Business Context and Reporting Period
This filing is a Form 10-Q for the quarter ended September 30, 2011, filed November 14, 2011. Although the request identifies Kura Oncology, Inc., the filing names Zeta Acquisition Corp. III as the registrant. Zeta describes itself as a development-stage blank-check and shell company formed to identify and complete a business combination. It had no operating business, no identified target, and no revenue through September 30, 2011.
Financial Highlights
- Revenue: None since inception on November 16, 2007.
- Net loss: $6,267 for the third quarter and $18,156 for the nine months ended September 30, 2011, compared with losses of $4,767 and $14,649, respectively, in the comparable 2010 periods.
- Operating loss: $5,360 for the quarter and $15,464 for the nine months, consisting primarily of general and administrative expenses.
- Interest expense: $907 for the quarter and $2,692 for the nine months. Cumulative net loss since inception was $109,147.
- Cash flow: Net cash used in operating activities was $20,743 for the nine months, versus $18,888 in the prior-year period. There was no investing cash flow and no financing cash flow during the 2011 nine-month period.
- Liquidity: Cash and cash equivalents were $6,155 at September 30, 2011, down from $26,898 at December 31, 2010. Total current assets were $10,530, compared with $29,398.
- Debt and liabilities: Total liabilities were $69,677, including $60,000 of unsecured notes payable to stockholders, $2,497 of accounts payable, and $7,180 of accrued expenses. The stockholder notes bear 6% interest and are due on demand.
- Capitalization: The company had 5,000,000 common shares outstanding and stockholders’ deficit of $59,147 at September 30, 2011.
- Margins: Operating and net margins are not meaningful because the company generated no revenue.
Material Changes Versus the Prior Comparable Period
- Third-quarter net loss increased by $1,500, or approximately 31%, from $4,767 to $6,267.
- Nine-month net loss increased by $3,507, or approximately 24%, from $14,649 to $18,156.
- Nine-month operating cash use increased by $1,855, or approximately 10%, from $18,888 to $20,743.
- Cash declined by $20,743 during the first nine months of 2011, compared with an $8,888 decline during the comparable 2010 period.
- No financing proceeds were received during the 2011 nine-month period; the comparable 2010 period included $10,000 of stockholder-loan proceeds.
- Current liabilities decreased modestly from $70,389 at December 31, 2010 to $69,677 at September 30, 2011, while the stockholder-note balance remained $60,000.
Outlook, Risks, Contingencies, and Unusual Items
Management planned to continue searching for a suitable acquisition candidate and anticipated costs for SEC reporting and acquisition investigations. It expected to fund those activities through existing cash, deferred service-provider fees, and additional loans or investments from stockholders, management, or other investors. The filing provides no assurance that additional funding will be available.
Management stated that the company’s ability to continue as a going concern depends on obtaining financing, generating future profitable operations, identifying a suitable target, and potentially completing a reverse merger. The financial statements were prepared on a going-concern basis, but no adjustments were recorded for the possibility that the company may be unable to continue operations.
- The company had no identified business combination and had not held discussions with representatives of potential combination targets since its registration statement became effective.
- Any future target could be financially unstable, early-stage, or operating in a high-risk industry. A single combination would likely result in limited diversification and substantial dilution for existing stockholders.
- Approximately $16,400 of deferred tax assets were fully offset by a valuation allowance because realization was uncertain.
- The company used office space and equipment provided by an officer and director at no cost under a month-to-month arrangement; management considered the value de minimis.
- The filing reports no material legal proceedings, off-balance-sheet arrangements, unregistered equity sales, or defaults on senior securities.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2011, with no material changes in internal controls during the quarter.
Investor Verification Checklist
- Verify the issuer identity: the supplied filing is for Zeta Acquisition Corp. III, not Kura Oncology, Inc.
- Confirm the $6,155 cash balance against current obligations of $69,677 and the $60,000 of demand notes owed to stockholders.
- Assess the stated going-concern risk and the company’s dependence on related-party financing.
- Confirm that no acquisition target had been identified and that the company had no revenue-generating operations.
- Review the terms, accrued interest, and repayment status of the stockholder notes.
- Evaluate potential dilution and concentration risk associated with a future reverse merger or business combination.