Business Context and Reporting Period
This unaudited Form 10-Q is for Putnam Hills Corp., identified in the request metadata as Lunai Bioworks Inc., for the quarter and nine months ended December 31, 2012. The company was incorporated in January 2011 and remains a development-stage, blank-check and shell company seeking a business combination. It has generated no operating revenue since inception.
The company reported 5,000,000 common shares outstanding as of February 14, 2013. Samir Masri serves as chief executive officer, president, secretary, chief financial officer and director.
Key Financial Metrics
| Metric | Three Months Ended December 31, 2012 | Nine Months Ended December 31, 2012 | Balance Sheet Date |
|---|---|---|---|
| Revenue | $0 | $0 | December 31, 2012 |
| General and administrative expenses | $9,638 | $27,678 | — |
| Interest expense | $181 | $206 | — |
| Net loss | $9,819 | $27,884 | — |
| Cash | — | — | $158 |
| Loans receivable from related parties | — | — | $13,219 |
| Total assets | — | — | $13,377 |
| Total current liabilities | — | — | $54,941 |
| Stockholders’ deficiency | — | — | $(41,564) |
The filing does not provide a meaningful operating margin because the company has no revenue. Basic and diluted loss per share is reported as $0, based on 5,000,000 weighted-average shares for the nine-month period.
- Net cash used in operating activities was $27,678 for the nine months ended December 31, 2012, compared with $20,158 in the prior-year period.
- Net cash used in investing activities was $0 in the current period; cumulative investing cash use since inception was $13,219, relating to loans to related parties.
- Net cash provided by financing activities was $27,500, consisting of $16,000 in related-party loans and $11,500 in related-party notes payable.
- Cash declined by $178 during the nine months, from $336 to $158.
- Related-party debt comprised a $38,235 loan payable and a $16,500 note payable. The note bears 6% interest and is payable upon completion of a qualifying business combination.
Material Changes Versus Prior Comparable Period
- Revenue remained at $0.
- Nine-month net loss increased to $27,884 from $25,534, an increase of $2,350, or approximately 9.2%.
- Nine-month general and administrative expenses increased to $27,678 from $25,534.
- Interest expense increased from $0 to $206.
- Operating cash use increased to $27,678 from $20,158.
- Current liabilities increased to $54,941 from $27,235 at March 31, 2012, primarily because of additional related-party borrowings and $206 of accrued interest and other liabilities.
- Stockholders’ deficiency increased to $41,564 from $13,680, reflecting the cumulative net loss.
Guidance, Outlook, Risks and Unusual Items
Management provided no quantitative revenue, earnings or operating guidance. Its stated plan is to identify and complete a business combination, potentially through a reverse merger. Management disclosed that it had not had discussions with representatives of other entities regarding a business combination since the Form 10 registration statement became effective.
The filing states that substantial doubt exists about the company’s ability to continue as a going concern. The company has incurred cumulative losses of approximately $67,000, had negative working capital of approximately $42,000, and had only $158 of cash at December 31, 2012. Continued operations depend on finding a suitable acquisition or merger candidate, raising capital and receiving additional related-party financing. There is no assurance that funding will be available.
- The company has no current operating business or cash-generating activities and may not generate revenue unless it completes an acquisition or merger.
- Potential targets may be financially unstable, early-stage or operating in high-risk industries. A single business combination would provide limited diversification.
- Related-party loans are generally unsecured, non-interest bearing and have no stipulated repayment terms. The $16,500 note bears 6% interest; the lender waived accrued interest through August 20, 2012.
- Subsequent to December 31, 2012, the company borrowed an additional $4,000 from a related party.
- Sasha Masri resigned as chief financial officer and director effective October 19, 2012. Samir Masri was appointed chief financial officer.
- No material legal proceedings, unregistered equity sales or defaults upon senior securities were reported.
- Management concluded that disclosure controls and procedures were effective as of December 31, 2012, with no material changes in internal control reported during the quarter.
Investor Verification Priorities
- Verify the registrant’s legal identity and whether the filing relates to Putnam Hills Corp. rather than Lunai Bioworks Inc.
- Confirm the company’s ability to obtain additional financing given its $158 cash balance, negative working capital and going-concern uncertainty.
- Review the terms, maturity and collectability of the $13,219 in related-party loans receivable.
- Assess the repayment terms, accrued interest and subsequent $4,000 borrowing under related-party debt.
- Verify whether management has identified a credible acquisition target or entered into a business-combination agreement after the filing date.
- Evaluate the potential dilution and control consequences of any future equity financing or reverse merger.