United
States
Securities
and Exchange Commission
Washington,
D. C. 20549
FORM
10-Q
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
quarterly period ended December 31, 2008 or
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
transition period from __________ to ___________
000-53014
(Commission
File No.)
Z-II,
INC.
(Exact
Name of Registrant as specified in its charter)
|
Delaware
|
|
26-0612552
|
|
(State
or other jurisdiction of
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|
(IRS
Employer
|
|
incorporation
or organization)
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|
Identification
No.)
|
244 East
32nd St. Suite B, New York, NY 10016
(Address
of principal executive offices)
(212)
576-1515
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yesx
Noo
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check
one):
|
Large
Accelerated Filer ¨
|
Accelerated
Filer ¨
|
|
Non-Accelerated
Filer ¨
(Do not check if a smaller reporting company)
|
Smaller
Reporting Company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes x No
o
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
|
|
|
Outstanding
at February 11, 2009
|
|
CLASS
A
Common
stock $.01 Par Value
|
|
0
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|
CLASS
B
Common
stock $.01 Par Value
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|
40,000
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TABLE OF
CONTENTS
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Page
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PART
I FINANCIAL INFORMATION
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3
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Item
1 - Financial Statements.
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3
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Balance
Sheets as of December 31, 2008 (unaudited) and June 30,
2008
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3
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Statements
of Operations for the three months ended December 31, 2008 (unaudited) and
2007 (unaudited), for the six months ended December 31, 2008 (unaudited)
and 2007 and from March 20, 2007 (inception) to December 31, 2008
(unaudited)
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4
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Statements
of Cash Flows for the six months ended December 31, 2008 (unaudited) and
2007 (unaudited) and from March 20, 2007 (inception) to December31, 2008
(unaudited)
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5
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Notes
to Financial Statements (unaudited)
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6
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Item
2 - Management's Discussion and Analysis, Plan of Operation and Results of
Operations
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11
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Item
4(T) - Controls and Procedures.
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13
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PART
II OTHER INFORMATION
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14
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Item
6 – Exhibits.
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15
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Signatures
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16
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Part I - FINANCIAL
INFORMATION
Item 1 - Financial
Statements
Z-II,
Inc.
A
Development Stage Company
Balance
Sheets
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|
|
December 31,
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June 30,
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2008
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2008
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(Unaudited)
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ASSETS
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|
|
|
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Current
Assets
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$ |
3,407 |
|
|
$ |
21,223 |
|
|
Prepaid
Expenses
|
|
|
465 |
|
|
|
465 |
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|
TOTAL
CURRENT ASSETS, representing total assets
|
|
$ |
3,872 |
|
|
$ |
21,688 |
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LIABILITIES
& EQUITY
|
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Liabilities
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Current
Liabilities
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|
|
|
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Accounts
Payable -Professional Fees
|
|
$ |
5,131 |
|
|
$ |
16,000 |
|
|
Interest
Payable on Notes Payable to Officers/Stockholders
|
|
|
4,969 |
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|
4,969 |
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|
Total
Current Liabilities
|
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|
10,100 |
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20,969 |
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Long
Term Liabilities
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Notes
payable to officers/stockholders
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|
102,000 |
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80,000 |
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Total
Liabilities
|
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|
112,100 |
|
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|
100,969 |
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Stockholders'
Deficit
|
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|
|
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Preferred
Stock $.01 par value 10,000,000 shares authorized, none issued and
outstanding
|
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|
- |
|
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|
- |
|
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|
|
|
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|
|
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|
Class
A Common Stock $.01 par value 45,000,000 shares authorized, none issued
and outstanding
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
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|
Class
B Common Stock par value $.01 5,000,000 shares
authorized, 40,000 shares issued and outstanding at December 31,
2008 and at June 30, 2008
|
|
|
400 |
|
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|
400 |
|
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|
|
|
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|
Additional
Paid-In Capital
|
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|
19,600 |
|
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|
19,600 |
|
|
|
|
|
|
|
|
|
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Stock
Subcriptions Receivable
|
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|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
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Deficit
accumulated in the development stage
|
|
|
(128,228 |
) |
|
|
(99,281 |
) |
|
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|
|
|
|
|
|
|
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Total
Stockholders' Deficit
|
|
|
(108,228 |
) |
|
|
(79,281 |
) |
|
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|
|
|
|
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TOTAL
LIABILITIES & STOCKHOLDERS' DEFICIT
|
|
$ |
3,872 |
|
|
$ |
21,688 |
|
The
accompanying notes are an integral part of these financial
statements.
Z-II,
Inc.
A
Development Stage Company
Statements
of Operations
(Unaudited)
|
|
|
For the three months
|
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|
For the six months
|
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|
Cumulative
|
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ended
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ended
|
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|
March 20, 2007
|
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|
|
|
|
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|
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|
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(Inception) to
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December 31, 2008
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December 31, 2007
|
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December 31, 2008
|
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|
December 31, 2007
|
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December 31, 2008
|
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General
and Administrative Expenses
|
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Professional
Fees
|
|
$ |
7,717 |
|
|
$ |
17,682 |
|
|
$ |
28,417 |
|
|
$ |
18,648 |
|
|
$ |
111,272 |
|
|
General
and Administrative Expense
|
|
|
(50 |
) |
|
|
- |
|
|
|
(50 |
) |
|
|
- |
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Loss
from Operations
|
|
|
(7,667 |
) |
|
|
(17,682 |
) |
|
|
(28,367 |
) |
|
|
(18,648 |
) |
|
|
(111,487 |
) |
|
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|
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Other
Income (Expense)
|
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Interest
Income
|
|
|
- |
|
|
|
25,121 |
|
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|
20 |
|
|
|
37,524 |
|
|
|
47,056 |
|
|
Interest
Expense
|
|
|
- |
|
|
|
(25,300 |
) |
|
|
- |
|
|
|
(41,525 |
) |
|
|
(62,106 |
) |
|
Total
Other Income (Expense)
|
|
|
- |
|
|
|
(179 |
) |
|
|
20 |
|
|
|
(4,001 |
) |
|
|
(15,050 |
) |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(7,667 |
) |
|
|
(17,861 |
) |
|
|
(28,347 |
) |
|
|
(22,649 |
) |
|
|
(126,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Provision
for income taxes
|
|
|
- |
|
|
|
- |
|
|
|
600 |
|
|
|
- |
|
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|
1,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net
Loss
|
|
$ |
(7,667 |
) |
|
$ |
(17,861 |
) |
|
$ |
(28,947 |
) |
|
$ |
(22,649 |
) |
|
$ |
(128,228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary
and fully diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted
average shares outstanding
|
|
|
40,000 |
|
|
|
40,000 |
|
|
|
40,000 |
|
|
|
32,826 |
|
|
|
31,669 |
|
|
Loss
per share
|
|
$ |
(0.19 |
) |
|
$ |
(0.45 |
) |
|
$ |
(0.72 |
) |
|
$ |
(0.69 |
) |
|
$ |
(4.05 |
) |
The
accompanying notes are an integral part of these financial
statements.
Z-II,
Inc.
A
Development Stage Company
Statements
of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
For the six months
|
|
|
March 20, 2007
|
|
|
|
|
ended
|
|
|
(Inception) to
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
December 31,2008
|
|
|
|
|
|
|
|
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|
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|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(28,947 |
) |
|
$ |
(22,649 |
) |
|
$ |
(128,228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile Net Loss to net cash used by operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in prepaid expenses
|
|
|
- |
|
|
|
- |
|
|
|
(466 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in accounts payable
|
|
|
(10,869 |
) |
|
|
12,682 |
|
|
|
5,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in interest payable on Notes Payable to
Officers/Stockholders
|
|
|
- |
|
|
|
- |
|
|
|
4,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases
in (Reimbursement for) Expenses Paid on Behalf of the Company by
Officer/Stockholder
|
|
|
- |
|
|
|
(13,534 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used by) Operating Activities
|
|
|
(39,816 |
) |
|
|
(23,501 |
) |
|
|
(118,593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
received from Issuance of Notes Payable to
Officers/Stockholders
|
|
|
22,000 |
|
|
|
1,980,000 |
|
|
|
2,002,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of Notes Payable to Officers/Stockholders
|
|
|
|
|
|
|
|
|
|
|
(1,900,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
received on Issuance of Class B Common Stock to Founders
|
|
|
- |
|
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by Financing Activities
|
|
|
22,000 |
|
|
|
2,000,000 |
|
|
|
122,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash & cash equivalents
|
|
|
(17,816 |
) |
|
|
1,976,499 |
|
|
|
3,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
21,223 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
3,407 |
|
|
$ |
1,976,499 |
|
|
$ |
3,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
57,136 |
|
|
Cash
paid for income taxes
|
|
$ |
600 |
|
|
$ |
- |
|
|
$ |
1,691 |
|
The
accompanying notes are an integral part of these financial
statements.
ZII,
INC.
(A
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
Six
Months Ended December 31, 2008
Note 1.
Organization and Basis of Presentation:
Z-II,
Inc. (the “Company”) was incorporated in the State of Delaware on March 20,
2007. Since inception it has been engaged in organizational efforts, securing
initial financing and because the Company was formed as a vehicle to pursue one
or more business combination transactions, such as mergers or acquisitions (of
assets or stock) of operating businesses, in attempting to identify a possible
business combination. While during the course of the year the Company has been
in discussions with various operating companies with which to combine, it did
not enter into any contract or memorandum of understanding with respect to a
transaction
Based on
its proposed business activities, Z-II is a “blank check” company. The
Securities and Exchange Commission (the “SEC”) defines those companies as “any
development stage company that is issuing a penny stock, within the meaning of
Section 3 (a)(51) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and that has no specific business plan or purpose, or has
indicated that its business plan is to merge with an unidentified company or
companies.” Under SEC Rule 12b-2 under the Securities Act of 1933, as amended
(the “Securities Act”), the Company also qualifies as a “shell company,” because
it has no or nominal assets (other than cash) and no or nominal operations. Many
states have enacted statutes, rules and regulations limiting the sale of
securities of “blank check” companies in their respective jurisdictions.
Management does not intend to undertake any efforts to cause a market to develop
in the Company's securities, either debt or equity, until it has successfully
concluded a business combination. The Company intends to comply with the
periodic reporting requirements of the Exchange Act for so long as it is subject
to those requirements.
The
Company was organized as a vehicle to investigate and, if such investigation
warrants, acquire one or more operating companies or businesses whose owners are
seeking liquidity and the potential for capital appreciation. Its principal
business objective is to achieve long-term growth potential through one or more
combinations with operating businesses rather than immediate, short-term
earnings. The Company will not restrict its search for potential candidates to
companies engaged in any specific business, industry or geographical location
and, thus, may acquire any type of business.
The
accompanying interim financial statements have been prepared by the Company
without audit, in accordance with the instructions for Form 10-Q pursuant to the
rules and regulations of the SEC and therefore do not include all information
and notes normally provided in the annual financial statements and should be
read in conjunction with the audited financial statements and the notes thereto
included in the Company’s Annual Report on Form 10-K for the fiscal year ended
June 30, 2008, as filed with the SEC on September 29, 2008.
In the
opinion of management, the accompanying unaudited financial statements contain
all adjustments (which consist of normal and recurring adjustments) necessary
for a fair presentation of the financial statements. The results of operations
for the three months and six months ended December 31, 2008 and from inception
through December 31, 2008 are not necessarily indicative of the results to be
expected for the full year.
Liquidity
At
December 31, 2008 the Company had $3,407 in cash and cash equivalents and total
liabilities of $112,100, of which $10,100 was current and the balance, $102,000
consisted of long term notes payable. It had a working capital deficit of
($6,228).
Until
such time as the Company completes a business combination transaction,
management intends to fund its operations as needed through additional
borrowings from its shareholders. If and when a business combination transaction
is completed, the Company’s liquidity needs will be re-evaluated and it may seek
to supplement its primary capital, as necessary, with one or more lines of
credit or other debt accommodations with one or more financial institutions or
lenders. At December 31, 2008, other than loans from its founders (see Note 5),
the Company had no such lines of credit or other outstanding debt
obligations.
Note 2.
Summary of Significant Accounting Policies
Development
Stage Entity Status
Currently,
the Company earns revenue only from the investment of its cash and cash
equivalent assets. It has no operating revenues.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America generally requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
If and
when one or more business combination transactions are completed, management
will be required to make estimates, and such estimates may include, but are not
limited to, revenue recognition on fixed fee contracts, allowance for doubtful
accounts, impairment of goodwill and intangibles, depreciation and amortization,
the fair value of equity securities underlying stock-based compensation, the
fair value of acquired assets, purchase price allocations and the
realize-ability of deferred tax assets and liabilities.
Fair
Value of Financial Instruments
The
Company's short-term financial instruments as of December 31, 2008 consisted of
cash and cash equivalents, interest payable on notes payable to
officers/stockholders and amounts due to officer/stockholder for expenses paid
on behalf of the Company. The carrying amounts of all short-term financial
instruments at December 31, 2008 were their actual values.
The
Company's long-term financial instruments as of December 31, 2008 consisted of
long term notes payable (see Note 5). The carrying amounts of all long-term
financial instruments at December 31, 2008 were equivalent to the face amount of
such instruments.
Revenue
Recognition
Currently,
the Company earns revenue only from the investment of its cash and cash
equivalent assets. It has no operating revenues. For the period from March 20,
2007 (inception) through December 31, 2008, the Company had no other
revenues.
Cash
Equivalents
The
Company considers all highly liquid investments with maturities of three months
or less when purchased to be cash equivalents.
Income
Taxes
The
Company used the asset and liability method to calculate deferred tax assets and
liabilities. Deferred taxes are recognized based on the differences between
financial reporting and income tax bases of assets and liabilities using enacted
income tax rates. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Loss Per
Share
Basic
(loss) per share excludes dilution and is computed by dividing net (loss)
available to holders of common stock by the weighted average number of shares of
common stock outstanding for the period.
Diluted
earnings per share is computed by dividing income available to holders of common
stock by the weighted average number of shares of common stock outstanding for
the period, adjusted to reflect potentially dilutive securities. During the
period from March 20, 2007 (inception) to December 31, 2008, there were no
potentially dilutive securities.
Note 3.
Recently Issued Accounting Pronouncements:
In
October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active”, (“FSP 157-3”),
to clarify the application of the provisions of SFAS 157 in an inactive market
and how an entity would determine fair value in an inactive market. FSP 157-3
was effective upon issuance and applies to the Company’s current financial
statements. The application of the provisions of FSP 157-3 did not materially
affect the Company’s results of operations or financial condition as of and for
the three and six months ended December 31, 2008.
In June
2008, the FASB issued EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock” effective for
financial statements issued for fiscal years and interim periods beginning after
December 15, 2008. EITF No.07-5 provides guidance for determining whether an
equity-linked financial instrument (or embedded feature) is indexed to an
entity’s own stock. The adoption of EITF No. 07-5 is not expected to have a
material effect on the Company’s consolidated financial statements.
In June
2008, the FASB issued FSP Emerging Issues Task Force (EITF) No. 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” Under the FSP, unvested share-based payment awards
that contain rights to receive nonforfeitable dividends (whether paid or unpaid)
are participating securities, and should be included in the two-class method of
computing EPS. The FSP is effective for fiscal years beginning after December
15, 2008, and interim periods within those years, and is not expected to have a
significant impact on the Company’s results of operations, financial condition
or cash flows.
In May
2008, the FASB issued SFAS No. 162 (“SFAS No. 162”), “The Hierarchy of Generally
Accepted Accounting Principles.” This statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. While this statement formalizes the sources
and hierarchy of GAAP within the authoritative accounting literature, it does
not change the accounting principles that are already in place. This statement
will be effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles.” SFAS No.
162 is not expected to have a material impact on the Company’s consolidated
financial statements.
In May
2008, FASB Staff Position (“FSP”) No. APB 14-1, “Accounting for Convertible Debt
Instruments That May be Settled in Cash upon Conversion (Including Partial Cash
Settlement)” (“FSP No. APB 14-1”) was issued which specifies that issuers of
such instruments should separately account for the liability and equity
components in a manner that will reflect the issuer’s nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. FSP No.
APB 14-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008. Early adoption is not permitted. Adoption of this
standard is not expected to have a material impact on the Company’s consolidated
financial statements.
In April
2008, FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”
(“FSP No. FAS 142-3”) was issued which provides for additional considerations to
be used in determining useful lives and requires additional disclosure regarding
renewals. FSP No. FAS 142-3 is effective for fiscal years beginning after
December 15, 2008. Early adoption is not permitted. The Company is currently
evaluating the impact of this standard.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations." SFAS
141(R) broadens the guidance of SFAS 141, extending its applicability to all
transactions and other events in which one entity obtains control over one or
more other businesses. It broadens the fair value measurement and recognition of
assets acquired, liabilities assumed, and interests transferred as a result of
business combinations. SFAS 141(R) expands on required disclosures to improve
the statement users' abilities to evaluate the nature and financial effects of
business combinations. SFAS 141(R) is effective for our fiscal year beginning
July 1, 2009. The adoption of SFAS 141(R) is not expected to have a material
impact on the Company's financial position, results of operations or cash
flows.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. " SFAS 160
requires that a noncontrolling interest in a subsidiary be reported as equity
and the amount of consolidated net income specifically attributable to the
noncontrolling interest be identified in the consolidated financial statements.
It also calls for consistency in the manner of reporting changes in the parent's
ownership interest and requires fair value measurement of any noncontrolling
equity investment retained in a deconsolidation. SFAS 160 is effective for our
fiscal year beginning July 1, 2009. We have not yet determined the impact of
adopting SFAS 160 on the Company's financial position, results of operations or
cash flows.
Note 4.
Property and Equipment
As of
December 31, 2008, the Company had no depreciable property and
equipment.
Note 5.
Notes Payable to Officers/Stockholders
On August
2, 2007 the Company borrowed an aggregate $1,980,000 from two stockholders in
the amounts of $1,485,000 and $495,000, respectively. In connection with this
borrowing, the Company issued notes representing unsecured obligations of the
Company. The notes bear interest at 5 per cent per annum, payable quarterly
beginning September 30, 2007, with principal due at maturity on December 31,
2012. On February 12, 2008, $1,050,000 was repaid to Further Lane Trust, LLC and
$350,000 was repaid to Jack M. Rapport for an aggregate repayment of $1,400,000.
The repayment of the loans was effectuated by a direct transfer of funds to The
Birkhill Group, LLC, an entity substantially controlled directly or indirectly
by David M. McCarthy, Further Lane Trust, LLC and Jack M. Rapport.
On May
27, 2008 the Company repaid an additional $375,000 to Further Lane Trust, LLC
and $125,000 to Jack M. Rapport for an aggregate repayment of $500,000. The
repayments of these loans were effectuated by a direct transfer of funds to The
Birkhill Group, LLC, an entity controlled directly or indirectly by David M.
McCarthy, Further Lane Trust, LLC and Jack M. Rapport.
Effective
July 1, 2008, new notes were executed for the remaining balances aggregating
$80,000. The new notes are substantially identical in terms to the original
notes, except that they no longer bear interest.
On
October 9th, 21st and November 25th, 2008 Further Lane Trust, LLC and Jack M.
Rapport loaned the Company an aggregate of $22,000 as shown in the following
table:
|
Date
|
|
Loan from Further Lane
Trust,
LLC
|
|
|
Loan from Jack M.
Rapport
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
9, 2008
|
|
$ |
5,000 |
|
|
$ |
5,000 |
|
|
$ |
10,000 |
|
|
October
21, 2008
|
|
$ |
2,500 |
|
|
$ |
2,500 |
|
|
$ |
5,000 |
|
|
November
25, 2008
|
|
$ |
3,500 |
|
|
$ |
3,500 |
|
|
$ |
7,000 |
|
|
Total
|
|
$ |
11,000 |
|
|
$ |
11,000 |
|
|
$ |
22,000 |
|
Notes
were issued in connection with these loans with terms substantially identical to
those issued on July 1, 2008. These loans were effectuated by a direct transfer
of funds to The Birkhill Group, LLC, an entity controlled directly or indirectly
by David M. McCarthy, Further Lane Trust, LLC and Jack M. Rapport. As of
December 31, 2008 an aggregate $102,000 was due and outstanding in notes payable
to these two stockholders, $71,000 due to Further Lane Trust and $31,000 due to
Jack M. Rapport.
As of
December 31 and June 30, 2008 $4,969 of interest was accrued and unpaid on the
two notes.
During
the three months ended December 31, 2008 the Company incurred no interest
expense on these notes. For the three months ended December 31, 2007, the
Company incurred an aggregate of $25,300 of interest expense on these notes. For
the six months ended December 31, 2008 the Company incurred no interest expense
on these notes. For the six months ended December 31, 2007 the Company incurred
an aggregate of $41,525 of interest expense on these notes. For the period from
inception (March 20, 2007) to December 31, 2008 the Company incurred interest
expense of $46,579 to Further Lane Trust, LLC and $15,526 to Jack M. Rapport for
a total of $62,105.
Note 6.
Common Stock
The total
number of shares of stock which the Corporation has authority to issue is
60,000,000 shares, divided into 45,000,000 shares of Class A Common Stock, par
value $0.01 per share, 5,000,000 shares of Class B Common Stock, par value $0.01
per share, and 10,000,000 shares of Preferred Stock, par value $0.01 per share.
The powers, designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights
are as described in the Company’s certificate of incorporation. In particular,
holders of Class B Common Stock have the right to convert their shares into
Class A Common Stock. The Company’s certificate of incorporation also contains
provision for the maintenance of the relative relationship between Class A and
Class B holdings in the event of issuance of options or warrants, mergers or
other such transactions. Holders of Class A Common Stock shall be entitled to
one (1) vote per share, while holders of Class B Common Stock shall be entitled
to ten (10) votes per share. Transfers of Class B Common Stock are restricted to
certain specified transferees.
On August
2, 2007 the Company issued 40,000 shares of Class B Common Stock to the two
shareholders described in Note 5 above. The aggregate sum paid for these shares
was $20,000 as shown in the following table.
|
|
|
Further Lane Trust, LLC
|
|
|
Jack M. Rapport
|
|
|
Total
|
|
|
Class
B Common Stock, $.01 par
|
|
$ |
300 |
|
|
$ |
100 |
|
|
$ |
400 |
|
|
Additional
Paid-in Capital
|
|
$ |
14,700 |
|
|
$ |
4,900 |
|
|
$ |
19,600 |
|
|
Total
|
|
$ |
15,000 |
|
|
$ |
5,000 |
|
|
$ |
20,000 |
|
At
February 11, 2009, the 40,000 shares of Class B Common Stock continue to be the
only shares of the Company’s equity securities outstanding.
Note 7.
Employee Benefit Plans
As of
December 31, 2008 the Company had no employee benefit plans.
Note 8.
Commitments and Contingencies
The
Company may, from time to time, enter into agreements that contain
indemnification provisions in the normal course of business for which the risks
are considered nominal and impracticable to estimate. Historically, the Company
has not incurred any significant costs related to performance under these
indemnities.
Note 9.
Credit Risk
The only
financial instruments that potentially subject the Company to credit risk are
cash and cash equivalents. The Company places its excess cash in money-market
instruments with institutions of high credit quality and therefore we believe we
have minimal credit risk with respect to such instruments. However, these
balances may, from time to time, exceed the federal depository insurance
coverage. Cash and cash equivalents held in the company's two commercial banks,
JPMorgan Chase Bank and Bank of America, did not exceed federally insured limits
at December 31, 2008.
Note 10.
Income Taxes
The
Company incurred New York State and New York City income taxes of $0 and $600
for the three and six month periods ended December 31, 2008 and $1,691 for the
period from inception (March 20, 2007) to December 31, 2008. As of December 31,
2008 no amounts have been accrued for taxes that will be payable on June 30,
2009 with the state and local returns due by the Company for the year ending
June 30, 2009.
In
accordance with FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, interest costs and penalties related to income taxes are
classified as interest expense and general and administrative costs,
respectively, in the Company's consolidated financial statements. For the period
from March 20, 2007 (inception) to June 30, 2008, the Company did not recognize
any interest or penalty expense related to income taxes. The Company is
currently subject to a three year statute of limitations by major tax
jurisdictions. The Company expects to file income tax returns in the U.S.
federal jurisdiction, New York State and New York City.
The
Company has net operating loss carry forwards of approximately $130,000 which
expire through 2029. The deferred tax asset arising from the loss carry forwards
is approximately $50,000 and, because of the uncertainty of its realization, has
been fully reserved against.
Note 11.
Other Comments
The
Company presently occupies office space provided by a relative of the Chief
Executive Officer of the Company on a rent free basis.
Item 2 -
Management's Discussion and Analysis and Plan of Operation
This
report contains certain forward-looking statements and information relating to
Z-II, Inc. ("Z-II", “we”, “our” or the "Company") that are based on assumptions
made by management and on information currently available. When used in this
report, the words "anticipate", "believe", "estimate", "expect", "intend",
"plan" and similar expressions, as they relate to the Company or its management,
are intended to identify forward-looking statements. These statements reflect
management's current view of the Company concerning future events and are
subject to certain risks, uncertainties and assumptions, including among many
others: a general economic downturn; a downturn in the securities markets;
federal or state laws or regulations having an adverse effect on the Company;
and other risks and uncertainties including those identified in the “Risk
Factors” section of the Company’s Registration Statement on Form 10/A dated
March 14, 2008. Should any of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described in this report as anticipated, estimated or
expected.
The
following discussion should be read in conjunction with Z-II’s audited Financial
Statements and related Notes thereto in the Company’s Annual Report on Form 10-K
for the year ended June 30, 2008, as filed with the Securities and Exchange
Commission (“SEC”) dated September 29, 2008.
Plan of
Operation
Z-II was
incorporated as a vehicle to investigate and, if such investigation warrants,
acquire one or more operating companies or businesses whose owners are seeking
liquidity and the potential for capital appreciation. The Company's principal
business objective for the next 12 months and beyond is to achieve long-term
growth potential through one or more combinations with one or more operating
companies (individually, a "Target Company" and collectively, "Target
Companies"). We do not intend to restrict our search for potential candidates to
companies engaged in any specific business, industry or geographical location
and, thus, may acquire any type of business. Investors in this offering will
have an economic interest in the Company, however, they will not have any
decision-making rights, including whether or not we should acquire a Target
Company, as control of the Company will be in the hands of our
founders.
We will
seek to add value to a Target Company by providing leadership and management,
contributing and helping to raise additional capital and establish such
controls, procedures and practices as will allow the combined entity to realize
its potential and maximize shareholder value.
The
analysis of new business opportunities has and will be undertaken by or under
the supervision of our officers and directors. We have wide flexibility in
seeking, analyzing and participating in potential business opportunities. In our
efforts to analyze potential Target Companies or businesses, we will consider,
among others, the following factors:
(i)
potential for growth, indicated by new technology, anticipated market
expansion or new products;
(ii)
competitive position as compared to other firms of similar size and
experience within the relevant industry segment as well as within the industry
as a whole;
(iii)
strength and diversity of management, either in place or scheduled for
recruitment;
(iv)
capital requirements and anticipated availability of required funds, to be
provided by us or from operations, through the sale of additional securities,
through joint ventures or similar arrangements or from other
sources;
(v)
the cost of participation by Z-II as compared to the perceived tangible
and intangible values;
(vi)
the extent to which the business opportunities can be
advanced;
(vii)
the accessibility of required management expertise, personnel, raw
materials, services, professional assistance and other required items;
and
(viii) other
relevant factors that the Company may identify.
In
applying the foregoing criteria, no one of which will be controlling, we will
attempt to analyze all factors and circumstances and make a determination based
upon reasonable investigative measures and available data. Potentially available
business opportunities may occur in many different industries, and at various
stages of development, all of which will make the task of comparative
investigation and analysis of such business opportunities extremely difficult
and complex. Due to the Company's limited capital it may not discover or
adequately evaluate adverse facts about any opportunity evaluated or,
ultimately, any transaction consummated.
During
the six months ended December 31, 2008 we participated in discussions with
potential Target Companies but did not enter into any contract or memorandum of
understanding with respect to a transaction.
The
manner in which we participate in an opportunity will depend upon the nature of
the opportunity, the Company's respective needs and desires and the promoters of
the opportunity, and our relative negotiating strength and that of such
promoters.
We
anticipate that the investigation of specific business opportunities and the
negotiation, drafting and execution of relevant agreements, disclosure documents
and other instruments will require substantial management time and attention and
substantial costs for third party professionals, accountants, attorneys and
others. If we decide not to participate in a specific business opportunity,
these costs theretofore incurred in the related investigation would not be
recoverable. Furthermore, even if an agreement is reached for the participation
in a specific business opportunity, the failure to consummate that transaction
may result in the loss of the related costs incurred.
Based on
our proposed business activities, Z-II is a “blank check” company. The SEC
defines those companies as “any development stage company that is issuing a
penny stock, within the meaning of Section 3(a)(51) of the Exchange Act, as
amended, and that has no specific business plan or purpose, or has indicated
that its business plan is to merge with an unidentified company or companies.”
Under Rule 12b-2 under the Securities Act, the Company also qualifies as a
“shell company,” because it has no or nominal assets (other than cash) and no or
nominal operations. Many states have enacted statutes, rules and regulations
limiting the sale of securities of “blank check” companies in their respective
jurisdictions. We may undertake efforts to cause a market to develop in the
Company's securities and if so, we intend to comply with the periodic reporting
requirements of the Exchange Act for so long as it is subject to those
requirements.
Results
of Operations
Three
months ended December 31, 2008 compared to three months ended December 31,
2007
For the
three months ended December 31, 2008 we had no operating revenues and incurred
$7,667 in general and administrative expenses, which principally consisted of
professional fees, resulting in a loss from operations of $7,667. For the three
months ended December 31, 2007 we, similarly, had no revenues but incurred
professional fees of $17,682 and had a loss from operations of $17,682. For the
three months ended December 31, 2008, we earned no interest income and since the
amendment to the notes payable to officers/stockholders eliminating interest
took effect on July 1, 2008, we had no interest expense. During the three months
ended December 31, 2007 we had interest income of $25,121 offset by interest
expense of $25,300 resulting in net interest expense of $179. We paid no state
and local income taxes in either the quarter ended December 31, 2008 or the
quarter ended December 31, 2007. We had a net loss for the three months ended
December 31, 2008 of $7,667. For the three months ended December 31, 2007, our
net loss was $17,861. Loss per share was $ 0.19 for the three months ended
December 31, 2008. Loss per share was $0.45 for the three months ended December
31, 2007.
Six
months ended December 31, 2008 compared to six months ended December 31,
2007
For the
six months ended December 31, 2008 we had no operating revenues and incurred
$28,367 in general and administrative expenses, which principally consisted of
professional fees, resulting in a loss from operations of $28,367. For the six
months ended December 31, 2007 we, similarly, had no revenues but incurred
professional fees of $18,648 and had a loss from operations of $18,648. The
higher professional fees for the current period were primarily as a result of
higher accounting fees associated with the Company’s public status, whereas
professional fees incurred in the six months ended December 31, 2007 were
primarily for continuing legal support. For the six months ended December 31,
2008, we had $20 of earned interest income and since the amendment to the notes
payable to officers/stockholders eliminating interest took effect on July 1,
2008, we had no interest expense. During the six months ended December 31, 2007
we had interest income of $37,524 offset by interest expense of $41,525
resulting in net interest expense of $4,001. Provision for income taxes
consisted solely of minimum taxes imposed by state and local taxing authorities,
and was $600 for the six months ended December 31, 2008. We paid no state and
local income taxes in the six months ended December 31, 2007. We had a net loss
for the six months ended December 31, 2008 of $28,947. For the six months ended
December 31, 2007, our net loss was $22,649. Loss per share was $0.72 for the
six months ended December 31, 2008 . The loss per share was $0.69 for the six
months ended December 31, 2007.
Inception
(March 20, 2007) to December 31, 2008
We are
still in development stage and have earned no revenues since inception but we
incurred $111,487 in professional fees and administrative expense, resulting in
a cumulative loss from operations of $111,487. Cumulative interest income was
$47,056 offset by interest expense of $62,106, resulting in net interest expense
of $15,050. The cumulative loss before provision for taxes was $126,537. Total
taxes paid since inception was $1,691 resulting in a cumulative after tax loss
of $128,228.
Summary
of Critical Accounting Policies; Significant Judgments and
Estimates
There
were no other changes to our critical accounting policies, which are described
in our Annual Report on Form 10-K for the year ended June 30, 2008 during the
six months ended December 31, 2008. There were no items presented in the
Company's financial statements that required the significant use of management
estimates.
Liquidity
and Capital Resources
As
of December 31, 2008 we had $3,407 in cash and cash equivalents, and
$466 in prepaid expenses. Current liabilities, represented by $5,131 in
professional fees payable and $4,969 in interest payable to
Officers/Stockholders for a total $10,100, resulted in a working capital deficit
of $6,228. Until such time as we acquire an operating company, we intend to fund
operations as needed through additional borrowings from our shareholders. If and
when an operating company is acquired, our liquidity needs will be re-evaluated
and we may seek to supplement our primary capital, as necessary, with one or
more lines of credit or other debt accommodations with one or more financial
institutions or lenders. At December 31, 2008, other than loans from our
founders (see Note 5 to the unaudited financial statements included elsewhere in
this report) we had no such lines of credit or other outstanding debt
obligations.
During
the next 12 months, despite anticipated costs related to the filing of Exchange
Act reports, and consummating one or more business combination transactions, we
believe we will be able to meet our funding requirements through use of funds in
our treasury and additional amounts, as necessary, to be loaned by or invested
in us by our stockholders, management or other investors.
Item 4T –
Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
The
Company maintains a set of disclosure controls and procedures, as defined in
Section 13a-15(e) of the the Exchange Act, that are designed to ensure that
information required to be disclosed under the reporting requirements of the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. The Company has conducted an
evaluation, under the supervision and with the participation of the Chief
Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the
effectiveness of the design and operation of the disclosure controls and
procedures of the Company pursuant to Rule 13a-15(b) of the Exchange Act. Based
on that evaluation, the CEO and CFO concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this
report.
Notwithstanding
the foregoing, there can be no assurance that the Company’s disclosure controls
and procedures will detect or uncover all failures of persons within the Company
to disclose material information otherwise required to be set forth in the
Company’s periodic reports. There are inherent limitations to the effectiveness
of any system of disclosure controls and procedures, including the possibility
of human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and procedures can
only provide reasonable, not absolute, assurance of achieving their control
objectives.
Changes
in Internal Controls Over Financial Reporting
An
evaluation was performed under the supervision of the Company’s management,
including the CEO and CFO, as required under Exchange Act Rule 13a-15(d) and
15d-15(d), of whether any change in the Company’s internal controls over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
occurred during the fiscal quarter ended December 31, 2008. Based on that
evaluation, the Company’s management, including the CEO and CFO, concluded that
no change in the Company’s internal controls over financial reporting occurred
during the fiscal quarter ended December 31, 2008 that has materially affected,
or is reasonably likely to materially affect, the Company’s internal controls
over financial reporting.
PART II
OTHER INFORMATION
Item 1.
Legal Proceedings
None
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3.
Defaults upon Senior Securities
Not
applicable.
Item 4.
Submission of Matters to a Vote of Security Holders
None
Item 5.
Other Information
None
Item 6.
Exhibits
|
Exhibit No.
|
Description.
|
|
|
|
|
3.1
(1)
|
Certificate
of Incorporation.
|
|
|
|
|
3.2
(1)
|
By-Laws.
|
|
|
|
|
31.1
(2)
|
Certification
of Chief Executive Officer as required by Rule 13a-14 or 15d-14 of the
Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
|
31.2
(2)
|
Certification
of Chief Financial Officer as required by Rule 13a-14 or 15d-14 of the
Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
|
32.1(2)
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act 0f of 2002.
|
|
|
|
|
32.2
(2)
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act 0f of
2002.
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(1)
incorporated by reference to the Company’s Registration Statement on Form 10/A,
as filed on March 14, 2008.
(2)
Furnished herewith.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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Z-II,
INC.
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Dated:
February 12, 2009
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/s/
David M. McCarthy
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David
M. McCarthy, Chief Executive Officer
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(Principal
Executive Officer)
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Dated:
February 12, 2009
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/s/
Jack M. Rapport
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Jack
M. Rapport, Chief Financial Officer
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(Principal
Accounting and Financial
Officer)
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