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EX-32.1 - SAGEMARK COMPANIES LTD | v186111_ex32-1.htm |
EX-31.1 - SAGEMARK COMPANIES LTD | v186111_ex31-1.htm |
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
March
31, 2010
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)
212.554.4219
(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 May 20, 2010
|
|
Common
Stock, $0.01 par value per share
|
8,008,261
shares
|
THE
SAGEMARK COMPANIES LTD
TABLE OF
CONTENTS
QUARTERLY
REPORT FOR PERIOD ENDED MARCH 31, 2010
PART
I-FINANCIAL INFORMATION
|
3
|
|
Item
1. Financial Statements
|
3
|
|
Consolidated
Balance Sheets at March 31, 2010 (Unaudited)
|
4
|
|
Consolidated
Statements of Operations for the Three Months Ended March 31, 2010 and
2009 (Unaudited)
|
5
|
|
Consolidated
Statements Of Cash Flows for the Three Months Ended March 31, 2010 and
2009 (Unaudited)
|
6
|
|
Notes
To Consolidated Financial Statements (Unaudited)
|
7
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
13
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
14
|
|
Item
4T. Controls and Procedures
|
14
|
|
PART
II-OTHER INFORMATION
|
16
|
|
Item
1. Legal Proceedings
|
16
|
|
Item
1A. Risk Factors
|
17
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
17
|
|
Item
3. Defaults Upon Senior Securities
|
17
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
17
|
|
Item
5. Other Information
|
17
|
|
Item
6. Exhibits
|
17
|
|
SIGNATURES
|
|
18
|
2
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
Consolidated
Financial Statements
As
of March 31, 2010
3
The
Sagemark Companies Ltd.
CONSOLIDATED
BALANCE SHEETS
March
31, 2010
|
December 31, 2009
(A)
|
|||||||
(unaudited)
|
(audited)
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
|
$ | 7,000 | $ | 3,000 | ||||
TOTAL
ASSETS
|
$ | 7,000 | $ | 3,000 | ||||
LIABILITIES
AND SHAREHOLDERS DEFICIENCY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$ | 298,000 | $ | 244,000 | ||||
Accrued
consulting fee – related party
|
183,000 | 144,000 | ||||||
Shareholders
loans
|
44,000 | - | ||||||
Notes
payable and interest – related parties
|
318,000 | 311,000 | ||||||
Liabilities
of discontinued operations
|
2,105,000 | 3,056,000 | ||||||
Total
Current Liabilities
|
2,948,000 | 3,755,000 | ||||||
Commitments
and Contingencies
|
||||||||
Shareholders’
Deficiency:
|
||||||||
Preferred
stock, par value $1.00 per share
|
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
|
(74,503,000 | ) | (75,314,000 | ) | ||||
Total
Company Shareholder’s Deficiency
|
(3,081,000 | ) | (3,892,000 | ) | ||||
Noncontrolling
Interests
|
140,000 | 140,000 | ||||||
Total
Shareholders’ Deficiency
|
(2,941,000 | ) | (3,752,000 | ) | ||||
TOTAL
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
|
$ | 7,000 | $ | 3,000 |
The
accompanying notes are an integral part of the consolidated financial
statements.
(A)
Derived from audited financial statements for the year ended December 31, 2009
(see Form 10-K Annual Report filed on April 14, 2010 with the Securities and
Exchange Commission).
4
The
Sagemark Companies Ltd.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
THREE
MONTHS ENDED MARCH 31,
|
2010
|
2009
|
||||||
Operating
Expenses
|
||||||||
General
and administrative expenses
|
$ | 81,000 | $ | 81,000 | ||||
Legal
fees – related party
|
51,000 | 8,000 | ||||||
Total
Operating Expenses
|
132,000 | 89,000 | ||||||
Loss
from Operations
|
(132,000 | ) | (89,000 | ) | ||||
Other
expense, net
|
(7,000 | ) | (8,000 | ) | ||||
Loss
from continuing operations
|
(139,000 | ) | (97,000 | ) | ||||
Income
(Loss) from discontinued operations
|
950,000 | (55,000 | ) | |||||
Net
Income (Loss)
|
811,000 | (152,000 | ) | |||||
Less:
Net Loss attributable to noncontrolling interest
|
- | (2,000 | ) | |||||
Net
Income (Loss) attributable to the Company
|
$ | 811,000 | $ | (150,000 | ) | |||
Basic
Income (Loss) Per Share
|
||||||||
Loss
from continuing operations
|
$ | (0.02 | ) | $ | (0.01 | ) | ||
Income
(Loss) from discontinued operations
|
0.12 | (0.01 | ) | |||||
Basic
Income (Loss) Per Share
|
$ | 0.10 | $ | (0.02 | ) | |||
Diluted
Income (Loss) Per Share
|
||||||||
Loss
from continuing operations
|
$ | (0.01 | ) | $ | (0.01 | ) | ||
Income
(Loss) from discontinued operations
|
0.11 | (0.01 | ) | |||||
Diluted
Income (Loss) Per Share
|
$ | 0.10 | $ | (0.02 | ) | |||
Weighted
Average Number of Common Shares
|
||||||||
Basic
|
8,008,261 | 7,661,503 | ||||||
Diluted
|
8,507,186 | 7,661,503 |
The
accompanying notes are an integral part of the consolidated financial
statements.
5
The
Sagemark Companies Ltd.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
FOR
THE THREE MONTHS ENDED MARCH 31
|
2010
|
2009
|
||||||
Cash
Flows - Operating Activities
|
||||||||
Loss
from continuing operations attributable to the Company
|
$ | (139,000 | ) | $ | (97,000 | ) | ||
Change
in assets and liabilities:
|
||||||||
Other
current assets
|
- | (10,000 | ) | |||||
Accounts
payable
|
54,000 | (30,000 | ) | |||||
Accrued
consulting fee – related party
|
39,000 | - | ||||||
Accrued
Interest, note payable
|
3,000 | 7,000 | ||||||
Net
Cash - Operating Activities
|
(43,000 | ) | (130,000 | ) | ||||
Cash
Flows - Financing Activities
|
||||||||
Proceeds
from note payable – related party
|
4,000 | - | ||||||
Proceeds
from shareholder loans
|
44,000 | - | ||||||
Net
Cash - Financing Activities
|
48,000 | - | ||||||
Discontinued
Operations
|
||||||||
Net
cash provided by (used in) operating activities
|
(1,000 | ) | 102,000 | |||||
Net
cash provided by (used in) investing activities
|
- | - | ||||||
Net
cash provided by (used in) financing activities
|
- | - | ||||||
Net
cash – Discontinued Operations
|
(1,000 | ) | 102,000 | |||||
Net
Increase (Decrease) in Cash
|
4,000 | (28,000 | ) | |||||
Cash
- Beginning of Period
|
3,000 | 45,000 | ||||||
|
||||||||
Cash
- End of Period
|
$ | 7,000 | $ | 17,000 |
Supplemental
Disclosure of Cash Flow Information:
In March
2010 the Company’s obligation under a $1 million limited guaranty was
terminated.
The
accompanying notes are an integral part of the consolidated financial
statements.
6
The
Sagemark Companies Ltd. ∙
NOTES
TO 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 months ended March 31, 2010 are not necessarily
indicative of the results that can be expected for the year ending December 31,
2010.
The
balance sheet as of December 31, 2009 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, 2009.
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, 2009.
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
March 31, 2010, we have no operations that generate revenue nor have we had any
operations that have generated revenue since June 2008. We have
approximately $2.9 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.
Discontinued
Operations
From 2001
to 2008, we owned, operated and/or managed out-patient medical diagnostic
imaging centers that provided positron emission tomography (“PET”) and/or PET
and computed tomography (“CT”) services. At the end of the first
quarter of 2008 we discontinued operations of all but one of such centers and as
of the end of the second quarter of 2008 had discontinued all of such operations
and thereafter addressed all of our efforts toward resolution of our significant
debt and obligations.
7
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, 2009 filed with the Securities and Exchange
Commission on April 14, 2010.
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
March 31, 2010, we have reserved 1,842,500 shares of common stock for issuance
pursuant to outstanding options and warrants 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. As of March 31, 2010, 242,500
shares of the outstanding options and warrants were deemed anti-dilutive and may
dilute earnings per share in the future.
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.
8
There was
no stock-based compensation costs recorded in the three month period ended March
31, 2010 or in the comparative period in 2009. As of March 31, 2010
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 month periods ended March 31, 2010 and March 31,
2009.
Note
6 – Concentration of Credit Risk
As of
March 31, 2010, all of our cash is placed with high credit, quality financial
institutions and we had no cash balances in excess of federally insured
limits.
Note
7 – Commitments and Contingencies
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.
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.
9
On April
1, 2009 the Company received a notice from counsel for GECC advising us that the
Queens Purchaser had failed to make certain payments, when due, under the
Financing Documents, that the current amount past due thereunder was $122,454
and that unless such default was cured by April 15, 2009, 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.
The
default was not cured as GECC had demanded 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.
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. Since the Limited Guaranty remained in
default as of December 31, 2009, the obligation remained on the Company’s
consolidated balance sheet at year end.
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 pursuant to the termination of the Company’s
obligation under the Limited Guaranty.
As of the
date of this Report, the Queens Center has ceased operations and the Queens LLC
has abandoned the premises in Forest Hills, New York. We have not
been notified of any default under the premise lease which, subsequent to the
sale 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 March 31, 2010 we owe Taggart $183,000 pursuant to such
agreement.
In
addition to rendering services to us for which we do not have the funds to
compensate Taggart, the Company borrowed approximately $4,000 from Ms. Bergman
in the three months ended March 31, 2010 to pay certain on-going operational
expenses. In total, we currently owe Ms. Bergman approximately
$11,000 for funds loaned to the Company as of March 31, 2010. 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.
10
As of
March 31, 2010 we owe Mr. Blessey approximately $429,000, which includes
approximately $122,000 of current legal fees, a $272,000 promissory note we
issued to him in July 2007, and approximately $35,000 of interest on such note,
which began accruing at a rate of 10% per annum as of January 1,
2009.
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 March 31, 2010
and December 31, 2009 and the related summary of discontinued operations for the
three months ended March 31, 2010 and 2009.
March
31, 2010
|
December
31, 2009
|
|||||||
Liabilities:
|
||||||||
Accounts
payable
|
$ | 254,000 | $ | 255,000 | ||||
Judgments
and liens
|
1,851,000 | 1,801,000 | ||||||
Limited
Guaranty Default
|
- | 1,000,000 | ||||||
Liabilities
to be disposed
|
2,105,000 | 3,056,000 | ||||||
Net
liabilities to be disposed
|
$ | (2,105,000 | ) | $ | (3,056,000 | ) | ||
For
the Three Months Ended
|
March
31, 2010
|
March
31, 2009
|
||||||
Revenues:
|
||||||||
Management
fees
|
$ | - | $ | 61,000 | ||||
Total
Revenue
|
- | 61,000 | ||||||
Operating
expenses:
|
||||||||
General
and administrative expenses
|
- | 89,000 | ||||||
Loss
from operations
|
(28,000 | ) | ||||||
Interest
expense
|
$ | (50,000 | ) | (45,000 | ) | |||
Other
income (expense), net
|
1,000,000 | 18,000 | ||||||
Net
Income (Loss)
|
950,000 | (55,000 | ) | |||||
Less:
net loss attributable to noncontrolling interest
|
- | (2,000 | ) | |||||
Income
(Loss) from discontinued operations attributable to the
Company
|
$ | 950,000 | $ | (53,000 | ) |
11
Note
10 – Recently Accounting Pronouncements
In
January 2010, the FASB issued updated accounting guidance related to fair
value measurements and disclosures which amends and clarifies existing
disclosure requirements. This updated accounting guidance requires new
disclosures related to amounts transferred into and out of Level 1 and 2 fair
value measurements as well as separate disclosures of purchases, sales,
issuances, and settlements related to amounts reported as Level 3 fair value
measurements. This guidance also clarifies existing fair value disclosure
requirements related to the level of disaggregation and the valuation techniques
and inputs used to measure fair value for both recurring and nonrecurring fair
value measurements. This guidance is effective for interim and annual periods
beginning after December 15, 2009, except for the separate disclosures of
purchases, sales, issuances, and settlements related to amounts reported as
Level 3 fair value measurements, which is effective for fiscal years beginning
after December 15, 2010. The Company does not believe the adoption of this
guidance will have a material impact on its consolidated financial
statements.
In
February 2010, the FASB issued an additional accounting pronouncement that
amended certain requirements for subsequent events (FASB ASC Topic 855), which
requires an SEC filer or a conduit bond obligor to evaluate subsequent events
through the date the financial statements are available to be issued and removes
the previous requirement to disclose the date through which subsequent events
have been evaluated. The amended amendments were effective on
issuance of the final pronouncement. The adoption of this
pronouncement had no effect on our consolidated financial
statements.
12
Item
2. managements’s discussion and analysis of financial condition and result of
operations
Description
of the Company
As of
March 31, 2010, 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
offered 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
At March
31, 2010, we have approximately $2.9 million of current liabilities and no
current operations that generate revenue. We do not have sufficient
working capital to satisfy our obligations to any of our
creditors. 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
month period ended March 31, 2010 as compared to the three month period ended
March 31, 2009.
Revenues
We did
not generate any revenue from continuing operation in the three months ended
March 31, 2010, nor did we generate any revenue in the comparable period in
2009.
We did
not receive any revenue from discontinued operations in the three month period
ended March 31, 2010 as compared to $61,000 in the comparable period in
2009. Revenue from discontinued operations is the result of
collection of patient service revenue and management fees generated in the prior
periods of operation.
We had
consolidated net income of $811,000 in the three months ended March 31, 2010,
which resulted from the termination of a $1,000,000 limited guaranty obligation
of discontinued operations. In the comparable period in year 2009, we
had a consolidated net loss attributable to the Company of
$150,000.
Operating
Expenses
Consolidated
operating expenses in the three month period ended March 31, 2010 was $132,000,
all of which related to continuing operations. Comparatively, in the
three month period ended March 31, 2009, total operating expenses were $178,000,
$89,000 of which related to continuing operations and $89,000 of which related
to discontinued operations.
13
Interest
Expense
Interest
expense in the three months ended March 31, 2010 was approximately
$57,000. Of such amount, $7,000 was attributable to continuing
operations and $50,000 was attributable to discontinued
operations. Interest expense in the comparable period in 2009 was
$53,000 of which $8,000 was attributable to continuing operations and $45,000 to
discontinued operations.
Interest
related to continuing operations is that which accrues 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. 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.
Outlook
As of
March 31, 2010 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.
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 may differ materially from the results discussed in the
forward-looking statements. 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 Securities and Exchange
Commission (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.
14
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 March
31, 2010, 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 period ended March
31, 2010 that has materially affected or is reasonably likely to materially
affect our internal control over financial reporting.
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 March 31, 2010, 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.
15
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.
Changes
in Internal Control Over Financial Reporting
There
were no changes in internal controls over financial reporting that occurred
during the quarter ended March 31, 2010 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:
16
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 period ended March
31, 2010.
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 period ended
March 31, 2010.
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
|
17
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.
|
||
Date
|
Signature
|
|
May
21, 2010
|
/S/ CATHY BERGMAN
|
|
Cathy
Bergman, Chief Executive Officer,
|
||
Interim
Chief Financial Officer
|
||
|
and
Director
|
18