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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 June 30, 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
July 22, 1999: 3,465,292 shares
Transitional Small Business Disclosure Format (check one):
Yes X No
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Saratoga Resources, Inc. and Subsidiaries
Six Months Ended June 30, 1999
Table of Contents
Part 1. Financial Information (unaudited)
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998.........3
Consolidated Statements of Operations
for the three and six months ended June 30, 1999 and 1998..................4
Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and 1998............................5
Notes to Consolidated Financial Statements....................................6
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Saratoga Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1999 1998
---------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 96 $ 290
Marketable securities 6 11
Investment in past due accounts receivable 9 10
---------------------------------
Total current assets 111 311
Equipment, net of accumulated depreciation 31 36
---------------------------------
Total assets $ 142 $ 347
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ - $ 10
Current maturities of debt 5 5
---------------------------------
Total current liabilities 5 15
Long-term debt, net of current portion 13 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 June 30, 1999 and
December 31, 1998 3 3
Additional paid-in capital 2,490 2,490
Accumulated deficit (2,335) (2,148)
Treasury stock, at cost (2) (2)
Other comprehensive loss (32) (27)
---------------------------------
Total stockholders' equity 124 316
---------------------------------
Total liabilities and stockholders' equity $ 142 $ 347
=================================
</TABLE>
See accompanying notes.
3
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Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
1999 1998 1999 1998
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(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of marketable securities $ - $ - $ - $ 21
Interest income - 5 1 12
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- 5 1 33
Costs and expenses:
Depreciation 3 2 5 4
General and administrative 92 96 183 191
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95 98 188 195
Loss before income taxes (95) (93) (187) (162)
Income tax benefit - - - -
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Net loss $ (95) $ (93) $ (187) $ (162)
=========================== ===========================
Basic and diluted loss per share $ (.03) $ (.03) $ (.05) $ (.05)
Weighted-average number of common
shares outstanding 3,466 3,466 3,466 3,466
=========================== ===========================
Total comprehensive loss $ (102) $ (93) $ (192) $ (162)
=========================== ===========================
</TABLE>
See accompanying notes.
4
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Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
June 30
1999 1998
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(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (187) $ (162)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation 5 4
Changes in operating assets and liabilities:
Investment in past due accounts receivable 1 -
Accounts payable and accrued liabilities (10) (13)
----------------------------
Net cash used in operating activities (191) (171)
----------------------------
INVESTING ACTIVITIES
Purchase of equipment - (17)
----------------------------
Net cash used in investing activities - (17)
----------------------------
FINANCING ACTIVITIES
Payments on borrowings (3) (1)
----------------------------
Net cash used in financing activities (3) (1)
----------------------------
Net decrease in cash and cash equivalents (194) (189)
Cash and cash equivalents at beginning of period 290 666
----------------------------
Cash and cash equivalents at end of period $ 96 $ 477
============================
See accompanying notes.
</TABLE>
See accompanying notes.
5
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Saratoga Resources, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Six Months Ended June 30, 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 six month period ended June 30,
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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net loss $ (95) $ (93) $(187) $(162)
Unrealized loss on marketable securities (7) - (5) -
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Total comprehensive loss $ (102) $ (93) $(192) $(162)
============================== ==============================
</TABLE>
6
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Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
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 six months ended June 30, 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. (OptiCare), a provider of consulting,
administrative and other support services to optometry and ophthalmology eyecare
centers located in Connecticut, and with PrimeVision Health, Inc. (Prime), a
vertically integrated vision services company, whereby each of those companies
would be merged with two wholly-owned, newly organized subsidiaries of the
Company in an all-stock transaction by the Company issuing 97.5% of the
Company's common stock to the stockholders of OptiCare and Prime.
The Prime merger will be accounted for as a reverse acquisition by Prime of
Saratoga, a subsidiary of the Company, at book value with no adjustments
reflected to historical values. The Company's merger with OptiCare will be
accounted for by the purchase method of accounting with the excess of purchase
price over the estimated fair value of the assets acquired being recorded as
goodwill.
To satisfy certain conditions of the Prime/OptiCare merger, the Company proposes
to contribute substantially all of its assets (other than approximately 92% of
the capital stock of Saratoga Holdings I, Inc., a Texas corporation ("SHI"), and
approximately $150,000 in cash) to Saratoga Resources, a Texas corporation
("Saratoga-Texas"), which is a wholly-owned subsidiary of the Company. The
Company will then distribute to the stockholders of the Company, prior to the
effective time of the Prime/OptiCare merger, the following:
(i) all the capital stock of Saratoga-Texas, and
(ii) the capital stock of SHI not held by Saratoga-Texas.
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Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
4. PENDING TRANSACTIONS (CONTINUED)
Saratoga-Texas will continue its operations in the energy industry, utilizing
its database for oil and gas prosper evaluation and development. Saratoga-Texas
will have its own separate management, control and incentive structure.
The Company has filed a registration statement on Form S-4 with the Securities
and Exchange Commission to register up to 8,800,000 shares of its common stock
to be issued to the former securities holders of Prime and OptiCare in the
Prime/OptiCare merger. The registration statement was declared effective by the
Commission as of July 30, 1999.
The Company has called a special meeting of stockholders for August 10, 1999, to
vote upon the proposals necessary to authorize the Company to carry out the
Prime/OptiCare merger. The spin-off of Saratoga-Texas will not be effected
unless the Prime/OptiCare merger is effected.
The Company has filed a registration statement on Form SB-2 with the Securities
and Exchange Commission (SEC) under the Securities Act of 1933 to register the
proposed spin-off of approximately 92% of the common stock of its wholly owned
subsidiary, SHI, to the stockholders of the Company on a one-for-one basis. The
remaining balance will be contributed to Saratoga-Texas.
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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
approximately 92% of the capital stock of SHI to its stockholders and contribute
the balance of SHI's capital stock to Saratoga Resources, Inc., a Texas
corporation ("Saratoga-Texas"), which is also a wholly owned subsidiary of the
Registrant. The SHI Registration Statement was declared effective on May 17,
1999.
As previously reported, 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. The
Registrant filed a registration statement on form S-4, no. 333-78501, which was
declared effective on July 30, 1999, with respect to (i) solicitation of proxies
for approval by the Registrant's stockholders of a 1-for-0.06493 reverse stock
split and certain other matters necessary for closing the eye care mergers, and
(ii) registration of 8,800,000 shares of common stock to be issued (after the
reverse split) in the eye care mergers. The special meeting of stockholders to
vote upon the reverse split and other matters related to the mergers has been
called for August 10, 1999. 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.
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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. Revenues for the second quarter of 1999 were nil compared to
$5,000 for the second quarter of 1998. The decline is the result of lower
interest income because of a lower amount of assets available for investment.
Revenues for the six-month period ended June 30, 1999 were approximately $1,000
as compared to $33,000 for the same period in 1998. The decline is the result of
a $21,000 non-recurring gain on the sale of marketable securities that was
realized in 1998, and $11,000 less in interest income because of a lower amount
of assets available for investment. 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 revenue from consumer debt finance recorded in
the first or second quarters of 1999. The Registrant did not start its consumer
debt finance business until December 1998 and, according has no such revenue in
the first or second quarters of 1998.
Costs and Expenses. Costs and expenses for the second quarter of 1999
totaled $95,000 compared to $98,000 for the second quarter of 1998. Costs and
expenses for the six months ended June 30, 1999 were $188,000 as compared to
$195,000 for the same period in 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 $95,000
for the second quarter of 1999 as compared to a consolidated net loss of $93,000
for the second quarter of 1998. Consolidated net loss for the six-month period
ended June 30, 1999 was $187,000 as compared to a net loss of $162,000 for the
same period in 1998. The increase in net loss is attributable to the absence in
1999 of gains from non-recurring sale of marketable securities that were made in
the first quarter of 1998 and, a reduction in interest income due to decreased
assets available for investment.
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
$96,000 as of June 30, 1999. The Registrant believes that its current cash
balance will be sufficient to conduct its business for the next 12 months,
particularly in light of the anticipated mergers with the two eyecare companies.
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
10
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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 Registrant filed a registration statement on form S-4, no. 333-78501,
which was declared effective on July 30, 1999, with respect to (i) the
solicitation of proxies for approval by the Registrant's stockholders of a
1-for-0.06493 reverse stock split and certain other matters necessary for the
closing of the PrimeVision/OptiCare mergers, and (ii) registration of 8,800,000
shares of common stock to be issued (after the reverse split) in the mergers to
the former securities holders of PrimeVision and OptiCare. The special meeting
of stockholders to vote upon the reverse split and other matters related to the
mergers has been called for August 10, 1999. If and when the
PrimeVision/OptiCare mergers close, the name of the Registrant will be changed
to "OptiCare Health Systems, Inc."
Saratoga Holdings I, Inc. ("SHI"), a Texas corporation which is a wholly
owned subsidiary of the Registrant, filed a registration statement on form SB-2,
which was declared effective on May 17, 1999, with respect to the distribution
of 3,465,292 shares of its common stock (which consitutes approximately 92% of
the SHI capital stock) to the holders of the common stock of the Registrant. The
Registrant expects to distribute the SHI common stock to the stockholders of
record of the Registrant as of the close of business on August 9, 1999, and to
make the actual distribution if and when the closing of the PrimeVision/OptiCare
mergers occur.
The Registrant also expects to contribute all its other assets (other than
$150,000 in cash) to Saratoga Resources, Inc., a Texas corporation
("Saratoga-Texas"), which is a wholly owned subsidiary of the Registrant. The
Registrant then expects to distribute the Saratoga-Texas capital stock to the
stockholders of record of the Registrant as of the close of business on August
9, 1999, and to make the actual distribution if and when the closing of the
PrimeVision/OptiCare mergers occur.
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.
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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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27 Financial Data Schedule (for EDGAR filing only).
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.
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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: August 6, 1999 By: /s/ Thomas F. Cooke
-----------------------------------
Thomas F. Cooke, Chief Executive
Officer and Principal Financial
Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 96
<SECURITIES> 6
<RECEIVABLES> 32
<ALLOWANCES> (23)
<INVENTORY> 0
<CURRENT-ASSETS> 111
<PP&E> 57
<DEPRECIATION> (26)
<TOTAL-ASSETS> 142
<CURRENT-LIABILITIES> 5
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 121
<TOTAL-LIABILITY-AND-EQUITY> 142
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 95
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (95)
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<NET-INCOME> (95)
<EPS-BASIC> (0.03)
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</TABLE>
