UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2011
Commission File Number: 0-4186
THE SAGEMARK COMPANIES LTD.
(Exact name of registrant as specified in its charter)
13-1948169 (I.R.S. Employer Identification No.) |
| New York |
| (State or other jurisdiction of incorporation or organization) |
1221 Avenue of the Americas, Suite 4200 New York, New York 10020 |
| (Address of principal executive offices) |
212.921.5733
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o
Indicate by checkmark whether the registrant has submitted electronically and posted on its Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at November 10, 2011 | |
| Common Stock, $0.01 par value per share | 8,008,261 shares |
THE SAGEMARK COMPANIES LTD.
TABLE OF CONTENTS
QUARTERLY REPORT FOR PERIOD ENDED SEPTEMBER 30, 2011
| PART I | FINANCIAL ‐ INFORMATION | 3 | ||||
| ITEM 1 | CONSOLIDATED FINANCIAL STATEMENTS | 3 | ||||
| CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010 (AUDITED) | 4 | |||||
| CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED) | 5 | |||||
| CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED) | 6 | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED) | 7 | |||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | 8 | |||||
| ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14 | ||||
| ITEM 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 16 | ||||
| ITEM 4‐ T | CONTROLS AND PROCEDURES | 16 | ||||
| PART II | OTHER ‐ INFORMATION | 18 | ||||
| ITEM 1 | LEGAL PROCEEDINGS | 18 | ||||
| ITEM 1A | RISK FACTORS | 18 | ||||
| ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 18 | ||||
| ITEM 3 | DEFAULTS UPON SENIOR SECURITIES | 19 | ||||
| ITEM 4 | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 19 | ||||
| ITEM 5 | OTHER INFORMATION | 19 | ||||
| ITEM 6 | EXHIBITS | 19 | ||||
| SIGNATURES | 20 | |||||
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Financial Statements
As of September 30, 2011
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The Sagemark Companies Ltd.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2011 | December 31, 2010 (A) | |||||||
| ASSETS | (unaudited) | |||||||
| Current Assets: | ||||||||
| Cash | $ | - | $ | 8,000 | ||||
| TOTAL ASSETS | $ | - | $ | 8,000 | ||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIENCY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 667,000 | $ | 555,000 | ||||
| Accrued consulting fee – related party | 460,000 | 325,000 | ||||||
| Shareholders loans | 158,000 | 108,000 | ||||||
| Notes payable and interest – related parties | 394,000 | 356,000 | ||||||
| Liabilities of discontinued operations | 2,451,000 | 2,279,000 | ||||||
| Total Current Liabilities | 4,130,000 | 3,623,000 | ||||||
| Commitments and Contingencies | - | - | ||||||
| Shareholders’ Deficiency: | ||||||||
| Preferred stock, par value $1.00 per share (2,962 issued and outstanding) | 3,000 | 3,000 | ||||||
| Common stock, par value $0.01 per share (25,000,000 authorized; 8,008,261 shares issued and outstanding) | 80,000 | 80,000 | ||||||
| Additional paid in capital | 71,339,000 | 71,339,000 | ||||||
| Accumulated deficit | (75,692,000 | ) | (75,177,000 | ) | ||||
| Total Company Shareholder’s Deficiency | (4,270,000 | ) | (3,755,000 | ) | ||||
| Noncontrolling Interests | 140,000 | 140,000 | ||||||
| Total Shareholders’ Deficiency | (4,130,000 | ) | (3,615,000 | ) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIENCY | $ | - | $ | 8,000 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
(A) Derived from audited financial statements for the year ended December 31, 2010 (see Form 10-K Annual Report filed on April 5, 2011 with the Securities and Exchange Commission).
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The Sagemark Companies Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| THREE MONTHS ENDED SEPTEMBER 30, | 2011 | 2010 | ||||||
| Operating Expenses | ||||||||
| General and administrative expenses | $ | 78,000 | $ | 157,000 | ||||
| Legal fees – related party | 3,000 | 15,000 | ||||||
| Total Operating Expenses | 81,000 | 172,000 | ||||||
| Loss from Operations | (81,000 | ) | (172,000 | ) | ||||
| Interest expense | (9,000 | ) | (9,000 | ) | ||||
| Loss from continuing operations | (90,000 | ) | (181,000 | ) | ||||
| Loss from discontinued operations | (59,000 | ) | (65,000 | ) | ||||
| Net Loss | $ | (149,000 | ) | $ | (246,000 | ) | ||
| Basic Loss Per Common Share | ||||||||
| Loss from continuing operations | $ | (0.01 | ) | $ | (0.02 | ) | ||
| Loss from discontinued operations | (0.01 | ) | (0.01 | ) | ||||
| Basic Loss Per Common Share | $ | (0.02 | ) | $ | (0.03 | ) | ||
| Diluted Loss Per Common Share | ||||||||
| Loss from continuing operations | $ | (0.01 | ) | $ | (0.02 | ) | ||
| Loss from discontinued operations | (0.01 | ) | (0.01 | ) | ||||
| Diluted Loss Per Common Share | $ | (0.02 | ) | $ | (0.03 | ) | ||
| Weighted Average Number of Common Shares | ||||||||
| Basic | 8,008,261 | 8,008,261 | ||||||
| Diluted (continuing operations) | 8,008,261 | 8,008,261 | ||||||
| Diluted (discontinued operations) | 8,008,261 | 8,008,261 | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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The Sagemark Companies Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| NINE MONTHS ENDED SEPTEMBER 30, | 2011 | 2010 | ||||||
| Operating Expenses | ||||||||
| General and administrative expenses | $ | 306,000 | $ | 397,000 | ||||
| Legal fees – related party | 9,000 | 63,000 | ||||||
| Total Operating Expenses | 315,000 | 460,000 | ||||||
| Loss from Operations | (315,000 | ) | (460,000 | ) | ||||
| Interest expense | (28,000 | ) | (26,000 | ) | ||||
| Loss from continuing operations | (343,000 | ) | (486,000 | ) | ||||
| Income (Loss) from discontinued operations | (172,000 | ) | 836,000 | |||||
| Net Income (Loss) | $ | (515,000 | ) | $ | 350,000 | |||
| Basic Income (Loss) Per Common Share | ||||||||
| Loss from continuing operations | $ | (0.04 | ) | $ | (0.06 | ) | ||
| Income (Loss) from discontinued operations | (0.02 | ) | 0.10 | |||||
| Basic Income (Loss) Per Common Share | $ | (0.06 | ) | $ | 0.04 | |||
| Diluted Income (Loss) Per Common Share | ||||||||
| Loss from continuing operations | $ | (0.04 | ) | $ | (0.06 | ) | ||
| Income (Loss) from discontinued operations | (0.02 | ) | 0.10 | |||||
| Diluted Income (Loss) Per Common Share | $ | (0.06 | ) | $ | 0.04 | |||
| Weighted Average Number of Common Shares | ||||||||
| Basic | 8,008,261 | 8,008,261 | ||||||
| Diluted (continuing operations) | 8,008,261 | 8,008,261 | ||||||
| Diluted (discontinued operations) | 8,008,261 | 8,752,294 | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
The Sagemark Companies Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30 | 2011 | 2010 | ||||||
| Cash Flows - Operating Activities | ||||||||
| Loss from continuing operations attributable to the Company | $ | (343,000 | ) | $ | (486,000 | ) | ||
| Changes in assets and liabilities: Accounts payable | 112,000 | 219,000 | ||||||
| Accrued consulting fee – related party | 135,000 | 135,000 | ||||||
| Accrued Interest – note payable | 25,000 | 26,000 | ||||||
| Net Cash - Operating Activities | (71,000 | ) | (106,000 | ) | ||||
| Cash Flows - Financing Activities | ||||||||
| Proceeds from note payable – related party | 13,000 | 16,000 | ||||||
| Proceeds from shareholder loans | 50,000 | 90,000 | ||||||
| Net Cash - Financing Activities | 63,000 | 106,000 | ||||||
| Discontinued Operations | ||||||||
| Net cash provided by (used in) operating activities | - | (1,000 | ) | |||||
| Net cash – Discontinued operations | - | (1,000 | ) | |||||
| Net Increase (Decrease) in Cash | (8,000 | ) | - | |||||
| Cash - Beginning of Period | 8,000 | 3,000 | ||||||
| Cash - End of Period | $ | - | $ | 3,000 | ||||
Supplemental Disclosure of Cash Flow Information:
| Cash used during period for: | $ | - | $ | - | ||||
| Interest | ||||||||
| Income Taxes | $ | - | $ | - |
In March 2010 the Company’s obligation under a $1 million limited guaranty was terminated.
The accompanying notes are an integral part of the condensed consolidated financial statements.
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The Sagemark Companies Ltd.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation SX. They do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the interim financial information not misleading have been included and all such adjustments are of a normal recurring nature. The operating results for the three and nine month periods ended September 30, 2011 are not necessarily indicative of the results that can be expected for any future period or for the year ending December 31, 2011.
The balance sheet as of December 31, 2010 has been derived from the audited financial statements at such date, but does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements.
The accounting policies followed by The Sagemark Companies Ltd. (the “Company”) are set forth in Note 2 to the Company’s consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2010.
For further information, please refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the United States Security and Exchange Commission (the “SEC”) on April 5, 2011.
Reclassifications
The Company has made certain financial statement reclassifications within the 2010 consolidated financials statements to conform with the September 30, 2011 consolidated financial statement presentation.
Note 2 – Going Concern
The accompanying consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern.
As of September 30, 2011, we have no operations that generate revenue nor have we had any operations that have generated revenue since June 2008. We have approximately $4.1 million of liabilities, and do not have sufficient assets to satisfy any of such liabilities or sufficient working capital to satisfy our obligations to any of our creditors. These factors raise substantial doubt about our ability to continue as a going concern.
The consolidated interim financial statements do not include any adjustments relating to the amounts and classification of assets and liabilities that might be necessary in the event we cannot continue as a going concern.
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Discontinued Operations
Prior to discontinuation of such operations by the second quarter 2008, we owned, operated and/or managed eight out-patient medical diagnostic imaging centers that provided positron emission tomography (“PET”) and/or PET and computed tomography (“CT”) services.
Potential Bankruptcy
We intend to continue to conduct limited administrative activities in connection with our efforts to resolve outstanding creditor claims and other contractual obligations as long as we are able to. However, there can be no assurance that we will be successful in our efforts and, if we are unable to resolve outstanding creditor claims, we may seek protection under available bankruptcy laws.
Note 3 – Significant Accounting Policies
The preparation of the consolidated interim financial statements in conformity with accounting principles generally accepted in the United States requires us to make assumptions, estimates and judgments that affect the amounts reported in these consolidated interim financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We rely on historical experience and on other assumptions believed to be reasonable under the circumstances in making required judgments and estimates. Actual results could differ materially from those estimates. The significant accounting policies which we believe are most critical to aid in fully understanding or evaluating our reported financial results are set forth in Note 2 included in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on April 5, 2011.
Note 4 – Basic and Diluted Income (Loss) Per Share
Basic income (loss) per share reflects the amount of income (loss) for the period available to each share of common stock outstanding during the reporting period. Diluted income (loss) per share reflects the basic income (loss) per share, while giving effect to all dilutive potential common shares that were outstanding during the period, such as common shares that could result from the potential exercise or conversion of securities (options or warrants) into common stock.
The computation of diluted income (loss) per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on income (loss) per share (i.e. reducing income (loss) per share). The dilutive effect of outstanding options and warrants and their equivalents are reflected in dilutive earnings per share by the application of the treasury stock method which recognizes the use of proceeds that could be obtained upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price of the common stock during the period.
As of September 30, 2011, we have reserved 1,842,500 shares of common stock for issuance pursuant to our outstanding options and warrants which are comprised of: (i) options issued pursuant to our 1999 long-term incentive plan to purchase up to an aggregate of up to 205,000 shares of our common stock at an exercise price of $0.02 per share; (ii) a warrant to purchase up to 12,500 shares of our common stock at an exercise price of $0.02 per share; (iii) a warrant to purchase up to 25,000 shares of our common stock at an exercise price of $0.83 per share; and (iv) warrants to purchase up to 1,600,000 shares of common stock at an exercise price of $0.01 per share. For the three and nine month periods ended September 30, 2011, 1,842,500 shares of common stock reserved for issuance pursuant to the outstanding options and warrants were deemed anti-dilutive. For the three and nine month periods ended September 30, 2010, 25,000 and 242,500, respectively of the outstanding warrants and options were deemed anti-dilutive and may dilute earnings per share in the future.
9
Note 5 – Stock-Based Compensation
We recognize the expense of options or similar instruments issued to employees using the fair-value-based method of accounting for stock-based payments in compliance with ASC 718 Compensation – Stock Compensation.
There was no stock-based compensation costs recorded in the three or nine month periods ended September 30, 2011 or 2010. As of September 30, 2011 there was no unrecognized compensation cost related to non-vested stock-based compensation arrangements granted to employees.
We did not grant any stock options or warrants to any officers, directors or employees during the three and nine month periods ended September 30, 2011 and 2010.
Note 6 – Concentration of Credit Risk
As of September 30, 2011, all of our cash is held in U.S. financial institutions. We had no cash balances in excess of federally insured limits.
Note 7 – Commitments and Contingencies
Premise Lease Obligations
We previously leased office space for our corporate offices and our PET imaging center operations. In concert with the termination of our PET imaging operations, in 2008 we negotiated the premature termination of all of such leases, with the exception of the premise lease for our former operations in Forest Hills, New York and Jacksonville, Florida, both of which were assigned in 2008 to third parties that operated medical imaging centers at such facilities and who paid the landlord directly. As of September 30, 2011, and through the date of this report, we have not been notified of any default under such leases.
Legal Proceedings
In the normal course of business, we may become subject to lawsuits and other claims and proceedings. Such matters are subject to uncertainty and outcomes are not predictable with assurance. Management is not aware of any pending or threatened lawsuits or proceedings which would have a material effect on our financial position, liquidity, or results of operations other than as follows.
On September 26, 2008, we commenced an action against Azad K. Anand, MD and a number of entities owned and/or controlled by him (collectively, the “Anand Defendants”) in the Supreme Court, State of New York, County of New York (the “Action”). The Action seeks damages against the Anand Defendants for various breaches and defaults of a number of different agreements between the parties relating to the operations of our PET imaging center in East Setauket, New York, as well as certain allegedly improper actions and omissions of the Anand Defendants in connection therewith. A counter-claim was filed against us in the Action, but we believe it to be without merit and have contested such claim. The action is on-going and there can be no assurance as to its outcome.
Limited Guaranty
We formerly owned an 80% equity interest in P.E.T. Management of Queens LLC (the “Queens LLC”), through our wholly owned subsidiary, Premier P.E.T. Imaging International, Inc. (“Premier”), which managed a PET imaging center in Forest Hills, New York (the “Queens Center”). In February 2008, Premier sold its equity interest in the Queens LLC to an entity owned by a former employee of the Company (the “Queens Purchaser”). In connection with that sale, the Queens LLC assumed the Company’s obligations under the capital lease financing documents (the “Financing Documents”), between the Company and General Electric Capital Corp. (“GECC”) pursuant to which GECC financed the PET/CT imaging equipment, ancillary medical equipment and leasehold improvements at the Queens Center.
10
As a condition of such sale, GECC required the Company to execute a limited guaranty to GECC (the “Limited Guaranty”) pursuant to which the Company guaranteed $1,000,000 of the then approximately $1,700,000 indebtedness under the Financing Documents for a period of 24 months. In connection therewith and also as a condition of such sale, the Queens Purchaser agreed to indemnify the Company against any losses it incurred under the Limited Guaranty (the “Purchaser Indemnity”) and assumed our obligations under the premise lease for the Queens Center.
In April 2009 we were advised by counsel for GECC that the Queens Purchaser had failed to make certain payments, when due, under the Financing Documents and that unless such default was cured, GECC would exercise its rights to accelerate the balance due under the Financing Documents of approximately $1,600,000 and seek to recover from us the $1,000,000 maximum amount due under the Limited Guaranty. We promptly notified GECC that we were unable to honor such Limited Guaranty and GECC did not pursue us in connection therewith. However, as a result of the default, we recorded the Limited Guaranty obligation on our consolidated balance sheet under liabilities of discontinued operations as of the first quarter of 2009.
The default was not cured and in June 2009 GECC brought a legal action against Queens LLC in an attempt to recover the amount due to it under the Financing Documents. We were not named as a party to such action.
In March 2010, GECC repossessed the PET/CT imaging equipment from Queens LLC and entered into a stipulation of settlement with it in full and final satisfaction of all obligations under the Financing Documents. As a result thereof, there is no further liability of the Company under the Limited Guaranty. Accordingly, the obligation is no longer included as a liability of discontinued operations as of March 31, 2010. We recorded a gain of $1,000,000 for the year ended December 31, 2010 pursuant to the termination of the Company’s obligation under the Limited Guaranty as part of income (loss) from discontinued operations.
The Queens Center ceased operations in March 2010 and the Queens LLC abandoned the premises in Forest Hills, New York as of March 31, 2010. As of the date of this Report, we have not been notified of any default under the premise lease which, subsequent to the sale of the Queens LLC in February 2008, had been paid by the Queens Purchaser directly to the landlord.
Note 8 – Transactions with Related Parties
Our Chief Executive Officer
We incur fees for services rendered by Taggart Resource Group, Ltd. (“Taggart”), a consulting firm owned by Cathy Bergman, our Chief Executive Officer, in connection with a consulting agreement entered into with Taggart. Pursuant to such agreement, we agreed to pay Taggart a fee of $15,000 per month beginning as of December 2008. To the extent that funds are available, $5,000 of such fee is to be paid each month, and $10,000 accrued until such time, if ever, we have such available funds. We have been unable to pay Taggart the $5,000 minimum due each month and as of September 30, 2011 we owe Taggart approximately $460,000 pursuant to such agreement.
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In addition to rendering services to us for which we do not have the funds to compensate Taggart, the Company borrowed approximately $5,000 from Ms. Bergman during the first quarter of 2011, $4,000 in the second quarter of 2011 and $4,000 in the third quarter of 2011 to pay certain on-going operational expenses. We currently owe Ms. Bergman approximately $38,000 for funds loaned to the Company as of September 30, 2011. This balance is included in our Consolidated Balance Sheet under Notes payable and interest – related parties.
Our Secretary
We incur legal fees for services provided to us by Robert L. Blessey, Esq. Mr. Blessey is our General Counsel, our Secretary and served on our Board of Directors from May 2001 through July 2007.
In the three and nine months ended September 30, 2011, we incurred legal fees due to Mr. Blessey of approximately $2,000 and $7,000, respectively. As of September 30, 2011 we owe Mr. Blessey legal fees of approximately $529,000, which includes legal fees of approximately $172,000 and a $272,000 promissory note we issued to him in July 2007 for legal fees on which we defaulted, as well as interest on such note of approximately $85,000, which began accruing at a rate of 10% per annum as of January 1, 2009.
Shareholders Loans
We did not generate or receive any revenue in the three or nine months ended September 30, 2011, and we have not generated any revenue since June 2008. To meet our limited operating expenses, we borrowed an aggregate of $50,000 from our shareholders during the nine months ended September 30, 2011, which amounts are secured by promissory notes with one year terms, and which do not bear interest. As of September 30, 2011, we have borrowed $158,000 from our shareholders.
Note 9 – Disclosure of Discontinued Operations
In 2008 we discontinued all of our PET and PET/CT imaging operations. The following tables provide information regarding such former operations as of September 30, 2011 and December 31, 2010 and the related summary of discontinued operations for the three and nine months ended September 30, 2011 and 2010.
September 30, 2011 | December 31, 2010 | |||||||
| Liabilities: | ||||||||
| Accounts payable | $ | 272,000 | $ | 266,000 | ||||
| Judgments and liens | 2,179,000 | 2,013,000 | ||||||
| Liabilities to be disposed | 2,451,000 | 2,279,000 | ||||||
| Net liabilities to be disposed | $ | (2,451,000 | ) | $ | (2,279,000 | ) | ||
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| For the Three Months Ended | September 30, 2011 | September 30, 2010 | ||||||
| Operating Expenses | ||||||||
| General and administrative expenses | $ | - | $ | 15,000 | ||||
| Total operating expenses | - | 15,000 | ||||||
| Loss from operations | ||||||||
| Interest expense | (59,000 | ) | (50,000 | ) | ||||
| Net Loss | $ | (59,000 | ) | $ | (65,000 | ) | ||
| For the Nine Months Ended | September 30, 2011 | September 30, 2010 | ||||||
| Operating Expenses | ||||||||
| General and administrative expenses | $ | 1,000 | $ | 15,000 | ||||
| Total operating expenses | 1,000 | 15,000 | ||||||
| Loss from operations | (1,000 | ) | (15,000 | ) | ||||
| Interest expense | (171,000 | ) | (149,000 | ) | ||||
| Settlement of Limited Guarantee (Note 7) | - | 1,000,000 | ||||||
| Net Income (Loss) | $ | (172,000 | ) | $ | 836,000 | |||
Note 10 - Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) has codified a single source of authoritative nongovernmental U.S. GAAP, the “Accounting Standards Codification” (the “Codification” or “ASC”). While the Codification does not change U.S. GAAP, it introduces a new structure that is organized in an easily accessible, user-friendly on-line research system. The Codification supersedes all existing accounting standards documents. All other accounting literature not included in the Codification will be considered non-authoritative.
In May 2011, the FASB issued ASU No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements and Disclosures, to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. ASU No. 2011-04 is effective for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years. The Company is currently evaluating the impact of adoption of this accounting guidance on its financial statements.
In June 2011, the FASB issued ASU No. 2011-05 “Presentation of Comprehensive Income.” The updated guidance requires companies to disclose the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance does not affect how earnings per share is calculated or presented. The updated guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The new accounting guidance should not have a material impact on the Company’s consolidated financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
Description of the Company
As of September 30, 2011, we do not have any business operations other than limited administrative operations related to shareholder and creditor matters.
Discontinued Operations
In 2008 we sold or discontinued the operations of all of our out-patient medical diagnostic centers that provided positron emission tomography (“PET”) and PET and computed tomography (“CT”) imaging services. Such operations consisted of eight centers located in New York, New Jersey, Florida and Kansas.
Employees
As of the date of this Report we have no employees. We have one member of the Board of Directors, who also serves as the Company’s Chief Executive Officer and interim Chief Financial Officer, and a corporate Secretary, neither of whom receive a salary for their service in such capacities.
Financial Condition – Liquidity and Capital Resources
We have not generated any revenue since June 2008. At September 30, 2011 our liabilities exceeded our assets by approximately $4.1 million, and our cash balance is less than $1,000, which is not sufficient to fund our operating expenses for the foreseeable future.
Since January 2010, we have funded our operating expenses from loans provided by our Chief Executive Officer and our shareholders. We are dependent upon these loans to fund our future operating expenses.
None of our officers, directors or shareholders are under any obligation to provide us with any future loans or advances. However, if they do not loan us funds at a time when funds are necessary, we may be forced to suspend our operations.
These factors, among others, raise substantial doubt about our ability to continue as a going concern.
Results of Operations
The following discusses and compares the results of our operations for the three and nine month periods ended September 30, 2011 as compared to the three and nine month periods ended September 30, 2010.
Revenues
We did not generate or receive any revenue from continuing or discontinued operations in the three or nine months ended September 30, 2011, nor did we generate or receive any revenue in the comparable periods in 2010.
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Operating Expenses
Operating expenses in the three month period ended September 30, 2011 were $81,000, all of which related to continuing operations. Such expenses in the nine month period ended September 30, 2011 were $316,000 of which $315,000 related to continuing operations and $1,000 of which related to discontinued operations.
Comparatively, in the three month period ended September 30, 2010, total operating expenses were $187,000, of which $172,000 related to continuing operations and $15,000 of which related to discontinued operations. Such expenses in the nine month period ended September 30, 2010 were $475,000, of which $460,000 related to continuing operations and $15,000 of which related to discontinued operations.
Interest Expense
Interest expense in the three months ended September 30, 2011 was approximately $68,000. Of such amount, $9,000 was attributable to continuing operations and $59,000 was attributable to discontinued operations. Interest expense in the nine months ended September 30, 2011 was approximately $199,000. Of such amount, $28,000 was attributable to continuing operations and $171,000 was attributable to discontinued operations.
Comparatively, interest expense in the three month period ended September 30, 2010 was approximately $59,000. Of such amount, $9,000 was attributable to continuing operations and $50,000 was attributable to discontinued operations. Interest expense in the nine months ended September 30, 2010 was approximately $175,000. Of such amount, $26,000 was attributable to continuing operations and $149,000 was attributable to discontinued operations.
Interest related to continuing operations is interest that accrues at a rate of 10% per annum on a promissory note in the principal amount of $272,000 due to a related party on which we have defaulted and with whom we entered into a forbearance agreement on May 22, 2009, as well as interest that accrues on various tax related obligations and judgments. Interest of discontinued operations is that which accrues on a default judgment that was granted in July 2008 relating to a premise lease for space in a building that we never occupied, as well as a judgment for legal fees related thereto.
Net Income (Loss)
We incurred a net loss $149,000 and $515,000, respectively, in the three and nine months ended September 30, 2011 and a net loss of $246,000 in the comparable three month period in 2010 and net income of $350,000 in the comparable nine month period in 2010. The Company’s net income of $350,000 in the comparable nine month period in 2010 resulted from the recording of a $1,000,000 settlement gain under the termination of a $1,000,000 limited guaranty obligation of discontinued operations.
The Company did not record any allocation of net earnings to the noncontrolling interests for the three and nine months ended September 30, 2011 and 2010.
Outlook
As of September 30, 2011 we do not have any operations other than limited administrative operations related to shareholder and creditor matters. We have no operations that generate revenue.
Until such time, if ever, that we resolve our remaining obligations to our secured and unsecured creditors, substantially all of our efforts will be spent addressing such matters. If we are able to continue operating after we resolve our obligations with our creditors, we anticipate that we would seek a new business venture. Our plans could change significantly in the near term as new events transpire. There can be no assurances that we will be able to resolve our significant creditor issues or that we will be able to continue our operations.
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Special Note Regarding Forward Looking Statements
Certain matters discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other sections of this Quarterly Report, contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed or anticipated in these forward-looking statements for many reasons, including risks faced by us which are described in this Report and the other documents we file with the Securities and Exchange Commission (“SEC”). This section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appear elsewhere in this Report. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4T. Controls and Procedures
Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including the individual who is both our Chief Executive Officer and interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
At the end of the period covered by this quarterly Report, we carried out, under the supervision and with the participation of our management, including the individual who is both our Chief Executive Officer and interim Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures to insure that information required to be disclosed by us in this Report was recorded, processed, summarized and reported within the required time periods. In carrying out that evaluation, management identified a material weakness (as defined in Public Company Accounting Oversight Board Standard No. 2) in our internal control over financial reporting regarding a lack of adequate segregation of duties. Accordingly, based on the evaluation of our disclosure controls and procedures as of September 30, 2011, we have concluded that, as of that date, our controls and procedures were not effective for the purposes described above.
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarterly period ended September 30, 2011 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
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Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. We have assessed the effectiveness of those internal controls as of September 30, 2011, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework as a basis for our assessment.
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that are intended to:
1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect all misstatements, no matter how well designed. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified a material weakness in our internal control over financial reporting. This material weakness consisted of inadequate staffing and supervision within the bookkeeping and accounting operations of our company. The relatively small number of individuals who have bookkeeping and accounting functions prevents us from segregating duties within our internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.
As we are not aware of any instance in which we failed to identify or resolve a disclosure matter or failed to perform a timely and effective review, we determined that the addition of personnel to our bookkeeping and accounting operations is not an efficient use of our very limited resources at this time and not in the interest of our shareholders. If at some time in the future the Company has the financial resources to do so, it will remedy this material weakness.
This Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Report.
The foregoing Report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.
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Changes in Internal Control Over Financial Reporting
There were no changes in internal controls over financial reporting that occurred during the three month period ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, we may become subject to lawsuits and other claims and proceedings. Such matters are subject to uncertainty and outcomes are not predictable with assurance. Management is not aware of any pending or threatened lawsuits or proceedings which would have a material effect on our financial position, liquidity, or results of operations other than as follows:
On September 26, 2008, we commenced an action (the “Action”) against Azad K. Anand, MD and a number of entities owned and/or controlled by him (collectively, the “Anand Defendants”). The Action seeks damages against the Anand Defendants for various breaches and defaults of a number of different agreements between the parties relating to the operations of the PET imaging center we managed in East Setauket, New York, as well as certain allegedly improper actions and omissions of the Anand Defendants in connection therewith. A counter-claim was filed against us in this Action, but we believe it to be without merit and have contested such claim. As of the date of this Report the Action in on-going and there can be no assurance as to its outcome.
Item 1A. Risk Factors
For information regarding factors that could affect the Company’s results of operations, financial condition or liquidity, see the risk factors discussed under “Description of Business” in Item 1 of the Company’s most recent Annual Report on Form 10-K. There have been no material changes from the risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the three and nine month periods ended September 30, 2011.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
We did not submit any matter to a vote of our stockholders during the three and nine month periods ended September 30, 2011.
Item 5. Other Information
None.
Item 6. Exhibits
| 31.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101 | Pursuant to Rule 405 of Regulation S-T, financial information from the Quarterly Report on Form 10-Q of The Sagemark Companies Ltd. for the quarter ended September 30, 2011, formatted in Extensible Business Reporting Language (XBRL) is furnished herewith: (i) Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, (ii) Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010, (iii) Consolidated Statements of Operations for the nine months ended September 30, 2011 and 2010, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and (v) Notes to Consolidated Financial Statements. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE SAGEMARK COMPANIES LTD. | |||
| November 10, 2011 | By: | /S/ CATHY BERGMAN | |
| Cathy Bergman, Chief Executive Officer, | |||
| Interim Chief Financial Officer and Director | |||
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