SARATOGA RESOURCES INC, 10KSB, 1999-04-07

SARATOGA RESOURCES INC
10KSB, 1999-04-07
CRUDE PETROLEUM & NATURAL GAS

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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.
(Name of small business issuer in its charter)

Delaware 76-0453392
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

301 Congress Avenue, Suite 1550, Austin, Texas
78701 (Address of principal executive offices,
including Zip Code)

(512) 478-5717

(Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.001 par value
(Title of class)

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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report is), and (2)
his been subject to such filing requirements for the past 90 days. Yes x No

Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part M of this form 10-KSB
or any amendment to this Form 10-KSB. [x]

The Registrant's revenues for the calendar year ended December 31,
1998, were $39,000.

As of March 29, 1999, the aggregate market value of the voting stock of
the registrant held by non-affiliates was $564,511.

As of December 31, 1998 there were 3,465,292 shares of common stock
outstanding.

Transitional Small Business Disclosure Format (check one). Yes No x

DOCUMENTS INCORPORATED BY REFERENCE -None

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TABLE OF CONTENTS

PART I .................................................................... 1
Item 1. Description of Business ...................................... 1
Item 2. Description of Property ...................................... 4
Item 3. Legal Proceedings. ........................................... 5
Item 4. Submission of Matter to a Vote of Security Holders ........... 5

PART II ................................................................... 6
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. ...................................... 6
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations. ...................... 6
Item 7. Financial Statements. ........................................ 8

Item 8. Changes in and disagreements with Accountants on Accounting
and Financial Disclosure. ................................. 8

PART III .................................................................. 9

Item 9. Directors, Executive Officers, Promoters and Control
Persons................................................... 9
Item 10. Executive Compensation...................................... 10
Item 11. Security Ownership and Certain Beneficial Owners and
Management................................................ 10
Item 12. Certain Relationships and Related Transactions. ............ 11
Item 13. Exhibits and Reports on Form 8-K. .......................... 12

SIGNATURES ................................................................ 14

ii
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PART I

ITEM 1. DESCRIPTION OF BUSINESS.

RECENT DEVELOPMENTS

Since the completion in 1996 of the sale of a majority of the Company's
oil and gas producing properties (see "History - ING-P/Energy Agreement"), the
Company has been in the process of pursuing various potential business
opportunities, while continuing its oil and gas efforts. 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 transaction 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. In 1998, the Registrant considered the acquisition or
development of numerous businesses, and these efforts resulted in the
transactions hereinafter described.

On March 27, 1998, Saratoga Resources, Inc., a Texas corporation
("Saratoga-Texas"), which is a wholly owned subsidiary of the Registrant,
entered into a consulting agreement with an independent oil and gas exploration
company to utilize the Registrant's extensive seismic and well log data for the
identification of oil and gas exploration and development prospects. In this
regard, Saratoga-Texas is now pursuing a re-entry project in Dawson County,
Texas. On March 18, 1999, Saratoga-Texas entered into a second agreement with
the same company to evaluate opportunities in the Louisiana Cretaceous shelf and
extended the 1998 agreement. Under these agreements, Saratoga-Texas provides
advisory services and receives compensation in the form of a working interest
and/or royalties generated from identified prospects of up to 33%.

Consumer Debt-collection Finance. The Registrant formed Saratoga
Holdings I, Inc., a Texas corporation ("SHI"), as a wholly owned subsidiary in
October 1998 and commenced operation of a consumer finance business in December
1998 by the acquisition of a portfolio of consumer debt receivables at a deep
discount, upon which SHI is now realizing collections. SHI expects to collect
the debt or resell the portfolio in its current or a restructured configuration.
SHI is not a licensed collection agency - it retains a licensed collection
agency to collect the accounts on a commission basis.

SHI has filed a registration statement on Form SB-2 to register up to
3,465,292 shares (approximately 90%) of SHI's outstanding common stock, to
effect a proposed spinoff of SHI to the shareholders of Saratoga Resources,
Inc., a Delaware corporation. The proposed spinoff is a part of the Registrant's
strategy of enhancing shareholder value and would be necessary if the Eyecare

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Acquisition described below comes to fruition. The unregistered shares of SHI
will be retained by Saratoga-Texas.

Letters of Intent for Eyecare Acquisition. On December 22, 1998 the
Company entered into letters of intent with each of PrimeVision Health, Inc., a
Delaware corporation ("Prime"), which is a vertically integrated vision services
company, and OptiCare Eye Health Centers, Inc., a Connecticut corporation
("OptiCare"), which is a provider of consulting, administrative and other
support services to ophthalmology and optometry eyecare centers located in
Connecticut, whereby the Registrant would acquire Prime and OptiCare in an
all-stock transaction by issuance to the shareholders of OptiCare and Prime of
shares of the Company's common stock constituting 97.5% of the outstanding
common stock of the Company (the "Eyecare Acquisition"). The Registrant has
completed its due diligence review of Prime and OptiCare and is negotiating a
definitive agreement, but the parties have not yet entered into a formal
agreement. The letters of intent and the proposed agreement, as currently
negotiated, contemplate that consummation of the Eyecare Acquisition would be
subject to numerous conditions, including (i) the restructuring of certain debt
and other obligations of Prime and OptiCare, (ii) the approval by the
Registrant's shareholders of certain amendments to the certificate of
incorporation of the Registrant to authorize sufficient capital stock for the
Eyecare Transaction, (iii) the effectiveness of a registration of the
Registrant's common stock to be issued in the Eyecare Acquisition, (iv) the
spinoff or other disposition of the Registrant's other subsidiaries and
operations, and (v) the listing of the Registrant's common stock on the American
Stock Exchange or the NASDAQ National Market. There can be no assurance that the
Eyecare Transaction will be consummated.

HISTORY

On September 8, 1993, the Company (which was then known as "Sterling
Resources Corporation") underwent a comprehensive change in management and was
recapitalized through acquisition of Saratoga Resources, Inc., a Texas
corporation ("Saratoga-Texas"). The then existing five stockholders of
Saratoga-Texas exchanged 100% of Saratoga-Texas stock for over 90% of the
outstanding voting rights of Sterling and provided new management for the
Company. Prior to this date, the Company had been a "shell" with virtually no
business assets or capital. In January 1994, the Company changed its domicile
from Utah to Delaware and changed its name to Saratoga Resources, Inc.

On November 12, 1993, the Company entered into a Purchase and Sale
Agreement (the "Hunter Agreement") with Hunter Petroleum, Inc. ("Hunter")
pursuant to which the Company acquired certain oil and gas interests in South
Texas (the "Hunter Properties"). Financing for this acquisition was provided
pursuant to a Loan Agreement with BankOne Texas, N.A. ("BankOne") under which
the bank agreed to provide Saratoga with a $20 million revolving credit
facility.

On May 25, 1994, the Company established a new lending relationship
with Internationale Nederlanden (U.S.) Capital Corporation, a Delaware
corporation ("ING"), by executing a credit agreement and related documents (the
"Pre-existing Credit Agreement"). As of that date, The

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Company used the various credit facilities that were provided by ING (i) to
acquire, through Saratoga-Texas, 57.15% of the outstanding common stock of Lobo
Energy, Inc., a Texas corporation ("LEI"), (ii) pay off all debt associated with
those properties at the time of acquisition, (iii) retire all credit facilities
at BankOne,(iv) develop existing oil and gas properties, and (v) provide general
working capital. Saratoga-Texas paid a purchase price of $6,000,375 for the LEI
common stock.

On March 31, 1995, the Company and ING entered into a new credit
agreement (the "Credit Agreement") to refinance the existing debt to ING, to
purchase the remaining LEI common stock and provide additional money for
acquisitions of additional properties. On that date, the Company acquired the
remaining 42.85% of the common stock of LEI from Mr. Peter P. Pickup ("Pickup").
As a result of this acquisition, the Company, through Saratoga-Texas, owned and
controlled 100% of the common stock outstanding of LEI. Concurrently with the
purchase of the LEI common stock, LEI assigned to Saratoga-Texas all of LEI's
oil and gas assets. The total purchase price paid by Saratoga-Texas was
$5,401,000. The Company also refinanced $2,411,000 in debt due ING allocable to
LEI and its properties.

ING-P/Energy Agreement. On May 7, 1996, the Company entered into an
agreement(the "ING-P/Energy Agreement") by and among the Company,
Saratoga-Texas, Lobo Operating, Inc., a Texas corporation ("LOI"), Lobo Energy,
Inc., a Texas corporation ("LEI") (the Company and Saratoga-Texas, LOI and LEI,
its direct or indirect subsidiaries being sometimes collectively referred to
herein as the "Saratoga Companies"), Thomas F. Cooke ("Cooke"), Joseph T.
Kaminski ("Kaminski"), Randall F. Dryer ("Dryer") (the Saratoga Companies,
Cooke, Kaminski and Dryer sometimes referred to herein as the "Saratoga
Parties"), Prime Energy Corporation, a Delaware corporation ("P/Energy"), and
ING. (Prime Energy Corporation has no affiliation with PrimeVision Health, Inc.,
referred to elsewhere herein.)

The ING-P/Energy Agreement provided for a sale of virtually all of the
assets (the "Interests") of Saratoga-Texas, LOI and LEI (Saratoga-Texas, LOI and
LEI sometimes collectively referred to herein as the "Saratoga Entities") to ING
pursuant to ING's rights under that certain Credit Agreement and related
documents (collectively the "Credit Agreement") dated March 30, 1995, by and
among the Company, Saratoga-Texas, LEI and ING. Upon consummation of the
ING-P/Energy Agreement on May 7, 1996, at which ING was the highest bidder, ING
concurrently sold the Interests to P/Energy for cash consideration of $7,180,000
and additional consideration as provided in the agreement. The cash proceeds
from the sale were applied to the settlement of outstanding vendor debt and
other related liabilities of the Saratoga Companies, and $1,500,000 was paid to
the Company. As a result of the settlement of all such liabilities, the Company
had no material liabilities going forward. Its principal asset at that time
consisted of approximately $1,500,000 in cash which was available for the
pursuit of new business opportunities or for other proper corporate purposes.

Background of ING-P/Energy Agreement. The Company, Saratoga-Texas, LEI
and ING entered into the Credit Agreement to facilitate the acquisition by
Saratoga-Texas of the LEI assets previously owned by Pickup. Under the terms of
the Credit Agreement, ING established two credit

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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
oil and gas properties (the "Properties") owned by 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.

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. The private placement efforts were not successful and additional funds
necessary for the development of the Properties were not provided by ING.

The failure of the private placement efforts -- combined with the
shortage of funds for the development of its Properties -- placed the Company in
a severe financial crisis. At about that time, therefore, the Company replaced
its existing chief executive officer with Mr. Thomas F. Cooke, who was then (and
continues to be) the Chairman of the Board. In an attempt to salvage the maximum
value of the Saratoga Companies for the benefit of 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.

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 P/Energy, in April of 1996, the Saratoga Companies filed a
lawsuit against ING and ING Securities, the principal relief sought therein
being injunctive relief from the threatened foreclosure. 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 sale of assets
pursuant to the ING-P/Energy Agreement would leave the Company in a better
financial position than a contested foreclosure sale by ING.

EMPLOYEES

At December 31, 1998, the Company employed two full time employees
consisting of one executive officer (the Chief Executive Officer) and an office
manager.

ITEM 2. DESCRIPTION OF PROPERTY.

The Company maintains an office in Austin, Texas, on a month-to-month
basis at a current rate of $2,175 per month.

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ITEM 3. LEGAL PROCEEDINGS.

None.

ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a vote of the security holders of
the Company through the solicitation of proxies or otherwise during the fourth
quarter of the fiscal year ended December 31, 1998.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's common stock is not listed on any stock exchange but from
time to time has is reported by the NASD on the OTC Bulletin Board under the
symbol "SRIK". The range of high and low bid information for the shares of the
Company's common stock for the last two complete fiscal years, as reported by
the National Quotation Bureau, is set forth below. Such quotations represent
prices between dealers, do not include retail markup, markdown or commission,
and may not represent actual transactions.

High Low
Year Ended December 31, 1997
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First Quarter $0.281 $0.094
Second Quarter 0.219 0.094
Third Quarter 0.219 0.094
Fourth Quarter 1.125 0.063

Year Ended December 31. 1998
- ----------------------------
First Quarter 0.188 0.188
Second Quarter 1.125 0.188
Third Quarter 0.25 0.25
Fourth Quarter 0.25 0.063

As of March 25, 1999, 3,465,292 shares of the Company's common stock
were issued and outstanding and held by approximately 1,350 holders of record.

The Company has never paid cash dividends and does not intend to do so
for the foreseeable future. Future earnings, if any, will be used to support the
Company's growth. Any future determination as to the payment of dividends on the
Common Stock will be at the discretion of the Board of Directors and will depend
upon the Company's operating results, financial condition, capital requirements,
restrictions imposed by lenders, if any, and such other factors as the Board of
Directors may deem relevant.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Since the consummation of the ING-P/Energy Agreement (see "History -
ING-P/Energy Agreement"), management has sought new business opportunities
through acquisitions and through use of the Company's database and expertise in
the oil and gas business, with a view to enhancing shareholder value. Results of
operations should be evaluated in light of the Registrant's being in a

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period of transition, in which management is seeking to develop new businesses
that will ultimately generate earnings and otherwise enhance shareholder value.
In December 1998, Saratoga Holdings I, Inc., a wholly owned subsidiary of the
Company, acquired a portfolio of consumer debt receivables at a deep discount
and commenced a business of acquiring, reselling, managing and collecting
portfolios of delinquent and defaulted accounts receivable.

RESULTS OF OPERATIONS

Revenues. Total revenues for fiscal 1998 were $39,000, as compared to
$35,000 for fiscal 1997. Revenue from consumer debt finance was negligible in
1998, as the Registrant started the business only in December of 1998.

Costs and Expenses. Cost and expenses were reduced in 1998 as a result
of determined cost control efforts of management. Costs and expenses for fiscal
1998 totaled approximately $363,000, compared to $462,000 for fiscal 1997.

Net Loss. The Registrant's consolidated net loss was approximately
$324,000 in 1998, compared to a net loss of $118,000, an increase of
approximately $206,000. In fiscal 1997, the Company had a non-recurring gain of
approximately $309,000 that was attributable to the settlement of litigation
with a former officer and shareholder. Excluding the effect of such
non-recurring gain, the Company's net loss in 1998 would be $103,000 less than
the net loss in 1997, which management attributes to its cost control efforts.

LIQUIDITY AND CAPITAL RESOURCES

The Company's assets at December 31, 1998, consist almost entirely of
cash in the amount of $290,000. The Company believes that its current cash
balance will be sufficient to conduct its business for the next 12 months.
Management believes that its cost control efforts will enable the Company to
continue its operations for the next 12 months without additional cash on hand.

YEAR 2000 ISSUE

The Company utilizes software and related technologies that may be
affected by the Year 2000 problem, which is common to most businesses. The
Company is addressing the effect of the potential Year 2000 problem on all its
critical systems and with all of its critical vendors, customers and clients. At
this time, critical information systems throughout the Company are Year 2000
compliant. No extra costs were incurred in obtaining this compliance. Management
has determined that no critical business areas will be adversely affected by
Year 2000 issues, but the Company continues to work with its vendors, customers
and others to ensure a smooth transition. Based on the foregoing, management
does not consider any contingency plan to be necessary, and management believes
that any costs and risks related to Year 2000 compliance will not have a
material adverse impact on the liquidity or financial position of the Company.
If the Company hereafter engages in acquisitions or business combinations, such
as the purchase of the consumer debt accounts

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receivable in 1998 or the proposed Eyecare Transaction, management will address
possible new Year 2000 problems related to such transactions at the time of such
transactions.

FORWARD-LOOKING STATEMENTS

Statements contained herein that relate to the Company's future
performance, including without limitation statements with respect to the
Company's anticipated results for any portion of 1999, shall be deemed forward
looking statements within the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. A number of factors affecting the Company's
business and operations could cause actual results to differ materially from
those contemplated by the forward looking statements. Those factors include, but
are not limited to, demand and competition for the Company's products and
services, changes in the requirements of clients and customers, and changes in
general economic conditions that may affect demand for the Company's products
and services or otherwise affect results of operations or the value of the
Company's assets. The forward-looking statements that are included in this
report were prepared by management and have not been audited by, examined by,
compiled by or subjected to agreed-upon procedures by independent accountants,
and no third party has independently verified or reviewed such statements.
Readers of this report should consider these facts in evaluating the information
and are cautioned not to place undue reliance on the forward-looking statements
contained herein.

ITEM 7. FINANCIAL STATEMENTS.

See the Index to Financial Statements appearing at page F-1 hereof.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

The information set forth in the Registrant's Current Report on
Form 8-K dated March 29, 1999, including Amendment No. 1 thereto, is
incorporated herein by reference.

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.

Executive officers of the Company and its wholly owned subsidiaries
serve at the pleasure of the Board of Directors and are elected annually at a
meeting of the Board of Directors. Set forth are the directors and executive
officers at March 29, 1999:

Name Position Age

Thomas F. Cooke Chairman of the Board, Chief Executive 50
Officer, President, Treasurer and Secretary
Kevin M. Smith Director 54

BIOGRAPHICAL INFORMATION

As of March 29, 1999, the following provides information as to each
executive officer and director of the Company, including age, principal
occupation and business experience during the last five years:

THOMAS F. COOKE, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, PRESIDENT,
TREASURER AND SECRETARY, age 50, was one of the co-founders of Saratoga
Resources, Inc. in 1990. Mr. Cooke has been a self employed independent oil and
gas producer for the last 17 years. Sterling acquired Saratoga-Texas in
September 1993, at which time Mr. Cooke was elected Chairman of the Board and
Chief Operating Officer of Sterling. Mr. Cooke is a member of the Texas
Independent Producer and Royalty Owner Association and serves as Director and
Chairman of the North American Energy Issues Committee. Mr. Cooke replaced
Joseph T. Kaminski as Chief Executive Officer on April 3, 1996.

KEVIN M. SMITH, DIRECTOR, age 54, has in excess of 30 years experience as an
exploration geophysicist. In 1977, after ten years with Amoco Production, Mr.
Smith joined R. Brewer and Company, a geophysical consulting firm. In 1984, he
formed his own geophysical consulting firm (Kevin M. Smith, Inc.), which he
continues to operate. Mr. Smith completed three years of undergraduate work at
the University of Texas in 1966 and received a Bachelor of Science degree with a
dual major of Geology and Geophysics at the University of Houston in 1967. He
also did post graduate studies in Geology and Geophysics at the University of
Houston. Mr. Smith has written professional papers on innovative uses of
geophysics in horizontal drilling projects.

Compliance With Section 16(a) of the Exchange Act. During the fiscal
year ended December 31, 1998, based on a review of Forms 3 and 4 furnished to
the Company during its most recent fiscal

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year and Forms 5 furnished to the Company with respect to its most recent fiscal
year, all reporting persons of the Company were in compliance with Section 16(a)
of the Exchange Act.

ITEM 10. EXECUTIVE COMPENSATION.

The following Summary Compensation Table sets forth all cash
compensation paid, distributed or accrued for services, including salary and
bonus amounts rendered in all capacities, for the Company during the fiscal
years ended December 31, 1998, 1997, and 1996. All other tables required to be
reported have been omitted as there has been no compensation awarded to, earned
by or paid to any of the Company's executives in any fiscal year covered by the
tables.

SUMMARY COMPENSATION TABLE

Annual Compensation
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Name and Principal Position Fiscal Year Ended Salary
- --------------------------- ------------------- ------
Thomas Cooke
CEO 1998 $120,000
1997 $120,000(1)
1996 $116,500(2)

DIRECTOR COMPENSATION

Directors of the company currently serve without any compensation for
their services, either in the form of monetary compensation, stock or stock
options.

ITEM 11. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth information concerning the shares of the
Company's common stock beneficially owned by each director of the company and
all directors and officers as a group and each holder of over five percent of
the outstanding common stock as of March 29, 1999. The

- -----------------

(1) During fiscal years 1996 and 1997, the Company deferred portions of
salary due to Mr. Cooke, which were paid in full later in 1997,
together with $8,048 in interest. The salary information set forth in
the Summary Compensation Table for 1997 does not include (i) cash paid
in 1997 for salary deferred from prior years or (ii) interest payments
on any deferred salary.

(2) Includes $60,000 which was earned in fiscal year 1996, but deferred and
paid to Mr. Cooke in fiscal year 1997.

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mailing address for all officers and directors is 301 Congress Avenue, Suite
1550, Austin, Texas 78701.

NAME OF BENEFICIAL OWNER SHARES PERCENT(1)
- ------------------------ ------ -------

Thomas F. Cooke 2,320,422(2) 65%

Kevin M. Smith 238,295(3) 6.9%

All executive officers and
directors as a group (2 persons) 2,558,717 71.8%

(1) Based on 3,565,292 shares outstanding, which includes warrants to
purchase 100,000 shares of Company common stock, which are exercisable
within 60 days of March 27, 1999.

(2) Includes warrants to purchase 100,000 shares of Company common stock,
which ware exercisable within 60 days of March 27, 1999; also includes
109,148 shares held by June Cooke, Mr. Cooke's spouse, of which Mr.
Cooke disclaims beneficial ownership.

(3) Includes 20,000 shares held by Sandra Smith, Mr. Smith's spouse, of
which Mr. Smith disclaims beneficial ownership.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Messrs. Cooke, Kaminski and Dryer acted as individual guarantors of
$500,000 of the company's debt associated with the Hunter acquisition. See
"Description of Business - History." In consideration for such guarantee, the
Board of Directors of the Company granted Messrs. Dryer, Kaminski and Cooke
options (the "Special Options") to purchase 50,000, 100,000 and 100,000 shares,
respectively, of the Company's common stock at $1.60 per share. These options
were exercisable from May 11, 1994 and were to expire five years thereafter.

Effective May 17, 1997, the Company purchased 870,737 shares of common
stock and all Special Options from Dr. Randall F. Dryer, who resigned as a
Director of the Company effective as of the same date. The total purchase price
for the common stock and the options was $175,000.

Mr. Kaminski assigned Special Options back to the Company as part of
the his settlement agreement dated March 10, 1997. Such assignment was part of
the transaction wherein the Company, Cooke, Dryer and Dryer, Ltd. and Kaminski
settled a lawsuit among Mr. Kaminski, the company and certain other parties.

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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

The following documents are hereby incorporated by reference herein:

3.1 Certificate of Incorporation of Registrant, Saratoga
Resources, Inc., filed with the Office of the
Secretary of the State of Delaware on January 19,
1994. Incorporated by reference to the Form 10-KSB
filed February 3, 1995, 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
referenced to the Form 10-QSB filed November 13,
1996, and filed as Exhibit 3.2 thereto.

10.1 Compromise and Settlement Agreement dated May 7,
1996, by and between Saratoga Resources, Inc. a
Delaware corporation, Saratoga Resources, Inc., a
Texas corporation, Lobo Operating, Inc., a Texas
corporation, LEI, Inc., a Texas corporation, Thomas
F. Cooke, Joseph T. Kaminski, Randall F. Dryer, and
Internationale Nederlanden (U.S.) Capital
Corporation, filed as Exhibit 1 to the Company's
Report on Form 8-K dated May 7, 1996.

10.2 Purchase and Sale Agreement dated May 7, 1996, by and
between Internationale Nederlanden (U.S.) Capital
Corporation and Prime Energy Corporation, filed as
Exhibit 2 to the Company's Report on Form 8-K dated
May 7, 1996.

10.3 Assignment and Bill of Sale dated May 7, 1996, by and
between Saratoga Resources, Inc., a Delaware
corporation and Prime Energy Corporation, filed as
Exhibit 3 to the Company's Report on Form 8-K dated
May 7, 1996.

10.4 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.

10.5 Stock Purchase Agreement dated May 17, 1997, by and
among the Company, Randall F. Dryer, and Dryer, Ltd.

10.6 Purchase and sale agreement dated effective November
12, 1998, between SHI and The Premium Group,
incorporated by reference to the Registration

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Statement on Form SB-2 of SHI filed with the SEC on
December 1, 1998, Exhibit 10.1.

10.7 Service agreement dated as of November 12, 1998,
between SHI and Premium Recoveries, Inc.,
incorporated by reference to the Registration
Statement on Form SB-2 of SHI filed with the SEC on
December 1, 1998, Exhibit 10.2.

16 Letter re Change in Certifying Accountants,
incorporated by reference to Amendment No. 1 filed
April 6, 1999, of Registrant's Current Report on
Form 8-K dated March 29, 1999, Exhibit 16.

21 List of Subsidiaries, incorporated by reference to
the Form 10-KSB filed March 27, 1998, Exhibit 21.

The following exhibits are filed herewith:

10.8 Letters of Intent both dated December 22, 1998, from
the Company to the Boards of Directors of Prime
Vision Health, Inc. and OptiCare Eye Health Centers,
Inc., respectively.

10.9 Oil and gas prospect evaluation agreement with Trek
Oil & Gas, Inc., dated March 27, 1998 (Texas).
(Exhibits thereto omitted.)

10.10 Extension and amendment dated March 18, 1999 of oil
and gas prospect evaluation agreement with Trek Oil &
Gas, Inc. (Louisiana).

21 List of Subsidiaries.

27 Financial Data Schedule

(b) Reports on Form 8-K: None

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

<TABLE>
<CAPTION>
<S> <C>
By: /s/ Thomas F. Cooke, Date: April 7, 1999
-------------------------------------------
Thomas F. Cooke, Chairman of the Board,
Chief Executive Officer, President,
Secretary and Treasurer

Pursuant to the requirements of the Securities Act of 1934, as amended, this
report has been signed below by the following persons in the capacities and on
the dates indicated.

By: /s/ Thomas F. Cooke Date: April 7, 1999
--------------------------------------------
Thomas F. Cooke, Chairman of the Board,
Chief Executive Officer, President,
Secretary and Treasurer

By: /s/ Kevin M. Smith Date: April 7, 1999
--------------------------------------------
Kevin M. Smith, Director
</TABLE>

<PAGE>

Saratoga Resources, Inc. and Subsidiaries
Audited Consolidated Financial Statements

Index to Financial Statements

Reports of Independent Auditors........................................F-2

Consolidated Balance Sheets as of December 31, 1997 and 1998...........F-4

Consolidated Statements of Operations
for the years ended December 31, 1997 and 1998......................F-5

Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997 and 1998......................F-6

Consolidated Statements of Cash Flows
for the years ended December 31, 1997 and 1998......................F-7

Notes to Consolidated Financial Statements.............................F-9

F-1
<PAGE>

Report of Independent Auditors

Board of Directors
Saratoga Resources, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Saratoga
Resources, Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Saratoga Resources, Inc. and Subsidiaries at December 31, 1998, and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Austin, Texas
March 31, 1999

F-2

<PAGE>

INDEPENDENT AUDITORS REPORT

Board of Directors and Stockholders
Saratoga Resources, Inc.
Houston, Texas

We have audited the accompanying consolidated balance sheet of Saratoga
Resources, Inc. and Subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based upon our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Saratoga Resources, Inc. and
Subsidiaries as of December 31, 1997, and the results of their operations and
their cash flows for year then ended, in conformity with generally accepted
accounting principles.

Hein + Associates LLP

/s/ Hein + Associates LLP

Houston, Texas
January 15, 1998

F-3
<PAGE>

F-4

Saratoga Resources, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except per share amounts)

<TABLE>
<CAPTION>
DECEMBER 31
1997 1998
-----------------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 666 $ 290
Marketable securities - 11
Trade receivables, less allowance for doubtful accounts of $23
at December 31, 1997 and 1998 - -
Investment in past due accounts receivable - 10
-----------------------------------
Total current assets 666 311
-----------------------------------

Equipment, net of accumulated depreciation 44 36
-----------------------------------

Total assets $ 710 $ 347
===================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2 $ 10
Accrued legal 16 -
Current maturities of debt 4 5
-----------------------------------
Total current liabilities 22 15
-----------------------------------

Long-term debt, net of current portion 21 16

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 at December 31, 1997
and 1998 3 3
Additional paid-in capital 2,490 2,490
Accumulated deficit (1,824) (2,148)
Treasury stock, at cost (2) (2)
Other comprehensive loss - (27)
-----------------------------------
Total stockholders' equity 667 316
-----------------------------------
Total liabilities and stockholders' equity $ 710 $ 347
===================================
</TABLE>

See accompanying notes.

F-4
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share amounts)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1997 1998
-----------------------------------

Revenues:
<S> <C> <C>
Gain on sale of marketable securities $ - $ 19
Interest income 31 19
Other 4 1
-----------------------------------
35 39
Costs and expenses:
Depreciation 7 11
General and administrative 446 350
Loss on marketable securities - 1
Interest expense 9 1
-----------------------------------
462 363

Gain arising from settlement of lawsuit 309 -
-----------------------------------

Loss before income taxes (118) (324)
Income tax benefit - -
-----------------------------------
Net loss $ (118) $ (324)
===================================

Basic and diluted loss per share: $ (.03) $ (.09)
===================================
Weighted-average number of common shares outstanding 4,260 3,465
===================================
</TABLE>

See accompanying notes.

F-5
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity

(in thousands)

<TABLE>
<CAPTION>
COMMON STOCK
----------------- ADDITIONAL OTHER TOTAL
PAID-IN ACCUMULATED TREASURY COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK LOSS EQUITY
-----------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 6,809 $ 7 $ 2,909 $(1,706) $(2) $ - $1,208
Acquisition of stock arising from
settlement of lawsuit (2,465) (3) (244) - - - (247)
Purchase of stock arising from
settlement of lawsuit (8) - (1) - - - (1)
Purchase of stock from former director (871) (1) (174) - - - (175)
Net loss - - - (118) - - (118)
-----------------------------------------------------------------------------
Balances at December 31, 1997 3,465 3 2,490 (1,824) (2) - 667
Net loss - - - (324) - - (324)
Unrealized loss on marketable
securities - - - - - (27) (27)
--------------
Comprehensive loss - - - - - - (351)
=============================================================================
Balances at December 31, 1998 3,465 $ 3 $ 2,490 $(2,148) $(2) $(27) $ 316
=============================================================================
</TABLE>

See accompanying notes.

F-6
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1997 1998
-------------------------------------

OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(118) $(324)
Adjustment to reconcile net loss to net cash used in operating
activities:
Realized gain on sale of marketable securities, net - (18)
Depreciation 7 11
Provision for doubtful accounts 23 -
Gain arising from settlement of lawsuit (309) -
Changes in operating assets and liabilities:
Trade receivables 52 -
Investment in past due accounts receivable - (10)
Accounts payable and accrued liabilities (154) 8
Accrued legal (3) (16)
-------------------------------------
Net cash used in operating activities (502) (349)
-------------------------------------

INVESTING ACTIVITIES
Purchase of equipment (5) (3)
Purchase of marketable securities - (62)
Sale of marketable securities - 42
-------------------------------------
Net cash used in investing activities (5) (23)
-------------------------------------
</TABLE>

F-7
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in thousands)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1997 1998
-------------------------------------

FINANCING ACTIVITIES
<S> <C> <C>
Purchase of stock from former director $ (175) $ -
Purchase of stock in settlement of lawsuit (1) -
Payments on borrowings (1) (4)
-------------------------------------
Net cash used in financing activities (177) (4)
-------------------------------------

Net decrease in cash and cash equivalents (684) (376)
Cash and cash equivalents at beginning of year 1,350 666
-------------------------------------
Cash and cash equivalents at end of year $ 666 $ 290
=====================================

Supplemental cash flow information:
Cash paid for interest $ 9 $ 1
Cash paid for income taxes $ - $ -
Equipment acquired with long-term debt $ 26 $ -
</TABLE>

See accompanying notes.

F-8
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 1998

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Saratoga Resources, Inc., a Delaware corporation, (the "Company", "Saratoga" or
the "Registrant") had traditionally been engaged in oil and gas exploration and
development of properties located in far southwest and east Texas and in
Louisiana.

During 1997 the Company 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, which has been recorded
as a reduction of general and administrative expenses during 1997.

USE OF ESTIMATES

The preparation of the Company's consolidated financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation.

CASH AND CASH EQUIVALENTS

The Company considers all investments with maturities of ninety days or less
when purchased to be cash equivalents.

F-9
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

MARKETABLE SECURITIES

All marketable securities are classified as available-for-sale and are available
to support current operations or to take advantage of other investment
opportunities. These securities are stated at estimated fair value based upon
market quotes. Unrealized gains and losses, net of tax, are computed on the
basis of specific identification and are included as a separate component of
stockholders' equity. Realized gains, realized losses, and declines in value,
judged to be other-than-temporary, are included in Other Income. The cost of
securities sold is based on the specific identification method and interest
earned is included in Interest Income.

INVESTMENT IN PAST DUE ACCOUNTS RECEIVABLE

On November 12, 1998, the Company's wholly owned subsidiary Saratoga Holdings I,
Inc. acquired a portfolio of past due accounts receivable for approximately
$10,300 and recorded it at cost. These receivables represent amounts previously
due various major retail businesses arising from the sale of various consumer
products. The face amount of these receivables totals $223,907. The ultimate
collection of these receivables will depend on a variety of factors, many of
which are outside the Company's control. Any collections will reduce the asset
balance until it is $-0-, with any remaining collections recorded as revenue.

EQUIPMENT

Equipment is recorded at cost less accumulated depreciation. Depreciation of
equipment is computed using the straight-line basis over the five year estimated
useful life of the assets.

Ordinary maintenance and repairs are charged to expense, and expenditures which
extend the physical or economic life of the assets are capitalized. Gains or
losses on disposition of assets are recognized in income and the related assets
and accumulated depreciation accounts are adjusted accordingly.

F-10
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. This
statement prescribes the use of the liability method whereby deferred tax asset
and liability account balances are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.

LOSS PER SHARE

The Company follows the provisions of SFAS No. 128, Earnings Per Share. Basic
net loss per share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted net loss per share is calculated using the weighted average
number of outstanding shares of Common Stock plus dilutive common stock
equivalents. Diluted net loss per share has not been presented as the effect of
the assumed exercise of warrants is antidilutive due to the Company's net loss.
As such, the numerator and the denominator used in computing both basic and
diluted pro forma net loss per share allocable to holders of common stock are
equal.

COMPREHENSIVE LOSS

Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which requires disclosure of total non-stockholder changes
in equity in interim periods and additional disclosures of the components of
non-stockholder changes in equity on an annual basis. Total comprehensive loss
was as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1998
---------------- -----------------
<S> <C> <C>
Net loss $(118) $(324)
Unrealized loss on marketable securities - (27)
================ =================
Comprehensive loss $(118) $(351)
================ =================
</TABLE>

F-11
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SEGMENTS

In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
establishes reporting standards for a company's operating segments in annual
financial statements and the reporting of selected information about operating
segments in financial statements. The adoption of SFAS No. 131 had no effect on
the disclosure of segment information as the Company continues to consider its
business activities as a single segment.

CONCENTRATIONS OF CREDIT RISK

The Company maintains in a single bank deposits which exceed the amount of
federal deposit insurance available. Management believes the possibility of loss
on these deposits is minimal.

RECLASSIFICATIONS

Certain reclassifications have been made in prior year amounts to conform to the
current year's presentation.

2. EQUIPMENT

Equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
1997 1998
----------------- ----------------
<S> <C> <C>
Office equipment $22 $25
Automobile 31 31
----------------- ----------------
53 56

Less accumulated depreciation 9 20
================= ================
$44 $36
================= ================
</TABLE>

F-12
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. LONG-TERM DEBT

As of December 31, 1998, long-term debt consisted of a note payable to a bank
due in monthly installments of $564, including interest at 10%. The note payable
is due August 27, 2002 and is collateralized by an automobile.

Future maturities of the long-term debt as of December 31, 1998 are as follows:
$5,000 in 1999; $6,000 in 2000; $6,000 in 2001; and $4,000 in 2002.

4. LEASE OBLIGATIONS

At December 31, 1998 the Company maintains an office in Austin, Texas on a
month-to-month basis at a current rate of $2,175 per month. The Company also
leases an office in Houston, Texas from a director of the Company on a
month-to-month basis at no charge.

5. INCOME TAXES

As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $420,000. The net operating losses will expire
beginning in 2012, if not utilized.

Utilization of the net operating losses may be subject to a substantial annual
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986. The annual limitation, if applicable, may result in the expiration
of net operating losses.

F-13
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. INCOME TAXES (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes for the years ended December 31, 1997 and 1998 are
as follows:

<TABLE>
<CAPTION>
1997 1998
---------------- -----------------
<S> <C> <C>
Deferred tax liabilities:
Depreciable assets $ - $ (717)
---------------- -----------------
Total deferred tax liabilities - (717)

Deferred tax assets:
Tax carryforwards 40,000 155,414
Accrual to cash adjustment - 3,700
---------------- -----------------
Total deferred tax assets 40,000 159,114
---------------- -----------------
Net deferred tax assets before valuation allowance 40,000 158,397
Valuation allowance for deferred tax assets (40,000) (158,397)
================ =================
Net deferred tax assets (liabilities) $ - $ -
================ =================
</TABLE>

The Company has established valuation allowances equal to the net deferred tax
assets due to uncertainties regarding their realization. The valuation allowance
increased by approximately $118,000 during the year ended December 31, 1998 due
to net operating losses which were not benefited.

The reconciliation of income tax attributable to continuing operations at the
U.S. federal statutory tax rates to income tax expense is:

<TABLE>
<CAPTION>
1997 1998
---------------- -----------------
<S> <C> <C>
Pre-tax book income 34.0% 34.0%
State taxes (net of federal benefit) - 3.0%
Permanent items and other - (0.4)%
Application of valuation allowance (34.0)% (36.6)%
================ =================
0.0% 0.0%
================ =================
</TABLE>

F-14
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

6. LITIGATION

From May, 1996 to May, 1997, the Company was involved in litigation with Joseph
T. Kaminski ("Kaminski"), a former executive officer and director of the
Company. As previously reported by the Company in a report filed with the
Securities and Exchange Commission, the most recent of which was Form 8-K (filed
March 14, 1997), the Company and two of its directors, Thomas F. Cooke and
Randall F. Dryer, 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 the lawsuits.

Pursuant to the terms of the settlement agreement, Kaminski transferred all of
his equity interest in the Company, consisting of 2,465,371 shares of common
stock and 100,000 stock warrants, to the Company and forgave amounts owed him by
the Company of $62,000. As a result of this settlement, the Company recorded a
gain of $309,000. Kaminski also agreed to sell to the Company 8,000 shares of
the Company's common stock held in trust in exchange for approximately $1,000.
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 its two
directors Thomas F. Cooke and Randall F. Dryer have been dismissed, and there is
no pending litigation against the Company or its directors at December 1997 or
1998.

7. STOCKHOLDERS' EQUITY

Preferred stock may be issued from time to time in one or more series. Prior to
each issuance, the Board of Directors is authorized to determine the number of
shares, relative powers, preferences, rights and qualifications, limitations or
restrictions of all shares of such series. Shares of any series of preferred
stock which have been acquired by the Company or which, if convertible or
exchangeable, have been converted into or exchanged for shares of authorized and
unissued shares of stock of another class, would have the status of authorized
and unissued shares of preferred stock, subject to the conditions adopted by the
Board of Directors of the Company.

The Company issued warrants to a former consultant to purchase 6,667 shares of
common stock for an exercise price of 120% of the share price that is offered to
the public in any public offering. These warrants were issued in December, 1993
and have no expiration date. The Company issued warrants to the Company's
Chairman to purchase 100,000 shares of common stock for an exercise price of
$1.60 per share. These warrants were issued in December, 1994 and expire in May,
1999.

F-15
<PAGE>

Saratoga Resources, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. PENDING TRANSACTIONS

On December 22, 1998 the Company entered into letters of intent with
PrimeVision Health, Inc., a vertically integrated vision services company, and
OptiCare Eye Health Centers, Inc., a provider of consulting, administrative and
other support services to optometry eyecare centers located in Connecticut,
whereby the Company would acquire Prime and OptiCare in an all-stock
transaction by issuing 97.5% of the Company's common stock to the shareholders
of Prime and OptiCare. However, the Company has not yet entered into a formal
binding agreement for these acquisitions.

As contemplated by the PrimeVision/OptiCare merger, Saratoga-Delaware proposes
to contribute substantially all of its assets to Saratoga-Texas, its wholly-
owned subsidiary. Saratoga-Texas will continue its operations in the energy
industry, utilizing its database for oil and gas prospect evaluation and
development. Saratoga-Delaware then proposes to spin-off all of the stock to
Saratoga-Texas to the current stockholders of Saratoga-Delaware on a
one-for-one basis to provide Saratoga-Texas with its own separate management,
control and incentive structure.

Saratoga-Delaware formed Saratoga Holdings in November 1998 as a wholly-owned
subsidiary and has caused it to commence operations in the business of
acquiring, reselling, managing and collecting portfolios of delinquent and
defaulted accounts receivable. Saratoga-Delaware has filed a registration
statement with the Securities and Exchange Commission under the Securities Act
of 1933 to register the proposed spin-off of approximately 90% of the common
stock of Saratoga Holdings to the stockholders of Saratoga-Delaware on a
one-for-one basis. The remaining 10% will be contributed to Saratoga-Texas.

F-16

<PAGE>

EXHIBIT INDEX

The following Exhibits are filed herewith:

Exhibit No. Description:

10.8 Letters of Intent both dated December 22, 1998, from
the Company to the Boards of Directors of Prime
Vision Health, Inc. and OptiCare Eye Health Centers,
Inc., respectively.

10.9 Oil and gas prospect evaluation agreement with Trek
Oil & Gas, Inc., dated March 27, 1998 (Texas).
(Exhibits thereto omitted.)

10.10 Extension and amendment dated March 18, 1999 of oil
and gas prospect evaluation agreement with Trek Oil &
Gas, Inc. (Louisiana).

21 List of Subsidiaries.

27 Financial Data Schedule

<PAGE>

(SARATOGA RESOURCES, INC. LETTERHEAD)

December 22, 1998

The Board of Directors
OptiCare Eye Health Centers, Inc.
87 Grandview Avenue
Waterbury, CT 06708

Attn: Dean Yimoyines
Chief Executive Officer

Gentlemen:

This letter will confirm our recent discussions with respect to the proposed
acquisition (the "OptiCare Acquisition") by Saratoga Resources, Inc., a Delaware
Corporation, ("Shellco"), a publicly traded corporation whose shares are
reported on the OTC Bulletin Board of 100% of the outstanding shares of common
and preferred stock of OptiCare Eye Health Centers, Inc. ("OptiCare") from its
shareholders.

Based upon the information you have furnished to us, the proposed acquisition
will be completed on the following terms:

1. Terms of the Acquisition.
a. Prior to the closing, the outstanding shares of preferred stock of
OptiCare will be converted into shares of common stock of OptiCare
("OptiCare Common Shares"). At the closing, Shellco will issue shares
of common stock of Shellco ("Shellco Common Shares") to the
shareholders of OptiCare representing 43.8% of the outstanding Shellco
Common Shares after taking into effect (i) the issuance of such shares
to the OptiCare shareholders, (ii) the issuance of Shellco Common
Shares to the shareholders of Prime Vision Health, Inc. ("PVH") in
connection with Shellco's acquisition of the Prime Health Vision (the
"PHV Acquisition"), and (iii) issuance of new Shellco Common Shares
representing 10% of the outstanding Shellco Common Shares, after taking
into effect the transactions contemplated by this Letter of Intent, to
raise new equity for the combined company.
b. All stock options of OptiCare outstanding at the closing will be
converted into and exchanged for equivalent Shellco stock options. The
treatment of outstanding

<PAGE>

The Board of Directors
OptiCare Eye Health Centers, Inc.
December 22, 1998
Page 2

warrants of OptiCare outstanding at the closing will be determined prior to
the closing.

In consideration of the Acquisition, OptiCare shall operate and conduct its
business, during the period from the date of this Letter of Intent to the
Closing Date, in the ordinary course of business on the same basis as it
has historically been operated and use its best efforts to retain the
business and goodwill of its customers, vendors, physicians and
optometrists.

2. Structure. OptiCare and PVH will each merge with acquisition subsidiaries
to be formed by Shellco, and each will operate following the closing as
wholly-owned subsidiaries of Shellco. The PVH Acquisition and the OptiCare
Acquisition will be structured to be tax-free exchanges to PVH and
OptiCare's shareholders pursuant to Section 368(a)(l)(A) of the Internal
Revenue Code. Shellco will effect a reverse stock split in connection with
the transactions contemplated by this Letter of Intent such that, following
the closing, the existing shareholders of Shellco will own 2.5% of the
outstanding Shellco Common Shares.

3. Agreement. As promptly as possible after the execution of this Letter of
Intent, Shellco and OptiCare shall work in good faith towards the
preparation and execution of a definitive agreement (the "Agreement")
incorporating the provisions of this Letter of Intent and containing the
usual representations, warranties, terms and conditions for agreements of
this nature. The parties shall use their reasonable best efforts to execute
the Agreement on or before January 31, 1999, and to consummate the
Acquisition as soon as practicable thereafter (the "Closing Date").

4. Due Diligence. Following the execution of this Letter of Intent, each party
and its representatives, including its accountants, attorneys, investment
bankers and consultants, will be permitted to undertake a complete
investigation of the business and assets of OptiCare and Shellco, including
a complete examination of all books and records, contractual commitments,
obligations and assets, including a physical inspection of inventory,
facilities and equipment.

5. Confidentiality. Each party agrees that all non-public information obtained
by such party or its representatives before, on or after the date hereof in
the course of its due diligence investigation shall be kept confidential,
except to the extent that:

a. it was already known to such party or representatives when obtained;

b. it becomes lawfully obtainable from other sources;
<PAGE>

c. it has been disclosed or filed with any governmental agency or
authority and available for public inspection or was otherwise publicly
available; or,

The Board of Directors
OptiCare Eye Health Centers, Inc.
December 22, 1998
Page 3

d. it is required to be disclosed by court order or by law, rule or regulation.

In the event the understandings set forth in this Letter of Intent
terminate and the Acquisition is not consummated, all confidential written
information obtained by any party will be returned to the party from which
it was obtained. Each party and its representatives will hold such
information in confidence for a period of two (2) years, or, if earlier,
such time as it otherwise becomes public.

6. Exclusivity. In consideration of Shellco and OptiCare entering into this
Letter of Intent and in connection with the Agreement, both parties
represent, warrant and agree that from the date of this Letter of Intent
until April 30, 1999 or such earlier date as the parties may agree (the
"Exclusivity Period") neither company nor any of their officers, agents or
affiliates will solicit, negotiate, act upon or entertain in any way an
offer received before or during the Exclusivity Period from any other
person or entity or furnish any information concerning their respective
companies to any other person in that regard.

7. Conditions to Closing of Acquisition. The obligations of Shellco or
OptiCare to close the Acquisition and related transactions is subject to
the following conditions:

a. Approval of the Board of Directors of Shellco and OptiCare;
b. Approval of the Shareholders of Shellco and OptiCare, with the holders
of no more than 5% of the Shellco Common Shares exercising dissenters
rights.
c. Approval of the Securities and Exchange Commission, NASDAQ or other
relevant stock exchange and all other regulatory agencies;
d. Simultaneous Closing of Shellco's acquisition of PVH;
e. Completion of due diligence by the respective parties to their
satisfaction on or before signing of the Agreement;
f. There shall have been no material adverse change in the business,
assets or financial condition of OptiCare or Shellco between the date
hereof and the Closing Date;
g. Shellco shall have $150,000 in cash in the company at Closing and no
other assets or liabilities;
h. Shellco will change its name to another mutually agreed name;
i. The financial statements of OptiCare and Shellco for the year ending
December 31, 1998 shall have been audited and shall have received
unqualified audit opinions;
<PAGE>

j. Shellco will have received clearance for listing on the NASDAQ National
Market or the American Stock Exchange;
k. Simultaneously with the OptiCare Acquisition and the PVH Acquisition,
Shellco will offer to the existing shareholders of OptiCare and PVH the

The Board of Directors
OptiCare Eye Health Centers, Inc.
December 22, 1998
Page 4

opportunity to participate pari passu in the raising of new equity
by Shellco pursuant to the offering by Shellco of Shellco Common
Shares representing 10% of the primary outstanding Shellco Common
Shares, after taking into effect such offering and the
transactions contemplated by this Letter of Intent, in a
transaction structured to comply with Rule 506 of Regulation D
under the Securities Act of 1933 or other appropriate private
placement rules.
l. The board of Shellco will resign to be replaced by seven new
directors mutually agreed by PVH and OptiCare, consisting of two
representatives of PVH, two from OptiCare and three outside
directors;
m. The Shellco Common Shares to be issued to the former shareholders
of OptiCare will be registered with the Securities and Exchange
Commission pursuant to the appropriate Registration Statement.
Similarly any unregistered shares held by current officers and
directors of Shellco will be registered in the same registration
statement. Any "lock-ups" relating to these shares will be
mutually agreed prior to closing, and
n. Shellco shall have entered into a mutually satisfactory employment
agreement with Dean Yimoyines to become Chief Executive Officer of
Shellco.

8. Non-binding Letter of Intent. Except for the obligations of the parties set
forth in Paragraph 4, 5 and 6 herein, which shall be binding upon the
parties and survive termination of this Letter of Intent, this Letter of
Intent, notwithstanding the provisions or paragraph 3, constitutes only a
general, non-binding expression of interest of each of the parties and
neither party hereto shall have any liability or obligation hereunder to
the other. No agreement regarding Shellco's Acquisition of OptiCare shall
exist until the Agreement is executed by the parties hereto. In the event
the parties fail to enter into a definitive agreement on or before March
31, 1999, the understandings contained herein, unless extended by mutual
agreement of the parties, will terminate. A binding and enforceable
commitment with respect to matters covered by this Letter of Intent will
result only from the execution of the Agreement.

9. Expenses. In the event that the Acquisition is not consummated, OptiCare
shall be responsible for the reasonable out-of-pocket expenses incurred by
both parties in the preparation of the Letters of Intent, the definitive
agreement to be entered into pursuant thereto (the "Agreements"), required
regulatory filings and other matters relating directly to the transaction
("Expenses"); provided, however, that in the event

<PAGE>

that Shellco or OptiCare, as the case may be, breaches its representations,
warranties or covenants under either this Letter of Intent or the Agreement
(a "Default"), and as a result of such Default the Acquisition is not
consummated, the defaulting party shall be liable to the other party for
all of its Expenses, and shall make payment thereof within 10 days after
written demand therefor. The failure to be met of a condition to

The Board of Directors
OptiCare Eye Health Centers, Inc.
December 22, 1998
Page 5

closing required by either the Letter of Intent or the Agreement shall not,
in and of itself, constitute a Default. In the event it is necessary to
make a Hart-Scott-Rodino filing this expense will be shared equally by PVH
and OptiCare.

10. Governing Law. This Letter of Intent and the Agreement shall be interpreted
and enforced in accordance with the laws of the State of Delaware without
giving effect to its conflict of laws rules.

If the terms and condition set forth above are acceptable to you, please so
indicate by signing one copy of this Letter of Intent below and returning it to
me. This Letter of Intent may be signed in counterparts, each of which shall be
deemed an original and both of which shall constitute one document.

Very truly yours,

SARATOGA RESOURCES, INC.

By: __________________________

Accepted and Agreed to:

OPTICARE EYE HEALTH CENTERS, INC.

December ____, 1998

By: ______________________________

<PAGE>

(SARATOGA RESOURCES, INC. LETTERHEAD)

December 22, 1998

The Board of Directors
Prime Vision Health, Inc
First Union Capital Center
150 Fayetteville Street Mall
Suite 1620
Raleigh, NC 27601

Attn: Steven Waite
President

Gentlemen:

This letter will confirm our recent discussions with respect to the proposed
acquisition (the "PVH Acquisition") by Saratoga Resources, Inc., a Delaware
Corporation, ("Shellco"), a publicly traded corporation whose shares reported on
the OTC Bulletin Board of 100% of the outstanding shares of common stock of
Prime Vision Health, Inc.
("PVH") from its shareholders.

Based upon the information you have furnished to us, the proposed acquisition
will be completed on the following terms:

1. Terms of the Acquisition.
a. At the closing, Shellco will issue shares of common stock of Shellco
("Shellco Common Shares") to the shareholders of PVH representing 43.7%
of the outstanding Shellco Common Shares after taking into effect (i)
the issuance of such shares to the PVH shareholders, (ii) the issuance
of Shellco Common Shares to the shareholders of OptiCare Eye Health
Centers, Inc. ("OptiCare") in connection with Shellco's acquisition of
the OptiCare (the "OptiCare Acquisition"), and (iii) issuance of new
Shellco Common Shares representing 10% of the outstanding Shellco
Common Shares, after taking into effect the transactions contemplated
by this Letter of Intent, to raise new equity for the combined company.
b. All stock options and warrants of PVH outstanding at the closing will
be converted into and exchanged for equivalent Shellco stock options
and warrants.

<PAGE>

The Board of Directors
Prime Vision Health, Inc.
December 22, 1998
Page 2

In consideration of the Acquisition, PVH shall operate and conduct its
business, during the period from the date of this Letter of Intent to the
Closing Date, in the ordinary course of business on the same basis as it
has historically been operated and use its best efforts to retain the
business and goodwill of its customers, vendors, physicians and
optometrists.

3. Agreement. As promptly as possible after the execution of this Letter of
Intent, Shellco and PVH shall work in good faith towards the preparation
and execution of a definitive agreement (the "Agreement") incorporating the
provisions of this Letter of Intent and containing the usual
representations, warranties, terms and conditions for agreements of this
nature. The parties shall use their reasonable best efforts to execute the
Agreement on or before January 31, 1999, and to consummate the Acquisition
as soon as practicable thereafter (the "Closing Date").

4. Due Diligence. Following the execution of this Letter of Intent, each party
and its representatives, including its accountants, attorneys, investment
bankers and consultants, will be permitted to undertake a complete
investigation of the business and assets of PVH and Shellco, including a
complete examination of all books and records, contractual commitments,
obligations and assets, including a physical inspection of inventory,
facilities and equipment.

a. it was already known to such party or representatives when obtained;
b. it becomes lawfully obtainable from other sources;
c. it has been disclosed or filed with any governmental agency or
authority and available for public inspection or was otherwise publicly
available; or,
d. it is required to be disclosed by court order or by law, rule or
regulation.

<PAGE>

The Board of Directors
Prime Vision Health, Inc.
December 22, 1998
Page 3

In the event the understandings set forth in this Letter of Intent terminate
and the Acquisition is not consummated, all confidential written information
obtained by any party will be returned to the party from which it was
obtained. Each party and its representatives will hold such information in
confidence for a period of two (2) years, or, if earlier, such time as it
otherwise becomes public.

6. Exclusivity. In consideration of Shellco and PVH entering into this Letter
of Intent and in connection with the Agreement, both parties represent,
warrant and agree that from the date of this Letter of Intent until April
30, 1999 or such earlier date as the parties may agree (the "Exclusivity
Period") neither company nor any of their officers, agents or affiliates
will solicit, negotiate, act upon or entertain in any way an offer received
before or during the Exclusivity Period from any other person or entity or
furnish any information concerning their respective companies to any other
person in that regard.

7. Conditions to Closing of Acquisition. The obligations of Shellco or PVH to
close the Acquisition and related transactions is subject to the following
conditions:

a. Approval of the Board of Directors of Shellco and PVH;
b. Approval of the Shareholders of Shellco, with the holders of no more
than 5% of the Shellco Common Shares exercising dissenters rights;
c. Approval of the Securities and Exchange Commission, NASDAQ or other
relevant stock exchange and all other regulatory agencies;
d. Simultaneous Closing of Shellco's acquisition of OptiCare;
e. Completion of due diligence by the respective parties to their
satisfaction on or before signing of the Agreement;
f. There shall have been no material adverse change in the business,
assets or financial condition of PVH or Shellco between the date hereof
and the Closing Date;
g. Shellco shall have $150,000 in cash in the company at Closing and no
other assets or liabilities;
h. Shellco will change its name to another mutually agreed name; i. The
financial statements of PVH and Shellco for the year ending December
31, 1998 shall have been audited and shall have received unqualified
audit opinions;
j. Shellco will have received clearance for its listing on the NASDAQ
National Market or the American Stock Exchange;

<PAGE>

k. Simultaneously with the OptiCare Acquisition and the PVH Acquisition,
Shellco will offer to the existing shareholders of OptiCare and PVH the

The Board of Directors
Prime Vision Health, Inc.
December 22, 1998
Page 4

opportunity to participate pari passu in the raising of new equity
by Shellco pursuant to the offering by Shellco of Shellco Common
Shares representing 10% of the outstanding Shellco Common Shares,
after taking into effect such offering and the transactions
contemplated by this Letter of Intent, in a transaction structured
to comply with Rule 506 of Regulation D under the Securities Act
of 1933 or other appropriate private placement rules.
l. The board of Shellco will resign to be replaced by seven new
directors mutually agreed by PVH and OptiCare, consisting of two
representatives of PVH, two from OptiCare and three outside
directors;
m. The Shellco Common Shares to be issued to the former shareholders
of PVH will be registered with the Securities and Exchange
Commission pursuant to the appropriate Registration Statement.
Similarly any unregistered shares held by current officers and
directors of Shellco will be registered in the same registration
statement. Any "lock-ups" relating to these shares will be
mutually agreed prior to closing;
n. The Preferred Stock of PVH will be converted into Preferred Stock
of Shellco on the agreed terms. The Marlin warrants will be
cancelled in exchange for PVH common stock prior to the Closing;
and
o. Consent of PVH's senior bank lender to the transactions
contemplated by this letter agreement.

8. Non-binding Letter of Intent. Except for the obligations of the parties set
forth in Paragraph 4, 5 and 6 herein, which shall be binding upon the
parties and survive termination of this Letter of Intent, this Letter of
Intent, notwithstanding the provisions of paragraph 3, constitutes only a
general, non-binding expression of interest of each of the parties and
neither party hereto shall have any liability or obligation hereunder to
the other. No agreement regarding Shellco's Acquisition of PVH shall exist
until the Agreement is executed by the parties hereto. In the event the
parties fail to enter into a definitive agreement on or before March 31,
1999, the understandings contained herein, unless extended by mutual
agreement of the parties, will terminate. A binding and enforceable
commitment with respect to matters covered by this Letter of Intent will
result only from the execution of the Agreement.

9. Expenses. In the event that the Acquisition is not consummated, PVH shall
be responsible for the reasonable out-of-pocket expenses incurred by both
parties in the preparation of the Letters of Intent, the definitive
agreement to be entered into

<PAGE>

pursuant thereto (the "Agreements"), required regulatory filings and other
matters relating directly to the transaction ("Expenses"); provided,
however, that in the event that Shellco or PVH, as the case may be,
breaches its representations, warranties or

The Board of Directors
Prime Vision Health, Inc.
December 22, 1998
Page 5

covenants under either this Letter of Intent or the Agreement (a
"Default"), and as a result of such Default the Acquisition is not
consummated, the defaulting party shall be liable to the other party for
all of its Expenses, and shall make payment thereof within 10 days after
written demand therefor. The failure to be met of a condition to closing
required by either the Letter of Intent or the Agreement shall not, in and
of itself, constitute a Default. Estimates of any Expenses to be incurred
by Shellco will be submitted in advance for approval in writing by PVH,
which approval will not be unreasonably withheld. In the event it is
necessary to make a Hart-Scott-Rodino filing this expense will be shared
equally by PVH and OptiCare.

10. Governing Law. This Letter of Intent and the Agreement shall be interpreted
and enforced in accordance with the laws of the State of Delaware without
giving effect to its conflict of laws rules.

Very truly yours,

SARATOGA RESOURCES, INC.

By: __________________________

Accepted and Agreed to:

PRIME VISION HEALTH, INC.

December ____, 1998

By: ______________________________

<PAGE>

TREK OIL AND GAS, INC.

811 DALLAS STREET, SUITE 1036

HOUSTON, TEXAS 77002
(713) 651-1466

March 27, 1998

Saratoga Resources, Inc.
2000 S. Dairy Ashford, Suite 410
Houston, Texas 77077

Attention: Tom Cook

Re: GEOPHYSICAL/GEOLOGICAL DATA REVIEW AGREEMENT

Gentlemen:

Reference is made to the discussions regarding Saratoga Resources'
("Saratoga") engagement of Trek Oil and Gas, Inc. ("Consultant") to perform the
following ("Services"): identify and develop opportunities to explore for,
exploit and produce, oil, gas and other minerals within the Project Area, as
defined below ("Prospects"). In the performance of the Services, Consultant
shall review, evaluate, analyze and where applicable reprocess certain
geophysical and geological data and information compiled by Saratoga including
but not limited to, seismic lines and records, shotpoint maps, velocity
surveys, geophysical and geological interpretations, well logs and other
similar or related geophysical and geological data and/or information ("Data").
Pursuant thereto, Saratoga and Consultant, on behalf of themselves and their
respective successors and assigns, agree as follows:

ENGAGEMENT

Saratoga hereby engages Consultant to provide the Services on an exclusive
basis in consideration of, and in accordance with, the further conditions and
covenants of Saratoga and Consultant set forth herein. As used herein, the term
"Project Area" means those ONSHORE lands which are identified on the plat
attached as Exhibit "A" hereto.

II.

PROSPECT GENERATION

Consultant will assign certain of its employees or representatives to
perform the Services at Trek's offices, during Trek's normal business hours, in
an effort to identify and develop Prospects within the Project Area for
recommendation to Saratoga, subject to the following:

A. Saratoga and Consultant shall keep all such interpreted data strictly
confidential for as long as this Agreement remains in effect. Saratoga
agrees to allow Consultant the right to maintain copies of shot point
base maps and tapes and seismic lines in Consultant's offices for any
Prospect generated or in the process of being generated by Consultant.

B. As a result of performing the Services, Consultant may determine, as a
matter of its reasonable judgment, that it is necessary or appropriate to
acquire additional seismic data with respect to one or more potential
Prospects. In such circumstances, Consultant may

<PAGE>

(but shall not be obliged to attempt to obtain additional seismic data
from third parties covering portions of the Project Area without the
necessity of giving notice to, or receiving approval from, Saratoga;
PROVIDED THAT (1) any additional seismic data obtained by the Consultant
pursuant to this Section II.B. shall be at the Consultant's sole cost and
expense, subject to reimbursement by Saratoga solely, upon the conditions,
and limited to the extent, provided in Section III of this Agreement; and
(2) any additional seismic data acquired by Consultant from third parties
shall be retained by Consultant in accordance with any applicable license,
confidentiality or other agreements.

III.

PROSPECT PROPOSALS

If Consultant identifies or develops any Prospects during the term of this
Agreement, Consultant shall submit a recommendation to Saratoga by means of a
formal presentation to appropriate Saratoga personnel which shall include,
without limitation, an outline of the Prospect Area, maps, plats, logs,
additional seismic data acquired or purchased by Consultant provided in II.B
above, written memoranda and all other appropriate materials relating to the
identification, costs, time-tables, exploration and development, of the
Prospect and designation of an area of mutual interest ("AMI") to the extent
reasonably necessary to promote the orderly development of, and protect the
interests of Saratoga and Consultant in, a Prospect ("Prospect Analysis"). In
all cases, Consultant or its designee shall act as Operator of the Prospect.

A. Saratoga shall have thirty (30) days ("Election Period") in which to
evaluate the Prospect PROVIDED THAT, the Election Period shall not begin
until Consultant has delivered, and Saratoga has received, written notice
that the Election Period has begun which shall be no earlier than the
formal presentation date of the Prospect Analysis. Any Prospect which
Saratoga accepts shall be referred to as an "Approved Prospect" and any
Prospect which Saratoga rejects shall be referred to as a "Rejected
Prospect". If Saratoga fails or refuses to provide written notice to
Consultant accepting a Prospect on or before the end of the applicable
Election Period, Saratoga shall be deemed to have rejected that Prospect.

B. During or after the Election Period, Saratoga, or Consultant on behalf
of Saratoga, may offer third parties the opportunity to acquire all or a
portion of its rights to participate in operations on a Prospect,
subject to all of the terms, conditions and covenants of this Agreement.

C. All operations contemplated by a Prospect Analysis would be conducted in
accordance with the terms and provisions of an operating agreement
governing the Prospect in the form attached as Exhibit "C" hereto, to
obtain access to the necessary rights, titles and interest in the
acreage included in the Prospect or AMI, if applicable ("Operating
Agreement").

D. Regardless of its election to accept or reject a Prospect, Saratoga
shall be assigned an overriding royalty interest equal to one and
one-half percent (1.5%) of eight-eighths (8/8ths) in leases or interests
owned and/or acquired by Consultant or its agents pursuant to this
Agreement (the "Prospect Override"). The Prospect Override shall only be
applicable to leases or interests in which Consultant, its assigns,
agents or designees have a net revenue ownership interest greater than
75%, proportionally reduced to the interest originally acquired and
shall not be applicable to acreage or interests owned by third parties
whether or not such interests are pooled with leases or interests owned
or acquired by Consultant. The Prospect Override shall apply to the
interest as acquired by, through or under Consultant and shall not be
subject to any additional burdens, encumbrances, or promotes placed upon
it by Consultant in such leases or interests covering the Prospect or
AMI ("Prospect Override"). Such Prospect Override shall be
proportionately reduced to the working interest originally acquired of
Consultant and/or its assigns. The Prospect Override shall be in
addition to any other interests Saratoga may participate in, earn or
acquire in an Approved Prospect. If the

<PAGE>

NRI acquired is equal to or less than 75% then a mutually agreeable
substitute compensation will be assigned to Saratoga and be based on a
3.5% carried working interest of the interest originally acquired to
sales point.

E. As compensation for the Services, Consultant shall own (1) each Prospect
Analysis exclusively for a period of 2 years from the date of formal
presentation to Saratoga and (2) all rights, titles and interests, if
any, which may hereafter be acquired subject to (a) Saratoga's Prospect
Override and (b) election to approve and participate in operations
conducted on and obtain a working interest in Leases covering acreage
in, an Approved Prospect.

IV.

APPROVED PROSPECTS

Upon acceptance of a Prospect Analysis from Consultant ("Approved
Prospect"), Saratoga shall participate in all operations on the Prospect to the
extent of, and be entitled to earn and/or acquire up to a twenty-five percent
(25%) of eight-eighths (8/8ths) working interest, proportionately reduced to
the aggregate interest acquired by Consultant, Saratoga or third parties
acquiring an interest by, through or under Saratoga as may be applicable, in
the Prospect or AMI, if applicable and subject to the burdens mentioned in this
agreement. Within twenty (20) days of receipt of an invoice from Consultant,
Saratoga shall reimburse twenty-five percent (25%) of eight-eighths (8/8ths) of
Consultants actual aggregate costs attributable to generating the Prospect
(excluding the monthly overhead by Consultant, if any, obtaining access to the
necessary rights, titles or interests in leases covering acreage within the
Prospect or AMI, if applicable, or other actions undertaken or costs incurred
by, the Consultant with respect to the Prospect and shall bear twenty-five
percent (25%) of eight-eighths (8/8ths) of all future costs and liabilities,
subject to the Operating Agreement. Despite anything to the contrary in this
Agreement or otherwise, failure by Saratoga to timely reimburse Consultant as
provided herein shall be an automatic election not to participate for a working
interest in the Prospect. In the event that Saratoga accepts a Prospect on
behalf of a third party, Saratoga's acceptance shall disclose the identity of,
and the consideration paid by, the third party and Saratoga's acceptance shall
be subject to the following additional conditions.

A. Consultant shall have a preferential right to acquire the working
interest offered to a third party on the same terms offered by the third
party for a period of five (5) days after Consultant's receipt of notice
of Saratoga's acceptance.

B. If Consultant fails or refuses to exercise its preferential right to
acquire Saratoga's interest within the period specified in Section III.A
above, then Saratoga shall assign all or part of its rights, titles, and
interests in the Prospect to the third party subject to the this
Agreement. Thereafter, Saratoga's assignee shall be vested with certain
rights, duties and obligations related to the Prospect as described in
this Agreement provided that Saratoga was in compliance with all
provisions of this Agreement at the time of the assignment to assignee.

REJECTED PROSPECTS

Upon rejection of a Prospect Analysis ("Rejected Prospect"), Consultant
may (but shall be under no obligation to) proceed with operations to explore
and develop the Prospect without further notice to, or approval by, Saratoga
PROVIDED THAT (1) any and all undertakings, activities or operations
attributable, or in any way related, to a Rejected Prospect shall be at
Consultant's sole risk, cost and expense, and (2) after Project Payout,
Saratoga's Prospect Override shall automatically increase to three percent (3%)
of eight-eighths (8/8ths) proportionately reduced to the entire interest
acquired by Consultant in the leases covering the Prospect or the AMI, as
applicable. For purposes hereof, Project Payout shall mean that point in time
when the proceeds Consultant has actually received from production of all wells
located with the Prospect or AMI, if applicable, (after subtracting the
royalties paid to the Lessor(s) under the lease(s), Saratoga's Prospect
Override, transportation charges, third party processing or handling fees and
any taxes) equal all costs incurred by

<PAGE>

Consultant including, but not limited to existing seismic data purchases, new
seismic data acquisition including the costs of permitting, acquisition,
damages, brokerage and processing and all costs incurred by Consultant for
leases, lease brokerage, title curative, location preparation, damages
drilling, completing and equipping all wells thereon, reworking, constructing
and installing all platforms, caissons, production equipment, processing
facilities and pipelines associated therewith, and operating and maintaining
those wells and facilities. All costs included in this Article shall be
reasonable and adequately documented. Saratoga agrees that for a period of one
(1) year following the termination of this Agreement, it shall not acquire an
interest in any Rejected Prospect either along or in conjunction with others,
except for the Project Override, and have no further claim or right to the
rejected prospect and its surrounding AMI.

VI.

LEASE ACQUISITION AND MAINTENANCE

Prior to Saratoga committing to participate as to its proportionate
interest in an Approved Prospect and/or as to any Rejected Prospect(s) as
elsewhere herein provided, Consultant, its agents, successors or assigns, may
in its sole discretion, seek to acquire oil, gas and mineral leases, mineral
interests or other oil and gas rights ("Leases") whether by purchase, farmin,
farmout, option acreage contribution, or otherwise in such prospects generated
by Consultant in accordance with this Agreement. The acquisition of such leases
and the terms, conditions and maintenance thereof shall be solely within the
discretion of Consultant. If and until such time as Consultant and Saratoga
become joint working interest owners as elsewhere herein provided Consultant
shall have no duty or obligation to maintain any leases in force and effect
whether by payment of delay rentals, shut-in royalty payments, operations or
otherwise. Further, it is agreed and understood that prior to the parties
becoming joint working interest owners hereby, Saratoga or any third party
acting on behalf of Saratoga shall not acquire any oil and gas leases, mineral
leases, or other rights within any Prospect generated by Consultant in
accordance with this Agreement or any Areas of Mutual Interest established
under the Joint Operating Agreement attached hereto as Exhibit "C". Consultant
shall not commence or cause to be commenced any drilling activity of any nature
on any Leases acquired hereunder until the elections have been made by Saratoga
or any third party as provided in Article III.A above.

VII.

CONFIDENTIALITY

As between Saratoga and Consultant, all the Data shall remain the
property of, and be owned by, Saratoga. Consultant shall not provide the Data,
including copies or extracts thereof, to third parties without the prior
written consent of Saratoga. Notwithstanding the foregoing, Saratoga and
Consultant agree:

A. In the event Saratoga should receive notice that Consultant has
abrogated the terms of an applicable license or other agreement,
Consultant shall not utilize the affected Data covered by that
license or other agreement thereafter and shall return to
Saratoga's personnel the affected Data, including copies or
extracts thereof and any work product prepared by or for
Consultant therefrom, which may have previously been utilized by
Consultant in performing the Services hereunder.

B. Consultant understands and hereby acknowledges that neither
Saratoga nor any of its employees, agents or representatives
makes any representation or warranty as to the accuracy or
completeness of the Data, and Consultant agrees that Saratoga
shall not be held liable in any way to Consultant, its
representatives or any other person as a result of Consultant's
review of or reliance upon any of the Data. Consultant shall
further fully defend, protect, indemnify and hold Saratoga, its
officers, employees, representatives, and agents harmless from
and against any and all claims, demands, suits, and causes of
action of every kind and character, relating to, or arising out
of, or in any way incidental to the use, review and reliance on
the Data. This indemnity shall apply, without limitation, to any
liability imposed upon any party indemnified hereunder as a
result of any statute, rule, regulation or theory of strict
liability.

<PAGE>

C. Consultant shall have the right to show Saratoga's proprietary
data pertinent to a Prospect to third parties with Saratoga's
written authorization which shall not be unreasonably withheld.

D. The provisions of this Article VII shall survive as long as
Consultant or its assigns, heirs or successors maintain any
leases within the AMI which are subject to this Agreement.

VIII.

ASSIGNABILITY

Consultant shall not assign this Agreement, or its obligation to
provide the Services, to any third party without the written consent of
Saratoga. In the event that Consultant is able to generate one or more
Prospects and obtain access to the necessary rights, titles and interests in
the acreage included in a Prospect or AMI, if applicable, Consultant, Saratoga
or such third parties as may participate in the Prospect through Consultant or
Saratoga shall enter into an Operating Agreement, and thereafter those parties
may assign an interest in their respective rights in the Prospect or AMI, if
applicable, subject to the provisions of the Operating Agreement. Consultant,
shall not include in any Operating Agreement entered into by Contractor terms,
conditions or provisions that favor Consultant to the detriment of Saratoga.

IX.

OTHER AGREEMENTS

This Agreement is specifically subject to that certain Seismic Data
Licensing Agreement dated the 30th day of January, 1998, by and between Seiutel
Data, Ltd. And Lobo Energy, Inc. In the event there is a conflict between the
terms of this agreement and the terms of the Seismic Licensing Agreement, the
terms of the Seismic Licensing Agreement will control.

TERM

This Agreement shall be for a term of one year from the date hereof
unless extended by mutual agreement. Notwithstanding the foregoing, either
party may terminate this Agreement upon thirty (30) days written notice to the
other party beginning ninety days after the effective date of this Agreement.
Either Party may terminate this Agreement immediately in the event of any
material breach hereof.

XI.

NOTICES

Any notice or other communication hereunder between the parties hereto
shall be in writing and shall be deemed to have been given only upon receipt
thereof. The address of each party for such purpose shall be:

Saratoga Resources, Inc.
2000 S. Dairy Ashford, #410
Houston, Texas 77077
Tel. (281) 531-0022
Fax (281) 531-0023

Trek Oil and Gas Inc.
811 Dallas, Suite 1036
Houston, Texas 77002
Tel. (713) 652-4040
Fax

<PAGE>

Each party may change their address by delivering their new address to the
other party.

XII.

BUSINESS OPPORTUNITIES

Saratoga and Consultant expressly reserve the right to develop or
participate in additional businesses or business opportunities as may be
presented to, or discovered by, either during the term hereof, including,
without limitation, conducting or participating in operations for the
exploration and development of oil and gas except as provided in Section V
herein. Without limiting the generality of the foregoing, Saratoga and
Consultant hereby acknowledge:

A. Each party is actively engaged in various aspects of the oil and
gas business, and anticipate conducting, or participating in,
activities to generate, explore and develop opportunities
similar to those contemplated by this Agreement pursuant to
existing agreements and relationships, which (1) each party has
disclosed to the reasonable satisfaction of the other, (2)
neither party's interest should be impaired, restricted or
otherwise affected hereby, and (3) may be conducted
simultaneously with those contemplated hereby. Consultant, to
the extent Consultant believes reasonable or necessary, may
pursue opportunities with third parties within the Project Area
except where such actions would foreseeably result in the damage
to, or loss of, a Prospect or AMI, if applicable, generated
pursuant to this Agreement.

B. As a result of participating in opportunities similar to those
set forth herein, each party acknowledges that the successful
generation, exploration and development of any Prospect pursuant
to this Agreement is subject to numerous risks and may be
influenced by numerous factors beyond either party's control. In
addition to the customary risks of conducting exploratory or
development operations on, and obtaining production of oil and
gas in paying quantities from, leases owned by a party at the
time an exploration project is agreed upon, Saratoga and
Consultant acknowledge that there is no assurance that access to
the necessary rights, titles and interests in acreage included
in any Prospect or AMI, if applicable, can be obtained.
Consequently, neither party shall have any obligation to the
other pursuant to this Agreement, in the event Consultant is
unable to generate, or to obtain oil and gas production from,
any Prospects in the Project Area.

XIII.

RELATIONSHIP OF THE PARTIES

This Agreement is not intended to create, and shall not be construed
to create, a relationship or partnership, joint venture or an association for
profit between or among the parties hereto, it being understood that Consultant
is an independent contractor and is not to be deemed an agent of Saratoga.

XIV.

GOVERNING LAW

This Agreement and all matters pertaining hereto shall be governed and
determined by the law of the State of Texas.

XV.

INTEGRATION

This Agreement constitutes the entire agreement of the parties and
supersedes all prior agreements, understandings, conversations or other
correspondence concerning the subject matter hereof.

This Agreement shall not be amended, except by written instrument
executed by both parties hereto.

<PAGE>

If the foregoing correctly sets forth the agreement and understandings
between the parties, please execute both copies and return one to the attention
of the undersigned whereupon this proposal shall constitute our agreement as to
the matters herein set forth.

Very truly yours,

SARATOGA RESOURCES, INC.

By: /s/ Thomas F. Cook
------------------
Thomas F. Cook
President

ACCEPTED AND AGREED TO THIS 8TH DAY OF MARCH, 1998.

TREK OIL AND GAS, INC.

By: /s/ Mike S. Mount
-------------------
Mike S. Mount
Vice President

Accepted and Agreed to this 7th day of May, 1998.

Exhibit "A" -Contract Area Plat
Seismic Data Programs

<PAGE>

TREK OIL AND GAS, INC.
811 Dallas, Suite 819
Houston, Texas 77002
(713) 651-1866
(713) 651-3104 fax

March 24, 1999

Saratoga Resources, Inc.

ATTENTION: Mr. Tom Cook
2000 S. Dairy Ashford, Suite 410
Houston, Texas 77077

RE: GEOPHYSICAL/GEOLOGICAL DATA REVIEW AGREEMENT

Dear Tom:

This letter shall serve as formal notification to Saratoga Resources,
Inc. ("Saratoga") that Trek Oil and Gas, Inc. ("Trek"), wishes to exercise its
right to extend the above referenced Agreement dated March 27, 1998, (the
"Agreement") for an additional six months. This will extend the term of that
Agreement to September 27, 1999. All other terms of the original Agreement shall
remain the same unless changed in writing by mutual agreement.

If Saratoga agrees to extend the term of the Agreement, please sign and
date in the space below and fax a signed copy to Trek's office at 713/651-3104.

Sincerely,

/s/ Mike S. Mount
------------------
MIKE S. MOUNT

AGREED TO BY:

/s/ Thomas F. Cook
------------------

DATE: March 19, 1999

<PAGE>

TREK OIL AND GAS, INC.
811 DALLAS STREET, SUITE 1036
HOUSTON, TEXAS 77002
(713) 651-1466

March 18, 1999

Saratoga Resources, Inc., a Texas Corporation
2000 S. Dairy Ashford, Suite 410
Houston, Texas 77077
Attention: Tom Cooke

Re: GEOPHYSICAL/GEOLOGICAL DATA REVIEW AGREEMENT

Gentlemen:

Reference is made to the discussions regarding Saratoga Resources, Inc.'s,
a Texas Corporation ("Saratoga") engagement of Trek Oil and Gas, Inc.
("Consultant") to perform the following ("Services"): identify and develop
opportunities to explore for, exploit and produce, oil, gas and other minerals
within the Project Area, as defined below ("Prospects"). In the performance of
the Services, Consultant shall review, evaluate, analyze and where applicable
reprocess certain geophysical and geological data and information compiled by
Saratoga including but not limited to, seismic lines and records, shotpoint
maps, velocity surveys, geophysical and geological interpretations, well logs
and other similar or related geophysical and geological data and/or information
("Data"). Pursuant thereto, Saratoga and Consultant, on behalf of themselves
and their respective successors and assigns, agree as follows:

ENGAGEMENT

Saratoga hereby engages Consultant to provide the Services on a non
exclusive basis in consideration of, and in accordance with, the further
conditions and covenants of Saratoga and Consultant set forth herein. As used
herein, the term "Project Area" means those ONSHORE areas which are identified
on the program list and attached as Exhibit "A" hereto.

II.

PROSPECT GENERATION

Consultant will assign certain of its employees or representatives to
perform the Services at Trek's offices, during Trek's normal business hours, in
an effort to identify and dvelop Prospects within the Project Area for
recommendation to Saratoga, subject to the following:

A. Saratoga and Consultant shall keep all such interpreted data strictly
confidential for as long as this Agreement remains in effect. Saratoga
agrees to allow Consultant the right to maintain copies of shop point
base maps and tapes and seismic lines in Consultant's offices for any
Prospect generated or in the process of being generated by Consultant.

(but shall not be obliged to attempt to obtain additional seismic data from
third parties covering portions of the Project Area without the necessity
of giving notice to, or receiving approval from, Saratoga; provided that
(1) any additional seismic data obtained by the Consultant pursuant to this
Section II.B. shall be at the Consultant's sole cost and expense, subject
to reimbursement by Saratoga solely upon the conditions, and limited to the
extent, provided in Section III of this Agreement; (2) any additional
seismic data acquired by Consultant from third parties shall be retained by
Consultant in accordance with any applicable license, confidentiality or
other agreements; (3) any charges related to paper copies, tape or film
reproduction shall be an expense of consultant.

III.

PROSPECT PROPOSALS

If Consultant identifies or develops any Prospects during the term of this
Agreement, Consultant shall submit a recommendation of Saratoga by means of a
formal presentation to appropriate Saratoga personnel which shall include,
without limitation, an outline of the Prospect Area, maps, plats, logs, copies,
reproductions, additional seismic data acquired or purchased by Consultant
provided in II.B above, written memoranda and all other appropriate materials
relating to the identification, costs attributed to prospects development,
time-tables, exploration and development, of the Prospect and designation of an
area of mutual interest ("AMI") to the extent reasonably necessary to promote
the orderly development of, and protect the interests of Saratoga and
Consultant in, a Prospect ("Prospect Analysis"). In all cases, Consultant or
its designee shall act as Operator of the Prospect.

A. Saratoga shall have thirty (30) days ("Election Period") in which to
evaluate the Prospect provided that, the Election Period shall not begin
until Consultant has delivered, and Saratoga has received, written
notice that the Election Period has begun which shall be no earlier than
the formal presentation date of the Prospect Analysis. Any Prospect
which Saratoga accepts shall be referred to as an "Approved Prospect"
and any Prospect which Saratoga rejects shall be referred to as a
"Rejected Prospect". If Saratoga fails or refuses to provide written
notice to Consultant accepting a prospect on or before the end of the
applicable Election Period, Saratoga shall be deemed to have rejected
that Prospect.

B. During or after the Election Period, Saratoga, or Consultant on behalf
of Saratoga, may offer third parties the opportunity to acquire all or a
portion of its rights to participate in operations on a Prospect, subject
to all of the terms, conditions and covenants of this Agreement.

C. All operations contemplated by a Prospect Analysis would be conducted in
accordance with the terms and provisions of an operating agreement
governing the Prospect in the form attached as Exhibit "B" hereto, to
obtain access to the necessary rights, titles and interest in the acreage
included in the prospect or Ami, if applicable ("Operating Agreement").

D. Regardless of its election to accept or reject a Prospect, Saratoga
shall be assigned an overriding royalty interest equal to one percent
(1.0%) of eight-eights (8/8ths) in leases or interests owned and/or
acquired by Consultant or its agents pursuant to this Agreement (the
"Prospect Override"). The Prospect Override shall only be applicable to
leases or interests in which Consultant, its assigns, agents or
designeees have a net revenue ownership interest greater than 75%,
proportionally reduced to the interest originally acquired and shall not
be applicable to acreage or interest owned by third parties whether or
not such interests are pooled with leases or interests owned or acquired
by Consultant. The Prospect Override shall apply to the interest as
acquired by, through or under Consultant and shall not be subject to any
additional burdens, encumbrances, or promotes placed upon it by
Consultant in such leases or interests covering the Prospect or AMI
("Prospect Override"). Such Prospect Override shall be proportionately
reduced to the working interest originally acquired of Consultant and/or

<PAGE>

its assigns. The Prospect Override shall be in addition to any other
interests Saratoga may participate in, earn or acquire in an Approved
Prospect. If the NRI acquired is equal to or less than 75% then a
mutually agreeable substitute compensation will be assigned to Saratoga
and be based on a 3.0% carried working interest of the interest
originally acquired to sales point.

B. As compensation for the Services, Consultant shall own (1) each Prospect
Analysis exclusively for a period of 2 years form the date of formal
presentation to Saratoga and (2) all rights, titles and interests, if
any, which may hereafter be acquired subject to (a) Saratoga's Prospect
Override and (b) election to approve and participate in operations
conducted on and obtain a working interest in Leases covering acreage in,
an Approved Prospect.

IV.

APPROVED PROSPECTS

Upon acceptance of a Prospect Analysis from Consultant ("Approved
Prospect"), Saratoga shall participate in all operations on the Prospect to the
extent of, and be entitled to earn and/or acquire up to a thirty-three and
one-third percent (33.33%) of eight-eights (8/8ths) working interest,
proportionately reduced to the aggregate interest acquired by Consultant,
Saratoga or third parties acquiring an interest by, through or under Saratoga
as may be applicable, in the Prospect or AMI, if applicable and subject to the
burdens mentioned in this agreement. Within twenty (20) days of receipt of an
invoice from Consultant, Saratoga shall reimburse thirty-three and one-third
percent (33.33%) of eight-eithts (8/8ths) of Consultant's actual aggregate
costs attributable to generating the Prospect (excluding the monthly overhead
by Consultant, if any, obtaining access to the necessary rights, titles or
interest sin leases covering acreage with in the Prospect or AMI, if
applicable, or other actions undertaken or costs incurred by, the Consultant
with respect to the Prospect and shall bear thirty-three and one-third percent
(33.33%) of eight-eights (8/8ths) of all future costs and liabilities, subject
to the Operating Agreement. Despite anything to the contrary in this Agreement
or otherwise, failure by Saratoga to timely reimburse Consultant as provided
herein shall be an automatic election not to participate for a working interest
in the Prospect. In the event that Saratoga accepts a Prospect on behalf of a
third party, Saratoga's acceptance shall disclose the identity or, and the
consideration paid by, the third party and Saratoga's acceptance shall be
subject to the following additional conditions:

A. A. Consultant shall have a preferential right to acquire the working
interest offered to a third party on the same terms offered by the third
party for a period of five (5) days after Consultant's receipt of notice
of Saratoga's acceptance.

B. If Consultant fails or refuses to exercise its preferential right to
acquire Saratoga's interest within the period specified in Section III.A
above, then Saratoga shall assign all or part of its rights, titles, and
interests in the Prospect to the third party subject to this Agreement.
Thereafter, Saratoga's assignee shall be vested with certain rights,
duties and obligations related to the Prospect as described in this
Agreement provided that Saratoga was in compliance with all provisions of
this Agreement at the time of the assignment to assignee.

REJECTED PROSPECTS

Upon rejection of a Prospect Analysis ("Rejected Prospect"), Consultant
may (but shall be under no obligation to) proceed with operations to explore
and develop the Prospect without further notice to, or approval by, Saratoga
provided that (1) any and all undertakings, activities or operations
attributable, or in any way related, to a Rejected Prospect shall be at
Consultant's sole risk, cost and expense, and (2) after Project Payout,
Saratoga's Prospect Override shall automatically increase to three percent (3%)
of eight-eights (8/8ths) proportionately reduced to the entire interest
acquired by Consultant in the leases covering the Prospect or the AMI, as
applicable and shall be no greater than a multiple of 3 to the override
originally assigned Saratoga. For purposes hereof, Project Payout shall mean
that point in time when the proceeds Consultant has actually

<PAGE>

received from production of all wells located with the prospet or AMI, if
applicable, (after subtracting the royalties paid to the Lessor(s) under the
lease(s), Saratoga's Prospect Override, transportation charges, third party
processing or handling fees and any taxes) equal all acosts incurred by
Consultant including, but not limited to existing seismic data purchases, new
siesmic data acquisition including the costs of permitting, acquisition,
damages, brokerage and processing and all costs incurred by Consultant for
leases, lease brokerage, title curative, location preparation, damages
drilling, completing and equipping all wells thereon, reworking, constructing
and installing all platforms, caissons, production equipment processing
facilities and piplines associated therewith, and operating and maintaining
those wells and facilities. All costs included in this Article shall be
reasonable and adequately documented. Saratoga agrees that for a period of one
(1) year following the termination of this Agreement, it shall not acquire an
interest in any Rejected prospect either along or in conjunction with others,
except for the project Override, and have no further claim or right to the
rejected prospect and its surrounding AMI.

VI.

LEASE ACQUISITION AND MAINTENANCE

Prior to Saratoga committing to participate as to its proportionate interest in
an Approved Prospect and/or as to any Rejected Prospect9s) as elsewhere herein
provided, Consultant, its agents, successors or assigns may in its sole
discretion, seek to acquire oil, gas and mineral leases, mineral interests or
other oil and gas rights ("Leases") whether by purchase, farmin, farmout,
option acreage contribution, or otherwise in such prospects generated by
Consultant in accordance with this Agreement. The acquisition of such leasees
and the terms, conditions and maintenance thereof shall be solely within the
discretion of Consultant. if and until such time as Consultant and Saratoga
become joint working interest owners as elsewhere herein provided Consultant
shall have no duty or obligation to maintain any leases in force and effect
whether by payment of delay rentals, shut-in royalty payments, operations or
otherwise. Further, it is agreed and understood that prior to the parties
becoming joint working interest owners hereby, Saratoga or any third party
acting on behalf of Saratoga shall not acquire any oil and gas leases, mineral
leases, or other rights within any Prospect generated by Consultant in
accordance with this agreement or any Areas of Mutual Interest established
under the Joint Operating Agreement attached hereto as Exhibit "C". Consultant
shall not commence or cause to be commenced any drilling activity of any nature
on any Leases acquired hereunder until the elections have been made by Saratoga
or any third party as provided in Article III.A above.

VII.

CONFIDENTIALITY

<PAGE>

liability imposed upon any party indemnified hereunder as a
result of any statute, rule, regulation or theory of strict
liability.

C. Consultant shall have the right to show Saratoga's proprietary
data pertinent to a Prospect to third parties with Saratoga's
written authorization which shall not be unreasonably withheld.

D. The provisions of this Article VII shall survive as long as
Consultant or its assigns, heirs or successors maintain any
leases within the AMI which are subject to this Agreement.

VIII.

ASSIGNABILITY

IX.

OTHER AGREEMENTS

This Agreement is specifically subject to that certain Seismic Data
Licensing Agreement dated the 30th day of January, 1998, by and between Seitel
Data, Ltd., Saratoga Resources, Inc. and Lobo Energy, Inc. In the event there
is a conflict between the terms of this agreement and the terms of the Seismic
Licensing Agreement, the terms of the Seismic Licensing Agreement will control.

TERM

XI.

NOTICES

Saratoga Resources, Inc.
301 Congress, #1550
Austin, Texas 78701
Tel. (512) 478-5717
Fax (512) 478-5733

Trek Oil and Gas Inc.
811 Dallas, Suite 1036
Houston, Texas 77002

<PAGE>

Tel. (718) 652-4040
Fax

Each party may change their address by delivering their new address to the
other party.

XII.

BUSINESS OPPORTUNITIES

XIII.

RELATIONSHIP OF THE PARTIES

XIV.

GOVERNING LAW

This Agreement and all matters pertaining hereto shall be governed and
determined by the laws of the State of Texas.

XV.

INTEGRATION

<PAGE>

This Agreement constitutes the entire agreement or the parties and
supersedes all prior agreements, understandings, conversations or other
correspondence concerning the subject matter hereof.

This Agreement shall not be amended, except by written instrument
executed by both parties hereto.

Very truly yours,

SARATOGA RESOURCES, INC.

By: /s/ Thomas F. Cook
------------------
Thomas F. Cook
President

ACCEPTED AND AGREED TO THIS 19TH DAY OF MARCH, 1999.

TREK OIL AND GAS, INC.

By: /s/ Mike S. Mount
-------------------
Mike S. Mount
Vice President

Accepted and Agreed to this 19th day of March, 1999.

Exhibit "A" -Contract Area List
Seismic Data Programs

<PAGE>

EXHIBIT 21 -- SUBSIDIARIES

Each of the following corporations is a wholly owned subsidiary of the
Registrant:

1. Saratoga Resources, Inc., a Texas corporation.

2. Lobo Operating, Inc., a Texas corporation.

3. Lobo Energy, Inc., a Texas corporation.

4. OptiCare Shellco Merger Corporation, a Delaware corporation.

5. Prime Shellco Merger Corporation, a Delaware corporation.

<PAGE>

<ARTICLE> 5

<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 290
<SECURITIES> 11
<RECEIVABLES> 33
<ALLOWANCES> (23)
<INVENTORY> 0
<CURRENT-ASSETS> 311
<PP&E> 56
<DEPRECIATION> (11)
<TOTAL-ASSETS> 347
<CURRENT-LIABILITIES> 15
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 313
<TOTAL-LIABILITY-AND-EQUITY> 347
<SALES> 0
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<TOTAL-COSTS> 363
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</TABLE>