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 March 31, 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 X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 31, 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 Page 2 of 11
SARATOGA RESOURCES, INC.
Quarterly Report on Form 10-QSB
Index
Page No.
PART I. Financial Information (Unaudited)
Condensed Consolidated Balance sheets 3
March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations 4
Three months ended March 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows 5
Three Months ended March 31, 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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SARATOGA RESOURCES, INC. FORM 10-QSB Page 3 of 11
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
ASSETS
MARCH 31, DECEMBER 31,
1998 1997
---- ----
(unaudited)
Current Assets:
Cash ................................................ $ 595 $ 666
Trade receivables; less allowance for doubtful
accounts of $23,000 at March 31, 1998 and
December 31, 1997 ................................. -- --
------- -------
Total current assets ................................ 595 666
------- -------
Equipment, net of accumulated depreciation ........ 43 44
Other assets ...................................... 5 --
------- -------
Total Assets ........................................... $ 643 $ 710
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............. $ 5 $ 2
Legal suspense ....................................... 16 16
Current maturities of debt ........................... 4 4
------- -------
Total current liabilities ............................ 25 22
------- -------
Long-term debt, net of current portion ................. 20 21
Commitments and contingencies .......................... -- --
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 .................................. (1,893) (1,824)
Treasury stock, at cost .............................. (2) (2)
------- -------
Total stockholders' equity ............................. 598 667
------- -------
Total Liabilities and Stockholders's Equity ............ $ 643 $ 710
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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)
Three Months Ended
MARCH 31,
------------------
1998 1997
Revenues:
Other ............................................ $ 28 $ 75
Costs and Expenses:
General and administrative ....................... 97 152
------- -------
Net loss ................................................. $ (69) $ (77)
======= =======
Net loss per share, basic and diluted .................... $ (.02) $ (.01)
======= =======
Weighted average number of common shares outstanding ..... 3,466 5,573
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SARATOGA RESOURCES, INC. FORM 10-QSB Page 5 of 11
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
MARCH 31,
----------------
1998 1997
Cash flows from operating activities:
Net loss ............................................ $ (69) $ (77)
Changes in operating assets and liabilities:
Decrease in accounts receivable ..................... -- 4
Increase (decrease) in accounts payable & accrued
liabilities ......................................... 3 (108)
Other ............................................... -- --
----- -------
Net cash used in operating activities .................. (66) (182)
----- -------
Cash flows from investing activities:
Other asset additions ............................... (4) --
----- -------
Net cash used in investing actives .................. (4) --
----- -------
Cash flows from financing activities:
Payments on borrowings .............................. (1) (1)
----- -------
Net cash used in financing activities ............... (1) (1)
----- -------
Net decrease in cash ................................ (71) (183)
Cash at beginning of period ......................... 666 1,350
----- -------
Cash at end of period ............................... $ 595 $ 1,167
===== =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 March 31, 1998 and for the
three month periods ended March 31, 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 Sartoga
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
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SARATOGA RESOURCES, INC. FORM 10-QSB Page 8 of 11
assets of the Saratoga Entities, all in accordance with 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 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.
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SARATOGA RESOURCES, INC. FORM 10-QSB Page 9 of 11
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.
RESULTS OF OPERATIONS
REVENUES. As result of the Foreclosure Sale of the oil and gas
interests, there has been no oil and gas revenue during the quarters ended March
31, 1998 and March 31, 1997. Revenues for the first quarter of 1998 were $28,000
as compared to $75,000 for the same period in 1997. Other revenues included
$7,000 in interest income and a $21,000 gain from the sale of stock during the
three-month period ended March 31, 1998. Other revenues included $10,000 in
interest income and $62,000 gain from the settlement of a lawsuit during the
three-month period ended March 31, 1997.
COSTS AND EXPENSES. Costs 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
$97,000 for the three-month period ended March 31, 1998 as compared to $152,000
for the same period in 1997.
NET LOSS. Net loss for the three-month period ended March 31, 1998 was
($69,000) as compared to a net loss of ($77,000) for the quarter ended March 31,
1997. Net loss per share for the respective periods was ($.02) as compared to
($.01).
TAXES. As result of the Foreclosure Sale and the forgiveness or 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 March 31, 1998 consist almost entirely of cash
in the amount of $595,000 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.
CURRENT EVENTS
The Company has been in the process of pursuing various potential
business opportunities. The Company continues to explore 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 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.
<PAGE>
SARATOGA RESOURCES, INC. FORM 10-QSB Page 10 of 11
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
(A) EXHIBITS.
NO. EXHIBIT DESCRIPTION
(3) ARTICLES OF INCORPORATION AND BY-LAWS:
3.1 Certificate of Incorporation of Registrant, Saratoga
Resources, Inc., filed with the Office of the Secretary of
State of Delaware on January 19, 1994. Incorporated by
reference to the Form 10-KSB filed February 3, 1995 and
filed as Exhibit 3.1 thereto.
3.2 By-Laws of Registrant, Saratoga Resources, Inc., a
Delaware Corporation, adopted January 20, 1994, as amended
September 14, 1996. Incorporated by reference to the Form
10-QSB filed November 13, 1996 and filed as Exhibit 3.2
thereto.
(10) MATERIAL CONTRACTS
10.1 Settlement Agreement and Full and Final Release dated
March 10, 1997, by and between Saratoga Resources, Inc., a
Delaware corporation, Thomas F. Cooke, Randall F. Dryer,
Dryer, Ltd., a Texas Family Partnership and Joseph T.
Kaminski, filed as Exhibit 1 to the Company's Report on
Form 8-K dated March 12, 1997.
(27) FINANCIAL DATA SCHEDULE
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SARATOGA RESOURCES, INC. FORM 10-QSB Page 11 of 11
(B) REPORTS ON FORM 8-K
(1) None.
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: May 11, 1998
<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.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 595
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<ALLOWANCES> 0
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<CURRENT-ASSETS> 595
<PP&E> 53
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0
0
<COMMON> 3
<OTHER-SE> 595
<TOTAL-LIABILITY-AND-EQUITY> 643
<SALES> 0
<TOTAL-REVENUES> 28
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<TOTAL-COSTS> 97
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (69)
<INCOME-TAX> 0
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</TABLE>
