- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2010

Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

[ ]	For the transition period __________ 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 incorporation or organization)	(IRS Employer Identification No.)

301 Carlson Parkway, Suite 103

Minneapolis, MN 55305

(Address of principal executive offices, including zip code)

(952) 253-6032

(Registrant’s telephone number)

_______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

[ ] Large accelerated filer [ ] Accelerated filer

[ ] Non-accelerated filer (Do not check if a smaller reporting company) [X] Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [X ] Yes [ ] No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common shares outstanding of 52,519,896 as of October 15, 2010.

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements (unaudited)	3
F-1	Balance Sheets as of September 30, 2010 and December 31, 2009	3
F-2	Statements of Operations for the three and nine months ended September 30, 2010 and 2009 and for the period from inception on September 13, 2001 through September 30, 2010	4
F-3	Statements of Cash Flows for the three and nine months ended September 30, 2010 and 2009 and for the period from inception on September 13, 2001 through September 30, 2010	5
F-4	Notes to Financial Statements	6
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4:	Controls and Procedures	12
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	13
Item 1A:	Risk Factors	13
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3:	Defaults Upon Senior Securities	13
Item 4:	(Removed and Reserved)	13
Item 5:	Other Information	13
Item 6:	Exhibits	13

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ZNOMICS, INC.

(A Development Stage Company)

Balance Sheets (in thousands except share data)

(Unaudited)

Assets	September 30, 2010			December 31, 2009
Current assets:
Cash	$	41		$	51
Prepaid expenses		8			58
Total current assets		49			109

Property and equipment, net of accumulated depreciation		--			4

Total assets	$	49		$	113

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	29		$	16
Accrued liabilities		5			68

Total current liabilities		34			84

Total liabilities		34			84

Stockholders' equity:
Common stock, $0.001 par value, 90,000,000 shares authorized, 52,519,896 and 11,695,060 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively		53			12
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none outstanding		-			-
Additional paid-in capital		6,498			6,412
Deficit accumulated during the development stage		(6,536	)		(6,395	)

Total stockholders' equity		15			29

Total liabilities and stockholders' equity	$	49		$	113

The accompanying notes are an integral part of these condensed financial statements.

ZNOMICS, INC.

(A Development Stage Company)

Condensed Statements of Operations (in thousands except share data)

(Unaudited)

For the Three and Nine Months Ended September 30, 2010 and 2009

and the Period from September 13, 2001 (Date of Inception) to September 30, 2010

	Three months ended						Nine months ended						September 13, 2001 (Inception)
	September 30						September 30						to September 30,
	2010			2009			2010			2009			2010

Sales related to products and services	$	-		$	-		$	-		$	40		$	1,015
Grant revenue		-			-			-			-			2,006
Total sales and revenue		-			-			-			40			3,021

Operating expenses:
Cost of products and services		-			-			-			-			2,434
Grant expense		-			-			-			-			2,006
Selling, general and administrative		11			73			141			713			3,729
Asset impairment		-			-			-			38			49
Research and development		-			-			-			176			1,702

Total operating expenses		11			73			141			927			9,920

Loss from operations		(11	)		(73	)		(141	)		(887	)		(6,899	)

Other income (expense):
Gain from disposition of assets related
to discontinued operations-fish sales		-			10			-			369			369
Investment income		-			-			-			1			112
Interest expense		-			-			-			(28	)		(81	)
Other expense, net		-			-			-			-			(37	)

Total other income		-			10			-			342			363

Loss before income tax		(11	)		(63	)		(141	)		(545	)		(6,536	)
Income tax expense		-			-			-			-			-

Net loss	$	(11	)	$	(63	)	$	(141	)	$	(545	)	$	(6,536	)


Net loss per share -- Basic and diluted	$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.05	)

Weighted average common shares outstanding:
Basic and diluted		52,519,896			11,689,082			46,089,610			11,567,679

The accompanying notes are an integral part of these condensed financial statements.

ZNOMICS, INC.

(A Development Stage Company)

Statements of Cash Flows (in thousands)

(Unaudited)

For the Nine Months Ended September 30, 2010 and 2009

and the Period from September 13, 2001 (Date of Inception) to September 30, 2010

	Nine Months Ended September 30						September 13, 2001 (Inception) to
	2010			2009			September 30, 2010
Cash flows from operating activities:
Net loss	$	(141	)	$	(545	)	$	(6,536	)
Adjustments to reconcile net loss to net cash from operations:
Gain on sale of property and equipment		-			(369	)		(366	)
Asset impairment		-			38			49
Depreciation and amortization		-			47			465
Stock-based compensation charges		2			10			478
Stock warrant expense		-			101			138
Issuance of stock for licensing and services		-			29			414
Non-cash contributions by certain shareholders to settle specific expenses		-			-			37
Changes in operating assets and liabilities:
Other and accounts receivable		-			42			-
Prepaid expenses		50			86			63
Accounts payable		13			(181)			29
Accrued liabilities		(63	)		(53	)		5
Deferred revenue		-			(40)			212

Net cash used in operating activities		(139	)		(835	)		(5,012	)

Cash flows from investing activities:
Capital expenditures		-			-			(884	)
Proceeds from sale of property and equipment, net		4			460			546

Net cash (used in) provided by investing activities		4			460			(338	)

Cash flows from financing activities:
Proceeds from issuance of common stock, net		125			-			4,531
Proceeds from issuance of preferred stock		-			-			860
Proceeds from issuance of debt		-			225			865
Principal payments, capital leases and notes payable		-			(225)			(865	)

Net cash provided by financing activities		125			-			5,391

Net increase (decrease) in cash and cash equivalents		(10)			(375	)		41

Cash at beginning of period		51			469			-

Cash at end of period	$	41			94			41



Supplemental disclosures:
Cash paid for interest	$	-		$	28		$	58
Sale of ZeneMark library copy as offset to deferred revenue	$	-		$	212		$	212
Issuance of note for payables in payment of accounts payable	$	-		$	-		$	70

The accompanying notes are an integral part of these condensed financial statements.

ZNOMICS, INC.

(A Development Stage Company)

Notes to Financial Statements

(in thousands except share data)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Znomics, Inc. ("the Company") was 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 has now focused its efforts on seeking a 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.

As a development stage enterprise, the Company has not yet generated significant revenue. Accordingly, the Company is considered to be in the development stage as of September 30, 2010.

As required for development stage companies, cumulative statements of operations and cash flows from September 13, 2001 (date of inception) through September 30, 2010 have been presented along with the statements of operations and cash flows for the periods ended September 30, 2010 and 2009.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). However, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all adjustments consisting of normal, recurring adjustments necessary for the fair presentation of the results of the interim periods presented. These condensed financial statements should be read in conjunction with the audited financial statements of the Company for the fiscal year ended December 31, 2009 as included in the Company’s 2009 Annual Report on Form 10-K, dated March 26, 2010.

Estimates

The preparation of financial statements in conformity with 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.

Fair Value of Financial Instruments

The Company's financial instruments consist of cash and cash equivalents, money market funds, prepaid expenses, payables and accrued expenses. 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 due to their short-term nature.

ZNOMICS, INC.

(A Development Stage Company)

Notes to Financial Statements

(in thousands except share data)

Property and Equipment

Property and equipment is recorded at cost. Depreciation is computed using the straight-line method over the estimated useful life of the asset. Repairs and maintenance costs are expensed as incurred. At the time of retirement or other disposal of equipment, the cost and related accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included in operations.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined by reference to market prices or through discounted cash flow analysis, depending on the asset.

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 September 30, 2010 and December 31, 2009. 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.

Stock-Based Compensation and Warrants

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. These option pricing models involve 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. 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.

ZNOMICS, INC.

(A Development Stage Company)

Notes to Financial Statements

(in thousands except share data)

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 periods ended September 30, 2010 and 2009, options, share based payments and warrants exercisable representing convertible securities totaling 1,789,010 and 2,090,636, respectively, were excluded from the calculation of the diluted net loss per share as their effect would have been anti-dilutive.

Recent Accounting Pronouncements

In January 2010, the FASB issued Improving Disclosures About Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. This guidance is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The adoption of this guidance did not have any impact on our 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. The Company has limited financial resources and its operations during the development stage have been unprofitable. These factors raise substantial doubt about its ability to continue as a going concern. Management plans to rely on loans from certain of its officers, directors and shareholders to fund its ongoing obligations, however, there is no guarantee that the Company will be able to obtain an adequate amount of funding. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3. SIGNIFICANT EVENTS DURING THE NINE MONTHS ENDED SEPTEMBER 30, 2010

On February 10, 2010, the Company cancelled warrants to purchase an aggregate of 237,495 shares of Company common stock at $1.50 per share, which warrants were issued in connection with the Company’s November 5, 2007 reverse merger and held by two warrant holders. In exchange for cancelling the warrants, the Company issued an aggregate of 4,950 shares of common stock to the two warrant holders.

ZNOMICS, INC.

(A Development Stage Company)

Notes to Financial Statements

(in thousands except share data)

Also on February 10, 2010, four of the Company’s former officers agreed to amend warrants to purchase an aggregate of 1,441,780 shares of Company common stock at $0.03 per share, which warrants were issued in May 2009 (the “2009 Warrants”). In exchange for aggregate cash consideration of $1,100, the warrant holders agreed to relinquish their right, upon any subsequent sale of equity by the Company at a price per share lower than the exercise price, to receive a reduction in the exercise price for the warrant and additional warrant shares. The Company also executed identical warrant agreement amendments for warrants to purchase an aggregate of 244,730 shares of common stock issued to two former employees in May 2009.

The Company terminated its agreements and relationships with Cascade Summit, LLC, its managing member, David N. Baker, and their affiliates (collectively, “Cascade”), pursuant to a Letter Agreement effective January 4, 2010 (the “Cascade Letter Agreement”). The terminated agreements include but are not limited to an Advisory Agreement dated April 29, 2009 and a Consulting Agreement dated April 18, 2008. Under the Cascade Letter Agreement, Cascade released all claims that it may have against the Company in exchange for the Company’s payment of $25,000 to Mr. Baker. In addition, certain Company stockholders (not including any of the Purchasers, as defined below) agreed to transfer an aggregate of 300,000 shares of Company common stock to Cascade valued at $12,000, to make an aggregate cash payment of $15,000 to Mr. Baker and to make an aggregate cash payment of $10,000 to Mr. Baker promptly following the conclusion of a reverse merger or other transaction that effects a transition of the Company into an operating company, or June 30, 2011, whichever occurs first. The effects of this termination agreement were recorded by the Company as of December 31, 2009. The Company paid its $25,000 obligation on January 4, 2010.

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 the Stock Purchase Agreement, on February 10, 2010, the Company issued 40,811,886 shares of common stock (the “Shares”) for total consideration of $125,000 (the “Purchase Price”), 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.

In addition on February 10, 2010, the Company issued 4,000 shares of Company common stock to each of two former consultants in exchange for services rendered.

In connection with the Stock Purchase Agreement, the Company and the Purchasers entered into a Registration Rights Agreement dated February 10, 2010 (the “Registration Rights Agreement”). The Registration Rights Agreement gives the Purchasers certain demand and piggyback registration rights.

Also 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, if any, will accrue interest at an annual rate of 5% and be due on the earlier to occur of a business combination between the Company and an operating business and February 10, 2013, 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. No advances have been made under the Discretionary Notes as of September 30, 2010.

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 (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 35.2% of the Company’s fully diluted capital stock following the issuance of Shares on February 10, 2010 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 expires on the earlier of February 10, 2013 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.

ITEM 2 . 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 costs of completing a merger; (iii) our expectations with respect to results of operations in the 2010 fiscal year; (iv) our intentions with respect to our internal controls; and (v) 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, 2009. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.

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, as described in more detail in Note 3 to the Financial Statements Included in Part I, Item 1 of this Quarterly Report, 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, if any, will accrue interest at an annual rate of 5% and be due on the earlier to occur of a business combination between the Company and an operating business and February 10, 2013, or upon the Company’s insolvency or a material breach of the February 10, 2010 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 we are only beginning the process of identifying prospective ventures, it is impossible to predict the amount of any such loan. No advances have been made under the Discretionary Notes as of September 30, 2010.

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

Operating Expenses

Cost of Products and Services . Cost of products and services has historically consisted of personnel, facilities, lab, supplies, and other expenses. We expect no future cost of products and services until the Company has successfully completed a merger with an operating company.

Selling, General and Administrative Expenses . Selling, general and administrative expenses consist principally of salaries, benefits, stock-based compensation expense, and related costs for personnel in our executive, finance, accounting, information technology, and human resource functions. Other general and administrative expenses include professional fees for legal, consulting, and accounting services and an allocation of our facility costs.

Results of Operations for the Three-Month Periods Ended September 30, 2010 and 2009

Operating Expenses

Operating expenses decreased to $11,000 for the three months ended September 30, 2010 compared to $73,000 for the three months ended September 30, 2009. This decrease was the result of the Company’s decision to terminate its operations in April 2009. During the prior-year period, the Company continued to incur certain expenses during the third quarter in exchange for ongoing part-time and consulting services rendered by former officers, which services have not been necessary in 2010 due to completion of the transactions contemplated by the February 10, 2010 Stock Purchase Agreement.

Selling, General and Administrative Expenses . Selling, general and administrative expenses decreased to $11,000 for the three months ended September 30, 2010 compared to $73,000 for the three months ended September 30, 2009. This decrease was the result of the Company’s decision to terminate its operations in April 2009 and completion of the transactions contemplated by the February 10, 2010 Stock Purchase Agreement.

Research and Development Expense . Research and development expense was $0 for both the three months ended September 30, 2010 and for the three months ended September 30, 2009, due to the Company’s decision to terminate its operations.

Other Income (Expense) . Other income decreased to $0 for the three months ended September 30, 2010 compared to $10,000 for the three months ended September 30, 2009. The 2009 period included a gain of $10,000 from the disposition of assets related to discontinued operations.

Results of Operations for the Nine-Month Periods Ended September 30, 2010 and 2009

Operating Expenses

Operating expenses decreased to $141,000 for the nine months ended September 30, 2010 compared to $927,000 for the nine months ended September 30, 2009. This decrease was the result of the Company’s decision to terminate its operations in April 2009.

Selling, General and Administrative Expenses . Selling, general and administrative expenses decreased to $141,000 for the nine months ended September 30, 2010 compared to $713,000 for the nine months ended September 30, 2009. This decrease was the result of the Company’s decision to terminate its operations.

Research and Development Expense . Research and development expense decreased to $0 for the nine months ended September 30, 2010 from $176,000 for the nine months ended September 30, 2009, due to the Company’s decision to terminate its operations.

Other Income (Expense) . Other income decreased to $0 for the nine months ended September 30, 2010 compared to $342,000 for the nine months ended September 30, 2009. The gain in the 2009 period consisted principally of gains from disposition of our assets related to discontinued operations.

Liquidity and Capital Resources

Cash Flows from Operating Activities

We used $139,000 of cash in operating activities for the nine months ended September 30, 2010; a decrease of $696,000 compared to the nine months ended September 30, 2009. This reduction in cash used is primarily attributable to our decision to terminate our operations.

Cash Flows from Investing Activities

We received $4,000 of cash from investing activities for the nine months ended September 30, 2010; a decrease of $456,000 compared to the cash received during the nine months ended September 30, 2009. The cash provided by investing activities in the first nine months of 2009 represented proceeds from the sale of substantially all of our property and equipment.

Cash Flows from Financing Activities

We received $125,000 of cash from the sale of common stock during the nine months ended September 30, 2010; an increase of $125,000 compared to the cash received during the nine months ended September 30, 2009. There were no common stock sales in 2009.

Liquidity

We have incurred substantial losses since our inception. As of September 30, 2010, our accumulated deficit was approximately $6.5 million. Financial results for the first nine months of 2010 reflect a net loss from operations of $141,000. 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. To date in 2010, we have funded our operations through the sale of our equity securities. Because we have no revenues, we plan to use our current cash reserves, which include the $125,000 of cash received on February 10, 2010, and potential advances from the Purchasers under the Discretionary Notes to fund our ongoing operating costs. As of September 30, 2010, we had cash reserves available of $41,000.

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 September 30, 2010 together with advances expected from the Purchasers under the Discretionary Notes, will allow us to fund operations for at least the next twelve months and through the merger of a target company into the Company.

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.

ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by this Part I Item 3.

ITEM 4 . 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 September 30, 2010, 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 light of the material weaknesses in our internal control over financial reporting as of December 31, 2009, which were previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and which have not been completely remediated as of the end of the period covered by this Quarterly Report, our management has concluded our disclosure controls and procedures were not effective as of September 30, 2010.

Changes in Internal Controls

During the fiscal quarter ended September 30, 2010, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 . LEGAL PROCEEDINGS

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

ITEM 1A : RISK FACTORS

As a smaller reporting company, we are not required to provide the information required by this Part II Item 1A.

ITEM 2 . UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 . (Removed and Reserved)

ITEM 5 . OTHER INFORMATION

None.

ITEM 6 . EXHIBITS

See “Exhibit Index” on page 14 of this report.

SIGNATURES

In accordance with the requirements of the Securities and 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.

Date: November 5, 2010

By: /s/ David G. Latzke

David G. Latzke

Title: Chief Financial Officer

Exhibit Index

Znomics, Inc.

Form 10-Q

Three and Nine Months Ended September 30, 2010

Exhibit Number		Description of Exhibit
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2		Certification of Chief Financial Officer 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 Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)