Shrink Nanotechnologies, Inc. - FORM 10-Q

Attached files

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EX-32.1 - EXHIBIT 32.1 - Shrink Nanotechnologies, Inc.	ex321.htm
EX-31.2 - EXHIBIT 31.2 - Shrink Nanotechnologies, Inc.	ex312.htm
EX-31.1 - EXHIBIT 31.1 - Shrink Nanotechnologies, Inc.	ex311.htm
EX-32.2 - EXHIBIT 32.2 - Shrink Nanotechnologies, Inc.	ex322.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 March 31, 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

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: (760) 804-8844

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 o

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 o

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 o	Accelerated filer o
Non-accelerated filer o	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 o 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 200,345,163 shares of the registrant’s common stock outstanding as of May 23, 2011.

SHRINK NANOTECHNOLOGIES, INC.

MARCH 31, 2011 FORM 10-Q QUARTERLY REPORT

INDEX

	Page

Forward Looking Statements	ii
Use of Terms	ii

PART I - FINANCIAL INFORMATION	F-1

Item 1. - Financial Statements	F-1
Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010	F-1
Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010 (unaudited)	F-2
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (unaudited)	F-3
Notes to Unaudited Consolidated Financial Statements	F-4

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations	1

Item 3 - Quantitative and Qualitative Disclosures About Market Risk	11

Item 4 - Controls and Procedures	11

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings	13

Item 1A – Risk Factors	13

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3 - Defaults Upon Senior Securities	23

Item 4 - Submission of Matters to a Vote of Security Holders	23

Item 5 - Other Information	23

Item 6 - Exhibits	24

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,

·	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 this Quarterly Report 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.

All references to share amounts, exercise, sale or conversion prices in this Report are as adjusted to reflect post-Forward Split amounts and prices.

iii

PART I

Item 1. Financial Statements

SHRINK NANOTECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED - BALANCE SHEETS

				March 31,		December 31,
				2011		2010
				(Unaudited)
ASSETS

Current assets
	Cash		$	69,609	$	2,131
	Prepaid expenses			820		29,062
		Total current assets		70,429		31,193

Property, plant and equipment, net				20,965		22,806
Intangible assets, net				51,945		52,948

		TOTAL ASSETS	$	143,339	$	106,947

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
	Accounts payable and accrued expenses		$	885,054	$	962,484
	Due to related parties			669,433		606,250
	Convertible debentures, net of discount			102,445		446,479
	Convertible debentures, net of discount, default - related party			283,121		238,121
		Total current liabilities		1,940,053		2,253,334

		TOTAL LIABILITIES		1,940,053		2,253,334

COMMITMENTS

STOCKHOLDERS' DEFICIT
	Preferred stock, 25,000,000 shares authorized, $0.001 par value
		issued and outstanding 20,000,000 and 20,000,000
		at March 31, 2011 and December 31, 2010, respectively		20,000		20,000
	Common stock, 475,000,000 shares authorized, $0.001 par value
		issued and outstanding 200,203,122 and 194,035,408
		at March 31, 2011 and December 31, 2010, respectively		200,203		194,035
	Additional paid in capital			6,699,573		5,982,525
	Accumulated deficit			(8,716,490)		(8,342,947)
		TOTAL STOCKHOLDERS' DEFICIT		(1,796,714)		(2,146,387)

		TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	143,339	$	106,947

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

F-1

SHRINK NANOTECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED - STATEMENTS OF OPERATIONS
(Unaudited)
			For the three		For the three		From Inception
			months ended		months ended		January 15, 2008
			March 31,		March 31,		through March 31,
			2011		2010		2011
Revenues:
	Revenues, net	$	-	$	-	$	-
	Cost of sales		-		-		-
Gross Profit			-		-		-

Expenses
	Research and development		31,442		61,034		416,524
	Professional fees		48,887		28,619		348,506
	General and administrative		152,461		1,295,992		6,681,922
	Loss on asset impairment		-		-		347,921
	Depreciation and amortization		3,820		12,598		115,349
Total operating expenses			236,610		1,398,243		7,910,222

Loss from operations			(236,610)		(1,398,243)		(7,910,222)

Other Income (Expense)
	Interest expense		(136,933)		(110,610)		(831,972)
	Loss from extinguishment of debt		-		-		(118,121)
Total Other Income (Expense)			(136,933)		(110,610)		(950,093)

Loss from continuing operations			(373,543)		(1,508,853)		(8,860,315)

Discontinued Operations
	Gain from discontinued operations of Audiostocks business		-		-		143,825
Income from discontinued operations			-		-		143,825
(Loss) Before Income Taxes			(373,543)		(1,508,853)		(8,716,490)

Income Taxes			-		-		-
NET (LOSS)		$	(373,543)	$	(1,508,853)	$	(8,716,490)

Net income (loss) per common share, basic and diluted:
	(Loss) from continuing operations		(0.00)		(0.01)
	Income from discontinued operations		-		-
Net (loss) per common share:		$	(0.00)	$	(0.01)

Weighted average common and common equivalent shares outstanding
	Basic and diluted		198,077,379		174,898,673

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

F-2

SHRINK NANOTECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED - STATEMENTS OF CASH FLOWS
(Unaudited)
			For the three		For the three		From Inception
			months ended		months ended		January 15, 2008
			March 31,		March 31,		through March 31,
			2011		2010		2011

CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss	$	(373,543)	$	(1,508,853)	$	(8,716,490)

	Adjustments to reconcile net earnings to net cash used
	by operating activities:
	Depreciation and amortization		3,820		12,598		115,349
	Asset impairment		-		-		347,921
	Debt discount accretion		115,965		90,228		681,277
	Non-cash share-based payments		178,215		817,292		5,015,783
	Loss from extinguishment of debt		-		-		118,121
	Changes in assets and liabilities, net of effects from acquisitions
	Prepaid expenses		28,242		120,242		19,430
	Accounts receivable		-		108,011		1,672
	Accounts payable and accrued expenses		(14,246)		65,039		1,328,637
NET CASH USED IN OPERATING ACTIVITIES			(61,547)		(295,443)		(1,088,300)

CASH FLOWS FROM INVESTING ACTIVITIES
	Cash purchased at acquisition		-		-		62,404
	Additions to equipment		(682)		-		(16,795)
	Additions to intangible assets		(294)		(1,869)		(268,295)
NET CASH USED IN INVESTING ACTIVITIES			(976)		(1,869)		(222,686)

CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from subsidiary prior to merger		-		-		12,500
	Proceeds from common stock to be issued		70,000		-		70,000
	Proceeds from issuance of common stock		-		-		355,001
	Proceeds from convertible debentures		60,000		335,000		943,094
NET CASH PROVIDED BY FINANCING ACTIVITIES			130,000		335,000		1,380,595

NET CHANGE IN CASH			67,477		37,688		69,609
CASH BALANCES
	Beginning of period		2,131		58,539		-
	End of period	$	69,609	$	96,227	$	69,609


NON-CASH INVESTING AND FINANCING TRANSACTIONS :
	Stock based prepaid expenses	$	-	$	2,377,856	$	-
	Stock issued to satisfy convertible debt obligation	$	527,071	$	-	$	527,071

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

F-3

SHRINK NANOTECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements

For the three months ended March 30, 2011

(Unaudited)

NOTE 1. 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 three months ended March 31, 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.

NOTE 2. 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 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.

NOTE 3. 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 three months ended March 31, 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 in excess of $8 million.

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

NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Policies

In January 2010, the FASB issued guidance on improving disclosures about fair value measurements. This guidance requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. This guidance is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The adoption of this guidance has not had and is not expected to have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

In March 2010, FASB ratified Emerging Issues Task Force (EITF) guidance related to Revenue Recognition that applies to arrangements with milestones relating to research or development deliverables. This guidance provides criteria that must be met to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The adoption of this guidance has not had and is not expected to have a material effect on the Company’s consolidated financial position, results of operations, or cash flows

F-4

NOTE 5. INTANGIBLE ASSETS

Intangible assets consist of intellectual property rights of an exclusive license to several patent pending inventions surrounding our core technologies and trademarks. Goodwill and other 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.

Intangible assets consisted of the following at:

		March 31,		December 31,
		2011		2010
Intangible Assets, net:
License	$	42,235	$	41,997
Trademarks		11,409		11,353
Less: Amortization		(1,699)		(402)
Total	$	51,945	$	52,948

To date, the Company has not utilized its current intellectual properties to manufacture products/parts for sale, testing and evaluation. When/if we do begin to mass produce products, we will re-evaluate our amortization practice related to these intellectual properties. During three months ended March 31, 2011 and 2010 the Company recorded $1,297 and $1,118 in amortization expense, respectively. At this time, estimated future amortization for the balance of this fiscal year is expected to be $3,960 and amortization of the following amounts for the fiscal years ended on December 31 are expected to be as follows:

For the year ending		Amount
2012	$	5,279
2013		5,279
2014		5,279
2015		5,279
Thereafter		26,869

NOTE 6. 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 three months ended March 31, 2011 and 2010 the Company recorded $2,523 and $11,480 in depreciation expense, respectively.

		March 31,		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		(18,310)		(15,787)
Total	$	20,965	$	22,806

F-5

NOTE 7. PREPAID EXPENSES

Prepaid expenses consisted of the following at:

		March 31,		December 31,
		2011		2010
Prepaid stock based consultant fees	$	-	$	20,250
Other prepaid expenses		820		8,812
Total Current Prepaid Expenses	$	820	$	29,062

NOTE 8. RESEARCH AND LICENSE AGREEEMENTS

A. Research Agreement UC Regents Irvine Campus (May 2010)

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

The SRA 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 SRA Agreement. The SRA Agreement provides that the Company shall sponsor the research costs up to a budget of $632,051, of which $20,000 has been paid to the California Regents. We have exclusive access to license intellectual property from the SRA Agreement beginning from July 1, 2009 forward according to the terms of the SRA 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 SRA Agreement. Of this amount $202,796 shall be paid during the 12 month period ended April 30, 2011; $211,311 shall be paid during the 12 month period ended April 30, 2012; and the remaining $217,944 shall be paid during the 12 month period ended April 30, 2013. The foregoing payments are to be paid in quarterly installments of ¼ of the total cash fees payable during such 12 month period.

In the event that research under the SRA Agreement yields additional inventions and intellectual property, we have the right to enter into an additional exclusive license agreement with the UC Regents. In order to exercise its rights, we must not be in default of any payment or funding obligation under the SRA Agreement and, must notify the UC Regents of its intent to license the additional intellectual property within nine (9) months of receipt of notice from the UC Regents of the invention. In addition, among other conditions and limitations, we would be required to pay for patent application and filing costs relating to additional patents licenses and, to prosecute its rights as against third parties.

The license we have the right to enter into under the SRA Agreement, is substantially similar to the previously disclosed license rights we have with the UC Regents above, except that we are not required to pay an initial license issue fee, or initial legal fee reimbursement of $35,000, and the terms of the annual license fee has changed to a fee of $5,000 for rights to each patent license acquired by us, 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 are required to pay a fee of 30% of certain income generated from third party sublicenses of the additional intellectual property we 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 licensed technology, subject to increase, if and as we expand the SRA License to include additional patents from time to time.

F-6

B. MF3 Membership and DARPA (June 2010)

The Company has become party to a Consortium Agreement (or, the “DARPA Co-Funding Agreement”) among Academic Partners and Sponsors of the Micro/Nano Fluidics Fundamentals Focus MF3 Center, which is headquartered at the UCI, which provides for partial “matched” funding from the Defense Advanced Research Projects Agency. The DARPA Co-Funding Agreement became effective as of June 1, 2010. The terms of the DARPA Co-Funding Agreement provides, among other things, that DARPA will match the Company, dollar for dollar (i.e. will provide 50% of certain funding on a “matched” dollar for dollar basis with third parties, if any), for funding commitments made by the Company, through a sponsored research agreement that is otherwise eligible for DARPA marching funds. We have not received any capital commitments for funding yet and no assurance can be made that we will make or secure additional financing for research projects that qualify for DARPA matching funds, or that we will remain eligible for the same. As a result, for the three months ended March 31, 2011 the Company had not recorded any grant revenues related to this agreement.

C. Research Agreement UC Regents Irvine Campus (September 2010)

As of September 22, 2010, Shrink entered into the Sponsor Research Agreement (or, the “EB Research Agreement”) with UC Regents on behalf of the Irvine Campus (“UCI”). 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 good faith between the two parties. The EB Research Agreement may be terminated by the Company or UCI subject to satisfying the appropriate notice requirements required under the agreement.

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.

D. License Agreement with University of Chicago (November 2010)

Effective as of November 30, 2010, through our wholly owned subsidiary, Blackbox Semiconductor, Inc., (“Blackbox”), entered into an exclusive License Agreement (the “Chicago License Agreement”) with the University of Chicago, wherein Blackbox licensed 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. Blackbox’s license is restricted to fields of use other than thermoelectric applications.

The technology being licensed is based on Assistant Professor of Chemistry Dmitri Talapin’s “electronic glue” chemistry. This technology, management believes, has various commercial applications where more efficient transfer of electrical charges between nanocrystals is desired, such as printed semiconductors, roll-to-roll printed solar cells and printed nano-sensors.

The license granted by the University of Chicago is for worldwide usage by the Blackbox for a period of at least eight years. The term may be terminated for cause or insolvency.

While the license is exclusive to Blackbox within fields of use other than thermoelectric applications, the University of Chicago licensed the patents to a third party for use in thermoelectric applications and reserved the rights in the underlying technology for all educational and non-commercial research purposes. In addition, the University of Chicago may terminate the license if Blackbox does not raise at least $2,000,000 capital prior to November 30, 2012 or if Blackbox does not employ a Suitably Qualified Person (as defined in the Chicago License Agreement) in a full-time executive position prior to February 28, 2011 and maintain a Suitably Qualified Person in a full-time executive position during the term of the license. In February of 2011, the Company hired David Duncan in order to meet its obligations to hire a Suitably Qualified Person (pursuant to the Chicago License Agreement).

The Chicago License Agreement provides for (i) an annual fee to the University of Chicago of $25,000 until the first commercial sale, and (ii) royalty payments to the University of Chicago, for products utilizing the licensed rights, during the royalty term, as more fully detailed in the agreement, of 3% of net sales of products utilizing the University of Chicago’s licensed technologies, subject to reduction (up to 50%) if the product is sold as a combination product with one or more other products that are not covered by the licensed patents. Minimum royalties for any calendar quarter beginning with the calendar quarter of the first commercial sale are $12,500.

The Chicago License Agreement allows Blackbox, during the term, to determine the appropriate course of action to enforce licensed patent rights, and if it does not do so, Chicago reserves the rights to do the same. Blackbox is required to reimburse Chicago for certain prosecution efforts they incur and, Chicago may abandon prosecution of any patent rights in any jurisdiction provided that it provides Blackbox the opportunity to continue prosecution of the same. The Blackbox’s obligation to reimburse prosecution efforts of Chicago terminates during any period that the patent rights become non-exclusive, if ever.

In March 2011, we entered into an agreement in principle to spinoff our Blackbox Semiconductor, Inc. subsidiary into 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. Shrink has negotiated a sale price of $75,000 plus retention of approximately 19.9% of the BlackBox parent company after sale, among other benefits. At March 31, 2011, this spinoff transaction had not been finalized, therefore these financial statements do not include any effects from this spinoff.

F-7

NOTE 9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at:

		March 31,		December 31,
		2011		2010
Accounts payable	$	515,165	$	470,469
Accrued stock based compensation		294,880		385,255
Accrued payroll		-		647
Accrued interest		75,009		106,113
Total	$	885,054	$	962,484

NOTE 10. COMMITMENTS AND LEASES – RELATED PARTY

During the three months ended the Company received cash advances from Noctua Fund Manager, LLC, in the amount of $3,850. Mark L. Baum, Esq. (“Baum”) our 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 March 31, 2011, there was $7,100 owed to the Noctua Fund Manager, LLC, $0 had been paid to the Noctua Fund Manager, LLC during the three months ended March 31, 2011. This liability is recorded as due to related parties our 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 March 31, 2011, $7,333 was owed to Business Consulting Group Unlimited, Inc. and during the three months ended March 31, 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.

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.

For the three months ended March 31, 2011, $121,000 had been paid to BCGU, LLC and there was $655,000 owed to BCGU, LLC at March 31, 2011. This liability is recorded as due to a related party payable on our balance sheets. 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. At March 31, 2011, that option had not been exercised. 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 believes, based on review of its independent directors, that the foregoing transactions and agreements are no less favorable (or even more favorable, given the flexibility) to the Company than would otherwise be available from independent third parties.

Due to related parties consisted of the following at:

F-8

		March 31,		December 31,
		2011		2010
Due to Noctua Fund Manager, LLC	$	7,100	$	3,250
Due to Business Consulting Group Unlimited, Inc.		7,333		18,000
Due to BCGU, LLC		655,000		585,000
Total	$	669,433	$	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 three months ended March 31, 2011 and 2010 was $7,350 and $18,000, respectively.

At March 31, 2011, the Company did not have any future minimum lease payments for the next 5 years.

NOTE 11. CONVERTIBLE DEBENTURES, PRIVATE PLACEMENT OFFERING

We recognize 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 over the remaining outstanding period of related debt using the interest method.

A.	Convertible Debentures – 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 our 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 our stock was $.125 per share, therefore there was no beneficial conversion feature that applied to this debenture.

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, our 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.

B.	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.

From November 12, 2009 through May 7, 2010, the Company issued 12% convertible notes totaling $635,000 and detachable Series A warrants to purchase up 3,175,000 shares of common stock in exchange of cash as part of the Offering. The notes’ maturity dates begin on November 12, 2010 through May 7, 2011. At the time of the issuances, the Company recorded an $87,159 discount, which represents the intrinsic value of the beneficial conversion feature. The discount is being accreted over 12 month life of the notes.

During November 2010, the Company issued, $117,000 in 12% convertible notes and detachable Series B Warrants to purchase up to 585,000 shares of common stock, exercisable at $0.20 per share (or, “Series B Warrants”) as part of the offering for a cash purchase price of $117,000. The 12% notes are due one year from issuance, beginning on November 10, 2011 and are convertible as to principal and interest at $.10 per share and allow the Company the option to induce conversion, at which the notes conversion price will be taken at the discounted rate of 80% ($.08 per share). At the time of the issuances, the Company recorded a $44,400 discount, which represents the intrinsic value of the beneficial conversion feature. The discount is being accreted over 12 month life of the notes. The form of these notes and Series B Warrants are identical in all respects, to the notes and Series A Warrants issued, with the exception of the issuance dates and expiration dates.

F-9

Warrants associated with the offerings were issued to purchase up to 3,760,000 shares at an exercise price of $.20 per share. These warrants are valued at $620,254 and were combined with the beneficial conversion feature of $131,579, to record a total $751,833 discount on the convertible notes. The warrants are exercisable at 6 months following their effective date and begin to expire 11/12/2012. The warrants were valued using a Black-Scholes valuation model. The variables used in this option-pricing model included: (1) discount rates of .77-1.64% (2) expected warrant life is the actual remaining life of the warrant as of each period end, (3) expected volatility of 267-300% and (4) zero expected dividends.

The Company used the effective conversion price based on the proceeds received to compute the intrinsic value of the embedded conversion option. The Company allocated the proceeds received from the offering to the convertible instrument and the detachable warrants included in the exchange on a relative fair value basis. The Company then calculated an effective conversion price and used that price to measure the intrinsic value of the embedded conversion option. The effective conversion price used is equal to $0.08 per share of the Company’s common stock. 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 in effect on the conversion date.

During November 2010 through December 2010, the Company received notices of conversion totaling $100,000 of principal balances and $12,923 of accrued interest. The Company converted these debentures into 1,129,226 shares of common stock to satisfy the conversion demand in full.

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.

Notes Payable consists of the following at:

		March 31,		December 31,
		2011		2010
14% convertible notes due October 2012	$	298,121	$	238,121
12% convertible notes due November 2010		-		-
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
Total convertible notes payable	$	475,121	$	890,121
Less: Discount on notes		(89,555)		(205,521)
Less: Current portion		(385,566)		(684,600)
Long-term portion	$	-	$	-

The following represents minimum payments due for notes payable:

		Amount
2011	$	475,121
2012		-
2013		-
Total	$	475,121

As of March 31, 2011, the Company has notes payable due to a related party in the amount of $298,121 (which are represented on our consolidated balance sheet as $283,121, which is net of a $15,000 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.

F-10

NOTE 12. 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.

NOTE 13. 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 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 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 March 31, 2011 these shares had not been issued.

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 $6,250 during the three months ended March 31, 2011 as a resulting of the vesting terms.

The Company recognized an expense of $7,939 in earned stock option expenses during the three months ended March 31, 2011.

NOTE 14. WARRANTS

There are 3,175,000 warrants immediately exercisable at March 31, 2011 and December 31, 2010, and 3,760,000 warrants outstanding at March 31, 2011 and December 31, 2010.

The following summarizes stock purchase warrants as of March 31, 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 March 31, 2011	3,760,000	$	0.20

There were no changes to in warrants outstanding for the three months ended March 31, 2011.

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NOTE 15. 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 three months ended March 31, 2011, 25,000 options were issued to the members of our 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 three months ended March 31, 2011 the Company recorded a stock option expense of $7,939.

The options issued during the three months ended March 31, 2011 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 March 31, 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	-		-
Exercised	-		-
Issued	25,000		0.10
Outstanding March 31, 2011	950,000	$	0.20

The following summarizes the changes in options outstanding at March 31, 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 16. 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 our evaluation, nothing other than the events described below need to be disclosed.

In April 2011, the Company issued to BCGU, LLC a 4% convertible promissory note with a balance of $675,000. The note was issued under BCGU, LLC’s Operating agreement, and memorializes the unpaid, accrued fees resulting from the Operating Agreement. The Note, is due on April 6, 2012, and is convertible into approximately 11,250,000 shares of common stock ($.06 per share, the closing market price of our stock on the date of issuance).

The Company entered into a Binding Letter of Intent with Nanopoint, Inc. a Delaware corporation with principal offices in Hawaii (“Nanopoint”), calling for the acquisition of 100% of the equity ownership of Nanopoint in exchange for up to 60,000,000 shares of the Company’s common stock to be paid if certain sales milestones are met. In addition, the acquisition is dependent on completion of successful due diligence and contemplates a financing completion of not less than $500,000 and up to $1,000,000. The transaction with Nanopoint, is subject to numerous closing conditions, and is set to close by May 31, 2011. No assurance can be made that the parties will complete satisfactory due diligence, or complete a transaction or satisfy any of the other conditions to closing at this time.

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.

As of the date of this report, the Company had not finalized its agreement to spinoff our Blackbox Semiconductor, Inc. subsidiary (see Note 8.).

F-12

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 i above) and the “Risk Factors” set forth in Item 1A of Part II below of this Report, 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 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 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 undergoe, marked changes since October of 2010, 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.

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”).

The exclusive License Agreement (the “Chicago License Agreement”) between our 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 entered into an agreement to sell off our BlackBox subsidiary along with this license, and do not intend to invest material amounts into it prior to such time.

Page 1

We also entered into other agreements, such as our agreement with the MF3 Consortium, accessing matching funds from MF3’s relationship with DARPA, that provides 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.

The Company’s BlackBox subsidiary, however, does still maintain its Chicago License Agreement. This license became the core asset of our BlackBox subsidiary. Late in 2010, the Company determined that it does not have sufficient capital or resources to dedicate to the BlackBox business and that further supporting BlackBox would detract from the Company’s other core competencies. The Company has negotiated in principal a spin off transaction to sell its BlackBox business to an entity affiliated with current creditors and principles of the Company, who have agreed to allow the Company to liquidate the assets and and retain approximately 19.9% of the equity in the post-spin-out business (pre dilution) if successful.

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.

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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.

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.

To date the Company has paid $5,000 and 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 $13,469 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 Bisoensing 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

Effective as of November 30, 2010, our wholly-owned subsidiary Blackbox entered into an exclusive License Agreement (the “Chicago License Agreement”) with the University of Chicago, wherein Blackbox licensed 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. Blackbox’s license is restricted to fields of use other than thermoelectric applications.

The license granted by the University of Chicago is for worldwide usage by the Blackbox for a period of at least eight years. The term may be terminated for cause or insolvency.

The Chicago License Agreement allows Blackbox, during the term, to determine the appropriate course of action to enforce licensed patent rights, and if it does not do so, Chicago reserves the rights to do the same. Blackbox is required to reimburse Chicago for certain prosecution efforts after they are incurred, and Chicago may abandon prosecution of any patent rights in any jurisdiction provided that it provides Blackbox the opportunity to continue prosecution of the same. Blackbox’s obligation to reimburse prosecution efforts of Chicago terminates during any period that the patent rights become non-exclusive, if ever.

The foregoing description of the Chicago License Agreement is a summary only, and is qualified in its entirety by the actual agreement which has been filed in our public filings and which is incorporated herein.

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 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 Company’s non-exclusive representative for the purposes of marketing and promoting the Company’s solar concentrator technology and ShrinkChip™ RPS solar products to third parties (the “Solar Products”).

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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 licensing rights and trademarks. We are currently amortizing certain intangible assets using the straight line method based on an estimated legal life, of eight years. 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.

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

LOI To Spinoff 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, believes 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 has determined to sell BlackBox to another entity affiliated with management, at a price and terms negotiated by independent members of the board of directors.

LOI To Acquire Nanopoint

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, is subject to numerous closing conditions, and is set to close by May 31, 2011, presuming all conditions, including a financing contingency, are met or waived.

BlackBox Semiconductor Divestiture

As previously disclosed, we have entered into an agreement to spin out the business and Chicago License Agreement, into 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. Shrink has negotiated a sale price of $75,000, made a seed investment into BlackBox, and retained approximately 20% of the BlackBox parent company after sale, among other benefits.

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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.

Below is a chart of our organizational structure:

The Company has negotiated a spin off transaction to sell our BlackBox business and retain approximately 20% of the equity in the post-spin-out 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. We also maintain executive offices at 2038 Corte Del Nogal, Suite 110, Carlsbad, California, 92011. Our principal corporate contact is Mark L. Baum, Esq. who may be reached at 760-804-8844, extension 205. Our main corporate website is www.shrinknano.com.

Three months Ended March 31, 2011Compared to the Three months ended March 31, 2010

Results of Operations; Material Changes in Financial Condition; Development Stage Company

The Company, including its subsidiaries, has not had any revenues in 2011 or 2010, as it is a research and development stage company.

Operating Expenses

Shrink had total operating expenses of $373,543 for the three months ended March 31, 2011 and $1,508,853, 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 $152,461 for the three months ended March 31, 2011, as compared to $1,295,992 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.

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 to $48,887 for the three months ended March 31, 2011, as compared to $28,619 for the three months ended March 31, 2010. The increase was due to an increase in accounting fees during the three months ended March 31, 2011.

Depreciation and Amortization. Our depreciation expenses decreased to $2,523 in the fiscal quarter ended March 2011, from $11,480 in the same period ended March 31, 2010, and our amortization expenses increased slightly to $1,297 in the period ended March 31, 2011 from $1,118 in 2010. The decrease in depreciation expenses was mainly due to the impairment of our Stockvert assets occurring near the end of our fiscal year ended December 31, 2010.

Interest Expense. Interest expense increased to $136,933 in the fiscal quarter ended March 31, 2011 from $110,610 in 2010, primarily due to increase in convertible note issuances and the expense recognition of the subsequent debt discount accretion.

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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.

Net Loss

For the three months ended March 31, 2011, we had a net loss of $373,543 net loss as compared to a net loss of $1,508,853 for the period ended March 31, 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.

Liquidity and Capital Resources

Our cash on hand at March 31, 2011, and December 31, 2010, was $69,609 and $2,131, respectively. The increase in cash is primarily attributable to a small financing commitment occurring near the end of the quarter ended March 31, 2011. Near the end of the year ended December 31, 2010 management 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. The Company had no revenues during the periods ended March 31, 2011 and December 31, 2010.

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).

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 Three months Ended March 31,
		2011		2010
Net cash used in operating activities	$	(61,547)	$	(295,443)
Net cash used in investing activities		(976)		(1,869)
Net cash provided by financing activities		130,000		335,000

Net Increase in Cash and Cash Equivalents		67,477		37,688
Cash and Cash Equivalent at Beginning of the Year		2,131		58,539
Cash and Cash Equivalent at End of the Year	$	69,609	$	96,227

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.

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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.

Operating Activities

Net cash used in operating activities was $61,547 for the three months ended March 31, 2011, as compared to $295,443 used in operating activities during the same three 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 quarter ended March 31, 2011 was $976 as compared to $1,869 net cash used in investing activities during the three months ended March 31, 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.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2011 was $130,000 as compared to March 31, 2010 which was $335,000. The decrease of net cash provided by financing activities was mainly attributable to financing efforts made by management during the first quarter of 2010 in order to obtain certain assets, maintain current business operations and research and development activities.

During the three months ended March 31, 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 three months ended March 31, 2010, the Company raised $335,000 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.

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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.

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.

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

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. For the three months ended March 31, 2011, $121,000 had been paid to BCGU, LLC and there was $655,000 owed to BCGU, LLC at March 31, 2011. This liability is recorded as due to related parties on our balance sheets. 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. 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 believes, based on review of its independent directors, that the foregoing transactions and agreements are no less favorable (or even more favorable, given the flexibility) 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.

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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 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.

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 letter of intent 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.

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.

Hedging and Derivative Activities

As at March 31, 2011, and, at March 31, 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.

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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.

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.

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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.

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 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 1A. Risk Factors.

We have not yet commercialized products from our technologies and therefore have not attained revenues from them. The nature of our business activities subjects us to certain hazards and risks and uncertainties. We are a research and development stage company that will need substantial additional capital and development to be able to commercialize and gain market acceptance for our innovative products. You should carefully consider the risk factors and all of the other information included in, or incorporated by reference into, this Report or any supplement, including those included in our most recent Reports or documents provided as exhibits to this Report or other Reports as may be incorporated from time to time.

An investment in our Common Stock involves a high degree of risk and should be made by those who are willing to and who can afford to lose their entire investment.

Our independent accounting firm and our board of directors, given the present resources and condition of the company agree that our internal controls are ineffective and that we may not be able to continue as a going concern. We are taking steps to correct our internal controls and are also moving to improve the financial condition of the company.

General Risks:

We may not be able to continue operations as a going concern and we need substantial additional capital to continue our research and development activities and begin commercialization plans. Research and Development costs of Shrink have been completely paid for to date by the UC Regents, and to a lesser extent, CIRM and our two of our founders, Baum and Panther, and we do not have any capital commitments at this time.

Our independent auditors have expressed doubt about ability to continue as a going concern. Shrink is, for all material purposes, currently a research and development company only. We do not have grant or capital commitments at this time and previous Shrink research has been funded by the UC Regents and CIRM. We have no further commitments for grants and grant funds cannot, generally, be used towards commercialization and manufacturing efforts. Accordingly, we will be dependent on obtaining additional external sources of capital in order to fund its operations or even continue as a going concern.

A future capital raise could involve a private or public sales of equity securities or the incurrence of additional indebtedness. Additional funding may not be available on favorable terms, or at all. If we borrow additional funds, we likely will be obligated to make periodic interest or other debt service payments and may be subject to additional restrictive covenants. If we fail to obtain sufficient additional capital in the future, we could be forced to curtail our growth strategy by reducing or delaying capital expenditures, selling assets or downsizing or restructuring our operations. If we raise additional funds through public or private sales of equity securities, the sales may be at prices below the market price of our stock, and our shareholders may suffer significant dilution as a result of such sale.

You will suffer immediate and subsequent dilution; and the costs of the securities you purchase may significantly exceed the price paid by current principal shareholders.

Many of the present owners of our issued and outstanding securities acquired such securities at a cost substantially less than that of the open market. In addition, the Company currently is indebted to Noctua Fund, LP for loans made to the Company or Shrink since 2008, as reflected on four 14% convertible promissory notes in the aggregate initial principal amounts totaling $298,121, plus accrued interest, these notes and accrued interest are convertible into common stock based on conversion prices at the times of the loans ($.04 per share, or approximately 7,900,000 shares, in aggregate as of April 30, 2011) all of which are currently in default. Therefore, the shareholders will bear a substantial portion of the risk of dilution and losses.

Additionally, there is an outstanding obligation to BCGU, LLC in the amount of $675,000 which, on April 6, 2011, in connection with the reformation of our operating agreement with them, was memorialized in the form of a convertible promissory note. This note, which bears interest at a rate of 4% per annum, and which is due on April 6, 2012, is convertible into approximately 11,250,000 shares of common stock.

Some of our debt is in default and could result in us losing some or all of our assets.

The “default” status with respect to the notes owned by Noctua Fund LP, an affiliate of certain management, provides them with the right to take potentially aggressive actions, including levying on some or all of our assets, in order to recover monies owed. This default could result in an action against us, including, one for enforcement of their rights by levying our assets. The existence of a default also hinders our ability to raise additional capital or enter into long term contractual commitments.

Our Shrink subsidiary is a research and development startup company and has not generated any operating revenues and may never achieve profitability, and we have yet to commercialize its inventions.

Shrink is a risky and unproven development stage company and, to date, has not generated any revenues from sales. We cannot assure you that we will generate revenues or that we can achieve or sustain profitability in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including whether our product development can be completed, and if we can achieve market acceptance. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

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Certain members of management collectively own or have the right to acquire at low rates, 69% of our Common Stock. In addition to other risks relating to control by such persons of the Company and conflicts of interest, the sale of such shares by management from time to time, will likely have an adverse affect on our stock price.

Our common stock only recently began trading, and trades at fluctuating rates, prices and volumes. Certain members of Management, namely, Messrs. Baum, Panther and Khine, directly and indirectly own, or have the right to acquire within 60 days, approximately 169,600,000 shares of our common stock constituting approximately 69% of our company after issuance to them. The holding period on most of these securities under Rule 144 of the Securities Act, has accrued or is nearly accrued and many of these shares are or will be eligible for resale from time to time, subject to volume limitations. The sale of even a portion of these shares by management will likely have a material adverse affect on our stock price and, will be highly dilutive to shareholders.

In addition to the above risks, the ownership and control by management of such a large block of shares creates inherent conflicts of interest and, results in control of the Company by such persons, as discussed elsewhere in these risk factors. No person should consider an investment in the Company unless they fully understand the adverse effect that sales by management could have on our stock price and, further, should only invest if they understand the risks associated with control by management.

Management owns a controlling interest of our stock, including, without limitation, our Series A Preferred Stock; the existence of these derivative securities, may adversely affect your stock price and our ability to raise capital or into business ventures and transactions.

Currently, twenty million shares (20,000,000) of Series A Preferred Stock are issued and outstanding and held by certain principal shareholders or their affiliates, namely Messrs. Baum and Panther. These shares are all convertible and contain other restrictive covenants. As a result, over 90% of our voting control is vested in three beneficial owners. Moreover, as shares of preferred stock are converted and sold, such sales are likely to have a highly dilutive effect on our stock price.

Additionally, the existence of our outstanding preferred stock may hinder our ability to raise capital at favorable prices if and as needed, or to make acquisitions.

Our principal stockholders have the ability to exert significant control in matters requiring stockholder vote and could delay, deter or prevent a change in control of our company.

Since our stock ownership is concentrated among a limited number of holders, those holders have significant influence over all actions requiring stockholder approval, including the election of our board of directors. Specifically, these members of management are Marshall Khine, Esq., Mark L. Baum and James B. Panther (director only). Through their concentration of voting power, they could delay, deter or prevent a change in control of our company or other business combinations that might otherwise be beneficial to our other stockholders. In deciding how to vote on such matters, they may be influenced by interests that conflict with other stockholders. Accordingly, investors should not invest in the Company’s securities without being willing to entrust the Company’s business decisions to such persons.

As a result, the forgoing and of our Series A Preferred Stock, members of management will be able to:

·	control the composition of our board of directors; control our management and policies;

·	determine the outcome of significant corporate transactions, including changes in control that may be beneficial to stockholders; and

·	act in each of their own interests, which may conflict with, or be different from, the interests of each other or the interests of the other stockholders.

Conflicts of interest between the stockholders and our company or our directors could arise because we do not comply with the listing standards of any exchange with regard to director independence.

There are a variety of conflicts of interests and related party transactions with members of management, which control the vast majority of our shares and our board. We are not listed on a stock exchange and our Board of Directors does not comply with the independence and committee requirements which would be imposed upon us if we were listed on an exchange. In the absence of a majority of independent directors, our directors could establish policies and enter into transactions without independent review and approval. This could present the potential for a conflict of interest between the stockholders and our company or our directors.

We have a significant amount of preferred stock, convertible debt and warrants outstanding. If we issue additional shares or derivative securities as we raise capital, the notes are converted or the warrants are exercised, you will suffer immediate and substantial dilution to your common stock.

The bylaws allow the board to issue common shares without stockholder approval. Currently, the board is authorized to issue a total of 475,000,000 common shares, of which 42% have been issued or reserved for issuance as of April 30, 2011. In addition, the board is authorized to issue up to 25,000,000 preferred shares of which 20,000,000 are already designated and issue and an addition 5,000,000 “blank check” preferred may be issued. As of May 13, 2011, 200,345,163 shares of common stock are issued and outstanding and, the following shares are issuable underlying outstanding securities:

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·	20,000,000 shares issuable upon conversion of Series A Preferred Stock, owned primarily by Messers Baum and Panther, convertible on a one-for-one basis,

·	1,770,000 shares of common stock issuable upon conversion of $177,000 principal amount of unsecured one year 12% convertible notes, convertible at $.10 per share, in addition to shares that may be issued in respect of interest payments which notes became due commencing February of 2011,

·	3,175,000 shares issuable upon exercise of Series A Common Stock Purchase Warrants issued between November 2009 and May of 2010, at $.20 per share,

·	585,000 shares issuable upon exercise of Series B Common Stock Purchase Warrants issued in November 2010, at $.20 per share,

7,539,803 shares issuable upon conversion of $238,121 principal amounts of 14% convertible promissory notes, issued to Noctua Fund, LP beginning in May 2009, an affiliate of Messers Baum and Panther, convertible at $.04 per share (or 5,953,032 shares inclusive of 1,586,771 shares underlying $63,471 of accrued interest, through April 30, 2011), which note is currently in default,

$60,000 principal amount of 14% convertible promissory Note issued to Noctua Fund, LP, an affiliate of Messers Baum and Panther reflecting loans made by it in 2011, convertible at $0.17 per share into an aggregate of 371,569 shares (or 352,942 shares inclusive of 18,627 shares underlying $3,167 of accrued interest, through March 31, 2011), which note is currently in default, and

·	11,250,00 issuable upon conversion of $675,000 principal amount of 4% convertible promissory Note issued to BCGU, LLC, an entity owned primarily by Messers Baum and Panther reflecting unpaid fees from May 2009 through April 2011, convertible at $0.06 per share.

Sales of a substantial number of shares of our common stock in the public market could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.

In addition, it is not likely that we will be able to raise convertible debt or equity financing without issuing shares at or below market rates, which would cause further dilution to shareholders. Our board of directors has the authority, without the consent of any of the stockholders, to cause us to issue more shares or our common stock and shares of our preferred stock at such prices and on such terms and conditions as are determined by the Board in our sole discretion.

No assurance can be made, that we will be able to raise additional capital, or, if we do, that the same will not have a material adverse effect on our capitalization or to our balance sheet.

If additional funds are raised through the issuance of equity securities, the percentage of equity ownership of the existing stockholders will be reduced. The issuance of additional shares of capital stock by us would materially dilute the stockholders’ ownership in us.

Although they vote the same instruments, Baum and Panther specifically disclaim any beneficial ownership of convertible instruments or common shares underlying instruments held by Noctua Fund, LP.

Presently, we have under-qualified management operating the company.

The present management team is not experienced enough and sufficient in number to realize the potential of Shrink, especially with respect to developing commercial diagnostic device products and other technologies we are developing and may seek to market. It is very likely that more qualified managers, with significantly more experience in the businesses we seek to engage in, will need to be hired. The sooner we can hire these people the better. These persons will likely require substantial salaries and compensation packages that the Company cannot presently afford. Additionally, there may be substantial fees associated with recruiting new additional or replacement managers. To the extent that we are unable to ultimately bring managers into the Company who are more qualified than our present team, the Company and its shareholders will be negatively impacted.

Risks Relating to an Investment in Our Securities:

Anti-takeover provisions in our organizational documents and Delaware law may limit the ability of our stockholders to control our policies and effect a change of control of our company and may prevent attempts by our stockholders to replace or remove our current management, which may not be in your best interests.

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There are provisions in our certificate of incorporation and bylaws that may discourage a third party from making a proposal to acquire us, even if some of our stockholders might consider the proposal to be in their best interests, and may prevent attempts by our stockholders to replace or remove our current management.

Currently, we have 20 million shares of Series A Preferred Stock outstanding (post Forward Split) and owned primarily by management, all of which contain significant anti-takeover and change of control deterrents. Additionally, our certificate of incorporation authorizes our board of directors to designate any special priority or preference or other rights of, and issue up to 5,000,000 additional shares of “blank check” preferred stock without stockholder approval and to establish the preferences and rights of any preferred stock issued, which would allow the board to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or change in control.

Our bylaws require advance written notice of stockholder proposals and director nominations. Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which, in general, imposes restrictions upon acquirers of 15% or more of our stock. Finally, the board of directors may in the future adopt other protective measures, such as a stockholder rights plan, which could delay, deter or prevent a change of control.

Compliance with Sarbanes-Oxley could be time consuming and costly, which could cause our independent registered public accounting firm to conclude that our internal control over financial reporting is not effective.

As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which will require annual management assessments of the effectiveness of our internal control over financial reporting.

During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to our business. We also expect the new regulations to increase our legal and financial compliance cost, make it more difficult to attract and retain qualified officers and members of our Board of Directors (particularly to serve on an audit committee) and make some activities more difficult, time consuming and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404.

If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations since there is presently no precedent available by which to measure compliance adequacy.

If we are unable to conclude that we have effective internal control over financial reporting then we may not be able to raise capital from certain sources, or list on exchanges or the NASDAQ and investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock. In addition, we may not be able to complete our audits or financial statements in a timely fashion resulting in trading stoppages or delistings from the OTC bulletin Board system, if we are able to re-list.

Lack of economic review may interfere with investors’ ability to fully assess merits and risks associated with purchase of our stock.

The procurement by prospective investors of an independent review of the investments merits of a proposed subscription for our stock would be costly and can normally be conducted only by those prospective investors whose subscriptions will be of sufficient magnitude that they, either alone or by a pooling of their resources with those of other prospective investors, could afford the expense of such independent analysis, including the retaining of independent consultants. Such a review might or might not prove favorable. Accordingly, subscription to the stock is suitable only for such proposed investors willing and able to accept the risks created by a failure to conduct an independent analysis of this investment.

We do not anticipate paying cash dividends, which could reduce the value of your stock.

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. Even if we do attain revenues and become profitable, we intend on reinvesting profits, if any. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as our board of directors may consider relevant. Our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

There is limited historical information available for investors to evaluate our performance or a potential investment in our shares.

We are a development stage company with little historical information available to help prospective investors evaluate our performance or an investment in our shares, and our historical financial statements are not necessarily a meaningful guide for evaluating our future performance because we have not begun to manufacture and market our products.

Our common stock does not trade in a mature market and therefore has limited liquidity.

Our common stock trades on the over-the-counter market. The average daily trading volume and prices of our common stock on the over-the-counter market has not been consistent. Our daily volume remains limited with fewer market makers and there is no assurance that increased volume, if any occurs, will continue. Holders of the our common stock may not be able to liquidate their investments in a short time period or at the market prices that currently exist at the time a holder decides to sell. Because of this limited liquidity, it is unlikely that shares of our common stock will be accepted by lenders as collateral for loans.

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The Company’s shareholders may face significant regulatory restrictions relating to the sale of their stock, as a result of penny stock and similar rules.

The Company’s stock differs from many stocks in that it is a “penny stock.” The Commission has adopted a number of rules to regulate “penny stocks” including, but not limited to, those rules from the Securities Act as follows:

3a51-1 which defines penny stock as, generally speaking, those securities which are not listed on either NASDAQ or a national securities exchange and are priced under $5, excluding securities of issuers that have net tangible assets greater than $2 million if they have been in operation at least three years, greater than $5 million if in operation less than three years, or average revenue of at least $6 million for the last three years;

·	15g-1 which outlines transactions by broker/dealers which are exempt from 15g-2 through 15g-6 as those whose commissions from traders are lower than 5% total commissions;

·	15g-2 which details that brokers must disclose risks of penny stock on Schedule 15G;

·	15g-3 which details that broker/dealers must disclose quotes and other information relating to the penny stock market;

·	15g-4 which explains that compensation of broker/dealers must be disclosed;

·	15g-5 which explains that compensation of persons associated in connection with penny stock sales must be disclosed;

·	15g-6 which outlines that broker/dealers must send out monthly account statements; and

·	15g-9 which defines sales practice requirements.

Since the Company’s securities constitute a “penny stock” within the meaning of the rules, the rules would apply to us and our securities. Because these rules provide regulatory burdens upon broker-dealers, they may affect the ability of shareholders to sell their securities in any market that may develop; the rules themselves may limit the market for penny stocks. Additionally, the market among dealers may not be active. Investors in penny stock often are unable to sell stock back to the dealer that sold them the stock. The mark-ups or commissions charged by the broker-dealers may be greater than any profit a seller may make. Because of large dealer spreads, investors may be unable to sell the stock immediately back to the dealer at the same price the dealer sold the stock to the investor. In some cases, the stock may fall quickly in value. Investors may be unable to reap any profit from any sale of the stock, if they can sell it at all. Shareholders should be aware that, according to Commission Release No. 34-29093 dated April 17, 1991, the market for penny stocks has suffered from patterns of fraud and abuse. These patterns include:

·	control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

·	manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

·	“boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

·	excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

·	the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

Risks Related To Our Operations:

Our technologies are unproven and new. No assurance can be made that our technologies will work as anticipated, or, even if they do work, will be commercially accepted.

We are a primarily R&D company with a newly developing and novel manufacturing technology. We do not have agreements with purchasers yet and no assurance can be made that we will be able to make our technology viable. Even if we are able to continue to fund our research and development and make our technologies viable, no assurance can be made that our chips will attain market acceptance in light of the larger, more established competitors in the life sciences industry. If we are unable to raise sufficient capital or commercialize our unproven products, our stock price will decline and you will be adversely affected.

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We may suffer the loss of key personnel or may be unable to attract and retain qualified personnel to maintain and expand our business.

Our success is highly dependent on the continued services of a limited number of skilled scientists, especially, Dr. Michelle Khine and Dr. Heiner Dreismann. We also depend on the insight and backgrounds of members of our Scientific Advisory Board. The company does not have an agreement for employment or consulting with Dr. Khine. We have a consulting agreement with Dr. Dreismann. In addition, our success will depend upon, among other factors, our ability to attract, retain and motivate qualified research and development, engineering and operating personnel, generally and during periods of rapid growth, especially in those areas of our businesses focused on new products and advanced manufacturing processes. There can be no assurance that we will be able to retain existing employees or to attract and retain additional personnel on acceptable terms. The competition for qualified personnel in industrial, academic and nonprofit research sectors is significant.

The loss of the services of any of our key research and development, engineering or operational personnel or senior management without adequate replacement, or the inability to attract new qualified personnel, would have a material adverse effect on our operations.

Some of the processes we require in order to commercialize our products are in short supply which may delay commercialization and hinder our development of products.

As an example, we use a manufacturing process called hot embossing. The machines that do commercial scale hot embossing are in short supply and are very expensive. Therefore, we rely on third party contractors in order to assist us with prototype commercial scale production and will also perhaps rely on these same parties for larger scale production, assuming there is market acceptance. The costs of using these parties may significantly reduce our profit margins, and to the extent we decide to purchase our own equipment to build a manufacturing line, such an effort will not only take time, but will also amount to a significant risk of capital to the Company given our limited resources.

Significant existing or additional governmental regulation could subject us to unanticipated delays and costs, which would adversely affect our revenues.

Our products are still in the development stage. However certain products which we may produce may be subject to government regulation depending upon their ultimate use. The successful implementation of our business strategy depends in part on our ability to get our products into the market as quickly as possible. Additional laws and regulations, or changes to existing laws and regulations, applicable to our business may be enacted or promulgated and the interpretation, application or enforcement of existing laws and regulations may change. We cannot predict the nature of any future laws, regulations, interpretations, applications or enforcements, or the specific effects any of these might have on our business. Any future laws, regulations, interpretations, applications, or enforcements could delay or prevent regulatory approval or clearance of our products and our ability to market our products. Moreover, if we do not comply with existing or future laws or regulations, we could be subject to the following types of enforcement actions by the FDA and other agencies:

Fines;

·	Injunctions;

·	Civil penalties;

·	Recalls or seizures of our products;

·	Total or partial suspension of the production of our products;

·	Withdrawal of existing approvals or premarket clearances of our products;

·	Refusal to approve or clear new applications or notices relating to our products;

·	Recommendations by the FDA that we not be allowed to enter into government contracts; and

·	Criminal prosecution.

We rely, in part, on the UC Regents to file and secure our patents.

In addition to the option agreement with the UC Regents, Shrink has entered into a research and development agreement with UC Irvine in order to fund certain research. The agreement provides Shrink with an exclusive first opportunity to negotiate to license any technology that flows (derivative IP). Should any intellectual property flow from this research and development agreement and Shrink elects to exercise such rights, it will be required to make annual payments to the UC Regents as well as royalty payments as commercialization occurs. Disputes with campuses related to the UC Regents (such as UC Merced) could impact our ability to do business with other UC Regents controlled campuses (such as UCI).

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Under our research and development agreements we rely on third party laboratories that can experience manufacturing problems or delays, which could result in decreased revenue or increased costs.

All of our research and development agreements require processes that are complex and require specialized and expensive equipment. Replacement parts for this specialized equipment can be expensive and, in some cases, can require lead times of up to a year to acquire. There can be no assurance that our funding commitment under the UC Merced research and development agreements will be adequate to fund the equipment requirements. We also rely on numerous third parties to supply production materials and in some cases there may not be alternative sources immediately available, or they may not be available at a reasonable cost.

Shrink has substantial risk in being sued with respect to its intellectual property rights or in having to assert claims against others to protect its rights.

The world of intellectual property rights is very murky and it is often very difficult to determine the specific abilities of a business to use and exploit intellectual property rights. Moreover even to the extent a business has solid rights, there could be substantial costs involved in defending ones rights. Shrink has not completed nor sought any “freedom to operate” opinions from competent intellectual property counsel with respect to its related intellectual property rights and it is reasonable to assume that as the market for Shrink’s products evolves and we produce products for these markets, Shrink will be a target for such lawsuits. Given our limited resources to defend ourselves, this may be, from a corporate perspective, a “life threatening” scenario.

If we are not able to protect our intellectual property and proprietary trade secrets we will not be able to compete effectively and will be adversely affected.

The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following:

·	the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents;

·	the claims of any patents which are issued may not provide meaningful protection;

·	we may not be able to develop additional proprietary technologies that are patentable; the patents licensed or issued to us or our customers may not provide a competitive advantage;

·	other parties may challenge patents or patent applications licensed or issued to us or our customers;

·	patents issued to other companies may harm our ability to do business; and

·	other companies may design around technologies we have patented, licensed or developed.

We also may not be able to effectively protect our intellectual property rights in some foreign countries.

In order to protect or enforce our patent rights, we may initiate patent litigation against third parties, such as infringement suits or interference proceedings. Litigation may be necessary to:

·	assert claims of infringement;

·	enforce our patents;

·	protect our trade secrets or know-how; or

·	determine the enforceability, scope and validity of the proprietary rights of others.

Any lawsuits that we initiate could be expensive, take significant time and divert management’s attention from other business concerns. Litigation also puts our patents, if any, at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we may provoke third parties to assert claims against us.

We will be subject to applicable regulatory approval requirements of the foreign countries in which we could sell products, which are costly and may prevent or delay us from marketing our products in those countries.

In addition to regulatory requirements in the United States, we will be subject to the regulatory approval requirements for each foreign country to which could export our products. In the European Union, regulatory compliance requires affixing the “CE” mark to product labeling. Although our new products could be made eligible for CE marking through self-certification, this process can be lengthy and expensive. In Canada, as another example, our new products could require approval by Health Canada prior to commercialization along with International Standards Organization, or ISO, 13485/CMDCAS certification. It generally takes from three to six months from submission to obtain a Canadian Device License. Any changes in foreign approval requirements and processes may cause us to incur additional costs or lengthen review times of our new products, if any. We may not be able to obtain foreign regulatory approvals on a timely basis, if at all, and any failure to do so may cause us to incur additional costs or prevent us from marketing our products in foreign countries, which may have a material adverse effect on our business, financial condition and results of operations.

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We may experience difficulties that may delay or prevent our development, introduction or marketing of new or enhanced products.

We intend to continue to invest in product and technology development. The development of new or enhanced products is a complex and uncertain process. We may experience research and development, manufacturing, marketing and other difficulties that could delay or prevent our development, introduction or marketing of new products or enhancements. We cannot be certain that:

· any of the products under development will prove to be effective in generating sales demand;

·	we will be able to obtain, in a timely manner or at all, regulatory approval, if required, to market any of our products that are in development or contemplated;

·	we are able to find adequate supplies of the necessary component parts for the devices we intend to sell, which is a very challenging risk because we presently do not manufacture anything, relying exclusively on third party company partners and business relationships;

·	the products we develop can be manufactured at acceptable cost and with appropriate quality; or these products, if and when approved, can be successfully marketed.

The factors listed above, as well as manufacturing or distribution problems, or other factors beyond our control, could delay new product launches. In addition, we cannot assure you that the market will accept these products. Accordingly, there is no assurance that our overall revenue will increase if and when new products are launched.

Intense competition could limit our ability to secure market share which could impair our ability to sell our products and harm our financial performance.

The microfluidics and biochip industries, along with nearly every market we seek to penetrate, are new and underdeveloped markets and industries are rapidly evolving, and developments are expected to continue at a rapid pace. Competition in this industry, which includes competition from professional diagnostic, consumer diagnostic and renewable energy businesses, among others, is intense and expected to increase as new products and technologies become available and new competitors enter the market. Our competitors in the United States and abroad are numerous and include, among others, diagnostic testing, medical products and renewable energy companies, universities and other research institutions.

Our future success depends upon maintaining a competitive position in the development of products and technologies in our areas of focus. Our competitors may:

·	develop technologies and products that are more effective, less expensive, safer or more readily available than our products or that render our technologies or products obsolete or noncompetitive;

·	obtain patent protection or other intellectual property rights that would prevent us from developing potential products; or

·	obtain regulatory approval for the commercialization of our products more rapidly or effectively than we do.

As a result, our products or processes may not compete successfully, and research and development by others may render our products or processes obsolete or uneconomical.

Also, the possibility of patent disputes with competitors holding domestic and/or foreign patent rights may limit or delay expansion possibilities. In addition, many of our existing or potential competitors have or may have substantially greater research and development capabilities, clinical, manufacturing, regulatory and marketing experience and financial and managerial resources, giving them a competitive advantage in the markets in which we hope to operate.

The market for the sale of our products is also highly competitive. This competition is based principally upon price, quality of products, customer service and marketing support. We believe that a number of our competitors are substantially larger than we are and have greater financial resources, and have a more established sales and marketing force already operating in the market, which would give them a competitive advantage over us.

Presuming we are able to commercialize our products, we must then quickly develop ways to efficiently manufacture new and improved products to meet customer demand on a timely and cost-effective basis.

We do not have any manufacturing facilities and have limited relationships with third party manufacturers. We are negotiating with third parties for the development and manufacture of our products initially. However, even if we are able to develop our products, and penetrate the drug and life science industries, we may have to construct or acquire a manufacturing facility or utilize third parties, both of which would require us to train appropriate personnel. To build a manufacturing facility, we will need substantial additional capital and we do not have any capital commitments to fund such construction. In addition, the recent financial crisis has made it extremely difficult to obtain commercial property or industrial financing. In addition, we must be able to resolve in a timely manner manufacturing issues that may arise from time to time as we commence production of our complex products. With a start up manufacturing facility, unexpected problems may be more frequent as new equipment is put on line and operators are inexperienced in its operation. These and other unanticipated difficulties or delays in manufacturing our products during commercialization, in sufficient quantities to meet customer demand could diminish future demand for our products, cause us to incur greater debt and materially harm our business.

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A significant portion of our sales will be dependent upon our customers’ capital spending policies and research and development budgets, and government funding of research and development programs at universities and other organizations, which are subject to significant and unexpected fluctuations.

Our target markets include pharmaceutical and biotechnology companies, academic institutions, government laboratories, and private foundations. Fluctuations in the research and development budgets at these organizations could have a significant effect on the demand for our products and services. Research and development budgets fluctuate due to changes in available resources, mergers of pharmaceutical and biotechnology companies, spending priorities, general economic conditions, and institutional and governmental budgetary policies. Our business could be seriously damaged by any significant decrease in capital equipment purchases or life sciences research and development expenditures by pharmaceutical and biotechnology companies, academic institutions, government laboratories, or private foundations.

The timing and amount of revenues from customers that rely on government funding of research may vary significantly due to factors that can be difficult to forecast. Research funding for life science research has increased more slowly during the past several years compared to the previous years and has declined in some countries, and some grants have been frozen for extended periods of time or otherwise become unavailable to various institutions, sometimes without advance notice. Although the level of research funding increased significantly during the years 1999 through 2003, increases for fiscal 2004 through 2008 were significantly lower. Government funding of research and development is subject to the political process, which is inherently fluid and unpredictable. Other programs, such as homeland security or defense, or general efforts to reduce the federal budget deficit could be viewed by the U.S. government as a higher priority. These budgetary pressures may result in reduced allocations to government agencies that fund research and development activities. Past proposals to reduce budget deficits have included reduced NIH and other research and development allocations. Any shift away from the funding of life sciences research and development or delays surrounding the approval of government budget proposals may seriously damage our business.

Many of our current and potential competitors have longer operating histories, larger customer or user bases, greater brand recognition, greater access to brand name suppliers, and significantly greater financial, marketing and other resources than we do.

Many of these current and potential competitors can devote substantially more resources to the development of their business operations than we can at present. Currently, we do not have a marketing or manufacturing infrastructure in place. In addition, larger, well-established and well-financed entities may acquire, invest in or form joint ventures with other established competitors or with specific product manufacturers, which will allow them pricing advantages due to economies of scale or pursuant to distribution agreements with suppliers. Some large product distributors may also have exclusive distribution agreements or protected territories in which they can sell specific brand name products at a significant discount, or territories in which they may seek to exclude us from selling a specific brand of product. These types of arrangements between our competitors and manufacturers and suppliers may limit our ability to distribute certain products and could adversely affect our revenues.

There can be no assurance that new products we introduce will achieve significant market acceptance or will generate significant revenue.

The market for products in micro-fluidics, bio-sensing and renewable energy industries is characterized by rapid technological advances, evolving standards in technology and frequent new product and service introductions and enhancements. Possible short life cycles for products we sell may necessitate high levels of expenditures for continually selecting new products and discontinuing the sale of obsolete product lines. To obtain a competitive position, we must continue to introduce new products and new versions of existing products that will satisfy increasingly sophisticated customer requirements and achieve market acceptance. Our inability or failure to position and/or price our new or existing products competitively, in response to changes in evolving standards in technology, could have a material adverse effect on our business, results of operations or financial position.

If we deliver products with defects, our credibility may be harmed, market acceptance of our products may decrease and we may be exposed to liability.

The manufacturing and marketing of our products will involve an inherent risk of product liability claims. In addition, our product development is and production will be extremely complex and could expose our products to defects. Any defects could harm our credibility and decrease market acceptance of our products. In the event that we are held liable for a claim for which we are not indemnified or insured that claim could materially damage our business and financial condition. Even if we are indemnified, we may not be able to obtain reimbursement of our damages from the indemnifying party, because for example they do not have sufficient funds or insurance coverage to pay us. If a claim is made for which we have insurance coverage, we cannot be certain that the amount of such coverage will be sufficient, or that we will be able to collect on a claim when we make it.

Because we have not yet begun to sell our products, we have not obtained insurance covering product liability claims or product recall claims against us. When we begin to market our products, such insurance may not be available to us, or not available on terms which we find acceptable. We may determine that the cost of such insurance is too high when compared to the risks of not having coverage and we may determine not to obtain policies insuring such risks, or we may obtain policies with a high deductible.

We could suffer monetary damages, incur substantial costs or be prevented from using technologies important to our products as a result of a legal proceedings being commenced against us.

Because of the nature of our business, we may be subject at any particular time to commercial disputes, consumer product claims, negligence or various other lawsuits arising in the ordinary course of our business, including employment matters, and we expect that this will continue to be the case in the future. Such lawsuits generally seek damages, sometimes in substantial amounts, for commercial or personal injuries allegedly suffered and can include claims for punitive or other special damages. An adverse ruling or rulings in one or more such lawsuits could, individually or in the aggregate, have a material adverse effect on our sales, operations or financial performance. We cannot assure you that any future lawsuits relating to our businesses will not have a material adverse effect on us.

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We are currently in a growth stage and may experience setbacks in both business and product development.

We are subject to all of the risks inherent in both the creation of a new business and the development of new and existing products. Our cash flows may be insufficient to meet expenses relating to our operations and the growth of our business, and may be insufficient to allow us to develop new and existing products. We currently so not manufacture or market any product and we cannot be certain that we will ever be able to develop, manufacture, market or sell any product.

We currently do not have adequate insurance coverage for claims against us.

We face the risk of loss resulting from product liability, securities, fiduciary liability, intellectual property, antitrust, contractual, warranty, environmental, fraud and other lawsuits, whether or not such claims are valid. In addition, we do not have adequate or in some cases, any product liability, fiduciary, directors and officers, property, natural catastrophe and comprehensive general liability insurance. To the extent we secure adequate insurance it may not be adequate to cover such claims or may not be available to the extent we expect. If we are able to secure adequate insurance our costs could be volatile and, at any time, can increase given changes in market supply and demand. We may not be able to obtain adequate insurance coverage in the future at acceptable costs. A successful claim that exceeds or is not covered by our policies could require us to pay substantial sums. Even to the extent we are able to acquire adequate insurance, we may not be able to afford to continue coverage through a policy period or in multiple and successive policy periods.

[Remainder of Page Intentionally Left Blank]

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Item 2. Unregistered Sales of Equity Securities.

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. As of the date of this report, these shares had not been issued.

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 repayment of these notes are accelerated accrue interest at 18% with a total of approximately $364,759 of principal and interest due as at April 30, 2011.

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

None.

Item 5. Other Information.

None.

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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.

Item 6. Exhibits.

	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
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
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

Filed Herewith in This Form 10-Q Report
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

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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: May 23, 2011 Shrink Nanotechnologies, Inc.

By: /s/ Mark L. Baum, Esq.

Mark L. Baum, Esq.

CEO and President

(Principal Executive Officer, Principal

Financial Officer and Principal Accounting

Officer)

Page 25

Attached files

Shrink Nanotechnologies, Inc. Reports

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