Business Context and Reporting Period
This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2016, and was filed November 14, 2016. The filing identifies the registrant as Zeta Acquisition Corp. II, not Whitehawk Therapeutics, Inc.; investors should verify the entity identification.
Zeta Acquisition Corp. II is a Delaware blank-check and shell company formed to identify and complete a business combination. It has conducted no active operating business, generated no revenue since inception, and had not identified a target or held discussions regarding a business combination since its registration statement became effective.
Financial Results and Position
| Metric | Three Months Ended September 30, 2016 | Comparable 2015 Period |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $4,340 | $4,328 |
| Interest expense | $2,434 | $2,193 |
| Net loss | $(6,774) | $(6,521) |
| Basic and diluted loss per share | $(0.00) | $(0.00) |
| Metric | Nine Months Ended September 30, 2016 | Comparable 2015 Period |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $13,405 | $13,393 |
| Interest expense | $7,371 | $6,215 |
| Net loss | $(20,776) | $(19,608) |
| Net cash used in operating activities | $(20,692) | $(18,993) |
| Net cash provided by financing activities | $10,000 | $20,000 |
Amounts are presented as reported and appear to be in U.S. dollars. No meaningful revenue or operating margin analysis is applicable because the company has no revenue or operating business.
- Cash and cash equivalents were $7,837 at September 30, 2016, compared with $18,529 at December 31, 2015.
- Total liabilities were $215,094, including $170,000 of stockholder notes payable and $39,807 of accrued interest.
- Stockholder notes issued during 2016 totaled $10,000. The unsecured notes bear interest at 6% and are due on demand.
- Total stockholders’ deficit was $(207,257), compared with $(186,481) at December 31, 2015.
- There were 5,000,000 common shares outstanding as of November 14, 2016.
- The company reported no material off-balance-sheet arrangements and no material legal proceedings.
Material Changes Versus the Prior Comparable Period
- Third-quarter net loss increased by $253, or approximately 3.9%, primarily because of higher interest expense.
- Nine-month net loss increased by $1,168, or approximately 6.0%.
- Nine-month operating cash use increased by $1,699, or approximately 8.9%.
- Financing proceeds declined by $10,000, from $20,000 to $10,000.
- Cash declined by $10,692 during the first nine months of 2016, versus a $1,007 increase in the comparable 2015 period.
- Accrued interest increased from $32,436 at December 31, 2015 to $39,807 at September 30, 2016, while stockholder notes payable increased from $160,000 to $170,000.
Outlook, Risks, Contingencies, and Unusual Items
Management plans to continue searching for a suitable acquisition candidate. It expects future costs for SEC reporting and investigating, analyzing, and potentially consummating an acquisition. Management expects to fund these activities with existing treasury funds, deferred service-provider fees, and additional loans or investments from stockholders, management, or other investors.
The filing states that the company may not be able to satisfy its cash requirements for the next twelve months and that its ability to continue as a going concern depends on obtaining financing, generating future profitable operations, and completing a suitable business combination. Management disclosed substantial uncertainty regarding continued related-party funding. The financial statements therefore include a going-concern uncertainty and no related adjustment to asset or liability classifications.
- The company has nominal assets, no revenues, recurring losses, and liabilities substantially exceeding cash.
- Stockholder notes are unsecured and due on demand, creating a liquidity risk.
- Any eventual target could be financially unstable, early-stage, or in a high-risk industry.
- Management anticipates it may complete only one business combination, resulting in limited diversification and possible substantial dilution.
- The company uses office space and equipment provided by an officer and director at no cost on a month-to-month basis; management considers the value de minimis.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2016, with no material changes to internal control over financial reporting during the quarter.
Investor Verification Checklist
- Verify that the filing belongs to Zeta Acquisition Corp. II rather than Whitehawk Therapeutics, Inc.
- Confirm the terms, maturity, related-party holders, and enforceability of the $170,000 of stockholder notes and $39,807 of accrued interest.
- Assess whether additional financing is available and sufficient to fund operations and satisfy liabilities due on demand.
- Review the going-concern disclosure and the absence of an identified acquisition target.
- Confirm the company’s shell-company status, lack of revenue, and lack of operating history.
- Evaluate potential dilution and transaction risks if a future reverse merger or business combination is pursued.