Business Context and Reporting Period
The filing is a Form 10-Q for the quarter ended December 31, 2013. The filing identifies the registrant as Putnam Hills Corp., not Lunai Bioworks Inc. Putnam Hills is a Delaware development-stage, blank-check and shell company formed to identify and complete a business combination. It reported 5,000,000 common shares outstanding as of February 10, 2014.
On November 7, 2013, the company entered into a non-binding letter of intent to acquire at least 90% of DanDrit Biotech A/S, a Danish company. The proposed transaction contemplated issuing approximately 6,000,000 shares, cancellation of 4,400,000 existing shares, possible issuance of up to 1,440,000 additional shares, and approximately 8,040,000 shares outstanding after closing. No definitive agreement had been executed as of the filing date.
Key Financial Metrics
| Metric | Three Months Ended December 31, 2013 | Nine Months Ended December 31, 2013 | Balance Sheet Date |
|---|---|---|---|
| Revenue | $0 | $0 | |
| General and administrative expense | $8,097 | $26,573 | |
| Interest expense | $548 | $1,390 | |
| Net loss | $8,645 | $27,963 | |
| Cash | $22 | ||
| Total assets | $22 | ||
| Total current liabilities | $79,254 | ||
| Stockholders’ deficiency | $(79,232) |
The company has generated no revenue since inception. Profit margins are not meaningful because revenue was zero; the company operated at a loss. The filing does not provide a separate operating margin.
- Operating cash flow: $(33,573) for the nine months ended December 31, 2013, compared with $(27,678) in the prior-year period.
- Investing cash flow: $13,219, representing amounts received from related parties to satisfy loans receivable.
- Financing cash flow: $13,632, consisting of a $13,632 increase in a related-party note payable.
- Debt and obligations: $38,235 loan payable to a related party, $39,132 related-party note payable, and $1,887 of accounts payable and accrued expenses.
- Liquidity: Cash declined from $6,744 at March 31, 2013 to $22 at December 31, 2013. The company had negative working capital of approximately $79,000.
- Taxes: No income tax benefit was recognized. Net operating loss carryforwards were approximately $104,000, subject to a full valuation allowance.
Material Changes Versus Prior Comparable Period
- Third-quarter net loss improved to $8,645 from $9,819, while nine-month net loss increased slightly to $27,963 from $27,884.
- Third-quarter general and administrative expense decreased to $8,097 from $9,638. Nine-month general and administrative expense decreased to $26,573 from $27,678.
- Interest expense increased to $548 from $181 for the quarter and to $1,390 from $206 for the nine-month period.
- Operating cash usage increased to $33,573 from $27,678 for the comparable nine-month period.
- Cash decreased substantially from $6,744 at March 31, 2013 to $22 at December 31, 2013. Loans receivable from related parties of $13,219 were fully repaid.
- Related-party note payable increased by $13,632 during the nine-month period, while the related-party loan payable remained at $38,235.
- The company’s accumulated deficit increased from $76,269 at March 31, 2013 to $104,232 at December 31, 2013.
Outlook, Risks, Contingencies, and Unusual Items
Management’s plan is to continue seeking a suitable acquisition or merger candidate, with the DanDrit transaction as the principal current objective. The LOI is non-binding, remains subject to a definitive agreement and approval by at least 90% of DanDrit’s equity holders, and may not be completed.
The financial statements disclose substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on completing a business combination, raising additional capital, obtaining related-party advances, or otherwise securing financing. The company stated that it cannot assure that funding will be available or that it can satisfy cash requirements for the next twelve months.
The company has no operating business, no revenue-producing activities, and no material off-balance-sheet arrangements. Related-party financing is unsecured, and the $38,235 loan has no stated repayment terms. The $39,132 related-party note bears interest at 6% and is payable upon completion of a business combination; $1,887 of accrued interest was included in accounts payable and accrued expenses.
Management stated that disclosure controls and procedures were effective as of December 31, 2013, with no material changes in internal control during the quarter. No material legal proceedings were reported. The filing provides no quantitative revenue or earnings guidance.
Important Facts for Investors to Verify
- Verify the registrant identity: the supplied filing is for Putnam Hills Corp., while the request metadata names Lunai Bioworks Inc.
- Verify whether a definitive agreement with DanDrit Biotech A/S was ever executed and whether the proposed share exchange closed.
- Assess the going-concern uncertainty, including only $22 of cash, approximately $79,000 of negative working capital, and reliance on related-party funding or new capital.
- Review the terms, collectability, and repayment timing of the related-party loan and note payable.
- Evaluate the potential dilution and ownership effects of the contemplated 6,000,000 share issuance, 4,400,000-share cancellation, and up to 1,440,000 additional shares.
- Confirm the accounting and tax treatment of the approximately $104,000 net operating loss carryforward and its full valuation allowance.
- Reconcile the cash-flow presentation: the financial statements show $13,219 of cash provided by investing activities, while one MD&A table contains an inconsistent negative sign.