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: July 31, 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 July 31, 2000, was 61,254.703 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 January 31,
2001 by continuing with the implementation of the business development plans of
its subsidiary, Saratoga Telecom Corp. 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 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
The growth in revenues from the operation of Virtual Media Group Inc. following
its acquisition by Saratoga did not materialize as expected and operating losses
were greater than forecast. The prospects for future growth with reasonable
profit margins in web-site design and internet marketing services within
Virtual's regional marketing area were severly dampened by the proliferation of
competitors entering into this market.
Also, Saratoga decided to concentrate its resources on developing growth in the
telecommunications segment of its business including its plan of growth through
acquisitions. Concurrent therewith, Saratoga discontinued its plan to commit
resources of a research and development nature with respect to Virtual's
software technology development program.
Therefore, the operations of Virtual Media Group Inc. were discontinued
effective August 31, 2000.
The discontinuance of the operations of Virtual was the culmination of a process
that was underway during the quarter ended July 31, 2000, therefore, the loss on
disposition of assets and estimated loss to dispose of these assets is recorded
as of July 31, 2000. The loss associated with Virtual Media Group for the nine
and three month periods ended July 31, 2000 is $119,637 and $57,340,
respectively. The loss on disposition of the assets of Virtual is estimated to
be $323,820 for the nine and three month periods ended July 31, 2000, including
a write off of goodwill of approximatley $265,000.
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., assembling a management team and raising capital. Since
inception of Saratoga's development stage activities in December 1997 to July
31, 2000, Saratoga's net losses have totaled approximately $4,796,000 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 $2,756,000 of operating capital net of
discounts and expenses since inception of its business development activities in
December 1997 through July 31, 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 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 (9) employees; six (6) 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 July 31, 2000 . . . . . . . . . . . . . 8
Consolidated Statements of Operations
For the Nine and Three Months Ended July 31, 1999 and 2000
and the Cumulative Period During the Development Stage
from December 1, 1997 (Inception) through July 31, 2000 . . . . . . . . . 9
Consolidated Statements of Cash Flows
For the Nine Months Ended July 31, 1999 and 2000 and
the Cumulative Period During the Development Stage
from December 1, 1997 (Inception) through July 31, 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
July 31, 2000
(Unaudited)
---------------
<S> <C>
CURRENT ASSETS:
Cash $ 39,625
Accounts Receivable 14,686
Deferred PIN cost 34,955
Prepaid expense and other current assets 70,497
---------------
TOTAL CURRENT ASSETS 159,763
PROPERTY AND EQUIPMENT - at cost, net 26,077
INTANGIBLE ASSET, net 43,384
---------------
$ 229,224
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable - shareholders and officers $ 38,275
Deferred PIN revenue 21,179
Accrued expenses and other current liabilities 116,590
---------------
TOTAL CURRENT LIABILITIES 176,044
---------------
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDERS' EQUITY:
8% cumulative convertible redeemable preferred stock, $.001 par value,
50,000,000 authorized, 251,828 shares, issued and outstanding,
liquidating preference of $1 251,828
Common stock, par value $0.001, 200,000,000 authorized
61,254,703 issued and outstanding 61,255
Additional paid in capital 4,796,668
Deficit accumulated during the development stage (5,056,571)
---------------
TOTAL SHAREHOLDERS' EQUITY 53,180
---------------
$ 229,224
===============
</TABLE>
See notes to the consolidated financial statements
8
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<TABLE>
<CAPTION>
SARATOGA INTERNATIONAL HOLDINGS CORP. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
During the
Development
Nine Nine Three Three Stage
Months Months Months Months (December 1,
Ended Ended Ended Ended 1997 to
July 31, July 31, July 31, July 31, July 31,
1999 2000 1999 2000 2000)
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
NET SALES $ - $ 84,522 $ - $ 49,688 $ 87,182
COST OF SALES - 71,135 - 44,143 94,945
------------ ------------ ------------ ------------ --------------
GROSS PROFIT - 13,387 - 5,545 (7,763)
OPERATING EXPENSES
General & administrative expenses 562,641 1,445,466 192,395 347,169 2,959,684
Loss on impairment of investments - - - - 305,500
------------ ------------ ------------ ------------ --------------
TOTAL OPERATING EXPENSES 562,641 1,445,466 192,395 347,169 3,265,184
------------ ------------ ------------ ------------ --------------
LOSS FROM OPERATIONS (562,401) (1,432,079) (192,395) (341,624) (3,272,947)
------------ ------------ ------------ ------------ --------------
OTHER INCOME (EXPENSE):
Write-off of terminated acquisition costs - - - - (99,043)
Expenses of reverse merger - - - - (78,816)
Interest expense (340,515) (554,260) (207,122) (512) (995,986)
Forgiveness of note payable - - - - 50,000
Other income 101 30,051 - 22,821 43,752
------------ ------------ ------------ ------------ --------------
NET OTHER EXPENSES (340,414) (524,209) (207,122) 22,309 (1,080,093)
------------ ------------ ------------ ------------ --------------
LOSS FROM CONTINUING OPERATIONS (902,815) (1,956,288) (399,517) (319,315) (4,353,040)
DISCONTINUED OPERATIONS
Loss from operations of discontinued (119,637) (57,340) (119,637)
subsidiary Virtual Media Group
Loss on disposal of Virtual Media Group
including provision of $16,000 for
operating loss during phase out period (323,820) (323,820) (323,820)
------------ ------------ ------------ ------------ --------------
NET LOSS (902,815) (2,399,745) (399,517) (700,475) (4,796,497)
LESS:
CUMULATIVE PREFERRED STOCK DIVIDEND 7,555 20,147 7,555 5,037 35,257
------------ ------------ ------------ ------------ --------------
NET LOSS TO COMMON SHARES $ (910,370) $(2,419,892) $ (407,072) $ (705,512) $ (4,831,754)
============ ============ ============ ============ ==============
LOSS PER COMMON SHARE, BASIC AND DILUTED
FROM CONTINUING OPERATIONS $ (0.03) $ (0.03) $ (0.01) $ (0.01) $ (0.12)
FROM DISCONTINUED OPERATIONS $ - $ (0.01) $ - $ - $ (0.01)
------------ ------------ ------------ ------------ --------------
TOTAL LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.03) $ (0.04) $ (0.01) $ (0.01) $ (0.13)
============ ============ ============ ============ ==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED 35,237,378 57,787,951 47,059,927 61,254,703 37,051,930
============ ============ ============ ============ ==============
</TABLE>
See notes to the consolidated financial statements
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<TABLE>
<CAPTION>
SARATOGA INTERNATIONAL HOLDINGS CORP. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
During the
Development
Nine Nine Stage
Months Months (December 1, 1997
Ended Ended to
July 31, 1999 July 31, 2000 July 31, 2000)
(Unaudited) (Unaudited) (Unaudited)
--------------- --------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (902,815) $ (2,399,745) $ (4,796,497)
Adjustment to reconcile net loss to
net cash used in operations:
Loss on impairment of investments 50,000 - 305,500
Forgiveness of note payable (50,000) - (50,000)
Issuance of options and warrants for services - 180,946 216,866
Issuance of common stock for service 231,956 40,579 412,027
Issuance of common stock as a donation - 3,100 3,100
Issuance of common stock for debt issue cost 78,000 50,800 50,800
Write off of net assets from discontinued business operation - 308,186 308,186
Depreciation - 7,921 7,921
Amortization - 38,349 171,282
Interest expense from beneficial conversion features 291,596 489,262 852,195
Interest expense from convertible debentures
exchanged for common stock 11,138 100,000 112,643
Interest expense from loan discount - 76,000 76,000
Changes in assets and liabilities:
Deferred financing cost (10,000) 35,475 -
Accounts Receivable - (14,686) (14,686)
Deferred Pin Cost - (34,955) (34,955)
Prepaid expense and other current assets (27,247) 54,252 (17,998)
Deferred PIN revenue - 21,179 21,179
Accrued expenses and other current liabilities (130,970) 58,158 107,580
--------------- --------------- -------------------
NET CASH USED IN OPERATING ACTIVITIES (458,342) (985,179) (2,268,857)
--------------- --------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,591) (66,471) (77,223)
--------------- --------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (3,591) (66,471) (77,223)
--------------- --------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans payable - shareholders and officers (60,742) 6,486 (11,725)
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 - - (83,380)
Proceeds from convertible debentures 600,000 1,060,000 2,033,000
Debt issue costs (78,000) (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 551,258 849,686 2,384,717
--------------- --------------- -------------------
NET INCREASE IN CASH 89,325 (201,964) 38,637
CASH AT BEGINNING OF PERIOD 366 241,589 988
--------------- --------------- -------------------
CASH AT END OF PERIOD $ 89,691 $ 39,625 $ 39,625
=============== =============== ===================
</TABLE>
See notes to the consolidated financial statements
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<TABLE>
<CAPTION>
SARATOGA INTERNATIONAL HOLDINGS CORP. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
During the
Development
Nine Nine Stage
Months Months (December 1, 1997
Ended Ended to
July 31, 1999 July 31, 2000 July 31, 2000)
(Unaudited) (Unaudited) (Unaudited)
--------------- --------------- -------------------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information
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 $ 813,000 $ 1,160,000 $ 2,133,000
=============== =============== ===================
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 common stock to redeem 8% cumulative convertible
redeemable preferred stock $ - $ 125,914 $ 125,914
=============== =============== ===================
Issuance of common stock as dividends for 8% cumulative
convertible redeemable preferred stock $ - $ 10,073 $ 10,073
=============== =============== ===================
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
July 31, 2000
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet of Saratoga International Holdings
Corp and subsidiaries (A Development Stage Company) at July 31, 2000, and the
consolidated statements of operations for the nine months and three months
ending July 31, 1999 and 2000 and the cumulative period during the development
stage from December 1, 1997 (Inception) through July 31, 2000 and the
consolidated statements of cash flows for nine months ended July 31, 1999 and
2000 and the cumulative period during the development stage from December 1,
1997 (Inception) through July 31, 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 nine months ended July 31, 2000, are not necessarily
indicative of the results that can be expected for the year ending October 31,
2000.
2. DISCONTINUED OPERATIONS OF VIRTUAL MEDIA GROUP, INC.
The growth in revenues from the operation of Virtual Media Group Inc. following
its acquisition by Saratoga did not materialize as expected and operating losses
were greater than forecast. The prospects for future growth with reasonable
profit margins in web-site design and internet marketing services within
Virtual's regional marketing area were severly dampened by the proliferation of
competitors entering into this market.
Also, Saratoga decided to concentrate its resources on developing growth in the
telecommunications segment of its business including its plan of growth through
acquisitions. Concurrent therewith, Saratoga discontinued its plan to commit
resources of a research and development nature with respect to Virtual's
software technology development program.
Therefore, the operations of Virtual Media Group Inc. were discontinued
effective August 31, 2000.
The discontinuance of the operations of Virtual was the culmination of a process
that was underway during the quarter ended July 31, 2000, therefore, the loss on
disposition of assets and estimated loss to dispose of these assets is recorded
as of July 31, 2000. The loss from discontinued operations associated with
Virtual Media Group for the nine and three month periods ended July 31, 2000 was
$119,637 and $57,340, respectively. The loss on disposition of the assets of
Virtual is estimated to be $323,820 for the nine and three month periods ended
July 31, 2000, including a write off of goodwill of approximatley $265,000,
other assets of approximatley $43,000 and an estimate of disposal expense of
$16,000. Virtual had revenues of $15,492 and $8,889 for the nine and three month
periods ended July 31, 2000.
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3. SHAREHOLDERS' EQUITY
Common Stock Issuances
Shares of common stock of Saratoga issued in the period November 1, 1999
through July 31, 2000 are as summarized as follows:
Average Number
Per Of
Transaction Share Shares
Date Description Value Valuation Issued
--------- ----------------- --------------- ---------------- ---------------
12/99-1/00 Issued
for services $ 16,880 $ 0.116 145,000
11/99-1/00 Issued
for services $ 85,000 $ 0.068 1,250,000
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
5/00 Issued
for services $ 70,000 $ 0.140 500,000
5/00 Issued for
conversion $ 135,987 $ 0.146 931,418
of Preferred
stock
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 nine months ended July 31, 2000, Saratoga granted a
total of 100,000 and 1,160,000 options respectively options to consultants for
past services. As a result, Saratoga incurred consulting expense of $7,907 and
$180,946 for the three months and nine months ended July 31, 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.
In May, 2000 Saratoga issued 931,418 restricted shares of common stock valued at
$0.146 per share upon conversion of 125,914 shares of its 8% cumulative
convertible preferred stock. The common stock was valued at $125,914. The
conversion included preferred stock dividends of $10,073. Such shares were
issued without registration pursuant to an exemption from registration under
Section 4 (2) of the Securities Act of 1933.
In May, 2000 Saratoga isssued 500,000 restricted shares of its common stock
valued at $0.14 per share to a public relations firm for services over a one
year period. The shares were valued at $70,000 which is being amortized to
expense over 12 months. 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: September 19, 2000.
SARATOGA INTERNATIONAL HOLDINGS CORP.
By: /s/ Patrick F. Charles
------------------------------------------
Patrick F. Charles
CEO, President and Director
17
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INDEX OF EXHIBITS
Exhibit
Number Description
27 Financial Data Schedule
18
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