Business Context and Reporting Period
The filing is an unaudited Form 10-Q for the quarter ended March 31, 2014, filed May 15, 2014, by Zeta Acquisition Corp. II. The request identifies Whitehawk Therapeutics, Inc.; however, the provided filing names Zeta Acquisition Corp. II as the registrant. Zeta was 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.
Financial Metrics
| Metric | Q1 2014 / March 31, 2014 | Comparable period / December 31, 2013 |
|---|---|---|
| Revenue | $0 | $0 |
| Net loss | $5,766 | $6,063 in Q1 2013 |
| Operating expenses | $4,138 | $4,806 in Q1 2013 |
| Interest expense | $1,628 | $1,257 in Q1 2013 |
| Cash and cash equivalents | $5,883 | $6,283 at December 31, 2013 |
| Total assets | $6,508 | $8,783 at December 31, 2013 |
| Total liabilities | $136,516 | $133,025 at December 31, 2013 |
| Stockholders’ deficit | $130,008 | $124,242 at December 31, 2013 |
| Stockholder notes payable | $110,000 | $110,000 at December 31, 2013 |
| Accrued interest | $18,803 | $17,175 at December 31, 2013 |
There was no gross profit or meaningful margin because the company had no revenue. Net cash used in operating activities was $400 in Q1 2014, compared with $1,901 in Q1 2013. There was no investing or financing cash flow during Q1 2014. Since inception, cumulative net loss was $180,008 and cumulative operating cash use was $154,117.
Material Changes, Outlook, and Risks
- Net loss decreased by $297, or approximately 5%, from Q1 2013, primarily because general and administrative expenses declined; interest expense increased.
- Cash declined by $400 during the quarter, while total liabilities increased by $3,491, driven principally by higher accrued interest and accrued expenses.
- Management planned to continue searching for a suitable acquisition or merger candidate. The filing states that management had not had discussions with representatives of other entities regarding a business combination since the registration statement became effective.
- The company depended on additional financing, including potential stockholder or management advances, to fund reporting obligations and acquisition efforts. Management stated that there was no assurance such funding would be available.
- The financial statements were prepared on a going-concern basis. Management identified substantial dependence on future financing, profitable operations, and completion of a business combination to satisfy obligations and continue operations.
- The stockholder notes were unsecured, payable on demand, and included 6% interest-bearing loans. Accrued interest of $18,803 remained unpaid at March 31, 2014.
- The company had nominal assets, no operating cash flow, no material off-balance-sheet arrangements, and no material pending legal proceedings. Disclosure controls and procedures were reported effective, with no material changes in internal controls.
Investor Verification Points
- Confirm the identity of the registrant: the supplied filing is for Zeta Acquisition Corp. II, not Whitehawk Therapeutics, Inc.
- Verify the company’s ability to obtain additional financing and meet demand obligations with only $5,883 of cash against $136,516 of current liabilities.
- Review the terms, holders, maturity, and collectability implications of the $110,000 stockholder notes and $18,803 of accrued interest.
- Determine whether a target business or reverse-merger transaction was identified after the filing date.
- Assess the substantial going-concern uncertainty and the potential dilution or change in control associated with any future financing or business combination.