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 costs of completing a merger; (iii) our current intent not to compensate management; (iv) our expectations with respect to results of operations in the 2013 fiscal year; (v) our intentions with respect to our internal controls; and (vi) our beliefs with respect to our cash requirements, expenses, and the adequacy of cash. 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, including but not limited to our ability to identify operating companies that show an interest in merging with a public shell, unexpected delays in negotiating an agreement with a merger candidate, unexpected cash requirements, and other factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.
Critical Accounting Policies and Estimates
In our Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2012, we identified critical accounting policies and estimates for our business that we are incorporating herein by reference.
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.
During the next 12 months, our only foreseeable cash requirements will relate to maintaining our good standing as a public company 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. We believe that the terms of the Discretionary Notes are no less favorable to us than would be available from a commercial lender in an arm’s length transaction. Because of the uncertainty associated with seeking a business opportunity, it is impossible to predict the amount of any such loans. Advances totaling $175,000 are outstanding as of June 30, 2013. 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.
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.
Results of Operations for the Three-Month Periods Ended June 30, 2013 and 2012
Revenue
The Company had no revenue during the three months ended June 30, 2013 and 2012.
Operating Expenses
General and Administrative Expenses
. Our operating expenses consist of general and administrative expenses. General and administrative expenses consist principally of professional fees for legal, consulting, and accounting services, primarily related to our public company status. Selling, general and administrative expenses were $37,000 and $12,000 for the three months ended June 30, 2013 and 2012, respectively.
Results of Operations for the Six-Month Periods Ended June 30, 2013 and 2012
Operating Expenses
Revenue
The Company had no revenue during the six months ended June 30, 2013 and 2012.
Operating Expenses
General and Administrative Expenses. Our operating expenses consist of general and administrative expenses. General and administrative expenses consist principally of professional fees for legal, consulting, and accounting services, primarily related to our public company status and our due diligence efforts. General and administrative expenses were $44,000 and $26,000 for the six months ended June 30, 2013 and 2012, respectively.
Financing Activities
We have incurred substantial losses since our inception. As of June 30, 2013, our accumulated deficit was approximately $6.7 million. Financial results for the second quarter of 2013 reflect a loss from operations of $37,000. 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 and sales of common stock 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 June 30, 2013 and equity contributions made subsequent to quarter end and advances expected under the Discretionary Notes, will 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. These factors could significantly limit our ability to continue as a going concern and cause us to investigate other strategic options, including bankruptcy.
Liquidity and Capital Resources
As of June 30, 2013, the Company had total current assets equal to $22,000, comprised of cash and prepaid expenses. This compares with total current assets of $30,000, as of December 31, 2012, comprised of cash and prepaid expenses. As of June 30, 2013, the Company had total current liabilities equal to $111,000, comprised of accounts payable, accrued liabilities and current maturities of secured promissory notes. This compares to $46,000 in total current liabilities, as of December 31, 2012, comprised of accounts payable and accrued liabilities. The Company can provide no assurance that it can continue to satisify its cash requirements for at least the next twelve months.
Cash Flows from Operating Activities
We used $35,000 of cash in operating activities for the six months ended June 30, 2013; a decrease of $8,000 compared to the six months ended June 30, 2012. This decrease in cash used is primarily a result of an increase in accrued liabilities offset by a gain on fair value adjustment of warrant liability and changes in prepaid expenses and accounts payable.
Cash Flows from Investing Activities
We had no investing activities during the six months ended June 30, 2013 and 2012.
Cash Flows from Financing Activities
We received $25,000 of advances under the Discretionary Advance Secured Promissory Notes during the sixth month periods ended June 30, 2013 and 2012.
Liquidity
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 under the Discretionary Notes. 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 $25,000 of cash received in May, 2013 and the $50,000 received from the sale of common stock on July 1, 2013 and any potential future loans or equity contributions will be sufficient to meet our limited needs during the next twelve months. However, the stockholders 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 June 30, 2013, we did not have any off balance sheet arrangements.
