Business Context and Reporting Period
Filing entity: Putnam Hills Corp. (the supplied metadata identifies Lunai Bioworks Inc.; investors should verify the issuer name). This unaudited Form 10-Q covers the three months ended June 30, 2013, with comparative results for the three months ended June 30, 2012. The company was a Delaware development-stage, blank-check and shell company formed to identify and complete a business combination. It had no operating business or revenue.
There were 5,000,000 common shares outstanding as of August 14, 2013. The company reported that it was a smaller reporting company and an emerging growth company.
Financial Condition and Key Metrics
| Metric | Three months ended June 30, 2013 | Comparable period or balance |
|---|---|---|
| Revenue | $0 | $0 in Q2 2012; $0 since inception |
| General and administrative expense | $2,525 | $11,000 in Q2 2012 |
| Interest expense | $387 | $0 in Q2 2012 |
| Net loss | $2,912 | $11,000 in Q2 2012 |
| Cash flow from operating activities | $(7,025) | $(11,000) in Q2 2012 |
| Cash flow from financing activities | $500 | $11,000 in Q2 2012 |
| Cash at period end | $219 | $6,744 at March 31, 2013 |
| Total assets | $13,438 | $19,963 at March 31, 2013 |
| Total liabilities | $67,619 | $71,232 at March 31, 2013 |
| Stockholders’ deficiency | $(54,181) | $(51,269) at March 31, 2013 |
Assets consisted of $219 of cash and $13,219 of loans receivable from related parties. Liabilities included $3,384 of accounts payable and accrued expenses, a $38,235 related-party loan payable, and a $26,000 related-party note payable. Working capital was negative by approximately $54,000. The filing does not provide a meaningful operating margin because the company had no revenue.
Material Changes Versus the Prior Comparable Period
- Net loss decreased to $2,912 from $11,000, primarily because general and administrative expenses declined to $2,525 from $11,000.
- Interest expense increased to $387 from zero, reflecting the related-party note.
- Operating cash usage improved to $7,025 from $11,000, while financing cash inflow declined to $500 from $11,000.
- Cash fell by $6,525 during the quarter, from $6,744 to $219.
- Total assets decreased by $6,525, while total liabilities declined by $3,613. Stockholders’ deficiency increased by $2,912 due to the quarterly net loss.
- The company borrowed an additional $5,700 from a related party after June 30, 2013; this subsequent borrowing was not included in the June 30 balance sheet.
Guidance, Outlook, Risks and Unusual Items
Management planned to continue searching for a suitable acquisition or merger candidate. The company had not conducted active operations beyond organizational activities and acquisition efforts and reported no contacts or discussions with potential combination partners since its Form 10 became effective.
Management stated that funding would be required for reporting costs and acquisition efforts and could come from additional equity, related-party loans, investors, or deferred service-provider fees. There is no assurance that additional funding will be available. The financial statements disclose substantial doubt about the company’s ability to continue as a going concern because of cumulative losses of approximately $79,000, negative working capital, minimal cash, and dependence on a business combination and additional financing.
Related-party balances were significant: the loan payable was unsecured, non-interest bearing, and had no stipulated repayment terms; the loans receivable were unsecured, non-interest bearing, and had no stipulated repayment terms. The $26,000 related-party note bears interest at 6% and is payable upon completion of a qualifying business combination. Accrued interest of $884 was included in accounts payable and accrued expenses.
The company reported no material legal proceedings, no off-balance-sheet arrangements, and no unregistered equity sales during the quarter. Management concluded that disclosure controls and procedures were effective as of June 30, 2013, with no material changes in internal controls during the quarter.
Important Facts for Investors to Verify
- Confirm the issuer identity: the filing is for Putnam Hills Corp., not Lunai Bioworks Inc.
- Verify the reporting period, which is the quarter ended June 30, 2013 despite the supplied “2013 Q1” label.
- Assess the going-concern disclosure, $219 cash balance, approximately $54,000 negative working capital, and dependence on related-party financing.
- Review the terms, collectability, and related-party nature of the $13,219 loans receivable and $64,235 of related-party debt.
- Confirm the subsequent $5,700 related-party borrowing and determine its impact on liquidity after quarter-end.
- Evaluate the absence of revenue, operating activities, and identified acquisition discussions, as well as the risks associated with blank-check and shell-company status.