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EX-31 - EX-31.2 SECTION 302 CERTIFICATION - Shrink Nanotechnologies, Inc.shrink10q063011ex312.htm
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EX-10 - EX-10.1 SHARE EXCHANGE AGREEMENT - Shrink Nanotechnologies, Inc.shrink10q063011ex101.htm
EX-32 - EX-32.2 SECTION 906 CERTIFICATION - Shrink Nanotechnologies, Inc.shrink10q063011ex322.htm
EX-32 - EX-32.1 SECTION 906 CERTIFICATION - Shrink Nanotechnologies, Inc.shrink10q063011ex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


 X .

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 2011


     .

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ___________ to _____________


Commission File Number: 000-52860

[shrink10q063011001.jpg]

Shrink Nanotechnologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-2197964

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


4100 Calit2 Bldg

Irvine, CA 92697-2800

(Address of principal executive offices)


Registrant’s telephone number, including area code:                         

(858) 751-7377

Securities registered pursuant to Section 12(b) of the Act:            

None

Securities registered pursuant to Section 12(g) of the Act:              

$.001 par value common stock


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  X . No      .


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company:


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      . No  X .


APPLICABLE ONLY TO CORPORATE ISSUERS


Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.


There were a total of 215,074,929 shares of the registrant’s common stock outstanding as of August 22, 2011.





SHRINK NANOTECHNOLOGIES, INC.

 

JUNE 30, 2011 FORM 10-Q QUARTERLY REPORT

 

INDEX

  

Page

 

 

Forward Looking Statements

ii

Use of Terms

ii

 

 

PART I - FINANCIAL INFORMATION

1

 

 

Item 1. - Financial Statements

1

Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010

1

Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2011 and 2010 (unaudited)

2

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010 (unaudited)

3

Notes to Unaudited Consolidated Financial Statements

4

 

 

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations

14

 

 

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

26

 

 

Item 4 - Controls and Procedures

27

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1 - Legal Proceedings

29

 

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

Item 3 - Defaults Upon Senior Securities

29

 

 

Item 4 - Submission of Matters to a Vote of Security Holders

29

 

 

Item 5 - Other Information

29

 

 

Item 6 - Exhibits

29




i



FORWARD LOOKING STATEMENTS


Certain information contained in this Quarterly Report on Form 10-Q (this “Report” or “Quarterly Report”) includes forward-looking statements within the meaning of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, (thee “Exchange Act”).  These statements are expressed in good faith and based upon information currently available to the Company and management and their interpretation of what are believed to be significant factors affecting the businesses, including many assumptions regarding future events. These forward looking statements can be identified by the use of terms and phrases such as “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.).  


Forward-looking statements include statements regarding, without limitation:


·

the development, commercialization and market acceptance of our “structured” cell culturing devices (StemDisc) and related software, our microfluidic technology licensed in part from Corning Incorporated and, our shrinkable film based products such as CellAllign , NanoShrink and Metal-enhanced fluorescence substrates, and the costs related to bringing these technologies and products to market,

·

our immediate and growing need to raise the capital needed or obtain government grants to commercialize our products and implement our business plan,

·

our ability to access cash to fund our ongoing operations,

·

our ability to transition from an R&D company to a company with commercialized products,

·

our ability to innovate using our existing platform technology, a shrinkable plastic film material branded as NanoShrink and to find new market accepted uses for the same,

·

the success of our BlackBox division share exchange in June of 2011, and our ability to monetize value from any shares of BlackBox that we still own,

·

our ability to secure and continue to access economical component and manufacturing sourcing for the various businesses we seek to engage in,

·

our ability to continue funding research and development relationships we have and/or may enter into,

·

our ability to secure certain critical licenses from third parties, some of which may be potential commercial competitors for one or more of our products,

·

our ability to find attractive acquisition candidates in the life sciences business,

·

the progress of our research and development activities,

·

our ability to further acquire, and hold and defend our intellectual property,

·

the projected growth in stem cell research and public policy changes relating to government funding of the same, and

·

the presumed size and growth of the market for lab-on-a-chip devices in life sciences.


These forward looking statements should be considered in addition to our risk factors (contained in our Annual Report for the year ended December 31, 2010 under the heading “Risk Factors”).  Additional risks not described above, or unknown to us, may also adversely affect the Company or its results.  Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the Risk Factors section in this Report.


Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report.  We assume no obligation to update any forward-looking statements.  Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the SEC (which shall also include by reference herein and incorporate the same as if fully included in their entirety, all Form 10-Ks, Form 10-Qs, Form 8-Ks and other periodic reports filed by us in the SEC’s EDGAR filing system (www.sec.gov) as may be amended from time to time, which attempt to update interested parties of the risks and factors and other disclosures that may affect our business, financial condition, results of operation and cash flows.


Use of Terms


Except as otherwise indicated by the context, references in this report to (i) the “Shrink Parent” or “Parent” or similar terms refer to the publicly traded parent holding company and registrant, Shrink Nanotechnologies, Inc., a Delaware corporation, and “Shrink” refers to our wholly owned subsidiaries, both (a) Shrink Technologies, Inc., a California corporation and (b) Shrink Technologies B, Inc., a California corporation (ii)  “Shrink Chips,” “Shrink Solar” and “BlackBox” refer to our recently organized Delaware subsidiaries ShrinkChips LLC, Shrink Solar LLC and BlackBox Semiconductor, Inc., (iii) the “Company”, “we”, “us”, or “our”, refer to the combined business of Shrink Parent, together with its wholly owned subsidiaries, Shrink, ShrinkChips, Shrink Solar and BlackBox, unless the context requires otherwise, (iv) “Forward Split” refers to the 5 for 1 forward split of the Parent’s stock effective as of April 8, 2010, (v) “SEC” are to the United States Securities and Exchange Commission, (vi) “Securities Act” are to Securities Act of 1933, as amended, and (vii) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.




ii



PART I


Item 1.  Financial Statements


SHRINK NANOTECHNOLOGIES, INC.

(A Development Stage Company)

CONSOLIDATED - BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

 

2011

 

2010

 

 

 

 

(Unaudited)

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

Cash

$

845

$

2,131

 

Accounts receivable

 

10,000

 

-

 

Prepaid expenses

 

328

 

29,062

 

Inventory

 

1,670

 

-

 

 

Total current assets

 

12,843

 

31,193

 

 

 

 

 

 

 

Investment in BlackBox Semiconductor, Inc.

 

38,036

 

-

Property, plant and equipment, net

 

18,383

 

22,806

Intangible assets, net

 

12,263

 

52,948

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

$

81,525

$

106,947

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$

836,793

$

856,371

 

Accrued interest

 

100,824

 

106,113

 

Deferred revenue

 

8,182

 

-

 

Due to related parties

 

70,833

 

606,250

 

Convertible debentures, default

 

60,000

 

-

 

Convertible debentures, net of discount, default - related party

 

285,621

 

238,121

 

Convertible debentures, related party

 

675,000

 

-

 

Convertible debentures, net of discount

 

74,750

 

446,479

 

 

Total current liabilities

 

2,112,003

 

2,253,334

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

2,112,003

 

2,253,334

 

 

 

 

 

 

 

COMMITMENTS

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT

 

 

 

 

 

Preferred stock, 25,000,000 shares authorized, $0.001 par value issued and outstanding 20,000,000 and 20,000,000at June 30, 2011 and December 31, 2010, respectively

 

20,000

 

20,000

 

Common stock, 475,000,000 shares authorized, $0.001 par value issued and outstanding 214,345,163 and 194,035,408 at June 30, 2011 and December 31, 2010, respectively

 

214,344

 

194,035

 

Common stock issuable, 411,764 and 0 shares for June 30, 2011 and December 31, 2011, respectively

 

412

 

-

 

Equity subscriptions

 

(75,000)

 

-

 

Additional paid in capital

 

6,784,700

 

5,982,525

 

Accumulated deficit

 

(8,974,934)

 

(8,342,947)

 

 

TOTAL STOCKHOLDERS' DEFICIT

 

(2,030,478)

 

(2,146,387)

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

81,525

$

106,947

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements



1




SHRINK NANOTECHNOLOGIES, INC.

(A Development Stage Company)

CONSOLIDATED - STATEMENTS OF OPERATIONS

(Unaudited)


 

 

 

For the three

 

For the three

 

For the six

 

For the six

 

From Inception

 

 

 

months ended

 

months ended

 

months ended

 

months ended

 

January 15, 2008

 

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

through June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

2011

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Service revenues, net

$

1,818

$

-

$

1,818

$

-

$

1,818

 

Cost of sales

 

-

 

-

 

-

 

-

 

-

Gross profit

 

1,818

 

-

 

1,818

 

-

 

1,818

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

33,570

 

72,107

 

65,011

 

133,141

 

450,093

 

Professional fees

 

37,661

 

56,044

 

86,248

 

84,663

 

385,867

 

General and administrative

 

124,054

 

1,051,277

 

275,097

 

2,347,269

 

6,804,557

 

Loss on asset impairment

 

-

 

-

 

-

 

-

 

347,921

 

Depreciation and amortization

 

2,582

 

19,698

 

5,105

 

32,296

 

116,232

Total operating expenses

 

197,867

 

1,199,126

 

431,461

 

2,597,369

 

8,104,670

Loss from operations

 

(196,049)

 

(1,199,126)

 

(429,643)

 

(2,597,369)

 

(8,102,852)

 

 

 

 

 

 

 

 

 

-

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(60,620)

 

(166,147)

 

(197,553)

 

(276,757)

 

(892,591)

 

Loss from extinguishment of debt

 

-

 

-

 

-

 

-

 

(118,121)

Total other income (expense)

 

(60,620)

 

(166,147)

 

(197,553)

 

(276,757)

 

(1,010,712)

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) from continuing operations

 

(256,669)

 

(1,365,273)

 

(627,196)

 

(2,874,126)

 

(9,113,564)

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations

 

 

 

 

 

 

 

 

 

 

 

(Loss) from discontinued BlackBox business

 

(1,775)

 

-

 

(4,792)

 

-

 

(5,195)

 

Income from discontinued Audiostocks business

 

-

 

-

 

-

 

-

 

143,825

Income (loss) from discontinued operations

 

(1,775)

 

-

 

(4,792)

 

-

 

138,630

(Loss) before income taxes

 

(258,444)

 

(1,365,273)

 

(631,988)

 

(2,874,126)

 

(8,974,934)

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

-

 

-

 

-

 

-

 

-

NET (LOSS)

$

(258,444)

$

(1,365,273)

$

(631,988)

$

(2,874,126)

$

(8,974,934)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share, basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

(Loss) from continuing operations

 

(0.00)

 

(0.01)

 

(0.00)

 

(0.02)

 

-

 

Income (loss) from discontinued operations

 

(0.00)

 

(0.00)

 

(0.00)

 

(0.00)

 

-

Net (loss) per common share:

$

(0.00)

$

(0.01)

$

(0.00)

$

(0.02)

$

-

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common and common equivalent shares outstanding Basic and diluted

 

204,607,938

 

191,974,754

 

201,379,211

 

183,433,336

 

-

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements




2




SHRINK NANOTECHNOLOGIES, INC.

(A Development Stage Company)

CONSOLIDATED - STATEMENTS OF CASH FLOWS

(Unaudited)


 

 

 

For the six

 

For the six

 

From Inception

 

 

 

months ended

 

months ended

 

January 15, 2008

 

 

 

June 30,

 

June 30,

 

through June 30,

 

 

 

2011

 

2010

 

2011

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

  Net loss

$

(631,988)

$

(2,874,126)

$

(8,974,936)

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net earnings to net cash used

 

 

 

 

 

 

 

by operating activities:

 

 

 

 

 

 

 

     Depreciation and amortization

 

7,283

 

32,296

 

118,812

 

     Asset impairment

 

-

 

-

 

347,921

 

     Debt discount accretion

 

150,771

 

229,539

 

716,083

 

     Non-cash share-based payments

 

150,824

 

1,867,757

 

4,988,392

 

     Loss from extinguishment of debt

 

-

 

-

 

118,121

 

Changes in assets and liabilities, net of effects from acquisitions

 

 

 

 

 

 

 

     Accounts receivable

 

(10,000)

 

108,011

 

(8,328)

 

     Prepaid expenses

 

28,734

 

122,270

 

19,922

 

     Inventory

 

(1,670)

 

-

 

(1,670)

 

     Accounts payable

 

(17,934)

 

(59,523)

 

617,170

 

     Accrued interest

 

46,782

 

46,844

 

148,311

 

     Due to related parties

 

119,333

 

100,000

 

722,583

 

     Deferred revenue

 

8,182

 

-

 

8,182

NET CASH USED IN OPERATING ACTIVITIES

 

(149,683)

 

(426,932)

 

(1,179,437)

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

     Cash purchased at acquisition

 

-

 

-

 

62,404

 

     Additions to equipment

 

(682)

 

-

 

(16,795)

 

     Additions to intangible assets

 

(1,171)

 

(39,845)

 

(269,172)

NET CASH USED IN INVESTING ACTIVITIES

 

(1,853)

 

(39,845)

 

(223,563)

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

     Proceeds from subsidiary prior to merger

 

-

 

-

 

12,500

 

     Advances from related parties

 

20,250

 

-

 

23,250

 

     Proceeds from issuance of common stock to be issued

 

70,000

 

-

 

70,000

 

     Proceeds from issuance of common stock

 

-

 

-

 

355,001

 

     Proceeds from convertible debentures

 

60,000

 

535,000

 

943,094

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

150,250

 

535,000

 

1,403,845

 

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

(1,286)

 

68,223

 

845

CASH BALANCES

 

 

 

 

 

 

 

  Beginning of period

 

2,131

 

58,539

 

-

 

  End of period

$

845

$

126,762

$

845

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING TRANSACTIONS :

 

 

 

 

 

 

 

Stock based prepaid expenses

$

-

$

1,588,167

$

-

 

Stock issued to satisfy convertible debt obligation

$

527,072

$

-

$

527,072

 

Stock issued in share exchange of BlackBox Semiconductor, Inc.

$

37,036

$

-

$

37,036

 

Convertible debt issue to satisfy related party payable

$

675,000

$

-

$

675,000

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements



3



SHRINK NANOTECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements

For the six months ended June 30, 2011

(Unaudited)


NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation


The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011.  For further information, refer to the Company’s audited financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2010. These consolidated financial statements have been prepared treating the Company as a development stage company, effective as of January 15, 2008.


Going Concern


The accompanying financial statements have been prepared assuming the Company will continue as a going concern. Because of the recurring operating losses, limited revenues generated to date and the excess of current liabilities over current assets, there is substantial doubt about the Company’s ability to continue as a going concern.


As a result of the aforementioned conditions, the Company may be unable to meet certain obligations to fund future research and development activities.  The Company’s continuation as a going concern is dependent on obtaining additional outside financing, as it is not anticipated that the Company will have profitable operations from its research and development activities during the near term. The Company has funded losses from its research and development and other operations primarily from the issuance of debt and equity.  The Company believes that through government grants, partnerships and arrangements with universities, and the issuance of equity and debt will continue to fund operating losses in the short-term until the Company can generate revenues sufficient to fund its operations.  If management can’t achieve its plans there is a possibility that operations will discontinue.  


Use of Estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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.  Actual results could differ from those estimates. Estimates and assumptions principally relate to the fair value and forfeiture rates of stock based transactions, and long-lived asset depreciation and amortization, and potential impairment.


Revenue Recognition and Deferred Revenue


The Company recognizes revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured.  In addition to the aforementioned general policy, the following are the Company’s statement of policy with regard to certain service contracts.


The Company records revenue from certain service contracts which include milestones using the milestone method if the milestones are determined to be substantive.  A milestone is considered to be substantive if management believes there is substantive uncertainty that it will be achieved and the milestone consideration meets all of the following criteria:


·

It is commensurate with either of the following:


o

The Company’s performance to achieve the milestone; or


o

The enhancement of value of the delivered item or times as a result of a specific outcome resulting from the Company’s performance to achieve the milestone.


·

It relates solely to past performance



4




·

It is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement


The individual milestones are determined to be substantive or nonsubstantive in their entirety and milestone consideration is not bifurcated.  


Related to these certain service contracts accounted for under the milestone method the Company may also receive service fees in advance upon signing of the contract.  Amounts in excess of revenue recognized are classified as deferred revenue on the consolidated balance sheet.


 Income Taxes


Income tax expense is provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes.  Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes.  The differences relate primarily to the effects of net operating loss carry forwards and differing basis, depreciation methods, and lives of depreciable assets. The deferred tax assets represent the future tax return consequences of those differences, which will be deductible when the assets are recovered.

 

No income tax benefit (expense) was recognized for the six months ended June 30, 2011 as a result of tax losses in this period and because deferred tax benefits, derived from the Company’s prior net operating losses, were previously fully reserved, the Company has cumulative net operating losses for tax purposes of approximately $9 million.

 

The Company and its subsidiaries currently have tax return periods open to examination by Federal tax authorities beginning with December 31, 2008 through December 31, 2010.


Accounts Receivable


As is customary in the industry, the Company does not require collateral from customers in the ordinary course of business.  Accounts receivable are stated at the amount management expects to collect from outstanding balances.  Management provides for probable uncollected amounts through a charge to earnings and a credit to the allowance for doubtful accounts based on its assessment of the current status of individual accounts.  There was no allowance for doubtful accounts at June 30, 2011 and December 31, 2010.  The Company does not accrue finance charges on its past due accounts receivable.  Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable.


Investment in BlackBox Semiconductor, Inc.  


The Company owns 19% interest in BlackBox Semiconductor, Inc., a publicly traded company and uses the equity method of accounting for this investment, as management has determined that the Company has the ability to influence the operating and financial decisions of  BlackBox.  Under this method, the Company recognizes earnings and losses of BlackBox in its financial statements and adjusts the carrying amount of its investment in BlackBox accordingly. The Company’s share of earnings and losses are based on the shares of common stock and in-substance common stock of BlackBox held by the Company. Any intra-entity profits and losses are eliminated.  


Fair Value Measurements


Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability.  US GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The established fair value hierarchy prioritizes the use of inputs used in valuation methodologies into the following three levels:

 

·

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.

·

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

·

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.

 



5




Basic Net Loss per Share of Common Stock


Basic net loss per common share is based on the weighted average number of shares outstanding during the periods presented.  Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period.  At June 30, 2011 there was $1,190,945 in convertible debt and its accrued interest outstanding, 20,000,000 preferred shares and stock options that total 52,631,287 in common stock equivalents.  The Company also has consulting contracts involving possible common stock issuances of up to approximately 1,978,625 shares.  Common stock equivalents resulting from the issuance of these stock options have been considered, but have not been included in the per share calculations because such inclusion would be anti-dilutive due to the Company’s net loss. Common stock issuable is considered outstanding as of the original approval date for purposes of earnings per share computations.


Reclassifications


Certain amounts in the 2010 financial statements have been reclassified to conform to the classifications used to prepare the 2011 financial statements.  These reclassifications had no material impact on the Company’s financial position, results of operations, or cash flow as previously reported.


NOTE 2. BLACKBOX SEMICONDUCTOR SHARE EXCHANGE, RELATED PARTY, DISCONTINUED OPERATIONS

 

In March 2011, the Company entered into an agreement in principle to transfer our BlackBox Semiconductor, Inc. subsidiary (the “BlackBox Subsidiary”) to a separate public company as the BlackBox business will require different management and commercial resources and relationships, as well as significant amounts of capital and time to commercialize products.


On June 3, 2011, the Company finalized the agreement with BlackBox Semiconductor, Inc., f/k/a Visitrade, Inc., a Nevada corporation, a publicly traded company, (the “BlackBox Parent”), as purchaser, for the exchange of all of the shares of  BlackBox Subsidiary from the Company (the “Share Exchange”).  


The material terms of the Share Exchange were:


Shrink Nanotechnologies, Inc. issued 14,000,000 shares of restricted common stock to BlackBox Parent and 100% equity interest in BlackBox Subsidiary.  In exchange, Shrink Nanotechnologies, Inc. will receive $75,000 cash payable prior to December 31, 2011, and 27,030,000 shares of BlackBox Parent, representing approximately 19.9% of BlackBox Parent’s equity.  The cash received from the transaction shall  be used to recover costs Shrink Nanotechnologies, Inc. invested into BlackBox Subsidiary. Shares of BlackBox Parent will either be sold or spun off to shareholders in whole or in part pursuant to an effective registration statement, as may be determined by the board at a later date, if and when such shares become liquid.  


The primary asset of the BlackBox Subsidiary includes an exclusive License Agreement (the “Chicago License Agreement”) with the University of Chicago, granting to BlackBox Subsidiary the exclusive, worldwide right to use and sublicense Chicago’s patent-pending Materials and Methods for the Preparation of Nanocomposites (US PTO Application No. PCT/US10/32246, and provisional applications 61/214,434 and 61,264,790) and future patent applications filed by the University of Chicago based on certain other patentable technologies described in the Chicago License Agreement.  


The foregoing transaction was deemed a related party transaction in that BlackBox Parent is controlled by Noctua Fund Manager, and its principals, namely, Messers Baum and Panther. These are the same principals that control the Company.  Accordingly, the Share Exchange has been accounted for as a transaction between entities under common control.  


Because the transaction was between entities under common control, the Company did not record a gain or loss related to the Share Exchange.  The quoted market price of BlackBox Parent’s common stock received by Shrink Nanotechnologies, Inc. was equal to $12,159,000 at the date of the Share Exchange.  Due to factors including, but not limited to the transaction being consummated between entities under common control and lack of market/inactivity in BlackBox Parent’s common stock, the Company recorded the transaction based on the historical cost basis of BlackBox Subsidiary paid into by Shrink Nanotechnologies, Inc. and the cash consideration aspect of the Share Exchange.  Management has determined that the Company has the ability to influence the operating and financial decisions of BlackBox Semiconductor, Inc. following the transfer and has recorded this investment under the equity method of accounting.


The Company has disposed of all assets related to its previous business segment, BlackBox Subsidiary.  The Company has no revenues from this business, and no longer has any assets, or liabilities that will be or would be transferred, sold or disposed of related to this business segment through the date of discontinuance.  Nonetheless, as the accompanying consolidated financial statements reflect the year ended December 31, 2010, said financial statements include these operations prior to the completion of the Share Exchange.  



6




The following condensed Balance Sheet represents BlackBox Subsidiary’s financial position as presented on a consolidated basis within the accompanying financial statements at June 3, 2011 (date of the Share Exchange) and December 31, 2010:   


 

 

At June 3,

 

At December 31,

 

 

2011

 

2010

 

 

(unaudited)

 

 

ASSETS

 

 

 

 

 

Cash

$

-

$

1,000

 

License, net

 

39,677

 

41,595

TOTAL ASSETS

$

39,677

$

42,595

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

Accounts payable

$

1,641

$

-

 

Due to Shrink Nanotechnologies, Inc.

 

-

 

41,998

TOTAL LIABILITIES

 

1,641

 

41,998

 

 

 

 

 

 

TOTAL STOCKHOLDERS' EQUITY

 

38,036

 

597

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

39,677

$

42,595


NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS


There have been no recent accounting pronouncements that are expected to have a material impact on the Company's consolidated financial statements.


NOTE 4. INVENTORY


Inventory at June 30, 2011 consisted of StemDisc450 devices, which are carried at the lower of cost or market value on a first-in first-out basis.  


Inventories at June 30, 2011 and December 31, 2010 consist of the following:


 

 

June 30,

 

December 31,

 

 

2011

 

2010

Finished goods

$

1,528

$

-

Raw materials

 

142

 

-

Total inventory

$

1,670

$

-


The cost of materials and supplies purchased for testing and prototype products are expensed as research and development.


NOTE 5. PREPAID EXPENSES


Prepaid expenses consisted of the following at:


 

 

June 30,

 

December 31,

 

 

2011

 

2010

Prepaid stock based consultant fees

$

-

$

20,250

Other prepaid expenses

 

328

 

8,812

Total current prepaid expenses

$

328

$

29,062


NOTE 6. INTANGIBLE ASSETS


Intangible assets consist of intellectual property rights of an exclusive license to several patent pending inventions surrounding our core technologies and trademarks.   Intangible assets are tested on an annual basis for impairment or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value.  Intangible assets with estimable useful lives and those assets with defined lives due to the legal nature of the asset are amortized over their estimated useful lives, of 8 years, using the straight-line method.



7




Intangible assets consisted of the following at:


 

 

June 30,

 

December 31,

 

 

2011

 

2010

Intangible Assets, net:

 

 

 

 

License

$

-

$

41,997

Trademarks

 

12,263

 

11,353

  Less: Amortization

 

-

 

(402)

Net

$

12,263

$

52,948


During June 2011 the Company completed a share exchange agreement with BlackBox Parent (see Note 2.) and as a result sold its ownership interests in BlackBox Subsidiary, which included the Company’s interest related to the license agreement with the University of Chicago. 

 

During six months ended June 30, 2011 and 2010 the Company recorded $2,178 and $9,208 in amortization expense, respectively, related to the BlackBox intangible assets.

 

To date, the Company has not utilized its current trademarks to manufacture products/parts for sale, testing and evaluation.  However management expects to utilize the trademarks in the future.  Shrink continues to make the required legal filings and uses of the trademark, the trademarks have an indefinite life, therefore there is no amortization.


NOTE 7. PROPERTY, PLANT AND EQUIPMENT


Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of the asset.  During the six months ended June 30, 2011 and 2010 the Company recorded $5,105 and $23,088 in depreciation expense, respectively.


 

 

June 30,

 

December 31,

 

 

2011

 

2010

Property Plant and Equipment, net:

 

 

 

 

  Computer Software and Hardware

$

9,559

$

9,559

Furniture and Equipment

 

28,863

 

28,181

Building and Improvements

 

853

 

853

  Accumulated Depreciation

 

(20,892)

 

(15,787)

Net

$

18,383

$

22,806


 NOTE 8.  ACCOUNTS PAYABLE


Accounts payable consisted of the following at:


 

 

June 30,

 

December 31,

 

 

2011

 

2010

Accounts payable

$

518,893

$

470,469

Stock based payables

 

317,900

 

385,255

Accrued payroll

 

-

 

647

Total

$

836,793

$

856,371


NOTE 9.

Convertible NOTES, PRIVATE PLACEMENT OFFERING


The Company recognizes the advantageous value of conversion rights attached to convertible debt. Such rights give the debt holder the ability to convert the debt into common stock at a price per share that is less than the trading price to the public on the day the loan is made to the Company. The beneficial value is calculated as the intrinsic value (the market price of the stock at the commitment date in excess of the conversion rate) of the beneficial conversion feature of debentures.  This feature is recorded as a discount to the related debt and an addition to additional paid in capital. The discount is amortized to interest expense over the remaining outstanding period of related debt using the interest method.



8




A.

Convertible Note – Related Party


In April 2011, the Company issued to BCGU, LLC a 4% convertible promissory note with a balance of $675,000.  The note was issued under BCGU, LLC’s Operating agreement, and memorializes the unpaid, accrued fees resulting from the Operating Agreement at that time. The Note, is due on April 6, 2012, and is convertible at $.06 per share (the closing market price of the Company’s stock on the date of issuance).  There was no beneficial conversion feature that applied to this note.  


BCGU, LLC, is an entity indirectly controlled by James B. Panther, and Mark L. Baum, Esq., who are two of the Company’s directors and majority control persons.


B.

Convertible Note – Related Party


On January 10, 2011, the Company issued a $60,000 14% convertible note to Noctua Fund, LP in exchange of $60,000 cash. The note’s maturity date is October 1, 2012.  The note accrues interest at fourteen percent (14%), and interest payments on the note are due monthly.  The note is convertible into shares of the Company’s common stock at an original conversion price of $.17 per share. The number of shares issuable upon conversion of the notes shall be determined by dividing the outstanding principal amount, together with accrued but unpaid interest, to be converted by the conversion price. At the time of the agreement date the market price of the Company’s stock was $.125 per share, therefore there was no beneficial conversion feature that applied to this note.  


The Company has not made any of the required interest payments and as a result this note was in default and accruing interest at its default rate of 18%.


 Baum, the Company’s president and CEO, and Panther, a director, are equal indirect beneficial owners of Noctua Fund Manager, LLC, the general partner of Noctua Fund, L.P., and are non-voting minority investors in the Noctua Fund, L.P.  


C.

Private Placement Offering


During November of 2009 through early 2010, a confidential private offering (“the Offering”) was made by the Company to various private accredited investors.  The principal amount of the Offering was set at $1,000,000 maximum with excess of $1,000,000 accepted at the option of the Company and consists of convertible notes and stock purchase warrants, with $635,000 of Notes and 3,175,000 warrants issued in aggregate.  The notes will mature at the one year anniversary of their effective date, be sold at their face value, accrue interest at 12% and have a conversion feature that allows the investor to convert the note and accrued interest into common stock at a price of $0.10 per share.  The Company has the option to induce conversion, at which the notes conversion price will be taken at the discounted rate of 80% ($.08 per share).  The Series A common stock purchase warrants are exercisable via cashless exercise commencing six months after each respective closing, at $0.20 per share, beginning to expire 3 years from the first closing of this Offering.  The investors shall be issued warrants to purchase such number of common stock as equals fifty percent (50%) of the number of common shares underlying the convertible note based on the fixed conversion price. The warrants shall contain a standard cashless provision, which permits the holder to exercise the warrants if the stock price is above the exercise price, by turning in warrants and not paying cash.


In January 2011, the Company received conversion demand notices for convertible notes with total principal balances of $475,000 and accrued interest of $52,771.  In February 2011, the notes and their accrued interest were converted at $.10 per share into 5,277,714 shares of common stock, and pursuant to the stock issuances considered paid in full.  At June 30, 2011, the Company had one note with a principal balance of $117,000 due in November 2011.   There are two notes with principal balances totaling $60,000 are currently in default, and accruing interest at 14%.  The default notes may be converted at anytime at a default conversion price of $.08 per share.



9




Notes Payable consists of the following at:


 

 

June 30,

 

December 31,

 

 

2011

 

2010

14% convertible notes due October  2012

$

298,121

$

238,121

12% convertible notes due January  2011

 

-

 

225,000

12% convertible notes due February  2011

 

10,000

 

110,000

12% convertible notes due April  2011

 

50,000

 

50,000

12% convertible notes due May  2011

 

-

 

150,000

12% convertible notes due November  2011

 

117,000

 

117,000

4% convertible note due April  2012

 

675,000

 

-

Total convertible notes payable

$

1,150,121

$

890,121

Less: Discount on notes

 

(54,749)

 

(205,521)

Less: Current portion

 

(1,095,372)

 

(684,600)

Long-term portion

$

-

$

-


The following represents minimum payments due for notes payable:


 

 

Amount

2011

$

475,121

2012

 

675,000

2013

 

-

Total

$

1,150,121


As of June 30, 2011, the Company had certain notes payable due to a related party in the amount of $298,121 (represented on the Company’s consolidated balance sheet as $285,621, which is net of a $12,500 discount) with a maturity date of October 1, 2012. These notes are currently in default due to non-payment of monthly interest accruals and are classified as current liabilities on the balance sheet. Interest payments are due monthly on these notes.  


NOTE 10.  COMMITMENTS AND LEASES – RELATED PARTY


During the six months ended June 30, 2011, the Company received cash advances from Noctua Fund Manager, LLC, in the amount of $20,250.  Mark L. Baum, Esq. (“Baum”) the Company’s CEO and president, is a managing member of the Noctua Fund Manager, LLC.  James B. Panther, (“Panther”), Shrink’s chairman of its Board of Directors, is also a managing member of the Noctua Fund Manager, LLC.  As of June 30, 2011, there was $23,500 owed to the Noctua Fund Manager, LLC, $0 had been paid to the Noctua Fund Manager, LLC during the six months ended June 30, 2011.  This liability is recorded as due to related parties the Company’s balance sheets.


The Company subleased space from Business Consulting Group Unlimited, Inc., an entity owned by Panther and Baum, pursuant to which the Company leased approximately 3,000 square feet of office and administrative space, as well as use of, among other things, internet, postage, copy machines, electricity, furniture, fixtures etc. at a rate of $6,000 per month.  The lease with Business Consulting Group Unlimited, Inc. expired April 30, 2010, and continued as a month to month tenancy thereafter.   The lease agreement was terminated on January 31, 2011.  As of June 30, 2011, $7,333 was owed to Business Consulting Group Unlimited, Inc. and during the six months ended June 30, 2011, $16,667 had been paid to Business Consulting Group Unlimited, Inc.   This liability is recorded as due to related parties on the Company’s balance sheets.


Effective as of January 31, 2011, the Company entered into the Second Amended Operating Agreement (the “Second Amended Operating Agreement”) with BCGU, LLC which amended the terms of the previously existing First Amended Operating Agreement among the parties, entered into on October 1, 2009.  The Amended Operating Agreement provides for a term ending in October 1, of 2012 and provides for services to  be provided that include day to day management, provision of bookkeeping and accounting personnel and administrative support staff as well as record keeping and accounting maintenance, in exchange for a new and lesser fee of $20,000 per month.  There is an option within the Second Amended Operating Agreement that allowed BCGU, LLC to convert outstanding payables related to the Operating Agreements into a convertible note. The Company was also indebted to BCGU under the old agreement, in the amount of $615,000 which continued to be due and payable as of the date of the Second Amended Operating Agreement.  



10




In April 2011, the Company issued to BCGU, LLC a 4% $675,000 convertible note for the amounts due (see Note 9 for more detail related to this convertible note.).  For the six months ended June 30, 2011, $121,000 had been paid to BCGU, LLC under the Second Amended Operating Agreement and there was $40,000 owed to BCGU, LLC at June 30, 2011 (excluding amounts due under the 4% convertible note).   This liability is recorded as due to a related party payable on the Company’s balance sheets.   Because BCGU, LLC is (i) substantially managing the affairs of the company, (ii) is familiar with the affairs of the Company and its strategic direction, (iii) is receiving minimal cash compensation for its efforts and is deferring most payments, the Company believes that the transactions are no less favorable to the Company than would otherwise be available from independent third parties.


Due to related parties consisted of the following at:


 

 

June 30,

 

December 31,

 

 

2011

 

2010

Due to BCGU, LLC

$

40,000

$

585,000

Due to Business Consulting Group Unlimited, Inc.

 

7,333

 

18,000

Due to Noctua Fund Manager, LLC

 

23,500

 

3,250

Total

$

70,833

$

606,250


The Company entered into a lease at the UCI Tech Portal, beginning on November 1, 2010, for approximately 150 square feet of laboratory space and certain equipment and shared office space that will be used for the Company’s UCI developed patents.  The lease is for a minimum of six (6) months and may be extended for another 24 months and may be extended thereafter by the discretion of the parties, and provides for rent to be paid by the Company of $5,400 per year for up to 30 months ($450 per month).  The Company is currently occupying the space on month-to-month terms.


The Company’s rent expense for the six months ended June 30, 2011 and 2010 was $8,700 and $36,000, respectively.  


At June 30, 2011, the Company did not have any future minimum lease payments for the next 5 years.


NOTE 11. COMMON STOCK


The Company has made various private issuances of securities to fund its operations and satisfy obligations from time to time.

 

In January 2011, pursuant the Company’s 2010 Stock Incentive Plan, the Company issued 750,000 shares valued at $95,625 to Heiner Dreismann, a member of the Company’s Board of Directors, for services rendered and as an incentive to remain on the board with the Company.  As a result of the Mr. Dreismann’s issuance there are 24,250,000 remaining shares authorized for issuance pursuant to the 2010 Stock Incentive Plan.


In January 2011, the Company received conversion demand notices for convertible notes with total principal balances of $475,000 and accrued interest of $52,071.  In February 2011, the notes and their accrued interest were converted at $.10 per share into 5,277,714 shares of common stock, and pursuant to the stock issuances considered paid in full.


In February 2011, the Company issued 140,000 shares valued at $16,330 for payment of professional services provided during the year ended December 31, 2010 and thru February 2011.


In March 2011, the Company received $70,000 in cash.  In exchange, the Company agreed to issue 411,764 shares of common stock.  At June 30, 2011 these shares had not been issued.


In April 2011, the Company issued 40,000 shares valued at $3,740 for payment of professional services provided during the months of March and April.  


In April 2011, the Company issued 102,041 shares valued at $10,000 for payment for consulting services and due diligence research related to certain biotech and biomedical businesses during the month April.  


In June 2011, the Company issued 14,000,000 shares as part of the BlackBox Share Exchange (see Note 2.) and recorded an equity subscription receivable in amount of $75,000.



11




In March 2010, the Company agreed to a vesting agreement whereby the Company issued 600,000 shares of common stock subject to restrictions based on continued services over a 3 year period ended March 1, 2013, valued at $120,000 to an accounting professional for previous and ongoing accounting, SEC compliance and financial statement preparation and compilation and related services.  These shares vest as to 125,000 shares on each of the date of the agreement, March 1, 2010, March 1, 2011 and March 1, 2012, with the remaining 225,000 vesting on March 1, 2013.  The Company recognized an expense of $12,500 during the six months ended June 30, 2011 as a result of the vesting terms.  


The Company recognized an expense of $12,629 in earned stock option expenses during the six months ended June 30, 2011.  


NOTE 12.

WARRANTS


The following summarizes stock purchase warrants as of June 30, 2011 and December 31, 2010:


 

 

 

Weighted Average

 

Amount

 

Exercise Price

Outstanding December 31, 2009

500,000

$

0.20

Expired/Retired

-

 

-

Exercised

-

 

-

Issued

3,260,000

 

0.20

Outstanding December 31, 2010

3,760,000

$

0.20

Expired/Retired

-

 

-

Exercised

-

 

-

Issued

-

 

-

Outstanding June 30, 2011

3,760,000

$

0.20


There were no changes to in warrants outstanding for the six months ended June 30, 2011.


NOTE 13. STOCK OPTIONS


The Company has issued stock options to key employees, consultants, and non-employee's advisors and directors of the Company. These issuances shall be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, or whichever is more readily determinable. The Company has elected to account for the stock option plan where the compensation to employees should be recognized over the period(s) in which the related services are rendered. The fair value of a stock option granted is estimated using an option-pricing model.


During the six months ended June 30, 2011, 25,000 options were issued to the members of the Company’s advisory board. These options are valued at $1,300 and are exercisable for 2 years following their effective date that begin to expire 2/25/2013. During the six months ended June 30, 2011 the Company recorded a stock option expense of $7,939.  


The options issued during the six months ended June 30, 2011 were valued using a binomial valuation model.  The variables used in this option-pricing model included: (1) discount rates of 0.72%, (2) expected option life of 2 years, (3) expected volatility of 115% and (4) zero expected dividends.


The following summarizes options as of June 30, 2011 and December 31, 2010:


 

 

 

Weighted Average

 

Amount

 

Exercise Price

Outstanding December 31, 2009

275,000

$

0.22

Expired/Retired

-

 

-

Exercised

-

 

-

Issued

650,000

 

0.19

Outstanding December 31, 2010

925,000

$

0.20

Expired/Retired

(75,000)

 

0.20

Exercised

-

 

-

Issued

25,000

 

0.10

Outstanding June 30, 2011

875,000

$

0.17




12




The following summarizes the changes in options issued during the six months ended June 30, 2011:


 

Options Outstanding

 

Options Exercisable

 

 

Number

 

Weighted

Remaining

 

 

 

Weighted

 

 

of

 

Average

Exercise Life

 

Number

 

Average

Expiration

Date of Grant

Shares

 

Exercise Price

in Years

 

Exercisable

 

Exercise Price

Date

First quarter fiscal 2011

25,000

$

0.10

1.91

 

25,000

$

0.10

2/25/2013


NOTE 14. SERVICE AGREEMENTS

 

In May of 2011, the Company entered into a service agreement with a worldwide, market leading company that supplies brands and solutions that enhance the world with improved health, hygiene and well-being (the “Customer”). Under the terms of the contract Shrink will provide the Customer with temporary services in the field of nanotechnology-enabled diagnostics. Shrink was due $10,000 at signing of the contract and is eligible to receive future milestone payments of up to $40,000. Specifically related to the milestone payments, the Company will be due: (i) $20,000 upon proof of concept data and (ii) $20,000 upon quantifying the range and sensitivity of certain diagnostics.  The $10,000 due at signing is being amortized over the life of the contract ending March 30, 2012. Management had determined the milestones are substantive and will require the revenue to be recognized under the milestone method in accordance with the Company’s revenue policy.  To date there has been no revenue recognized related to the achievement of milestones.


NOTE 15. SUBSEQUENT EVENTS


The Company has performed an evaluation of events occurring subsequent to the period end through the issuance date of this report. Based on the Company’s evaluation, nothing other than the events described below need to be disclosed.


In July 2011, the Company issued 411,764 shares in exchange for $70,000 received in March 2011.


In July 2011, the Company issued 99,999 shares valued at $7,470 for payment of professional services provided during the months of May, June and July.  


In August 2011, the Company issued 218,003 shares valued at $18,000 for payment to a consultant for research and development services provided during the months of February through July.  


On August 1, 2011, Shrink commenced a new lease for 700 square feet of office space.  The term of the lease is through March of 2012. The cost of the lease is $1,500 per month including electricity costs.




13






Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.


The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Report and the “Forward Looking Statements” section in the forepart of this Report (see page ii above) and the “Risk Factors” set forth in our Annual Report filed on Form 10-K for the year ended December 31, 2010, as may be amended or updated from time to time.  The statements contained in this Report that are not historic in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are forward-looking statements based on current expectations and assumptions.  No assurance can be made that any of our forward looking statements will materialize as planned. In addition, the below is not intended as a complete business description but rather, supplements and updates information which may be contained in our Annual Report or other reports filed from time to time.


Various risks and uncertainties could cause actual results to differ materially from those expressed in forward-looking statements. For ease of reference we use certain defined terms as defined in “Use of Terms” on page iii above, in the forepart of this Report.


Background


General


We are, with our subsidiaries, dedicated to commercializing biotechnology and other high technology intellectual property, know-how and related products, from universities and medium to large commercial businesses, that may be deployed as commercial products or licensing opportunities in the near (immediate to 2 years) and mid-term (2-4 years).  We have also recently undertaken a program to seek to acquire small companies (or business segments of larger companies) with developed and ready-to-go-to-market products, strong intellectual property portfolios, management and operational infrastructure.  Historically, we have primarily focused our resources in the life sciences market; however, we also have successfully acquired technologies in, for example, the semiconductor space.  With all technologies we acquire and allocate our limited resources to, our objective is to develop products and intellectual property resources in order to generate cash flow, and ultimately, value for our shareholders.


The Company has undergone, and continues to undergo, marked changes as we transition towards commercialization efforts and liquidate undesired assets.


Our business currently consists of four operating units: Cell Culturing Products; Microfluidic Systems and Kits; Special Substrates; and Internal Development and Acquisitions.  


Our Cell Culturing Unit is dedicated to the commercialization of our stem cell culture platform known as StemDisc® and its related software, as well as NanoShrink® based tissue engineering substrates known for our Cell Align®.  Our Microfluidic Systems and Kits business is seeking to market a unique and patented modular microfluidic system we exclusively licensed from Corning Incorporated, as well as a version of NanoShrink® (metal enhanced fluorescence) that will enable the low cost development of two dimensional microfluidic system prototypes.  Our Special Substrates business is developing specialized versions of NanoShrink® substrates that have unique surface plasmon resonance capabilities and which may be integrated into existing market leading devices and systems.  Our Internal Development and Acquisitions Unit is actively developing technologies that are a part of a development and commercialization program, as well as engaging in due diligence on technologies and businesses we are in the process of evaluating for acquisition purposes.


Business Focus

The Company intends to direct its focus, and expects to continue to allocate a material portion of its resources, towards (1) the commercialization and development of technologies in its four business units as discussed in greater depth in this Report, and (2) making acquisitions of life sciences companies and high technology companies and technology assets that either supplement or otherwise enhance the Company’s core abilities and interests in the life sciences.


Assets; Intellectual Property and Research Agreements


Our assets include exclusive and non-exclusive patent rights, as more fully described in this Report and in our Annual Report, from agreements with third parties, as follows:


·

Our exclusive License Agreement with Corning, Inc. (the “Corning License Agreement”) wherein the Company licensed the exclusive worldwide right to use and sublicense Corning’s patent-pending Modular Microfluidic System and Method for Building Modular Microfluidic System.



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·

Our two Sponsored Research Agreements with the University of California Regents on behalf of University of California, Irvine campus entered into in May 2010 (the “Biosensing Research Agreement”), and in September 2010 (the “EB Research Agreement”), and rights to acquire additional license rights funded by us under these agreements, (the “Sponsored Research Agreements”).


Our assets also included, through June 3, 2011, the exclusive License Agreement (the “Chicago License Agreement”) between our previously wholly-owned subsidiary BlackBox and the University of Chicago (“Chicago”), wherein BlackBox licensed the exclusive, worldwide right to use and sublicense Chicago’s patent-pending Materials and Methods for the Preparation of Nanocomposites (a/k/a “electronic glue” chemistry) for fields of use other than thermoelectric applications. We have completed the sale of our BlackBox subsidiary along with this license to BlackBox Semiconductors, Inc., a Nevada corporation (“BlackBox Parent”).


We also entered into other agreements, such as our agreement with the MF3 Consortium, accessing matching funds from MF3’s relationship with DARPA.  This agreement could provide us with research co-funding agreements as more fully provided below. Finally, we intend to commercialize our assets through relationships with third party manufacturers we contract with.  No assurance can be made that the Company will have funds sufficient to further develop and license new technologies or to commercialize the ones we have.


We may, from time-to-time and as a result of rights granted in one or more of our (or our subsidiary’s) licensing agreements, take a license to inventions (and the related license to domestic and international patent application rights) which result from a sponsored research arrangement or private (non-academic sector) license agreement.  Doing so may give Shrink the license rights, but will also trigger the payment of certain fees and various ongoing financial commitments, all of which have been negotiated and are disclosed in the license agreement as provided elsewhere in this Report.  


The Company regularly reviews its licenses and patents and, as technologies or inventions have been further commercially vetted or newer competing technologies are developed by others, management may determine using its reasonable business judgment, to not continue to support the development of a technology, and may therefore abandon its licensing rights and or intellectual property rights (if not otherwise licensed) with respect to that technology, invention and the related license.  The Company may, from time to time, abandon intellectual property rights which it formerly thought would be valuable or which may still have some value but would be too expensive to maintain.  These same abandoned intellectual property rights may have been a part of a public announcement and even been a key part of the Company’s operational strategy.


Abandonment or an outright termination of a license to a particular invention may occur more often as Shrink acquires more IP rights, and the same inventions are commercially vetted.  License or patent rights may also be abandoned based on no other reason other than limited capital or the Company’s need to expend its capital on other vital needs.  To the extent the Company abandons such non-critical IP rights, the Company may not file a specific abandonment notice.


During late 2010, we terminated our research agreement with the UC Merced and the related license agreement with the UC Regents, as management felt that, given our limited funds, the costs of these agreements were cost prohibitive and were yielding unsuccessful results while viable alternative technologies were found elsewhere.  As a result, we lost any patent license rights associated with these agreements.


The Company has dissolved its Shrink Solar, LLC entity which had no revenues or assets.


In March 2011, we entered into an agreement in principle to transfer our BlackBox Semiconductor, Inc. subsidiary (the “BlackBox Subsidiary”) to a separate public company as the BlackBox business will require different management and commercial resources and relationships, as well as significant amounts of capital and time to commercialize products.


On June 3, 2011, we  finalized the agreement with BlackBox Semiconductor, Inc., f/k/a Visitrade, Inc., a Nevada corporation, a publicly traded company, (the “BlackBox Parent”), as purchaser, for the exchange of all of the shares of  BlackBox Subsidiary from the Company (the “Share Exchange”).  



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The material terms of the Share Exchange were:


Shrink Nanotechnologies, Inc. issued 14,000,000 shares of restricted common stock to BlackBox Parent and 100% equity interest in BlackBox Subsidiary.  In exchange, Shrink Nanotechnologies, Inc. will receive $75,000 cash payable prior to December 31, 2011, and 27,030,000 shares of BlackBox Parent, representing approximately 19.9% of BlackBox Parent’s equity.  The cash received from the transaction shall be used to recover costs Shrink Nanotechnologies, Inc. invested into BlackBox Subsidiary.   Shares of BlackBox Parent will either be sold or spun off to shareholders in whole or in part pursuant to an effective registration statement, as may be determined by the board at a later date, if and when such shares become liquid.  


The primary asset of the BlackBox Subsidiary includes an exclusive License Agreement (the “Chicago License Agreement”) with the University of Chicago, granting to BlackBox Subsidiary the exclusive, worldwide right to use and sublicense Chicago’s patent-pending Materials and Methods for the Preparation of Nanocomposites (US PTO Application No. PCT/US10/32246, and provisional applications 61/214,434 and 61,264,790) and future patent applications filed by the University of Chicago based on certain other patentable technologies described in the Chicago License Agreement.  


Discussion of Business Strategy; Short Term Goals


Although management constantly monitors market trends, as well as available capital and has in the past, and continues to, refine and re-prioritize the Company’s goals, so as to attain commercialization as quickly as possible, the goals we will need to attain for our various businesses are currently:  (1) commercialization of existing and newer versions of StemDisc®, Cell Align® and NanoShrink® products; (2) entering into a joint development agreement to commercialize the Corning microfluidic system; (3) joint development of certain materials from our Special Substrates business unit; and (4) entering into technologically accretive and synergistic acquisitions.


We acquired our assets and rights by using a business model that has inexpensively allowed us to license technologies from two primary sources: (1) university laboratories, and (2) “secondary” technologies from very large industrial businesses.  Traditionally and historically, university engineering labs have been used as commercial resources for venture capital organizations and other funding sources looking for high quality low cost technology.  


We have also recently undertaken a program to develop commercial relationships with larger, multi-national United States-based industrial companies in order to potentially work with their technologies and products which have been abandoned or “orphaned” for one or a number of reasons – primarily due to a limited market opportunity or limited funding at the time of abandonment.  We are actively seeking to develop licensing agreements in this regard to provide the right to develop and market these “orphaned” technologies and product lines.


In addition to our licensed technologies, we may develop technologies on our own as a result of our research or joint development activities.


We also have developed a Science Advisory Board (“SAB”).  Through the relationships with our SAB members, we have the exclusive right to certain intellectual property rights derived from their respective work for the Company.  To date, we have not filed any applications to protect intellectual property rights derived from work provided to the Company by a member of the SAB. Nonetheless, much of the Company’s scientific decision making process is guided in part by our SAB members.


We also intend to review, and as such opportunities present themselves, seek to acquire synergistic assets and businesses, although these are not within the Company’s primary initial focus as management believes that initial development, manufacturing and commercialization will be most economical through joint venture or third party OEM manufacturers we contract.


Sponsored Research Agreements with UCI


Sponsored Research Agreement with UC Regents (September 2010)


As of September 22, 2010, Shrink entered into the EB Research Agreement with UC Regents on behalf of the Irvine Campus.  The EB Research Agreement was for a term of three months, retroactively beginning August 1, through October 31, 2010.  Although the term end date has passed, this agreement has not been terminated and work is ongoing with the project based on a good faith between the two parties.  The EB Research Agreement was terminable by the Company or UCI subject to satisfying the appropriate notice requirements required under the agreement.  



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The EB Research Agreement provided, among other things, that the Company sponsor specified research relating to the development of a complete system for culturing, imaging, and digitizing a large number of embryoid bodies (EBs) in custom-designed microfluidic devices, including developing protocols for staining and imaging EBs in 3-D.  In addition, the research involved specifying and testing a suitable hardware/software platform for collecting images in a high-throughput setting.  Regarding any inventions, discoveries or other commercially useful research products that may arise from research being conducted under the SRA, we will have a time-limited, first right to negotiate an exclusive license of such things with UCI.    


The Company’s research sponsorship obligations require it to provide funding (which may be from the Company or other third parties) totaling up to $67,040 during the three month term of the EB Research Agreement.


To date the Company has paid $5,000, and at June 30, 2011 owes $0 under this agreement.  No assurance can be made that the Company will attain the funding necessary to fulfill its funding obligations under the SRA or, that the research performed will necessarily produce commercially viable new inventions.  In addition, in the event that discoveries are made, no assurance can be made that the Company will be able to fund commercialization of these technologies or that it will exercise its right to an exclusive license of these products.


Sponsored Research Agreement with UC Regents (May 2010)


As of May 3, 2010, Shrink Parent entered into the Sponsored Research Agreement or, the “Biosensing Research Agreement”, with UC Regents on behalf of UCI.  The Biosensing Research Agreement is for a term of three years or such time as the research is completed, whichever is longer. The Biosensing Research Agreement may be terminated by the Company subject to satisfying appropriate notice requirements required under the agreement.


The Biosensing Research Agreement provides, among other things, that the Company will sponsor specified research relating to development of (i) integrated, manufacturable, nanostructured substrates for biosensing and testing of new bioassays as well as assessing viability of other shrinkable materials, and (ii) stem cell tools that use shrinkable plastic microfluidic technologies, each as more fully provided in the Biosensing Research Agreement.  The Biosensing Research Agreement provides that the Historically, we have spent far less than the amounts we are otherwise committed to under the UCI Biosensing SRA. We have exclusive access to license intellectual property from the Biosensing Research Agreement beginning from July 1, 2009 forward according to the terms of the Biosensing Research Agreement.


Obligations under Biosensing Research Agreement


The Company’s research sponsorship obligations require it to provide funding (which may be from the Company or other third parties) totaling $632,051 during the three year term of the Biosensing Research Agreement.  To date the Company has paid $20,000 to the UC Regents and owes additional sums under this agreement.  The Company does not have any capital commitments to satisfy the required cash payments under this contract. Any funding amounts under the Biosensing Research Agreement are subject to adjustment down based on actual expenditures on the research.


Additional IP that is subject to our license rights under the UCI Biosensing SRA includes both research performed under the specified work order of the UCI Biosensing SRA, as well as discoveries developed between July 2009 and May 3, 2010 by Dr. Michelle Khine that name Dr. Khine as primary inventor, and which are not under pre-existing obligations to third parties.


We are also required to indemnify UC Regents and certain affiliates from losses and claims stemming from the agreement.


The Biosensing Research Agreement provides that in the event that we desire to license Additional IP, if any is discovered, such license must be pursuant to license terms annexed to the Biosensing Research Agreement (the “UCI Biosensing  License”).  We are not required to pay an initial license issue fee, and the terms of the annual license fee is $5,000 for rights to each Additional IP license we acquire, with an overall license maintenance fee of $10,000 per annum commencing the fourth year after entry into the license (the “License Date”).  In addition, we will be required to pay a fee of 30% of certain income generated from third party sublicenses of the Additional IP that are covered under the UCI Biosensing License, as well as royalty payments of: 2.5% of net sales where the first sale occurs within three years after the License Date; 4% of net sales where the first sale occurs between three and six years after the License Date; and 5% of net sales where the first sale occurs beyond six years after the License Date.  In each case, the minimum earned royalty payment paid shall be $15,000 commencing the year of the first commercial sale of the Additional IP licensed, subject to increase, if and as we expand the UCI Biosensing License to include additional patents from time to time.  With respect to any patent comprising the Additional IP, UC Regents reserves the right to utilize such intellectual property in connection for educational and research purposes, including research conducted for other sponsors.  A copy of the UCI Biosensing SRA License is included as an annex to the Biosensing Research Agreement, filed as an exhibit to our public filings, and is incorporated by reference herein.



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Results of UCI Biosensing Research To Date


To date, the Biosensing Research Agreement has led to two patent applications being filed with the USPTO.  


We do not have any commitments for financings or grants for this agreement and no assurance can be made that the Company will attain the funding necessary to fulfill our funding obligations under the Biosensing Research Agreement or, that the research performed will necessarily produce commercially viable new inventions.  In addition, in the event that discoveries are made, no assurance can be made that the Company will be able to fund commercialization of these technologies or that it will exercise its right to an exclusive license of these products.


License Agreement with University of Chicago - Sold


Effective June 3, 2011, following the Share Exchange involving our BlackBox Subsidiary the License Agreement with the University of Chicago is no longer a part of our operations and business focus.


Agreements Terminated in 2010


During 2010 the Company terminated certain agreements for economic reasons and because alternative resources were available.  These terminated agreements include:  


Our original microfluidics research agreement with the University of California, Merced, originally entered into in May of 2009, and the underlying Exclusive License Agreement with the UC Regents, Merced, for Processes for Microfluidic Fabrication and Other Inventions.  We no longer rely on these patents or intellectual property rights.  Nonetheless, the Company still owns and maintains its rights to the ShrinkChip® related trademarks, which were not part of the terminated agreement. The Company will not be refunded its initial research and license fees paid (amounting to $90,985 and 495,500 shares issued to date), and the Company has certain additional further material liabilities under this agreement relating to patent filing legal prosecution costs or development fees of up to $234,000, which are subject to dispute.  In addition, the Company is required to cover certain legal patent costs during the 90- day period after termination.  


Because the Company no longer is focusing on its solar segment, the Company also terminated its Strategic Marketing and Development Agreement (the “Marketing Agreement) with Inabata America Corporation.  This agreement provided for the appointment of Inabata as the Companys non-exclusive representative for the purposes of marketing and promoting the Companys solar concentrator technology and ShrinkChip RPS solar products to third parties (the Solar Products).  


Critical Accounting Estimates


Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of our consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The significant accounting policies that are believed to be the most critical to fully understanding and evaluating the reported financial results include recoverability of intangible assets, the recovery of deferred income tax assets and share-based compensation.


Our intangible assets consist principally of intellectual properties such as trademarks. Shrink continues to make the required legal filings and uses of the trademarks, the trademarks have an indefinite life, therefore there is no amortization.  The Company will re-evaluate its amortization practice once products related to these trademarks are put into full production.  When our products are placed in full production we can better evaluate market demand for our technology.


We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or indicate that impairment exists. Once our intellectual property is placed into productive service, we expect to utilize a net present value of future cash flows analysis to calculate carrying value after an impairment determination. 



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As part of the process of preparing our consolidated financial statements, we must estimate our actual current tax liabilities together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the balance sheet. We must assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, a valuation allowance must be established. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, the impact will be included in the tax provision in the statement of operations.  


The Company strives to save liquid capital by paying for services or satisfying liabilities, whenever able, by issuance of stock and stock options to consultants and services providers.  We also grant stock options, restricted stock units and restricted stock to directors and consultants under the Company’s 2010 Equity Incentive Plan.  


We measure compensation cost for all stock-based awards at fair value on date of grant and recognize compensation over the requisite service period for awards expected to vest. The fair value of restricted stock and restricted stock units is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. The determination of grant-date fair value for stock option awards is estimated using a Black-Scholes model, which includes variables such as the expected volatility of our share price, the anticipated exercise behavior of our employees, interest rates, and dividend yields. These variables are projected based on our historical data, experience, and other factors. Changes in any of these variables could result in material adjustments to the expense recognized for share-based payments.


Such value is recognized as an expense over the requisite service period, net of estimated forfeitures, using the straight-line attribution method. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.


Recent Events


Share Exchange BlackBox


The discovery, funding and procurement of the Chicago License Agreement was initially funded by Noctua Fund, L.P., which is a creditor of the Company and affiliated with members of management, so as to provide the Company with the first opportunity to capitalize on this asset. The Company, after much research and negotiation, believed that it will take too long and require too much additional capital in a segment that is not currently within the Company’s core business focus and therefore determined to transfer BlackBox to another entity affiliated with management, at a price and terms negotiated by independent members of the board of directors.  We therefore entered into an agreement to transfer the business and Chicago License Agreement, with a separate public company.  Shrink negotiated a sale price of $75,000, made a seed investment into BlackBox, and retained approximately 19.9% of the BlackBox parent company after the share exchange, among other benefits.  The payment of the $75,000 is pending and is expected to be received prior to 2011 year end.


LOI to Acquire Nanopoint and Termination of the Same


We recently executed a binding letter of intent with Nanopoint, Inc., a Hawaii-based life sciences instrumentation business.  This event was reported in a Form 8-K filed with the SEC on April 12, 2011.  The transaction with Nanopoint, was subject to numerous closing conditions, and was to close by May 31, 2011, presuming all conditions, including a financing contingency, are met or waived.  Following our due diligence, the transaction was terminated as of May 31, 2011.


Corporate History and Structure


We were incorporated in the state of Delaware on January 15, 2002 as Jupiter Processing, Inc.  On January 13, 2005, the Company changed its name to Audiostocks, Inc.  On May 14, 2009, the Parent company changed its name to Shrink Nanotechnologies, Inc. in anticipation of its acquisition of Shrink Technologies, Inc.  On May 29, 2009, the Company entered into and completed a share exchange agreement with the former principals of Shrink Technologies, Inc., for the acquisition of Shrink.


The exchange of shares with Shrink’s owner has been accounted for as a reverse acquisition under the purchase method of accounting with the business of Shrink Technologies, Inc. as the surviving company for accounting and financial reporting purposes.   


As of December 31, 2010, Shrink determined that all future economic benefit will be derived from operations that existed as of that date, and all prior operating assets were fully impaired.



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Below is a chart of our organizational structure:


[shrink10q063011002.jpg]


The Company has negotiated a share exchange of our BlackBox business and will retain approximately 19.9% of the equity in the post-transaction business (pre dilution).


Our common stock is quoted on the OTC Market under the symbol “INKN.”


Our principal operational offices are located at 4100 Calit2 Building, Irvine, CA 92697-2800.  Our principal corporate contact is Mark L. Baum, Esq. who may be reached at (858)751-7374.  Mr. Baum does not work on Shrink activities on a full time basis.  Our main corporate website is www.shrinknano.com.  


Results of Operations for the Three and Six Months Ended June 30, 2011 and 2010


Revenue


The Company, recorded $1,818 in revenues for the three and six months ended June 30, 2011, and no revenues, as compared to the same periods in 2010.  The revenues recorded in 2011 are related to a service contract signed in May 2011.  Shrink was due $10,000 at signing of the contract, which is being recognized throughout the length of the contract, and is eligible to receive future milestone payments of up to $40,000 due upon the delivery of specified services.


Operating Expenses


Shrink had total operating expenses of $431,461 for the six months ended June 30, 2011 as compared to $2,597,369 for the same period in 2011.  For the three months ended June 30, 2011 Shrink had total operating expenses of $197,867 and $1,199,126, as compared to the same period in 2010.  We expect operating expenses to continue to decrease as we look for new ways of conserving cash flow, focus in on our core business operations and invest further into those related research and development activities.


General and Administrative Expenses.  Our general and administration expenses decreased to $275,097 for the six months ended June 30, 2011, as compared to $2,347,269 for the same period in 2010 and $124,054 for the three months ended June 30, 2011, as compared to $1,051,277 for the same period in 2010.  This decrease was mainly due to a significant reduction in consulting contracts the Company had engaged in during 2010 that were not renewed in 2011.  In 2010, the Company switched its focus from developing and acquiring intellectual property, to the development of products derived from the intellectual property.  As a result, the Company hired several consultants to help bring those products to a point of commercialization.  With our products in final stages of testing we did not feel the need to renew these contracts and incur the additional fees.  The costs of hiring these consultants were a significant part of the higher amount of general and administrative expenses in 2010.    



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Professional Fees.  Professional fees are generally related to public company reporting and governance expenses as well as costs related to our acquisitions.  Our costs for professional fees increased slightly to $86,248 for the six months ended June 30, 2011, as compared to $84,663 for the same period ended in 2010 and decreased to $37,661 for the three months ended June 30, 2011, as compared to $56,044 for the three months ended June 30, 2010.  The slight change was due to a reduction in legal costs during the three months ended June 30, 2011 and an increase in accounting fees for the six months ended June 30, 2011.  


Depreciation and Amortization. Our depreciation and amortization expenses decreased to $5,105 for the six months ended June 30, 2011, as compared to $32,296 for the same period ended in 2010 and $2,582 in the three months ended June 30, 2011, from $19,698 in the same period ended June 30, 2010.  The decrease in depreciation and amortization expenses was mainly due to the impairment of our Stockvert assets occurring near the end of our fiscal year ended December 31, 2010 and the Share Exchange of our BlackBox subsidiary.


Interest Expense. Interest expense decreased to $197,553 for the six months ended June 30, 2011, as compared to $276,757 for the same period ended in 2010 and $60,620 in the three months ended June 30, 2011 from $166,147 in 2010, primarily due to the decrease in convertible note issuances and the expense recognition of the subsequent debt discount accretion.


We expect operating expenses to continue to decrease as we begin to weed out potential unnecessary costs, focus on our core technologies and their product development. We do not have capital commitments yet to cover any of our operating expenses.  To date, our capital needs for Shrink have been funded by primarily through restricted stock issuances and private convertible debt financing.  


We have limited cash on hand, and to the extent we are able to negotiate with parties with whom we enter into business agreements with to accept stock in lieu of cash, these issuances could dilute the ownership of our shareholders.   


Discontinued Operations – BlackBox

 

The Company, after much research and negotiation, believed that it will take too long and require too much additional capital in a segment that is not currently within the Company’s core business focus and therefore determined to transfer our interest in BlackBox to another entity affiliated with management, at a price and terms negotiated by independent members of the board of directors.  We therefore finalized an agreement on June 3, 2011 to transfer the business and Chicago License Agreement, with a separate public company.  


We do not currently incur material expenses related to BlackBox.  No assurance can be made that we will be successful in monetizing any value from the BlackBox Parent shares received in the transaction or that said shares will exhibit liquidity.


Because we no longer operate in this segment, management believes that extensive disclosure on this business is not material to an understanding of our core business and therefore meaningful to investors.  Accordingly, the focus of this Report is on our ongoing Shrink related research and development business and business plans.


Net Loss


For the six months ended June 30, 2011, we had a net loss of $631,988 as compared to $2,874,126 for the same period ended in 2010 and $258,444 net loss for the three months ended June 30, 2011 as compared to a net loss of $1,365,273 for the period ended June 30, 2010.  Management attributes the decrease in net loss mainly due to a significant reduction in consulting contracts the Company had engaged in during 2010 that were not renewed in 2011.  In 2010, the Company switched its focus from developing and acquiring intellectual property, to the development of products derived from the intellectual property.  As a result, the Company hired several consultants to help bring those products to a point of commercialization.  With our products in final stages of testing we did not feel the need to renew these contracts and incur the additional fees.  The costs of hiring these consultants were a significant part of the higher amount of general and administrative expenses in 2010.  


We anticipate continued losses relating to investment into our research and development activities relating to Shrink, and to our capital raising activities.  We intend to fund our R&D activities, through potential government grants, partnerships and arrangements with universities (such as those that are in effect with the University of California Regents) and equity and debt financings.



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Liquidity and Capital Resources


Our cash on hand at June 30, 2011, and December 31, 2010, was $845 and $2,131, respectively.  The decrease in cash is primarily attributable to a decrease in financing commitments made during the six months ended June 30, 2011.  Management has been primarily focused on product development and commercialization of products.  As a result, management neglected to spend significant time, as compared to prior years, raising capital through the equity and debt financings.  


Given our current commitments and working capital, we cannot support our operations for the next 12 months without additional capital (See “Need for Additional Capital” below).  Historically, our largest shareholders have provided operating capital, and therefore we are extremely reliant on their continued support.  However, there can be no assurance that the same historical support will be made available going forward.  


The following table provides detailed information about our net cash flow for all financial statement periods presented in this Report.



Cash Flow (All amounts in U.S. dollars)

 

The Six months Ended June 30,

 

 

2011

 

2010

Net cash used in operating activities

$

(149,683)

$

(426,932)

Net cash used in investing activities

 

(1,853)

 

(39,845)

Net cash provided by financing activities

 

150,250

 

535,000

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

(1,286)

 

68,223

Cash and Cash Equivalent at Beginning of the Year

 

2,131

 

58,539

Cash and Cash Equivalent at End of the Year

$

845

$

126,762


In early May, 2010, through our entry into a Consortium Agreement with Micro/Nano Fluidics Fundamentals Focus MF3 Center, as led by the University of California at Irvine,  our research qualified to receive matched funding from Defense Advanced Research Projects Agency, as described above.  Under the policies of the consortium agreement the Company’s funded research projects are eligible to receive matched funding on a dollar-for-dollar basis, for each dollar we invest in certain qualifying projects. Since we are dependent on our ability to raise additional capital for our research, no assurance can be made that we will be able to utilize this funding source.  Even if we do raise additional capital, no assurance can be made that we will dedicate it towards those same research projects that qualify for DARPA matching funds.


Our expectations are based on certain assumptions concerning the anticipated costs associated with any new projects. These assumptions concern future events and circumstances that our officers believe to be significant to our operations and upon which our working capital requirements will depend.  Some assumptions will invariably not materialize and some unanticipated events and circumstances occurring subsequent to the date of this Report.  A portion of our research is being conducted by the University of California, through grants. We will continue to seek to fund our capital requirements over the next 12 to 24 months from the additional sale of our securities; however, it is possible that we will be unable to obtain sufficient additional capital through the sale of our securities as needed.  


As part of the Company’s business plan and when feasible, it regularly elects to pay consulting and professional fees in stock, as opposed to cash, so as to preserve capital.   In particular, between April and July 2010, the Company issued an aggregate of 1,602,197 shares of restricted common stock to five consultants and professional service providers for services rendered, some of which covers services rendered through mid 2010.  The Company recognizes, however, that share issuances are highly dilutive to investors and existing shareholders and, not all service providers are willing to accept share compensation in lieu of cash.  Accordingly, the Company is required to expend funds regularly for services.


The amount and timing of our future capital requirements will depend upon many factors, including the level of cash needed to continue our research program, fulfill our obligations under license agreements, or fund initial production efforts.


We intend to retain future earnings, if any, to retire any existing debt, finance the expansion of our business and any necessary capital expenditures, and for general corporate purposes.


The Company estimates that it will cost approximately $6,000,000 in deficit cash flows through 2014 until sustained potential profitability, and that substantial additional costs will be incurred in order to commercialize its Shrink related technologies.  The Company is not aware as to how much, if any, of these funds will be obtainable from private parties, government grants and/or offset by joint venturing development of our products.



22






Operating Activities  


Net cash used in operating activities was $149,683 for the six months ended June 30, 2011, as compared to $426,932 used in operating activities during the same six month period in 2010. The decrease in net cash used in operating activities was mainly due to management minimizing certain administrative expenses and rent costs, lengthening our accounts payable policy and eliminating any expenses that no longer focused on our core technologies.


Investing Activities


Net cash used in investing activities for the six months ended June 30, 2011 was $1,853 as compared to $39,845 net cash used in investing activities during the six months ended June 30, 2010.  The decrease in net cash used in investing activities was mainly due to the termination of our license agreement with the Regents representing the University of California – Merced campus and the BlackBox Share Exchange.    


Financing Activities


Net cash provided by financing activities for the six months ended June 30, 2011 was $150,250 as compared to June 30, 2010 which was $535,000. The decrease of net cash provided by financing activities was mainly attributable to financing efforts made by management during the first six months of 2010 in order to obtain certain assets, maintain current business operations and research and development activities.  


During the six months ended June 30, 2011, the Company issued a 14% $60,000 convertible note payable to Noctua Fund, LP, an affiliate, which is convertible at $.17 per share, in exchange the Company received $60,000 cash.  The Company also received cash in the amount of $70,000, to purchase 411,764 shares of the Company’s restricted common stock.


To date, a material portion of our operations, and of the operations of our Shrink subsidiary, have been funded by certain members of management and Noctua Fund, LP, which is an affiliate of Messrs. Baum and Panther, our current directors.  Specifically, and without limitation, Noctua Fund, LP loaned the Company over $238,000, as represented by the 14% convertible promissory notes, convertible at $.04 per share; and the above mentioned $60,000 14% convertible promissory note, convertible at $.17 per share, to fund operations.  Interest to date on the notes exceeds $66,600 and all of the foregoing notes to Noctua are in default.


During the six months ended June 30, 2010, the Company raised $535,000 through Convertible Note and Series A Warrant financing.  To date, the Company has raised a total of $635,000 through Convertible Note and Series A Warrant financing beginning in November 2009 through April 2010.  Further, we have raised an additional $117,000 through a Convertible Note and Series B Warrant financing in November 2010, with gross proceeds to the Company of $752,000.  The Company has issued over 6,406,900 shares as a result of conversions of some of these notes and their accrued interest totaling $639,993 (or principal balances of $575,000 and accrued interest amounts of $64,993).  Currently, approximately $177,000 is outstanding under these notes, which accrues interest at 12% and started becoming due commencing mid February 2011.


Our expectations are based on certain assumptions concerning the anticipated costs associated with any new projects.  These assumptions concern future events and circumstances that our officers believe to be significant to our operations and upon which our working capital requirements will depend.  Some assumptions will invariably not materialize and some unanticipated events and circumstances occurring subsequent to the date of this Report.  A portion of our research is being conducted by the University of California.  We will continue to seek to fund our capital requirements over the next 12 months from the additional sale of our securities; however, it is possible that we will be unable to obtain sufficient additional capital through the sale of our securities as needed.  


The amount and timing of our future capital requirements will depend upon many factors, including the level of funding received by us anticipated private placements of our common stock and the level of funding obtained through other financing sources, and the timing of such funding.


We intend to retain any future earnings to retire any existing debt, finance the expansion of our business and any necessary capital expenditures, and for general corporate purposes.


The Company estimates that it will cost approximately $6,000,000 in deficit cash flows until sustained potential profitability, and that substantial additional costs will be incurred in order to commercialize its Shrink related technologies.



23






Trends


We anticipate that, for the foreseeable future, our ability to attain conventional bank or secured financing for our products will be difficult as a result of our limited fungible assets and banking constraints that limit commercial loans available to weaker balance sheet companies like Shrink.  We are a cash-deprived company and must secure cash in order to operate going forward.  Capital raising activities will likely be dilutive to our shareholders.


Historically, our largest shareholders have provided operating capital, and therefore we are extremely reliant on their continued support.  However, there can be no assurance that the same historical support will be made available going forward.


Contractual Obligations

  

The Company (on its own or through its subsidiary) was a party to a license agreement with the UC Regents and sponsored research agreements with the UC Regents and more recently, Corning Agreement mentioned above and incorporated herein, as well as to its Strategic Marketing Agreement described above and incorporated by reference herein.  The Company does not have all of the funds necessary to fund these agreements or to commercialize its products and no assurance can be made that it will raise the capital necessary to do so.  The Company also enters into agreements with science consultants and professional service providers calling for payment by issuance of stock in lieu of cash, where able.  Some of these agreements call for cash payments at hourly rates as well, if and as needed and with prior consent of the Company.  The Company has not yet, approved hourly cash payments to consultants, but intends on doing so if and as our cash availability increases.


Sublease with Business Consulting Group Unlimited, Inc. - Terminated


The Company subleased space from Business Consulting Group Unlimited, Inc., an entity owned by Panther and Baum, pursuant to which the Company leased approximately 3,000 square feet of office and administrative space, as well as use of, among other things, internet, postage, copy machines, electricity, furniture, fixtures etc. at a rate of $6,000 per month.  The lease with Business Consulting Group Unlimited, Inc. expired April 30, 2010, and continued as a month to month tenancy thereafter.   The lease agreement was terminated on January 31, 2011.  As of June 30, 2011, $7,333 was owed to Business Consulting Group Unlimited, Inc. and during the six months ended June 30, 2011, $16,667 had been paid to Business Consulting Group Unlimited, Inc.   This liability is recorded as due to related parties on our balance sheets.


Operating Agreement and Services with BCGU, LLC


On May 29, 2009, the Company signed an operating agreement with BCGU, LLC, an entity indirectly controlled by James B. Panther, and Mark L. Baum, Esq., who are two of our directors and majority control persons, for a fee of $6,000 per month.  During October 2009, the Company amended the Operating Agreement with BCGU, LLC.  The amended Operating Agreement (“the “Amended Operating Agreement”) allows us to retain certain day-to-day administrative services and management in consideration of a monthly fee of $30,000 per month.  The Amended Operating Agreement also included a $270,000 signature bonus.  Effective as of January 31, 2011, we entered into the Second Amended Operating Agreement (the “Second Amended Operating Agreement”) with BCGU, LLC which amended the terms of the previously existing First Amended Operating Agreement among the parties, entered into on October 1, 2009.  The Amended Operating Agreement provides for a term ending in October 1, of 2012 and provides for services to  be provided that include day to day management, provision of bookkeeping and accounting personnel and administrative support staff as well as record keeping and accounting maintenance, in exchange for a new and lesser fee of $20,000 per month.  The Company was indebted to BCGU under the old agreement, in the amount of $615,000 which continues to be due and payable as of the date of the Second Amended Operating Agreement.  There is an option within the Second Amended Operating Agreement that allows BCGU, LLC to convert outstanding payables related to the Operating Agreements into a convertible note.  On April 6, 2011, BCGU, LLC exercised its right to memorialize its debt in note form.  As a result the Company issued BCGU, LLC a 4% convertible promissory note with a principal balance of $675,000 (representing all unpaid accrued fees beginning in May 2009 through April 2011 under this agreement), that is convertible at $.06 per share and matures on April 6, 2012.  For the six months ended June 30, 2011, $121,000 had been paid to BCGU, LLC under the operating agreement and there was $40,000 owed to BCGU, LLC at June 30, 2011 (excluding amounts due under the 4% convertible note).  This liability is recorded as due to related parties on our balance sheets.  Because BCGU, LLC is (i) substantially managing the affairs of the company, (ii) is familiar with the affairs of the Company and its strategic direction, (iii) is receiving minimal cash compensation for its efforts and is deferring most payments, the Company believes that the transactions are no less favorable to the Company than would otherwise be available from independent third parties.


The Company has incurred debt and obligations to entities directly owned by or otherwise controlled by two of our founders, Mark L. Baum and James B. Panther, in order to fund its operations, as discussed above and elsewhere in this report.  The notes and related obligations to these founders are disclosed throughout this Report, particularly in the Risk Factors section of this report.



24






Agreements for Consulting Services


The Company strives to save liquid capital by paying for services or satisfying liabilities, whenever able, by issuance of stock to consultants, services providers and consultants.  The issuance of restricted stock in lieu of cash payment sometimes requires that the company pay a premium for such services.  Management believes, nonetheless, that given credit crisis, and difficulty in raising capital for R&D companies such as our own, that the benefits of issuing restricted stock for services outweigh the downside in that it leaves cash available to satisfy debts with vendors where able.  Below is a list material agreements entered into with consultants for services, all of which consultants are independent parties.   


In January 2011, pursuant our 2010 Stock Incentive Plan, the Company issued 750,000 shares valued at $95,625 to Heiner Dreismann, a member of our Board of Directors, for services rendered and as an incentive to remain on the board with the Company.  As a result of the Mr. Dreismann’s issuance there are 24,250,000 remaining shares authorized for issuance pursuant to the 2010 Stock Incentive Plan.  


In February 2011, the Company issued 140,000 shares valued at $16,330 for payment of professional services provided during the year ended December 31, 2010 and thru February 2011.  


In April 2011, the Company issued 40,000 shares valued at $3,740 for payment of professional services provided during the months of March and April.  


In April 2011, the Company issued 102,041 shares valued at $10,000 for payment for consulting services and due diligence research related to certain biotech and biomedical businesses during the month April.  


In June 2011, the Company issued 14,000,000 shares as part of the BlackBox Share Exchange (see Note 2 in the Notes to the Consolidated Financial Statements.) and recorded an equity subscription receivable in amount of $75,000.


In July 2011, the Company issued 411,764 shares in exchange for $70,000 received in March 2011.


In July 2011, the Company issued 99,999 shares valued at $7,470 for payment of professional services provided during the months of May, June and July.  


In August 2011, the Company issued 218,003 shares valued at $18,000 for payment to a consultant for research and development services provided during the months of February through July.  


Some of the agreements under which these shares were issued were not originally committed to writing and were entered into based on an oral agreement between the independent contractor(s) and a company representative and subsequently memorialized. These shares are cancellable based on performance of said independent contractor.  


The foregoing agreements do not require us to make further issuances (except for the issuances for professional services which continue insofar as such persons continue to provide services and agree to accept shares in lieu of cash payment.  The foregoing are the material terms of the foregoing agreements, copies of which, to the extent material, are annexed as exhibits to this Report.


All stock issuances are subject to Board approval.  In addition, any transactions with affiliates or management, such as the BlackBox Share Exchange as well as any operating agreement or other agreement with affiliates, are subject to approval by the disinterested (unconflicted) board members.


Recent Accounting Pronouncements


We are not aware of any additional pronouncements that materially affect our financial position or results of operations.


Properties

 

The Company subleased space from Business Consulting Group Unlimited, Inc., an entity owned by two of our directors, James B. Panther, and Mark L. Baum, Esq. pursuant to which the Company leases approximately 3,000 square feet of office and administrative space, as well as use of, among other things, internet, postage, copy machines, electricity, furniture, fixtures etc. at a rate of $6,000 per month.  The lease with Business Consulting Group Unlimited, Inc. was terminated during this past quarter, as of January 31, 2011.    



25






In September 2010, we entered into a lease for laboratory space with the University of California, Irvine (UCI) TechPortal technology facilitator center, which lease commenced November 1, 2010.  The lease provides approximately 150 square feet of laboratory space and certain equipment and shared office space that will be used for our UCI developed patents under the UCI Biosensing SRA.  The lease is for a minimum of six (6) months and may be extended for another 24 months and may be extended thereafter by the discretion of the parties, and provides for rent of $5,400 per year with each party required to bear the costs of their own insurance and related expenses.  We did not effectively commence utilizing this space until November 2010, and in January, 2011 we moved our corporate headquarters to this location.  The Company is currently occupying the space on a month-to-month basis.  The foregoing are the material terms of our lease with the UCI Tech Portal, a copy of which is attached as an Exhibit to our Current Report Form 8-K, Filed November 1, 2010, the provisions of which are incorporated by reference herein.


On August 1, 2011, Shrink commenced a new lease for 700 square feet of office space.  The term of the lease is through March of 2012.  The cost of the lease is $1,500 per month including electricity costs.


Hedging and Derivative Activities


As at June 30, 2011, and, at June 30, 2010, we have not entered into any type of hedging or interest rate swap transaction.  We do not have any foreign operations or research activities, and, management believes, we do not have exposure to financial product risks.


Need for Additional Capital


As indicated above, management does not believe that the Company has sufficient capital to sustain its operations beyond 12 months or commercializing its technologies without raising additional capital.  We presently do not have any available credit, bank financing or other external sources of liquidity.  Accordingly, we expect that we will require additional funding through additional equity and/or debt financings.  However, there can be no assurance that any additional financing will become available to us, and if available, on terms acceptable to us.


The conversion of our outstanding notes and exercise of our outstanding warrants into shares of common stock would have a dilutive effect on our common stock, which would in turn reduce our ability to raise additional funds on favorable terms.  In addition, the subsequent sale on the open market of any shares of common stock issued upon conversion of our outstanding notes and exercise of our outstanding warrants could impact our stock price which would in turn reduce our ability to raise additional funds on favorable terms.


Any financing, if available, may involve restrictive covenants that may impact our ability to conduct our business or raise additional funds on acceptable terms.  If we are unable to raise additional capital when required or on acceptable terms, we may have to delay, scale back or discontinue our expansion plans.  In the event we are unable to raise additional capital we will not be able to sustain any growth or continue to operate.


Effects of Inflation


Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.  However, our management will closely monitor the price change and continually maintain effective cost control in operations.


Off Balance Sheet Arrangements


We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.


Seasonality

 

Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions. 


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.


Not Applicable.



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Item 4.

Controls and Procedures.


Evaluation of Disclosure Controls and Procedures


We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2010.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2010, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures are not effective to satisfy the objectives for which they are intended due to the material weakness noted in our internal controls over financial reporting.


Management’s 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) under the Exchange Act. The Exchange Act defines internal control over financial reporting as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:


·

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;


·

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and


·

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.


Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls over financial reporting and procedures will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the framework set forth in the report entitled Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on our assessment we determined that, as of December 31, 2010, our internal controls over financial reporting are not effective at the reasonable assurance level based on those criteria.  See our Annual Report included in our Form 10-K for the year ended December 31, 2010, for a complete description of the material weaknesses identified.


This Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Report.



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Changes in Internal Control Over Financial Reporting


There have been no changes in our internal control over financial reporting during the second quarter of fiscal year 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


[Remainder of Page Intentionally Left Blank]




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PART II


Item 1. Legal Proceedings.  


We are not aware of any legal proceedings or investigations involving the Company.  


From time to time, we may become involved in lawsuits and legal proceedings which arise in the ordinary course of business, in particular, that may relate to defense of our intellectual property rights.  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.  We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.


Item 2. Unregistered Sales of Equity Securities.


Item 3. Defaults Upon Senior Securities.


We are in default on payment of interest and principal upon the following notes:  14% Convertible Notes with a principal amount of $298,121 owed to Noctua Fund, LP, a copy of the notes which were filed as an exhibits to this report as incorporated from our Current Report on Form 8-K, filed May 8, 2009, our Current Report on Form 8-K, filed June 5, 2009 and our Annual Report on Form 10-K, filed April 15, 2011.  During the default period these notes accrue interest at an accelerated rate of 18% with a total of approximately $378,174 of principal and interest due at July 31, 2011.


Item 4. Submission of Matters to a Vote of Security Holders.


None.


Item 5. Other Information.


None.


Item 6. Exhibits.


Financial Statements and Schedules


The financial statements are set forth under Item 1 to this Quarterly Report. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.


 

The following exhibits are incorporated herein by reference to the following filings

Form 10-SB

10/19/2006

3.1.1

Certificate of Incorporation

3.1.2

Amended and Restated Certificate of Incorporation

3.2

Bylaws

Form 10-QSB

11/14/2007

3.1.3

Certificate of Designation (Series A and B Preferred Stock)

Form 10-Q

11/19/2008

10.1

Asset Purchase Agreement, dated as of September 30, 2009, between the Company as Seller, Dao Information Systems, LLC, DAO Information Systems, Inc. and Luis J. Leung.

10.2

Meaux Street Partners LP $25,000 10% Convertible Promissory Note, dated July 1, 2008

10.3

The Sonkei Trust $25,000 First Amended 10% Convertible Promissory Note, dated July 1, 2008

10.4

September 30, 2008 Settlement Agreements with SixTech Desenvolvmento Sistemas de Informatica Ltda.

10.5

September 30, 2008 Settlement Agreements with David F. Rubin, DAO Information Systems, LLC., and John Burkett

10.6

September 30, 2008 Settlement Agreement with Luis Leung

Form 8-K

 

10.1

Licensing Consent Agreement, dated as of September 30, 2008, between BCGU, LLC, the Company and Dao Information Systems, LLC

10.2

First Amended Licensing Consent Agreement, dated as of November 25, 2008, between BCGU, LLC, the Company and Dao Information Systems, LLC

Form 10-K Report

4/14/2009

11.1.1

September 30, 2008 Settlement Agreements between the Company and  For Goodness

11.1.2

September 30, 2008 Settlement Agreements between the Company and  Mathew Luchak

11.1.3

October 1, 2008 Omnibus Settlement Agreement between the Company and Luis Leung



29






11.1.4

Second Amended License Consent Agreement dated as of November 30, 2008 between the Company and BCGU

11.1.5

Exhibit 3.1  March 19, 2009 Amendment to the Articles of Incorporation

11.1.6

March 19, 2008 Designation of Series C Preferred Stock

11.1.7

Code of Ethics adopted on February 10, 2006

11.1.8

Share Exchange Agreement, dated as of January 15, 2009 between the Company and BCGU

Form 8-K

5/8/2009

10.1

Debt Consolidation Agreement with Noctua Fund L.P., dated May 7, 2009

10.2

$100,000  14% Secured Convertible Secured Promissory Note, issued May 7, 2009

Form 8-K

5/13/2009

10.1

Binding Letter of Intent to acquire Shrink Technologies, Inc., a California corporation

Form 8-K

5/15/2009

3.1

Certificate of ownership and merger, name change to Shrink Nanotechnologies, Inc.

Form 8-K

6/5/2009

10.1

Share Exchange Agreement between the Company, Marshall Khine and Shrink Technologies, Inc.  (“Shrink”), dated as of May 29, 2009

10.2

Exclusive License Agreement for Processes for Microfluidic Fabrication and Other Inventions, between the Regents of the University of California (“UC Regents”) and Shrink

10.3

Research Agreement, dated as of June 2008, between Shrink and  UC Regents (Merced)

10.4

Office space sublease, between Shrink and Business Consulting Group Unlimited, Inc.

10.5

Operating Agreement, dated as of May 29, 2009, between Shrink and BCGU, LLC

10.6

Debt Consolidation Agreement, May 29, 2009, between Shrink and Noctua Fund LP

10.7

Note Exchange Agreement

10.8

Consulting Agreement with Dr. Michelle Khine

21.1

List of Subsidiaries of Registrant

99.1

Unaudited Pro Forma Financial Statements: Shrink Nanotechnologies, Inc.

99.2

Audited Financial Statements of Shrink Technologies, Inc.

Form 8-K

6/19/2009

3.2

Amended and restated Bylaws of Shrink Nanotechnologies, Inc.

Form 8-K

6/25/2009

10.1

Consulting Agreement Heiner Dreismann, dated June 22, 2009

Form 10-Q

11/25/2009

10.1

First Amended Operating Agreement

Form 8-K

12/29/2009

10.1

First Amended Asset Purchase Agreement with Dao Information Systems, Inc., dated as of December 7, 2009

Form 8-K

2/3/2010 and Amended on 4/8/2010

99.1

Overview of Shrink Nanotechnologies, Inc.

Form 10-K Report

4/14/2010

3.1

Certificate of Amendment to Articles of Incorporation

4.1

Form of Convertible Note 12%

4.2

Form of Series A Warrant

10.1

Subscription Agreement

Form 8-K

5/7/2010

10.1

Sponsored Research Agreement Between the Company and The Regents of the University of California on behalf of Irvine campus dated May 3, 2010

10.2

Consortium Agreement among Academic Partners and Sponsors of the Micro/Nano Fluidics Fundamentals Focus MF3 Center, effective as of June 1, 2010

Form 10-Q

5/24/2010

10.12

Agreement dated as of January 4, 2010, between the Company and Justin Heit

10.13

Consulting Agreement dated January 4, 2010, between the Company and OTC Investor Source, Inc.

10.14

Consulting Agreement dated as of February 15, 2010, between the Company and Andrew Simon.

10.15

Consulting Agreement dated as of March 1, 2010, between the Company and Andrew Boll

10.16

Consulting Agreement, dated April 23, 2010, between the Company and Bruce Peterson

Form 10-Q

8/16/2010

10.17

Scientific Advisory Board Consulting Agreement, between the Company and Dr. Sayantani Ghosh

Form 8-K

10/18/2010

10.1

Patent and Know-How License Agreement between Shrink Nanotechnologies, Inc. and Corning Incorporated, dated as of July 26, 2010

10.2

Lease Agreement between Shrink Nanotechnologies, Inc. and The University of California on behalf of Irvine campus, dated as of October 1, 2010

Form 8-K/A

10/25/2010

16.1

Letter from Auditor, Chisholm, Bierwolf, Nilson & Morrill, LLC

Form 10-Q/A

11/29/2010

10.16

Sponsored Research Agreement, dated as of September 14, 2010, between Shrink Nanotechnologies, Inc. and University of California, Irvine



30






10.18

Consulting Agreement between the Company and Equire, LLC. Business Financial Advisory

Form 8-K

12/21/2010

10.1

License Agreement between BlackBox Semiconductor, Inc. and the University of Chicago, dated as of November 30, 2010

10.2

Shrink Nanotechnologies, Inc. 2010 Stock Incentive Plan

Form S-8

1/13/2011

4.1

2010 Stock Incentive Plan

5.1

Opinion of Levy International Law, LLC on legality

23.1

Consent of Independent Registered Public Accounting Firm

23.2

Consent of Levy International Law, LLC (included in Exhibit 5.1)

24.1

Power of Attorney (included on signature page to this Registration Statement)

Form 8-K/A

3/23/2011

10.1

Second Amended Operating Agreement between Shrink Nanotechnologies, Inc. and BCGU, LLC

10.2

Extension of Research Agreement with University of California Regents, Irvine

16.1

Letter from Auditor, Mark Bailey & Company, Ltd. Reno Nevada

Form 8-K

4/12/2011

10.1

Letter of Intent, dated as of March 29, 2011, between Shrink Nanotechnologies, Inc. and Nanopoint, Inc.

Form 10-K Report

4/15/2011

4.1

Principal Balance $60,000 14% Convertible Promissory Note issued to Noctua Fund, LP

4.2

Principal Balance $675,000 4% Convertible Promissory Note issued to BCGU, LLC

21.1

Subsidiaries

Form 8-K

5/9/2011

10.1

Development and Cooperation Agreement between Shrink Nanotechnologies, Inc. and Sony DADC Austria AG.

Filed Herewith in This Form 10-Q Report

10.1

Share Exchange Agreement between the Company, Shrink Nanotechnologies, Inc, and BlackBox Semiconductor, Inc., dated as of June 3, 2011.

31.1

Certification of Mark L. Baum, Esq., President and Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.

31.2

Certification of Mark L. Baum, Esq., Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002

32.1

Certification pursuant to 18 U.S.C Section 1350 as adopted pursuant to section 906 The Sarbanes-Oxley Act of 2002, executed by Mark L. Baum, Esq. Chief Executive Officer and President

32.2

Certification pursuant to 18 U.S.C Section 1350 as adopted pursuant to section 906 The Sarbanes-Oxley Act of 2002, executed by Mark L. Baum, Esq. Chief Financial and Accounting Officer




31





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.



Date: August 22, 2011

Shrink Nanotechnologies, Inc.


By: /s/ Mark L. Baum                      

    Mark L. Baum, Esq.
   CEO and President
   (Principal Executive Officer, Principal
   Financial Officer and Principal Accounting
   Officer)



32