP.
(Exact name of small business issuer as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
98-0169082
(IRS Employer Identification No.)
8756 122nd Avenue NE
Kirkland, Washington
(Address of principal executive offices)
98033
(Zip Code)
(425) 827-7817
(Issuer's Telephone Number)
--------------------------------------------------
(Former name, former address and former fiscal year,
if changed last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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
------- ------
The number of shares of the registrant's only class of common stock issued and
outstanding, as of April 30, 2000, was 59,823,285 shares.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS . . . . . . . .. . . . . . . . . . . . .2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS. . . . 2
PART II. OTHER INFORMATION . . . . . . . . .. . . . . . . . . . . . .15
Item 1. Legal Proceedings . . . . . . . . . . . .. . . . . . . . . . .15
Item 2. Changes In Securities and Use of Proceeds . . . . . . . . . . . .15
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . .17
Item 4. Submission of Matters to a Vote of Security Holders . .. . .. . . .17
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . .17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . .17
SIGNATURES . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . .18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The financial statements are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
o Plan of Operations
The following discussion should be read in conjunction with the Financial
Statements and notes thereto included herein.
Saratoga's current plan is to become operational by approximately July 31, 2000
by continuing with the implementation of the business development plans of its
two subsidiaries, Saratoga Telecom Corp. and Virtual Media Group Inc. Saratoga
also plans to explore the possibility of acquiring other businesses,
technologies, products and services available in the e-commerce industry.
Saratoga Telecom
Saratoga Telecom is in the process of establishing itself as a reseller of
prepaid long distance telephone calling service provided by major domestic and
international long distance service suppliers. Saratoga's Telecom's major
marketing strategy is based on selling prepaid long distance usage to customers
over the Internet. Saratoga Telecom
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has developed a Web Site (www.TalkisCheapCard.com) to facilitate the sale of
prepaid long distance usage. By dialing up the Web Site on the Internet,
customers may order and receive long distance usage by prepaying for such usage
online with a credit card.
Upon purchasing long distance service online, a "virtual calling card" will
appear on the customer's computer monitor, complete with usage instructions and
a personal identification number (PIN) superimposed over the online virtual card
to be used by the customer to access his or her account. Such information can
then be printed out by the customer for record keeping and personal use by the
customer. The printout also includes instructions for the customer as to how to
place a long distance call using the virtual card.
The units of long distance service and PINs are supplied to Saratoga Telecom
under non-exclusive reseller agreements with long distance service suppliers who
provide telephone service to the target markets selected by the company. At
present, Saratoga Telecom, as an independent contractor, has agreements with
Teleglobe Communications Corp. and Cable and Wireless Global Card Service Inc.
to supply it with units of long distance service on an "as ordered", "as needed"
basis.
Teleglobe has the ability to create customized global connectivity, PINs and
full turnkey calling solutions for customers. Teleglobe's sizeable portfolio of
global telecommunications services also includes domestic and international
voice services, Internet access, domestic and international private lines,
Asynchronous Transfer Mode (ATM) services, international toll-free services and
postpaid calling services. Therefore, Saratoga Telecom has selected Teleglobe as
its principal supplier of long distance services. Teleglobe Inc. (NYSE, TSE, ME:
TGO) is a recognized leader in global telecommunications.
Through its subsidiary Teleglobe Communications Corporation, Teleglobe develops
and supplies global connectivity services to carriers, Internet service
providers, business customers and content providers worldwide. Teleglobe also
caters to an expanding international consumer customer base. According to
TeleGeography, an industry publication, Teleglobe is the fourth-ranked long
distance provider in the United States and, according to a recent KMI
Corporation study, the third largest owner of undersea fiber optic cable
systems. Teleglobe has a 50% interest in ORBCOMM, the world's first commercial
low-earth-orbit, satellite-based, data communications system. Additional
information is available at www.teleglobe.com.
Teleglobe's prepaid card service is unique in that it allows telecommunications
carriers and large corporations to deliver a global calling service completely
branded in their own name. The prepaid cards not only carry the brand of the
carrier, but when callers use the card they hear custom-branded messages
identifying the network with the retailer's name, a capability other carriers do
not offer.
Cable & Wireless Global Card Services Inc. is the American subsidiary of Cable &
Wireless of London, England, one of the world's leading providers of integrated
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communications and a major global carrier of communications traffic: Internet,
data, voice and video. Its businesses around the world offer a range of services
spanning interactive entertainment and information, broadband data, Internet
access and broadcast television, as well as fixed and mobile voice. Cable &
Wireless is one of the world's largest carriers of international traffic and
provides mobile communications in more than 30 countries. Cable & Wireless is
listed on the Stock Exchanges of London, New York (NYSE: CWP) and Frankfurt.
Saratoga Telecom's plan to originate customer contact and sales orders is based
on establishing a network of Web Site agents in markets targeted by the Company
to direct potential customers to Saratoga Telecom's virtual calling card Web
Site. Saratoga Telecom has engaged the services of a marketing consulting
service firm in Florida to assist it with its efforts to establish Web Site
agents in Central and South America.
Under its marketing plan, Saratoga is also pursuing a strategy of offering
private label branding of its virtual calling cards to companies involved in
international business, such as air transportation carriers, travel agencies,
financial service providers and other service and commercial businesses.
Virtual Media
Virtual, which was founded in 1998, has offices in Kirkland, Washington and
Lethbridge, Alberta, Canada. Virtual's principal business development activity
to date has been in the Western Canada marketplace.
Virtual's business development plan is based on providing e-commerce solutions
for the Internet. Virtual provides technological services to its customers
including website development and hosting, database development, digital virtual
tour technology and multi media services including CD ROM's. Virtual has also
commenced development of proprietary Internet software technology which includes
a new searching technology, a multi function communications module with
specialized security features and an e-commerce module.
Virtual Media's current business development plan is based on expanding its
marketing efforts to sell technological service in Western Canada and in the
USA. Further development of Virtual's proprietary software technology is subject
to the availability of sufficient funds from operating revenues or proceeds from
future financings by Saratoga.
Saratoga
Saratoga also plans to aggressively pursue the acquisition of other products,
technologies and services through licensing and/or acquiring businesses with
proven sales and operating history which are compatible with corporate
strategies to become operational in the e-commerce industry.
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To date, Saratoga's current business development activities have consisted
primarily of acquiring the Internet telecom operational right of Internet
Interview Inc., acquiring Virtual Media Group Inc., assembling a management team
and raising capital. Since inception of Saratoga's development stage activities
in December 1997 to April 30, 2000, Saratoga's net losses have totaled
approximately $ 4,096,000 of which approximately $1,147,000 is attributable to
its previous tire and petroleum business project, which was spun-off to
Saratoga's shareholders during March 1999. These net losses have been funded
primarily with the proceeds from the private sales of the Company's convertible
debt and equity securities as well as with the issuance of its common stock in
exchange for services.
Saratoga has raised approximately $2,994,000 of operating capital including
$2,308,000 in private placement offerings since inception of its business
development activities in December 1997 through April 30, 2000 and plans to
continue its efforts to raise additional operating capital through various
financing methods including private placements of its equity securities. Funding
of future operations is dependent on management's ability to raise additional
capital.
o Research & Development
Other than developing, updating and expanding Saratoga Telecom's Web Site and
Internet software to facilitate sales of its prepaid long distance virtual
calling card, and Virtual's Internet software to facilitate sales of its
technological services, Saratoga does not intend to undertake any activities
that may be characterized as research and development until sufficient funding
is available from future operations or financings by Saratoga. Saratoga has not
incurred any research and development expenses since its inception.
o Number of Employees
Saratoga presently has twelve (12) employees; nine (9) full time and three (3)
part time employees. During the next 12 months, management intends to hire up to
twelve additional employees, including technical, marketing and sales and
administrative support personnel. Saratoga believes there is an ample supply of
qualified candidates available to fill such positions. However, the continuance
of employment of existing personnel and the hiring of any additional employees
is subject to the availability of sufficient funds from operating revenues or
proceeds from future financings to pay them.
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Forward-Looking Statements
In connection with, and because it desires to take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company cautions readers regarding certain forward-looking statements in the
following discussion and elsewhere in this report and in any other statement
made by, or on the behalf of the Company, whether or not in future filings with
the Securities and Exchange Commission. Forward-looking statements are
statements not based on historical information and which relate to future
operations, strategies, financial results or other developments. Forward-looking
statements are necessarily based upon estimates and assumptions that are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which, with respect to future business decisions, are subject to
change. These uncertainties and contingencies can affect actual results and
could cause actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. The Company
disclaims any obligation to update forward-looking statements.
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FINANCIAL STATEMENTS
TABLE OF CONTENTS
Consolidated Balance Sheet as of April 30, 2000 . .. . . . . . . . . . . 8
Consolidated Statements of Operations
For the Six and Three Months Ended April 30, 1999 and 2000
and the Cumulative Period During the Development Stage
from December 1, 1997 (Inception) through April 30, 2000 . . . . . . . . . 9
Consolidated Statements of Cash Flows
For the Six Months Ended April 30, 1999 and 2000 and
the Cumulative Period During the Development Stage
from December 1, 1997 (Inception) through April 30, 2000. . . . . . . . . 10
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 12
7
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<TABLE>
<CAPTION>
SARATOGA INTERNATIONAL HOLDINGS CORP. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
ASSETS
April 30, 2000
(Unaudited)
----------------
<S> <C>
CURRENT ASSETS:
Cash $ 320,083
Accounts Receivable 21,144
Deferred PIN cost 29,391
Deferred financing cost 10,000
Prepaid expense and other current assets 49,222
----------------
TOTAL CURRENT ASSETS 429,840
PROPERTY AND EQUIPMENT - at cost, net 59,763
INTANGIBLE ASSET, net 57,061
GOODWILL 280,379
----------------
$ 827,043
================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable - shareholders and officers $ 35,247
Deferred PIN revenue 8,709
Accrued expenses and other current liabilities 107,340
----------------
TOTAL CURRENT LIABILITIES 151,296
----------------
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDERS' EQUITY:
8% cumulative convertible redeemable preferred stock, $.001 par value,
50,000,000 authorized, 377,742 shares, issued and outstanding,
liquidating preference of $1 377,742
Common stock, par value $0.001, 200,000,000 authorized
59,823,285 shares issued and outstanding 59,823
Additional paid in capital 4,584,206
Deficit accumulated during the development stage (4,346,024)
----------------
TOTAL SHAREHOLDERS' EQUITY 675,747
----------------
$ 827,043
================
</TABLE>
See notes to the consolidated financial statements
<PAGE>
8
<TABLE>
SARATOGA INTERNATIONAL HOLDINGS CORP. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Cumulative
During the
Development
Six Six Three Three Stage
Months Months Months Months (December 1,
Ended Ended Ended Ended 1997 to
April 30, April 30, April 30, April 30, April 30,
1999 2000 1999 2000 2000)
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
NET SALES $ - $ 41,337 $ - $ 34,666 $ 43,997
-
COST OF SALES - 18,179 - 13,381 41,989
------------ ------------ ------------ ------------ --------------
-
GROSS PROFIT - 23,158 - 21,285 2,008
OPERATING EXPENSES
General and operating expenses 370,006 1,175,120 173,823 782,989 2,689,338
Loss on impairment of investments - - - - 305,500
------------ ------------ ------------ ------------ --------------
TOTAL OPERATING EXPENSES 370,006 1,175,120 173,823 782,989 2,994,838
------------ ------------ ------------ ------------ --------------
-
LOSS FROM OPERATIONS (370,006) (1,151,962) (173,823) (761,704) (2,992,830)
------------ ------------ ------------ ------------ --------------
OTHER INCOME (EXPENSE):
Write-off of terminated acquisition costs - - - - (99,043)
Expenses of reverse merger - - - - (78,816)
Interest expense (133,393) (554,539) (72,488) (432,499) (996,265)
Forgiveness of note payable - - - - 50,000
Other income 101 7,230 100 7,230 20,931
------------ ------------ ------------ ------------ --------------
NET OTHER EXPENSES (133,292) (547,309) (72,388) (425,269) (1,103,193)
------------ ------------ ------------ ------------ --------------
NET LOSS (503,298) (1,699,271) (246,211) (1,186,973) (4,096,023)
LESS:
CUMULATIVE PREFERRED STOCK DIVIDEND - 15,110 - 7,555 30,220
------------ ------------ ------------ ------------ --------------
NET LOSS TO COMMON SHARES $ (503,298) $(1,714,381) $ (246,211) $(1,194,528) $ (4,126,243)
============ ============ ============ ============ ==============
LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.02) $ (0.03) $ (0.01) $ (0.02) $ (0.12)
============ ============ ============ ============ ==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED 29,326,104 56,054,575 35,060,014 58,466,118 34,548,195
============ ============ ============ ============ ==============
</TABLE>
See Notes to the consolidated financial statements
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<TABLE>
SARATOGA INTERNATIONAL HOLDINGS CORP. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Cumulative
During the
Development
Six Six Stage
Months Months (December 1, 1997
Ended Ended to
April 30, 1999 April 30, 2000 April 30, 2000)
(Unaudited) (Unaudited) (Unaudited)
---------------- ---------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (503,298) $ (1,699,271) $ (4,096,023)
Adjustment to reconcile net loss to
net cash used in operations:
Loss on impairment of investments - - 305,500
Forgiveness of note payable - - (50,000)
Issuance of options and warrants for services - 173,039 208,959
Issuance of common stock for service 158,906 43,880 415,328
Issuance of common stock as a donation 3,100 3,100
Depreciation - 4,581 4,581
Amortization - 50,610 183,543
Interest expense from beneficial conversion features 85,345 489,262 852,195
Interest expense from convertible debentures
exchanged for common stock 8,184 118,000 130,643
Interest expense from loan fees and discount - 61,864 61,864
Changes in assets and liabilities:
Deferred financing cost - 25,475 (10,000)
Accounts receivable - (21,144) (21,144)
Deferred Pin cost - (29,391) (29,391)
Prepaid expense and other current assets - 23,027 (49,223)
Deferred PIN revenue - 8,709 8,709
Accrued expenses and other current liabilities (32,394) 32,600 82,022
---------------- ---------------- -------------------
NET CASH USED IN OPERATING ACTIVITIES (283,257) (715,659) (1,999,337)
---------------- ---------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (52,505) (63,257)
---------------- ---------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES - (52,505) (63,257)
---------------- ---------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans payable - shareholders and officers (17,919) 3,458 (14,753)
Proceeds from notes payable - - 200,000
Repayment of notes payable - (276,000) (276,000)
Proceeds from long term debt - - 461,122
Repayment of long term debt (10,942) - (83,380)
Proceeds from convertible debentures 225,000 1,060,200 2,033,000
Debt issue costs - (50,800) (163,300)
Proceeds from collection of stock subscription receivable - 25,000 25,000
Proceeds from issuance of common stock 90,000 85,000 200,000
---------------- ---------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 286,139 846,658 2,381,689
---------------- ---------------- -------------------
NET INCREASE IN CASH 2,882 78,494 319,095
CASH AT BEGINNING OF PERIOD 366 241,589 988
---------------- ---------------- -------------------
CASH AT END OF PERIOD $ 3,248 $ 320,083 $ 320,083
================ ================ ===================
</TABLE>
See notes to the consolidated financial statements
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Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash paid during the period:
Interest $ - $ - $ 100,113
================ ================ ===================
Income Taxes $ - $ - $ -
================ ================ ===================
Supplemental Disclosure of Non-Cash Flow Investing and
Financing Activities
Issuance of common stock from reverse acquisition $ - $ - $ 12,527
================ ================ ===================
Issuance of common stock for stock subscription receivable $ - $ - $ 25,000
================ ================ ===================
Issuance of common stock from conversion of debentures $ 213,000 $ 160,000 $ 1,133,000
================ ================ ===================
Issuance of common stock in connection with a spin-off of Western $ - $ - $ 250,000
================ ================ ===================
Issuance of common stock in connection with purchase of Virtual $ - $ 264,961 $ 264,961
================ ================ ===================
Issuance of 8% cumulative convertible redeemable preferred stock
for notes payable $ 377,742 $ - $ 377,742
</TABLE>
See notes to the consolidated financial statements
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SARATOGA INTERNATIONAL HOLDINGS CORP. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet of Saratoga International Holdings
Corp and subsidiaries (A Development Stage Company) at April 30, 2000, and the
consolidated statements of operations for the six months and three months ending
April 30, 1999 and 2000 and the cumulative period during the development stage
from December 1, 1997 (Inception) through April 30, 2000 and the consolidated
statements of cash flows for six months ended April 30, 1999 and 2000 and the
cumulative period during the development stage from December 1, 1997 (Inception)
through April 30, 2000, have been prepared by the Company's management and they
do not include all information and notes to the financial statements necessary
for a complete presentation of the financial position, results of operations,
and cash flows in conformity with generally accepted accounting principles. In
the opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are a normal recurring nature. The unaudited
consolidated financial statements should be read in conjunction with the
financial statements and footnotes thereto included in the Company's
registration statement on Form 10-SB for the year ended October 31, 1999.
Operating results for the six months ended April 30, 2000, are not necessarily
indicative of the results that can be expected for the year ending October 31,
2000.
2. ACQUISITION OF VIRTUAL MEDIA GROUP, INC.
The following pro forma data assumes the acquisition of Virtual Media Group,
Inc. occurred at the beginning of each period presented. The complete details of
the acquisition are disclosed in the Company's Form 10-SB filed June 6, 2000.
Six Six
Months Months
Ended Ended
April 30, 1999 April 30, 2000
(Unaudited) (Unaudited)
------------------ ----------------
NET SALES $ 20,960 $ 73,366
================== ================
LOSS FROM CONTINUING OPERATIONS $ 528,563 $ 1,714,979
================== ================
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NET LOSS $ 528,563 $ 1,714,979
================= ================
LESS:
CUMULATIVE PREFERRED
STOCK DIVIDEND - 15,110
------------------ ----------------
NET LOSS TO COMMON SHARES $ 528,563 1,730,089
================== ================
LOSS PER COMMON SHARE, BASIC
AND DILUTED $ 0.02 0
================== ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND
DILUTED $ 30,380,044 $ 56,054,575
================== ================
3. SHAREHOLDERS' EQUITY
Common Stock Issuances
Shares of common stock of Saratoga issued in the period November 1, 1999
through April 30, 2000, which were not disclosed in the registration
statement on Form 10-SB are summarized as follows:
Average Number
Per Of
Transaction Share Shares
Date Description Value Valuation Issued
--------- ----------------- --------------- ---------------- ---------------
2/00-4/00 Issued
for services $ 6,200 $ 0.310 20,000
2/00-4-00 Issued
for donation $ 3,100 $ 0.310 10,000
The "Per Share Valuation" set forth above is based on the recorded value of the
transaction divided by the number of shares issued as consideration for each
transaction.
Stock Options
For the three months and six months ended April 30, 2000, Saratoga granted a
total of 1,060,000 options to consultants for past services. As a result,
Saratoga incurred consulting expense of $173,039 for the three months and six
months ended April 30, 2000, respectively.
All of the options that have been granted to consultants were non-forfeitable.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
There are presently no material pending legal proceedings to which the Company
is a party to, to the best of its knowledge, no such actions against the Company
are contemplated or threatened.
Item 2. Changes In Securities and Use of Proceeds
In November 1999, Saratoga issued 1,000,000 shares of common stock valued at
$.06 per share as payment on a note payable to an unrelated third party. Such
shares were issued without registration in reliance on Rule 504 of Regulation D
of the Securities Act of 1933.
In December 1999, Saratoga issued 115,000 shares of common stock valued at $.09
per share to employees. Such shares were issued without registration pursuant to
an exemption from registration under Section 4(2) of the Securities Act of 1933.
In January 2000, Saratoga issued $160,000 principal amount of a 2% Series E
Subordinated Convertible Redeemable Debenture due January 20, 2001 to a
non-related company in a private placement. The Series E Debenture and the
shares of common stock into which it was converted were exempt from registration
in reliance on Rule 504 of Regulation D of the Securities Act of 1933. The
Series E Debenture was convertible into common stock at a conversion price equal
to 72.5% of the average closing bid price of the common stock for the five (5)
trading days immediately preceding the date of receipt of the conversion notice.
The E Debenture was converted to 1,244,719 shares of common stock in January
2000 at an average price of approximately $.129 per share. At the time of the
sale of the Series E Debenture, Saratoga recorded $60,690 of additional paid-in
capital representing the beneficial conversion feature value of the discount.
This amount was charged to interest expense over the expected conversion period.
In January 2000, Saratoga issued 250,000 shares of common stock valued at $.10
per share to a Director upon exercise of a stock option granted to the Director.
Such shares were issued without registration pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933.
In January 2000, Saratoga issued 30,000 shares of common stock valued at $.20
per share to employees. Such shares were issued without registration pursuant to
an exemption from registration under Section 4(2) of the Securities Act of 1933.
In February 2000, Saratoga issued 1,053,940 shares of common stock valued at
$.25 per share to acquire all of the outstanding shares of Virtual Media Group,
Inc. Such
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shares were issued without registration pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933.
Prior to its acquisition by Saratoga in February 2000, Virtual Media Group, Inc.
issued $1,000,000 principal amount of a 9% Series A Subordinated Redeembable
Debenture due February 11, 2002 to three non-related parties in a private
placement. The Series A Debenture and the shares into which it was converted
were exempt from registration in reliance on Rule 504 of Regulation D of the
Securities Act of 1933. Saratoga assumed Virtual's Debenture obligation in
connection with it acquisition of Virtual . The Series A Debenture was
convertible into common stock at a conversion price equal to 70% of the average
closing bid price of the common stock for the five (5) trading days immediately
preceding the date of receipt of the conversion notice. The A Debenture was
converted to 4,041,501 shares of common stock in March 2000 at an average price
of approximately $.247 per share. At the time of the assumption of the Series A
Debenture, Saratoga recorded $428,571 of additional paid-in capital representing
the beneficial conversion feature value of the discount. This amount was charged
to interest expense when the Debentures first became convertible, in February
2000.
In March 2000 Saratoga issued 20,000 shares of common stock valued at $.31 per
share to an employee. Such shares were issued without registration pursuant to
an exemption from registration under Section 4(2) of the Securities Act of 1933.
In March 2000 Saratoga issued 10,000 shares of common stock valued at $.31 per
share to a charitable organization. Such shares were issued without registration
pursuant to an exemption from registration under Section 4(2) of the Securities
Act of 1933.
Saratoga believed that each of the foregoing persons or entities to whom shares
of common stock were issued were either "accredited investors" or "sophisticated
investors" as defined in the Securities Act of 1933. Each had access to all
material information regarding Saratoga, its business and financial condition
prior to the offer and sale of the securities in question.
Saratoga took into consideration a number of factors in determining the price
per share of its common stock in the described transactions. These consisted of
(1) the "restricted" nature of the securities (except for those transactions
under Regulation D Rule 504); (2) the limited market for Saratoga's common stock
on the OTC Bulletin Board; (3) the low book value per share; and (4) Saratoga's
history of limited revenues.
For common stock issued in non-monetary transactions involving marketability
discounts Saratoga's policy is to account for marketability discounts in
accordance with guidelines provided by published empirical studies and financial
research on marketability discounts.
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Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company at this time.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company at this time.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
March 28, 2000, Current Report of Registrant reporting an acquisition of assets.
A report of the acquisition of all of the outstanding shares of Virtual Media
Group, Inc. was reported. No financial statements or pro forma statements were
filed with this Form 8-K. The financial statements of Virtual Media Group, Inc.
and the pro forma financial statements of Saratoga and Virtual were filed with
Amendment Number 3 of the Registrant's Form 10-SB filed on May 26, 2000.
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SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 14, 2000.
SARATOGA INTERNATIONAL HOLDINGS CORP.
By: /s/ Patrick F. Charles
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Patrick F. Charles
CEO, President and Director
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INDEX OF EXHIBITS
Exhibit
Number Description
27 Financial Data Schedule
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