Business Context and Reporting Period
The filing is a Form 10-Q for Putnam Hills Corp., although the request metadata identifies Lunai Bioworks Inc. The report covers the quarter and six months ended September 30, 2013, within the fiscal year ending March 31, 2014. Putnam Hills is a Delaware development-stage, blank-check and shell company formed to identify and complete a business combination. It had no operating business or revenue.
The financial statements are unaudited interim statements and should be read with the March 31, 2013 Form 10-K. The company reported 5,000,000 common shares outstanding as of November 15, 2013.
Financial Metrics
| Metric | Three Months Ended September 30, 2013 | Six Months Ended September 30, 2013 | Comparable Period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 in the prior-year periods |
| General and administrative expense | $15,951 | $18,476 | $7,040 and $18,040, respectively |
| Interest expense | $445 | $842 | $25 and $25, respectively |
| Net loss | $(16,396) | $(19,318) | $(7,065) and $(18,065), respectively |
| Basic and diluted loss per share | $0 | $0 | $0 |
| Operating cash flow | Not provided for the three-month period | $(16,726) | $(18,040) |
No meaningful revenue or operating margin existed because the company had no operations or revenue. Cumulative net loss from inception through September 30, 2013 was $95,587.
- Assets: $13,219 at September 30, 2013, consisting entirely of loans receivable from related parties, compared with $19,963 at March 31, 2013.
- Cash: $0 at September 30, 2013, compared with $6,744 at March 31, 2013.
- Liabilities: The balance sheet reports $83,806 of current liabilities, including $38,235 owed under a related-party loan, $35,482 under a related-party note, and $10,089 of accounts payable and accrued expenses. The MD&A states total liabilities of $84,303; the filing does not explain the difference.
- Stockholders’ deficiency: $(70,587), versus $(51,269) at March 31, 2013.
- Financing: $9,982 of financing cash inflow during the six months, consisting of a $9,982 increase in a related-party note payable. No equity was issued during the period.
- Working capital: Negative working capital was approximately $70,587 based on the balance sheet.
Material Changes Versus Prior Comparable Period
- Six-month net loss increased to $19,318 from $18,065, primarily because general and administrative expenses increased to $18,476 from $18,040 and interest expense increased to $842 from $25.
- Quarterly net loss increased to $16,396 from $7,065, while quarterly general and administrative expenses increased to $15,951 from $7,040.
- Operating cash use improved modestly to $16,726 from $18,040, but the company ended the period with no cash.
- Related-party note payable increased by $9,982 during the six months. Accounts payable and accrued expenses increased by $2,592 from March 31, 2013.
- Total assets declined by $6,744 as cash was used to fund operations. Stockholders’ deficiency increased by $19,318, equal to the period’s net loss.
Guidance, Outlook, Risks and Unusual Items
Management expects to continue seeking a business combination and anticipates costs for SEC filings and acquisition-related investigation. The company has no cash-generating activities and expects to depend on additional related-party advances, equity financing or other funding. There is no assurance that financing will be available or that a suitable acquisition will be completed.
The financial statements disclose substantial doubt about the company’s ability to continue as a going concern. Management’s plans depend on finding a suitable acquisition or merger candidate, raising capital and obtaining additional related-party loans. The statements contain no adjustments that might be required if the company cannot continue as a going concern.
On November 7, 2013, after the reporting period, the company entered into a non-binding letter of intent with Dandrit Biotech A/S. The proposed transaction would acquire at least 90% of Dandrit in exchange for approximately 6,000,000 Putnam Hills shares. The existing sole shareholder of Putnam Hills agreed, subject to definitive documentation, to cancel 4,400,000 shares. Closing would be subject to a definitive agreement, approval by at least 90% of Dandrit’s equity holders and other conditions. Dandrit also agreed to pay up to $8,000 of the company’s filing-related fees and expenses.
Related-party balances are material. The $38,235 related-party loan is unsecured, non-interest bearing and has no stated repayment terms. The $35,482 related-party note bears 6% interest and is payable upon completion of a qualifying business combination; $1,339 of accrued interest was recorded in accounts payable and accrued expenses.
The company reported no material pending legal proceedings, no unregistered equity sales during the period and no material off-balance-sheet arrangements. Management concluded that disclosure controls and procedures were effective as of September 30, 2013.
Important Facts to Verify
- Confirm that the filing pertains to Putnam Hills Corp. rather than Lunai Bioworks Inc.
- Reconcile the balance-sheet current liabilities of $83,806 with the MD&A total-liabilities figure of $84,303.
- Verify the status, definitive terms, ownership percentages, share issuance and closing conditions of the Dandrit letter of intent.
- Assess the company’s ability to obtain funding given zero cash, negative working capital and substantial doubt regarding going-concern status.
- Review the collectability and terms of the $13,219 related-party loans receivable.
- Evaluate the potential dilution and ownership impact of issuing approximately 6,000,000 shares and cancelling 4,400,000 existing shares.