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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Quarterly Period Ended March 31, 1999
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Transition Period from to
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Commission file number 0-11498
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SARATOGA RESOURCES, INC.
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(Name of small business issuer in its charter)
Delaware 76-0453392
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Congress Avenue, Suite 1550, Austin, Texas 78701
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(Address of principal executive offices)
(512) 478-5717
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(Issuer's telephone number)
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 reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of the issuer's class of common
equity, as of the last practicable date: common stock, $0.001 par value, as of
May 6, 1999: 3,456,292 shares
Transitional Small Business Disclosure Format (check one):
Yes X No
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Saratoga Resources, Inc. and Subsidiaries
Three Months Ended March 31, 1999
Table of Contents
Part 1. Financial Information (unaudited)
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998....... 3
Consolidated Statements of Operations
for the three months ended March 31, 1999 and 1998........................ 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 1998........................ 5
Notes to Consolidated Financial Statements................................... 6
2
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Saratoga Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
-----------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 190 $ 290
Marketable securities 13 11
Trade receivables, net - -
Investment in past due accounts receivable 9 10
-----------------------------------
Total current assets 212 311
Equipment, net of accumulated depreciation 34 36
-----------------------------------
Total assets $ 246 $ 347
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1 $ 10
Current maturities of debt 5 5
-----------------------------------
Total current liabilities 6 15
Long-term debt, net of current portion 14 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 March 31, 1999 and December 31, 1998 3 3
Additional paid-in capital 2,490 2,490
Accumulated deficit (2,240) (2,148)
Treasury stock, at cost (2) (2)
Other comprehensive loss (25) (27)
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Total stockholders' equity 226 316
-----------------------------------
Total liabilities and stockholders' equity $ 246 $ 347
===================================
</TABLE>
See accompanying notes.
3
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Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
-----------------------------------
<S> <C> <C>
Revenues:
Gain on sale of marketable securities $ - $ 21
Interest income 1 7
-----------------------------------
1 28
Costs and expenses:
Depreciation 2 2
General and administrative 91 95
Loss on marketable securities - -
Interest expense - -
-----------------------------------
93 97
Loss before income taxes (92) (69)
Income tax benefit - -
-----------------------------------
Net loss $ (92) $ (69)
===================================
Basic and diluted loss per share $ (.03) $ (.02)
===================================
Weighted-average number of common shares outstanding 3,465 3,465
Total comprehensive loss $ (90) $ (69)
===================================
</TABLE>
See accompanying notes.
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Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (92) $ (69)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 2 2
Provision for doubtful accounts - -
Changes in operating assets and liabilities:
Trade receivables - -
Investment in past due accounts receivable 1 -
Other assets - (5)
Accounts payable and accrued liabilities (9) 3
-------------------------------------
Net cash used in operating activities (98) (69)
-------------------------------------
INVESTING ACTIVITIES
Purchase of equipment - (1)
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Net cash used in investing activities - (1)
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FINANCING ACTIVITIES
Payments on borrowings (2) (1)
-------------------------------------
Net cash used in financing activities (2) (1)
-------------------------------------
Net decrease in cash and cash equivalents (100) (71)
Cash and cash equivalents at beginning of period 290 666
=====================================
Cash and cash equivalents at end of period $ 190 $ 595
=====================================
</TABLE>
See accompanying notes.
5
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Saratoga Resources, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Three Months Ended March 31, 1999
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements are those of the
Company and its subsidiaries, all of which are wholly owned, and have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation for the periods indicated
have been included. Operating results for the three month period ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. The Balance Sheet at December 31, 1998 has been
derived from the audited financial statements at that date, but does not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. The accompanying financial
statements should be read in conjunction with the audited consolidated financial
statements (including the notes thereto) for the year ended December 31, 1998.
Certain amounts shown in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
2. COMPREHENSIVE LOSS
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards 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):
Three Months ended
March 31,
1999 1998
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Net loss $(92) $(69)
Unrealized gain on marketable securities 2 -
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Total comprehensive loss $(90) $(69)
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6
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Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES
The Company has determined that a valuation allowance should be applied against
the deferred tax assets related to the net operating losses of the Company due
to uncertainty regarding the assets' realizability. The difference between the
tax benefit recorded for the three months ended March 31, 1999 and the benefit
calculated at the federal statutory rate is primarily due to the valuation
allowance applied against the deferred tax assets.
4. PENDING TRANSACTIONS
On April 12, 1999 the Company entered into an agreement and plan of merger with
OptiCare Eye Health Centers, Inc., a provider of consulting, administrative and
other support services to optometry eyecare centers located in Connecticut, and
PrimeVision Health, Inc., a vertically integrated vision services company,
whereby each of those companies would be merged with two wholly-owned, newly
organized subsidiaries of Saratoga Resources, Inc. in an all-stock transaction
by Saratoga Resources issuing 97.5% of the Company's common stock to the
shareholders of Opticare and Prime.
As contemplated by the OptiCare/Prime Vision merger, Saratoga-Delaware proposes
to contribute substantially all of its assets to Saratoga-Texas, a 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 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 its wholly owned subsidiary
Saratoga Holdings I, Inc. to the stockholders of Saratoga-Delaware on a
one-for-one basis. The remaining 10% will be contributed to Saratoga-Texas.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Overview. Since the consummation of the ING-P/Energy Agreement in May
1996, management has sought new business opportunities through acquisitions and
through use of the Registrant's database and expertise in the oil and gas
business, with a view to enhancing stockholder value. Results of operations
should be evaluated in light of the Registrant's being in a period of
transition, in which management is seeking to develop new businesses that will
ultimately generate earnings and otherwise enhance stockholder value.
In December 1998, Saratoga Holdings I, Inc. ("SHI"), a wholly owned
subsidiary of the Registrant, acquired a portfolio of consumer debt receivables
at a deep discount and commenced a business of acquiring, reselling, managing
and contracting for the collection of portfolios of delinquent and defaulted
accounts receivable.
Also in December 1998, the Registrant filed a registration statement (the
"SHI Registration Statement") by which the Registrant would distribute 90% of
the capital stock of SHI to its stockholders and contribute the other 10% to
Saratoga Resources, Inc., a Texas corporation ("Saratoga-Texas"), which is also
a wholly owned subsidiary of the Registrant. The SHI Registration Statement has
been amended in response to comments of the staff of the Corporation Finance
Division of the SEC.
As reported in Item 5, in April 1999, the Registrant entered into an
agreement whereby two eye care companies would be merged with two newly
organized, wholly owned subsidiaries of the Registrant, in exchange for
approximately 97.5% of newly issued common stock of the Registrant. Consummation
of the mergers is subject to numerous conditions, including the restructuring of
the eye care companies' existing long-term debt, structuring of new employment
agreements with senior management, approval of the mergers by the securities
holders of each eye care company, approval of certain matters (other than the
mergers) by the stockholders of the Registrant, the disposition of all assets of
the Registrant other than cash, and numerous other material conditions. There
can be no assurance that the conditions to the mergers will be satisfied.
The Registrant also expects to distribute 100% of the capital stock of
Saratoga-Texas to its stockholders, which is a condition to the consummation of
the eye care mergers. Such distribution would be effected immediately prior to
the consummation of the eyecare mergers.
8
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The discussion below should be read in light of management's plans to
restructure the Registrant as described herein.
RESULTS OF OPERATIONS
Revenues. Total revenues for the first quarter of 1999 were approximately
$1,000, compared to $28,000 for the first quarter of 1998. The decline is the
result of a non-recurring gain on the sale of marketable securities that was
realized in 1998, and lower interest income because of a lower level of
investable assets. Receipts from consumer debt finance are being applied first
to reduce the investment in past due accounts receivable to zero, and according,
there was no net revenue from consumer debt finance recorded in the first
quarter of 1999. The Registrant did not start its consumer debt finance business
until December 1998 and, according, had no such revenue in the first quarter of
1998.
Costs and Expenses. Costs and expenses for the first quarter of 1999
totaled $93,000 compared to $97,000 for the first quarter of 1998. The moderate
reduction is the result of the continuation of determined cost control efforts
of management.
Net Loss. The Registrant's consolidated net loss was approximately $92,000
in 1999, compared to a net loss of $69,000 in the first quarter of 1998. The
increase in net loss is attributable to the absence in 1999 of gains from
non-recurring sales of marketable securities that were made in the first quarter
of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's assets at December 31, 1998, consisted primarily of cash
in the amount of $290,000 and decreased to $190,000 as of March 31, 1999. The
Registrant believes that its current cash balance will be sufficient to conduct
its business for the next 12 months.
YEAR 2000 ISSUE
The Registrant utilizes software and related technologies that may be
affected by the Year 2000 problem, which is common to most businesses. The
Registrant 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 Registrant
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 Registrant continues to work
with its vendors, customers and others to ensure a smooth
9
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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 Registrant. If the Registrant hereafter engages in
acquisitions or business combinations, such as the purchase of the consumer debt
accounts receivable in 1998 or the 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 Registrant's future
performance, including without limitation statements with respect to the
Registrant'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
Registrant'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
Registrant's products and services, changes in the requirements of clients and
customers, and changes in general economic conditions that may affect demand for
the Registrant's products and services or otherwise affect results of operations
or the value of the Registrant'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.
PART II
ITEM 5. OTHER INFORMATION.
On April 12, 1999, the Registrant entered into an agreement and plan of
merger with OptiCare Eye Health Centers, Inc., a Connecticut corporation, and
PrimeVision Health, Inc., a Delaware corporation, pursuant to which each of
those companies would be merged with two wholly owned, newly organized
subsidiaries of the Registrant. The obligations of all parties to the mergers
are subject to the satisfaction or waiver of numerous conditions prior to the
proposed closing date. There is no assurance that such conditions will be
satisfied or waived or that the mergers will be completed. The Registrant issued
a press release with respect to the execution of the merger agreement, a copy of
which is filed herewith as Exhibit 99.1. The text of the press release is
incorporated herein by reference.
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
The following Exhibits are filed as part of this Quarterly Report on
Form 10-QSB:
Number Exhibit
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10.1 Agreement and plan of merger dated as of April 12,
1999, among Saratoga Resources, Inc., a Delaware
corporation, OptiCare Shellco Merger Corporation,
PrimeVision Shellco Merger Corporation, OptiCare
Eye Health Centers, Inc., a Connecticut
corporation, and PrimeVision Health, Inc., a
Delaware corporation, incorporated herein by
reference to the Registrant's registration
statement on Form S-4 filed with the Commission on
May 14, 1999, Exhibit 2.
27 Financial Data Schedule (for EDGAR filing only).
99.1 Press release dated April 13, 1999.
b. Reports filed on Form 8-K filed in the period covered by this
report:
Current Report dated March 29, 1999, filed April 2, 1999, including
Amendment No. 1 thereto filed April 6, 1999, reporting under
Item 4, Change in Registrant's Certifying Accountants.
11
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SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SARATOGA RESOURCES, INC., A DELAWARE
CORPORATION
Date: May 17, 1999 By: s/ Thomas F. Cooke
-----------------------------------
Thomas F. Cooke, Chief Executive
Officer and Principal Financial
Officer
<PAGE>
EXHIBIT INDEX
Number Exhibit
- ------ -------
10.1 Agreement and plan of merger dated as of April 12, 1999, among
Saratoga Resources, Inc., a Delaware corporation, OptiCare
Shellco Merger Corporation, PrimeVision Shellco Merger
Corporation, OptiCare Eye Health Centers, Inc., a Connecticut
corporation, and PrimeVision Health, Inc., a Delaware
corporation, incorporated herein by reference to the
Registrant's registration statement on Form S-4 filed with the
Commission on May 14, 1999.
27 Financial Data Schedule (for EDGAR filing only).
99.1 Press release dated April 13, 1999.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 190
<SECURITIES> 13
<RECEIVABLES> 32
<ALLOWANCES> (23)
<INVENTORY> 0
<CURRENT-ASSETS> 212
<PP&E> 56
<DEPRECIATION> (22)
<TOTAL-ASSETS> 246
<CURRENT-LIABILITIES> 6
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 223
<TOTAL-LIABILITY-AND-EQUITY> 246
<SALES> 0
<TOTAL-REVENUES> 1
<CGS> 0
<TOTAL-COSTS> 93
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (92)
<INCOME-TAX> 0
<INCOME-CONTINUING> (92)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (92)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
<PAGE>
AUSTIN, Texas - (BUSINESS WIRE_- April 13, 1999 - Saratoga Resources,
Inc., a Delaware holding corporation (NASDAQ OTC: SRIK), today announced that it
has entered into an agreement to merge with PrimeVision Health, Inc.
("PrimeVision") and OptiCare Eye Health Centers, Inc. ("OptiCare") in all-stock
transactions (the "Eyecare Transaction"). The managements of Saratoga,
PrimeVision and OptiCare believe that the transaction will create one of the
leading eyecare Health Services Organizations ("HSO's") in the country.
The Eyecare Transaction is conditioned upon, among other things, customary
closing conditions (including shareholder approvals and Hart-Scott-Rodino
compliance), as well as Saratoga's completion of spinoffs of its existing
operating subsidiaries, which are engaged in energy exploration and high-yield
consumer-debt financing (the "Spinoffs"), and the listing of Saratoga's common
stock on the American Stock Exchange or NASDAQ. Other conditions of the closing
of the Eyecare Transaction include the restructuring of certain debt and other
obligations of OptiCare and PrimeVision, and the registration with the
Securities and Exchange Commission of new Saratoga common stock, which will be
issued to the securities holders of OptiCare and PrimeVision in the Eyecare
Transaction. There can be no assurance that the Eyecare Transaction will be
completed.
Current stockholders of Saratoga will receive shares of Saratoga's
operating subsidiaries in the Spinoffs. Upon closing of the Eyecare Transaction,
newly issued shares of Saratoga common stock will be issued to the current
shareholders of PrimeVision and OptiCare, and the current Saratoga shareholders
will retain approximately a 2.5% equity interest in Saratoga.
Following completion of the contemplated spinoffs and the Eyecare
Transaction, the combined company would have combined 1998 revenues of
approximately $105 million. The combined company will have its headquarters in
Waterbury, Connecticut, and would offer a broad range of services to
Ophthalmologists, Optometrists and Opticians ("the three O's").
Dean Yimoyines, M.D., OptiCare's Chairman and CEO and the proposed
chairman and CEO of the combined public company, commented: "The merger of
PrimeVision and OptiCare into a public vehicle will create a company with the
appropriate capital structure and infrastructure to be the model HSO in the
Eyecare industry. At OptiCare we have spent nearly 20 years preparing a platform
of systems and personnel that can be efficiently exported into a larger
environment. PrimeVision is affiliated with some of the finest Ophthalmology and
Optometry practices in the United States and represents an excellent cultural
fit for Opticare. It is believed that the combined company's focus on
value-added services to the three O's will place us at the forefront of the
evolution of eyecare delivery."
Dr. Yimoyines also noted that "The combined company's objective will be to
build an outstanding HSO, focusing primarily on value-added services to
participating or affiliated three O's practitioners, rather than the more
traditional physician practice management company approach that has been adopted
by other public healthcare companies. Under our HSO business
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model, the combined company would have no management or ownership role in
physicians' practices and no requirements for significant capital investment in
these practices. Rather the physician benefits from our expertise in systems,
managed care and other aspects of maximizing the profitability of physicians'
practices as well as the benefits of being affiliated with a leading player in
the industry."
PrimeVision is a privately held company based in Raleigh, North Carolina,
with 1998 continuing revenues of approximately $70 million. PrimeVision
maintains HSO and management agreements with ophthalmology and optometry
practices and has created its own practice management support divisions,
including managed care contracting and buying group services.
OptiCare is a privately held company based in Waterbury, Connecticut, with
1998 revenues of approximately $35 million. OptiCare provides general eyecare,
optical services, outpatient ophthalmic surgery, consultative services for
complicated eye diseases and a managed care network throughout Connecticut.
OptiCare was founded in 1980 and has developed proprietary operating systems for
both managed care contracting and practice management.
Saratoga Resources, Inc. is a Delaware corporation listed on the NASDAQ
OTC Bulletin Board. As part of the transaction outlined above Saratoga will seek
a new listing on the American Stock Exchange. The company operated as an energy
acquisition and development company until the liquidation of its producing
properties in various industries in order to maximize shareholder value. The
company relocated its offices to 301 Congress Avenue, Suite 1550, Austin, Taxes
in 1997.
Forward-looking statements (statements which are not historical facts) in
this release are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Saratoga Resources Inc.'s actual
results could differ materially from those expressed or indicated by
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, regulatory changes, risks relating
to the eyecare industry and other factors. Investors are cautioned that all
forward-looking statements involve risks and uncertainties, including those
risks and uncertainties detailed in the company's filings with the Securities
and Exchange Commission.
-2-
