Attached files

file filename
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - VISION DYNAMICS Corpf10q063012_ex31z1.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - VISION DYNAMICS Corpf10q063012_ex32z1.htm
EX-32.2 - EXHIBIT 32.2 SECTION 906 CERTIFICATION - VISION DYNAMICS Corpf10q063012_ex32z2.htm
EX-31.2 - EXHIBIT 31.2 SECTION 302 CERTIFICATION - VISION DYNAMICS Corpf10q063012_ex31z2.htm
EX-21 - EXHIBIT 21 SUBSIDIARIES - VISION DYNAMICS Corpf10q063012_ex21.htm


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549


FORM 10-Q


  X . QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 2012


      . TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ___________ to _____________



Commission File Number: 000-52982


BLACKBOX SEMICONDUCTOR, INC.


Nevada

 

 

 

74-3197968

(State or other jurisdiction

 

 

 

(IRS Employer

of Incorporation)

 

 

 

Identification Number)

 

 

 

 

 

 

 

1462 Erie Boulevard

 

 

 

 

Schenectady, New York 12305

 

 

 

 

(Address of principal executive offices)

 

 

 

 

 

 

 

 

 

(518) 935-2830

 

 

 

 

Registrant’s Telephone Number)

 

 


Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the 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 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 a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

Yes      . No   X  .


The aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrationt’s most recently completed second quarter:  $370,279.  


APPLICABLE ONLY TO CORPORATE ISSUERS


There were a total of 154,245,929 common shares outstanding, $0.001 par value, as of August 1, 2012


Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

Yes      . No   X  .



1




PART I


FORWARD-LOOKING STATEMENTS


This discussion and analysis in this

Quarterly Report on Form 10-Q should be read in conjunction with the accompanying Financial Statements and related notes contained herein. This report contains forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  We do not have any material revenues or source of income as we have been focusing on developing and seeking commercial avenues for our core technologies and, without limitation, statements regarding our plans, goals, strategies, intent, beliefs or current expectations with respect to our recently acquired business, as well as our plans to wind down our existing internet-based business.  These statements are expressed in good faith and based upon what we believe are reasonable assumptions.  There can be no assurance that these expectations will be achieved or accomplished.  You can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continues" or the negative of these terms or other comparable terminology.  We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us.  


Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Form 10-K dated December 31, 2011 for the fiscal year ended December 31, 2011 and in our subsequent filings with the Securities and Exchange Commission.


THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE FORWARD LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" IN THIS “MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT. THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.


Some specific factors and statements that are forward looking statements and necessarily subject to uncertainties include, without limitation: the success of our BlackBox business or our new licensing strategy in the liquid semiconductor space, our need for money and ability to raise capital and ability to monetize consideration received in the transaction; the virtual inability of smaller issuers like us to raise capital in a small offering; items contemplating or making assumptions about the progress of our research and development activities; our ability to raise the necessary capital in order to sustain our operations; our ability to further acquire, hold and defend our intellectual property; changes in the industry and new competing technologies that arise; the development, commercialization and market acceptance of our recently acquired liquid semiconductor technologies and other related technologies; the cost to complete the development and commercialization of these technologies; and the presumed size and growth of our targeted markets, all of which constitute forward-looking statements.  


These risk factors should be considered in addition to our cautionary comments concerning forward-looking statements in this Report. Additional risks not described above, or unknown to us, may also adversely affect the Company or its results.  Readers should reference our “Risk Factors” section in our previously filed Form 10-K as stated herein.


Although forward-looking statements in this report reflect the good faith judgment of management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements.  


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 in order to reflect any event or circumstance that may arise after the date of this Report, other than as may be required by applicable law or regulation.  Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the SEC from time to time which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows.




2




Forward Split and Use of Terms


Except as otherwise indicated by the context, references in this report to (i) “Parent”  refers to the parent company itself, BlackBox Semiconductor, Inc., a Nevada corporation formerly known as Visitrade, Inc.,  (ii)   the “Company”, “we”, “us”, or “our”, refer to the combined business of  Parent, together with its wholly owned newly acquired subsidiary BlackBox Semiconductor, Inc., a Delaware corporation, (ii) “BlackBox” or “BlackBox Delaware” refers to our newly acquired business of BlackBox Semiconductor, Inc., a Delaware corporation and (iv) “Forward Split” refers to the 20 for 1 forward split of the Parent’s stock effective as of June 10, 2011, (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.


All references herein to share amounts and pricing information contained in this Report are as adjusted to give effect to the recent Forward Split unless otherwise specified.




3




TABLE OF CONTENTS


  

Page

 

 

Forward Looking Statements

2

 

 

Use of Terms

3

 

 

PART I - FINANCIAL INFORMATION

 

 

 

Item 1. - Financial Statements

5

 

 

Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011

5

 

 

Consolidated Statements of Operations and Other Comprehensive Income for the Three Months and Six Months Ended June 30, 2012 and October 28, 2010 (date of inception) through June 30, 2012 (unaudited)   

6

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and October 28, 2010 (date of inception) through June 30, 2012 (unaudited)

7

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

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

16

 

 

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

23

 

 

Item 4 - Controls and Procedures

23

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1 - Legal Proceedings

25

 

 

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

25

 

 

Item 3 - Defaults Upon Senior Securities

25

 

 

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

25

 

 

Item 5 - Other Information

25

 

 

Item 6 - Exhibits

26




4




PART I

Item 1.

Financial Statements.



BLACKBOX SEMICONDUCTOR, INC.

(A Development Stage Company)

BALANCE SHEETS

 

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

(Unaudited)

 

 

ASSETS

 

 

 

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

$

15,897

$

40,392

 

Deposits and prepaid expenses

 

1,250

 

1,250

Total Current Assets

 

17,147

 

41,642

 

 

 

 

 

 

Securities available for sale

 

42,770

 

36,400

Intangible assets, net

 

-

 

44,853

 

TOTAL ASSETS

$

59,917

$

122,895

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts payable

$

100,014

$

87,744

 

Due to related parties - related party

 

56,000

 

56,000

 

Other payables

 

190,000

 

190,000

 

Accrued interest

 

450

 

180

 

Convertible notes payable, default - related party

 

3,600

 

3,600

Total Current Liabilities

 

350,064

 

337,524

 

 

 

 

 

 

 

   TOTAL LIABILITIES

 

350,064

 

337,524

 

 

 

 

 

 

Commitments and Contingencies (See Note __)

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIENCY

 

 

 

 

 

Preferred stock, $.001 par value; 25,000,000 shares authorized;

  5,000,000 and 5,000,000 shares issued and outstanding at

  June 30, 2012 and December 31, 2011, respectively

 

 

 

 

 

 

 

 

 

 

 

5,000

 

5,000

 

Common stock, $.001 par value; 1,000,000,000 shares authorized;

  154,245,929 and 154,245,929 shares issued and outstanding

  at June 30, 2012 and December 31, 2011, respectively

 

 

 

 

 

 

 

 

 

 

 

154,246

 

154,246

 

Additional paid-in capital

 

671,136

 

671,136

 

Other comprehensive loss

 

(732,043)

 

(693,560)

 

Accumulated deficit

 

(388,486)

 

(351,451)

   Total stockholders' deficiency

 

(290,147)

 

(214,629)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY

$

59,917

$

122,895

 

 

 

 

 

 

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





5




BLACKBOX SEMICONDUCTOR, INC.

(A Development Stage Company)

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From

 

 

 

 

 

 

 

 

 

 

October 28,

 

 

 

 

 

 

2010 (date

 

 

For the three months ended

 

For the six months ended

 

of inception)

 

 

June 30,

 

June 30,

 

through

 

 

2012

 

2011

 

2012

 

2011

 

June 30, 2012

Revenue

$

-

$

-

$

-

$

-

$

-

 

 

 

 

 

 

 

 

 

 

 

Professional fees

 

9,500

 

28,875

 

21,000

 

29,175

 

92,550

General and administrative

 

8,480

 

38,925

 

15,765

 

40,194

 

134,942

Amortization

 

-

 

1,315

 

-

 

2,612

 

5,672

  Total operating expenses

 

(17,980)

 

(69,115)

 

(36,765)

 

(71,981)

 

(233,164)

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

Gain on debt settlement

 

-

 

-

 

-

 

-

 

62,500

Interest  expense

 

(405)

 

(170,693)

 

(270)

 

(170,693)

 

(217,822)

  Total other income (expense)

 

(405)

 

(170,693)

 

(270)

 

(170,693)

 

(155,322)

 

 

 

 

 

 

 

 

 

 

 

  Loss from continuing operations

 

(18,385)

 

(239,808)

 

(37,035)

 

(242,674)

 

(388,486)

Provision for income taxes

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(18,385)

$

(239,808)

$

(37,035)

$

(242,674)

$

(388,486)

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share-basic and diluted

$

(0.00)

$

(0.01)

$

(0.00)

$

(0.01)

$

(0.00)

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

154,245,929

 

44,864,064

 

154,245,929

 

35,996,297

 

104,022,755

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale fair value adjustment

 

1,820

 

(20,160)

 

6,370

 

(20,160)

 

(687,190)

Asset writedown

 

-

 

-

 

(44,853)

 

-

 

-

Comprehensive loss

$

(16,565)

$

(259,968)

$

(30,665)

$

(262,834)

$

(1,075,676)

 

 

 

 

 

 

 

 

 

 

 

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





6




BLACKBOX SEMICONDUCTOR, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From

 

 

 

 

 

 

 

October 28,

 

 

 

 

 

2010 (date of

 

 

 

For the six months ended

 

inception)

 

 

 

June 30,

 

through

 

 

 

2012

 

2011

 

June 30, 2012

NET CASH FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

 (37,035)

$

 (72,000)

$

 (388,486)

 

Adjustments to reconcile net loss to net cash  

   provided by operating activities:

 

 

 

 

 

 

 

     Gain (loss) on debt settlement

 

-

 

45,881

 

(62,500)

 

     Debt discount accretion

 

-

 

11,417

 

216,917

 

     Non-cash share based payments

 

-

 

-

 

12,250

 

     Amortization

 

-

 

-

 

5,672

 

Changes in assets and liabilities, net of effects from acquisitions

 

 

 

 

 

 

 

     Increase in deposits and prepaid expenses

 

-

 

-

 

(1,250)

 

     Increase in accounts payable and accrued expenses

 

12,540

 

29,978

 

77,946

 

     Increase in due to Shrink Nanotechnologies, Inc.

 

-

 

19,000

 

42,231

Net cash provided (used) by operating activities

 

(24,495)

 

34,276

 

(97,220)

 

 

 

 

 

 

 

 

NET CASH FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

     Cash paid for share exchange

 

-

 

-

 

(12,500)

 

     Cash purchased at acquisition

 

-

 

-

 

24,252

 

     Purchase of intangible assets

 

-

 

-

 

(50,524)

Net cash provided (used) by investing  activities

 

-

 

-

 

(38,772)

 

 

 

 

 

 

 

 

NET CASH FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

    Cash advances PPM

 

-

 

-

 

150,000

 

    Proceeds from subsidiary prior to merger

 

-

 

-

 

619

 

    Proceeds from issuance of common stock

 

-

 

-

 

1,000

Net cash provided by financing  activities

 

-

 

-

 

151,619

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

(24,495)

 

34,276

 

15,627

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

 

40,392

 

-

 

-

CASH AND CASH EQUIVALENTS - END OF PERIOD

$

15,897

$

34,276

$

15,627

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Interest expense

$

-

$

-

$

-

 

Income taxes

$

-

$

-

$

-

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Settlement of debt

$

-

$

-

$

62,500

 

Stock to be issued for conversion of debt

$

-

$

-

$

72,696

 

Stock issued for conversion of debt

$

-

$

-

$

209,397

 

Liabilities assumed through share exchange

$

-

$

-

$

423,940

 

Non-cash assets assumed through share exchange

$

-

$

-

$

729,960

 

Issuance of stock for payment of debt acquired

$

-

$

-

$

20,000

 

 

 

 

 

 

 

 

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





7




BLACKBOX SEMICONDUCTOR, INC.

Notes to the Condensed Consolidated Financial Statements

June 30, 2012

(Unaudited)


NOTE 1.  ORGANIZATION


BlackBox Semiconductor, Inc. (“the Company,” “we,” or “us”) was incorporated in the state of Delaware on October 28, 2010.  We were a wholly owned subsidiary of Shrink Nanotechnologies, Inc.  On June 3, 2011, Shrink Nanotechnologies, Inc. finalized an agreement to spin off its ownership of the Company.  


NOTE 2.  CHANGE IN STRATEGY


We have deployed capital resources to study the Intellectual Property landscape relating to the use and application of nanoscale liquid semiconductor technology.  Based on this research we have determined that our best path forward is to pursue an aggressive licensing strategy regarding the use of alternative chemistries and applications relating to the preparation and use of liquid nanoscale semiconductor technology. Pursuant to this strategy, we no longer plan to build research facilities and manufacture a product. Instead we plan to exploit our knowledge of the IP space relating to this technology to identify and patent new applications and chemistries relating to general liquid and printable semiconductor technology. Furthermore we plan to rapidly scale the size of our patent portfolio in order to facilitate licenses to interested parties in the semiconductor space.  We have identified methods and partners that will significantly accelerate this process at modest costs. We currently do not have adequate capital to meet our continuing requirements of the University Chicago License and hence we have been given notice that our license has been terminated. However based on our study of the intellectual property landscape we believe that the company would be better served applying its resources to the development of new intellectual property in the general area of liquid semiconductor technology.

 

We have recently begun to follow through on this strategy in filing our first application based provisional patent relating to the use of semiconductor chemistry to address applications in the display and LED space. We have also identified several other application areas in which we plan to aggressively file provisional patents. 


NOTE 3.  GOING CONCERN


The accompanying financial statements have been prepared assuming the Company will continue as a going concern. Because of the recurring operating losses, no revenues 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 technology and business 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 current operations during the near term. The Company believes that the issuance of equity and debt will be needed 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.


NOTE 4.  SIGNIFICANT ACCOUNTING POLICIES


Development Stage Enterprise


The Company is a development stage company as defined by the Financial Accounting Standards Board (the “FASB”).  The Company is devoting substantially all of its present efforts to establish a new business, and its planned principal operations have not yet commenced. All losses accumulated since inceptions have been considered as part of the Company’s development stage activities.




8




BLACKBOX SEMICONDUCTOR, INC.

Notes to the Condensed Consolidated Financial Statements

June 30, 2012

(Unaudited)


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.


Cash and Cash Equivalents


Cash equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition.


Concentration of Credit Risk


A financial instrument which potentially subjects the Company to concentrations of credit risk is cash.  The Company places its cash with financial institutions deemed by management to be of high credit quality.  The Federal Deposit Insurance Corporation (“FDIC”) provides basic deposit coverage with limits to $250,000 per owner.  In addition to the basic insurance deposit coverage, the FDIC is providing temporary unlimited coverage for noninterest-bearing transaction accounts from December 31, 2010 to December 31, 2012.  At June 30, 2012, there were no uninsured deposits.


Securities Available for Sales and Other Comprehensive Income


Our accounting policy is to book all restricted and publicly tradable securities under Securities Available for Sale and, as such, are carried at fair value based on quoted market prices.  The Company owns restricted common stock representing approximately a 5.8% interest in Shrink Nanotechnologies, Inc., its former parent and a publicly traded company.   These shares are valued at their quoted market price.  Unrealized holding gains and losses for securities available for sale are excluded from earnings and reported as a separate component of stockholder’s equity as other comprehensive income, until the securities are disposed of. Upon disposal, the changes accumulated in other comprehensive income are to be recognized in income.  Under this method, the Company’s share of the earnings or losses of the investments are not included in the Consolidated Balance Sheet or Statement of Operations.


The balance of $40,950 in securities available for sale on the Balance Sheet reflects a $4,550 mark to market increase adjustment in relation to the December 31, 2011 balance of $36,400.


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.




9




BLACKBOX SEMICONDUCTOR, INC.

Notes to the Condensed Consolidated Financial Statements

June 30, 2012

(Unaudited)


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. Common stock equivalents resulting from the issuance of 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.


Accounts Payable


Accounts payable consisted of the following at:


 

 

June 30,

 

December 31,

 

 

2012

 

2011

Accounts payable

$

100,014

$

87,744

Accrued payroll

 

-

 

-

Total

$

100,014

$

93,744


Concentration of Risk


A financial instrument which potentially subjects the Company to concentrations of credit risk is cash.  The Company places its cash with financial institutions deemed by management to be of high credit quality.


NOTE 5.  RECENT ACCOUNTING PRONOUNCEMENTS


In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  The update contains the results of the work of the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this update are effective for periods beginning after December 15, 2011 and as a result are not yet applicable to the Company. The Company is evaluating the impact of the update on its consolidated financial statements.


NOTE 6.   REVERSE ACQUISITION, PRINCIPLES OF CONSOLIDATION – RELATED PARTY


On June 3, 2011, the Company entered into and completed a reverse acquisition following a share exchange agreement (the “Share Exchange”) in which BlackBox Semiconductor, Inc., a Nevada corporation (the accounting acquiree, “BlackBox Parent”) acquired 100% ownership of BlackBox Semiconductor Inc., a Delaware corporation (the accounting acquirer, “BlackBox Subsidiary”) and 14,000,000 shares of the of restricted common stock of Shrink Nanotechnologies, Inc. at a fair value of $729,960, which included a Discount Factor of 35% taken from the quoted market price at the effective date.  In exchange, BlackBox Parent issued to Shrink Nanotechnologies, Inc. 27,030,000 shares of common stock representing approximately 19.9% ownership in the Company and $75,000 to be paid by December 31, 2011.


In October, the Company agreed to settle the payable of $75,000 due in December 2011 to Shrink Nanotechnologies, Inc. as related to the Share Exchange for immediate payment of $12,500.  This amount was paid on October 25, 2011, and there are no other amounts are due as related to this agreement and the Company recorded a gain of $62,500 related to debt settlement.  




10




BLACKBOX SEMICONDUCTOR, INC.

Notes to the Condensed Consolidated Financial Statements

June 30, 2012

(Unaudited)


The Share Exchange was an interested party transaction as, both the Company and Shrink Nanotechnologies, Inc. are and were indirectly controlled by and affiliated with, Mark L. Baum, a former president and CEO and control person of both companies (“Baum”) and James B. Panther, II, a former director and control person of both companies (“Panther”).  These are the same principals that control Shrink Nanotechnologies, Inc.  Luis Leung, our current CEO and Director, is also a director for Shrink Nanotechnologies, Inc.  Given the percentage of ownership of Shrink Nanotechnologies, Inc. and our operating plan to liquidate the shares to raise additional funds, the investment should be accounted for as Available for sale.  


The Company did not record a gain or loss related to the Share Exchange.  This transaction was accounted for as a reverse acquisition. As a result, all financial information prior to June 3, 2011 is that of BlackBox Subsidiary.  Following the merger, a reverse merger adjustment was made to reflect BlackBox Parent’s capital structure.  All of the assets and liabilities acquired in the reverse acquisition were recorded at cost.


The consolidated balance sheets include the accounts of BlackBox Subsidiary and its wholly owned subsidiary, BlackBox Parent thereby reflecting the transactions related to the June 3, 2011 effective date of the Share Exchange. The consolidated statements of operations include the operations (which consisted mostly of research and development) of the predecessor entity, BlackBox Subsidiary from inception on October 28, 2010  and the Company from June 3, 2011, the effective date of the acquisition of the BlackBox Parent business.  All significant intercompany accounts and transactions have been eliminated in consolidation.


The following is a condensed balance sheet disclosing the fair values of the BlackBox Business assets and liabilities acquired.


Total assets

$

70,077

Total liabilities

$

343,658

Total stockholders’ equity

 

(273,581)

Total liabilities and stockholders’ deficit

$

70,077



 

 

For the year ended

 

For the year ended

 

 

December 31, 2011

 

December 31, 2010

 

 

 

 

 

Net Loss

$

(336,665)

$

(153,508)

Earnings per share

$

(0.00)

$

(0.00)



NOTE 7.   INTANGIBLE ASSET WRITEDOWN


The Company entered into an exclusive agreement with the University of Chicago on November 30, 2010 wherein the Company licensed the exclusive, worldwide right to use and sublicense Chicago’s patent-pending Materials and Methods for the Preparation of Nanocomposites and future patent applications filed by the University of Chicago based on certain other patentable technologies described in the Chicago License.  This intangible asset had a book value of $ 44,853 as of December 31, 2011.  The Company does not have adequate capital to meet continuing requirements of the University Chicago License and hence we have been given notice that our license has been terminated. However based on our study of the intellectual property landscape we believe that the company would be better served applying its resources to the development of new intellectual property in the general area of liquid semiconductor technology. As a result, the Company wrote down the full book value of this intangible asset.




11




BLACKBOX SEMICONDUCTOR, INC.

Notes to the Condensed Consolidated Financial Statements

June 30, 2012

(Unaudited)


NOTE 8.      DUE TO RELATED PARTY


BlackBox Parent previously subleased space from Business Consulting Group Unlimited, Inc. (“BCGU”), an entity co-owned by Baum and Panther 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 $2,000 per month.  The lease term with BCGU expired October 1, 2009, and continued based on a month to month term thereafter.  This agreement was terminated on January 31, 2011.


At June 30, 2012, there was $56,000 owed to BCGU, and no payments have been made to the BCGU.


NOTE 9.

OTHER PAYABLES – RELATED PARTY


In anticipation of the closing of the Share Exchange, BlackBox Parent began capital raising efforts to meet the $75,000 cash obligation due at closing and other capital funding needs.  At the date of the Share Exchange, BlackBox Parent had raised $40,000 and following the Share Exchange the Company raised an additional $150,000 in exchange for a bridge promissory note and/or future share issuances of which the terms have not been finalized.  


The Company received the cash advances from entities  that are indirectly controlled by and affiliated with, Mark L. Baum, a former president and CEO and control person of both companies (“Baum”) and James B. Panther, a former director and control person of both companies (“Panther”).  These are the same principals that control Shrink Nanotechnologies, Inc.  Baum and Panther are also members of the Noctua Fund Manager, LLC.  Noctua Fund Manager, LLC is also a controlling shareholder.  


NOTE 10.

CONVERTIBLE NOTES, WARRANTS, COMMITMENTS – RELATED PARTY TRANSACTIONS


We recognize the advantageous value of conversion rights attached to convertible debt. Such rights give the debt holder the ability to convert his 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 over the remaining outstanding period of related debt using the interest method.


A.  Convertible Note Payable– Related Party Transactions – Partial Conversion


On April 1, 2010 BlackBox Parent issued a 5% convertible note with a principal amount of $36,168 to Noctua Fund Manager, LLC.  The note matured on October 1, 2010.  The note was issued in exchange for cash advances totaling $36,618.  The note held a conversion option, whereby the principal and interest on the note was convertible into shares of our common stock at the conversion price of $.027 (the market price of our stock at the issuance of the note) per share if both: (i) the Company’s authorized common stock has been increased to not less than 1,000,000,000 shares and (ii) the Principal Amount and all interest and penalties accrued have not been paid in full.  On January 31, 2011, the Company and Noctua Fund Manager, LLC agreed to amend certain terms found in its 5% Convertible Note agreement. All the previous terms remained unchanged with the exception of the following: the Note became convertible into common stock at a conversion rate of $.00045, the conversion provisions with respect to our authorized share amount and payments were eliminated, the Note’s default provision was cured, the principal amount of the Note was increased to $45,881 to reflect previous accrued interest and in exchange for $7,000 in  cash advances owed to Noctua Fund Manager, LLC, and a new maturity date of June 30, 2011.  




12




BLACKBOX SEMICONDUCTOR, INC.

Notes to the Condensed Consolidated Financial Statements

June 30, 2012

(Unaudited)


BlackBox Parent evaluated these modifications to the Note and they have been considered significant in particular the terms of an embedded conversion option.  The change in fair value of the embedded conversion option is over the 10 percent of the carrying amount of the original debt instrument immediately before the modification. As result on January 31, 2011, prior to the merger, the Company applied debt extinguishment accounting to record a loss on extinguishment of debt of $45,881. This was recorded as an increase in additional paid in capital and expensed at the time of the note modification.  


On March 21, 2011, BlackBox Parent issued 80,000,000 shares of common stock to Noctua Fund Manager, LLC, as conversion of $36,000 of principal balance and accrued interest of this convertible note.  On August 30, 2011 the Company received conversion demands for the $6,602 principal balance and accrued interest of $226, the total common share equivalent is 15,173,156.  


Baum and Panther are members of the Noctua Fund Manager, LLC.  Noctua Fund Manager, LLC is also a controlling shareholder.  The foregoing notes and shares have been transferred to a third party as discussed below and are no longer controlled by said persons.


B.  Convertible Note Payable, Warrants – Related Party Transactions – Converted


BlackBox Parent obtained certain administrative, bookkeeping and management services from Noctua Fund Manager, LLC for a fee of $10,000 per month.  On January 31, 2011, BlackBox Parent terminated this operating agreement with Noctua Fund Manager, LLC.  On March 15, 2011, the Company issued a $274,000 principal balance convertible note to Noctua Fund Manager, LLC, in exchange for all outstanding debt related to these fees totaling $274,000.  The note accrues interest at 2% and matures on March 14, 2012.  The note can convert into common stock at a conversion rate of $0.017 per share.  Noctua Fund Manager, LLC also received 3,000,000 detachable, callable common stock purchase warrants, exercisable at $.075 a share, these warrants have a maturity date of March 15, 2014. The warrants are exercisable in cash at any time, and, shall be exercisable via cashless exercise commencing nine months after the issuance date.


The warrants are valued at $274,000 and were recorded as discount on the issuance.  The discount is being accreted over the 12 month life of the note.  The warrants were valued using a Black-Scholes valuation model.  The variables used in this option-pricing model included: (1) discount rates of 1.08% (2) expected warrant life was 3 years, (3) expected volatility of 300% and (4) zero expected dividends.


On June 15, 2011, the Company issued 12,227,560 shares of common stock to Noctua Fund Manager, LLC, as conversion of $209,397 of principal balance and accrued interest of this convertible note.  As a result of the early conversion request and subsequent decrease in the principal balance of the note, the discount accretion was accelerated and the Company recognized an expense of $147,654 at the date of share issuance.  On August 30, 2011, the Company received conversion demands for the balance due and accrued interest of $375, the total common share equivalent is 3,849,453, at that time the Company recorded the remaining discount accretion of $41,270.  




13




BLACKBOX SEMICONDUCTOR, INC.

Notes to the Condensed Consolidated Financial Statements

June 30, 2012

(Unaudited)


The following summarizes stock purchase warrants at June 30, 2012:


 

 

 

Weighted Average

 

Amount

 

Exercise Price

Outstanding December 31, 2009

-

$

-

Expired/Retired

-

 

-

Exercised

-

 

-

Issued

-

 

-

Outstanding December 31, 2010

-

$

-

Expired/Retired

-

 

-

Exercised

-

 

-

Issued

3,000,000

 

0.075

Outstanding December 31, 2011

3,000,000

$

0.075

Expired/Retired

-

 

-

Exercised

-

 

-

Issued

-

 

-

Outstanding June 30, 2012

3,000,000

$

0.075


As of March 31, 2012, the Company had a note payable due to a related party with a remaining principal balance due of $3,600, this note is currently in default due to non-payment is classified as current liabilities on the balance sheet.


NOTE 11.    LEASES


On January 5, 2011, BlackBox Parent entered into a sublease agreement with a third party.  And pursuant to the Share Exchange the Company acquired this lease agreement and leases approximately 64 square foot executive office space at a rate of $96 per month, which includes additional variable charges for telephone and internet usage.  The lease term expires on January 5, 2012 and shall create a month to month tenancy thereafter.


The Company’s rent expense for the six months ended June 30, 2012 and 2011 was $1105 and $0, respectively.


NOTE 12.    COMMON STOCK


All share amounts have been restated to reflect a 1 for 270 reverse stock split affected on January 15, 2011 and, the subsequent 20 for 1 Forward Split, effected on June 13, 2011.


Pursuant to the reverse merger the Company issued 27,030,000 shares of common stock to Shrink Nanotechnologies, Inc. Reverse merger accounting requires these shares to be shown retroactively as though a stock split had occurred.  Therefore this issuance adjusted the initial issuance to the founders at inception.


Pursuant to this same reverse acquisition, the statement of stockholders equity is then adjusted to reflect the shareholders of the public entity (89,415,760 common shares) while establishing the equity of the parent Company.  The retained deficit of the parent Company is removed and reorganized to reflect only the history of the subsidiary.  


In June 2011, the Company issued 12,227,560 shares of common stock to Noctua Fund Manager, LLC, as conversion of $209,397 of principal balance and accrued interest of a convertible note.




14




BLACKBOX SEMICONDUCTOR, INC.

Notes to the Condensed Consolidated Financial Statements

June 30, 2012

(Unaudited)


In June 2011, the Company issued 6,750,000 shares of common stock to Dan Landry, in exchange for $20,000 of cash paid to the Company prior to the Share Exchange and as founder shares in the new operations of BlackBox Semiconductor, Inc., a Delaware corporation.


In June 2011, the Company issued 250,000 shares of common stock valued at $12,250 to Ford Sinclair, our president and a member of our board of directors, as payment for services rendered.  


In August 2011, the Company received conversion notices related to convertible debt with principal balances totaling $72,148 and accrued interest of $601. The common share equivalent for the conversion demands is equal to 19,022,609 common shares.  The shares were issued in October 2011.  


At June 30, 2012, 154,245,929 shares of common stock were issued and outstanding.


NOTE 13.   PREFERRED STOCK


Pursuant to the reverse acquisition, the statement of stockholders equity is adjusted to reflect the preferred shareholders of the public entity (5,000,000 preferred shares) while establishing the equity of the parent Company.  The retained deficit of the parent Company is removed and reorganized to reflect only the history of the subsidiary.  


At June 30, 2012, the Company was authorized to issue 25,000,000 shares of Preferred Stock, par value $0.001, of which 5,000,000 shares have been issued and are currently outstanding.


The Series A Preferred shares are non-convertible and maintain a 250 for one voting preference such that a holder of the Series A Preferred shall be entitled to vote 250 shares for every one share of Series A Preferred held by such shareholder.




15




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


This discussion and analysis in this Quarterly Report on Form 10-Q (the “Report” or “Quarterly Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.  The Report should be read in conjunction with the accompanying Financial Statements and related notes and the Risk Factors contained herein as well as business section. You can reference additional specific risks relating to the Company and disclosure set forth in this report as provided in the “Forward Looking Statements” section in the forepart to this Report and in the “Risk Factors” section in our Annual Report on Form 10-K as supplemented in this Report.


OVERVIEW AND PLAN OF OPERATION


On June 3, 2011 (the “Closing Date”), we completed the closing of its acquisition of BlackBox Semiconductor, Inc., a Delaware corporation (“BlackBox” or sometimes “BlackBox Subsidiary” or “BlackBox Delaware”) from Shrink (Symbol “INKN”) (“Shrink” or the “Seller”), pursuant to a Share Exchange Agreement  (the “Share Exchange”)  with Shrink (the “BlackBox Acquisition”).  Prior to such time we were a retailer of aftermarket Triumph motorcycle parts and accessories.  We no longer operate in this segment and do not have material liabilities relating to it.  As a result of the BlackBox Acquisition, we succeeded to the Business of BlackBox on June 3, 2011. Shrink was an entity affiliated with the Company prior to the BlackBox Acquisition as well as currently.


Terms of the BlackBox Share Exchange


As consideration for the acquisition of BlackBox, we (i) originally agreed to pay $75,000 in cash within 60 days of the Closing Date, which payment due date was subsequently extended to December 31, 2011, and (ii) issued an aggregate of 27,030,000 shares of our common stock, par value $0.001 per share to Shrink (the “Exchange Shares”), or, approximately 19% of our outstanding stock as of the date immediately after the Closing Date.  In exchange therefore, we received (i) all of the shares of BlackBox resulting in BlackBox becoming our wholly owned subsidiary, and (ii) 14,000,000 shares of the common stock, par value $0.001 per share, of Shrink (the “Shrink Consideration Shares”).  The $75,000 payment due in December has since been reduced to $12,500 and paid in full and discharged in October 2011.  As a result of the completion of the BlackBox Acquisition, the assets, operations and business of BlackBox has become our primary and only material business, operations and assets.    


Related Parties


At the time of the Shrink Acquisition, Shrink and the Company were both controlled by James B Panther, II and Mark L. Baum, by virtue of their ownership and control of Noctua Fund Manager, LLC and the Noctua Fund, LP (NFM).  Accordingly, as a result of the inherent conflicts of interest, the BlackBox Acquisition was approved by independent and disinterested directors of Shrink and of the Company.  Subsequently, in April of 2012, all of the interests held by NFM and Noctua Fund were assigned to an entity controlled by James B Panther, II.  Subsequently, in late April 2012,all equity interests in Shrink and the Company  were transferred by Mr. Panther to Rum Punch Partners, Ltd., a Texas limited liability company which is owned by Mango Bay Partners, LLC (MB Partners), which is in turn controlled by an investor group managed by Manuel Suqilindo.  Mr. Panther then assigned all debt instruments, including the 2010 Secured Note and Unsecured Note, to a separate purchaser, Alpha Finanze, Ltd.  Based on information provided to the Company by such persons, Alpha Finanze, Ltd. and Manuel Suqilinda are unaffiliated with Messers Panther or Baum.  


The Company intends to wind down or liquidate its current operations as an online retailer of aftermarket Triumph motorcycle parts and accessories.   The Company does not have any material liabilities from this business segment.


Accounting Treatment


As a result of our BlackBox Acquisition, we have succeeded to the business and technology development operations of BlackBox, which now constitute our primary asset and operations.  Accordingly, BlackBox is deemed the financial acquirer for accounting related purposes, and in this Management Discussion and Analysis of Financial Condition and Results of Operations, are those of BlackBox, unless the context requires otherwise. At this time, we were in the process of disposing of our Sportbike-customs.com related business.


Description of Business


BlackBox was formed in Delaware on October 28, 2010 by Shrink for the purposes of acquiring and holding certain licenses, specifically, those related to the University of Chicago.  We acquired BlackBox under the BlackBox Acquisition effective as of June 3, 2011.


Our primary asset and business immediately after the BlackBox Acquisition is BlackBox and its intellectual property and licenses.  



16




Change in Business Strategy in April 2012


We have been deploying capital resources to study the Intellectual Property landscape relating to the use and application of nanoscale liquid semiconductor technology.  Based on this research we have determined that our best path forward, given our limited capital, is to pursue an aggressive licensing strategy regarding the use of alternative chemistries and applications relating to the preparation and use of liquid nanoscale semiconductor technology. Pursuant to this strategy, we no longer plan to build research facilities and manufacture a product. Instead we plan to exploit our knowledge of the IP space relating to this technology to identify and patent new applications and chemistries relating to general liquid and printable semiconductor technology. Furthermore we plan to rapidly scale the size of our patent portfolio in order to facilitate licenses to interested parties in the semiconductor space.  We have identified methods and partners that will significantly accelerate this process at modest costs. We currently do not have adequate capital to meet our continuing requirements of the University Chicago License and hence we have been given notice that our license has been terminated. However based on our study of the intellectual property landscape we believe that the company would be better served applying its resources to the development of new intellectual property in the general area of liquid semiconductor technology.

 

We have recently begun to follow through on this strategy in filing our first application based provisional patent relating to the use of semiconductor chemistry to address applications in the display and LED space. We have also identified several other application areas in which we plan to aggressively file provisional patents. 


Liquidity and Debt Restructurings in 2011


Settlement of Outstanding Debt Owed to Noctua Fund Manager; Issuance of Unsecured Note


As of  March 15, 2011, the Company entered into a Letter Agreement with Noctua Fund Manager, LLC, (“NFM”) a creditor and affiliate of a principal shareholder of the Company and of Shrink at the time of the transaction, (the “NFM Letter Agreement”), pursuant to which the Company issued to NFM an unsecured convertible note in the principal amount of $274,000 and accruing interest at 2% per year, in order to settle and accrue $274,000 (the “Unsecured Note”). The Unsecured Note reflected amounts owed to NFM for past due account payables owed to NFM in connection with operational expenses, including working capital, and administrative services rendered. This 2% $274,000 note was, on April 5, 2012, assigned to an entity controlled by Mr. James B. Panther, II, and, subsequently sold for value to Alpha Firenze, Ltd., a German company.    The Unsecured  Note became due March 14, 2012, accrues interest at 2% per year with a default rate of 3%, and principal and interest on the Unsecured Note is convertible at a fixed price of $0.017125  per share into 16,000,000 shares as of the effective date.  The Unsecured Note automatically converts by its terms in the event and to the extent that the note is assigned to anyone absent consent of the Company.  In October 2011, the Company issued 16,000,000 common shares upon conversion of the Unsecured Note (which, at that time was owned by NFM) and also issued 77,013 shares in exchange for $1,319 of interest thereon. The foregoing Unsecured Note, the 2010 Secured Note (see below) were assigned to Mr. Panther, II, and subsequently sold to Alpha Firenze, LLC (the “AF Fund”) in April of 2012, an entity controlled by a third party.


There no amounts due under this agreement since December of 2011.


Modification of Existing 2010 Secured Note


Effective as of January 31, 2011, the Company entered into a Loan Modification Letter (the “Loan Modification”) with NFM.  Pursuant to the Loan Modification, the Company amended and replaced the previously existing 5% Secured Convertible Promissory Note Series 04012010-A1 (the “Original Secured Note”) issued to NFM on April 1, 2010, in the principal amount of $38,168.38, with a new note, in the principal amount of $45,881.00 due on March 31, 2011 (as amended.    This amended secured note was subsequently assigned to an entity of James B Panther, II  in April of 2012 (the “2010 Secured Note”) which subsequently assigned it to the AF Fund.  The Loan Modification reflects additional principal and certain other accommodations of the note holder so as to reflect, specifically:

 

·

an additional $7,000 loan disbursement made on January 11, 2011 and interest since April 1, 2010 as capitalized onto principal on the 2010 Secured Note,

·

an extended due date of March 31, 2011 for the entire amount due under the  2010 Secured  Note, and

·

a fixed conversion price of $0.00045 per share for all outstanding principal and interest, which price only adjusts for corporate events such as stock splits, combinations or similar events.




17




As of the issuance date, the 2010 Secured Note was convertible into 101,957,760 shares of the Company’s Common Stock. No other material changes have been made to the 2010 Secured Note.  On March 22, 2011, and as part of an agreement to reduce the Company’s debt, $36,000 of principal and interest under the 2010 Secured Note (then owned by NFM), into 80,000,000 shares of the Company’s restricted common stock, and in October, the Company issued 15,173,156 common shares for payment of principal balance totaling $6,602 and accrued interest of $226,  leaving approximately $3,780 of principal and interest outstanding as of December 31, 2011 which are convertible into 8,400,000 shares.


Certificate of Designation – Series A Preferred Stock


As previously disclosed, the Company issued 5,000,000 shares of preferred stock for consideration on July 6, 2007.   The Series A Preferred Stock does not have specific liquidation or mandatory dividend rights, but does grant the holder thereof voting rights, to vote together with common stock holders as a single class, on a 250 for one basis with the common stock (i.e. each share of Series A Preferred Stock gets 250 votes for each share of common stock outstanding and voting in such action), granting the Series A Preferred Stock holder effective control of the Company.  In addition, the Series A Preferred Stock contains protective provisions that require affirmative consent of all of the Series A Preferred Stock holders for any action to:


·

Amend, alter or repeal any provision of the Articles of Incorporation or bylaws in a manner that adversely affects the powers of the Series A Preferred Stock,

·

Declare or pay any dividend or make any distributions to stockholders or to acquire for value, any common stock or other equity securities of the Company, 

·

Create or authorize or obligate itself to issue shares of any class of capital stock unless it ranks junior to the Series A Preferred Stock with respect to dividends, distribution of assets on liquidation, or accrual of payment of dividends and redemption rights etc.,

·

Reclassify, alter or amend any existing security of the Company that is pari pasu with the Series A Preferred Stock in respect of distributions and liquidations that would make such other class senior to the Series A Preferred Stock, or reclassify any junior securities to become on parity with the series A Preferred Stock,

·

The making of dividends or redemptions of securities of the Company,

·

Create or authorize or issue debt security (or permit a subsidiary to take such action) which would result in aggregate indebtedness of the Company after such debt issuance to exceed $500,000 other than equipment leases or bank warehouse lines of credit without approval of the Board of Directors (but the Company can issue up to $3,000,000 of non-equity linked non-convertible debt),

·

Create or hold capital stock in any subsidiary that is not wholly owned by the Company or dispose of any capital stock of a subsidiary,

·

Initiate any action to abrogate or diminish the rights of the Series A Preferred Stock.

·

All Series A Preferred stock has been assigned by NFM to RP Partners, which is controlled by MB Management and Manuel Suquilanda.


Consulting Agreement With David Duncan


Effective as of February 15, 2011, the Company entered into a Consulting Agreement with David Duncan (the “Duncan Consulting Agreement”).  The Duncan Consulting Agreement retained Mr. David Duncan as a consultant through May 19, 2011, with compensation of $6,000 for the first month ended March 17, 2011, and $13,000 for each month ended April 17 and May 18, 2011, respectively.  Between May 2011 and his resignation on November 19, 2011, Mr. Duncan was compensated in accordance with a modification to his compensation agreement and paid $60,000.  The amount of $45,720 allegedly owed to Mr. Duncan is in dispute.


Change in Management


On April 4, 2011, Mr. Ford Sinclair resigned from his position as Chief Executive Officer of the Company. Mr. Sinclair’s resignation was not because of any disagreement with the Company relating to the Company’s operations, policies or practices.  Mr. Sinclair remained as a Director of the Company.


Immediately following his resignation, on April 4, 2011 the Company’s Board of Directors appointed Mr. David Duncan as the Company’s Chief Executive Officer and Secretary. Mr. Duncan is an operational officer with business and new market development, operations, and finance for a variety of companies.  Mr. Duncan is party to a month to month consulting agreement with the Company (See “Management” section and biographies below).  




18




In addition, in April of 2012, all of the debt and equity securities of NFM and Noctua Fund of both the Company and of Shrink, were assigned by NFM, an entity jointly controlled by Messers Baum and Panther, to Devcom, LLC, an entity controlled by James B. Panther, II, and subsequently, all equity interests (i.e. all Series A Preferred Stock and equity) were assigned to RP Partners, which is managed by an entity exclusively owned and controlled by Manuel Suquilanda. Based on information provided to the Company by such persons, Mr. Suquilanda and RP Partners are not affiliated with James B Panther, II or with the AF Fund, which holds certain convertible debt of the Company.


Critical Accounting Policies and Estimates


Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of our 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 licensing rights and patents. We are currently amortizing certain intangible assets using the straight line method based on an estimated legal life, of eight years.  We (our BlackBox subsidiary prior to the BlackBox Acquisition) began amortization of the electric glue related intangibles in December 2010 since the license agreement finalized and patent filings were first being filed.  The Company will re-evaluate its amortization practice once products related to these patents 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. 

 

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 may grant stock options, restricted stock units and restricted stock to directors and consultants.


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.


As part of the process of preparing our 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.


Results of Operations


Three months ended June 30, 2012 compared to the three months June 30, 2011


Revenue


The Company, including its subsidiaries, has not had any revenues during the three months ended March 31, 2012 or 2011, as it is a development stage company.



19




Operating Expenses


BlackBox had total operating expenses of $17,980 for the three months ended June 30, 2012 as compared to $69,115 from the same period in 2011.  


General and Administrative Expenses.


Our general and administration expenses decreased to $8,480 for the three months ended June 30, 2012 as compared to $38,925 for the same period in 2011.   This decrease was mainly due to the Company decreasing its expenses in conjunction with its decreased activities.


Professional Fees.  Professional fees are generally related to public company reporting and governance expenses as well as costs related to our acquisition.  Our costs for professional fees decreased to $9,500 for the three months ended June 30, 2012, as compared to $28,875 for the same period in 2011.  The change was due to an increase in legal costs and accounting fees.


Interest Expense. Interest expense decreased to $135 for the three months ended June 30, 2012 as compared to $170,693 for the same period in 2011.    


Net Loss


For the three months ended June 30, 2012, we had a net loss of $18,115, as compared to $239,808 for the same period in 2011. Management attributes the decrease in net loss due to a decrease in operational and research activities.


Six months ended June 30, 2012 compared to the six months June 30, 2011


Revenue


The Company, including its subsidiaries, has not had any revenues during the six months ended June 30, 2012, as it is a development stage company.


Operating Expenses


BlackBox had total operating expenses of $36,765 for the six months ended June 30, 2012 as compared to $71,981 from the same period in 2011.  


General and Administrative Expenses


Our general and administration expenses decreased to $15,765 for the six months ended June 30, 2012 as compared to $40,194 for the same period in 2011.   This decrease was mainly due to the Company decreasing its expenses in conjunction with its decreased activities.


Professional Fees.  Professional fees are generally related to public company reporting and governance expenses as well as costs related to our acquisition.  Our costs for professional fees increased to $21,000 for the six months ended June 30, 2012, as compared to $29,175 for the same period in 2011.  The change was due to an increase in legal costs and accounting fees.


Interest Expense. Interest expense decreased to $270 for the six months ended June 30, 2012 as compared to $170,693 for the same period in 2011.    


Net Loss


For the six months ended June 30, 2012, we had a net loss of $37,035 as compared to $242,674 for the same period in 2011. Management attributes the decrease in net loss due to a decrease in operational and research activities.


We anticipate continued losses relating to investment into our development activities relating to BlackBox, and to our capital raising activities.  We intend to fund our technology development activities, through potential government grants, partnerships and arrangements with universities and equity and debt financings.




20




We expect operating expenses to continue as we invest further in business development activities and invest into research and development of our core technologies.  We do not have capital commitments yet to cover any of our operating expenses and to date.  To date, our capital needs for BlackBox have been funded by our principals, 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.   


Plans for Preexisting Operations, Sportbike-customs.com


Prior to our acquisition of BlackBox Delaware, our business was based exclusively on the development of our website, www.sportbike-customs.com.  Through the website, our proposed business operations were composed initially of online retail sales of aftermarket Triumph parts and accessories. The website would provide Triumph consumers a more convenient and cost effective way to purchase Triumph parts and accessories.  


Management is in the process of winding down this aspect of our business.  Any revenues, expenses, and remaining assets or liabilities of the sportbike-customs.com business presented in our financial statements, currently, will be disclosed as discontinued operations.


With BlackBox Delaware as the surviving accounting acquirer, a comparison for our pre-BlackBox Acquisition business operations with those of BlackBox Delaware would not necessarily be appropriate or meaningful in this Report.  Moreover, as BlackBox Delaware on its own has limited operations or history, there is little historic information upon which shareholders may assess our business prospects.


Liquidity and Capital Resources


Our cash on hand at June 30, 2012 was $15,897.  We have historically met our cash needs through financing. Our cash requirements are generally for selling, general and administrative activities. We believe that our cash balance is not sufficient to finance our cash requirements for expected operational activities (see “Need for Additional Capital” below).


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


Operating Activities  


Net cash used in operating activities was $24,495 for the six months ended June 30, 2012, as compared to $34,276 provided in operating activities during the same period in 2011. The change in net cash used in operating activities was mainly due to legal and accounting expenses.


Investing Activities


Net cash provided in investing activities for the six months ended June 30, 2012 and the same period in 2011 was $0.


Financing Activities


Net cash provided by financing activities for the six months ended June 30, 2012 and the same period in 2011 was $0.  Management will look toward raising further capital through financing activities during the fiscal year ended 2012.  


The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  Because of the Company has not yet generated revenues and the excess of current liabilities over current assets at the period ended, there is substantial doubt about the Company’s ability to continue as a going concern.  The Company’s continuation as a going concern is dependent on obtaining additional outside financing.  The Company has funded losses from operations primarily from the issuance of debt.  The Company believes that the issuance of debt will continue to fund operating losses in the short-term until the Company can generate revenues sufficient to fund its operations.


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.




21




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.   We will continue to seek to fund our capital requirements over the next 12 to 24 months from the additional sale of our securities and possibly through the sale of Shrink stock; however, it is possible that we will be unable to obtain sufficient additional capital through the sale of our and Shrink’s securities as needed.  


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 need at least $2,000,000 in capital over the next eighteen months to further develop and commercialize our technologies and that substantial additional costs will be incurred in order to commercialize its BlackBox 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.


Properties


The Company currently leases 64 Sq. Ft. of office space at 1462 Erie Boulevard, Schenectady, New York, 12305.  The lease for this space is $95.50 per month plus telecommunications costs and certain office expenses and terminates on January 4, 2012, at which time it turns to month to month lease.  The Company’s phone number is (518) 935-2830.   


Need for Additional Financing


The Company does not have capital to continue operations as a going concern and, has been dependant to date upon funding provided by NFM or its affiliated entities. Additional funding will be required in order for the company to survive as a going concern and to finance growth and to achieve our strategic objectives. Management is actively pursuing additional sources of funding. If we do not raise sufficient funds in the future, we may not be able to fund expansion, take advantage of future opportunities, meet our existing debt obligations or respond to unanticipated requirements. Financing transactions in the future may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms.


The market for private equity finance in public companies, who need small capital raises is extremely limited, and, the Company does not currently have any commitments for capital raising.


We intend to retain any 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.


Going Concern


The accompanying financial statements have been prepared assuming we will continue as a going concern.  We have had substantial operating losses for the past years and are dependent upon outside financing to continue operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management’s plan to raise necessary funds from shareholders to satisfy the expense requirements of the Company.


Off Balance Sheet Financings


The Company does not have any off balance sheet arrangements or financings.


Employees


We currently do not have any full time employees.   Mr. Duncan was our sole salaried consultant, other than professional service providers.  We intend to hire full time employees and additional independent contract labor on an as needed basis.




22




Item  3.   Quantitative and qualitative disclosures about market risk.


Not applicable.


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, 2011.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2011, 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.


Management’s Annual Report on Internal Control Over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) 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 disclosure controls 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 has not assessed the effectiveness of our internal control over financial reporting as of December 31, 2011 as 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. Due to the December 2011 change in management, as well as other factors, it is assumed that our internal controls over financial reporting are not effective at the reasonable assurance level based on those criteria, due to the following weakness described below.




23




Insufficient segregation of duties in our finance and accounting functions due to limited personnel.  During the year ended December 31, 2011, the company internally performed all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements.  Due to the fact these duties were performed oftentimes by the same people, a lack of review was created over the financial reporting process that might result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC.  These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.


Insufficient corporate governance policies.  Although we have a code of ethics which provides broad guidelines for corporate governance, our corporate governance activities and processes are not always formally documented.  Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management.


We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies and we intend to consider the results of our remediation efforts and related testing as part of our next year-end assessment of the effectiveness of our internal control over financial reporting.   The Company intends on further staffing and adapting this committee if and as new qualified board members with accounting experience or knowledge are appointed from time to time.

 

This quarterly 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 annual report.


Changes in Internal Control Over Financial Reporting


There have been no changes in our internal control over financial reporting during the first quarter of fiscal year 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




24




PART II


Item 1.  Legal Proceedings


None.



Item 2.  Unregistered Sales of Equity Securities and Use o Proceeds.


The Company has not issued any unregistered securities or convertible securities during the six months ended June 30, 2012, or through the date of filing of this Report.


Item 3.  Default on Senior Securities.


We are in default on payment of interest and principal upon the following note:  5% Convertible Note with a remaining principal amount of $3,600 owed to AF Fund, a copy of the note which was filed as an exhibit to this report as incorporated from our Form 8-K filed with the SEC on March 28, 2011.  During the default period this note accrues interest at an accelerated rate of 15% with a total of approximately $3,660 of principal and interest due at October 31, 2011.  No enforcement actions have been taken by the holder of this note as against the Company at this time.


Item 4.  Submission of Matters to Vote of Shareholders.


None.


Item 5.  Other Information


None.




25




Item 6.  EXHIBITS


Exhibit #

Title

 

 

3.1(i)

Articles of Incorporation. (Attached as an exhibit to our Form 10-SB filed with the SEC on December 17, 2007 and incorporated herein by reference).

 

 

3.1(ii)

Certificate of Amendment to Articles of Incorporation dated July 7, 2003 (Attached as an exhibit to our Form 10-SB filed with the SEC on December 17, 2007 and incorporated herein by reference).

 

 

3.1(iii)

Certificate of Amendment, filed June 9, 2011, relating to Forward Split (Incorporated by reference from Exhibit 3.1 to Current Report on Form 8-K, Date of Event June 3, 2011)

 

 

3.2

Bylaws (Attached as an exhibit to our Form 10-SB filed with the SEC on December 17, 2007 and incorporated herein by reference).

 

 

10.1

Letter of Intent, dated February 23, 2011, among the Registrant, Shrink Nanotechnologies, Inc. and BlackBox Semiconductor, Inc. (Delaware) (Attached as an exhibit to our Form 8-K filed with the SEC on March 28, 2011and incorporated herein by reference).

 

 

10.2

Loan Modification Letter, dated January 31, 2011, between the Registrant and Noctua Fund Manager, LLC (Attached as an exhibit to our Form 8-K filed with the SEC on March 28, 2011and incorporated herein by reference).

 

 

10.3

Amended Secured Convertible Promissory Note issued to Noctua Fund Manager, LLC on January 31, 2011 (Attached as an exhibit to our Form 8-K filed with the SEC on March 28, 2011and incorporated herein by reference).

 

 

10.4

Letter Agreement, dated March 15, 2011, between the Registrant and Noctua Fund Manager, LLC (Attached as an exhibit to our Form 8-K filed with the SEC on March 28, 2011and incorporated herein by reference).

 

 

10.5

Unsecured Convertible Promissory Note issued to Noctua Fund Manager, LLC on March 15, 2011 (Attached as an exhibit to our Form 8-K filed with the SEC on March 28, 2011and incorporated herein by reference).

 

 

10.6

Consulting Agreement, dated February 15, 2011, between the Registrant and David Duncan (Attached as an exhibit to our Form 8-K filed with the SEC on March 28, 2011and incorporated herein by reference).

 

 

10.7

Share Exchange Agreement between the Company, BlackBox Semiconductor, Inc., and Shrink Nanotechnologies, Inc, as seller, dated as of June 3, 2011. (Incorporated by reference from Exhibit 10.1 to Current Report on Form 8-K, Date of Event June 3, 2011)

 

 

10.8

BlackBox Semiconductor, Inc. 2011 Stock Incentive Plan, adopted June 13, 2011. (Incorporated by reference from Exhibit 10.2 to Current Report on Form 8-K, Date of Event June 3, 2011).

 

 

10.9

License Agreement between Shrink Nanotechnologies, Inc., BlackBox Semiconductor, Inc., and the University of Chicago, dated as of November 30, 2011. (Incorporated by reference from Exhibit 10.3 to Current Report on Form 8-K, Date of Event June 3, 2011).

 

 

14.1

Code of Ethics. (Attached as an exhibit to our Form 10-KSB filed with the SEC on October 14, 2008 and incorporated herein by reference).

 

 

21

Subsidiaries

 

 

31.1

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

31.2

Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

32.1

Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

32.2

Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




26





Signatures


In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf on August 15, 2012, by the undersigned, thereunto duly authorized.



BLACKBOX SEMICONDUCTOR, INC.

 

 

/s/ Luis Leung

By:  Luis Leung

Its: Chief Executive Officer and Principal Accounting Officer




27