0001171843-13-003424.txt : 20130816 0001171843-13-003424.hdr.sgml : 20130816 20130816112820 ACCESSION NUMBER: 0001171843-13-003424 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20121231 FILED AS OF DATE: 20130816 DATE AS OF CHANGE: 20130816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Znomics, Inc. CENTRAL INDEX KEY: 0001371473 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 000000000 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-136372 FILM NUMBER: 131044269 BUSINESS ADDRESS: STREET 1: 2611 SW THIRD AVE., SUITE 200 CITY: PORTLAND STATE: OR ZIP: 97201 BUSINESS PHONE: 503-827-5271 MAIL ADDRESS: STREET 1: 2611 SW THIRD AVE., SUITE 200 CITY: PORTLAND STATE: OR ZIP: 97201 FORMER COMPANY: FORMER CONFORMED NAME: Pacific Syndicated Resources, Inc. DATE OF NAME CHANGE: 20060803 10-K 1 f10k_073113.htm FORM 10-K f10k_073113.htm
UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549
 
FORM 10-K
 
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934        
 
For the fiscal year ended December 31, 2012
 
Or
 
[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 Or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______________________ to _______________________
 
Commission file number: 333-136372
 
ZNOMICS, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
52-2340974
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification Number)
   
301 Carlson Parkway, Suite 103
 
Minneapolis, MN
55305
(Address of principal executive offices)
(Zip Code)
 
Registrant’s telephone number, including area code: (952) 253-6032
                                                                                                                                                                                                                                    
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Yes [   ]   No [X]
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  
 
Yes [X]   No [  ]
 
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
 
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 of 1934 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.
 
Yes [   ]   No [X]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes [ X ]   No [   ]
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]
 
 

 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" 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 [  ]
 
The aggregate market value of the voting common stock held by non-affiliates of the Registrant (assuming officers, directors and 10% shareholders are affiliates), based on the last sale price for such stock on June 30, 2012: $415,000. The Registrant has no non-voting common stock.
 
As of July 31, 2013, there were 55,145,892 shares of the Registrant's common stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
None.
 
 
 
 

 
ZNOMICS, INC.
 
FORM 10-K
 Year Ended December 31, 2012
 
TABLE OF CONTENTS
 
   
Page
     
     
     
     
     
     
 
     
 
 
 

 
 
BUSINESS.
 
Our Company

We were originally incorporated on March 20, 2006 in Nevada, as Pacific Syndicated Resources, Inc. We were an exploration stage company that was set up to engage in the exploration of mineral properties. On November 5, 2007, we completed a reverse merger with a private Delaware corporation, Znomics, Inc. ("Znomics Delaware"), originally incorporated in 2000 and operational in 2001. As a result of that transaction, we changed our name to Znomics, Inc. (“the Company”) and began to pursue drug discovery and medical research as our sole business.

During 2009, the Company determined that given the current financing environment it was unable to attract sufficient capital to continue operations.  As a result, on April 13, 2009, the Company’s board of directors determined that it was in the Company’s and its shareholders’ best interests to terminate its operations and pursue the sale of its assets and the sale of the Company’s corporate shell to an entity interested in merging with a public company.  On May 1, 2009, after obtaining shareholder approval, the Company sold substantially all of the Company’s assets and announced that it intended to pursue the sale of the Company to an entity interested in merging with a public company.

On February 10, 2010, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with nine individuals and entities (the “Purchasers”), pursuant to which the Company issued 40,811,886 shares of common stock (the “Shares”) for total consideration of $125,000 or $0.0031 per share, paid in cash upon issuance of the Shares. Certain of the Purchasers have been elected as directors and officers of the Company.  The Stock Purchase Agreement and related transactions were approved by the Company’s Board of Directors and stockholders who owned a majority of the outstanding shares of Company common stock prior to the issuance of the Shares.

The Company continues to focus its efforts on seeking a business opportunity. The Company intends to attempt to locate and negotiate with a business entity for the merger of that target company into the Company. In certain instances, a target company may wish to become a subsidiary of the Company or may wish to contribute assets to the Company rather than merge. No assurances can be given that the Company will be successful in locating or negotiating with any target company. The Company will provide a method for a private company to become a public reporting company whose securities are qualified for trading in the United States secondary market.

Description of Business

We are currently voluntarily reporting in accordance with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act").  Pursuant to Rule 12b-2 of the Exchange Act, the Company qualifies as a "shell company" because it has no or nominal assets (other than cash) and no or nominal operations.  We have had no material business operations since April 13, 2009. We are currently seeking and investigating potential assets, property or businesses to acquire, and intend to commence operations in the future through the acquisition of a "going concern." These types of transactions are customarily referred to as "reverse" reorganizations or mergers in which the acquired company's shareholders become controlling shareholders in the acquiring company and the acquiring company becomes the successor to the business operations of the acquired company. We are unable to predict the time as to when and if we may actually participate in any specific business endeavor.

We are not currently engaged in any substantive business activity except the search for potential assets, property or businesses to acquire, and we have no current plans to engage in any other activity in the foreseeable future unless and until we complete any such acquisition. We do not intend to restrict our search for business opportunities to any particular business or industry, and the areas in which we will seek out business opportunities or acquisitions, reorganizations or mergers may include, but will not be limited to, the fields of high technology, adult for profit education, manufacturing, service, communications, transportation, and all medically related fields, among others. We recognize that the number of suitable potential business ventures that may be available to us may be extremely limited, and may be restricted as to acquisitions, reorganizations and mergers with businesses or entities that desire to avoid what such entities may deem to be the adverse factors related to an initial public offering ("IPO") as a method of going public. The most prevalent of these factors include substantial time requirements, legal and accounting costs, the inability to obtain necessary financing or an underwriter who is willing to publicly offer and sell shares, the lack of or the inability to obtain the required financial statements for such an undertaking, state limitations on the amount of dilution to public investors in comparison to the stockholders of any such entities, along with other conditions or requirements imposed by various federal and state securities laws, rules and regulations and federal and state agencies that implement such laws, rules and regulations.
 
1

 
The Securities and Exchange Commission (the "SEC") requires shell companies that are subject to the Exchange Act reporting requirements to file a Form 8-K upon completion of mergers or other acquisition transactions, in order to disclose all information about an acquired company that would have been required to have been filed had any such company filed a Form 10 Registration Statement with the SEC, including the required audited, interim and proforma financial statements, within four business days of the closing of any such transaction.  In addition, Rule 144 of the Securities Act of 1933 (the "Securities Act") limits the resale of most securities of shell companies, including those that the Company would issue in any acquisition, reorganization or merger, until one year after the filing of such information. National securities exchanges may impose additional listing requirements on companies that have gone public by combining with a public shell. These factors may eliminate many of the perceived advantages of these types of going public transactions. Regulations governing shell companies also deny the use of “short form” registration statements, such as Form S-3 and Form S-8 and limit the use of these Forms to a reorganized shell company until the expiration of certain time periods after such entity is no longer considered to be a shell company. These prohibitions could further restrict opportunities for us to acquire companies that may already have registration rights agreements or stock option plans in place. If a potential target has numerous employees who would receive Company securities in a business combination, there may be no exemption from registration for the issuance of such securities, thereby necessitating the filing of a registration statement with the SEC to complete any such reorganization, and incurring the time and expense that are normally avoided by reverse reorganizations or mergers.
 
Management intends to consider a number of factors prior to making any decision as to whether to participate in any specific business endeavor, none of which may be determinative or provide any assurance of success. These may include, but will not be limited to, as applicable: an analysis of the quality of the particular business or entity's management and personnel; the anticipated acceptability of any new products or marketing concepts that any such business or company may have; the merits of any such business' or company's technological changes; the present financial condition, projected growth potential and available technical, financial and managerial resources of any such business or company; working capital, history of operations and future prospects; the nature of present and expected competition; the quality and experience of any such business' or company's management services and the depth of management; the business' or the company's potential for further research, development or exploration; risk factors specifically related to the business' or company's operations; the potential for growth, expansion and profit of the business or company; the perceived public recognition or acceptance of the company's or the business' products, services, trademarks and name identification; and numerous other factors which are difficult, if not impossible, to properly or accurately quantify or analyze, let alone describe or identify, without referring to specific objective criteria of an identified business or company.

Regardless, the results of operations of any specific entity may not necessarily be indicative of what may occur in the future, by reason of changing market strategies, plant or product expansion, changes in product emphasis, future management personnel and changes in innumerable other factors.

Management will attempt to meet personally with management and key personnel of the entity providing any potential business opportunity afforded to us, visit and inspect material facilities, obtain independent analysis or verification of information provided and gathered, check references of management and key personnel and conduct other reasonably prudent measures calculated to ensure a reasonably thorough review of any particular business opportunity; however, due to time constraints of management, these activities may be limited.

We are unable to predict the time as to when and if we may actually participate in any specific business endeavor. We anticipate that proposed business ventures will be made available to us through personal contacts of directors, executive officers and principal stockholders, professional advisors, broker dealers in securities, venture capital personnel and others who may present unsolicited proposals. In certain cases, we may agree to pay a finder's fee or to otherwise compensate the persons who submit a potential business endeavor in which we eventually participate. Such persons may include our directors, executive officers and beneficial owners of our securities or their affiliates. In this event, such fees may become a factor in negotiations regarding any potential venture and, accordingly, may present a conflict of interest for such individuals. Management does not presently intend to acquire or merge with any business enterprise in which any current officer or director has a prior ownership interest.

 
2

 
The Company has retained Cherry Tree & Associates, LLC (“Cherry Tree & Associates”) as its exclusive financial advisor for the purpose of identifying an acquisition or business combination with an operating business, pursuant to an Engagement Agreement dated February 10, 2010 and amended March 27, 2013 (the “Engagement Agreement”). Cherry Tree & Associates is an investment banking firm located in Minneapolis, Minnesota that is affiliated with certain of the Purchasers. Specifically, Tony J. Christianson and Gordon F. Stofer, who each directly and indirectly beneficially own 35.9% of the Company’s fully diluted capital stock. Messrs. Christianson and Stofer, who are directors of the Company and serve as Chairman and Chief Executive Officer, respectively, together own 100% of the equity of Cherry Tree & Associates. David G. Latzke, who is the Chief Financial Officer of the Company, is an employee of Cherry Tree & Associates and certain affiliated entities. The Company will pay Cherry Tree & Associates a completion fee of 1% of the consideration it obtains in any transaction that is contemplated by the Engagement Agreement. The Engagement Agreement, as amended, expires on the earlier of February 10, 2016 or termination by either party, provided that Cherry Tree & Associates remains entitled to a completion fee under certain circumstances if the Company consummates a contemplated transaction within twelve months after termination of the Engagement Agreement.
 
Management may actively negotiate or otherwise consent to the purchase of all or any portion of their shares of common stock as a condition to, or in connection with, a proposed reorganization, merger or acquisition. It is not anticipated that any such opportunity will be afforded to other stockholders or that such other stockholders will be afforded the opportunity to approve or consent to any particular stock buy-out transaction. In the event that the purchase of common stock held by management is a factor in negotiations regarding any potential acquisition or merger by us, it may also present a conflict of interest for such individuals. We have no present arrangements or understandings respecting any of these types of opportunities.
  
Status of Products and Services
 
None; not applicable. 

Competitive Business Conditions and Smaller Reporting Company's Competitive Position in the Industry and Methods of Competition
 
Management believes that there are numerous shell companies engaged in endeavors similar to those engaged in by us; many of these companies have substantial current assets and cash reserves. Competitors also include thousands of other publicly-held companies whose business operations have proven unsuccessful, and whose only viable business opportunity is that of providing a publicly-held vehicle through which a private entity may have access to the public capital markets via a reverse reorganization or merger. There is no reasonable way to predict our competitive position or that of any other entity in these endeavors; however, we, having limited assets and no cash reserves, will be at a competitive disadvantage in competing with entities that have significant cash resources.

Sources and Availability of Raw Materials and Names of Principal Suppliers
 
None; not applicable.

Dependence on One or a Few Major Customers
 
None; not applicable.

Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts, including Duration
 
None; not applicable.

Governmental Regulations and Approvals
 
We currently have no business operations and produce no products nor provide any services and therefore, we are not presently subject to any governmental regulation or approval requirements. However, in the event that we complete a reorganization, merger or acquisition transaction with an entity that is engaged in business operations or provides products or services, we will become subject to all governmental regulations and approval requirements to which the reorganized, merged or acquired entity is subject or may become subject.
 
3

 
Research and Development
 
None; not applicable.
 
Smaller Reporting Company
 
We are voluntarily reporting in accordance with the requirements of Section 15 of the Exchange Act. In addition, we are also subject to the disclosure requirements of Regulation S-K of the SEC, as a "smaller reporting company." That designation relieves us of some of the informational requirements of Regulation S-K.

Sarbanes/Oxley Act
 
The Sarbanes Oxley Act of 2002 ("Sarbanes Oxley") created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members' appointment, compensation and oversight of the work of public companies' auditors; management assessment of our internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies and auditors to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes/Oxley Act requires significant legal and accounting expenditures.  As a voluntarily reporting filer we are not subject to Sarbanes Oxley and we are not subject to having our independent accountants audit our conclusions about internal controls.

Exchange Act Reporting Requirements
 
As a voluntarily reporting filer we are not subject to the Exchange Act reporting requirements, however, we do file annual reports on Form 10-K and quarterly reports on Form 10-Q with the Securities Exchange Commission on a regular basis as if we were subject to such requirements.  In addtion, we disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on Form 8-K.
 
Cost and Effects of Compliance with Environmental Laws
 
Our current business operations are not subject to any material environmental laws, rules or regulations that would have an adverse material effect on our business operations or financial condition or result in a material compliance cost; however, we will become subject to all such governmental requirements to which the reorganized, merged or acquired entity is subject or may become subject.

 Employees
 
As of December 31, 2012, we had no paid employees.
 
RISK FACTORS.
 
As a smaller reporting company, we are not required to provide the information required by this item.
 
UNRESOLVED STAFF COMMENTS.
 
As a smaller reporting company, we are not required to provide the information required by this item.
 
PROPERTIES.
 
On February 12, 2010, we terminated our office lease agreement in Portland, OR and presently have no assets or property.  Our principal executive office address and telephone number are the business office address and telephone number of our Chairman and Chief Executive Officer, and are currently provided at no cost.
 
LEGAL PROCEEDINGS.
 
We are not party to any outstanding or pending legal proceedings and are not aware of any pending or threatened material litigation involving us.
 
4

 
MINE SAFETY DISCLOSURES.
 
Not applicable.
 
 
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
 
Market Information
 
As of December 31, 2012, our authorized capital stock consisted of 90,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares, $0.001 par value per share preferred stock. There was no preferred stock outstanding as of December 31, 2012.
 
There is currently no established public trading market for our stock.  Our common stock has previously traded on the OTC Bulletin Board ("OTCBB") under the symbol of "ZNOM.OB."  During the second quarter of 2013, our common stock ceased trading on the OTCBB and began trading on the OTCPink of the OTC Markets Group, Inc. under the symbol "ZNOM".  The following are the range of high and low bid information for the common stock by quarter as reported by the OTC Bulletin Board since January 1, 2011. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.  In addition, the quotations are not reflective of regular trading on an established public trading market.
 
Year Ended December 31, 2011
 
   
High
   
Low
 
Quarter ended March 31
 
$
.04
   
$
.01
 
Quarter ended June 30
 
$
.05
   
$
.01
 
Quarter ended September 30
 
$
.03
   
$
.02
 
Quarter ended December 31
 
$
.10
   
$
.01
 
                 
Year Ended December 31, 2012
               
                 
Quarter ended March 31
 
$
.10
   
$
.02
 
Quarter ended June 30
 
$
.04
   
$
.02
 
Quarter ended September 30
 
$
.05
   
$
.02
 
Quarter ended December 31
 
$
.05
   
$
.02
 

Holders of Our Common Stock
 
As of December 31, 2012, 52,519,896 shares of our common stock were issued and outstanding, and were held by 89 shareholders of record.
 
Dividends
 
We have not declared, or paid, any cash dividends since inception and do not anticipate declaring or paying a cash dividend for the foreseeable future.
 
Nevada law prohibits our board from declaring or paying a dividend where, after giving effect to such a dividend, (i) we would not be able to pay our debts as they came due in the ordinary course of our business, or (ii) our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the rights of any creditors or preferred stockholders.
 
Securities Authorized for Issuance Under Equity Compensation Plans

For information about securities authorized for issuance under our equity compensation plans, see Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
 
5

 
Transactions Involving the Unregistered Issuance of our Equity Securities
 
No sales of unregistered securities have occurred during the fourth quarter of 2012, the period covered by this report.
 
Repurchases
 
We did not engage in any repurchases of our common stock during the period covered by this report.
 
SELECTED FINANCIAL DATA.
 
As a smaller reporting company, we are not required to provide the information required by this item.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
Forward-Looking Statements
 
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believes," "project," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will continue," "will likely result," and similar expressions. Our forward-looking statements in this report generally relate to: (i) our intent to locate and negotiate with an operating company that would merge into the Company; (ii) our expectations with respect to the broad array of industries in which we may seek a merger candidate; (iii) the factors management may consider in deciding whether to participate in any business endeavor; (iv) management’s intent to meet personally with management and key personnel of potential merger candidates, and to visit facilities, obtain analysis of the information gathered, and other methods that management may use to review potential merger candidates; (v) the anticipated means by which we may identify potential merger candidates and the expected costs associated therewith; (vi) our current intent not to compensate management; (vii) our intent not to declare dividends; (viii) our expectations with respect to results of operations in the 2013 fiscal year; and (ix) our beliefs with respect to cash requirements and the adequacy of cash. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.
 
6

 
Plan of Operation
 
Management’s current intention for the Company is to:  (i) consider industries in which we may have an interest; (ii) seek and investigate potential businesses within the industries we select; and (iii) commence such operations through the acquisition of a "going concern" engaged in any industry selected.
 
On September 10, 2012, the Company entered into an Agreement and Plan of Merger (the "iScience Merger Agreement") with iScience Interventional Corporation ("iScience"), a privately held company.  The Company expended $62,000 for due diligence and legal expenses on this possible transaction in 2012.  On November 20, 2012, the Merger Agreement was terminated.
 
During the next 12 months, our only foreseeable cash requirements will relate to maintaining our good standing and the payment of expenses associated with legal fees, accounting fees and reviewing or investigating any potential business venture.
 
On February 10, 2010, the Company executed Discretionary Advance Secured Promissory Notes (the “Discretionary Notes”) in favor of various stockholders of the Company who may make advances to the Company from time to time. The amounts due under the Discretionary Notes accrue interest at an annual rate of 5% and are due on the earlier to occur of a business combination between the Company and an operating business and three years from each loan advance, or upon the Company’s insolvency or a material breach of the Stock Purchase Agreement. The Discretionary Notes are secured by all of the Company’s assets.  Advances totaling $150,000 have been received under the Discretionary Notes and remain outstanding at December 31, 2012.  On May 10, 2013, subsequent to year end, additional advances of $25,000 were received under the Discretionary Notes and remain outstanding.  In addition, on July 1, 2013, the stockholders who have made the above noted advances contributed $50,000 in exchange for 2,625,996 shares of Znomics common stock ($0.019 per share).
 
When and if an acquisition will be made is presently unknown and will depend upon various factors, including but not limited to funding and its availability and if and when any potential acquisition may become available to us at terms acceptable to us. The estimated costs associated with reviewing and verifying information about a potential business venture would be mainly for due diligence and the legal process.
 
Critical Accounting Policies and Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make certain estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  We update these estimates, assumptions and judgments as appropriate, which in most cases is at least quarterly.  We use our technical accounting knowledge, cumulative business experience, judgment and other factors in the selection and application of our accounting policies.  While we believe the estimates, assumptions and judgments we use in preparing our financial statements are appropriate, they are subject to factors and uncertainties regarding their outcome and therefore, actual results may materially differ from these estimates.  We believe the following are our primary critical accounting policies and estimates.
 
7

 
Fair Value of Financial Instruments
          
The Company's financial instruments consist of cash, prepaid expenses, accounts payables, accrued expenses and notes payable. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The Company considers the carrying values of its financial instruments in the financial statements to approximate fair value as interest rates on the notes payable approximate current rates and the current assets and liabilities are short-term in nature.
 
Derivative Financial Instruments

The Company has a derivative liability which is accounted for at fair value.  The fair value of the Company’s derivative liability is estimated at each balance sheet date and changes in fair value are reflected as a gain or loss in the statement of operations.  The Company utilizes a Black-Scholes option pricing model to estimate fair values of its derivative liability.

This derivative liability is also marked-to-market prior to any related exercises, modifications, or extinguishments with any necessary changes in fair value from the prior balance sheet date being reflected as a gain or loss in the statement of operations.  The carrying value of the liability is eliminated upon extinguishment, converted to equity upon an exercise, or adjusted as may be necessary in a modification.
 
Income Taxes
 
Income taxes are provided for using the liability method of accounting. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
 
We account for income taxes pursuant to Financial Accounting Standards Board guidance.  This guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.  For those benefits to be recognized, a tax position must be more-likely-than not to be sustained upon examination by taxing authorities. We believe our income tax filing positions and deductions will be sustained upon examination and, accordingly, no reserves, or related accruals for interest and penalties have been recorded at December 31, 2012 and 2011.  In accordance with the guidance, the Company has adopted a policy under which, if required to be recognized in the future, interest related to the underpayment of income taxes will be classified as a component of interest expense and any related penalties will be classified in operating expenses in the statements of operations.  The Company has three open years of tax returns subject to examination from 2009 and forward.
 
Stock-Based Compensation
 
The Company recognizes the cost of stock-based compensation plans and awards in operations on a straight-line basis over the vesting period of the awards.  The Company measures and recognizes compensation expense for all stock-based payment awards made to employees and directors. The compensation expense for the Company's stock-based payments is based on estimated fair values at the time of the grant.
 
The Company estimates the fair value of stock-based payment awards on the date of grant using an option pricing model. This option pricing model involves a number of assumptions, including the expected lives of stock options, the volatility of the public market price for the Company's common stock and interest rates. The Company is using the Black-Scholes option pricing model to estimate fair values. Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that are ultimately expected to vest.
 
8

 
 Results of Operations

Operating Expenses
 
General and Administrative Expenses. General and administrative expenses currently consist principally of professional fees for legal, consulting, and accounting services, primarily related to our public company status and our due diligence efforts.
 
Financing Activities
 
We have incurred substantial losses since our inception. As of December 31, 2012, our accumulated deficit was approximately $6.7 million. Financial results for 2012 reflect a loss from operations of $109,000. We expect to continue to incur net losses as we incur expenses related to seeking a business opportunity and our ongoing costs of being a public reporting company.  Because we have no revenues, we plan to use our current cash reserves, which came from the cash received from advances under the Discretionary Notes, as well as potential future advances under the Discretionary Notes to fund our ongoing operating costs.
 
Our ability to continue as a going concern is dependent on our success at finding an acquisition candidate in a timely manner.  We believe our cash position at December 31, 2012 and advances expected under the Discretionary Notes and equity sales of our common stock, should allow us to fund operations for at least the next 12 months, and through the date a target company merges into the Company.
 
However, the current financing environment in the United States is challenging and we can provide no assurances that we could raise capital either to continue our operations or to finance an acquisition. The sale of our securities or the expectation that we will sell additional securities may have an adverse effect on the trading price of our common stock. Further, notwithstanding the Discretionary Notes, we cannot be certain that additional financing will be available when and as needed. If financing is available, it may be on terms that adversely affect the interests of our existing stockholders. If adequate financing is not available, we may need to reduce or eliminate our efforts to find an acquisition opportunity. These factors could significantly limit our ability to continue as a going concern and cause us to investigate other strategic options, including bankruptcy.
 
9

 
Fiscal Years Ended December 31, 2012 and 2011
 
Revenue
 
The Company had no revenue in 2012 or 2011.
 
Operating Expenses
 
Operating expenses (general and administrative expenses) increased from $59,000 to $109,000 from 2011 to 2012.  This increase was the result of costs the Company incurred in connection with the iScience Merger Agreement which was ultimately terminated on November 20, 2012.
 
Income Taxes
 
No income tax provision is recorded for 2012 or 2011, due to our net operating losses and a full valuation allowance preventing the recognition of deferred tax benefits.
          
Liquidity and Capital Resources
 
As of December 31, 2012, the Company had total current assets equal to $30,000, comprised of cash and prepaid expenses.  This compares with total current assets of $41,000, as of December 31, 2011, comprised exclusively of cash and prepaid expenses.  As of December 31, 2012, the Company had total current liabilities equal to $46,000, comprised of accounts payable and accrued liabilities.  This compares to $46,000 in total current liabilities, as of December 31, 2011, comprised of accounts payable and accrued liabilities.  The Company can provide no assurance that it can continue to satisfy its cash requirements for at least the next twelve months.
 
Cash Flows from Operating Activities
 
The $111,000 of cash used by operations in 2012 represented a $60,000 increase in cash used from the $51,000 of cash used in operations in 2011.  The increase in cash used was primarily due to the due diligence and legal efforts related to the possible iScience merger. In 2012, we recorded a net cash outflow of $45,000 from our loss from operations, net of a non-cash adjustment of $2,000 from stock based compensation and $68,000 from gain on fair value adjustment of warrant liability.
 
Cash Flows from Investing Activities
 
We had no investing activities in 2012 or 2011.
  
We do not anticipate any capital expenditures in 2013, unless a merger takes place.
 
 
10

 
Cash Flows from Financing Activities
 
We received $100,000 of advances under the Discretionary Advance Secured Promissory Notes during 2012.  This compares to $50,000 of cash received under the Discretionary Advance Secured Promissory Notes in 2011.
 
During the next 12 months, our only foreseeable cash requirements will relate to maintaining our good standing as a public company and/or the payment of expenses associated with legal fees, accounting fees and reviewing or investigating any potential business ventures which may be advanced by management. On February 10, 2010, the Company executed Discretionary Advance Secured Promissory Notes in favor of each Purchaser (the “Discretionary Notes”), who may make advances to the Company from time to time. The amounts due under the Discretionary Notes accrue interest at an annual rate of 5% and are due on the earlier to occur of a business combination between the Company and an operating business and three years from each loan advance, or upon the Company’s insolvency or a material breach of the Stock Purchase Agreement. The Discretionary Notes are secured by all of the Company’s assets. We believe the cash received in 2012 and subsequent to year end and any potential future loans or equity contributions will be sufficient to meet our limited needs during the next twelve months. However, the Sharehodlers are not obligated to make additional advances under the Discretionary Notes. If we require cash in addition to the amount currently on hand, there is no guarantee we will be able to obtain an adequate amount pursuant to the Discretionary Notes, and there is no guarantee we will be able to obtain alternative financing on favorable terms, if at all.

Off Balance Sheet Arrangements
 
As of December 31, 2012, we did not have any off balance sheet arrangements.
 
QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
As a smaller reporting company, we are not required to provide the information required by this item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
Index to Financial Statements:
 
 
 
11

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Znomics, Inc.
Minneapolis, Minnesota

 
We have audited the accompanying balance sheet of Znomics, Inc. (the “Company”), as of December 31, 2012 and the related statements of operations, changes in stockholders’ deficit and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Znomics, Inc. as of December 31, 2012, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As described in Note 2 to the financial statements, the Company had no revenues and had net losses for the years ended December 31, 2012 and 2011 and has a deficit accumulated at December 31, 2012.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans regarding those matters are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 

/s/ BDO USA, LLP
August 14, 2013
 
 
12

 




We conducted our audits in accordance with the standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.




 
  
 
13

 
ZNOMICS, INC.
Balance Sheets (in thousands except per share data)
 December 31
 
   
2012
   
2011
 
Assets
           
Current assets:
           
Cash
 
$
26
   
$
37
 
Prepaid expenses
   
4
     
4
 
                 
Total current assets
   
30
     
41
 
                 
Total assets
 
$
30
   
$
41
 
                 
Liabilities and Stockholders' Deficit
               
Current liabilities:
               
Accounts payable
 
$
5
   
$
4
 
Accrued liabilities
   
         41
     
42
 
                 
Total current liabilities
   
46
     
46
 
                 
Secured promissory notes from certain stockholders
   
150
     
50
 
Warrant liability     33      
--
 
                 
Total liabilities
   
229
     
96
 
                 
Stockholders' deficit:
               
Common stock, $0.001 par value, 90,000,000 shares authorized, 52,519,896 shares issued and outstanding at December 31, 2012 and 2011
   
53
     
53
 
  
               
Additional paid-in capital
   
6,403
     
6,502
 
Accumulated deficit
   
(6,655
)
   
(6,610
)
                 
Total stockholders' deficit
   
(199
   
(55)
 
Total liabilities and stockholders' deficit
 
$
30
   
$
41
 
 
The accompanying notes are an integral part of these financial statements.
 
 
14

 
ZNOMICS, INC.
Statements of Operations (in thousands except per share data)
 For the Years Ended December 31, 2012 and 2011
 
   
2012
   
2011
 
             
Revenue
 
$
--
   
$
--
 
                 
General and administrative expense
   
109
     
59
 
Loss from operations
   
(109
)
   
(59
)
                 
Other Income (expense):
               
Interest expense
   
(4
   
(1)
 
Gain on fair value adjustment of warrant liability
    68       -  
Total other Income (expense)
   
64
 
   
(1)
 
                 
Loss before income taxes
   
(45
)
   
(60
)
Income tax expense
   
--
     
--
 
                 
Net loss
 
$
(45
)
 
$
(60
)
                 
Net loss per share - Basic and diluted
 
$
(0.00
)
 
$
(0.00
)
Weighted average common shares outstanding:
               
Basic and diluted
   
52,519,896
     
52,519,896
 
 
The accompanying notes are an integral part of these financial statements.
 
 
15

 
ZNOMICS, INC.
Statement of Stockholders' Equity (Deficit) (in thousands)
 For the Years Ended December 31, 2012 and 2011
 
  
 
Series A
convertible
 preferred stock
   
Series B
convertible
 preferred stock
   
Common
stock
   
Additional
 paid-in
   
Accumulated
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Total
 
                                                       
Balance at December 31, 2010
   
     
     
     
     
52,520
    $
53
    $
6,499
    $
(6,550
)
  $
2
 
Stock option compensation
                                                   
3
             
3
 
Net loss for the year ended December 31, 2011
                                                           
(60
   
(60
)
                                                                         
Balance at December 31, 2011
   
--
   
 
    --
     
   --
   
 
     --
     
52,520
   
 
53
   
 
6,502
   
 
(6,610
)
 
 
(55
Reclassification of warrant liability (see Note 6)                                                     (101 )    
      (101 )
Stock option compensation
                                                   
2
             
2
 
Net loss for the year ended December 31, 2012
                                                           
(45
   
(45
)
                                                                         
Balance at December 31, 2012
   
--
   
$
    --
     
   --
   
$
     --
     
52,520
   
$
53
   
$
6,403
   
$
(6,655
)
 
$
(199
 
The accompanying notes are an integral part of these financial statements.
 
 
16

 
ZNOMICS, INC.
Statements of Cash Flows (in thousands)
 For the Years Ended December 31, 2012 and 2011
 
   
Year Ended
 December 31,
 2012
   
Year Ended
 December 31,
 2011
 
Cash flows from operating activities:
           
Net loss
 
$
(45
)
 
$
(60
)
Adjustments to reconcile net loss to net cash from operations:
               
Stock-based compensation charges
   
2
     
3
 
Gain on fair value adjustment of warrant liability     (68 )     -  
Changes in operating assets and liabilities:
               
Accounts payable
   
1
     
2
 
Accrued liabilities
   
(1
   
4
 
Net cash used by operating activities
   
(111
   
(51
)
                 
Cash flows from investing activities:
    -       -  
                 
Cash flows from financing activities:
               
Proceeds from issuance of debt
   
100
     
50
 
Net cash provided by financing activities
   
100
     
50
 
                 
Net decrease in cash and cash equivalents
   
(11
)
   
(1
)
                 
Cash at beginning of period
   
37
     
38
 
Cash at end of period
 
$
26
   
$
37
 
                 
Supplemental disclosures:
               
Cash paid for interest
 
$
--
   
$
--
 
 
The accompanying notes are an integral part of these financial statements.
 
 
17

 
ZNOMICS, INC.
Notes to Financial Statements

 
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Nature of Business
 
Znomics Inc. ("the Company") was previously engaged in the business of drug discovery with a cutting-edge biotechnology platform that leveraged medicinal chemistry with the unique attributes of the zebrafish.  In April 2009, the Company terminated its operations.  The Company subsequently disposed of this developmental stage business in 2009 and 2010 prior to it having generated any significant revenues.  As the Company is no longer developing any specific business, it no longer refers to itself as a development stage company and accordingly, no longer presents cumulative financial information.  The Company is now considered a public shell company with no current business activity.

The Company has now focused its efforts on seeking a new business opportunity. The Company will attempt to locate and negotiate with a business entity for the merger of that target company into the Company. In certain instances, a target company may wish to become a subsidiary of the Company or may wish to contribute assets to the Company rather than merge. No assurances can be given that the Company will be successful in locating or negotiating with any target company. The Company will provide a method for a private company to become a reporting (“Public”) company whose securities are qualified for trading in the United States secondary market.
 
Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make certain estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  We update these estimates, assumptions and judgments as appropriate, which in most cases is at least quarterly.  We use our technical accounting knowledge, cumulative business experience, judgment and other factors in the selection and application of our accounting policies.  While we believe the estimates, assumptions and judgments we use in preparing our financial statements are appropriate, they are subject to factors and uncertainties regarding their outcome and therefore, actual results may materially differ from these estimates.
 
Cash and Cash Equivalents
 
                For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits and highly liquid debt instruments with a maturity of less than 90 days to be cash and cash equivalents.
 
Fair Value of Financial Instruments
 
The Company's financial instruments consist of cash, accounts payable, accrued expenses and notes payable. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The Company considers the carrying values of its financial instruments in the financial statements to approximate fair value as interest rates on the notes payable approximate current rates and the current assets and liabilities are short-term in nature.
 
Derivative Financial Instruments

The Company has a derivative liability which is accounted for at fair value.  The fair value of the Company’s derivative liability is estimated at each balance sheet date and changes in fair value are reflected as a gain or loss in the statement of operations.  The Company utilizes a Black-Scholes option pricing model to estimate fair values of its derivative liability.
 
This derivative liability is also marked-to-market prior to any related exercises, modifications, or extinguishments with any necessary changes in fair value from the prior balance sheet date being reflected as a gain or loss in the statement of operations.  The carrying value of the liability is eliminated upon extinguishment, converted to equity upon an exercise, or adjusted as may be necessary in a modification.

Revenue Recognition
 
The Company has no current revenues.
 
 
18

 
ZNOMICS, INC.
Notes to Financial Statements
 
Income Taxes
 
Income taxes are provided for using the liability method of accounting. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

We account for income taxes pursuant to Financial Accounting Standards Board guidance.  This guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.  For those benefits to be recognized, a tax position must be more-likely-than not to be sustained upon examination by taxing authorities. We believe our income tax filing positions and deductions will be sustained upon examination and, accordingly, no reserves, or related accruals for interest and penalties have been recorded at December 31, 2012 and 2011.  In accordance with the guidance, the Company has adopted a policy under which, if required to be recognized in the future, interest related to the underpayment of income taxes will be classified as a component of interest expense and any related penalties will be classified in operating expenses in the statements of operations.  The Company has three open years of tax returns subject to examination from 2009 and forward.

Stock-Based Compensation
 
The Company recognizes the cost of stock-based compensation plans and awards in operations on a straight-line basis over the respective vesting period of the awards.  The Company measures and recognizes compensation expense for all stock-based payment awards made to employees and directors. The compensation expense for the Company's stock-based payments is based on estimated fair values at the time of the grant.
 
The Company estimates the fair value of stock-based payment awards on the date of grant using an option pricing model. This option pricing model involves a number of assumptions, including the expected lives of stock options, the volatility of the public market price for the Company's common stock and interest rates. The Company is using the Black-Scholes option pricing model to estimate the fair value of its options. Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that are ultimately expected to vest.

Net Income (Loss) Per Share
 
Basic net income (loss) per share is calculated by dividing the net income (loss) for the period by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) for the period by the weighted-average number of common shares outstanding during the period, increased by potentially dilutive common shares ("dilutive securities") that were outstanding during the period. Dilutive securities include options granted pursuant to the Company's stock option plan and stock warrants.
 
For the years ended December 31, 2012 and 2011, options and warrants exercisable representing potential common stock equivalents were excluded from the calculation of the diluted net loss per share as their effect would have been anti-dilutive.
 
Comprehensive Income (Loss)
 
Comprehensive income (loss) includes net income (loss) and items defined as other comprehensive income (loss).  Items defined as other comprehensive income (loss) include items such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities.  For the years ended December 31, 2012 and 2011, there were no adjustments to net loss to arrive at comprehensive loss.
 
Recent Accounting Pronouncements

None that are applicable.

 
19

 
ZNOMICS, INC.
Notes to Financial Statements
 
NOTE 2. GOING CONCERN

The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business.  We have incurred substantial losses since our inception. As of December 31, 2012, our accumulated deficit was approximately $6.7 million. Financial results for 2012 reflect a loss from operations of $109,000. We expect to continue to incur net losses as we incur expenses related to seeking a business opportunity and our ongoing costs of being a public reporting company.  Because we have no revenues, we plan to use our current cash reserves, which came from the cash received from advances under the Discretionary Notes (see Note 3), as well as potential future advances under the Discretionary Notes to fund our ongoing operating costs.
 
Our ability to continue as a going concern is dependent on our success at finding an acquisition candidate in a timely manner.  We believe our cash position at December 31, 2012 and advances expected under the Discretionary Notes and equity sales of our common stock, should allow us to fund operations for at least the next 12 months, and through the date a target company merges into the Company.
 
However, the current financing environment in the United States is challenging and we can provide no assurances that we could raise capital either to continue our operations or to finance an acquisition. The sale of our securities or the expectation that we will sell additional securities may have an adverse effect on the trading price of our common stock. Further, notwithstanding the Discretionary Notes, we cannot be certain that additional financing will be available when and as needed. If financing is available, it may be on terms that adversely affect the interests of our existing stockholders. If adequate financing is not available, we may need to reduce or eliminate our efforts to find an acquisition opportunity. These factors could significantly limit our ability to continue as a going concern and cause us to investigate other strategic options, including bankruptcy.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
NOTE 3. DISCRETIONARY ADVANCE SECURED PROMISSORY NOTES

On February 10, 2010, the Company executed Discretionary Advance Secured Promissory Notes (the “Discretionary Notes”) in favor of various stockholders of the Company, who may make advances to the Company from time to time. The amounts due under the Discretionary Notes accrue interest at an annual rate of 5% and are due on the earlier to occur of a business combination between the Company and an operating business and three years from each loan advance, or upon the Company’s insolvency or a material breach of the Stock Purchase Agreement. The Discretionary Notes are secured by all of the Company’s assets.  Advances totaling $150,000 have been received under the Discretionary Notes and remain outstanding at December 31, 2012.  Interest expense was $4,000 and $1,000 for the years ended December 31, 2012 and 2011, respectively.  See also Note 11, Subsequent Events.
 
Notes Payable maturities are as follows:
 
Year Ended December 31,   Amount  
2013   $ -  
2014     50,000  
2015     100,000  
    $ 150,000  
 
 
20

 
ZNOMICS, INC.
Notes to Financial Statements
 
NOTE 4. ACCRUED LIABILITIES
 
Accrued liabilities consist of the following, in thousands:
 
   
December 31
 
   
2012
   
2011
 
Rent – disputed from 2007
   
27
     
27
 
Legal and accounting
   
8
     
14
 
Interest
   
6
     
1
 
   
$
41
   
$
42
 
 
NOTE 5.  WARRANT LIABILITY

The Company re-reviewed the provisions on all of its outstanding warrants issued originally in 2009 and amended in 2010 and determined that because such warrants could potentially be settled in cash upon a Fundamental Transaction (as defined in the applicable warrant agreement), they should have been accounted for as a derivative liability at fair value with changes in fair value reflected in operating results.  Cumulatively since the date of issuance to December 31, 2012, the fair value of these warrants decreased by $68,000 to a December 31, 2012 fair value of $33,000.  The Company recorded a fourth quarter 2012 adjustment for all of its prior accounting treatment for these warrants.  No periods since issuance through December 31, 2012 were materially impacted by the previous accounting.

At issuance and each balance sheet date, the Company estimates the fair value of these warrants using the Black-Scholes option pricing model.  Changes in fair value are recorded as a non-cash valuation adjustment in the Company's statement of operations.  The Black-Scholes valuation model inputs for year ended December 31, 2012 are as follows:

Risk free interest rates
    0.95 %
Expected dividend yield
    0.0 %
Expected stock volatility
    195.0 %
Expected term of warrants in years
    6.4  
 
Expected volatility is based upon the observed historical trades of the Company’s common stock. The expected term of the warrants is based on the remaining terms of the warrants. The risk-free rate of return is based on the U.S. Treasury security rates for maturities consistent with the expected term of the warrants.

Potential future increases in the estimated fair value of these warrants will result in losses being recognized in our statement of operations in future periods.  Conversely, potential future declines in the estimated fair value of these warrants will result in gains being recognized in our statement of operations in future periods.  Neither of these potential gains or losses will have any impact on our cash balance, liquidity or cash flows from operations.

The following table sets forth the changes in the Company's derivative warrant liability for the year ended December 31, 2012:
 
 
 
Date
 
Description
 
Number of
Warrants
   
Warrant
Liability,
in thousands
 
                 
December 31, 2011
 
Balance of warrant liability at December 31, 2011
    -     $ -  
   
Fair value of warrants reclassified to warrant liability during 2012
    1,686,510       101  
   
Change in fair value of warrant liability for the year ended December 31, 2012
    -       (68 )
December 31, 2012
 
Balance of warrant liability at December 31, 2012
    1,686,510     $ 33  
 
 
21

 
ZNOMICS, INC.
Notes to Financial Statements
 
NOTE 6.  FAIR VALUE MEASUREMENTS
 
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Entities are required to use a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.  There are three levels of inputs that may be used to measure fair value:
 
 
Level 1
-
Inputs use quoted prices in active markets for identical assets or liabilities.
 
 
Level 2
-
Inputs use other inputs that are observable, either directly or indirectly, other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 
Level 3
-
Inputs are unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
 
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.  The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

Level 3 Valuation Techniques

The warrant liability is classified as level 3 within the fair value hierarchy as its fair value is measured using the Black-Scholes option pricing model with several unobservable and estimated inputs, supported by little or no market activity.  The Black-Scholes valuation model inputs for the year ended December 31, 2012 are as follows:

Risk free interest rates
    0.95 %
Expected dividend yield
    0.0 %
Expected stock volatility
    195.0 %
Expected term of warrants in years
    6.4  
 
There was no warrant liability recorded during 2011.

Expected volatility is based upon the observed historical trades of the Company’s common stock. The expected term of the warrants is based on the remaining terms of the warrants. The risk-free rate of return is based on the U.S. Treasury security rates for maturities consistent with the expected term of the warrants.

Significant increases (decreases) in any of those inputs in isolation could result in a significantly different fair value measurement. Generally a change in the assumption used for expected term is accompanied by a directionally similar change in the assumptions used for expected volatility and risk-free interest rate.

The valuation methods described above may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values.  Furthermore, while the Company believes its valuation method is appropriate and consistent with similar instruments, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Liabilities measured at fair value on a recurring basis at December 31, 2012 are as follows, in thousands:
 
   
Quoted
Prices in
Active Markets
for Identical
Liabilities
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
   
Balance at
December 31,
2012
 
Warrant liability
  $ -     $ -     $ 33     $ 33  

There were no warrant transfers between fair value levels during the year ended December 31, 2012.
 
 
22

 
ZNOMICS, INC.
Notes to Financial Statements
 
The following table details the activity of our warrant liability measured at fair value, whose fair values are determined by Level 3 inputs for the year ended December 31, 2012, in thousands:

Balance, December 31, 2011
  $ -  
Fair value of warrants reclassified to liability
    101  
Gain on change in fair value of warrant liability recorded in other income
    (68 )
Balance, December 31, 2012
  $ 33  
         
Gain recorded in other income, for Level 3 liability still held at December 31, 2012
  $ (68 )
 
NOTE 7. STOCKHOLDERS' EQUITY
 
     Authorized Shares
 
Preferred stock, $0.001 par value; 10,000,000 shares authorized. Shares of Company preferred stock may be issued in one or more series from time to time by the Board of Directors of the Company. The Board of Directors is expressly authorized to fix by resolution or resolutions the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, of the shares of each series of preferred stock. Subject to the determination of the Board of Directors, preferred stock would generally have preferences over common stock with respect to the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding up of the Company.
 
Common stock, $0.001 par value; 90,000,000 shares authorized. The holders of Company common stock are entitled to receive such dividends or distributions as are lawfully declared on the common stock, to have notice of any authorized meeting of stockholders, and to exercise one vote for each share of common stock on all matters which are properly submitted to a vote of the Company's stockholders. As a Nevada corporation, the Company is subject to statutory limitations on the declaration and payment of dividends. In the event of a liquidation, dissolution or winding up of the Company, holders of common stock have the right to a ratable portion of assets remaining after satisfaction in full of the prior rights of creditors, including holders of the Company's indebtedness, all liabilities and the aggregate liquidation preferences of any outstanding shares of preferred stock. The holders of common stock have no conversion, redemption, preemptive or cumulative voting rights.
 
Issuances During 2012 and 2011
 
                There were no stock issuances during 2012 or 2011.  See also Note 11, Subsequent Events.
 
NOTE 8. STOCK OPTIONS AND WARRANTS
 
          Stock Options
 
The Company adopted a Stock Incentive Plan in 2002 to promote the Company's long-term growth and profitability by awarding incentives to employees, officers, directors and consultants. The plan permits the granting of stock options, stock appreciation rights, restricted or unrestricted stock awards or other stock-based awards. The Board of Directors has authorized up to 2,193,258 shares to be issued under the stock option plan. To date, grants have consisted primarily of incentive stock options (ISOs) and non-employees have received non-qualified options.
 
The options expire on the last business day prior to the tenth anniversary of the grant award date, currently 2015 to 2018, unless fully exercised or terminated earlier. The options primarily vest and become exercisable either; 25% on the award date and 25% ratably thereafter, or, vest ratably commencing one year from the award date. The options vest over periods ranging from immediately to five years.
 
23

 
ZNOMICS, INC.
Notes to Financial Statements
 
The following schedules present stock options awarded and unexercised for the years ended December 31, 2012 and 2011:
 
   
Number of
 
 
 
Exercise Price
   
Aggregate
Intrinsic
   
Options
     
per Share
   
Value
                             
Outstanding at December 31, 2010
   
102,500
     
 
$.41
2.75
       
Granted
    -                      
Exercised
    -                      
Canceled/ Forfeited
    -                      
Outstanding at December 31, 2011
   
102,500
     
 
$0.41
2.75
   
 
 
Granted
    -                      
Exercised
    -                      
Canceled/Forfeited
    -                      
Outstanding at December 31, 2012     102,500       $ 0.41 - 2.75        
Exercisable at end of year
   
102,500
     
 
$0.41
2.75
      0.00
 
The following table summarizes information about stock options outstanding and exercisable as of December 31, 2012:
 
   
Options Outstanding and Exercisable
 
Range of Exercise Prices
 
Number
   
Weighted
 Average
 Remaining
 Contractual Life
(Years)
   
Weighted
Average
Exercise
Price
 
$0.41 - $2.75     102,500       3.6     $ 1.38  
 
The table below summarizes the stock-based compensation expense, in thousands:
 
   
Year Ended
 December 31,
 2012
   
Year Ended
 December 31,
 2011
 
General and administrative
 
$
2
   
$
3
 
Total stock-based compensation expense included in loss from operations
 
$
2
   
$
3
 
 
There is $0 of total unrecognized stock option compensation expense to be recognized in future periods.
 
Stock Warrants
 
The Company has 1,686,510 warrants outstanding as of December 31, 2012 with an exercise price of $0.03 per share that expire on May 26, 2019.
 
There were no warrant activities during 2012 and 2011.
 
NOTE 9. INCOME TAXES

The provision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal rate to pretax income as a result of the following differences (in thousands):

   
December 31
 
   
2012
   
2011
 
             
Tax computed at the federal statutory rate of 34%
 
$
(38)
   
$
(20)
 
State income taxes, net of federal benefit
   
--
     
--
 
Permanent differences and other
   
--
     
1
 
State rate adjustment
   
--
     
6
 
Net operating loss forfeiture
   
--
     
370
 
Change in valuation allowance
   
38
     
(357
Income tax provision
 
$
--
   
$
--
 
 
24

 
ZNOMICS, INC.
Notes to Financial Statements
 
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Significant components of the deferred tax assets are as follows, in thousands:
 
   
December 31
 
   
2012
   
2011
 
Deferred tax assets:
           
Accrued expenses -  short term
 
$
14
   
$
14
 
Stock compensation - long term     19       18  
Net operating loss carryforwards - long term
   
2,007
     
1,970
 
Valuation allowance
   
(2,040
)
   
(2,002
)
Net deferred tax assets, net of valuation allowance
 
$
--
   
$
--
 
 
A valuation allowance of $2,040,000 and $2,002,000 at December 31, 2012 and 2011, respectively, has been recorded to offset net deferred tax assets as the Company is unable to conclude that it is more likely than not that such deferred tax assets will be realized.
 
At December 31, 2012, the Company has federal net operating loss carryforwards of approximately $5.9 million, which begin to expire in 2021. The Company has filed final tax returns for Oregon and Portland/Multnomah County in 2010, and thereby forteited its net operating loss carryforwards for those jurisdictions.
 
Utilization of net operating losses, credit carryforwards, and certain deductions may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The tax benefits related to future utilization of federal and state net operating losses, tax credit carryforwards, and other deferred tax assets may be limited or lost entirely if cumulative changes in ownership exceeds 50% within any three-year period which most likely occurred with the Company’s stock issuance on February 10, 2010. Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examinations from various taxing authorities.

At December 31, 2012, the Company has no unrecognized tax benefits or associated interest and penalties.  The Company does not expect any significant increases or decreases in its unrecognized tax benefits within the next twelve months of this reporting date.

The Company is subject to U.S. Federal income taxes.  The Company is no longer subject to U.S. Federal or Oregon income tax examinations for years before 2009.  However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward amount.

The Company is not currently under Internal Revenue Service ("IRS") or Oregon tax examinations.
 
 
25

 
ZNOMICS, INC.
Notes to Financial Statements
 
NOTE 10. EARNINGS (LOSS) PER SHARE
 
The following table provides a reconciliation of the numerators and denominators used in calculating basic and diluted loss per share for the years ended December 31, 2012 and 2011:
 
   
2012
   
2011
 
Basic earnings (loss) per share calculation:
           
Net loss to common shareholders
 
$
(45,000
)
 
$
(60,000
)
Weighted average of common shares outstanding
   
52,519,896
     
52,519,896
 
Basic net loss per share
 
$
(0.00
)
 
$
(0.00
)
                 
Diluted earnings (loss) per share calculation:
               
Net loss to common shareholders
 
$
(45,000
)
 
$
(60,000
)
Weighted average of common shares outstanding
   
52,519,896
     
52,519,896
 
Stock Options (1)
   
-
     
-
 
Warrants (2)
   
-
     
-
 
Diluted weighted average common shares
               
Outstanding
   
52,519,896
     
52,519,896
 
Diluted net loss per share
 
$
(0.00
)
 
$
(0.00
)
 
(1)
At December 31, 2012 and 2011, there were common stock equivalents attributable to outstanding stock options of 102,500 common shares. The stock options are anti-dilutive at December 31, 2012 and 2011 and therefore have been excluded from diluted earnings per share.
 
(2)
At December 31, 2012 and 2011, there were common stock equivalents attributable to warrants of 1,686,510 common shares.  The warrants are anti-dilutive for the years ended December 31, 2012 and 2011 and therefore have been excluded from diluted earnings per share.
 
NOTE 11. SUBSEQUENT EVENTS
 
On May 10, 2013, subsequent to year end, additional advances of $25,000 were received under the Discretionary Notes and remain oustanding.  In addition, on July 1, 2013, the stockholders who have made the above noted advances contributed $50,000 in exchange for 2,625,996 shares of Znomics common stock.
 
 
26

 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
Not applicable.
 
CONTROLS AND PROCEDURES.
 
Evaluation of Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness, as of December 31, 2012, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The purpose of this evaluation was to determine whether as of the evaluation date our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the Securities and Exchange Commission, or SEC, under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In performing the assessment for the year ended December 31, 2012, our management concluded that our disclosure controls and procedures were not effective to accomplish the forgoing, due to the material weakness in internal control over financial reporting that was first identified in 2009.  Specifically, a lack of segregation of duties in the financial reporting process.
 
Management’s Annual Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. We have designed our internal controls to provide reasonable, but not absolute, assurance that our financial statements are prepared in accordance with U.S. GAAP. We assess the effectiveness of our internal controls based on the criteria set forth in the Internal Control — Integrated Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission. In performing the assessment for 2012, our management identified a continuation of a material weakness in internal control over financial reporting that was identified in 2009.  Specifically, a lack of segregation of duties in the financial reporting process.
 
Due to this material weakness, management has concluded that our internal control over financial reporting was not effective as of December 31, 2012.  However, management believes, at this time the costs of remediation outweigh the benefits given the limited operations of the Company. Notwithstanding the material weaknesses that existed as of December 31, 2012, our Chief Executive Officer and Chief Financial Officer have concluded that the financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the financial position, results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States of America ("GAAP").

 
27

 
 
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
 
The following information sets forth the names of our current directors and executive officers, their ages as of July 9, 2013 and their present positions.
 
                                       Name
 
Age
 
Position Held with the Company
Tony J. Christianson
 
61
 
Chairman of the Board of Directors
Gordon F. Stofer
 
66
 
Director, Chief Executive Officer
David G. Latzke
 
53
 
Chief Financial Officer and Secretary
John C. Bergstrom
 
53
 
Director
Kerry D. Rea
 
54
 
Director
 
Set forth below is a brief description of the background and business experience of our significant executive officers and directors.

Tony J. Christianson, 61, became a director of Znomics, Inc. on February 10, 2010.  Mr. Christianson co-founded the Cherry Tree family of companies, an affiliated group of investment banking, asset management and wealth management firms in Minneapolis (collectively, “Cherry Tree”), in 1980 and currently serves as the Chairman of Cherry Tree Companies, LLC. Affiliates of Cherry Tree Companies act as the general partner of Adam Smith Fund, LLC and Adam Smith Growth Partners, L.P.  Mr. Christianson also serves as a director of each of The Dolan Company (NYSE:DM), an information services provider; Peoples Educational Holdings, Inc. (NASDAQ: PEDH), an educational materials publisher; AmeriPride Services, Inc., a provider of customized apparel for companies; Titan Machinery, Inc. (NASDAQ: TITN), a provider of new and used farm  and construction equipment and Arctic Cat, Inc. (NASDAQ:ACAT), a manufacturer of snowmobiles and related equipment.  Mr. Christianson also served as a director of Fair Isaac Corporation (NYSE:FICO) from 1999 to 2009.  Mr. Christianson is a graduate of Saint John’s University in Collegeville, Minnesota, B.S., and Harvard Business School, M.B.A. Mr. Christianson offers invaluable insight in mergers and acquisitions, business and capital strategy, investor relations, and corporate governance through his experience managing Cherry Tree Companies and his service on the boards of a number of public companies.

Gordon F. Stofer, 66, became a director of Znomics, Inc. on February 10, 2010.  Mr. Stofer co-founded Cherry Tree in 1980 and currently serves as the Chief Executive Officer of Cherry Tree Companies, LLC. Mr. Stofer has also served as a director of Insignia Systems, Inc. (NASDAQ: ISIG), an in-store display provider, since February 1990. Mr. Stofer has been a director of numerous public and private companies over the past 30 years. Mr. Stofer is a graduate of Cornell University, B.S., and Harvard Business School, M.B.A. Mr. Stofer offers invaluable insight in mergers and acquisitions, operational management, investor relations and corporate governance through his experience managing Cherry Tree Companies and his service on the boards of a number of public companies.
 
 
28

 
David G. Latzke, 53, has served as Chief Financial Officer and Secretary of Znomics, Inc. since February 10, 2010.   Mr. Latzke has been a Managing Director of Cherry Tree Companies, LLC since January 2007.  Prior to joining Cherry Tree, Mr. Latzke was the Senior Vice President, Chief Financial Officer and Secretary of SoftBrands, Inc., a publicly held software company, from August 2001 through June 2006.  Mr. Latzke joined Fourth Shift Corporation, a publicly held software company in 1993 and was its chief financial officer until it was acquired by AremisSoft, the former parent of SoftBrands, in April 2001. Mr. Latzke served as a Divisional CFO from April 2001 until August 2001. Prior to his tenure at Fourth Shift, Mr. Latzke was an eleven-year veteran of Arthur Andersen, in its audit and business advisory group. Mr. Latzke is a graduate of the University of Northern Iowa, B.A.

John C. Bergstrom, 53, became a director of Znomics, Inc. on February 10, 2010.  Mr. Bergstrom has served as a partner with RiverPoint Investments, a St. Paul, Minnesota-based business and financial advisory firm, since June 1995. Mr. Bergstrom is also a director of The Dolan Company (NYSE: DM) an information services provider, and Peoples Educational Holdings, Inc. (OTC: PEDH), an educational materials publisher.  Mr. Bergstrom also serves as a director for several private companies including Tecmark, Inc., a provider of business services focused on loyalty marketing programs; Instrumental, Inc., a provider of technology services to the government sector; Creative Publishing Solutions, Inc., a specialty marketing publisher; Cramer, LLC, an office furniture supplier; and JobDig, Inc., a provider of employment advertising services.   Mr. Bergstrom is a graduate of Gustavus Adolphus College, B.A., and the University of Minnesota, M.B.A.  Mr. Bergstrom has built his career advising companies and he is a skilled adviser to us in the areas of mergers and acquisitions, corporate governance, executive compensation and other organizational management matters.

Kerry D. Rea, 54, became a director of Znomics, Inc. on February 10, 2010.  Mr. Rea served as Chief Financial Officer of the Company from November 2007 until February 10, 2010. Mr. Rea has served as Chief Financial Officer of Townsend Farms, Inc. since April 2013, Mr. Rea served as the Chief Financial Officer for Solar Nation, Inc. from February 2010 to March 2013.  Mr. Rea was a consultant from 2006 to November 2007. From 2004 to 2006 he served as Vice-President and Controller of AccessLine Communications, and served in various consulting roles from 2003 to 2004. From 1997 to 2002 he was Vice President of Finance and Vice President and Controller for Electric Lightwave. Mr. Rea is a graduate of Oregon State University, B.S.B.A. and Portland State University, M. Tax.  Mr. Rea has significant experience serving as an officer in several companies across several industries, including Chief Financial Officer of Znomics.  This experience is valuable to the Company in the areas of mergers and acquisitions, operational management and historical perspective on Znomics.
 
 
29

 
Nominations for directors are made by the Board of Directors. There have been no material changes to the procedures by which security holders may recommend nominees to the registrant's board of directors, which procedures are set forth in our Bylaws.
    
Code of Ethics

The Board has a Code of Ethics and Business Conduct (“Code of Ethics”) that applies to all of our employees, directors, and officers, including our principal executive officers, principal financial officer, and controller. The Code of Ethics addresses such topics as protection and proper use of our assets, compliance with applicable laws and regulations, accuracy and preservation of records, accounting and financial reporting, and conflicts of interest.  We have adopted a Code of Ethics, a copy of which is attached as an Exhibit 14.1 to this report.

Audit Committee

Following completion of the February 10, 2010 Stock Purchase Agreement, the Board of Directors determined that it would not designate an audit committee because the Company has no operations and limited need for decision making with respect to the responsibilities that would normally be delegated to an audit committee. Consequently, the Company does not have an “audit committee financial expert,” as defined by the SEC.

Compliance with Section 16(a) of the Exchange Act

Not applicable.
 
EXECUTIVE COMPENSATION.
 
Summary Compensation Table
 
For the 2012 and 2011 fiscal years, our only “named executive officers” (as defined in Item 402 of Regulation S-K) were Gordon F. Stofer, Chief Executive Officer and David G. Latzke, Chief Financial Officer and Secretary.  We had no other named executive officers and did not pay any compensation to our named executive officers in 2012 or 2011.
 
 
30

 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS.
 
Stock Incentive Plan
 
We adopted a stock incentive plan in 2002 (the "Plan") to promote our long-term growth and profitability by incentivizing employees, officers, directors and consultants. The Plan, which is our only equity compensation plan, permits the grant of stock options, stock appreciation rights, restricted or unrestricted stock awards or other stock-based awards. The board of directors has authorized up to 2,193,258 shares to be issued under the Plan. As of December 31, 2012, there were 102,500 options outstanding pursuant to the Plan. No awards were made under the Plan in 2012 or 2011.  We do not intend to grant additional awards under this Plan.
 
The following table provides information concerning our equity compensation plans as of December 31, 2012.

Plan category
 
Number of
 securities to
 be issued
 Upon
 Exercise of
 outstanding
 Options,
 Warrants
and
 rights (1)
   
Weighted-
 Average
 Exercise
 price of
 outstanding
 options,
 Warrants
and
 Rights
   
Number of
 securities
 remaining
 available for
 future
 issuance
 Under equity
 compensation
 plans(1)
 
Equity compensation plans approved by security holders
   
1,789,010
   
$
.11
     
404,248
 
Equity compensation plans not approved by security holders
   
-
     
-
     
-
 
Total
   
1,789,010
   
$
.11
     
404,248
 

 (1) All option numbers and exercise prices have been retroactively adjusted for all forward or reverse stock splits.
 
The following table sets forth certain information regarding beneficial ownership of our common shares as of July 9, 2013, by (i) each person or entity who is known by us to own beneficially more than 5% of our common shares, (ii) each of our directors, (iii) our named executive officer, and (iv) all our directors and executive officers as a group. Unless otherwise indicated, the stockholders listed in the table have sole voting and investment powers with respect to the shares indicated.
 
 
31

 
Beneficial Ownership of Directors, Executive Officers, Directors and Executive Officers as a group, and 5% Holders as of July 31, 2013:
 
Name of Beneficial Owner
Number of Shares
Beneficially Owned
Percent of
Class
Tony J. Christianson (1)
301 Carlson Parkway, Suite 103
Minneapolis, MN 55305
20,415,805
37.02%
Gordon F. Stofer (2)
301 Carlson Parkway, Suite 103
Minneapolis, MN 55305
20,415,805
37.02%
John C. Bergstrom
2,171,894
3.9%
Kerry D. Rea (3)
249,600
*
David G. Latzke
2,171,894
3.9%
All Executive Officers and Directors as a Group (5 persons)
45,424,996
82.4%
_________________
* Less than 1%
 
(1) Includes 9,121,955 shares held by Adam Smith Companies, LLC, 2,171,894 shares held by Cherry Tree Companies, LLC and 4,560,978shares held by The Paige Christianson Family Trust. Mr. Christianson may be deemed to share beneficial ownership of shares beneficially owned by Adam Smith Companies, LLC, and Cherry Tree Companies, LLC by virtue of his status as a controlling owner of such entities, and may be deemed to have beneficial ownership of the shares owned by The Paige Christianson Family Trust, the trustee of which is Mr. Christianson’s wife. Mr. Christianson expressly disclaims beneficial ownership of any shares held by Adam Smith Companies, LLC, Cherry Tree Companies, LLC and The Paige Christianson Family Trust, except to the extent of his pecuniary interest in such entities.
 
(2) Includes 4,560,978 shares held by the S-T Investment Trust and 2,171,894 shares held by Cherry Tree Companies, LLC. Mr. Stofer may be deemed to share beneficial ownership of shares beneficially owned by Cherry Tree Companies, LLC by virtue of his status as a controlling owner of such entity, and may be deemed to have beneficial ownership of the shares owned by the S-T Investment Trust by virtue of his status as a trustee. Mr. Stofer expressly disclaims beneficial ownership of any shares held by Cherry Tree Companies, LLC and the S-T Investment Trust, except to the extent of his pecuniary interest in such entities.
 
(3) Includes warrants to purchase 243,350 shares of Common Stock.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTION, AND DIRECTOR INDEPENDENCE.
 
Certain Relationships and Related Transactions

The Company has retained Cherry Tree & Associates, LLC (“Cherry Tree & Associates”) as its exclusive financial advisor for the purpose of identifying an acquisition or business combination with an operating business, pursuant to an Engagement Agreement dated February 10, 2010 and amended March 27, 2013 (the “Engagement Agreement”). Cherry Tree & Associates is an investment banking firm located in Minneapolis, Minnesota that is affiliated with certain of the Purchasers. Specifically, Tony J. Christianson and Gordon F. Stofer, who each directly and indirectly beneficially own 35.9% of the Company’s fully diluted capital stock following the issuance of Shares and who have been elected as directors and as Chairman and Chief Executive Officer, respectively, together own 100% of the equity of Cherry Tree & Associates. David G. Latzke, who beneficially owns 3.8% of the Company’s fully diluted capital stock following the issuance of Shares and has been appointed as Chief Financial Officer of the Company, is an employee of Cherry Tree & Associates and certain affiliated entities. The Company will pay Cherry Tree & Associates a completion fee of 1% of the consideration it obtains in any transaction that is contemplated by the Engagement Agreement. The Engagement Agreement, as amended, expires on the earlier of February 10, 2016 or termination by either party, provided that Cherry Tree & Associates remains entitled to a completion fee under certain circumstances if the Company consummates a contemplated transaction within twelve months after termination of the Engagement Agreement.

Director Independence

The Board evaluates director independence using the definition set forth in Nasdaq Rule 5605. The Board has determined that John Bergstrom is “independent” as defined by Nasdaq listing standards. In determining Mr. Bergstrom’s independence, the Board considered that Mr. Bergstrom owns approximately 3.8% of the Company’s outstanding common stock.
 
32

 
PRINCIPAL ACCOUNTING FEES AND SERVICES.
 
Audit Fees

Below is the table of Audit Fees billed by our auditors in connection with the audit of the Company’s annual financial statements for the years ended:
   
   
2012
   
2011
 
Audit Fees
 
$
14,000
(1)
 
$
14,000
(1)
Audit-Related Fees
   
--
     
--
 
Tax Fees
   
--
     
--
 
All Other Fees
   
--
     
--
 
   
$
14,000
   
$
14,000
 

(1)
Moquist Thorvilson Kaufmann LLC, independent registered public accountant, billed $14,000 for first, second and third quarter and annual attest work for the years ended December 31, 2012 and 2011.  On July 1, 2013, the practice of Moquist Thorvilson Kauffmann LLC ("MTK"), which was engaged as the independent registered public accounting firm of Znomics, Inc. (the "Company") was combined with BDO USA, LLP ("BDO") and the professional staff and partners of MTK joined BDO either as employees or partners of BDO.  As a result of this transaction, MTK resigned as the Company's independent registered public accounting firm on July 22, 2013. On July 22, 2013, following the resignation of MTK, the Company, through and with the approval of its Board of Directors, appointed BDO as its independent registered public accounting firm.
 
Pre-approval

Following completion of the transactions contemplated by the February 10, 2010 Stock Purchase Agreement, the entire Board of Directors, acting as the Audit Committee, is responsible for pre-approving all audit and permitted non-audit services to be performed for the Company by its Independent Registered Public Accounting Firm or any other auditing or accounting firm.  The Board of Directors did pre-approve all audit services in 2012.

 
EXHIBITS, FINANICAL STATEMENTS AND SCHEDULES.

 (a)   Documents filed as part of this report.

 
(1)  Financial Statements. The following financial statements are included in Part II, Item 8 of this Annual  Report on Form 10-K:
   
   
Report of BDO USA, LLP on Financial Statements as of and for the year ended December 31, 2012
     
    Report of Moquist Thorvilson Kaufmann & Pieper LLC on Financial Statements as of and for the year ended December 31, 2011
     
   
Balance Sheets as of December 31, 2012 and 2011
     
   
Statements of Operations for the years ended December 31, 2012 and 2011
     
   
Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2012 and 2011
     
   
Statements of Cash Flows for the years ended December 31, 2012 and 2011
     
   
Notes to Financial Statements
 
 
33

 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) 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.
 
ZNOMICS, INC.
 
By: 
/s/ David G. Latzke
Name:
David G. Latzke
Title:
Chief Financial Officer
 
Date:
August 14, 2013
 
POWER OF ATTORNEY
 
Each person whose signature appears below hereby constitutes and appoints Gordon F. Stofer and David G. Latzke, and each of them severally, his true and lawful attorneys-in-fact and agents, with full power to act without the other and with full power of substitution and resubstitution, to execute in his name and on his behalf, individually and in each capacity stated below, any and all amendments and supplements to this Report, and any and all other instruments necessary or incidental in connection herewith, and to file the same with the Commission.
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
 
Signature
 
Title
 
Date
         
/s/ Tony J. Christianson
 
Chairman of the Board of Directors
 
August 14, 2013
Tony J. Christianson
       
         
/s/ Gordon F. Stofer
 
President and Chief Executive Officer (Principal Executive Officer)
 
August 14, 2013
Gordon F. Stofer
       
         
/s/ David G. Latzke
 
Chief Financial Officer (Principal Financial and Accounting Officer)
 
August 14, 2013
David G. Latzke
       
         
/s/ John C. Bergstrom
 
Director
 
August 14, 2013
John C. Bergstrom
       
         
/s/ Kerry D. Rea
 
Director
 
August 14, 2013
Kerry D. Rea
       
 
 
34

 
 
Incorporation by Reference Herein
         
Exhibit
           
Number
 
Description
 
Form
 
Filing Date
             
2.1
 
Stock Purchase Agreement by and among Znomics, Inc. and Purchasers Identified therein, dated as of February 10, 2010
 
Exhibit 2.1 to Current Report on Form 8-K (File No. 333-136372)
 
February 11, 2010
             
2.2
 
Agreement and Plan of Merger between Pacific Syndicated Resources, Inc. and Znomics Acquisition, Inc., dated November 5, 2007
 
Exhibit 2.1 to Current Report on Form 8-K, as amended (File No. 333-107300)
 
November 8, 2007
             
3.1   Certificate of Incorporation   Exhibit 3.3 to Registration Statement on Form SB-2, as amended (File No. 333-136372)   August 7, 2006
             
3.2
 
Bylaws of Pacific Syndicated Resources, Inc.
 
Exhibit 3.3 to Registration Statement on Form S-2, as amended (File No. 333-136372)
 
August 7, 2006
             
4.1*
 
Form of Common Stock Purchase Warrant
 
Exhibit 99.1 to Current Report on Form 8-K (File No. 333-107300)
 
June 1, 2009
             
4.2*
 
Amended Form of 2009 Warrant
 
Exhibit 4.1 to Current Report on Form 8-K (File No. 333-136372)
 
February 11, 2010
             
10.1*
 
2002 Stock Incentive Plan
 
Exhibit 10.1 to Current Report on Form 8-K (File No. 333-136372)
 
November 8, 2007
             
10.5*
 
Form of Stock Option Agreement
 
Exhibit 99.1 to Current Report on Form 8-K (File No. 333-136372)
 
September 23, 2008
             
10.20
 
Form of Officer/Director Acknowledgement, effective February 10, 2010
 
Exhibit 10.3 to Current Report on Form 8-K (File No. 333-136372)
 
February 11, 2010
             
10.21
 
Registration Rights Agreement among Znomics, Inc. and the Investors named therein, dated February 10, 2010
 
Exhibit 10.4 to Current Report on Form 8-K (File No. 333-136372)
 
February 11, 2010
             
10.22
 
Form of Discretionary Note governing discretionary advances from each Purchaser to Znomics, Inc., dated February 10, 2010
 
Exhibit 10.5 to Current Report on Form 8-K (File No. 333-136372)
 
February 11, 2010
             
10.23
 
Engagement Agreement between Znomics, Inc. and Cherry Tree & Associates, LLC, dated February 10, 2010
 
Exhibit 10.6 to Current Report on Form 8-K (File No. 333-136372)
 
February 11, 2010
             
14.1
 
Code of Ethics and Business Conduct
 
Incorporated by reference to Exhibit 14.1 of the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
 
March 31, 2009
 
 
35

 
 
23   Consent from Moquist Thorvilson Kaufmann LLC, formerly known as Moquist Thorvilson Kaufmann & Pieper LLC  
Filed herewith
   
             
31.1
 
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
 
Filed herewith
   
             
31.2
 
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
 
Filed herewith
   
             
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
   
             
101**
 
The following materials from this report, formatted in Extensible Business Reporting Language (XBRL): (i) balance sheets, (ii) statements of operations, (iii) statements of stockholders’ equity (deficit), (iv)statements of cash flows, and (v) notes to financial statements
 
Filed herewith
   
 
 
Denotes management compensatory plan or contract
 
 
** 
Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 shall be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings.
 
 
36

 
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by
 Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act
 
 
(a)
Except to the extent that the materials enumerated in (1) and/or (2) below are specifically incorporated into this Form by reference (in which case  see  Rule 12b-23(d)), every registrant which files an annual report on this Form pursuant to Section 15(d) of the Act shall furnish to the Commission for its information, at the time of filing its report on this Form, four copies of the following:
       
   
(1)
Any annual report to security holders covering the registrant's last fiscal year; and
       
   
(2)
Every proxy statement, form of proxy or other proxy soliciting material sent to more than ten of the registrant's security holders with respect to any annual or other meeting of security holders.
 
 
(b)
The foregoing material shall not be deemed to be "filed" with the Commission or otherwise subject to the liabilities of Section 18 of the Act, except to the extent that the registrant specifically incorporates it in its annual report on this Form by reference.
       
 
(c)
As of the date of this report, no annual report or proxy material has been sent to security holders.
 
 
 
 
 
 
 
 
37

EX-23 2 exh_23.htm EXHIBIT 23 exh_23.htm
Exhibit 23
 
CONSENT OF INDEPENDENT REGISTERED
 PUBLIC ACCOUNTING FIRM


We consent to the incorporation by reference in this Annual Report on Form 10-K of our report dated February 29, 2012, relating to the balance sheet of Znomics, Inc. as of December 31, 2011, and the related statements of operations, stockholders’ deficit, and cash flows for the year then ended.


/s/ Moquist Thorvilson Kaufmann LLC (formerly known as Moquist Thorvilson Kaufmann &  Pieper LLC)

Edina, Minnesota
August 14, 2013
EX-31.1 3 exh_311.htm EXHIBIT 31.1 exh_311.htm
Exhibit 31.1

CERTIFICATIONS

I, Gordon F. Stofer, certify that;
 
(1)
I have reviewed this annual report on Form 10-K of Znomics, Inc.;
     
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
(4)
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have:
     
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
     
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
     
(5)
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2013

/s/ Gordon F. Stofer                 
 By:    Gordon F. Stofer
 Title: Chief Executive Officer
EX-31.2 4 exh_312.htm EXHIBIT 31.2 exh_312.htm
Exhibit 31.2

CERTIFICATIONS

I, David G. Latzke, certify that;
 
(1)
I have reviewed this annual report on Form 10-K of Znomics, Inc.;
     
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
(4)
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have:
     
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
     
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
     
(5)
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2013
 
/s/ David G. Latzke                 
 By:    David G. Latzke
 Title: Chief Financial Officer
EX-32.1 5 exh_321.htm EXHIBIT 32.1 exh_321.htm
Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
 CHIEF FINANCIAL OFFICER
 PURSUANT TO
 18 U.S.C. SECTION 1350,
 AS ADOPTED PURSUANT TO
 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

            In connection with the accompanying annual Report on Form 10-K of Znomics, Inc. for the year ended December 31, 2012, as filed with the Securities and Exchange Commission, I certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
the annual Report on Form 10-K of Znomics, Inc. for the year ended December 31, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
   
(2)
the information contained in the annual Report on Form 10-K for the year ended December 31, 2012, fairly presents in all material respects, the financial condition and results of operations of Znomics, Inc.

By: /s/ Gordon F. Stofer          
 Name: Gordon F. Stofer
 Title: Chief Executive Officer

Date: August 14, 2013
 
By: /s/ David G. Latzke          
 Name: David G. Latzke
 Title: Chief Financial Officer

Date: August 14, 2013
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The Company considers the carrying values of its financial instruments in the financial statements to approximate fair value as interest rates on the notes payable approximate current rates and the current assets and liabilities are&#160;short-term in&#160;nature.</font> </div><br/><div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font size="2"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Derivative Financial Instruments</font></font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font size="2"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The Company has a derivative liability which is accounted for at fair value.&#160;&#160;The fair value of the Company&#8217;s derivative liability is estimated at each balance sheet date and changes in fair value are reflected as a gain or loss in the statement of operations.&#160;&#160;The Company utilizes a Black-Scholes option pricing model to estimate fair values of its derivative liability.</font></font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font size="2"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">This derivative liability is also marked-to-market prior to any related exercises, modifications, or extinguishments with any necessary changes in fair value from the prior balance sheet date being reflected as a gain or loss in the statement of operations.&#160;&#160;The carrying value of the liability is eliminated upon extinguishment, converted to equity upon an exercise, or adjusted as may be necessary in a modification.</font></font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Revenue Recognition</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The Company has no current revenues.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Income Taxes</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Income taxes are provided for using the liability method of accounting. 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Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that are ultimately expected to vest.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Net Income (Loss) Per Share</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Basic net income (loss) per share is calculated by dividing the net income (loss) for the period by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) for the period by the weighted-average number of common shares outstanding during the period, increased by potentially dilutive common shares ("dilutive securities") that were outstanding during the period. Dilutive securities include options granted pursuant to the Company's stock option plan and stock warrants.</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">For the years ended December 31, 2012 and 2011, options and warrants exercisable representing potential common stock equivalents were excluded from the calculation of the diluted net loss per share as their effect would have been anti-dilutive.</font> </div><br/><div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font size="2" style="FONT-STYLE: italic; FONT-WEIGHT: bold">Comprehensive Income (Loss)</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font size="2">Comprehensive income (loss) includes net income (loss) and items defined as other comprehensive income (loss).&#160; Items defined as other comprehensive income (loss) include items such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities.&#160; For the years ended December 31, 2012 and 2011, there were no adjustments to net loss to arrive at comprehensive loss.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Recent Accounting Pronouncements</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">None that are applicable.</font> </div><br/> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Nature of Business</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Znomics Inc. ("the Company") was previously engaged in the business of drug discovery with a cutting-edge biotechnology platform that leveraged medicinal chemistry with the unique attributes of the zebrafish.&#160;&#160;In April 2009, the Company terminated its operations.&#160; The Company subsequently disposed of this developmental stage business in 2009 and 2010 prior to it having generated any significant revenues.&#160; As the Company is no longer developing any specific business, it no longer refers to itself as a development stage company and accordingly, no longer presents cumulative financial information.&#160; The Company is now considered a public shell company with no current business activity.</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The Company has now focused its efforts on seeking a new&#160;business opportunity. The Company will attempt to locate and negotiate with a business entity for the merger of that target company into the Company. In certain instances, a target company may wish to become a subsidiary of the Company or may wish to contribute assets to the Company rather than merge. No assurances can be given that the Company will be successful in locating or negotiating with any target company. The Company will provide a method for a private company to become a reporting (&#8220;Public&#8221;) company whose securities are qualified for trading in the United States secondary market.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Estimates</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (&#8220;GAAP&#8221;) requires us to make certain estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.&#160;&#160;We update these estimates, assumptions and judgments as appropriate, which in most cases is at least quarterly.&#160;&#160;We use our technical accounting knowledge, cumulative business experience, judgment and other factors in the selection and application of our accounting policies.&#160;&#160;While we believe the estimates, assumptions and judgments we use in preparing our financial statements are appropriate, they are subject to factors and uncertainties regarding their outcome and therefore, actual results may materially differ from these estimates.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Cash and Cash Equivalents</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits and highly liquid debt instruments with a maturity of less than 90 days to be cash and cash equivalents.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Fair Value of Financial Instruments</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The Company's financial instruments consist of cash, accounts payable, accrued expenses and notes payable. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The Company considers the carrying values of its financial instruments in the financial statements to approximate fair value as interest rates on the notes payable approximate current rates and the current assets and liabilities are&#160;short-term in&#160;nature</font></div> <div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font size="2"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Derivative Financial Instruments</font></font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font size="2"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The Company has a derivative liability which is accounted for at fair value.&#160;&#160;The fair value of the Company&#8217;s derivative liability is estimated at each balance sheet date and changes in fair value are reflected as a gain or loss in the statement of operations.&#160;&#160;The Company utilizes a Black-Scholes option pricing model to estimate fair values of its derivative liability.</font></font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font size="2"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">This derivative liability is also marked-to-market prior to any related exercises, modifications, or extinguishments with any necessary changes in fair value from the prior balance sheet date being reflected as a gain or loss in the statement of operations.&#160;&#160;The carrying value of the liability is eliminated upon extinguishment, converted to equity upon an exercise, or adjusted as may be necessary in a modification.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Revenue Recognition</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The Company has no current revenues</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Income Taxes</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Income taxes are provided for using the liability method of accounting. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting.&#160;&#160;Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.&#160;&#160;Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.&#160;&#160;Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We account for income taxes pursuant to Financial Accounting Standards Board guidance.&#160;&#160;This guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.&#160;&#160;For those benefits to be recognized, a tax position must be more-likely-than not to be sustained upon examination by taxing authorities. We believe our income tax filing positions and deductions will be sustained upon examination and, accordingly, no reserves, or related accruals for interest and penalties have been recorded at December 31, 2012 and 2011.&#160;&#160;In accordance with the guidance, the Company has adopted a policy under which, if required to be recognized in the future, interest related to the underpayment of income taxes will be classified as a component of interest expense and any related penalties will be classified in operating expenses in the statements of operations.&#160; The Company has three open years of tax returns subject to examination from 2009 and forward.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Stock-Based Compensation</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The Company recognizes the cost of stock-based compensation plans and awards in operations on a straight-line basis over the respective vesting period of the awards.&#160;&#160;The Company measures and recognizes compensation expense for all stock-based payment awards made to employees and directors. The compensation expense for the Company's stock-based payments is based on estimated fair values at the time of the grant.</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The Company estimates the fair value of stock-based payment awards on the date of grant using an option pricing model. This option pricing model involves a number of assumptions, including the expected lives of stock options, the volatility of the public market price for the Company's common stock and interest rates. The Company is using the Black-Scholes option pricing model to estimate the fair value of its options. Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that are ultimately expected to vest.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Net Income (Loss) Per Share</font> </div><br/><div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Basic net income (loss) per share is calculated by dividing the net income (loss) for the period by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) for the period by the weighted-average number of common shares outstanding during the period, increased by potentially dilutive common shares ("dilutive securities") that were outstanding during the period. 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