10-Q 1 v327906_10q.htm FORM 10-Q

 

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, 2012

 

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 ¨

 

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 xNo ¨

 

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 ¨ Accelerated filer ¨ Non-accelerated filer ¨ 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 £ No S

 

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 14, 2012

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, 2012

 

PART I -FINANCIAL INFORMATION 3
     
ITEM 1  CONSOLIDATED FINANCIAL STATEMENTS 3
     
  CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2012 AND DECEMBER 31, 2012 (UNAUDITED) 4
  CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) 5
  CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) 6
  CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) 7
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 8
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 15
     
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

 

Condensed Consolidated Financial Statements

As of September 30, 2012

 

3
 

 

The Sagemark Companies Ltd.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   September 30,
2012
   December 31,
2011
 
         
ASSETS          
           
Current Assets:          
Cash  $3,000   $3,000 
           
TOTAL ASSETS  $3,000   $3,000 
           
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY          
           
Current Liabilities          
           
 Accounts payable  $684,000   $734,000 
 Accrued consulting fee – related party   640,000    505,000 
 Shareholders’ loans   319,000    170,000 
 Notes payable and interest – related parties   446,000    407,000 
 Liabilities of discontinued operations   2,705,000    2,512,000 
Total Current Liabilities   4,794,000    4,328,000 
           
Commitments and Contingencies          
           
Shareholders’ Deficiency:          
Preferred stock, par value $1.00 per share (2,000,000 authorized, 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   (76,353,000)   (75,887,000)
           
Total Company Shareholders’ Deficiency   (4,931,000)   (4,465,000)
           
Noncontrolling Interests   140,000    140,000 
           
Total Shareholders’ Deficiency   (4,791,000)   (4,325,000)
           
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIENCY  $3,000   $3,000 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4
 

 

The Sagemark Companies Ltd.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

  

THREE MONTHS ENDED SEPTEMBER 30,  2012   2011 
         
Operating Expenses          
General and administrative expenses  $82,000   $78,000 
Legal fees – related party   13,000    3,000 
Total Operating Expenses   95,000    81,000 
           
Loss from Operations   (95,000)   (81,000)
           
Interest expense   (10,000)   (9,000)
           
Loss from continuing operations   (105,000)   (90,000)
           
Loss from discontinued operations   (66,000)   (59,000)
           
Net Loss  $(171,000)  $(149,000)
           
Basic Loss Per Common Share          
Loss from continuing operations  $(0.01)  $(0.01)
           
Loss from discontinued operations   (0.01)   (0.01)
           
Basic Loss Per Common Share  $(0.02)  $(0.02)
           
Diluted Loss Per Common Share          
Loss from continuing operations  $(0.01)  $(0.01)
           
Loss from discontinued operations   (0.01)   (0.01)
           
Diluted Loss Per Common Share  $(0.02)  $(0.02)
           
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.

 

5
 

 

The Sagemark Companies Ltd.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

  

NINE MONTHS ENDED SEPTEMBER 30,  2012   2011 
         
Operating Expenses          
           
General and administrative expenses  $219,000   $306,000 
           
Legal fees – related party   24,000    9,000 
           
Total Operating Expenses   243,000    315,000 
           
Loss from Operations   (243,000)   (315,000)
           
Interest expense   (31,000)   (28,000)
           
Loss from continuing operations   (274,000)   (343,000)
           
Loss from discontinued operations   (192,000)   (172,000)
           
Net Loss  $(466,000)  $(515,000)
           
Basic Loss Per Common Share          
Loss from continuing operations  $(0.03)  $(0.04)
           
Loss from discontinued operations   (0.02)   (0.02)
           
Basic Loss Per Common Share  $(0.05)  $(0.06)
           
Diluted Loss Per Common Share          
Loss from continuing operations  $(0.03)  $(0.04)
           
Loss from discontinued operations   (0.02)   (0.02)
           
Diluted Loss Per Common Share  $(0.05)  $(0.06)
           
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.

 

6
 

 

The Sagemark Companies Ltd.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30  2012   2011 
         
Cash Flows - Operating Activities          
Net Loss  $(466,000)  $(515,000)
Changes in assets and liabilities: Accounts payable   (50,000)   112,000 
Accrued consulting fee – related party   135,000    135,000 
Accrued interest – note payable   30,000    25,000 
Accrued interest - judgment & liens from discontinued operations   192,000    172,000 
           
Net Cash - Operating Activities   (159,000)   (71,000)
           
Cash Flows - Financing Activities          
Proceeds from note payable – related party   10,000    13,000 
Proceeds from shareholder loans   149,000    50,000 
Net Cash - Financing Activities   159,000    63,000 
           
Net Increase (Decrease) in Cash   0    (8,000)
Cash - Beginning of Period   3,000    8,000 
           
Cash - End of Period  $3,000   $0 
           
Supplemental Disclosure of Cash Flow Information:          
           
Cash used during period for:          
Interest  $0   $0 
Income Taxes  $0   $0 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

7
 

 

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 S-X. 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, 2012 are not necessarily indicative of the results that can be expected for any future period or for the year ending December 31, 2012.

 

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 its Annual Report on Form 10-K for the year ended December 31, 2011 filed with the United States Security and Exchange Commission (the “SEC”) on March 30, 2012.

 

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, 2011.

 

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, 2012, we have no operations that generate revenue nor have we had any operations that have generated revenue since June 2008. Further, as of September 30, 2012, we have a negative working capital and total Company shareholders’ deficiency of approximately $4.8 million, 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

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.

 

8
 

 

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, 2011 filed with the SEC on March 30, 2012.

 

Fair Value Measurements

We adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which  defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash, payables to related parties, shareholder’s loans and accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

 

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or the SEC that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

 

9
 

 

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 (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.

 

During the three months ended September 30, 2012 a warrant to purchase up to 25,000 shares of our common stock at an exercise price of $0.83 per share expired. As of September 30, 2012, we have reserved 1,817,500 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; and (iii) 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, 2012 all of the shares of common stock reserved for issuance pursuant to the outstanding options and warrants were deemed anti-dilutive.

 

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 cost recorded in the three and nine month periods ended September 30, 2012 or 2011. As of September 30, 2012 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, 2012 and 2011.

 

Note 6 – Concentration of Credit Risk

 

As of September 30, 2012, 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

 

We previously leased office space for our PET imaging center operations. In concert with the discontinuation of such 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, 2012, and through the date of this report, we have not been notified of any default under such leases.

 

10
 

 

Note 8 – Transactions with Related Parties

 

The financial statements effect of transactions with related parties is as follows.

 

Our Chief Executive Officer

Cathy Bergman has served as our Chief Executive Officer and the sole member of our Board of Directors since November 2008, for which she does not receive an annual salary.

 

We incur fees for services rendered by Taggart Resource Group, Ltd. (“Taggart”), a consulting firm owned by Ms. Bergman, in connection with a consulting agreement we 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, 2012 we owe Taggart approximately $640,000 pursuant to such agreement.

 

Additionally, we borrowed approximately $10,000 from Ms. Bergman during the nine months ended September 30, 2012 to pay certain on-going operational expenses. We currently owe Ms. Bergman approximately $52,000 for funds loaned by her to the Company as of September 30, 2012. This balance is included in our Consolidated Balance Sheet under Notes payable and interest – related parties.

 

Our Secretary

Robert L. Blessey, Esq. is our General Counsel and our Secretary. Mr. Blessey does not receive a salary for his service as our Secretary, but we do incur legal fees for legal services provided to us by Mr. Blessey.

 

In the three and nine months ended September 30, 2012, we incurred legal fees due to Mr. Blessey in the aggregate of approximately $24,000. As of September 30, 2012 we owe Mr. Blessey approximately $603,000, which includes legal fees of approximately $209,000 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 $122,000, 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 and nine months ended September 30, 2012, and we have not generated any revenue since June 2008. To meet our limited operating expenses, we borrowed an aggregate of $149,000 from certain of our shareholders during the nine months ended September 30, 2012, which amounts are secured by promissory notes with one year terms, and which do not bear interest. As of September 30, 2012, we have borrowed $319,000 from these shareholders. Promissory notes that total $173,000 were past due at September 30, 2012. However, the shareholders that have lent us such funds have agreed to an extension on such promissory notes (without penalty or interest) until the Company has sufficient working capital.

 

11
 

 

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, 2012 and December 31, 2011 and the related summary of discontinued operations for the nine months ended September 30, 2012 and 2011.

 

   September 30, 2012   December 31, 2011 
         
Liabilities:          
Accounts payable  $273,000   $272,000 
Judgments and liens   2,432,000    2,240,000 
Liabilities to be disposed   2,705,000     2,512,000 
           
Net liabilities to be disposed  ($2,705,000)  $(2,512,000)

 

For the Nine Months Ended  September 30, 2012   September 30, 2011 
         
Operating Expenses          
General and administrative expenses  $0   $1,000 
           
Total operating expenses   0    1,000 
           
Loss from operations   (192,000)   (172,000)
Interest expense          
           
Net Loss  $(192,000)  $(172,000)

 

Note 10 - Subsequent Events

 

The Company evaluated all events or transactions that occurred subsequent to September 30, 2012 up to the date these financial statements were issued and has determined that there are no material subsequent events or transactions which would require recognition or disclosure in the financial statements.

 

12
 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

 

Description of the Company

 

As of September 30, 2012, we do not have any business operations other than limited administrative operations related to shareholder and creditor matters.

 

Results of Operations

 

The following discusses and compares the results of our operations for the three and nine month periods ended September 30, 2012 to the three and nine month periods ended September 30, 2011.

 

Revenues

We did not generate or receive any revenue from continuing or discontinued operations in the three and nine month periods ended September 30, 2012, nor did we generate or receive any revenue in the comparable periods in 2011.

 

Operating Expenses

Operating expenses in the three month period ended September 30, 2012 were $95,000 and were $243,000 in the nine month period ended September 30, 2012, all of which related to continuing operations.

 

Comparatively, in the three month period ended September 30, 2011, total operating expenses were $81,000, all of which related to continuing operations. Such expenses were $316,000 for the nine months ended September 30, 2011, of which $315,000 related to continuing operations and $1,000 related to discontinued operations.

 

Operating expenses increased approximately 17% in the three month period ended September 30, 2012 as compared to the same period in 2011, which resulted from an increase in certain professional fees related to an ongoing legal action (See Part II, Item1-Legal Proceedings). However, in the nine month period ended September 30, 2012 operating expenses decreased approximately 23%, compared to the same nine month period in 2011, which was a result of a reduction in certain professional fees and expenses.

 

Interest Expense

Interest expense in the three months ended September 30, 2012 was approximately $76,000. Of such amount, $10,000 was attributable to continuing operations and $66,000 was attributable to discontinued operations. Interest expense was approximately $223,000 in the nine months ended September 30, 2012. Of such amount, $31,000 was attributable to continuing operations and $192,000 was attributable to discontinued operations.

 

Comparatively, interest expense in the three month period 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 month period 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.

 

Interest expense of continuing operations arises from a promissory note due to a related party in the principal amount of $272,000 which bears interest at a rate of 10% per annum, as well as interest that accrues on various tax related obligations and judgments. Interest expense of discontinued operations is the result of accrued interest under two default judgments that were granted in 2008 associated with a premise lease for space in a building that we never occupied.

 

13
 

 

Net Income (Loss)

We incurred a net loss of $171,000 and $466,000 in the three and nine months ended September 30, 2012 respectively, and incurred a net loss of $149,000 and $515,000, respectively, in the comparable three and nine month periods in 2011.

 

The Company did not record any allocation of net loss to the noncontrolling interests for the three and nine months ended September 30, 2012 and 2011.

 

Financial Condition – Liquidity and Capital Resources

 

We have not generated any revenue since June 2008. At September 30, 2012 our liabilities exceeded our assets by approximately $4.8 million, and our cash balance is approximately $3,000, 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 certain of our shareholders. We are dependent upon these loans to fund our future operating expenses.

 

None of our officers, directors or shareholders is 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.

 

Outlook

 

Until such time, if ever, that we resolve our remaining obligations to our creditors, substantially all of our efforts will be spent addressing such obligations. 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 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 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.

 

14
 

 

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, 2012, 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, 2012 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 September 30, 2012, 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

 

15
 

 

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.

 

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 three and nine month periods ended September 30, 2012 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 nine month period ended September 30, 2012.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Submission of Matters to a Vote of Security Holders.

 

None.

 

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.INS  

XBRL Instances Document

 

101.SCH  

XBRL Taxonomy Extension Schema Document

 

101.CAL  

XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF  

XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB  

XBRL Taxonomy Extension Label Linkbase Document

 

101. PRE  

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

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.

   
  THE SAGEMARK companies LTD.
   
November 14, 2012 /s/ Cathy Bergman
  Name: Cathy Bergman
  Title: Chief Executive Officer,
  Interim Chief Financial Officer

 

18