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, 1998
[ ]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.)
301 Congress Ave., Suite 1550, Austin, Texas 78701
(Address of principal executive offices, including Zip Code)
(512) 478-5717
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 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:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to distribution of securities under a plan
confirmed by a court.
Yes__ No__
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 1998, there were 3,465,292 issued and outstanding
shares of Registrant's common stock, $.001 par value.
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SARATOGA RESOURCES, INC. FORM 10-QSB
SARATOGA RESOURCES, INC.
Quarterly Report on Form 10-QSB
Index
Page No.
PART I. Financial Information (Unaudited)
Condensed Consolidated Balance sheets 3
September 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations 4
Three months ended September 30, 1998 and 1997
Nine months ended September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows 5
Nine Months ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management"s Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II. Other Information 10
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to Vote of Security Holders
10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
Signatures 11
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Page 3 of 11
SARATOGA RESOURCES, INC. FORM 10-QSB
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Current Assets:
Cash .................................................. $ 393 $ 666
Trade receivables; less allowance for doubtful
accounts of $23,000 at September 30, 1998 and
December 31, 1997 ................................... -- --
------- -------
Total current assets .................................. 393 666
Equipment, net of accumulated depreciation ............ 36 44
Other assets .......................................... 34 --
------- -------
Total Assets ............................................. $ 463 $ 710
======= =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............... $ 8 $ 2
Legal suspense ......................................... -- 16
Current maturities of debt ............................. 4 4
------- -------
Total current liabilities .............................. 12 22
------- -------
Long-term debt, net of current portion ................... 19 21
Stockholders' Equity
Preferred stock, $.001 par value; 5,000,000 shares
authorized Common stock $.001 par value;
50,000,000 shares authorized, 3,465,292 shares
issued and outstanding ............................... 3 3
Additional paid-in capital ............................. 2,490 2,490
Accumulated deficit .................................... (2,059) (1,824)
Treasury stock, at cost ................................ (2) (2)
------- -------
Total stockholders' equity ............................... 432 667
------- -------
Total Liabilities and Stockholders"s Equity .............. $ 463 $ 710
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
SARATOGA RESOURCES, INC. FORM 10-QSB Page 4 of 11
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Other .................................. $ 4 $ 6 $ 37 $ 88
------- ------- ------- -------
Costs and Expenses:
Depletion, depreciation and amortization 3 1 8 2
General and administrative ............. 75 105 262 498
Interest expense ....................... -- 8 2 8
78 114 272 508
Net loss ..................................... $ (74) $ (108) $ (235) $ (420)
Net loss per share ........................... $ (.02) $ (.03) $ (.07) $ (.09)
Weighted average number of common
shares outstanding ........................... 3,466 3,466 3,466 4,527
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
SARATOGA RESOURCES, INC. FORM 10-QSB Page 5 of 11
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
SEPTEMBER 30,
--------------------
1998 1997
Cash flows from operating activities:
Net loss ............................................ $ (235) $ (420)
Changes in operating assets and liabilities:
Decrease in accounts receivable ..................... -- 51
Increase (decrease) in accounts payable &
accrued liabilities ................................ (10) (181)
Other ............................................... 8 2
------- -------
Net cash provided by (used in) operating activities .... (237) (548)
------- -------
Cash flows from investing activities:
Purchase of treasury stock ......................... -- (175)
Other asset additions ............................... (34) (31)
------- -------
Net cash used in investing actives .................. (34) (206)
------- -------
Cash flows from financing activities:
Proceeds from borrowings ............................ -- 26
Payments on borrowings .............................. (2) (1)
------- -------
Net cash provided by financing activities ........... (2) 25
------- -------
Net (decrease) increase in cash ..................... (273) (729)
Cash at beginning of period ......................... 666 1,350
------- -------
Cash at end of period ............................... $ 393 $ 621
======= =======
SEE NOTES TO 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, 1998 and for
the three and nine month periods ended September 30, 1997 and 1998 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, 1997.
2. The foregoing interim results are not necessarily indicative of the results
of operations to be achieved for the year ending December 31, 1998.
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."
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SARATOGA RESOURCES, INC. FORM 10-QSB Page 7 of 11
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 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
the terms and provisions of the Agreement dated May 7, 1996.
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SARATOGA RESOURCES, INC. FORM 10-QSB Page 8 of 11
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 engaged in the production of
oil and gas. However, the Board has continued to pursue certain exploration and
production activities through its wholly-owned subsidiaries Saratoga-Texas and
LEI, while at the same time 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 owed
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 the Company or its officers or directors.
<PAGE>
SARATOGA RESOURCES, INC. FORM 10-QSB Page 9 of 11
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 quarters ended
September 30, 1998 and September 30, 1997. Revenues for the third quarter of
1998 were $4,000 in interest income as compared to $6,000 in interest income for
the same period in 1997. Revenues for the nine month period ended September 30,
1998 included $16,000 in interest income and a $21,000 gain from the sale of
stock. Revenues for the nine month period ended September 30, 1997 included
$25,000 in interest income and $63,000 from the settlement of a lawsuit.
COSTS AND EXPENSES. Cost and expenses have been reduced significantly as
the result of the sale of the oil and gas properties in 1996. These costs
included general and administrative costs and depreciation expense. They were
$78,000 for the three months ended September 30, 1998 as compared to $114,000
during the same period in 1997. These costs totaled $272,000 during the nine
month period ended September 30, 1998 as compared to $508,000 incurred during
the same period in 1997. The $272,000 in costs incurred in 1998 included $8,000
in depreciation, $2,000 in interest expenses, $120,000 in salaries and wages,
and $142,000 in other general and administrative expenses. The $508,000 in costs
and expenses incurred during the nine month period ended September 30, 1997
included $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 $192,097 consisting
of depreciation costs and general and administrative costs.
NET LOSS. Net loss for the nine month period ended September 30, 1998 was
($235,000) as compared to a net loss of ($420,000) for the nine month period
ended September 30, 1997. Net loss per share for the respective periods was
($.07) as compared to ($.09).
Net loss for the three month period ended September 30, 1998 was ($74,000)
as compared to a net loss of ($108,000) for the three month period ended
September 30, 1997. Net loss per share for the respective periods was ($.02) as
compared to ($.03).
LIQUIDITY AND CAPITAL RESOURCES
The Company"s assets at September 30, 1998 consist almost entirely of cash
in the amount of $393,000 and $666,000 in cash at December 31, 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, while continuing its oil and gas efforts through its wholly-owned
subsidiaries Saratoga-Texas and LEI. In this regard, the Company recently
entered into a purchase and sale agreement for the acquisition of certain oil
and gas properties for a purchase price of $27.5 million. The Company was
ultimately unsuccessful in consummating the acquisition, but was awarded a
$400,000 break-up fee. The Company continues to pursue hydrocarbon production
and mineral lease acquisitions, as well as prospect development. The Company has
retained consultants for the purpose of evaluating mineral lease acquisitions in
Houston County, Texas and production purchases in the Los Angeles basin.
Additionally, the Company has retained a geological/geophysical firm to utilize
the Company's data to identify exploration and development prospects. The
Company continues to evaluate potential acquisitions.
The Company is continuing to pursue potential business opportunities. The
consummation of any material business opportunity may require approval by the
shareholders pursuant to Delaware law. 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 Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and 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
Thomas F. Cooke
Chairman of the Board
Chief Executive Officer and
Principal Accounting and Financial
Officer
Date: November 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF SARATOGA RESOURCES, INC. FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 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-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 393
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 393
<PP&E> 47
<DEPRECIATION> 11
<TOTAL-ASSETS> 463
<CURRENT-LIABILITIES> 12
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 429
<TOTAL-LIABILITY-AND-EQUITY> 463
<SALES> 0
<TOTAL-REVENUES> 37
<CGS> 0
<TOTAL-COSTS> 270
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (235)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (235)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
