Business Context and Reporting Period
This Form 10-Q covers the quarter and nine months ended September 30, 2014, filed November 14, 2014. The filing identifies the registrant as Zeta Acquisition Corp. II, not Whitehawk Therapeutics, Inc. Zeta was a Delaware development-stage, blank-check and shell company formed to identify and complete a business combination. It had no operating business, no revenues, and no identified acquisition target.
Financial Highlights
| Metric | Three Months Ended September 30, 2014 | Nine Months Ended September 30, 2014 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $4,765 | $14,210 |
| Interest expense | $1,663 | $4,936 |
| Net loss | $6,428 | $19,146 |
| Net loss per share | $0.00 | $0.00 |
| Cash flow from operating activities | Not provided for the quarter | $(3,416) |
| Cash flow from financing activities | Not provided for the quarter | $15,000 |
At September 30, 2014, cash and cash equivalents were $17,868, compared with $8,783 of current assets at December 31, 2013. Current liabilities were $161,256, including $125,000 of stockholder notes payable, $22,111 of accrued interest, $10,682 of accounts payable and $3,463 of accrued expenses. Stockholders’ deficit was $143,388.
The company had no revenue-generating operations and no material investing cash flows. It had no reported off-balance-sheet arrangements or material legal proceedings. The filing does not provide operating margins because the company had no revenue.
Material Changes Versus the Prior Comparable Period
- Nine-month net loss increased modestly to $19,146 from $18,951 in 2013, primarily due to higher interest expense, partially offset by lower general and administrative expense.
- Nine-month operating cash use improved to $3,416 from $19,312 in 2013.
- Stockholder financing declined to $15,000 from $25,000 in the prior-year period.
- Cash increased to $17,868 from $10,295 at September 30, 2013, largely because financing proceeds exceeded operating cash requirements.
- Compared with December 31, 2013, cash increased by $11,585, while current liabilities increased by $28,231 and accrued interest increased by $4,936.
Guidance, Outlook, Risks and Unusual Items
Management planned to continue searching for a suitable acquisition candidate during the next twelve months. It expected to incur costs for periodic reporting and acquisition investigations, funded by existing cash, possible fee deferrals, and additional loans or investments from stockholders, management or other investors.
The financial statements contain a going-concern uncertainty. The company had generated no revenue since inception, had accumulated a deficit of $193,388, and depended on related-party financing. Management stated that there was no assurance that additional funding would be available or that the company could satisfy cash requirements for the next twelve months. Continued operations also depended on identifying a target and completing a possible reverse merger.
During 2014, stockholders provided $15,000 of unsecured demand notes bearing interest at 6%. Accrued and unpaid interest on stockholder notes totaled $22,111 at September 30, 2014. The company used office space and equipment provided by an officer and director at no cost under a month-to-month arrangement.
The company had not held discussions with potential business-combination candidates since its registration statement became effective. Any eventual transaction could involve an early-stage or financially unstable business, substantial dilution, limited diversification and significant execution risk. The company had elected the extended accounting-standard adoption period available to emerging growth companies.
Management concluded that disclosure controls and procedures were effective as of September 30, 2014, and reported no material changes in internal control over financial reporting during the quarter.
Facts an Investor Should Verify
- Confirm the registrant identity: the supplied filing is for Zeta Acquisition Corp. II, while the request names Whitehawk Therapeutics, Inc.
- Verify the company’s shell and blank-check status, lack of revenues, and absence of an identified acquisition target.
- Review the going-concern disclosure and the company’s dependence on additional related-party funding.
- Reconcile the $125,000 stockholder-note balance, 6% interest rate on 2014 borrowings, demand repayment terms and $22,111 accrued interest.
- Assess whether $17,868 of cash was sufficient relative to $161,256 of current liabilities and anticipated reporting and acquisition-search costs.
- Confirm the absence of material litigation, unregistered equity sales, defaults and off-balance-sheet arrangements reported in the filing.