SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11498
SARATOGA RESOURCES, INC.
(Exact name of small business issuer in its charter)
Delaware 76-0453392
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Dairy Ashford South, Suite 410 Houston, Texas 77077
(Address of principal executive offices, including Zip Code)
(281) 531-0022
(Registrant's telephone number, including area code)
Check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or
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[ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes[ ] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 11, 1997, there were 3,465,292 issued and outstanding
shares of Registrant's common stock, $.001 par value.
<PAGE>
SARATOGA RESOURCES, INC. FORM 10-QSB Page 2 of 11
SARATOGA RESOURCES, INC.
Quarterly Report on Form 10-QSB
Index
Page No.
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - .........................3
September 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Operations -................4
Quarter ended September 30, 1997 and 1996 and
Nine Months ended September 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows -................5
Nine Months ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements.............6
Item 2. Management's Discussion and Analysis of..........................6
Financial Condition and Results of Operations
PART II. Other Information...............................................10
Item 1. Legal Proceedings...............................................10
Item 2. Changes in Securities...........................................10
Item 6. Exhibits and Reports on Form 8-K................................10
Signatures......................................................11
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SARATOGA RESOURCES, INC. FORM 10-QSB Page 3 of 11
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS (Unaudited)
SEPTEMBER 30, DECEMBER 31,
1997 1996
<S> <C> <C>
Current assets - cash .............................................................. $ 621 $ 1,350
Receivables:
Trade ................................................................... 24 50
Other ................................................................... -- 25
------- -------
24 75
Equipment, net of accumulated depreciation ......................................... 49 20
------- -------
Total Assets ....................................................................... $ 694 $ 1,445
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ................................ $ 38 $ 218
Legal suspense .......................................................... 18 19
Current maturities of debt .............................................. 5 --
------- -------
Total current liabilities .......................................................... 61 237
Long term debt ..................................................................... 21 --
Stockholders' Equity
Preferred stock, $.001 par value; 5,000,000 shares authorized Common stock
$.001 par value; 50,000,000 shares authorized,
6,809,400 shares issued and outstanding at December 31, 1996 and
3,465,292 shares issued and outstanding at September 30, 1997 .................. 4 7
Additional paid-in capital ...................................................... 2,912 2,909
Accumulated deficit ............................................................. (2,126) (1,706)
Treasury stock, at cost ......................................................... (178) (2)
------- -------
Total stockholders' equity ......................................................... 612 1,208
------- -------
Total Liabilities and Stockholders' Equity $ 694 $1,445
======= =======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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SARATOGA RESOURCES, INC. FORM 10-QSB Page 4 of 11
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
----------------- ------------------
1997 1996 1997 1996
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Oil and Gas ........................................ $ -- $ -- $ -- $ 684
Other .............................................. 6 13 88 21
Gain (loss) on Foreclosure Sale ............................... -- (135) -- 12,066
------- ------- -------- -------
6 (122) 88 12,771
Costs and Expenses:
Production ......................................... -- -- -- 278
Severance tax ...................................... -- -- -- 43
Depletion, depreciation and amortization ........... 1 -- 2 362
General and administration ......................... 105 23 498 504
Interest expense ................................... 8 -- 8 437
------- ------- -------- -------
114 23 508 1,624
------- ------- -------- -------
Net income (loss) ............................................. $ (108) $ (145) $ (420) $11,147
======= ======= ======== =======
Net income (loss) per share ................................... $ (.03) $ (.02) $ (.09) $ 1.66
======= ======= ======== =======
Weighted average number of common
shares outstanding ........................................... 3,465 6,699 4,527 6,699
======= ======= ======== =======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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SARATOGA RESOURCES, INC. FORM 10-QSB Page 5 of 11
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
SEPTEMBER 30,
-----------------
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .............................................. $ (420) $ 11,147
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation, depletion and amortization ....................... 2 362
Amortization of debt discount .................................. -- 23
Gain on Foreclosure Sale ....................................... -- (12,066)
Changes in operating assets and liabilities:
Decrease in accounts receivable ................................ 51 1,046
Decrease in prepaid expenses ................................... -- 21
(Decrease) in accounts payable and accrued liabilities ......... (181) (249)
------- --------
Net cash provided by (used in) operating activities ............... (548) 284
------- --------
Cash flows from investing activities:
Property and equipment additions ............................... (31) (38)
------- --------
Cash flows from financing activities:
Net proceeds from Foreclosure Sale ............................. -- 668
Purchase of Treasury Stock ..................................... (175) --
Payments on borrowings ......................................... (1) (79)
Proceeds from borrowings ....................................... 26 --
------- --------
Net cash provided (used) by financing activities .................. (150) 589
------- --------
Net (decrease) increase in cash ................................... (729) 835
Cash at beginning of period ....................................... 1,350 604
------- --------
Cash at end of period ............................................. $ 621 $ 1,439
======= ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
SARATOGA RESOURCES, INC. FORM 10-QSB Page 6 of 11
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein are those of the
Company and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying financial information as of September 30, 1997 and
for the three and nine month periods ended September 30, 1996 and 1997 was
prepared by the Company in compliance with the rules and regulations of the
Securities and Exchange Commission, without audit, and reflects all adjustments,
consisting of normal recurring accruals, deemed necessary by management to
fairly present the Company's financial position and results of operations.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report to the Securities and Exchange Commission on Form 10-KSB
for the year ended December 31, 1996.
2. The foregoing interim results are not necessarily indicative of the results
of operations to be achieved for the year ending December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On March 30, 1995, the Company, Saratoga Resources, Inc., a Texas
corporation ("Saratoga-Texas"), Lobo Energy, Inc., a Texas corporation ("LEI")
and Internationale Nederlanden (U.S.) Capital Corporation ("ING") entered into a
Credit Agreement ("Credit Agreement") to facilitate the settlement of a lawsuit
brought by Peter P. Pickup ("Pickup") against the Company and ING, and fund the
acquisition by Saratoga-Texas of the LEI assets previously owned by Pickup.
Under the terms of the Credit Agreement, ING established two credit facilities
in favor of Saratoga-Texas in the combined maximum principal amount of
$19,000,000, subject to the borrowing base limitations set forth therein. All of
the oil and gas properties (the "Properties") owned by Saratoga-Texas, LEI and
Lobo Operating, Inc., a Texas corporation ("LOI") [Saratoga-Texas, LEI and LOI
being collectively referred to as the "Saratoga Entities"] were pledged as
collateral under the Credit Agreement and all obligations to ING were also
guaranteed by the Company and all of its subsidiaries. Funds obtained from these
credit facilities were anticipated to be used for the development of the
Properties by the Company. The Company and the "Saratoga Entities" are sometimes
collectively referred to as the "Saratoga Companies."
Subsequent to entering into the Credit Agreement, the Company engaged
Internationale Nederlanden (U.S.) Securities Corporation ("ING Securities"), a
subsidiary of ING, to assist the
<PAGE>
SARATOGA RESOURCES, INC. FORM 10-QSB Page 7 of 11
Company in a private placement of Company stock. It was anticipated that funds
raised from such private placement would enable the Company to meet its
financial obligations under the Credit Agreement. The private placement efforts
were not successful. Additionally, funds necessary for the development of the
Properties were not provided by ING under the Credit Agreement.
The failure of the private placement efforts combined with the lack
of availability of funds necessary for the development of its Properties placed
the Company in a severe financial crisis. In an attempt to salvage the maximum
value of the Saratoga Companies for the benefit of the other creditors (the
"Other Creditors") and the Company and its shareholders, the Saratoga Companies
spent several months examining and pursuing various alternatives with respect to
(i) the possible refinancing and/or restructuring of the debt of the Saratoga
Companies, (ii) the sale of the Saratoga Companies or their underlying assets,
and (iii) the prosecution or settlement of certain potential claims against ING
and ING Securities.
Unable to meet its financial obligations under the Credit Agreement,
the Company received notices of default from ING, whereupon ING threatened to
foreclose its perfected first lien security interests in the Properties and in a
majority of the assets of the Saratoga Entities (the "Interests"). At the same
time the Company was receiving notices of default from ING, the Company was
attempting to negotiate a transaction with PrimeEnergy Corporation, a Delaware
corporation ("PrimeEnergy"), involving either a merger of the two entities or a
sale of the assets of the Saratoga Entities to PrimeEnergy. The situation with
ING obviously complicated the Company's efforts with PrimeEnergy, as it had with
other companies with which the Company had been involved in similar
negotiations.
Facing what the Company believed to be an eminent foreclosure action
by ING which would restrict the Company's objectives and its ability to
consummate negotiations with PrimeEnergy, in April of 1996, the Saratoga
Companies filed an Original Petition and Application for Injunctive Relief
against ING and ING Securities, C96-399-D3 in the 341st Judicial District Court
of Webb County, Texas. Subsequently, the Company and ING entered into
discussions in an attempt to reach a final resolution of ING's rights under the
Credit Agreement and the Company's asserted claims.
In reviewing its options, the Company believed that the proceeds from
a contested foreclosure by ING would be substantially less than the debt owed
ING under the Credit Agreement, and that the Saratoga Companies would have no,
or virtually no, assets, the Other Creditors of the Saratoga Companies would not
be paid, and the stock of the Company would be worthless. Accordingly,
exercising its best business judgment, the Company determined that the best (and
in all probability the only) alternative available to the Saratoga Companies to
preserve value for the Other Creditors, the Company and its shareholders was to
consent, on its own behalf and as sole shareholder (directly or indirectly) of
the Saratoga Entities, to the compromise and settlement of the claims against
ING and ING Securities, and in connection therewith, the foreclosure by ING with
respect to all of the assets of the Saratoga Entities, all in accordance with
<PAGE>
SARATOGA RESOURCES, INC. FORM 10-QSB Page 8 of 11
the terms and provisions of the Agreement dated May 7, 1996.
The Agreement provided for a Foreclosure Sale of a majority of the
assets (the "Interests") of the Saratoga Entities to ING pursuant to ING's
rights under the Credit Agreement. Upon completion of the Foreclosure Sale on
May 7, 1996, at which ING was the highest bidder, ING concurrently sold the
Interests to PrimeEnergy for $7,180,000 in cash and additional consideration as
provided in that certain Purchase and Sale Agreement dated May 7, 1996, by and
between ING and PrimeEnergy.
Upon receipt of the cash proceeds from the sale of the Interests by
ING to PrimeEnergy, ING deposited approximately $5,500,000 with the Trustee, of
which approximately $4,000,000 was set aside under the Disbursement Agreement
for the settlement of outstanding vendor debt and other related liabilities of
the Saratoga Companies. Upon the settlement of all such debt and liabilities,
the Company anticipates that there will be no material debt or liabilities going
forward, other than those incurred since May 7, 1996, in the ordinary course of
business and certain liabilities with respect to prior matters which the Company
does not believe are material. The Company was paid the remaining $1,500,000 by
ING, which amount became available to pursue new business opportunities and for
other proper corporate purposes.
Since May 7, 1996, the Company has not been conducting historical oil
and gas operations. The Board of Directors of the Company has been, however, in
the process of reevaluating its business plan going forward.
From May of 1996 to March of 1997, the Company was involved in
litigation with Joseph T. Kaminski ("Kaminski"), a former executive officer and
director of the Company. This litigation, in the view of the Board of Directors,
effectively prevented the Company from pursuing any new opportunities. As
previously reported by the Company in its Quarterly Report to the Securities and
Exchange Commission on Form 10-QSB for the quarterly period ended March 31,
1997, the Company, Thomas F. Cooke ("Cooke"), Randall F. Dryer ("Dryer") and
Dryer, Ltd. entered into a Settlement Agreement and Full and Final Release (the
"Settlement Agreement") dated March 10, 1997, with Kaminski, in full settlement
of all matters concerning both the "Company Federal Lawsuit" and the "Kaminski
Lawsuit."
Pursuant to the terms of the Settlement Agreement, Kaminski
transferred all of his equity interests in the Company, consisting of 2,465,371
shares of common stock and 100,000 stock warrants, to the Company, and forgave
debt owned him by the Company of $50,000 plus interest. Kaminski also agreed to
sell to the Company 8,000 shares of the Company's common stock held in trust.
Both the Company and Kaminski agreed to release and discharge any and all claims
or causes of action of every nature existing between the parties.
Accordingly, all claims and counterclaims by and against the Company
and the two directors (Cooke and Dryer) have been dismissed, and there is no
other pending litigation against
<PAGE>
SARATOGA RESOURCES, INC. FORM 10-QSB Page 9 of 11
the Company or its officers or directors.
RESULTS OF OPERATIONS
REVENUES. As a result of the Foreclosure Sale of the oil and gas
interests, there has been no oil and gas revenue during the quarter ended
September 30, 1997. Oil and gas revenues for the nine months ended September 30,
1996 were $684,000 as compared to no oil and gas revenues for the same period in
1997. Other revenues included $25,000 in interest income and $63,000 from the
settlement of a lawsuit received during the nine month period ended September
30, 1997.
COSTS AND EXPENSES. Costs and expenses were reduced significantly in
1997 as the result of the sale of the oil and gas properties. For the nine
months ended September 30, 1997, costs and expenses totaled $508,000 as compared
to $1,624,000 for the same period in 1996. The $508,000 in nine months costs and
expenses is allocated as follows: $148,000 in deferred salaries and $8,049 in
interest paid to Cooke, the Chief Executive Officer, $159,864 in legal and
professional fees primarily related to the litigation with Kaminski, and the
remaining $192,087 consisting of depreciation costs and general and
administrative costs. Costs and expenses for the third quarter of 1997 were
$114,000 as compared to $23,000 for the same period in 1996. The $114,000 in
costs and expenses for the third quarter is interest expense of $8,049 paid to
Cooke and $105,951 in legal and professional fees and general and administrative
costs.
NET INCOME (LOSS). Net loss for the nine month period ended September
30, 1997 was ($420,000) as compared to net income of $11,147,000 for the nine
months ended September 30, 1996. Net income (loss) per share for the respective
periods are ($.09) as compared to $1.66.
Net loss for the quarter ended September 30, 1997 was ($108,000) as
compared to net loss of ($145,000) for the quarter ended September 30, 1996. Net
loss per share for the respective periods are ($.03) as compared to ($.02).
The difference in net income is due to a significant increase in net
revenue in 1996 as a result of the Foreclosure Sale and the forgiveness of debt
by ING.
TAXES. As a result of the Foreclosure Sale and the forgiveness of
debt by ING, the Company recorded an extraordinary gain of $12,066,000 with no
attendant tax liability in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets at December 31, 1996 consist almost entirely of
cash in the amount of $1,350,000, and $621,000 in cash at September 30, 1997.
The Company believes that its current cash balance will be sufficient to conduct
its business for the foreseeable future.
<PAGE>
SARATOGA RESOURCES, INC. FORM 10-QSB Page 10 of 11
CURRENT EVENTS
The Company has been in the process of pursuing various potential
business opportunities. The Company continues to explore a variety of
opportunities including, but not limited to, a business combination, sale of the
Company, reconstitution of its oil and gas business or one or more
wholly-unrelated businesses, and various other opportunities. Recently, the
Company participated in a bidding process for the acquisition of certain
producing oil and gas properties, and was ultimately outbid by competing third
parties. The Company is continuing to pursue potential business opportunities.
It is likely that the consummation of any material business opportunity will
require the approval by the shareholders pursuant to Delaware law and, in such
event (shareholder approval is necessary), the Board will call for a Special
Meeting of the shareholders to obtain such approval.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. CHANGES IN SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
NO. EXHIBIT DESCRIPTION
(27) FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K - None
<PAGE>
SARATOGA RESOURCES, INC. FORM 10-QSB Page 11 of 11
SIGNATURES
Pursuant to 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 hereunto duly authorized.
SARATOGA RESOURCES, INC.
By: /s/ THOMAS F. COOKE
Chairman of the Board
Chief Executive Officer and
Principal Accounting and Financial
Officer
Date: November 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF SARATOGA RESOURCES, INC.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 AS CONTAINED IN THE 10-QSB AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 621
<SECURITIES> 0
<RECEIVABLES> 24
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 645
<PP&E> 53
<DEPRECIATION> (4)
<TOTAL-ASSETS> 694
<CURRENT-LIABILITIES> 61
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 608
<TOTAL-LIABILITY-AND-EQUITY> 694
<SALES> 0
<TOTAL-REVENUES> 6
<CGS> 0
<TOTAL-COSTS> 114
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (108)
<INCOME-TAX> 0
<INCOME-CONTINUING> (108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
