SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2013
or
o 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.) | |
|
6462 Little River Turnpike, Suite E, Alexandria, Virginia 22312 | ||
| (Address of principal executive offices, including zip code) | ||
| Registrant’s phone number, including area code (703) 797-8111 | ||
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 ý NO o
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 o NO ý
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 o Accelerated Filer o Non-accelerated Filer o Smaller reporting company ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o
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 9, 2013 | |
| Common Stock, $.01 par value | 183,927 |
STEMGEN, INC.
INDEX
| Page No. | ||
| PART I | FINANCIAL INFORMATION | |
| ITEM 1. | FINANCIAL STATEMENTS: | |
| Condensed Balance Sheets — March 31, 2013 (Unaudited) and June 30, 2012 | 3 | |
| Condensed Statements of Operations — Three and nine months ended March 31, 2013 and 2012 and the period from entering development stage (October 1, 2006) through March 31, 2013 (Unaudited) | 4 | |
| Condensed Statements of Cash Flows — Nine months ended March 31, 2013 and 2012 and the period from entering development stage (October 1, 2006) through March 31, 2013 (Unaudited) | 5 | |
| Notes to Condensed Financial Statements (Unaudited) | 6 | |
| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 11 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 13 |
| ITEM 4T. | CONTROLS AND PROCEDURES | 13 |
| PART II | OTHER INFORMATION | 14 |
| ITEM 1 | LEGAL PROCEEDINGS | 14 |
| ITEM 1A | RISK FACTORS | 14 |
| ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 15 |
| ITEM 3 | DEFAULTS UPON SENIOR SECURITIES | 15 |
| ITEM 4 | (REMOVED AND RESERVED) | 15 |
| ITEM 5 | OTHER INFORMATION | 15 |
| ITEM 6 | EXHIBITS | 15 |
| -2- |
PART I - FINANCIAL INFORMATION
ITEM I — FINANCIAL STATEMENTS
STEMGEN, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
| March 31, | June 30, | |||||||
| 2013 | 2012 | |||||||
| ASSETS | (Unaudited) | |||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 623 | $ | 564 | ||||
| TOTAL ASSETS | $ | 623 | $ | 564 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 46,602 | $ | 37,100 | ||||
| Accounts payable - related parties | 24,857 | 24,500 | ||||||
| Deposit from letter of intent | 32,500 | — | ||||||
| Notes payable and accrued interest from related parties, net | 221,092 | 227,770 | ||||||
| TOTAL CURRENT LIABILITIES | 325,051 | 289,370 | ||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding at March 31, 2013 and June 30, 2012, respectively | — | — | ||||||
| Common stock, $0.01 par value, 20,000,000 shares authorized, 183,927 and 170,865 shares issued and outstanding at March 31, 2013 and June 30, 2012, respectively.* | 1,836 | 1,709 | ||||||
| Additional paid in capital | 525,786 | 462,028 | ||||||
| Accumulated deficit | (852,050 | ) | (752,543 | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | (324,428 | ) | (288,806 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 623 | $ | 564 | ||||
*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. For further details, please see Note 3 to these financial statements.
The accompanying notes are an integral part of these condensed financial statements.
| -3- |
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, | ||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | ||||||||||||||||
| REVENUES | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| COST OF SALES | — | — | — | — | — | |||||||||||||||
| GROSS PROFIT | — | — | — | — | — | |||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||||
| General and administrative expenses | 19,488 | 4,750 | 55,301 | 23,232 | 345,902 | |||||||||||||||
| Total operating expenses | 19,488 | 4,750 | 55,301 | 23,232 | 345,902 | |||||||||||||||
| LOSS FROM OPERATIONS | (19,488 | ) | (4,750 | ) | (55,301 | ) | (23,232 | ) | (345,902 | ) | ||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||||||
| Interest expense | (16,223 | ) | (4,600 | ) | (44,206 | ) | (35,978 | ) | (135,119 | ) | ||||||||||
| Loss on extinguishment of debt | — | — | — | — | (20,000 | ) | ||||||||||||||
| Gain on sale of short term investment | — | — | — | — | 12,734 | |||||||||||||||
| Total other expense | (16,223 | ) | (4,600 | ) | (44,206 | ) | (35,978 | ) | (142,385 | ) | ||||||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | (35,711 | ) | (9,350 | ) | (99,507 | ) | (59,210 | ) | (488,287 | ) | ||||||||||
| Provision for income taxes | — | — | — | — | — | |||||||||||||||
| NET LOSS | $ | (35,711 | ) | $ | (9,350 | ) | $ | (99,507 | ) | $ | (59,210 | ) | $ | (488,287 | ) | |||||
| NET LOSS PER SHARE OF COMMON STOCK — Basic and diluted | $ | (0.19 | ) | $ | (0.05 | ) | $ | (0.55 | ) | $ | (0.35 | ) | ||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — Basic and diluted* | 183,645 | 170,865 | 181,617 | 168,047 | ||||||||||||||||
*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. For further details, please see Note 3 to these financial statements.
The accompanying notes are an integral part of these condensed financial statements.
| -4- |
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, | |||||||||||
| 2013 | 2012 | 2013 | ||||||||||
| OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | (99,507 | ) | $ | (59,210 | ) | $ | (488,287 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Common stock issued for loan inducement | 16,021 | 20,000 | 56,021 | |||||||||
| Warrants issued for loan inducement | 13,221 | — | 13,221 | |||||||||
| Gain on sale of short term investment | — | — | (12,734 | ) | ||||||||
| Changes in operating assets and liabilities; | ||||||||||||
| Accounts payable and accrued expenses | 9,505 | 13,629 | 90,291 | |||||||||
| Accrued interest payable – related parties | 14,962 | — | 14,964 | |||||||||
| Accounts payable, related parties | 357 | — | 17,328 | |||||||||
| Net cash used in operating activities | (45,441 | ) | (25,581 | ) | (309,196 | ) | ||||||
| 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 | 32,500 | ||||||||||
| Proceeds from notes payable, related parties | 13,000 | 25,000 | 230,000 | |||||||||
| Net cash provided by financing activities | 45,500 | 25,000 | 266,000 | |||||||||
| NET INCREASE (DECREASE) IN CASH | 59 | (581 | ) | (2,626 | ) | |||||||
| CASH, Beginning of period | 564 | 2,425 | 3,249 | |||||||||
| CASH, End of period | $ | 623 | $ | 1,844 | $ | 623 | ||||||
The accompanying notes are an integral part of these condensed financial statements.
| -5- |
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, 2012 included in our Annual Report on Form 10-K. The results of the three and nine month periods ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year ending June 30, 2013.
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 $852,050 at March 31, 2013. 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 Networkd, 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 March 31, 2013 and June 30, 2012, 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, 2013, there were zero dilutive securities which are considered anti-dilutive.
| -6- |
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 - Adopted
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. The amendments result in common fair value measurement and disclosure requirements in U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRSs), and do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices. The amendments in this update are effective during interim and annual periods beginning after December 15, 2011. Adoption of the new amendment did not have a material effect on the Company’s financial position, results of operations or cash flow.
Recently Issued Accounting Pronouncements – Not Adopted
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This update will enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments. The requirements of this update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Entities should provide the disclosures required retrospectively for all comparative periods presented. We are currently evaluating the impact of adopting ASU 2011-11 on the consolidated financial statements.
The FASB issued Accounting Standards Update (ASU) No. 2012-02 Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, on July 27, 2012, to simplify the testing for a drop in value of intangible assets such as trademarks, patents, and distribution rights. The amended standard reduces the cost of accounting for indefinite-lived intangible assets, especially in cases where the likelihood of impairment is low. The changes permit businesses and other organizations to first use subjective criteria to determine if an intangible asset has lost value. The amendments to U.S. GAAP will be effective for fiscal years starting after September 15, 2012. Early adoption is permitted. The adoption of this accounting guidance will not have a material impact on our financial statements and related disclosures.
Other 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.
| -7- |
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, 2013. 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 amortize over the term of the loan and the unamortized portion is 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, 2013 was $34,640. 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, 2012 | $ | 157,000 | ||
| Additional notes payable issued | 13,000 | |||
| Discount on note payable | (34,640 | ) | ||
| Balance, March 31, 2013 | $ | 135,360 |
Accrued interest:
A summary of the accrued interest activity is as follows:
| Balance, June 30, 2012 | $ | 70,770 | ||
| Accrued interest for the nine months ended March 31, 2013 | 14,962 | |||
| Balance, March 31, 2013 | $ | 85,732 |
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, 2013. As of March 31, 2013, 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, 2013. As of March 31, 2013, 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, 2013. As of March 31, 2013, accrued interest payable totaled $9,680 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, 2013. As of March 31, 2013, accrued interest payable totaled $3,111 and is due at maturity. Accrued interest is included in the notes payable, related parties balance.
| -8- |
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, 2013. As of March 31, 2013, accrued interest payable totaled $8,595 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, 2013. As of March 31, 2013, accrued interest payable totaled $13,625 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, 2013. As of March 31, 2013, accrued interest payable totaled $21,041 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, 2013. As of March 31, 2013, accrued interest payable totaled $4,830 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, 2013. As of March 31, 2013, accrued interest payable totaled $6,431 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, 2013. As of March 31, 2013, accrued interest payable totaled $2,055 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, 2013. As of March 31, 2013, accrued interest payable totaled $1,912 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, 2013. As of March 31, 2013, accrued interest payable totaled $1,782 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, 2013. As of March 31, 2013, 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, 2013. As of March 31, 2013, 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, 2013. As of March 31, 2013, 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, 2013. As of March 31, 2013, accrued interest payable totaled $59 and is due at maturity. Accrued interest is included in the notes payable and accrued interest, related parties balance.
| -9- |
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 March 31, 2013. 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, 2013, accrued interest payable totaled $1,900 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, 2013. As of March 31, 2013, accrued interest payable totaled $712 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, 2013. As of March 31, 2013, accrued interest payable totaled $224 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 March 31, 2013. 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, 2013 was $57,358. 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, 2013, accrued interest payable totaled $385 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, 2013. As of March 31, 2013, accrued interest payable totaled $155 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.
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.
NOTE 3 – DEPOSIT
On December 24, 2012, the Company 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. Under the LOI, if all conditions are satisfied or waived, the following will take place (a) transfer all of the intellectual property rights and operations of StemGen into the direct ownership and control of the Company; and (b) transfer all of the equity interests of StemGen into the direct ownership and control of the Company. The LOI is subject to the Company performing a reverse stock split of 1 for 80 and changing its name to StemGen, Inc which the Company has done. StemGen will pay the Company an amount in cash equal to $325,000 at closing of which a 10% non-refundable deposit was paid after the signing of the LOI. A definitive agreement will set forth the specific terms of the transaction. The definitive agreement shall contain standard representations and warranties.
NOTE 4 – SUBSEQUENT EVENTS
On April 8, 2013, we received an infusion of $5,000 in order to continue its operations in the near-term. The Company executed a $5,000 note with ImaginEquity Inc. pursuant to which they advanced the Company $5,000 at a rate of 6% per annum which is due on December 31, 2013.
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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, 2012 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, 2012 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 DE”, the “Company,” us, we or our) 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. As of December 31, 2006, StemGen DE no longer had an equity interest in Comtex and no longer had an equity interest in Analex.
On December 24, 2012, the Corporation received a nonrefundable deposit of $32,500 under a LOI which it entered into on December 11, 2012 with StemGen Inc. a Nevada corporation. Under the LOI, if all conditions are satisfied or waived the following will take place (a) transfer all of the intellectual property rights and operations of StemGen into the direct ownership and control of the Company; and (b) transfer all of the equity interests of StemGen into the direct ownership and control of the Company. The LOI is subject to the Company performing a reverse stock split of 1 for 80 and changing its name to StemGen, Inc. The Company completed the name change and reverse stock split. StemGen will pay the Company an amount in cash equal to $325,000 at closing of which a 10% non-refundable deposit was paid after the signing of the LOI. A definitive agreement will set forth the specific terms of the transaction. The definitive agreement shall contain standard representations and warranties.
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.
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, 2012. We have not changed these policies from those previously disclosed.
For the Three Months Ended March 31, 2013 and 2012
Results of Operations
General and Administrative Expenses
General and administrative expenses were $19,488 and $4,750 for the three months ended March 31, 2013 and 2012, respectively. The increase in general and administrative expenses of $14,738 for the three month period was mainly due to the increase in various corporate expenses as a result of changing the Company name and performing a reverse stock split.
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Other Income (Expense)
Other expense was $35,711 and $9,350 for the three months ended March 31, 2013 and 2012, respectively. The increase for the three month period of $26,361 is due to the additional interest expense accrued on our additional notes payable, related party balances and interest expense recorded for shares issued as an inducement to enter into a loan.
For the Nine months Ended March 31, 2013 and 2012
Results of Operations
General and Administrative Expenses
General and administrative expenses were $55,301 and $23,232 for the nine months ended March 31, 2013 and 2012, respectively. The increase in general and administrative expenses of $32,069 for the nine month period was mainly due to the increase in various corporate expenses as a result of changing the Company name and performing a reverse stock split.
Other Income (Expense)
Other expense was $44,206 and $35,978 for the nine months ended March 31, 2013 and 2012, respectively. The decrease for the nine month period of $8,228 is due to reduced interest expense recorded for shares issued as an inducement to enter into a loan. During the nine months ended March 31, 2013 and 2012, the Company issued an additional $10,000 of related party notes payable.
Liquidity and Capital Resources
Net cash used in operating activities was $45,441 and $25,581 in the nine months ended March 31, 2013 and 2012, respectively. The increase was primarily due to the increase in professional fees for the nine months ended March 31, 2013 compared to 2012.
Net cash provided by investing activities was $-0- and $-0- in the nine months ended March 31, 2013 and 2012, respectively.
Net cash provided by financing activities was $45,500 and $25,000 in the nine months ended March 31, 2013 and 2012, respectively.
We suffered recurring losses from operations and have an accumulated deficit of $852,050 as of March 31, 2013. 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.
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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 4T - 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.
| -13- |
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, 2013, we had an accumulated deficit of $852,050. 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, 2012.
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.
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.
| -14- |
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. | ||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| STEMGEN, INC. | ||
| Date: May 9, 2013 | /s/ C.W. Gilluly | |
| Name: C.W. Gilluly, Ed.D. | ||
| Title: President, Chief Executive Officer and Chief Financial Officer |
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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. |
EXHIBIT 31
STEMGEN, INC.
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, C.W. Gilluly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of StemGen, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control to be designed under our supervision, 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. |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| May 9, 2013 | ||
| /s/ C.W. Gilluly | ||
|
C.W. Gilluly, Ed.D. President, Chief Executive Officer and Chief Financial Officer | ||
STEMGEN, INC.
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18,
UNITED STATES CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of StemGen, Inc. (the “Company”), does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), to the best of the undersigned’s knowledge that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| May 9, 2013 | ||
| /s/ C.W. Gilluly | ||
|
C.W. Gilluly, Ed.D. President, Chief Executive Officer and Chief Financial Officer |
||
|
SUBSEQUENT EVENTS
|
9 Months Ended |
|---|---|
|
Mar. 31, 2013
|
|
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS |
NOTE 4 – SUBSEQUENT EVENTS
On January 14, 2013, Mr. Chip Brian terminated and cancelled his warrants to purchase 2,000,000 shares of the Company’s common stock. |