Business Context and Reporting Period
The filing is a Form 10-Q for the quarter and nine months ended September 30, 2015, filed November 13, 2015. The filing identifies the registrant as Zeta Acquisition Corp. II, not Whitehawk Therapeutics, Inc. Zeta is a Delaware blank-check and shell company formed to identify and complete a business combination. It has conducted no operating business and has generated no revenue since inception.
The company had 5,000,000 common shares outstanding as of November 13, 2015 and was classified as a smaller reporting company, emerging growth company, and shell company.
Financial Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $4,328 in 2015; $4,765 in 2014 | $13,393 in 2015; $14,210 in 2014 |
| Interest expense | $2,193 in 2015; $1,663 in 2014 | $6,215 in 2015; $4,936 in 2014 |
| Net loss | $6,521 in 2015; $6,428 in 2014 | $19,608 in 2015; $19,146 in 2014 |
| Net loss per share | $0.00 basic and diluted, as reported |
The filing does not provide a meaningful operating margin because the company has no revenue. Cash and cash equivalents were $6,270 at September 30, 2015, compared with $5,263 at December 31, 2014. Total liabilities were $180,919, including $145,000 of notes payable to stockholders and $30,217 of accrued interest. Stockholders’ deficit was $174,649.
| Cash flow metric | Nine months ended September 30, 2015 | Nine months ended September 30, 2014 |
|---|---|---|
| Net cash used in operating activities | $(18,993) | $(3,416) |
| Net cash provided by financing activities | $20,000 | $15,000 |
| Net cash used in investing activities | $0 | $0 |
| Net increase in cash | $1,007 | $11,585 |
Material Changes Versus Prior Comparable Period
- Nine-month net loss increased by $462, or approximately 2%, from $19,146 to $19,608.
- Third-quarter net loss increased by $93, or approximately 1%, from $6,428 to $6,521.
- Nine-month general and administrative expense decreased by $817, while interest expense increased by $1,279.
- Operating cash outflow increased substantially, from $3,416 to $18,993.
- Stockholder financing increased from $15,000 to $20,000, supporting a $1,007 increase in cash during the nine-month period.
- Cash remained nominal relative to current liabilities, which increased from $160,304 at December 31, 2014 to $180,919 at September 30, 2015.
Outlook, Risks, Contingencies, and Unusual Items
Management plans to continue searching for a suitable acquisition candidate and expects to incur costs for SEC reporting and investigating, analyzing, and consummating a potential acquisition. The filing states that no business combination had been identified and that management had not had discussions with representatives of other entities regarding a combination since the registration statement became effective.
The company reports substantial going-concern uncertainty. It has generated no revenue, depends on related-party financing and other funding sources, and states that there is no assurance that additional financing will be available or that it can satisfy cash requirements for at least the next twelve months. Stockholder notes bear interest at 6% and are due on demand; $30,217 of interest was accrued and unpaid at September 30, 2015.
Any future combination could involve a financially unstable, early-stage, or high-risk target. The company expects that its limited financing may permit only one business combination, creating concentration and dilution risks. The filing reports no material pending legal proceedings, no unregistered equity sales, no defaults upon senior securities, and no material off-balance-sheet arrangements.
The company has approximately $76,400 of deferred tax assets, fully offset by a valuation allowance because realization is uncertain. Office space and equipment are provided by an officer and director at no cost on a month-to-month basis, with management estimating the value as de minimis. Disclosure controls and procedures were deemed effective as of September 30, 2015.
Important Facts to Verify
- Confirm the issuer identity: the supplied filing is for Zeta Acquisition Corp. II, not Whitehawk Therapeutics, Inc.
- Verify whether the company obtained additional financing after September 30, 2015 and whether stockholder notes and accrued interest were repaid or amended.
- Review subsequent filings for any identified or completed business combination.
- Assess the going-concern disclosure in light of only $6,270 of cash versus $180,919 of current liabilities.
- Confirm the terms, maturity, and related-party status of the $145,000 of stockholder notes.
- Review later reports for changes in share ownership, dilution, shell-company status, or management’s acquisition strategy.