SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For Quarterly Period Ended March 31, 2014

 

or

 

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to         

 

Commission File Number 0-21555

 

StemGen, Inc.

(Exact name of registrant issuer as specified in its charter)

 

Delaware		54-1812385
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
8280 Willow Oaks Corporate Drive, Suite 600 Fairfax, VA 22031-4516
(Address of principal executive offices, including zip code)
Registrant’s phone number, including area code    (703) 797-8111

 

6462 Little River Turnpike, Suite E,

Alexandria, Virginia 22312

(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 check mark whether the registrant has submitted electronically and posted on its corporate 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 shorter period that the registrant was required to submit and post such files).

YES [x]     NO [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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 [x] No [ ]

 

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 2, 2014
Common Stock, $.01 par value		183,927

 

 

 

 

StemGen, Inc.

 

INDEX

 

INDEX

 

		Page No.
PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS:
	Condensed Balance Sheets — March 31, 2014 (Unaudited) and June 30, 2013	3
	Condensed Statements of Operations — Three and nine months ended March 31, 2014 and 2013 and the period from entering development stage (October 1, 2006) through March 31, 2014 (Unaudited)	4
	Condensed Statements of Cash Flows — Nine months ended March 31, 2014 and 2013 and the period from entering development stage (October 1, 2006) through March 31, 2014 (Unaudited)	5
	Notes to Condensed Financial Statements (Unaudited)	6
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	17
ITEM 4T.	CONTROLS AND PROCEDURES	17
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	19
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	19
ITEM 4	(REMOVED AND RESERVED)	19
ITEM 5	OTHER INFORMATION	19
ITEM 6	EXHIBITS	19

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM I — FINANCIAL STATEMENTS

 

STEMGEN, INC.

(A Development Stage Company)

CONDENSED BALANCE SHEETS

 

		March 31,				June 30,
		2014				2013
ASSETS		(Unaudited)
CURRENT ASSETS
Cash		$	1,742			$	840
TOTAL ASSETS		$	1,742			$	840
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	51,389			$	46,720
Accounts payable - related parties			23,500				24,857
Notes payable and accrued interest - related parties, net			299,720				242,603
TOTAL CURRENT LIABILITIES			374,609				314,180
STOCKHOLDERS’ DEFICIT:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding at March 31, 2014 and June 30, 2013, respectively			—				—
Common stock, $0.01 par value, 20,000,000 shares authorized, 183,927 shares issued and outstanding at March 31, 2014 and June 30, 2013. *			1,839				1,839
Additional paid in capital			525,783				525,783
Accumulated deficit			(900,489	)			(840,962	)
TOTAL STOCKHOLDERS’ DEFICIT			(372,867	)			(313,340	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	1,742			$	840

 

 

 

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

 

 *The common shares outstanding are post reverse stock split of one share for every 80 shares of the Company’s Common stock which was effectuated on February 5, 2013.

 

 

 

STEMGEN, INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		Three Months Ended March 31,								Nine Months Ended March 31,								Period from entering Development Stage (October 1, 2006) through March 31,
		2014				2013				2014				2013				2014
REVENUES		$	—			$	—			$	—			$	—			$	—
COST OF SALES			—				—				—				—				—
GROSS PROFIT			—				—				—				—				—
OPERATING EXPENSES:
General and administrative expenses			4,664				19,488				19,910				55,301				370,714
Total operating expenses			4,664				19,488				19,910				55,301				370,714
LOSS FROM OPERATIONS			(4,664	)			(19,488	)			(19,910	)			(55,301	)			(370,714	)
OTHER INCOME (EXPENSE):
Interest expense			(5,659	)			(16,223	)			(39,617	)			(44,206	)			(191,246	)
Loss on extinguishment of debt			—				—				—				—				(20,000	)
Gain on sale of short term investment			—				—				—				—				12,734
Gain on forfeit of deposit			—				—				—				—				32,500
Total other expense			(5,659	)			(16,223	)			(39,617	)			(44,206	)			(166,012	)
LOSS BEFORE PROVISION FOR INCOME TAXES			(10,323	)			(35,711	)			(59,527	)			(99,507	)			(536,726	)
Provision for income taxes			—				—				—				—				—
NET LOSS		$	(10,323	)		$	(35,711	)		$	(59,257	)		$	(99,507	)		$	(536,726	)
NET LOSS PER SHARE OF COMMON STOCK — Basic and diluted		$	(0.06	)		$	(0.19	)		$	(0.32	)		$	(0.55	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — Basic and diluted*			183,927				183,645				183,927				181,617

 

 

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

 

 *The common shares outstanding are post reverse stock split of one share for every 80 shares of the Company’s Common stock which was effectuated on February 5, 2013.

 

 

 

  STEMGEN, INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Nine Months Ended March 31,								Period from entering Development Stage (October 1, 2006) through March 31,
		2014				2013				2014
OPERATING ACTIVITIES:
Net loss		$	(59,527	)		$	(99,507	)		$	(536,726	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount			23,094				29,242				103,760
Gain on sale of short term investment			—				—				(12,734	)
Changes in operating assets and liabilities:
Accounts payable and accrued expenses			4,669				9,505				95,075
Accrued interest payable – related parties			16,524				14,962				36,576
Accounts payable, related parties			(1,357	)			357				15,972
Net cash used in operating activities			(16,598	)			(45,441	)			(298,077	)
INVESTING ACTIVITIES:
Net proceeds from sale of short term investment			—				—				40,570
Net cash provided by investing activities			—				—				40,570
FINANCING ACTIVITIES:
Proceeds from sale of common stock			—				—				3,500
Deposit from investor for letter of intent			—				32,500				—
Proceeds from notes payable, related parties			17,500				13,000				252,500
Net cash provided by financing activities			17,500				45,500				256,000
NET INCREASE (DECREASE) IN CASH			902				59				(1,507	)
CASH, Beginning of period			840				564				3,249
CASH, End of period		$	1,742			$	623			$	1,742

 

 

 

 

 

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

  

 

STEMGEN, INC.

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation —

The accompanying unaudited condensed interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.  All references to Generally Accepted Accounting Principles (“GAAP”) are in accordance with The FASB Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles.

 

The unaudited condensed interim financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and notes for the year ended June 30, 2013 included in our Annual Report on Form 10-K. The results of the three and nine month periods ended March 31, 2014 are not necessarily indicative of the results to be expected for the full year ending June 30, 2014.

 

Going Concern —

The accompanying unaudited condensed interim financial statements have been prepared assuming that we will continue as a going concern.  We have suffered recurring losses from operations since our inception and have an accumulated deficit of $900,489 at March 31, 2014.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should we be unable to continue our existence.

 

In addition, our recovery is dependent upon future events, the outcome of which is undetermined.  We intend to continue to attempt to raise additional capital, but there can be no certainty that such efforts will be successful.

 

Development Stage Activities –

Since we redeemed and converted all of the outstanding Series A Preferred Stock of Comtex News Network, Inc. at the end of September 2006, starting October 1, 2006 we have not conducted any business operations. All of our operating results and cash flows reported in the accompanying unaudited condensed interim financial statements from October 1, 2006 are considered to be those related to development stage activities and represent the cumulative amounts from its development stage activities required to be reported.

 

Use of Estimates — 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents —

We consider investments with original maturities of 90 days or less to be cash equivalents. As of June 30, 2013 and March 31, 2014, we have no cash equivalents.

 

 

Income Taxes —

The Company accounts for income taxes in accordance with ASC Topic 740.  Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.

 

Net Loss Per Share —

Basic net loss and diluted loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing the net income by the weighted-average number of shares and dilutive potential common shares outstanding during the period. Dilutive potential shares consist of dilutive shares issuable upon the exercise of outstanding stock options and warrants computed using the treasury stock method.  As of March 31, 2014, there were zero dilutive securities which are considered anti-dilutive.

 

Concentration of Credit Risk —

Financial instruments that potentially subject us to a concentration of credit risk consist of cash.  We maintain our cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed FDIC insured limits.

 

Fair Value of Financial Instruments —

Our financial instruments consist of cash, accounts payable, accrued expenses and notes payable.  The carrying values of cash, accounts payable, accrued expenses and notes payable are representative of their fair values due to their short-term maturities.

 

Fair Value Measurements and Disclosures –

ASC Topic 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

 

Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 - Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The Company’s adoption of fair value measurements and disclosures did not have a material impact on the financial statements and financial statement disclosures.

 

Recently Issued Accounting Pronouncements

 

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the United States Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

 

 

NOTE 2 – NOTE PAYABLE RELATED PARTIES, NET

 

On August 8, 2012, the Corporation received an infusion of $10,000 in order to continue its operations in the near-term. The Company executed a $10,000 due on demand note with Mr. Chip Brian, pursuant to which Mr. Brian advanced the Company $10,000 at a rate of 12% per annum. Both the principal and interest are payable to Mr. Brian on or before December 31, 2014. Additionally, the Company granted 1,000,000 shares of restricted common stock and a warrant to purchase an additional 1,000,000 shares of restricted common stock at an exercise price of $0.01 per share as an inducement for Mr. Brian to make the loan. The Company recorded interest expense related to the shares inducement based on the stock price on the grant date and amortized over the term of the loan and the unamortized portion was recorded as discount on note payable. The Company recorded the fair value of the warrants using the Black-Scholes valuation model and the unamortized portion was also recorded as a discount to the note. The amount of discount on note payable recorded as of March 31, 2014 was $35,000. The expected volatility is 78.87% and based on the daily historical volatility of comparative companies, measured over the 5 years expected term of the option. The risk-free rate is 0.71% and based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term closest to the expected term of the option.

 

 

Notes payable:

A summary of the notes payable activity is as follows:

Balance, June 30, 2013		$	175,000
Additional notes payable issued			17,500
Discount on note payable			-
Balance, March 31, 2014		$	192,500

 

Accrued interest:

 

A summary of the accrued interest activity is as follows:

Balance, June 30, 2013		$	90,822
Accrued interest for the  nine months ended March 31, 2014			16,398
Balance, March 31, 2014		$	107,220

 

Historically, all interest payable incurred is from interest incurred at the stated rate of promissory notes issued by the Company. The payment terms, security and any interest payable are based on the underlying promissory notes payable that the Company has outstanding.

 

During the year ended June 30, 2007, we received $10,000 from Private Capital Group, L.L.C., a shareholder of the Company. This note had an interest rate of 10% per annum, was unsecured and had an original due date of December 31, 2007. The note was extended with the same terms and a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $3,252 and is due at maturity. Accrued interest is included in the notes payable, related parties balance. As an inducement to make the loan, we issued 1,000,000 shares of restricted common stock with a fair market value of $10,000 (par value) and issued a warrant for an additional 1,000,000 shares of restricted common stock with an exercise price of $0.01 per share. The warrants were estimated to have no significant fair market value.

 

During the year ended June 30, 2007, we received $10,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 10% per annum, is unsecured and had an original due date of December 31, 2007. The note was extended with the same terms and a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $3,252 and is due at maturity. Accrued interest is included in the notes payable, related parties balance. As an inducement to make the loan, we issued 1,000,000 shares of restricted common stock with a fair market value of $10,000 (par value) and issued a warrant for an additional 1,000,000 shares of restricted common stock with an exercise price of $.01 per share. The warrants were estimated to have no significant fair market value.

 

 

 

On August 24, 2010, these warrants were exercised by using the $10,000 note payable, related party loan balances issued on May 24, 2007 to C.W. Gilluly and Private Capital Group, in lieu of cash. In this transaction, 2,000,000 shares of common stock were issued for a par value of $0.01.

 

During the year ended June 30, 2008, we received an additional $15,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and had an original due date of December 31, 2009. The note was extended with the same terms and a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $11,480 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

During the year ended June 30, 2008, we received an additional $5,000 from Private Capital Group, L.L.C., a shareholder of the Company. This note has an interest rate of 12% per annum, is unsecured and had an original due date of December 31, 2009. The note was extended with the same terms and a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $3,711 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

During the year ended June 30, 2008, we received an additional $15,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and had an original due date of December 31, 2009. The note was extended with the same terms and a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $10,395 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

During the year ended June 30, 2009, we received an additional $25,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and had an original due date of December 31, 2009. The note was extended with the same terms and a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $16,625 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

During the year ended June 30, 2009, we received an additional $40,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and had an original due date of December 31, 2009. The note was extended with the same terms and a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $25,841 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

During the year ended June 30, 2009, we received an additional $10,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and had an original due date of December 31, 2009. The note was extended with the same terms and a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $6,030 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

During the year ended June 30, 2010, we received an additional $15,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $8,231 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

During the year ended June 30, 2010, we received an additional $5,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $2,655 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

During the year ended June 30, 2010, we received an additional $5,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $2,512 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

 

 

During the year ended June 30, 2010, we received an additional $5,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $2,382 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

During the year ended June 30, 2011, we received an additional $10,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $1,013 and is due at maturity. Accrued interest is included in the notes payable and accrued interest, related parties balance.

 

During the year ended June 30, 2011, we received an additional $10,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $717 and is due at maturity. Accrued interest is included in the notes payable and accrued interest, related parties balance.

  

During the year ended June 30, 2011, we received an additional $15,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $621 and is due at maturity. Accrued interest is included in the notes payable and accrued interest, related parties balance.

 

During the year ended June 30, 2011, we received an additional $5,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $59 and is due at maturity. Accrued interest is included in the notes payable and accrued interest, related parties balance.

 

On May 31, 2011, Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer, converted $40,000 of the most recent notes into 4,000,000 shares of the Company’s restricted stock common stock.

 

On August 31, 2011, the Corporation received an infusion of $10,000 in order to continue its operations in the near-term. The Company executed a $10,000 due on demand note with Mr. Chip Brian, pursuant to which Mr. Brian advanced the Company $10,000 at a rate of 12% per annum. Both the principal and interest are payable to Mr. Brian on or before December 31, 2014. Additionally, the Company granted 1,000,000 shares of restricted common stock and a warrant to purchase an additional 1,000,000 shares of restricted common stock at an exercise price of $0.01 per share as an inducement for Mr. Brian to make the loan. The Company recorded $20,000 of interest expense related to the shares issued. As of March 31, 2014, accrued interest payable totaled $3,100 and is due at maturity. Accrued interest is included in the notes payable and accrued interest, related parties balance.

 

On January 23, 2012, we received an additional $5,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $1,312 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

On April 25, 2012, we received an additional $2,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $464 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

 

On August 8, 2012, we received an infusion of $10,000 in order to continue its operations in the near-term. The Company executed a $10,000 due on demand note with Mr. Chip Brian, pursuant to which Mr. Brian advanced the Company $10,000 at a rate of 12% per annum. Both the principal and interest are payable to Mr. Brian on or before December 31, 2014. Additionally, the Company granted 1,000,000 shares of restricted common stock and a warrant to purchase an additional 1,000,000 shares of restricted common stock at an exercise price of $0.01 per share as an inducement for Mr. Brian to make the loan. The Company recorded interest expense related to the shares inducement based on the stock price on the grant date and amortized over the term of the loan and the unamortized portion is recorded as a discount on note payable. The Company recorded the fair value of the warrants using the Black-Scholes valuation model and the unamortized portion was also recorded as a discount to the note and classified to other assets. The amount of discount on note payable recorded as of March 31, 2014 was zero. The expected volatility is 78.87% and is based on the daily historical volatility of comparative companies, measured over the 5 years expected term of the option. The risk-free rate is 0.71% and is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term closest to the expected term of the option. Both the interest expense recorded from the shares issuance and warrants issuance are amortized over the term of the loan. As of March 31, 2014, accrued interest payable totaled $1,968 and is due at maturity. Accrued interest is included in the notes payable and accrued interest, related parties balance.

 

On October 25, 2012, we received an additional $3,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $515 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

On January 14, 2013, Mr. Chip Brian terminated and cancelled his warrants to purchase 2,000,000 shares of the Company’s common stock.

 

 On April 8, 2013, we received an additional $5,000 from ImaginEquity. This note has an interest rate of 6% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $229 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

On August 21, 2013, we received an additional $7,500 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $547 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

On October 29, 2013, we received an additional $5,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 12% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $252 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

On January 17, 2014, we received an additional $5,000 from Dr. C.W. Gilluly, our Chairman of the Board, President and Chief Executive Officer. This note has an interest rate of 6% per annum, is unsecured and has a due date of December 31, 2014. As of March 31, 2014, accrued interest payable totaled $60 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.

 

 

 

 

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

 

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended June 30, 2013 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K.  The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.

 

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control.  Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements.  We strongly encourage investors to carefully read the factors described in our Annual Report on Form 10-K for the year ended June 30, 2013 in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.

 

Company History

 

StemGen, Inc. (“STEMGEN” or the “Company”) was incorporated in Delaware in 1992, and in 1996 received all remaining assets of Infotechnology, Inc. (“Infotech”), a Delaware company, following the completion of Infotech’s Chapter 11 Bankruptcy reorganization, in accordance with an Assignment and Assumption Agreement, dated October 11, 1996, and effective as of June 21, 1996.  As a result of a series of transactions during the 1980’s, Infotech, then principally engaged in the information and communications business, acquired equity interests in Comtex News Network, Inc. (“Comtex”) and Analex Corporation (“Analex”), formerly known as Hadron, Inc.  Our business was the maintenance of our equity interest in and note receivable from Comtex and equity interest in Analex.  

 

On September 25, 2006, we exchanged the equity investment in Comtex common stock and the Note Receivable from Comtex of $856,954, for 55,209 shares of the STEMGEN Series A Preferred stock.  We no longer have an equity interest in either the common stock of Comtex or the Note from Comtex.

 

During October 2006, we sold the remaining 21,000 shares of common stock of publicly-held Analex, a defense contractor specializing in systems engineering and developing innovative technical intelligence solutions in support of U.S. national security.  We no longer have an equity interest in Analex.

 

On December 24, 2012, the Corporation received a nonrefundable deposit of $32,500 under a Letter of Intent (“LOI”) which it entered into on December 11, 2012 with StemGen Inc. a Nevada corporation. Effective February 5, 2013, the Company amended its Certificate of Incorporation. As a result of the Amendment, the Company’s corporate name changed from Amasys Corporation to StemGen, Inc and a reverse stock split was effectuated where all the outstanding shares of the Company’s common stock were exchanged at a ratio of one for eighty. The LOI was terminated on August 6, 2013.

 

Since we redeemed and converted all of our outstanding Series A Preferred Stock at the end of September 2006, starting October 1, 2006 we have not conducted any business operations.  All of our operating results and cash flows reported in the accompanying financial statements from October 1, 2006 are considered to be those related to development stage activities and represent the 'cumulative from entering developmental stage' amounts from its development stage activities required to be reported pursuant to Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 915 “Development Stage Entities”.

 

 

 

Business of Issuer

Currently, the Company seeks suitable candidates for a business combination with a private company.  The Company has made no efforts to identify a possible business combination. As a result, the Company has not conducted negotiations or entered into a letter of intent concerning any target business. The business purpose of the Company is to seek the acquisition of, or merger with, an existing company. We intend to provide shareholders with complete disclosure concerning a target company and its business, including audited financial statements prior to any merger or acquisition where such disclosure is required by law.

 

The Company is currently considered to be a "blank check" company. The U.S. Securities and Exchange Commission (the “SEC”) defines those companies as "any development stage company that is issuing a penny stock, within the meaning of Section 3 (a)(51) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies." Under SEC Rule 12b-2 under the Exchange Act, the Company also qualifies as a “shell company,” because it has no or nominal assets (other than cash) and no or nominal operations.  Many states have enacted statutes, rules and regulations limiting the sale of securities of "blank check" companies in their respective jurisdictions. Management does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long as it is subject to those requirements.

 

The Company’s principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. The Company will not restrict its potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.

 

The analysis of new business opportunities will be undertaken by or under the supervision of the officer and director of the Company.  As of this date, the Company has not entered into any definitive agreement with any party, nor have there been any specific discussions with any potential business combination candidate regarding business opportunities for the Company.  The Company has unrestricted flexibility in seeking, analyzing and participating in potential business opportunities. In its efforts to analyze potential acquisition targets, the Company will consider the following kinds of factors:

 

a)	Potential for growth, indicated by new technology, anticipated market expansion or new products;

 

b)	Competitive position as compared to other firms of similar size and experience within the industry segment as well as within the industry as a whole;

 

c)	Strength and diversity of management, either in place or scheduled for recruitment;

 

d)	Capital requirements and anticipated availability of required funds, to be provided by the Company or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources;

 

e)	The cost of participation by the Company as compared to the perceived tangible and intangible values and potentials;
f)	The extent to which the business opportunity can be advanced;

 

g)	The accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items; and

 

h)	Other relevant factors.

  

 

 

In applying the foregoing criteria, no one of which will be controlling, management will attempt to analyze all factors and circumstances and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Due to the Company's limited capital available for investigation, the Company may not discover or adequately evaluate adverse facts about the opportunity to be acquired.

 

Form of Acquisition

 

The manner in which the Company participates in an opportunity will depend upon the nature of the opportunity, the respective needs and desires of the Company and the promoters of the opportunity, and the relative negotiating strength of the Company and such promoters.

 

It is likely that the Company will acquire its participation in a business opportunity through the issuance of common stock or other securities of the Company. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called "tax free" reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code") depends upon whether the owners of the acquired business own 80% or more of the voting stock of the surviving entity. If a transaction were structured to take advantage of these provisions rather than other "tax free" provisions provided under the Code, all prior stockholders would in such circumstances retain 20% or less of the total issued and outstanding shares of the surviving entity. Under other circumstances, depending upon the relative negotiating strength of the parties, prior stockholders may retain substantially less than 20% of the total issued and outstanding shares of the surviving entity. This could result in substantial additional dilution to the equity of those who were stockholders of the Company prior to such reorganization.

 

The present stockholders of the Company will likely not have control of a majority of the voting securities of the Company following a reorganization transaction. As part of such a transaction, all or a majority of the Company's directors may resign and one or more new directors may be appointed without any vote by stockholders.

 

In the case of an acquisition, the transaction may be accomplished upon the sole determination of management without any vote or approval by stockholders. In the case of a statutory merger or consolidation directly involving the Company, it will likely be necessary to call a stockholders' meeting and obtain the approval of the holders of a majority of the outstanding securities. The necessity to obtain such stockholder approval may result in delay and additional expense in the consummation of any proposed transaction and will also give rise to certain appraisal rights to dissenting stockholders. Most likely, management will seek to structure any such transaction so as not to require stockholder approval.

 

It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial cost for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, the costs theretofore incurred in the related investigation might not be recoverable. Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in the loss to the Registrant of the related costs incurred.

 

 

Critical Accounting Policies

 

We prepare our financial statements in accordance with accounting principles generally accepted in the United States (GAAP), which requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management identifies critical accounting estimates as:

 

-

those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made; and

 

-

those for which changes in the estimate or assumptions, or the use of different estimates and assumptions, could have a material impact on our results of operations or financial condition.

  

Management has discussed the development, selection and disclosure of our critical accounting estimates with our Board of Directors. For a description of our critical accounting estimates that require us to make the most difficult, subjective or complex judgments, please see our Annual Report on Form 10-K for the year ended June 30, 2013. We have not changed these policies from those previously disclosed.

 

For the Three Months Ended March 31, 2014 and 2013

 

Results of Operations

 

General and Administrative Expenses

 

General and administrative expenses were $4,664 and $19,488 for the three months ended March 31, 2014 and 2013, respectively. The decrease in general and administrative expenses of $17,248 for the three month period was mainly due to the various corporate expenses as a result of changing the Company name and performing a reverse stock split in 2012.

 

Other Income (Expense)

 

Other expense was $5,659 and $16,223 for the three months ended March 31, 2014 and 2013, respectively. The decrease for the three month period is due to the lack of interest expense amortized for shares issued as an inducement to enter into a loan.

 

For the Nine Months Ended March 31, 2014 and 2013

 

Results of Operations

 

General and Administrative Expenses

 

General and administrative expenses were $19,910 and $55,301 for the nine months ended March 31, 2014 and 2013, respectively. The increase in general and administrative expenses of $35,391 for the nine month period was mainly due to various corporate expenses as a result of changing the Company name and performing a reverse stock split in 2012.

 

Other Income (Expense)

 

Other expense was $39,617 and $44,206 for the nine months ended March 31, 2014 and 2013, respectively. The decrease for the nine month period of $4,589 is due to reduced interest expense recorded for shares issued as an inducement to enter into a loan.

 

 

Liquidity and Capital Resources

 

 Net cash used in operating activities was $16,598 and $45,441 in the nine months ended March 31, 2014 and 2013, respectively.  The decrease was primarily due to the increase in professional fees for the nine months ended March 31, 2013 compared to 2013.

 

Net cash provided by investing activities was $-0- and $-0- in the nine months ended March 31, 2014 and 2013, respectively.  

 

Net cash provided by financing activities was $17,500 and $45,500 in the nine months ended March 31, 2014 and 2013, respectively.  

 

We suffered recurring losses from operations and have an accumulated deficit of $900,489 as of March 31, 2014.  Currently, we are a non-operating public company. We seek suitable candidates for a business combination with a private company.  In the event we use all of our cash resources, C.W. Gilluly has indicated the willingness to loan us funds at the prevailing market rate, assuming we find a suitable candidate for a business combination, until such business combination is consummated.  Even though this is Mr. Gilluly's current intention, he has made no firm commitment and it is at his sole discretion whether or not to fund us.  In the event Mr. Gilluly does not fund us, we will not have the funds necessary to operate and will have to dissolve.

 

Contractual Obligations

 

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.  

 

 

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

A smaller reporting company is not required to provide the information required by this Item.

 

ITEM 4 - CONTROLS AND PROCEDURES

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.   Our management, with the participation of our President and Chief Financial Officer, carried out an evaluation of the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report (the "Evaluation Date"). Based upon that evaluation, our President and our Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) is accumulated and communicated to our management, including our President and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.   There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II -- OTHER INFORMATION

 

ITEM 1 - Legal Proceedings.

 

To the best knowledge of our sole officer, the Company is not a party to any legal proceeding or litigation.

 

ITEM 1A - Risk Factors

 

  The following important factors, and the important factors described elsewhere in this report or in our other filings with the SEC, could affect (and in some cases have affected) our results and could cause our results to be materially different from estimates or expectations.  Other risks and uncertainties may also affect our results or operations adversely.  The following and these other risks could materially and adversely affect our business, operations, results or financial condition.

 

We have a history of net losses and may never achieve or maintain profitability.

 

We have a history of incurring losses from operations. As of March 31, 2014, we had an accumulated deficit of $900,489.  We are currently funding our operations through loans. Our ability to continue may prove more expensive than we currently anticipate and we may incur significant additional costs and expenses.

 

We are a non-operating company seeking a suitable transaction and may not find a suitable candidate or transaction.

 

We are a non-operating company.  If we are unable to consummate a transaction or become profitable, we will be forced to liquidate and dissolve which will take three years to complete and may result in our distributing less cash to our shareholders.  Additionally, we will be spending cash during the winding down and may not have enough cash to distribute to our shareholders.

 

We will continue to incur claims, liabilities and expenses that will reduce the amount available for distribution to stockholders.

 

Claims, liabilities and expenses incurred while seeking a private company transaction or any subsequent dissolution, such as legal, accounting and consulting fees and miscellaneous office expenses, will reduce the amount of assets available for future distribution to stockholders. If available cash and amounts received on the sale of non-cash assets are not adequate to provide for our obligations, liabilities, expenses and claims, we may not be able to distribute meaningful cash, or any cash at all, to our stockholders.

 

We will continue to incur the expenses of complying with public company reporting requirements.

 

We have an obligation to continue to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended, even though compliance with such reporting requirements is economically burdensome.

 

Our independent registered public accounting firm has expressed a going concern opinion.

 

Primarily as a result of our recurring losses and our lack of liquidity, we received a report from our independent auditors that includes an explanatory paragraph describing the substantial uncertainty as to our ability to continue as a going concern for the year ended June 30, 2013.

 

Any future sale of a substantial number of shares of our common stock could depress the trading price of our common stock.

 

Any sale of a substantial number of shares of our common stock (or the prospect of sales) may have the effect of depressing the trading price of our common stock. In addition, these sales could lower our value.

 

 

Our stock price is likely to be highly volatile because of several factors, including a limited public float.

 

 Effective February 5, 2013, the Company amended its Certificate of Incorporation. As a result of the Amendment, the Company’s corporate name changed from Amasys Corporation to StemGen, Inc and a reverse stock split was effectuated where all the outstanding shares of the Company’s common stock were exchanged at a ratio of one for eighty.

 

The market price of our stock is likely to be highly volatile because there has been a relatively thin trading market for our stock, which causes trades of small blocks of stock to have a significant impact on our stock price. You may not be able to resell our common stock following periods of volatility because of the market's adverse reaction to volatility.   Other factors that could cause such volatility may include, among other things are announcements concerning our strategy, litigation and general market conditions.

 

Because our common stock is considered a "penny stock" any investment in our common stock is considered to be a high-risk investment and is subject to restrictions on marketability.

 

Our common stock is currently listed on the OTC Bulletin Board and is considered a "penny stock." The OTC Bulletin Board is generally regarded as a less efficient trading market than the NASDAQ Capital Market.

  

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock.

 

Since our common stock is subject to the regulations applicable to penny stocks, the market liquidity for our common stock could be adversely affected because the regulations on penny stocks could limit the ability of broker-dealers to sell our common stock and thus your ability to sell our common stock in the secondary market.  There is no assurance our common stock will be quoted on NASDAQ or the NYSE or listed on any exchange, even if eligible.

 

ITEM 2. - Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

ITEM 3. - Defaults Upon Senior Securities.

 

None.

 

ITEM 4. – (Removed and Reserved)

 

ITEM 5. - Other Information.

 

None 

 

ITEM 6.		Exhibits
		31	Certification of President pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
		32	Certification of the Company’s Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

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.

 

	STEMGEN, INC.
Date: May 2, 2014	/s/  C.W. Gilluly
	Name: C.W. Gilluly, Ed.D.
	Title: President, Chief Executive Officer and Chief Financial Officer

 

 

EXHIBIT INDEX

 

 

Exhibit		Description
31		Certification of President pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of the Company’s Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.