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 three months ended June 30, 2012, the first quarter of the company’s fiscal year following its March 31 year-end. Putnam Hills was incorporated in Delaware in January 2011 and remained a development-stage, blank-check and shell company formed to identify and complete a business combination.
The company had no operating business or revenue and was focused on organizational activities, regulatory filings, financing, and searching for an acquisition or merger candidate. The filing states that management had not yet held discussions with representatives of other entities regarding a business combination.
Financial Condition and Results
| Metric | Three Months Ended June 30, 2012 | Three Months Ended June 30, 2011 | As of June 30, 2012 |
|---|---|---|---|
| Revenue | $0 | $0 | — |
| General and administrative expenses | $11,000 | $30 | — |
| Net loss | $11,000 | $30 | — |
| Cash flow from operating activities | $(11,000) | $(4,197) | — |
| Cash flow from investing activities | $0 | $0 | — |
| Cash flow from financing activities | $11,000 | $5,000 | — |
| Cash | — | — | $336 |
| Total assets | — | — | $13,555 |
| Total liabilities | — | — | $38,235 |
| Stockholders’ deficiency | — | — | $(24,680) |
Assets consisted primarily of $13,219 in unsecured, non-interest-bearing loans receivable from related parties and $336 of cash. Liabilities consisted of a $33,235 related-party loan payable and a $5,000 related-party note payable. The note bears a stated 6% interest rate but the lender had agreed to forego interest, so no interest expense was recorded.
The company had no revenue, operating margin, or meaningful liquidity cushion. Its cumulative net loss from inception through June 30, 2012 was $49,680, and its accumulated deficit was $49,680. The company reported approximately $50,000 of net operating loss carryforwards, but recognized no tax benefit because of a full valuation allowance.
Material Changes Versus the Prior Comparable Period
- Quarterly net loss increased to $11,000 from $30, primarily because of legal, accounting, audit, filing, and other professional fees.
- Operating cash use increased to $11,000 from $4,197.
- Financing cash inflows increased to $11,000 from $5,000, entirely from an additional advance by Sunrise Financial Group, a related party.
- Cash remained unchanged at $336 because the related-party financing offset quarterly operating cash use.
- Related-party loan payable increased by $11,000, from $22,235 at March 31, 2012 to $33,235 at June 30, 2012.
- Total liabilities increased from $27,235 to $38,235, while total assets remained $13,555.
Guidance, Outlook, Risks, and Unusual Items
Management’s stated plan was to continue searching for a suitable operating company for acquisition, merger, or reverse merger. The company expected to incur costs for Exchange Act reporting and investigating, analyzing, and potentially consummating an acquisition.
Management stated that funding would need to come from available treasury funds, fee deferrals, additional related-party loans, equity financing, or investors. There was no assurance that additional funding would be available. The filing expressly states that substantial doubt exists about the company’s ability to continue as a going concern because of recurring losses, negative working capital of approximately $25,000, minimal cash, and dependence on obtaining financing and completing a business combination.
Subsequent to June 30, 2012, the company received an additional $5,000 from Sunrise Financial Group to pay professional fees. Related-party transactions are significant: management provided office space and equipment at no cost, related parties funded professional fees and operations, and the company held loans receivable from entities controlled by the former president.
The company had no material pending legal proceedings, no reported defaults upon senior securities, and no material off-balance-sheet arrangements. Management concluded that disclosure controls and procedures were effective as of June 30, 2012, with no material changes in internal control during the quarter.
Investor Verification Priorities
- Issuer identity: Verify whether the intended company is Putnam Hills Corp. or Lunai Bioworks Inc.; the filing text names Putnam Hills Corp.
- Going concern: Review the adequacy and timing of additional financing and the company’s ability to satisfy $38,235 of liabilities with only $336 of cash.
- Business combination status: Confirm whether any acquisition, merger, or reverse-merger discussions or agreements arose after the filing date.
- Related-party funding: Verify the terms, collectibility, and repayment expectations for the $13,219 related-party loans receivable and $38,235 of related-party obligations.
- Share ownership and dilution: Confirm the 5,000,000 shares outstanding and assess potential dilution from future equity financing or a business combination.
- Subsequent financing: Verify receipt and use of the additional $5,000 received after June 30, 2012.