UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K





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


For the fiscal year ended: December 31, 2010





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


For the transition period from ____________ to _____________





Commission File Number: 000-52860











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
(760) 804-8844

(Registrant’s telephone number, including area code)(Address of principal executive offices)





Securities registered pursuant to Section 12(b) of the Act:                                                                                                None





Securities registered pursuant to Section 12(g) of the Exchange Act:                                                                                                                     Common Stock, par value $0.001 per share





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ̈ No x





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ̈ No x





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No  ̈





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  No 





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.)





Large Accelerated Filer                                                                                                                                          Accelerated Filer  


Non-Accelerated Filer                                             (Do not check if a smaller reporting company)           Smaller reporting companyx





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





As of June 30, 2010 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the shares of the registrant’s common stock held by non-affiliates (based upon the closing price of such shares as reported on the OTC Markets) was approximately $5,940,000.

















Shares of the registrant’s common stock held by each executive officer and director and each by each person who owns 10% or more of the outstanding common stock have been excluded from the calculation in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.





There were a total of 200,203,122 shares of the registrant’s common stock outstanding as of April 15, 2011.













































































SHRINK NANOTECHNOLOGIES, INC.





Annual Report on FORM 10-K


For the Fiscal Year Ended December 31, 2010





TABLE OF CONTENTS
PagePART I

1ITEM 1.
BUSINESS
1Forward Looking Statements
1Use of Terms
2Business Overview
3Intellectual Property We Own
10ITEM 1A.
RISK FACTORS
14ITEM 1B.
UNRESOLVED STAFF COMMENTS
25ITEM 2.
PROPERTIES
25ITEM 3.
LEGAL PROCEEDINGS
25PART II

26ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
26Securities Authorized for Issuance Under Equity Compensation Plans
27ITEM 6.
SELECTED FINANCIAL DATA
28ITEM7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
29-42ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
43ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
F-1 – F-26ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
44ITEM 9A.
CONTROLS AND PROCEDURES
44ITEM 9B.
OTHER INFORMATION
45PART III

46ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
46ITEM 11.
EXECUTIVE COMPENSATION
48ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
51ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
53ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
54PART IV

55ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
55SIGNATURES

56

















PART I


ITEM 1.BUSINESS


FORWARD LOOKING STATEMENTS





Certain information contained in this Annual Report on Form 10-K (this “Report” or “Annual 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 (StemDiscTM) and related software, our microfluidic technology licensed in part from Corning Incorporated and, our shrinkable film based products such as CellAllignTM , NanoShrinkTM 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 “NanoShrinkTM” 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 Annual 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 Annual Report.





Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual 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.








Page 1





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 Annual Report are as adjusted to reflect post-Forward Split amounts and prices.








































Page 2





Business Overview





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.





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 StemDiscTM and its related software, as well as patent pending NanoShrinkTM based issue engineering substrates known for our Cell AlignTM.





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 NanoShrinkTM that will enable the low cost development of two dimensional microfluidic system prototypes.





Our Special Substrates business is developing specialized versions of NanoShrinkTM substrates that have unique surface plasmon resonance capabilities and which may be integrated into existing market leading devices and systems, including immunoassays.





And finally, our Internal Development and Acquisitions Unit is actively seeking and/or 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.





Our corporate mission is to become a leading high technology development company.  While we presently possess unique product and technology capabilities for the cell culture, immunoassay development, cell imaging, device prototyping and drug discovery markets, we intend to continue to create shareholder value through organic and inorganic growth.





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 Annual 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.





Business Strategy





Our business strategy, based on the FIGATM model, is to use experts from critical economic segments in order to meet commercial ends.  We execute on our strategy by funding research in outside (typically academic) research labs, all of which we have established technology development and in some cases, licensing arrangements with.  Around our “hub” of mainly academic research relationships, we connect teams consisting of people with financial, related industry (physical or life sciences) and government (typically regulatory) backgrounds.  We use these teams to assess internal and external opportunities, to first determine the commercial viability of the technology, and then to create specific commercialization plans for the same technology.  All of what we have accomplished to date has been based on the FIGA-based business strategy.





Short Term Business 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 StemDiscTM, Cell AlignTM and NanoShrinkTMproducts; (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.





Page 3





Product and Technology Overview (By Business Unit)





Cell Culturing Products





StemDiscTM and Stemage Software





StemDiscTM is a cell culture platform designed to uniquely produce uniform embryiod bodies (EBs) and other spheroid tissues.  The device is made with 24-well bottomless wellplate and an embossed micro-well substrate.  This product is expected to be our first commercial product offering and we anticipate to begin commercial sales this year.  We also expect to begin the development of additional mold and wells, based on customer feedback and the success of our initial StemDiscTM product launch. StemdiscTM will be primarily marketed for use in the life sciences industry.





StemageTM is tradename for our proprietary software that will integrate into nearly all major manufacturer microscopy platforms and enhances the usefulness of our StemDiscTM hardware, enabling biology researchers to geo-locate, count and 2D image thousands of individual samples on a single SBS footprint well plate.  We have completed several prototypes of StemageTM and expect to deploy a trial (beta) version this year.  We hope to eventually sell premium versions of StemageTM once we establish a customer base, but also integrate the ability to perform high quality 3D imaging as well, along with additional planned features.





Cell AlignTM





Cell AlignTM is a patent-pending cell culture platform used to orient cell cultures.  The device is a surface treated substrate with non-periodic uni-axial features that have been documented to uniquely and successfully orient tissues in culture.  The productization of Cell Align (in various formats, including discs at the bottom of well plates and larger sizes of Cell Align in dishes) fits well with our abilities.  The product has the potential to offer higher margins than some of our other offerings and we believe will have a high value use for numerous applications involving cell and tissue biology.





We are presently developing our strategy to move to pilot scale Cell AlignTM production and eventual commercial production.





Microfluidic Systems and Kits





Corning Incorporated





Earlier this year, we secured an exclusive license to a then patented pending complete microfluidic system that was developed at Corning Incorporated.  The system, which has ancillary pumping, heating and electronics systems, has numerous applications in the small but growing microfluidics market.  The most interesting aspect of the technology are the “inter-connects” between parts of the system (which is similar to the way “LegoTM” blocks work).  We believed then and still believe the intellectual property for the interconnects of the Corning system will drive the potential for the Corning system to perhaps establish a “standard” for the microfluidics space.





On April 5, 2011, the USPTO issued patent 7.919,062 to Corning, entitled “Modular Microfluidic System and Method for Building Modular Microfluidic Systems.





In early 2011, we commenced discussions with a large multi-national company with significant capacities in the coatings and micromolding business, among other core competencies.  Our objective with this company is to secure a joint development agreement and ultimately a supply agreement, whereby they would partner with us to manufacture the Corning system, paying for development costs, and then supply the system to Shrink who would then move the product into the market.  We are in the final phases of negotiations and believe that this year, we will be able to commence commercial scale development of the Corning microfluidics system.





NanoShrinkTM Film Kits








Page 4


NanoShrinkTM and other shrinkable plastic substrates that we are developing are used in countless industrial applications because of their flexible material properties and relative material stability.  By taking advantage of these inherent characteristics, NanoShrinkTM is being developed for the ultra-rapid direct patterning of complex, even three-dimensional, stacked polystyrene micro- and nanostructures as well as low cost optoelectronic devices.  Management believes that NanoShrinkTM and similar materials readily available at economic rates both in the US and abroad as the demand for low cost diagnostics in low resource settings increases.





What follows are some examples of technological and/or cost benefits of our shrinkable plastic-based technologies over other competing technologies.





·
Quicker Manufacturing.Developing intricate micro patterns into substrates of silicon, glass, or quartz requires large investments in capital equipment, manufacturing “clean rooms”, and costly consumables.  The soft lithography processes which we use, we believe, can accelerate microfluidic chip fabrication from weeks or months (using standard silicon technology) to typically less than 2 days.





·
Better Material Characteristics.  We believe thatour shrinkable technologyusing NanoShrinkis advantageous over other substrates such as silicon because of its desirable flow characteristics in microfluidic applications.  Microfluidic devices typically require dimensions in the 100 μm range, whereas we are able to achieve resolutions near 70 μmin width and operate well within the requirements and capabilities of current lithography techniques.  PDMS is a standard material used to create 2 dimensional microfluidic systems.  However, many hydrophobic molecules absorb easily into the porous PDMS matrix of competing technologies, potentially affecting results which have intolerable in many applications.  So far, testing indicates that NanoShrinkTM is not as easily impacted by solvents or environmental factors such as extreme heat, cold or physical impact.  For this reason as well as the other reasons relating to ease and economics in manufacture, we believe that shrinkable plastic materials (such as NanoShrinkTM) may be an ideal material for products such as cell-culture dishes and plates used in drug discovery.    We believe that this is one property that links industry adoption of PDMS for applications in drug discovery and other sensitive assays.





·
Design and Manufacturing Efficiencies; Three Dimensional Structures.  Traditionalphotolithography creates planar or 2-dimensional structures.  Rounded and/or multi-height features are therefore difficult to create and require additional processing steps.  To achieve multi-heights, several masks and high precision alignment are required.  Our processes, we believe, creates inherently rounded features, and multi-heights are easily achievable. Additionally, because of the unique characteristics of our shrinkable plastic technologies, design and fabrication can occur sequentially, with immediate results allowing for quick turn-around prototypetesting.





·
Rapid Deployment.Shrink’s NanoShrinkTM technologies allow for the quick and easy delivery of custom microfluidic chips for low volume prototype needs.  Through the integrated website we are developing, www.ShrinkChip.com, users will be able to establish a secure account and in a few steps upload, store and manage their computer assisted drawing, or CAD, of micro-chip patterns, select the size, quantity and other characteristics, receive a price quote, place the order, and have the chips shipped directly to their lab.





We believe that we now have developed significant proprietary know-how with respect NanoShrinkTM and the kits we intend to offer for sale.  We have however built numerous systems of various materials along with special tools (e.g. an oven, as well as trays and presses) which we intend to launch in the next year, depending on the results of ongoing performance reviews.  The systems we have built also appear to work with inks and metals, which will potentially open the uses for the material and tools well beyond the life science business.





Special Substrates





Assays and Special Substrates





We have created a number of dynamic Low Precision NanoShrinkTM shrink film product categories.  There are two main types of products we are working on:  Uni-Axial (left below, as in the case of Cell Align) and Bi-Axial Films (right below).  Some are metalized and others are not.  We also have additional treatments and surface enhancements for films that broaden the applications of the materials we research and make.  Our non-metalized surface enhancements are, we believe, those most likely to result in a commercial application, although we continue to conduct research on these materials.






Page 5







“Petal Based” NanoShrinkTM and Special Substrates





We believe that through continued research and development, these substrates may act as an “enhancement material” to enable immunoassays to produce higher quality results.  This is a large market potential application.





We have conducted initial studies with one large immunoassay business using our materials.  We did a head-to-head study, testing one of their leading immunoassays against the same test which used one of our metalized shrink film substrates.  Our testing showed that our methodologies enables us to reduce the “noise” of the subject immunoassay, even when a very aggressive dye candidate was utilized.





Although this work did not ultimately yield a commercial relationship or license, we did yield good enough results to continue our work in this area.  Additionally, today, we have materials that work much better than those we used in the study.  Also, the subject project, while successful, was done under non-optimal conditions and was being performed by students primarily in Dr. Khine’s lab.  We believe it makes sense to put together a more controlled and reliable study of the material under more optimal real world conditions.





We plan to continue to pursue this project with additional resources (both third party and our own) when the time is right.





Nano-Petal Surfaces





This is a recent and extremely promising application from the Khine lab at UCI.  This technology and the related material have applications in DNA/RNA sample preparation and Ultra Hydrophobic Surface Treatments.  We have worked with a leading researcher in DNA/RNA sample preparation productization in San Diego.  In this regard, we have designed a detailed protocol for us to begin testing a product design that we may be able to file a series of patent applications, in addition to those already filed by the UC Regents, which are subject to our sponsored research agreements with the UC Regents.





Internal Development; Acquisitions (and Divestitures)





BlackBox Semiconductor Divestiture





This is a technology we acquired from the University of Chicago for the synthesis of colloidal nanocrystals – also called “electronic glue.”  This technology was acquired in order to replace the unsuccessful efforts we previously undertook in the solar energy generation space.  As previously disclosed, we have entered into an agreement to spin out this business 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 companyafter sale, among other benefits.





Page 6





Ultra Hydrophobic Surface Treatments





We are working with a large multi-national corporation under a material transfer agreement to provide them with low haze ultra hydrophobic materials.  There are numerous large market applications for these materials.  We have supplied our initial quantities of these materials and are presently awaiting feedback.





Lydall’s Solupore®





In May of 2010, we signed a development agreement with Lydall to use their Solupore material in one of a number of strategic ways.  Our work on this material, which is taking place at UCI, is ongoing.  (See “Our Sponsored Research and License Agreements” below).





Reproductive Sciences Project





We have an exclusive option to license patent pending IP which is owned by Dr. Elliot Botvinick, a professor at UCI, Dr. Michelle Khine and Mark L. Baum, our founder and CEO.  The project relates to the idea of commercializing the racing of, in microfluidic devices, various motile biological agents.  There is an advertising and gaming business model associated with the IP.





Recently we hired a part time consultant to provide us with a proof of concept video demonstration of what would be the world’s first controlled race between a single species or multiple species in a sub-milimeter channel “track” (i.e. a microfluidic track).





Acquisitions





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.





Technology and Intellectual Property





We develop intellectual property (“IP”) internally, and acquire IP through sponsored research agreements and related licensing agreements and through stand-alone licensing agreements.  A description of all of our material agreements and related technologies, applications and cost estimates is provided below along with a list of patents and other intellectual property owned by or licensed to us.  Additionally, we have filed applications with the USPTO, and as a result of our research and experience, we possess significant proprietary know-how outside of the technologies that we licensed, as it relates to using shrinkable films in the manner in which we seek to design and build products for the life sciences.





Product Commercialization and Marketing





We intend to increase our focus on commercialization by, in part, inorganically acquiring distribution for our products (i.e. acquiring synergistic businesses with established distribution channels).  In each business unit, presuming adequate funding and that no unusual impediments are incurred, we do not foresee any limitation on our ability to continue to design and eventually market the related products for our businesses.





Our Sponsored Research and License Agreements





License Agreement with Corning International





Effective as of July 26, 2010, Shrink entered into an exclusive Patent and Know-How License Agreement (the “Corning License Agreement”) with Corning Incorporated (“Corning”), wherein we licensed the exclusive worldwide right to use and sublicense Corning’s patented Modular Microfluidic System and Method for Building Modular Microfluidic System (US Patent 7,919,062).





The system being licensed is a fully functional “plug and play” modular microfluidics system that allows for integrated high pressure connectors, electronics and pumps.  This technology, management believes, has various commercial research applications where ultra-fast microfluidic design prototyping is desired, such as biochemical, biomedical and cell-based drug discovery applications.





Page 7








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





While our license is exclusive, Corning has reserved rights to the underlying technology for future research and development purposes.  In addition, the licensed rights become co-exclusive for the remainder of the term if we do not commercialize the licensed technology before the end of July 2014; provided that we would still retain the right of first refusal for any developments made by Corning on the licensed rights during such non-exclusivity period.





In addition, Corning is required to provide limited technical assistance to us as we reasonably request through July of 2012.





The Corning License Agreement provides for royalty payments to Corning, 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 Corning’s licensed technologies, subject to reduction to the extent (up to 50%) that we are required to pay royalties to third parties for such products, and 2% of net sales if and to the extent that the license reverts to a non-exclusive one.





The Corning License Agreement allows us, during the term, to determine the appropriate course of action to enforce licensed patent rights, and if we do not do so, Corning reserves the rights to do the same and permit us the right to contribute half of the costs in exchange for joint prosecution rights.  We are required to reimburse Corning for certain prosecution efforts they incur, and Corning may abandon prosecution of any patent rights in any jurisdiction provided that it provides us the opportunity to continue prosecution of the same.  Our obligation to reimburse prosecution efforts of Corning terminates during any period that the patent rights become non-exclusive, if ever.





The foregoing description of the Corning 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.





Sponsored Research Agreement (Biosensing) with the University of California Regents





As of May 3, 2010, we entered into a Sponsored Research Agreement (the “UCI Biosensing SRA”) with the University of California Regents (“UC Regents”), on behalf of Irvine campus (“UCI”). The UCI Biosensing SRA is for a term of three years or such time as the research is completed, whichever is longer. We may terminate the UCI Biosensing SRA, subject to satisfying appropriate notice requirements required under the agreement.





The UCI Biosensing SRA provides, among other things, that we will sponsor specified research relating to development of (i) integrated, manufacturable, nonstructured 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 agreement.  This agreement led to the development of our StemageTM software which will be marketed and utilized by researches in conjunction with their use of our StemDiscTM software. The UCI Biosensing SRA provides that we shall sponsor the research costs up to a budget of $632,051, of which $20,000 has been paid to the UC Regents.





While inventions stemming from research performed under the UCI Biosensing SRA (“Additional IP”) shall belong to the UC Regents and are subject to disposition in accordance with the UC Regents’ and UCI’s IP policies, they are required to provide notice of inventions to us, and we may, in turn, acquire a license to commercialize the Additional IP.  To exercise our rights, we must not be in default of any payment or funding obligation under the UCI Biosensing SRA and, must notify the UC Regents of our intent to license the Additional IP within nine (9) months of receipt of notice of the invention.  In addition, among other conditions and limitations, we would be required to pay for patent application and filing costs relating to the Additional IP, and to costs related prosecuting our rights against third parties.





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 UCI Biosensing SRA also contemplates the license of additional IP in the future under terms that have been agreed to.


The foregoing is a summary only of the UCI Biosensing SRA (which includes the form of UCI Biosensing SRA License annexed thereto), which is filed as an exhibit to our public filings. Additional details on this agreement can also be found in our Management’s Discussion and Analysis of Financial Condition and Results of Operations section below (Item 7).








Page 8


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





Development and Technology Integration Agreement with Lydall Solutech





Effective as of May 31, 2010, the Company entered into a Product Technology Integration and Pre-Development and Mutual Confidentiality Agreement with Lydall Solutech, B.V., pursuant to which, among other things, the Company is  researching and developing a low cost single molecule biological and environmental detection device utilizing the Lydall Solutech’s Solupore© thermoplastic membrane. Lydall Solutech has agreed to provide its Solupore materials to this end, and the research on this project is ongoing.





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 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 (also referred to as “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.





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 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 Additional details on this agreement can also be found in our Management’s Discussion and Analysis of Financial Condition and Results of Operations section below (Item 7).





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).





Sponsored Research Agreement (Embryoid Bodies) with the UC Regents





As of September 22, 2010, we entered into the Sponsor Research Agreement (the “UCI EB Research Agreement”) with UC Regents on behalf of UCI.  The UCI 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 may be terminated by us or UCI, subject to satisfying the appropriate notice requirements required under the agreement.





Page 9





The UCI EB Research Agreement provided, among other things, that we would 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 also 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 agreement, we will have a time-limited, first right to negotiate an exclusive license of such things with UCI.





Our research sponsorship obligations required us to provide funding (which may be from us or other third parties) totaling up to $67,040 during the three month term of the UCI EB Research Agreement.  Funding ultimately provided is based on actual expenditures and thus, our actual costs of the UCI EB Research Agreement may be lower than $67,040.





Intellectual Property We Own (in Whole or in Part)





In 2010, as described above, we terminated certain university license agreements which resulted in the loss of certain patent license rights for certain microfludic technologies.  Below is a list of our patents pending and patent licenses. The Chicago license for the below patents is held by our BlackBox subsidiary, and relates to an “electronic compounding” or “glue” technology.





Filing Date
License Agreement Name/Id
Patent/Application Number
TitleUnknown
Corning  Agreement
7,919,062
Modular Microfluidic System and Method for Building a Modular Microfluidic System04/23/2010
University of Chicago
PCT/US10/32246
Material and Methods for the Preparation of Nanocomposites04/23/2009
University of Chicago
61/214,434
Material and Methods for the Preparation of Nanocomposites11/28/2009
University of Chicago
61/264,790
Material and Methods for the Preparation of Nanocomposites02/7/2011
UCI Biosensing SRA
61/440,350
Detection of Low Concentration Biological Agents02/7/2011
UCI Biosensing SRA
61/440,356
Plasma Induced Shrink Film Nanowrinkles





Trademarks





We hold a number of trademarks and service marks and have been using most since late 2008 to early 2009.  These marks have also been filed with the USPTO and include the following:





Trademark
Shrink Trademarks
Date Filing or Issue77/822182
StemDiscTM
9/8/200977/822211
Cell AlignTM
9/8/200977/822232
MetalfluorTM
9/8/200977/822176
ShrinkchipTM
9/8/200977/853822
NanoshrinkTM
10/21/200977/822153
ShrinkTM
9/8/2009Reg. No. 3866464
Shrink®
10/26/2010








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Our Patent Filing Policy





We are required by the Corning License Agreement and the Chicago License Agreement to pay the costs of obtaining patents, and the Company’s board of directors along with the Shrink Scientific Advisory Board, intend to regularly reassess the technologies and applications we have, develop, or acquire an interest in, to determine, in good faith, whether the benefits of obtaining a patent outweigh the costs of obtaining it and the resulting public disclosure of our processes, technologies or proprietary technologies.





No assurance can be made that the Company will be able to assess the patent-worthiness of all its products, or, if a patent is desirable, that the Company will have sufficient funds or wherewithal to secure or prosecute its intellectual property rights.





Research and Development Priorities and Expenditures





We estimated that Shrink has invested approximately $183,314 into its technologies in 2010, primarily from government and university grants and direct investments by Shrink using cash on hand, and $122,416 into its technologies in 2009, most of which has stemmed from payments from Shrink through UC Merced and UC Irvine or, to a limited extent, California Institute for Regenerative Medicine (CIRM). (See “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” below).





In determining our allocation of resources, we assess which fields we believe are closer to commercial development and which we believe hold greater financial and strategic potential for us.  Our goal is to penetrate those areas that we are most prepared to commercialize and that have the fewest relative barriers to market acceptance.  In order to best describe the fields and the relative priority of each to us at this time, what follows is a summary of applications currently being pursued in order of currently intended priority.





In June of 2010, we became a part of the MF3 Consortium.  Formed in 2006, the MF3 Center brings together 20 leading micro-and nano-fluidics professors from 12 universities nationwide to advance the basic science and applications of a field seen as key to creating a vast array of new technologies. With scientists representing the disciplines of biomedical engineering, mechanical engineering, electrical engineering, and chemistry, MF3 research is expected to apply to many areas including health care, electronics, and environmental and food monitoring. MF3 is funded by the Defense Advanced Research Projects Agency (DARPA) and the Centers industrial members. MF3 is a spin-off of activities ongoing at the Integrated Nanosystems Research Facility, an interdisciplinary research laboratory at the Henry Samueli School of Engineering at UC Irvine.





As a result of our membership in MF3, we qualify to have every dollar we invest in research through a MF3 member professor, matched by 50%.  This means that when we spend $20,000 through our SRA with Dr. Michelle Khine, we receive an additional $10,000 in our account for the subject project.





Agreements Terminated in 2010





University of California at Merced





In December 2010, due to high costs and poor results, we terminated our research agreement (signed in May of 2009) with the University of California, Merced (“UC Merced”) and our Exclusive License Agreement with the UC Regents relating to microfluidics (the “UC Regents Microfluidics Agreement”).  As a result we abandoned IP rights owned by the UC Regents associated with these agreements.





Our Exclusive License Agreement with the UC Regents; Exclusive Patent Licenses (Terminated)





On April 29, 2009 and pursuant to the terms of the Research Agreement, Shrink and the UC Regents entered into an Exclusive License Agreement for Processes for Microfluidic Fabrication and Other Inventions.  The UC Regents Microfluidics Agreement was terminated in December 2010.





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Shrink no longer relies on any patents or other intellectual property rights licensed under the UC Regents Microfluidics Agreement. Nonetheless, the Company still owns and maintains its rights to the ShrinkChipTM related trademarks, which were not part of the terminated UC Regents Microfluidics 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.





Inabata America Corporation





In September of 2009, we entered into a Strategic Marketing and Development Agreement (the “Marketing Agreement”) with Inabata America Corporation (“Inabata”), a subsidiary of Inabata & Co. Ltd., which provides 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 ShrinkChipTM RPS solar products to third parties (the “Solar Products”).  Because we ceased our work in the solar energy space, the agreement with Inabata is no longer relevant to our operational focus.





Employees





We currently have approximately 10 near full time consultants and one full time employee for Shrink Nanotechnologies, Inc., including its subsidiaries.  In addition, we contract administrative services from BCGU, LLC (“BCGU”), an entity indirectly controlled by James B. Panther, and Mark L. Baum, Esq., who are two of our directors and control persons, for a fee which has been reduced from $30,000 to $20,000 per month during 2011 pursuant to an operating agreement.  In the past, because we have not had the cash on hand to pay BCGU, we have accrued these amounts owed.  The foregoing is a summary only of the material terms of our operating agreement with BCGU, LLC, a copy of which is attached as an Exhibit to our Current Report on Form 8-K/A, Filed March 23, 2011 and described further in our MD&A below.





We hire independent contractor labor for executive management, legal, accounting and other administrative functions, on an as needed basis and have entered into consulting arrangements with certain directors and advisory board members in exchange for stock or derivative securities. We have not entered into a collective bargaining agreement with any union.





Competition





There are numerous competitors in every space/market we seek to exploit, with the strongest competitors in the life sciences industry boasting large market capitalizations and liquidity, as well as scientific and marketing resources and recognition.





While competing technologies and companies exist for all of our products, we believe that we have certain opportunities that we can exploit which may increase our opportunity to be successful in the markets we seek to exploit.  However, even if our technologies are successful, no assurance can be made that we will be able to compete effectively and yield significant or sustained value for our shareholders.  We continue to require access to capital, tested IP and bright and motivated people, the lack of which remain impediments to our success.





Government Regulation





Shrink is a research and development business and to date, has not commercialized or sold any products using its technologies.  Therefore, the Company cannot be certain exactly which governmental regulations will ultimately be applicable to the final products.  However, certain of our products and manufacturing processes will be subject to regulation under various portions of the U.S. Federal Food, Drug and Cosmetic Act, if we consider expanding our applications for use in or as part of certain medical devices or in vitro diagnostic devices. The effects of this are that, among other things, our manufacturing facilities, when and if created, may be subject to delays on approval, and periodic inspection by the U.S. Food and Drug Administration, or FDA, other product-oriented federal agencies and various state and local authorities in the U.S. for compliance with the requirements of the FDA’s Quality System Regulation (formerly known as Good Manufacturing Practices), other federal, state and local regulations and other quality standards such as ISO 9001 or ISO 13485.





To the extent our products are used in medical devices or other regulated applications, our products may be subject to extensive medical, FDA or other government regulation, testing and pre-market approval or clearance processes.  Prior to application for approval or clearance, we may need to conduct clinical trials to test the safety and efficacy of our products or we may be required to identify predicate devices to which we can establish substantial equivalence.  In addition, we may be required to satisfy testing criterion or submit product applications in other countries where we intend to market our goods.  These processes may take an extensive period of time and would necessarily require significant capital outlays, which we have no commitments for at this time.





Page 12








We do not use and we anticipate that we will not utilize, manufacture or operate with substances deemed controlled under the Controlled Substances Act, administered by the Drug Enforcement Agency, or DEA, and therefore, no special procedures need be in place.





Because we do not actually do any material amount of testing, but rather, the manufacturing of devices that will be used as “tools”, we do not employ Centers for Disease Control/National Institutes of Health, Guidelines for Research Involving Recombinant DNA Molecules, Biosafety in Microbiological and Biomedical Laboratories, but, if and as our operations expand, may be required to do so in the future.





We are subject to federal, state, and local laws and regulations regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, in those jurisdictions where we operate or maintain facilities.  Our operations to date have only been R&D and within universities in the State of California.  Therefore, we do not believe that any liability arising under, or compliance with, these laws and regulations will have a material effect on our business, and no material capital expenditures are expected for environmental control.





Environmental Laws





To date, we have not encountered any costs related to compliance with environmental laws.





Corporate History and Structure





General.





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.








Page 13








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 7,548,000 shares, in aggregate as of March 31, 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.





Page 14








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.





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:








Page 15





·
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 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.  Currently, 200,203,122 shares of common stock are issued and outstanding and, the following shares are issuable underlying outstanding securities:





·
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,





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





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





·
2,953,032 shares issuable upon conversion of $118,121.28 principal amount of 14% convertible promissory note, issued to Noctua Fund, LP in May 2009, an affiliate of Messers Baum and Panther, convertible at $.04 per share  (or 3,740,507 shares inclusive of 787,475 shares underlying $31,499 of accrued interest, through March 31, 2011),  which note is currently in default,





·
2,500,000 shares issuable upon conversion of $100,000 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 2008 and 2009, convertible at $0.04 per (or 3,166,667 shares inclusive of 666,667 shares underlying $26,667 of accrued interest, through March 31, 2011), which note is also currently in default,





·
500,000 shares issuable upon conversion of $20,000 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 2010, convertible at $0.04 per share (or 543,333 shares inclusive of 43,333 shares underlying $1,733 of accrued interest, through March 31, 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 352,941 shares (or 366,275 shares inclusive of 13,334 shares underlying $2,667 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.







Page 16






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.





Moreover, cashless exercise provisions in warrants may have an additional adverse effect on the Company in that we would be required to reflect the value of such warrants as a potential liability to the Company.  No assurance can be made, therefore, that we will be able to raise 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.





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.







Page 17






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.





Page 18








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.







Page 19








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.







Page 20








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).





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 t o 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.







Page 21






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.





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.







Page 22






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.
 
 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.







Page 23




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.





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.





Page 24








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.





ITEM 1B.UNRESOLVED STAFF COMMENTS


Not Applicable.


ITEM 2.PROPERTIES






The Company formerly (until January 31, 2011) 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 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.





In September 2010, we entered into a lease for laboratory space with the University of California, Irvine (UCI) TechPortalTM 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.





We believe that all our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.


ITEM 3.LEGAL PROCEDINGS




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 4.(REMOVED AND RESERVED)





[Remainder of Page Intentionally Left Blank]













Page 25





PART II







ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.





Market Information





Our common stock is quoted under the symbol “INKN” on the OTC Markets system.  Our shares trade on a limited and sporadic basis and the trading price of our shares is not necessarily of the existence of a trading market for our securities or indicative of our value.  The following table sets forth, for the periods indicated, the high and low closing prices of our common stock.  These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission as adjusted to reflect the Forward Split, and may not represent actual transactions.


Closing Bid Prices(1)High

LowQuarter Ended December 31, 2010Year Ended December 31, 20104th Quarter
$
0.16
$
0.103rd Quarter

0.14

0.052nd Quarter

0.84

0.141st Quarter

0.25

0.10Year Ended December 31, 20094th Quarter
$
0.26
$
0.193rd Quarter

0.26

0.202nd Quarter

0.25

0.101st Quarter

0.20

0.01





(1)           The above table sets forth the range of high and low closing bid prices per share of our common stock as reported by www.quotemedia.com for the periods indicated, as adjusted for the Forward Split in April 2010.





Recently our stock has not been quoted on the OTC Bulletin Board, and is now being quoted by the OTC Market Group and on the Pink Sheets.  Our stock is no longer trading on the OTC Bulletin Board because the market maker that had filed originally to quote our stock on the OTC Bulletin Board is no longer providing quotes on the OTC Bulletin Board.  A large number of initiating market makers have ceased to provide quotes on the OTC Bulleting Board causing many companies to cease having quotations on the OTC Bulleting Board during 2010 and 2011.





Approximate Number of Holders of Our Common Stock





As of April 15, 2011, there were 220 holders of record of our common stock.  This number excludes the shares of our common stock owned by stockholders holding stock under nominee security position listings. In aggregate, we had 200,203,122 shares of common stock outstanding as of April 15, 2011.





Dividends





We have never declared or paid a cash dividend and do not foresee paying one in the near future, except to the extent our shareholders subsequently approve of and the Board of Directors then authorizes, our BlackBox common shares to be distributed to our shareholders.  Any future decisions regarding dividends will be made by our board of directors.  We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.  Our board of directors has complete discretion on whether to pay dividends, subject to the approval of our stockholders.  Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.







Page 26





Securities Authorized for Issuance Under Equity Compensation Plans





We have 750,000 shares and no options outstanding under our 2010 Stock Incentive Plan (the “2010 Plan”), which was adopted by the Board in December 2010 and has not yet been approved by stockholders. The 2010 Plan is the Company’s only equity compensation plan currently in effect. Under the 2010 Plan, 25,000,000 shares were authorized for issuance pursuant to awards made under the plan with 24,250,000 shares remaining available for issuance.  Options granted under the 2010 Plan are exercisable at prices at least equal to the fair market value of such stock on the dates the options were granted. Options expire ten years after the date of grant.





The following is a summary of the securities issued and authorized for issuance under the 2010 Plan at April 15, 2011:





Plan Category
(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights
(b) Weighted-average exercise price of outstanding options, warrants and rights
(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))Equity compensation plans approved by security holders
—
—
—Equity compensation plans not approved by security holders (1)
750,000

24,250,000Total





(1)
Includes the 2010 Plan, which has not yet been approved by stockholders. In addition, the Company has issued and may continue to issue share- and/or option -based compensation on occasion outside of any plan. To date only 750,000 options have been issued under this plan.





Recent Sales of Unregistered Securities





In November 2010, the Company issued 617,333 shares of common stock for conversion of investor convertible notes and accrued interest totaling $61,733.





In December 2010, the Company issued 511,893 restricted shares of common stock for conversion of convertible notes and accrued interest totaling $51,893.





In January 2011, pursuant our 2010 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 Plan.  These shares were registered for resale pursuant to a registration statement on Form S-8.





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.  The notes and their accrued interest were converted at $.10 per share (5,277,714 shares of common stock), and pursuant to the stock issuance considered paid in full.





In January 2011, the Company issued a 14% convertible note with a principal balance of $60,000 in exchange for $60,000.  The note is convertible at $.17 per share.  The note matures on October 1, 2012.





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 from a private investor.  In exchange, the Company agreed to issue 411,765 shares of common stock.





The Company reasonably believes that all of the issuances of securities described above were deemed to be exempt from registration in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering.  Each investor had a pre-existing relationship with the Company, represented that it had the financial wherewithal, knowledge and sophistication to invest in the securities of the Company and only legend restricted securities were issued.  In addition, each recipient represented that they are acquiring the securities as an investment only and not with a view towards distribution of the same to the public.  We made available to each investor with disclosure of all aspects of our business, including providing the investor with press releases, access to our auditors, and other financial, business, and corporate information.  Finally, all securities issued were either restricted with an appropriate restrictive legend on certificates for shares, notes and warrants issued stating that the securities (and underlying shares) have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption therefrom, or were issued pursuant to an exemption provided under Rule 144.








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Purchases of Equity Securities





No repurchases of our common stock were made during the fourth quarter of 2010.




ITEM 6.  SELECTED FINANCIAL DATA.




Not Applicable.











[Remainder of Page Intentionally Left Blank]




























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ITEM 7.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 financial statements and related notes included in this Report and the “Forward Looking Statements” section in the forepart of this Report (see page 1 above) and the “Risk Factors” set forth in Item 1A 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.





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 3 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.








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 StemDiscTM and its related software, as well as NanoShrinkTM based tissue engineering substrates known for our Cell AlignTM.  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 NanoShrinkTM (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 NanoShrinkTM 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.





Assets; Intellectual Property and Research Agreements





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





·
Our exclusive Corning License Agreement with Corning 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 UC 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.







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We also entered into other agreements, such as our agreement with the MF3 Consortium, accessing matching funds from MF3’s relationship with DARPATM, 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, this entity was inactive and had no revenues or assets. Ultimately our efforts in this space were not successful, and we sought to develop similar systems using a platform chemistry solution we licensed from the University of Chicago.  This license became the core asset of our BlackBox Semiconductor, Inc. subsidiary (a Delaware corporation).  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 a spin off transaction to sell its BlackBox business and retain approximately 20% of the equity in the post-spin-out business (pre dilution).
  Discussion of Business Strategy





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 StemDiscTM, Cell AlignTM and NanoShrinkTMproducts; (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.








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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.





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.





FIGATM Business





We have fashioned our business using a corporate development model called FIGATM which is an acronym that stands for: Finance, Industry, Government and Regulatory and Academia.  Under this model, we have sought to access experts in the market segments we seek to impact – by building an “expert network” comprised of people with backgrounds in specialized areas of finance, industry, government and regulatory affairs and academia.  We believe that as a small business with limited resources, attracting experts from these areas and using them as key drivers for how we allocate our resources will allow us to add more value - quicker - for our shareholders.





The trademark FIGATMand the domain name www.figa.org are owned by Noctua Fund Manager, LLC, an entity equally owned by Mark L. Baum, Esq. and James B. Panther, both directors and majority shareholders of the Company.  The Company presently does not pay for the use of the FIGATM trademark.  The branding of Shrink as a “FIGA business” has been widely used and the Company believes important to explaining Shrink’s business model of using an “expert network” in order to develop Shrink’s operational activities.





Proceeds of Debt Financing





Private Placement of 12% Convertible Notes and Series B Warrants





During November 2010, the Company issued, $117,000 in 12% convertible notes convertible at $.10 per share (post forward split), and 585,000 Series B Common Stock Purchase Warrants, exercisable at $0.20 per share (or, “Series B Warrants”) for a cash purchase price of $117,000.The Notes and Series B Warrants were sold at face value for each dollar amount of Notes sold.  No placement agent compensation has been paid in this financing.





The foregoing are the material terms of the 12% note and Series B Warrant financing.





2009 Private Placement of 12% Convertible Notes and Series A Warrants;





Between November 2009 through May, 2010, the Company issued, on a private basis, $635,000 (inclusive of $100,000  reported in our Annual Report on Form 10-K, as previously filed) of 12% convertible notes initially convertible (post forward split) at $.10 per share, and 2,675,000 Series A Common Stock Purchase Warrants, exercisable at $0.20 per share (or, “Series A Warrants”) as part of a  private financing at face value for a purchase price of $535,000.The notes are repayable one year from issuance (with some of the earliest issued notes becoming due in November 2010) and the warrants are exercisable commencing 6 months from issuance and expire 36 months from issuance.  At any time following its maturity date, the Company may induce conversion of the notes at a discounted rate at 80% of the effective conversion price. In November 2010 to January 2011, the Company note holders with total principal balances of $575,000 and accrued interest of $65,694 converted their principal and interest into 6,406,940 shares of common stock, and such notes, to the extent converted are deemed satisfied and discharged in full, with $60,000 of principal and their accrued interest remaining outstanding.





When combined with notes and warrants sold during late fiscal 2009 (andnot including any 14% convertible notes issued to Noctua Fund, LP) the following (andnot including any 14% convertible notes issued to Noctua Fund, LP)  is a brief summary of the notes and warrants outstanding:







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·
$177,000 principal amount 12% convertible notes, currently convertible at $.10 per share into an aggregate of 1,777,000 shares of common stock (plus shares issuable as interest), payable one year from their respective issuance dates, and





·
3,175,000 Series A Warrants, exercisable at $.20 per share, and expiring three years from their respective issuance dates.





·
585,000 Series B Warrants, exercisable at $.20 per share, and expiring three years from their respective issuance dates in 2010.





The foregoing are the material terms of the 12% note and Series A and B Warrant financing.  Other details of the same may be found below in this Annual Report.





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.





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.





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.  Historically, we have spent far less than the amounts we are otherwise committed to under the UCI Biosensing SRA.  The Biosensing Research 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 UC Regents.  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.





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.  Of this amount $202,796 is to 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 1⁄4 of the total cash fees payable during such 12 month period.





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.





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





The UCI Biosensing SRA 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 UCI Biosensing SRA (the “UCI Biosensing SRA 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 are 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 SRA 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 SRA 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 UCI Biosensing SRA, filed as an exhibit to our public filings, and is incorporated by reference herein.





Our research sponsorship obligations require us to provide funding (which may be from us or other third parties) totaling $632,051 during the three year term of the UCI Biosensing SRA.  Any funding amounts under the UCI Biosensing SRA are subject to adjustment down based on actual expenditures on the research.





The foregoing is a summary only of the UCI Biosensing SRA (which includes the form of UCI Biosensing SRA License annexed thereto), which is filed as an exhibit to our public filings.





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





No assurance can be made that the Company will attain the funding necessary to fulfill its funding obligations under the SRA 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 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).








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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 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.





Matching funds from DARPA Co-Funding Agreement





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 University of California, Irvine campus, which provides for partial “matched” funding from the Defense Advanced Research Projects Agency (or, “DARPA”).  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 fundings 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.





The foregoing are the material terms of the SRA Agreement and the DARPA Co-Funding Agreement, which are both  subject to risks and uncertainties, a copy of which were filed as an exhibit to this report as incorporated from our Current Report on Form 8-K, filed May 7, 2010.





Critical Accounting Estimates





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





Our intangible assets consist principally of intellectual properties such as licensing rights and patents. We are currently amortizing certain intangible assets using the straight line method based on an estimated legal life, of fifteen years.  We began amortization of the NanoShrinkTM related patents in June of 2008 since patent filings were first being filed.  The Company will re-evaluate its amortization practice once products related to these patents are put into full production.  When our products are placed in full production we can better evaluate market demand for our technology.





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






Page 34





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





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.





Year Ended December 31, 2010Compared to the Year ended December 31, 2009





Restatement of Financial Statements





The Company has restated its December 31, 2009 financial statements (the “Restatement”).  The Restatement was due to an error resulting from the Company’s failure to properly recognize expenses in the appropriate period.  More detail related to the Restatement can be found in the Notes to the Consolidate Financial Statements, Note 2.  The Company believes that the Restatement does not have a material effect on the trend of earnings and will not have any positive or negative effect on the operations of the business.





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





The most significant event and change to our Company during the year ended December 31, 2009, was the acquisition of Shrink on May 29, 2009, which is currently our only material business, and completion of our recent equity financing.  The Shrink Acquisition resulted in Shrink being the surviving entity for financial and accounting reporting purposes.  Our discussion herein, therefore, primarily relates to this business (except as indicated otherwise), as Shrink is our surviving entity for accounting purposes.Our acquisition of Shrink, along with our gradual liquidation and eventual impairment of AudioStocks assets resulted in a material change to our business that occurred during 2009.





As Shrink is a development stage company, we expect to incur substantial additional investment expenses in commercializing our Shrink related technologies.





Since our acquisition of Shrink we have also made various trademark applications relating to our ShrinkChip technologies and entered into additional service or research contracts to develop our manufacturing process.





The Company, including its subsidiaries, has not had any revenues in 2009 or 2010, as it is a research and development stage company.





Operating Expenses





Our Shrink related business had total operating expenses of $5,868,801 for the year ended December 31, 2010 and $1,716,318, as compared to the same period for the Shrink related business in 2009.  We expect operating expenses to continue to increase as we look to expand our current business operations and invest further in research and development activities.






Page 35





General and Administrative Expenses.  Our general and administration expenses increased to $5,108,016 in the fiscal year ended December 31, 2010 from $1,412,304 in 2009. This increase was mainly due to a significant increase in operating activities and company development.  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.  The costs of hiring these consultants were a significant part of the increase in our general and administrative expenses.





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 $148,503 in the fiscal year ended December 31, 2010 from $151,116 in 2009. The slight decrease was due to management stabilizing its fixed costs in this area throughout the year.





Depreciation and Amortization. Our depreciation expenses increased to $46,562 in the fiscal year ended December 31, 2010 from $27,146 in 2009, and our amortization expenses increased to $34,485 in the fiscal year ended December 31, 2010 from $3,336 in 2009. The increase in depreciation expenses was mainly due to the acquisition of assets during reverse acquisition of Shrink Nanotechnologies, Inc., and the increase in amortization expenses was mainly due to an increase of patent pending inventions and other related intellectual property acquired during the year.





Interest Expense. Interest expense increased to $660,451 in the fiscal year ended December 31, 2010 from $34,588 in 2009, primarily due to an increase of financing through convertible note issuances.





We expect operating expenses to continue as we invest further in research and development activities.  We do not have capital commitments yet to cover any of our operating expenses and to date.  To date, our capital needs for Shrink have been funded by grants, 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 From Operations





For the year ended December 31, 2010, we had a net loss of $6,529,252 from continuing operations as compared to a net loss of $1,869,027 from continuing operations for the period ended December 31, 2009.  Management attributes the increase in net loss to an increase in operational and research activities and no revenues during 2010.  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.





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 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.

















Page 36








Net Loss





In the fiscal year ended December 31, 2010, we generated a net loss of $6,529,252 compared to a net loss of $1,725,202 in 2009. The increase in net loss is due to an overall increase in our business operations.





Liquidity and Capital Resources





Our cash on hand at December 31, 2010 was $2,131 as compared to $58,539 on hand December 31, 2009.  The decrease is primarily attributable to management’s inability to raise capital through equity and debt financings.  During 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 the year ended December 31 2009, raising capital through the equity and debt financings.  The Company had no revenues during the years ended December 31, 2010 and 2009.





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)

Year Ended December 31,2010

2009Net cash provided by used in operating activities
$
(582,805)
$
(390,794)Net cash provided by (used in) investing activities

(145,603)

(76,107)Net cash provided by (used in) financing activities

672,000

487,500Net Increase (decrease) in Cash and Cash Equivalents

(56,408)

20,599Cash and Cash Equivalent at Beginning of the Year

58,539

37,940Cash and Cash Equivalent at End of the Year
$
2,131
$
58,539





In early May, 2010, through our entry into a Consortium Agreement with Micro/Nano Fluidics Fundamentals Focus MF3Center, as led by the University of California at Irvine,  our research qualified to receive matched funding from Defense Advanced Research Projects Agency, as described above.  Under the policies of the consortium agreement the Company’s funded research projects are eligible to receive matched funding on a dollar-for-dollar basis, for each dollar we invest in certain qualifying projects.   Since we are dependent on our ability to raise additional capital for our research, no assurance can be made that we will be able to utilize this funding source.  Even if we do raise additional capital, no assurance can be made that we will dedicate it towards those same research projects that qualify for DARPA matching funds.





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





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





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





Page 37





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 $9,000,000 in deficit cash flows through 2014until 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 government grants or offset by joint venturing development of our products.





Operating Activities





Net cash used in operating activities was $582,805 for the year ended December 31, 2010, as compared to $390,794 used in operating activities during 2009. The increase in net cash used in operating activities was mainly due to an increase in operating activities and a lack of revenue.





Investing Activities





Net cash used in investing activities for the year ended December 31, 2010 was $145,603 as compared to $76,107 net cash used in investing activities in 2009.  The increase in net cash used in operating activities was mainly due to an increase in business operations, research and development activities and a lack of revenue.





Financing Activities





Net cash provided by financing activities for the year ended December 31, 2010 was $672,000, as compared to $487,500 net cash provided by financing activities for the year ended December 31, 2009. The increase 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.





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 $100,000 between 2008 and April 2009, as represented by the 14% convertible promissory note, convertible at $.04 per share; and the identical $118,000 14% convertible promissory note, convertible at $.04 per share, reflecting loans to our Shrink subsidiary prior to our acquisition of them, to fund their operations.  Interest to date on the notes exceeds $58,000 and both of the foregoing notes to Noctua are in default.





The Company raised $100,000 through a Convertible Note and Series A Warrant financing during the year ended December 31, 2009, and an additional $535,000 from January 2010 through March 2010, and $117,000 through a Convertible Note and Series B Warrant financing in November 2010, with gross proceeds to the Company of $752,000.





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 annual report.  A portion of our research is being conducted by the University of California.  We will continue to seek to fund our capital requirements over the next 12 months from the additional sale of our securities; however, it is possible that we will be unable to obtain sufficient additional capital through the sale of our securities as needed.





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





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





The Company estimates that it will cost approximately $8,000,000 in deficit cash flows until sustained potential profitability, and that substantial additional costs will be incurred in order to commercialize its Shrink related technologies.





Page 38





Trends





To a great extent, we expect government grants and university/academic funding to be cyclical based on public policy (e.g. stem cell research limitations), the amount allocated by governments and universities generally to commercial and developmental research, and general economic trends. We expect that we will have to compete diligently in order to secure grants and research funding from universities, if feasible.  We also 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





The Company subleased space from Business Consulting Group Unlimited, Inc., an entity owned by two of our directors and majority stockholders, James B. Panther, and Mark L. Baum, Esq. 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 was terminated on January 31, 2011.  For the year ended December 31, 2010 $50,000 had been paid to Business Consulting Group Unlimited, Inc and $18,000 was owed to Business Consulting Group Unlimited, Inc.





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 of 21 months ending in October 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. The Second Amended Operating Agreement expires October 1, 2012.  For the year ended December 31, 2010 $121,000 had been paid to BCGU, LLC and there was $585,000 owed to BCGU, LLC.  This liability is recorded in accounts payable and accrued expenses 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.





Page 39





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.





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 March of 2010, we issued 7,250,000 shares valued at $1,595,000 to a consultant in satisfaction of a one year consulting agreement originally entered into in January, 2010 for assistance in developing the Company’s biotech and related products and, in providing research, prototype and product development assistance on our life sciences related products as well instructional videos and materials for use in academic and corporate laboratories.  The agreement is renewable by the parties for successive one-year periods and provides, among other things, for cash compensation at $250.00 per hour commencing only after June 4, 2010, for services if and as requested and agreed to by the Company.  This agreement also provides that any inventions or intellectual property created or discovered by the consultant during the course of providing services for the Company shall belong to the Company and also provides for indemnification by the consultant for damages from claims brought as a result of the consultant’s violation of law or fraudulent misrepresentations or breach of the agreement.





In March of 2010, we issued 8,700,000 shares valued at $1,914,000 to a consultant in satisfaction of a consulting agreement entered into in January of 2010, for public relations, assistance with press releases and branding, marketing awareness programs, procurement of third party research and web/statistical content and investor relations. The agreement provides, among other things, that any inventions or intellectual property created or discovered by the consultant during the course of providing services for the Company shall belong to the Company and also provides for indemnification by the consultant for damages from claims brought as a result of the consultant’s violation of law or fraudulent misrepresentations or breach of the agreement.





In March of 2010, we issued 1,500,000 shares valued at $162,000 to a consultant in satisfaction of a consulting agreement entered into in February of 2010, for services relating to marketing of our medical device products, and marketing to researches, academia and medical professionals. The agreement is renewable by the parties for successive one-year periods and provides, among other things, for cash compensation at $250.00 per hour commencing only after July 15, 2010, for services if and as requested and agreed to by the Company.  This agreement also provides that any inventions or intellectual property created or discovered by the consultant during the course of providing services for the Company shall belong to the Company and also provides for indemnification by the consultant for damages from claims brought as a result of the consultant’s violation of law or fraudulent misrepresentations or breach of the agreement.





In March of 2010, we issued 600,000 shares, subject to lock-up and release 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.





In March of 2010, we issued 180,000 restricted shares valued at $30,600 to a consultant in satisfaction of a consulting agreement entered into in March 2010, for services rendered.





In March of 2010, we issued 112,500 restricted shares valued at $19,125 to a member of the Scientific Advisory Board, pursuant to an agreement dated as of March 1, 2010.





In March of 2010, we issued 40,000 restricted shares valued at $5,560 (in addition to 60,000 shares issued in November 2010) as payment for professional services rendered. No additional amounts are owed for services under this agreement for said time period.







Page 40




In May of 2010, we issued 40,000 shares valued at $11,958 as payment for professional services rendered.





In May of 2010, we issued 50,000 shares valued at $10,500 as payment for marketing services related to press releases and branding. No additional amounts are owed under this agreement for said period.





In May of 2010, we issued 1,000,000 restricted shares valued at $204,000 to Dr. Sayatani Ghosh, a member of the Scientific Advisory Board (“SAB”) since 2009, pursuant to her agreement dated March 1, 2009.  This agreement has expired by its terms and no additional amounts are owed under said agreement.





In July of 2010, we issued 40,000 restricted shares valued at $5,100 as full payment for professional services rendered during the months of June and July.  No additional amounts are owed for these months of service under this agreement.





In July of 2010, pursuant to a consulting agreement entered into as of June 1, 2010, we issued 76,364 restricted shares valued at $12,000 as payment for solar research and film manufacturing related consulting services rendered during the months of June and July.  The consulting agreement is for a one year term and requires payment of a monthly fee of $6,000 to be paid in shares of common stock of the Company for the duration of the term unless terminated early.





In July of 2010, we issued 395,833 restricted shares valued at $92,625 as payment for financial advisory related services, and development of financial models and due diligence research from December 2009 through May of 2010.  In addition, the Consultant was paid cash compensation of $27,708 in 2010. No additional amounts are owed under said agreement.





In January 2011, pursuant our 2010 Plan (see Note 12.), 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 Plan.





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





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.





Lease For Space At University Of California- Irvine, TechPortalTM





In September 2010, the Company entered into a lease for laboratory space with the University of California, Irvine (UCI) TechPortalTM technology facilitator center, which lease commences 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 the Company’s UCI developed patents under the Company’s exclusive license agreement with UCI entered into in April of 2009.  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 with each party required to bear the costs of their own insurance and related expenses.  The Company did not effectively commence utilizing this space until November of 2010.  The foregoing is a summary only of this lease, a copy of which is filed as an exhibit to this Report.





Recent Accounting Pronouncements





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





Page 41





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 as of January 31, 2011.





In September 2010, we entered into a lease for laboratory space with the University of California, Irvine (UCI) TechPortalTM 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 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 December 31, 2010, and, at December 31, 2009, we have not entered into any type of hedging or interest rate swap transaction.  We do not have any foreign operations or research activities, and, management believes, we do not have exposure to financial product risks.





Need for Additional Capital





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





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





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





Effects of Inflation





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





Off Balance Sheet Arrangements





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





Seasonality





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







Page 42








ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Not Applicable.




ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.





The information required by this Item 8 is incorporated by reference to the Index to Consolidated Financial Statements beginning at page F-1 of this Annual Report.





Restatement of the Audited Financial Statements for 2009





The Company has restated its December 31, 2009 financial statements.  The Restatement was due to an error resulting from the Company’s failure to properly recognize expenses in the appropriate period.  The Restatement adjusts the reported results for improper prepaid expense recognition of $270,000 related to a signature bonus awarded to a related party at October 1, 2009 and the subsequent amortization of the expense.  To properly recognize the expense in our restated financial statements, the Company recognized a $270,000 expense at October 1, 2009 and removed the prepaid expense from our Balance Sheet as of December 31, 2009.
  [Remainder of Page Intentionally Left Blank]

























Page 43





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors


Shrink Nanotechnologies, Inc.


Irvine, California





We have audited the accompanying consolidated balance sheets of Shrink Nanotechnologies, Inc. (a development stage company) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended and for the period from January 15, 2008 (inception) through December 31, 2010.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Shrink Nanotechnologies, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended and for the period from January 15, 2008 (inception) through December 31, 2010, in conformity with accounting principles generally accepted in the United States.





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  The Company has not yet generated revenue, has incurred losses from operations, and is dependent on financing to continue operations.  These conditions raise substantial doubt about the Company's ability to continue as a going concern.  Management’s plans in regard to these matters are described in Note 3.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.





/S/ PETERSON SULLIVAN LLP





Seattle, Washington


April 15, 2011









F-1











SHRINK NANOTECHNOLOGIES, INC.(A Development Stage Company)CONSOLIDATED - BALANCE SHEETSDecember 31,

December 31,2010

2009(restated)ASSETSCurrent assetsCash
$
2,131
$
58,539Litigation receivable, discontinued operations

-

108,011Prepaid expenses

29,062

130,241Total current assets

31,193

296,791Property, plant and equipment, net

22,806

140,054Intangible assets, net

52,948

219,062TOTAL ASSETS
$
106,947
$
655,907LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilitiesAccounts payable and accrued expenses
$
962,484
$
631,840Due to former preferred stock shareholders

-

143,825Due to related parties

606,250

354,500Convertible debentures, net of discount

446,479

13,611Convertible debentures, net of discount, default - related party

238,121

218,121Total current liabilities

2,253,334

1,361,897TOTAL LIABILITIES

2,253,334

1,361,897COMMITMENTSSTOCKHOLDERS' DEFICITPreferred stock, 25,000,000 shares authorized, $0.001 par valueissued and outstanding 20,000,000 and 20,000,000at December 31, 2010 and December 31, 2009 respectively

20,000

20,000Common stock, 475,000,000 shares authorized, $0.001 par valueissued and outstanding 194,035,408 and 172,921,485at December 31, 2010 and December 31, 2009, respectively

194,035

172,921Additional paid in capital

5,982,525

914,784Accumulated deficit

(8,342,947)

(1,813,695)TOTAL STOCKHOLDERS' DEFICIT

(2,146,387)

(705,990)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
$
106,947
$
655,907The accompanying notes are an integral part of these financial statements











F-2














SHRINK NANOTECHNOLOGIES, INC.(A Development Stage Company)CONSOLIDATED - STATEMENTS OF OPERATIONSFrom InceptionFor the year ended

For the year ended

January 15, 2008December 31,

December 31,

through December 31,2010

2009

2010(restated)

(restated)Revenues:Revenues, net
$
-
$
-
$
-Cost of sales

-

-

-Gross Profit

-

-

-ExpensesResearch and development

183,314

122,416

385,082Professional fees

148,503

151,116

299,619General and administrative

5,108,016

1,412,304

6,529,461Loss on asset impairment

347,921

-

347,921Depreciation and amortization

81,047

30,482

111,529Total operating expenses

5,868,801

1,716,318

7,673,612Loss from operations

(5,868,801)

(1,716,318)

(7,673,612)Other Income (Expense)Interest expense

(660,451)

(34,588)

(695,039)Loss from extinguishment of debt

-

(118,121)

(118,121)Total Other Income (Expense)

(660,451)

(152,709)

(813,160)Loss from continuing operations

(6,529,252)

(1,869,027)

(8,486,772)Discontinued OperationsGain from discontinued operations of Audiostocks business

-

143,825

143,825Income (loss) from discountinued operations

-

143,825

143,825(Loss) Before Income Taxes

(6,529,252)

(1,725,202)

(8,342,947)Income Taxes

-

-

-NET (LOSS)
$
(6,529,252)
$
(1,725,202)
$
(8,342,947)Net (loss) per common share, basic and diluted:(Loss) from continuing operations

(0.03)

(0.02)Income from discontinued operations

-

0.00Net (loss) per common share:
$
(0.03)
$
(0.01)Weighted average common and common equivalent shares outstandingBasic and diluted

188,486,499

117,799,762The accompanying notes are an integral part of these financial statements














F-3








SHRINK NANOTECHNOLOGIES, INC.(A Development Stage Company)CONSOLIDATED - STATEMENTS OF CASH FLOWSFrom InceptionFor the year ended

For the year ended

January 15, 2008December 31,

December 31,

through December 31,2010

2009

2010(restated)

(restated)CASH FLOWS FROM OPERATING ACTIVITIESNet loss
$
(6,529,252)
$
(1,725,202)
$
(8,342,947)Adjustments to reconcile net loss to net cash usedin operating activities:Depreciation and amortization

81,047

30,482

111,529Loss on asset impairment

347,921

-

347,921Debt discount accretion

551,701

13,611

565,312Non-cash share-based payments

4,297,769

539,799

4,837,568Loss from extinguishment of debt

-

118,121

118,121Changes in assets and liabilities, net of effects from acquisitionsPrepaid expenses

121,429

(130,241)

(8,812)Litigation receivable

108,011

(106,339)

1,672Accounts payable, accrued expenses and other current liabilities

438,569

868,975

1,342,882NET CASH USED IN OPERATING ACTIVITIES

(582,805)

(390,794)

(1,026,754)CASH FLOWS FROM INVESTING ACTIVITIESCash purchased at acquisition

-

62,404

62,404Additions to property

-

(16,113)

(16,113)Additions to intangible assets

(145,603)

(122,398)

(268,001)NET CASH USED IN INVESTING ACTIVITIES

(145,603)

(76,107)

(221,710)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from subsidiary prior to merger

-

12,500

12,500Proceeds from issuance of common stock

-

355,000

355,001Proceeds from convertible debentures

672,000

120,000

883,094NET CASH PROVIDED BY FINANCING ACTIVITIES

672,000

487,500

1,250,595NET CHANGE IN CASH

(56,408)

20,599

2,131CASH BALANCESBeginning of period

58,539

37,940

-End of period
$
2,131
$
58,539
$
2,131SUPPLEMENTAL DISCLOSURE:Interest paid
$
437
$
312
$
-Income taxes paid
$
-
$
-
$
-NON-CASH INVESTING AND FINANCING TRANSACTIONS :Stock based prepaid expenses
$
20,250
$
-
$
-Liabilities assumed through reverse acquisition
$
-
$
186,297
$
-License acquired through issuance of stock
$
-
$
100,000
$
-Stock issued to satisfy convertible debt obligation
$
112,922
$
57,500
$
-The accompanying notes are an integral part of these financial statements














F-4











SHRINK NANOTECHNOLOGIES, INC.(Development Stage Company)STATEMENTS OF STOCKHOLDERS'' EQUITY (DEFICIT)From January 15, 2008 date of inception through December 31, 2010Preferred Stock
Common Stock

Additional

Deficit accumulated

TotalPar


Par

Paid-in

during  theShares

Value
Shares

Value

Capital

development stage(restated)

(restated)Issuance founder shares
50
$
-
44,444,440
$
44,444
$
(44,443)
$
-
$
1Net Loss
-

-
-

-

-

(88,493)

(88,493)Balance at December 31, 2008
50

-
44,444,440

44,444

(44,443)

(88,493)

(88,492)Reverse merger
20,000,100

20,000
115,004,875

115,005

(153,896)

-

(18,891)Beneficial conversion feature convertible notes
-

-
-

-

69,900

-

69,900Value associated with warrants detachedfrom notes
-

-
-

-

30,100

-

30,100Conversion of convertible debt
-

-
1,916,670

1,916

55,584

-

57,500Issuance of shares for license issuance fee
-

-
495,500

496

99,504

-

100,000Shares issued for cash at $.04 per share
-

-
8,875,000

8,875

346,125

-

355,000Issuance of shares for services valued at$.215 per share
-

-
2,185,000

2,185

467,713

-

469,898Value of stock options granted
-

-
-

-

69,901

-

69,901Cancellation of series c preferred stock
(150)

-
-

-

(143,825)

-

(143,825)Loss from extinguished debt
-

-
-

-

118,121

-

118,121Net Loss
-

-
-

-

-

(1,725,202)

(1,725,202)Balance at December 31, 2009
20,000,000

20,000
172,921,485

172,921

914,784

(1,813,695)

(705,990)Beneficial conversion feature convertible notes
-

-
-

-

80,679

-

80,679Value associated with warrants detachedfrom notes
-

-
-

-

590,154

-

590,154Conversion of convertible debt at $.10 per share
-

-
1,129,226

1,129

111,793

-

112,922Issuance of shares for services valued at$.21 per share
-

-
19,984,697

19,985

4,088,260

-

4,108,246Value of stock options granted
-

-
-

-

196,854

-

196,854Net Loss
-

-
-

-

-

(6,529,252)

(6,529,252)Balance at December 31, 2010
20,000,000
$
20,000
194,035,408
$
194,035
$
5,982,525
$
(8,342,947)
$
(2,146,387)The accompanying notes are an integral part of these financial statements











F-5





SHRINK NANOTECHNOLOGIES, INC.


Notes to the Consolidated Financial Statements


For the year ended December 31, 2010 and 2009 (restated)





NOTE 1.  ORGANIZATION





Shrink Nanotechnologies, Inc. (the “Company or the “Successor Entity” or “us” or “we”) was 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 Company changed its name to Shrink Nanotechnologies, Inc.  Following a shareholder action described in a Form 14C filed with the Securities and Exchange Commission on February 15, 2010, the Board of Directors effected a 5 for 1 forward split.  All per share amounts and calculations in our presentation reflect this change.





On May 29, 2009, the Company entered into and completed a share exchange agreement withShrink Technologies, Inc., (“Shrink”) a privately-owned California corporation which held most of our Shrink related business and intellectual property assets.   The exchange of shares with Shrink Technologies, Inc. has been accounted for as a reverse acquisition with the business of Shrink Technologies, Inc. as the surviving Company for accounting and financial reporting purposes.  Accordingly, the acquisition has been recorded as a recapitalization of the Company.  Therefore, the historical financial statements presented prior to the acquisition date, are those of Shrink Technologies, Inc., the operating entity and consolidated with the Company post acquisition (see Note 5.).





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.





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 StemDiscTM and its related software, as well as patent pending NanoShrinkTM based issue engineering substrates known for our Cell AlignTM.  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 NanoShrinkTM that will enable the low cost development of two dimensional microfluidic system prototypes.  Our Special Substrates business is developing specialized versions of NanoShrinkTM substrates that have unique surface plasmon resonance capabilities and which may be integrated into existing market leading devices and systems, including immunoassays.  And finally, our Internal Development and Acquisitions Unit is actively seeking and/or 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.





Our corporate mission is to become a leading high technology development company.  While we presently possess unique product and technology capabilities for the cell culture, immunoassay development, cell imaging, device prototyping and drug discovery markets, we intend to continue to create shareholder value through organic and inorganic growth.





NOTE 2.     RESTATED FINANCIAL STATEMENTS





The Company’s financial statements for the year ended December 31, 2009 have been restated to record $270,000 of expenses related to the BCGU, LLC Amended Operating Agreement Signature Bonus (the “Signature Bonus”) at the effective date of the Amended Operating Agreement, October 1, 2009 and remove $270,000 in prepaid expenses at October 1, 2009.  The Company has also reversed the subsequent expense accruals related to the prepaid balance.  The Restatement was due to an error resulting from the Company’s failure to properly recognize expenses in the appropriate period.  The Company determined that all of the services provided by BCGU, LLC related to the Signature Bonus had been provided immediately at the time of the agreement effective date and that there were no provisions found in the agreement that allowed the Company any type of recourse related to that amount.  The prepaid expense asset related to the Signature Bonus previously recorded for the year ended December 31, 2009 has been expensed in full in these restated financial statements.


F-6





The Company has also reclassed $9,908 of non-current prepaid expenses as current prepaid expenses, to correctly reflect the corresponding expense recognition period related to that amount and relcassed amounts due to BCGU, LLC from the line item “Accounts payable and accrued expenses” to “Due to related parties” on the Balance Sheets.





The following summarized financial statements compare of the Company’s original and restated financial statements.





CONSOLIDATED - BALANCE SHEETSDecember 31,

December 31,2009

2009(original)

(restated)ASSETSCurrent assetsCash
$
58,539
$
58,539Litigation receivable

108,011

108,011Prepaid expenses

120,333

130,241Total current assets

286,883

296,791Prepaid expenses, non-current

257,408

-Property, plant and equipment, net

140,054

140,054Intangible assets, net

219,062

219,062TOTAL ASSETS
$
903,407
$
655,907LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilitiesAccounts payable and accrued expenses
$
973,840
$
631,840Due to former preferred stock shareholders

143,825

143,825Due to related parties

12,500

354,500Convertible debentures, net of discount

13,611

13,611Convertible debentures, net of discount, default - related party

218,121

218,121Total current liabilities

1,361,897

1,361,897TOTAL LIABILITIES

1,361,897

1,361,897COMMITMENTSSTOCKHOLDERS' DEFICITPreferred stock, 25,000,000 shares authorized, $0.001 par valueissued and outstanding 20,000,000 at December 31, 2009

20,000

20,000Common stock, 475,000,000 shares authorized, $0.001 par valueissued and outstanding 172,921,485 at December 31, 2009

172,921

172,921Additional paid in capital

914,784

914,784Accumulated deficit

(1,566,195)

(1,813,695)TOTAL STOCKHOLDERS' DEFICIT

(458,490)

(705,990)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
$
903,407
$
655,907











F-7











CONSOLIDATED - STATEMENTS OF OPERATIONSFor the year ended

For the year endedDecember 31,

December 31,2009

2009(original)

(restated)Total operating expenses
$
1,468,818
$
1,716,318Loss from operations

(1,468,818)

(1,716,318)Total Other Income (Expense)

(152,709)

(152,709)Loss from continuing operations

(1,621,527)

(1,869,027)Income from discontinued operations

143,825

143,825(Loss) Before Income Taxes

(1,477,702)

(1,725,202)Income Taxes

-

-NET (LOSS)
$
(1,477,702)
$
(1,725,202)Net income (loss) per common share, basic and diluted:(Loss) from continuing operations

(0.01)

(0.02)Income from discontinued operations

0.00

0.00Net (loss) per common share:
$
(0.01)
$
(0.01)








NOTE 3.                   GOING CONCERN





The accompanying financial statements have been prepared assuming the Company will continue as a going concern.  Because of the recurring operating losses, no revenues 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 4.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Principles of Consolidation





The consolidated balance sheets include the accounts of Shrink Nanotechnologies, Inc. and its wholly owned subsidiaries, Blackbox Semiconductor, Inc. and Shrink Technologies, Inc., and thereby reflecting the transactions related to the May 29, 2009 effective date of the Exchange Agreement. The consolidated statements of operations include the operations (which consisted mostly of research and development) of the predecessor entity, Shrink Technologies, Inc. from inception on January 15, 2008  and the Company from May 29, 2009, the effective date of the acquisition of the Shrink business.  All significant intercompany accounts and transactions have been eliminated in consolidation.







F-8








Use of Estimates





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





Cash and Cash Equivalents





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





Prepaid Expenses





Prepaid expenses consisted of the following at:





December 31,

December 31,2010

2009(restated)Prepaid stock based consultant fees
$
20,250
$
120,333Other prepaid expenses

8,812

9,908Total Current Prepaid Expenses
$
29,062
$
130,241





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 year ended December 31, 2010 and 2009 the Company recorded $46,562 and $27,146 in depreciation expense, respectively.





December 31,

December 31,2010

2009Property Plant and Equipment, net:Computer Software and Hardware
$
9,559
$
138,166Furniture and Equipment

28,181

28,181Building Improvements

853

853Less:  Accumulated Depreciation

(15,787)

(27,146)Total
$
22,806
$
140,054





On December 31, 2010, the Company considered its Stockvert assets fully impaired.  Management concluded the asset was no longer being utilized and did not hold any current or future economic benefit for the Company.  The Company does not expect to sell the asset, nor does management plan to pursue potential buyers.  As a result of the impairment, the Company recorded a loss related to the impairment of its Stockvert assets of $67,869.





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 at least 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, 8-15 years, using the straight-line method.





Intangible assets consisted of the following at December 31, 2010 and December 31, 2009:






F-9





December 31,

December 31,2010

2009Intangible Assets, net:Patents
$
-
$
98,559License

41,997

112,902Trademarks

11,353

10,938Less: Amortization

(402)

(3,337)Total
$
52,948
$
219,062





During the year ended December 31, 2010 the Company terminated its license agreement with the University of California Regents Merced, originally entered into on April 29, 2009, UC Control No. 2009-04-0590 (the “Microfluidics License”). The Company believes that there are commercially viable and affordable alternatives to the lost licenses that do not affect the Company’s intended product offerings.  In addition, the Company still owns and maintains, its rights to the ShrinkChipTM related trademarks, which were not part of the terminated Microfluidics License.  As a result of the terminated license, the Company recorded a loss related to the impairment of the intellectual property rights associated with the license of $280,052.





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 the years ended December 31, 2010 and 2009 the Company recorded $34,485 and $3,336 in amortization expenses, respectively.   At this time, estimated future amortization for the fiscal years ended on December 31 is expected to be as follows:





For the year ending

Amount2011
$
5,2502012

5,2502013

5,2502014

5,250After 12/31/2014

31,948








Provision for Income Taxes





The Company determines whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position.  If the more-likely-than- not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.





Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.





F-10





The components of current income tax expense as of December 31, 2010 and 2009 consist of the following:





December  31,

December  31,2010

2009(restated)Current federal tax expense
$
-
$
-Current state tax expense

-

-Change in NOL benefits

(1,640,219)

(581,941)Change in depreciation differences

-

-Change in contribution benefits

-

-Change in valuation allowance

1,640,219

581,941$
-
$
-





The net deferred income taxes in the accompanying balance sheet include the following amounts of deferred income tax assets:





December  31,

December  31,2010

2009(restated)Net income tax assets:Net operating loss carryforward
$
2,252,248
$
612,029Contribution carryforward

-

-Less: Deferred income tax liabilitiesDepreciation differences

-

-Less: Valuation allowance

(2,252,248)

(612,029)Net deferred income tax asset
$
-
$
-








The following is a reconciliation of the provision for income taxes at the United States of America federal income tax rate to the income taxes reflected in the statements of operations:





Tax expense (credit) at statutory rate – federal 35%


State tax expense net of federal tax 8.75%


Change in valuation allowance 43.75%


Tax expense at actual rate 0%





As of December 31, 2010, the Company’s net deferred tax assets are offset by a valuation allowance of $2,252,248. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the year in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment.





As of December 31, 2010 and 2009, the Company has approximately $6,714,260 and $1,552,000, respectively, of net operating loss carryforwards available to reduce future taxable income. These carryforwards will begin to expire in 2028.





At December 31, 2010, the Company had no unrecognized tax benefits that, if recognized, would affect the effective tax rate.





The Company did not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.





The Company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes.  As of December 31, 2010 and 2009, the Company had no accrued interest or penalties related to uncertain tax positions.







F-11





The tax years that remain subject to examination by major taxing jurisdictions are those for the years ended December 31, 2010 through 2008 (inception).





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.





Convertible Notes





We calculated the value of the beneficial conversion feature embedded in the Convertible Notes.  If the note is contingently convertible, the intrinsic value of the beneficial conversion feature is not recorded until the note becomes convertible.





Convertible notes are split into two components: a debt component and a component representing the embedded derivatives in the debt. The debt component represents the Company’s liability for future interest coupon payments and the redemption amount. The embedded derivatives represent the value of the option that debtholders have to convert into ordinary shares of the Company.  If the number of shares that may be required to be issued upon conversion of the Convertible Notes is indeterminate, the embedded conversion option of the Convertible Notes are accounted for as derivative instrument liabilities rather than equity.





The debt component of the convertible note is measured at amortized cost and therefore increases as the present value of the interest coupon payments and redemption amount increases, with a corresponding charge to finance cost – other than interest. The debt component decreases by the cash interest coupon payments made. The embedded derivatives are measured at fair value at each balance sheet date, and the change in the fair value is recognized in the income statement.





Concentration of Risk





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





F-12





Basic Net Loss per Share of Common Stock





Basic net loss per common share is based on the weighted average number of shares outstanding during the periods presented.  Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period.  At December 31, 2010 there was $996,235 in convertible debt outstanding, 20,000,000 preferred shares and stock options that total 39,161,145 in common stock equivalents.  The Company also has consulting contracts involving possible common stock issuances of up to approximately 2,365,000 shares.  Common stock equivalents resulting from the issuance of these stock options have been considered, but have not been included in the per share calculations because such inclusion would be anti-dilutive.





For the year ended

For the year endedDecember 31, 2010

December 31, 2009(restated)Numerator – (loss)
$
(6,529,252)
$
(1,869,027)Denominator – weighted averagenumber of shares outstanding

188,486,499

117,799,762Loss per share from continuing operations
$
(0.03)
$
(0.02)





Research and Development





The Company expenses all costs related to research and development as they are incurred.





Recent Accounting Pronouncements





In January 2010, the FASB issued amended guidance on fair value measurements and disclosures. The new guidance requires additional disclosures regarding fair value measurements, amends disclosures about postretirement benefit plan assets, and provides clarification regarding the level of disaggregation of fair value disclosures by investment class. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for certain Level 3 activity disclosure requirements that will be effective for reporting periods beginning after December 15, 2010. Accordingly, we adopted this amendment effective January 1, 2010, except for the additional Level 3 requirements which will be adopted in 2011.





In March 2010, the Financial Accounting Standards Board (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. This guidance is effective for us January 1, 2011 and is not expected to have a material impact to our consolidated financial position or results of operations.





NOTE 5.  REVERSE ACQUISITION-RELATED PARTY





On May 29, 2009, the Company entered into and completed a reverse acquisition following the Share Exchange Agreement pursuant to which Shrink Nanotechnologies, Inc. acquired 100% ownership of Shrink Technologies, Inc., and settled and restructured certain debts in exchange for the issuance of 44,444,440 shares of the of common stock and 50 shares of preferred stock of Shrink Nanotechnologies, Inc.  The assets and business that were acquired by us as a result of the Share Exchange comprised primarily of an exclusive licensing agreement (the “License Agreement”) with the University of California Regents Merced.





This transaction was accounted for as a reverse acquisition. As a result, all financial information prior to May 29, 2009 is that of Shrink Technologies, Inc.  Following the merger, a reverse merger adjustment was made to reflect Shrink Nanotechnologies, Inc. capital structure.  All of the assets and liabilities acquired in the reverse acquisition were recorded at cost.





F-13





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





Total Assets
$ 31,815Liabilities
$   212,339Stockholders’ Deficit
(180,524)Total Liabilities and Stockholders’ Deficit
$ 31,815





The following represents the approximate pro-forma effect assuming the acquisition with the companies had occurred on January 1, 2010 and 2009, the beginning of the Company’s current fiscal year, including proforma adjustments for depreciation and interest expense.





For the year ended

For the year endedDecember 31, 2010

December 31, 2009(restated)Net Loss
$
(6,529,252)
$
(1,389,054)Earning per share
$
(0.04)
$
(0.01)





Shrink Technologies, Inc.’s president is and was Mark L. Baum, Esq., a director and shareholder of the Company prior to the acquisition.  Mr. Baum is now president and CEO of Shrink Nanotechnologies, Inc.





NOTE 6.  RESEARCH AND LICENSE AGREEEMENTS





A.
UCM Research and License Agreements (April 2009) – Terminated





On June 16, 2008 we entered into an agreement (the “Option Agreement”) with the Regents of the University of California, Merced.  Parallel to the Option Agreement, Shrink entered into another agreement (the “Research Agreement”) with the UC Regents, based on work which was to be performed at the University of California, Merced.





The Option Agreement provided Shrink with the exclusive right to license two patent pending inventions (the “Regents Inventions”), and required Shrink to make annual payments to the Regents as well as royalty payments on any commercialized products based on the Regents Inventions.   Shrink’s rights under the Option Agreement required customary measures of performance on the part of Shrink in terms of patent cost maintenance and other payments of costs associated with the Regents Inventions.  With respect to the Option Agreement, Shrink’s rights were broad in terms of the potential access Shrink had to use the Regents Inventions in products, and services and many of the key economic terms of a future license, should Shrink exercise it’s rights under the Option Agreement, were agreed to in the Option Agreement.





We exercised our rights under the Option Agreement and as a result, entered into the License Agreement for processes for microfluidic fabrication and other inventions with the Regent on April 29, 2009.





On December 13, 2010, the Company terminated its License Agreement with the UC Regents Merced, (the “Microfluidics License”). This license required that the Company continue to pay ongoing research costs as well as license fees, in exchange for an exclusive license to use certain microfluidic fabrication and other inventions.  Some of these patent rights also related to the Company’s ShrinkChip Manufacturing Solution TM, however, the Company believes that there are commercially viable and affordable alternatives to the lost licenses that do not affect the Company’s intended product offerings.  In addition, the Company still owns and maintains, its rights to the ShrinkChipTM related trademarks, which were not part of the terminated Microfluidics License. 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 amount is included in accounts payable, and is subject to dispute.  In addition, the Company is required to cover certain legal patent costs during the 90 day period after termination.  The Company does not believe that it has any other costs or liabilities relating to this license agreement.





The Research Agreement committed Shrink to fund research based on the Regents Inventions at UCM up to the amount of $640,935 in accordance with a planned budget.  The Research Agreement provided Shrink with an exclusive right to license all technology that is discovered from the monies funded to UCM through the Research Agreement.  Shrink is required to reimburse UCM on a quarterly basis for all direct and indirect cost incurred in connection with the research.  These funds are used to fund researchers’ salaries, equipment, materials, supplies, and other miscellaneous expenses incurred by UCM.





F-14








On May 7, 2010, pending a review by our executive and management team, we requested that UC Merced halt all expenditures under the UC Merced Research Agreement.  Subsequent to the aforementioned review, going forward, Shrink management does not foresee conducting and therefore funding research under its current agreement with the UC Regents related to the Merced campus.





B.   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 1⁄4 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-15





C.  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 period ended December 31, 2010 the Company had not recorded any grant revenues related to this agreement.





D.   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.





E.   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.








F-16





Subsequent to December 31, 2010, the Company entered into an agreement to spin out this business 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.





NOTE 7.  COMMITMENTS AND LEASES – RELATED PARTY





The Company previously shared office space with the Noctua Fund Manager, LLC, which is affiliated with two of our directors.  On January 1, 2009 we began accruing a $2,500 rental expense each month for the use of the space.  From January 1, 2009 to May 28, 2009 there was not a written agreement; there was a verbal agreement between the two companies.  The verbal agreement ceased on May 29, 2009, pursuant the Company’s execution of a sublease.





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 December 31, 2010 and 2009, there was $3,250 and $12,500 owed to the Noctua Fund Manager, LLC, respectively, and $9,250 and $0 had been paid to the Noctua Fund Manager, LLC during the years ended December 31, 2010 and 2009, respectively.  This liability is recorded as Due to related parties our balance sheets.





The Company subleases space from Business Consulting Group Unlimited, Inc., an entity owned by Panther and Baum, 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. expired April 30, 2010, and has continued as a month to month tenancy thereafter.   For the years ended December 31, 2010 and 2009 $50,000 and $28,000 had been paid to Business Consulting Group Unlimited, Inc. and $18,000 and $0 was owed to Business Consulting Group Unlimited, Inc., respectively.  This liability is recorded in recorded in Due to related parties on our balance sheets





On May 29, 2009, the Company signed an operating agreement (the “Operating Agreement”) with BCGU, LLC, an entity indirectly controlled by Panther and Baum, 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.  The Amended Operating Agreement expires October 1, 2012.  For the years ended December 31, 2010 and 2009 $121,000 and $56,000 had been paid to BCGU, LLC, respectively, and there was $585,000 and $342,000 owed to BCGU, LLC, respectively.  This liability is recorded in Due to related parties on our balance sheets.  There is an option within the Amended Operating Agreement that allows BCGU, LLC to convert outstanding payables related to the Operating Agreement into a 10% convertible note.  At such time BCGU, LLC had not converted any of its outstanding payables into a note.  Because BCGU, LLC is (i) substantially managing the affairs of the company, (ii) familiar with the affairs of the Company and its strategic direction, (iii) receiving minimal cash compensation for its efforts and is sustaining the risk of deferring most payments indefinitely, 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 readily available from independent third parties.





The Company more recently 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).





F-17





The Company’s rent expense for the years ended December 31, 2010 and 2009 was $73,350 and $54,500, respectively.





The following represents future minimum lease payments for the next 5 years:





Amount2011
$  1,3502012
-2013
-2014
-2015
-Total
$  1,350




NOTE 8.                      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.
10% Convertible Debentures – (Converted in full to common stock October 2009)





On July 1, 2007, a $25,000 zero coupon convertible debenture was issued in exchange for cash, which was used to purchase and retire shares from a shareholder.  This debenture was amended on July 1, 2008, to reflect a 10% interest rate and maturity date of December 31, 2008.  The debenture was due and payable on December 31, 2008.  It was convertible into common stock at the price of $0.03 per share.  The conversion price was subject to proportional adjustment for reclassification, stock splits, combinations and dividends.  At the time of the agreement date, there was no determinable stock price, therefore there was no beneficial conversion feature that applied to this debenture.  On September 1, 2009, the Company received a notice of conversion for the principal balance of this debenture and accrued interest.  On October 6, 2009, the Company converted this debenture into 958,335 shares of common stock to satisfy the conversion demand in full.





B.
10% Convertible Debentures – Related Party– (Converted in full to common stock October 2009)





On July 1, 2008, we consolidated all obligations due and owing to The Baum Law Firm, PC and Mark L. Baum, Esq., a related party and one of our executive officers, for legal services rendered to the Company, and issued to Meaux Street Partners LP, a Baum related party, a 10% promissory note for $25,000.  The note was due and payable on December 31, 2008.  It was convertible into common stock at the price of $0.03 per share.  The conversion price was subject to proportional adjustment for reclassification, stock splits, combinations and dividends.  At the time of the note agreement date, the Company recorded a $16,667 discount, which represents the intrinsic value of the beneficial conversion feature.  The discount of $16,667 was being amortized over the life of the note.  On September 1, 2009, the Company received a notice of conversion for the principal balance of this note and accrued interest.  On October 6, 2009, the Company converted this note into 958,335 shares of common stock to satisfy the conversion demand in full.





C.  14% Convertible Debentures, Default – Related Party





On May 7, 2009, Shrink Nanotechnologies, Inc. entered into a debt consolidation agreement (the “Debt Consolidation Agreement”) with Noctua Fund LP to consolidate certain secured and unsecured liabilities (“Dao Liabilities”) which were originally assigned to Dao Information Systems, Inc. (“Dao”).  While the Company did make an assignment of the Dao Liabilities to Dao, the Company was legally responsible to Noctua Fund LP for the principal and interest related to the Dao Liabilities.  The principal amount of the secured part of the Dao Liabilities was $76,500 and the principal amount of the unsecured part of the Dao Liabilities was approximately $5,000.  All of the promissory notes underlying the Dao Liabilities have matured and were in default.





F-18





The Debt Consolidation Agreement consolidates all monies presently owed to Noctua Fund LP which are consolidated into one new secured convertible promissory note with a principal amount of $100,000.  The note’s maturity date is October 1, 2012.  The new note accrues interest at fourteen percent (14%) but did not begin to accrue interest until October 1, 2009.  Interest payments on the note are due monthly and are in default.  The note has a conversion price of $.04 per share.    The Company determined this to be a substantial modification to the debt instruments and prior to the merger applied debt extinguishment accounting to record a loss on extinguishment of debt of $100,000.





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





On May 29, 2009, we assumed convertible notes and accrued interest of $118,121 owed to Noctua Fund LP, as part of the share exchange agreement with the shareholders of Shrink Technologies, Inc. The terms of these notes were then renegotiated into a new note with a principal amount of $118,121.  The note’s maturity date is October 1, 2012.  The note accrues interest at fourteen percent (14%) but did not begin to accrue interest until October 1, 2009.  Interest payments on the note are due monthly.  The note is convertible into shares of our common stock at an original conversion price of $.04 per share.  The Company has determined this to be a substantial modification to the debt instruments and has applied debt extinguishment accounting to record a loss on extinguishment of debt of $118,121 for the year ended December 31, 2009.





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





On September 30, 2010, the Company issued a $20,000 14% convertible note to Noctua Fund, LP in exchange of $20,000 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 $.04 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.  The Company used the effective conversion price based on the proceeds received to compute the intrinsic value of the embedded conversion option.  The Company then calculated an effective conversion price and used that price to measure the intrinsic value of the embedded conversion option.  At the time of the issuance date, the Company recorded a $20,000 discount, which represents the intrinsic value of the beneficial conversion feature.  The discount of $20,000 is being amortized over the life of the note.





The Company has not made any of the required interest payments and as a result this note is 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, LP, and are non-voting minority investors in the Noctua Fund, LP





D.  Private Placement Offerings – 12% Convertible Notes and Warrants





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.





F-19





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.





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 $620,254andwere 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.





There are 3,175,000 and 0 warrants immediately exercisable at December 31, 2010 and 2009, respectively.





Notes Payable consists of the following at:





December 31,

December 31,2010

200914% convertible notes due October  2012
$
238,121
$
218,12112% convertible notes due November  2010

-

100,00012% convertible notes due January  2011

225,000

-12% convertible notes due February  2011

110,000

-12% convertible notes due April  2011

50,000

-12% convertible notes due May  2011

150,000

-12% convertible notes due November  2011

117,000Total convertible notes payable
$
890,121
$
318,121Less: Discount on notes

(205,521)

(86,389)Less: Current portion

(684,600)

(231,732)Long-term portion
$
-
$
-





The following represents minimum payments due for notes payable:




Amount2011
$
890,1212012

-2013

-Total
$
890,121





The Company has notes payable in the amount of $238,121 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-20




NOTE 9.                   COMMON STOCK ISSUANCES





All share amounts have been restated to reflect a 5 for 1 forward stock split.





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





Pursuant to the reverse merger the Company issued 44,444,440 shares of common stock to the shareholders of Shrink Technologies. Reverse merger accounting requires these shares to be shown retroactively as though a stock split had occurred.  Therefore this issuance adjusted the initial issuance to the founders at inception.





Pursuant to this same reverse acquisition, the statement of stockholders equity is then adjusted to reflect the shareholders of the public entity (115,004,875) while establishing the equity of the parent Company. The retained deficit of the parent Company is removed and reorganized to reflect only the history of the subsidiary.





During June 2009, the Company issued 3,625,000 shares of common stock in exchange for cash of $145,000.





During June 2009, the Company issued 100,000 shares of common stock to consultants with a value of $20,400 as payment for services related to our business plan development.





During June 2009, the Company issued 495,500 shares of common stock with a value of $100,000 as payment for a contract initiation fee related to our license agreement.





In July 2009, the Company issued 100,000 shares of common stock to a consultant with a value of $20,400 as payment for services rendered related to our business plan development.





In July 2009, the Company issued 50,000 shares of common stock to a consultant with a value of $10,200 as payment for services rendered related to website content.





In July 2009, the Company issued 250,000 shares of common stock in exchange for cash of $10,000.





In August 2009, the Company issued 1,250,000 shares of common stock in exchange for cash of $50,000.





In August 2009, the Company issued 41,670 shares of common stock to consultants with a value of $10,000 as payment for services related to branding, advertising, and web/statistical content.





In August 2009, we issued 100,000 shares valued at $20,400 to a consultant, for services rendered related to product development of the Company’s metal enhance fluorescense technologies.





In August 2009, we issued 100,000 shares valued at $20,400 to a member of our Board of Advisors, pursuant to their agreement dated March 1, 2009.  This agreement has expired by its terms.





In August 2009, we issued 500,000 shares valued at $102,000 to a member of the Scientific Advisory Board (“SAB”), pursuant to their SAB agreement dated February 24, 2009.  This agreement has expired by its terms.





In August 2009, we issued 500,000 shares valued at $102,000 to a member of the SAB, pursuant to their SAB agreement dated March 1, 2009.  This agreement has expired by its terms.





In August 2009, the Company issued 500,000 shares of common stock to a consultant with a value of $120,000 to a consultant in satisfaction of a one year consulting agreement originally entered into in August, 2009 for assistance with press releases and branding, advertising, and other marketing awareness programs.





In September 2009, the Company issued 3,500,000 shares of common stock in exchange for cash of $140,000.





In September 2009, the Company issued 25,000 shares of common stock to an employee with a value of $5,100 as payment for services.





In October 2009, the Company issued 250,000 shares of common stock in exchange for cash of $10,000






F-21





In October 2009, the Company issued 66,670 shares of common stock to consultants with a value of $15,600 as payment for services related to branding, advertising, and web/statistical content.





In November 2009, the Company issued 1,916,670 shares of common stock for conversion of convertible notes and accrued interest totaling $57,500.





In December 2009, the Company issued 41,660 shares of common stock to consultants with a value of $9,998 as payment for services related to branding, advertising, and web/statistical content.





In December 2009, the Company issued 60,000 shares of common stock to a consultant with a value of $13,400 as payment for professional services rendered.





In March of 2010, we issued 7,250,000 shares valued at $1,595,000 to a consultant in satisfaction of a one year consulting agreement originally entered into in January, 2010 for assistance in developing the Company’s biotech and related products and, in providing research, prototype and product development assistance on our life sciences related products as well instructional videos and materials for use in academic and corporate laboratories.





In March of 2010, we issued 8,700,000 shares valued at $1,914,000 to a consultant in satisfaction of a one year consulting agreement entered into in January of 2010, for public relations, assistance with press releases and branding, marketing awareness programs, procurement of third party research and web/statistical content and investor relations.





In March of 2010, we issued 1,500,000 shares valued at $162,000 to a consultant in satisfaction of a one year consulting agreement entered into in February of 2010, for services relating to marketing of our medical device products, and marketing to researches, academia and medical professionals.





In March of 2010, we issued 600,000 shares, 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





In March of 2010, we issued 180,000 shares valued at $30,600 to a consultant in satisfaction of a consulting agreement entered into in March 2010, for services rendered.





In March of 2010, we issued 112,500 shares valued at $19,125 to a member of the Scientific Advisory Board, pursuant to an agreement dated as of March 1, 2010.





In March of 2010, we issued 40,000 shares valued at $5,560 as payment for professional services rendered.





In May of 2010, we issued 40,000 shares valued at $11,958 as payment for professional services rendered.





In May of 2010, we issued 50,000 shares valued at $10,500 as payment for marketing services related to press releases and branding.





In May of 2010, we issued 1,000,000 shares valued at $204,000 to a member of the Scientific Advisory Board, pursuant to their SAB agreement dated March 1, 2009.  This agreement has expired by its terms.





In July of 2010, we issued 40,000 shares valued at $5,100 as full payment for professional services rendered during the months of June and July.





In July of 2010, pursuant to a consulting agreement entered into as of June 1, 2010, we issued 76,364 shares valued at $12,000 as payment for solar research and film manufacturing related consulting services rendered during the months of June and July.  The consulting agreement is for a one year term and requires payment of a monthly fee of $6,000 to be paid in shares of common stock of the Company for the duration of the term unless terminated early.





F-22





In July of 2010, we issued 395,833 shares valued at $92,625 as payment for financial advisory related services, and development of financial models and due diligence research between December 2009 through May of 2010.  In addition, the Consultant was paid cash compensation of $27,708 in 2010.





In November 2010, the Company issued 617,333 shares of common stock for conversion of convertible notes and accrued interest totaling $61,733.





In December 2010, the Company issued 511,893 shares of common stock for conversion of convertible notes and accrued interest totaling $51,893.





NOTE 10.      PREFERRED STOCK





The Preferred Series A shares (“Series A”) provide the holder of the same with certain voting rights, among other rights, that may equal, when cast, a majority of the votes which could be cast at a meeting of the Company’s shareholders.  The Series A holders have such number of votes as is determined by multiplying (a) the number of shares of Series A held by such holder, (b) the number of issued and outstanding shares of the Company’s Series A and common stock on a fully diluted basis as at the record date for the vote and (c) .0000002.  Series A have no express dividend right, and are convertible into common shares at a ratio of 1:1.





Pursuant to the reverse acquisition, the statement of stockholders equity was adjusted to reflect the Preferred Series A shareholders of the public entity (20,000,000) while establishing the equity of the parent Company.





The Preferred Series B shares provide the holder with a significant dividend right (59.5% of gross revenues), among other rights.  These shares carry no voting rights and are not convertible into common shares.  The Company currently has no shares of Preferred Series B Stock issued.





The Preferred Series C shares provide the holder the right to receive a cash dividend of 15% of the Company’s gross revenues.  This dividend amount will be payable in the form of cash, but the holders may elect to accept stock as payment.  The value of any stock payable to the holders will be determined by the closing price of stock on the date the dividend is declared.  Holders of the Preferred Series C shares have no voting rights.





Pursuant to the reverse merger 50 Preferred Series C shares were issued  to our founder as part of a  founder issuance.  The statement of stockholders equity was then adjusted to reflect the Preferred Series C shareholders of the public entity (100) while establishing the equity of the parent Company.  During October 2009, the Company cancelled all of its Preferred Series C stock.  The holders of the Series C Stock in return received certain legacy assets of the Company.  Pursuant to the settlement of a legal matter, described in Note 11, the Company recorded a reduction of stockholders equity for $143,825, which was paid to the former Preferred Series C shareholders as part of their cancellation agreement.    The Company currently has no shares of Preferred Series C stock issued.





NOTE 11.                   WARRANTS





The following summarizes stock purchase warrants (see also Note 8d.) as of December 31, 2010 and 2009:





Weighted AverageAmount

Exercise PriceOutstanding December 31, 2008

-
$
-Expired/Retired

-

-Exercised

-

-Issued

500,000

0.20Outstanding December 31, 2009

500,000
$
0.20Expired/Retired

-

-Exercised

-

-Issued

3,260,000

0.20Outstanding December 31, 2010

3,760,000
$
0.20








F-23





The following summarizes the changes in warrants outstanding for the years ended December 31, 2010 and 2009:





Warrants Outstanding

Warrants ExercisableNumber

Weighted
Remaining



Weightedof

Average
Exercise Life

Number

Average
ExpirationDate of Grant
Shares

Exercise Price
in Years

Exercisable

Exercise Price
DateFirst quarter fiscal 2009
500,000
$
0.20
1.86

500,000
$
0.20
11/10/2012First quarter fiscal 2010
750,000

0.20
2.03

750,000

0.20
1/11/2013First quarter fiscal 2010
250,000

0.20
2.04

250,000

0.20
1/15/2013First quarter fiscal 2010
125,000

0.20
2.08

125,000

0.20
1/28/2013First quarter fiscal 2010
375,000

0.20
2.09

375,000

0.20
2/2/2013First quarter fiscal 2010
50,000

0.20
2.10

50,000

0.20
2/4/2013First quarter fiscal 2010
125,000

0.20
2.13

125,000

0.20
2/14/2013Second quarter fiscal 2010
250,000

0.20
2.31

250,000

0.20
4/22/2013Second quarter fiscal 2010
750,000

0.20
2.35

750,000

0.20
5/7/2013Fourth quarter fiscal 2010
585,000

0.20
2.86

-

-
11/10/2013Total at  December  31, 2010
3,760,000
$
0.20


3,175,000
$
0.20





NOTE 12.     STOCK OPTIONS





The Company has issued stock options to consultants, and non-employee's advisors and directors of the Company. These options are not a part of the 2010 Stock Incentive Plan mention in Note 13. These issuances are 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 recipient is 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.





925,000 options were issued to the members of our Scientific Advisory Board. These options are valued at $311,044 the options are exercisable for 2 years following their effective dates that begin to expire May 29, 2011.  The options were valued using a Black-Scholes model.  The variables used in the model included: (1) discount rates of 0.53-1.04%, (2) expected option life is the actual remaining life of the options as of each period end, (3) expected volatility of 110%-575% and (4) zero expected dividends.





The following summarizes options as of December 31, 2010 and 2009:





Weighted AverageAmount

Exercise PriceOutstanding December 31, 2008

-
$
-Expired/Retired

-

-Exercised

-

-Issued

275,000

0.22Outstanding December 31, 2009

275,000
$
0.22Expired/Retired

-

-Exercised

-

-Issued

650,000

0.20Outstanding December 31, 2010

925,000
$
-








F-24





The following summarizes the changes in options outstanding for the years ended December 31, 2010 and 2009:




Options Outstanding

Options ExercisableNumber

Weighted
Remaining



Weightedof

Average
Exercise Life

Number

Average
ExpirationDate of Grant
Shares

Exercise Price
in Years

Exercisable

Exercise Price
DateSecond quarter fiscal 2009
75,000
$
0.20
0.41

75,000
$
0.20
5/29/2011Third quarter fiscal 2009
75,000

0.22
0.66

75,000

0.22
8/29/2011Fourth quarter fiscal 2009
25,000

0.22
0.87

25,000

0.22
11/13/2011Fourth quarter fiscal 2009
75,000

0.22
0.91

75,000

0.22
11/29/2011Fourth quarter fiscal 2009
25,000

0.22
0.92

25,000

0.22
12/1/2011First quarter fiscal 2010
25,000

0.11
1.03

25,000

0.11
1/10/2012First quarter fiscal 2010
100,000

0.20
1.12

100,000

0.20
2/13/2012First quarter fiscal 2010
25,000

0.23
1.17

25,000

0.23
3/1/2012Second quarter fiscal 2010
25,000

0.17
1.28

25,000

0.17
4/10/2012Second quarter fiscal 2010
250,000

0.26
2.30

-

-
4/17/2013Second quarter fiscal 2010
25,000

0.21
1.37

25,000

0.21
5/13/2012Second quarter fiscal 2010
25,000

0.15
1.40

25,000

0.15
5/25/2012Second quarter fiscal 2010
25,000

0.17
1.42

25,000

0.17
6/1/2012Third quarter fiscal 2010
25,000

0.11
1.53

25,000

0.11
7/10/2012Third quarter fiscal 2010
25,000

0.09
1.62

25,000

0.09
8/13/2012Third quarter fiscal 2010
25,000

0.08
1.65

25,000

0.08
8/25/2012Third quarter fiscal 2010
25,000

0.06
1.67

25,000

0.06
9/1/2012Fourth quarter fiscal 2010
25,000

0.12
1.78

25,000

0.12
10/10/2012Fourth quarter fiscal 2010
25,000

0.12
1.90

25,000

0.12
11/25/2012Total at  December  31, 2010
925,000
$
0.13


675,000
$
0.18








NOTE 13.    STOCK INCENTIVE PLAN – 2010





The Board adopted a stock incentive plan in December 2010 (the “2010 Plan”).  The 2010 Plan has not yet been approved by stockholders. The 2010 Plan is the Company’s only equity compensation plan currently in effect. Under the 2010 Plan, 25,000,000 shares were authorized for issuance pursuant to awards made under the plan. Options granted under the 2010 Plan are exercisable at prices at least equal to the fair market value of such stock on the dates the options were granted. Options expire ten years after the date of grant.  For the years ended December 31, 2010 and 2009 no shares or options were issued in relation to this plan.





NOTE 14.     DISCONTINUED OPERATIONS - AUDIOSTOCKS





During the year ended December 31, 2009, the Company reported a litigation receivable in the amount of $108,011 and accounts payable to former Series C Preferred shareholders for $143,825 related to the disposal of its Audiostocks business segment.  During March of 2010, the Company received proceeds from the litigation settlement to satisfy that receivable and subsequently paid its former Series C Preferred shareholders balance in full.  The Company has disposed of all assets related to its previous business segment, Audiostocks.  The Company has no revenues from this business, and no longer has any assets, or liabilities that will be or would be transferred, sold or disposed of related to this business segment through the date of discontinuance.





NOTE 15.   SUBSEQUENT EVENTS





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





In January 2011, pursuant our 2010 Plan (see Note 13.), 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 Plan.





F-25





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.  The notes and their accrued interest were converted at $.10 per share (5,277,714 shares of common stock), and pursuant to the stock issuances considered paid in full.





In January 2011, the Company issued a 14% convertible note with a principal balance of $60,000 in exchange for $60,000.  The note is convertible at $.17 per share.  The note matures on October 1, 2012.





In January 2011, the Company renegotiated the terms of its Operating Agreement with BCGU, LLC, effectively reducing the monthly fee amount from $30,000 to $20,000.  The Company also terminated its lease agreement with Business Consulting Group Unlimited.





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, we entered into an agreement to spin out 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 20% of the BlackBox parent companyafter sale, among other benefits.





In March 2011, the Company received $70,000 in cash.  In exchange, the Company agreed to issue 411,765 shares of common stock.  These shares have not been issued.





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).













F-26






ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.




On its Current Report on Form 8-K, filed on October 18, 2010, as amended on October 25, 2010, we reported the resignation of our previous auditors, Chisholm, Bierwolf, Nilson & Morrill, LLC, of Bountiful, Utah, and the appointment of Mark Bailey & Company, Ltd., of Reno Nevada, as our new auditors.  On March 11, 2011, the Company terminated its relationship with its previous auditors, Mark Bailey & Company, Ltd. Reno Nevada.  Mark Bailey & Company, Ltd. had not yet rendered any audit report of the Company’s financial statements.  Effective as of March 17, 2011, the Company appointed Peterson Sullivan LLP of Seattle, Washington as the auditors of its financial statements as provided in this Report.




ITEM 9A. 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.





Management’s Annual Report on Internal Control Over Financial Reporting





Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Exchange Act defines internal control over financial reporting as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:





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





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





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





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





Management 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, due to the following weakness described below.





Page 44





Insufficient segregation of duties in our finance and accounting functions due to limited personnel.  During the year ended December 31, 2010, the company internally performed all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements.  Due to the fact these duties were performed oftentimes by the same people, a lack of review was created over the financial reporting process that might result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC.  These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.





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





We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies and we intend to consider the results of our remediation efforts and related testing as part of our next year-end assessment of the effectiveness of our internal control over financial reporting.  To that end, in October of 2009, we formed an Audit Committee of the Board of Directors and adopted an audit committee charter and, in April of 2010 appointed two members of our board, Marshall Khine and Victor Hollander to the Audit Committee.  Due to limited number of board members, this audit committee is not comprised of 3 or more exclusively independent board members, nonetheless, said committee operates independently from the board as contemplated by the Audit Committee charter and this committee was tasked with oversight of selection of the Company’s new independent auditors for the financial statements for year ended December 2010.  The Company intends on further staffing and adapting this committee if and as new qualified board members with accounting experience or knowledge are appointed from time to time.





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





Changes in Internal Control Over Financial Reporting





There have been no changes in our internal control over financial reporting during the fourth quarter of fiscal year 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




ITEM 9B.OTHER INFORMATION.




During the fourth quarter of 2009, the holders of our 150 shares of Series C Preferred Stock returned all shares of Series C Preferred Stock to the Company for cancellation, in exchange for $143,825 in consideration.  No distributions or rights have ever been issued in respect of such Series C Preferred Stock.





We have no information to disclose that was required to be disclosed in a report on Form 8-K during fourth quarter of fiscal year 2010, but was not reported.















Page 45








PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.


Directors and Executive Officers





The following table lists the officers and directors of Shrink Nanotechnologies:




Name
Age
PositionMark L. Baum, Esq.
38
CEO and DirectorMarshall Khine, Esq.
38
Director, SecretaryJames B. Panther
38
DirectorHeinrich Dreismann, Ph.D.
57
DirectorVictor Hollander, CPA
77
Director





Mark L. Baum, Esq. is an executive with more than 15 years experience financing, operating and advising smallcap and microcap publicly traded enterprises.  As a manager of capital, including that of Black Forest International LLC and Noctua Fund LP, two funds he founded and co-manages, he has completed more than 125 rounds of financing for more than 40 publicly traded companies. Mr. Baum has participated in numerous public company spin-offs, restructurings and recapitalizations, venture fundings, private-to-public mergers, and multi-million dollar asset acquisitions and divestitures. In additional to the operation of Black Forest and Noctua, Mr. Baum has operational experience in areas as diverse as diagnostic testing businesses, closed door pharmacies, cleaner and renewable energy companies and retail furniture.  Mr. Baum co-founded Shrink Nanotechnologies, Inc., a nanotechnology company based on international award winning science, and FIGA.org, an expert network service that brings together professionals from the worlds of finance, industry, government and academia.  As a restructuring officer and advisor for financially troubled companies, Mr. Baum has a history of Boards of Directors and Boards of Advisors service for numerous domestic and international private and public companies, including Chembio Diagnostics, Inc., AudioStocks, Inc., Co-Connect, Inc., VisiTrade, Inc., ProtoKinetix, Inc., AlphaNutra, Inc., Metaphor Corporation and PNG Ventures, Inc., a company which in 2009 filed under Chapter 11 of the US Bankruptcy Code and which later emerged from bankruptcy and now trades on the OTC Bulletin Board under the ticker symbol AGAS.  Mr. Baum is a trustee of the Collier de Bleu Trust, which is dedicated to funding educational opportunities for non-English speaking children in Mexico.  Mr. Baum is a published inventor and a licensed attorney in the State of California.





Marshall Khine, Esq.is an Assistant District Attorney for the San Francisco District Attorney’s Office.  For the past four years, Mr. Khine has served on the Homicide Trial Team prosecuting murder cases.  He has been a trial lawyer for over ten years with extensive experience in many areas of complex litigation including sexual assault crimes, hate crimes, theft and fraud related crimes, grand jury work, forensic evidence litigation, psychiatric evidence litigation and wiretap operations.  He graduated from Cornell University in Ithaca, New York in 1994.  He attended California Western School of Law in San Diego, California on a full academic scholarship and graduated early with honors in 1997.  While in law school and after law school, he worked for the In-house Legal Department of Cubic Corporation in San Diego.  Since 1998, Mr. Khine has resided in the San Francisco Bay Area.





James B. Pantheris a co-founder, along with Mr. Mark L. Baum, Esq. and Dr. Michelle Khine of Shrink.  Mr. Panther has served as one of our directors since May 5, 2009. He currently is a manager for Noctua Fund Manager, LLC. He brings significant experience in managing fund raising, financing, M & A, and advisory services in a merchant banking environment. Mr. Panther has raised, funded and participated in more than five hundred million dollars of debt and equity financing for private and publicly traded companies. As Managing Partner of Bristol Partners he was responsible for portfolio investments, leading over 20 transactions ranging from $15 million to $300 million in valuation and building a team of professionals that closed over 40 transactions. As a restructuring officer and advisor for financially troubled companies, Mr. Panther served on the Board of Directors for PNG Ventures, Inc., a company which in 2009 filed under Chapter 11 of the US Bankruptcy Code and which later emerged from bankruptcy and now trades on the OTC Bulletin Board under the ticker symbol AGAS.   Mr. Panther holds B.A. in Finance from Boston College and a Degree in Economics from the University of Granada, Granada, Spain. He is fluent in English and Spanish.





Heiner Dreismann, Ph.D.,joined the board on June 22, 2009 and, is an international executive with more than 24 years experience in the biotech and healthcare industries. Dr. Dreismann has a proven track record in general management with P&L responsibility as well as management of corporate functions such as research and development, manufacturing, marketing, business development, licensing, mergers and acquisitions and several board memberships of public and private companies.  Dr. Dreismann served as the President and CEO of Roche Molecular Systems, Inc., from 2000-2006, leading a staff of more than 1,600 and growing the RMS molecular IVD business from $640M to $1.2B in annual sales.  Prior to serving as the senior executive at Roche Molecular Systems, Inc., Dr. Dreismann served as the Head of Global Business Development at Roche Diagnostics, responsible for business development for the Roche Diagnostics $7B IVD business.  From 1997 to 1999, Dr. Dreismann served as the Head of Integration for Roche Diagnostics, managing the merger of the Roche Diagnostics’ IVD business with Boehringer Manheim.  Dr. Dreismann served in a number of other leadership capacities at Roche Diagnostics and Roehm GmbH, dating back to 1983.  Dr. Dreismann’s post-doctoral fellowship was earned at the French Center for Nuclear Research in Saclay (near Paris).  He earned his Masters Degree Diploma in Biology from Westfaelische Wilhelms University, Muenster, a Ph.D. in Microbiology/Molecular Biology from Westfaelische Wilhelms University, Muenster (summa cum laude).  Dr. Dreismann currently serves on the Boards of GeneNews, Sirius Genomics, Smart Holograms, OxFord BioDynamics, Magellan Diagnostics, Singulex, MedBioGene, BioHelix, Celula,Inc., AlliedPath and Stratos Genomics.








Page 46





Victor A. Hollander, is a Certified Public Accountant and has been appointed as a director and as an audit committee member and chair as of April 16, 2010.  Since August 2, 2006, Mr. Hollander has been a Board Member of Fuqi International, Inc. (NASDAQ:FUQI), a luxury goods manufacturer based in the Peoples Republic of China, where he was also appointed as Chief Financial Officer on November 1, 2008. Presently, and since June 2007, Mr. Hollander has been a director and member of the audit committee of Micro Identification Technology, Inc. (MMTC.OB), a California based company holding a patent for and developing, a laser based microbial identification technology.  Mr. Hollander began his public accounting career in 1954 in a prominent, New York based accounting firm and, has specialized in capital raises and merger and acquisition matters since 1962 when he started the firm Berger, Turner & Hollander.  In 1966, he joined Brout & Company and opened their offices in Los Angeles.  During this time, he was the audit partner for many public companies listed on the New York Stock Exchange and the American Stock Exchange.  In 1975, he joined an international public accounting firm, Lester Witte, as the firm’s Senior Securities Partner.  In 1978 he formed his own practice, Hollander, Gilbert & Company. It was this practice that Mr. Hollander merged, as Managing Director of the West Coast Group. Mr. Hollander, after attending the University of Illinois, University of California at Los Angeles and after completing military service, graduated from California State University, Los Angeles in 1958 with a Bachelor of Arts degree in Accounting.  He has served on the Securities, Ethics and Accounting and Auditing Committees of various organizations, including the American Institute of Certified Public Accountants and California State Society of Certified Public Accountants.





Presently, there are no agreements or understandings for any of our executive officers or director to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person.





Directors are elected until their successors are duly elected and qualified.





Scientific Advisory Board





The Company has created a scientific advisory board and appointed members who previously served on the Scientific Advisory Board of Shrink.  Members of the Scientific Advisory Board are not employees of the Company or members of our Board of Directors.





Family Relationships





There is no family relationship among any of our officers or directors.





Involvement in Certain Legal Proceedings





To the best of our knowledge, none of our directors or executive officers have been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement.  Except as set forth in our discussion below in Item 13, “Certain Relationships and Related Transactions, and Director Independence,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.





Page 47





Board Composition and Committees





Our board of directors is currently composed of 5 members: Messrs. Baum, Panther, Khine, Dreismann and Hollander.  Our board of directors has determined that only Mr. Dreismann and Mr. Hollanader are independent directors at this time, under the rules of the American Stock Exchange Company Guide, or the AMEX Company Guide, because they does not currently own a significant percentage our shares, are not currently employed by the Company, have not been actively involved in the management of the Company and do not fall into any of the enumerated categories of people who cannot be considered independent directors under the AMEX Company Guide.





Audit Committee





We do have an audit committee comprised of Messers. Khine and Hollander, at this time. The Company has adopted an Audit Committee Charter.





Section 16(a) Beneficial Ownership Reporting Compliance





Under U.S. securities laws, directors, certain executive officers and persons holding more than 10% of our common stock must report their initial ownership of the common stock, and any changes in that ownership, to the SEC. The SEC has designated specific due dates for these reports.  Based solely on our review of copies of such reports filed with the SEC by and discussions with our directors and executive officers, and other than a late filing of a Form 4 with respect to shares under our 2010 Plan issued to Mr. Dreisman, we have no reason to believe that our directors and executive offers did not file the required reports on time in 2010 fiscal year.





Code of Ethics





On February 10, 2006 we adopted a Code of Ethics.  The same was filed as Exhibit 11.1.8 on a Form 10 Annual Report filed on April 14, 2009.




ITEM 11.EXECUTIVE COMPENSATION.




As a result of the reverse merger and acquisition by Shrink Technologies, Inc., a California corporation, of Shrink Nanotechnologies, Inc., a Delaware corporation, we did not experience any cash flow event as a result of any payment to an executive.  Additionally, there were no stock awards or options granted to executives (but there was such award to a Mr. Dreismann, a director) during this same 2009 and 2010 period.  We have not provided retirement benefits or severance or change of control benefits to our named executive officer, Mark L. Baum.  No unexercised options or warrants were held by any of our executive officers at year ended 2010. No equity awards were made during the year ended December 31, 2010.





Annual Compensation

Long-Term CompensationCommonSharesUnderlying

AllRestricted

Options

OtherOther Annual

Stock

Granted

CompensationName and Position

Year

Salary

Bonus

Compensation

Awards

(# Shares)Mark L. Baum, Esq.(1)

2010

$     -

-

-

-

-

-President and ChiefExecutive Officer and

Principal Executive Officer

2009

$     -

-

-

-

-

-





(1)
Mr. Baum, although he has not received any cash compensation for employment services, he is entitled to receive compensation through an agreement the Company has with BCGU, LLC.  Mr. Baum co-owns BCGU, LLC with Mr. Panther, who also receives 50% of the fees generated from the services rendered pursuant to this agreement.








Page 48





Compensation of Directors





The table below sets forth the compensation of our directors for the fiscal year ended December 31, 2010.





Name
Fees earned or paid in cash ($)
Stock awards ($)
Option awards

($)
Non-equity incentive plan compensation ($)
Nonqualified deferred

compensation earnings

($)
All other compensation ($)
Total

($)Mark L. Baum, Esq.
-
-
-
-
-
-
-James B. Panther
-
-
-
-
-
-
-Marshall Khine, Esq.
-
-
-
-
-
-
-Heiner Dreismann
-
95,625
-
-
-
-
95,625(1)(2)Victor Hollander, CPA
-
-
-
-
-
-
-





(1) Other than Dr. Heiner Dreisman, we did not compensate our directors in 2009 or 2010.  Other cash fees to directors remain unpaid.





(2)Effective as of June 22, 2009, and simultaneously with the appointment of Dr. Dreismann as a director of the Company, the Company entered into a Consulting Agreement with Dr. Dreismann.  The material terms of the Consulting Agreement provide, among other terms,  that Dr. Dreismann shall dedicate not less than two days per month, as reasonably requested by the Company and as the Consultant’s schedule permits, towards providing life sciences related advisory services and assist in procuring strategic partners and relationships.  This Consulting Agreement ended on January 1, 2011. Mr. Dreisman has been issued 750,000 shares of the Company’s common stock under his agreement, the value of which is as above.





Beginning January 1, 2011, Dr. Dreismann entered into a new agreement with the Company.  Our compensation to Dr. Dreismann under the agreement is as follows:





Fixed Compensation:  Beginning January 1, 2011, Dr. Dreismann is entitled to $40,000 in annual compensation payable in stock or cash which shall be determined by the Company at its discretion, and all Strategic Party Income, as defined below,





Additional Success Fees.  The Consulting Agreement also provides for a “success based” fee to be paid within 90 days of the end of the Company’s fiscal year from cash received from either (i) sublicensing agreements entered into with certain third parties introduced by the Mr. Dreismann or (ii) revenues generated from the sale of goods or services to parties introduced by Mr. Dreismann (“Strategic Party Income”).  Specifically, the consultant will be paid 5% of Strategic Party Income, net of all royalties and dividends payments, or 3% of the revenues received by the Company from the sale of goods and services to or through a strategic party introduced by Dr. Dreismann, net of costs of goods or services and a pro-rata allocation of sales, general and administrative costs.





Notwithstanding the foregoing, the Company shall receive a credit towards any Success Fee otherwise payable during a year, of an amount equal to the amount of Quarterly Cash Fees paid to the consultant at the time a Success Fee is due, and in any event, such an amount shall not exceed $80,000; with an upper limit on Success Fees of five million dollars ($5,000,000).





Compensation Discussion and Analysis





The Company does not have any full time employees and has not entered into long term executive or non-executive employment agreements, so as to limit the Company’s exposure and liability. As indicated elsewhere in this Report, the Company regularly engages outside consultants, accountants and other professional service providers for purposes of providing services to the Company or its Shink subsidiary.  The Company endeavors, where able, to issue shares in lieu of cash compensation, so as to preserve capital where needed and limit cash risk exposure.





Historically, funding for the Company, or for Shrink prior to our acquisition of it, were funded by management and its affiliates, namely, Noctua Fund, LP, which has loaned over $298,000 (on a consolidated basis) as reflected in a note to them, which is now in default and forbearance.  In addition, the Company, utilizes services, bookkeeping, administrative staff, equipment and extensive management and day to day operational services from BCGU, LLC, an entity indirectly co-owned by Messrs. Baum and Panther, which have provided such services under the Amended Operating Agreement since 2009 and, prior to such time, free of charge.  The Corporation believes that, given the extensive securities law experience of Mr. Baum, and the extensive small cap and micro cap M&A and financing experience of Messrs. Baum and Panther, the years of experience for each of them, and the current opportunity cost factor for each of them, as combined with the fact that BCGU, LLC has continued to provide services and funding despite non-payment of over $675,000 since mid 2009, that the amount of compensation provided under the Amended Operating Agreement is fair and reasonable for the Corporation.  As was disclosed previously, this $675,000 was memorialized on April 6, 2011, when Shrink issued BCGU, LLC a 4% convertible note, payable in 12 months, that converts at $.06 per share.







Page 49





Additionally, the Corporation has, in the past, sought to retain management, which would require that the Corporation enter into long term, inflexible employment arrangements with persons that may have a limited stake in the Corporation’s success as compared to our principals.





The Corporation also limits cash compensation to outside or internal directors and does not have a cash compensation policy.  The Company endeavors to enter into performance based compensation consulting packages with members of the Company’s SAB or board of directors.  Performance based compensation tends to be conditioned on achieving milestones such as achieving certain minimum net revenue streams from sources introduced by the director or SAB member, securing government grants or similar financing for our research and development, or other specific activities or items for which a particular board or SAB member may have skills.























Page 50






ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.




The following table sets forth certain information regarding the beneficial ownership of common stock of the Company by (i) each person who, to the Company’s knowledge, owns more than 5% of its Common Stock, (ii) each of the Company’s named executive officers and directors, and (iii) all of the Company’s named executive officers and directors as a group.  Shares of the Company’s Common Stock subject to options, warrants, or other rights currently exercisable, or exercisable within 60 days of the date hereof, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. As of April 15, 2011, the Company had 200,203,122 shares of Common Stock issued and outstanding.  All of the below share amounts are adjusted to reflect the Forward Split.








Name and Address
Amount and Nature of Beneficial Ownership

(Post Forward Split)
Percentage of Voting SecuritiesMark L. Baum, Esq. (1)(2)
116,027,721(3)
47.12%James B. Panther (2)(4)
113,787,170(5)
46.21%Marshall Khine (6)
43,194,440
17.54%Heiner Dreismann (6)
-0-
*Victor Hollander
-0-All Officers and Directors as a group (4 persons) (7)
259,939,645
[]





(1)           The address for Mr. Baum is 1302 Waugh Drive, Suite 618, Houston Texas 77019.





(2)           The address for Noctua Fund, LP, is Noctua Fund Manager, LLC c/o Mr. Baum, 2038 Corte Del Nogal, Suite 110, Carlsbad, CA 92011.  Noctua Fund Manager, LLC, is an entity equally beneficially owned and controlled by Mr. Baum and Mr. Panther through entities owned or controlled by them.  Such persons are non-voting minority limited partners in the Noctua Fund, LP itself.  Accordingly, Messers. Baum and Panther disclaims the economic ownership of securities held by Noctua Fund LP





(3)           Includes 10,000,000 shares underlying shares of Series A Preferred Stock, and 10,538,547 shares owned by entities principally owned and controlled by Mr. Baum.  Also includes: 76,422,395 shares held by BCGU, LLC, and 11,250,000 shares, in aggregate, issuable upon conversion of $675,000 principal convertible note issued to BCGU, LLC of which Mr. Baum and Panther are equal indirect beneficial owners and control persons.  Mr. Baum and Mr. Panther are equal indirect beneficial owners of Noctua Fund Manager, LLC, the general partner of Noctua Fund, LP, but are only non-voting minority investors in the Noctua Fund, LP  Accordingly, Mr. Baum disclaims economic ownership of half (38,211,198 shares) of all shares owned by BCGU, LLC and of any securities held by Noctua Fund LP  Does not include up to 7,816,779 shares, in aggregate, issuable upon conversion of $298,121 principal amount of 14% convertible notes plus interest issued Noctua Fund, LP.





(4)           The address for Mr. James B. Panther is 381 Casa Linda Plaza, Suite 408, Dallas, Texas 75218.





(5)           Includes 9,800,000 shares underlying shares of Series A Preferred Stock, and 8,880,975 shares of Common Stock owned by an entity indirectly beneficially owned and controlled by Mr. Panther.   Also includes: 76,422,395 shares held by BCGU, LLC, and 11,250,000 shares, in aggregate, issuable upon conversion of $675,000 principal convertible note issued to BCGU, LLC of which Mr. Baum and Panther are equal indirect beneficial owners and control persons.  Mr. Baum and Mr. Panther are equal indirect beneficial owners of Noctua Fund Manager, LLC, the general partner of Noctua Fund, LP, but are only non-voting minority investors in the Noctua Fund, LP.  Accordingly, Mr. Panther disclaims economic ownership of half (38,211,197 shares) of all shares owned by BCGU, LLC and of any securities held by Noctua Fund LP.  Does not include up to 7,816,779 shares, in aggregate, issuable upon conversion of $298,121 principal amount of 14% convertible notes plus interest issued Noctua Fund, L.P





(6)           The address for Mr. Marshall Khine and Mr. Dreismann, is c/o the Company, 2038 Corte Del Nogal, Suite 110, Carlsbad, CA 92011.





Page 51





Changes in Control





There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.








[Remainder of Page Intentionally Left Blank]

































































Page 52





ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.





A variety of conflicts of interest exist, and may continue to exist, from time to time, primarily as a result of our principal owners maintaining control of the Company, as well as our continued sublease and operating agreements with a principal shareholder and director, Mark. L. Baum and James B. Panther.  They also own and control, the Series A Preferred Stock which gives its holders voting control over the Company.





As is disclosed throughout this report, there are related party transactions regarding a sublease of the Company’s Carlsbad located, certain operational personnel and infrastructure that Mr. Baum and Mr. Panther have provided to the company since the Company’s inception, as well as various loans and funding arrangements provided to the Company by Mr. Baum and Mr. Panther.  The Company believes, that the terms of the foregoing arrangements are no less favorable to the Company than as would otherwise be available from independent commercial third parties.   At the time of some transaction consummated between them and the company, Mr. Baum and Mr. Panther were in control of the Company, with limited independent directors or management.  In other cases, Mr. Baum and Mr. Panther sought approval from disinterested parties in leadership positions at the Company.


Familial and other Relationships Relating to Shrink





Mr. Baum and Mr. Panther through Noctua Fund LP and other entities, regularly invest in and manage, companies or other investments together.





Mr. Baum and Mr. Panther are also principals of Business Consulting Group Unlimited, Inc. and BCGU, LLC, both of which are parties to material compensation agreements as provided above.





Mr. Baum and Mr. Panther have been business partners for more than 8 years.  Mr. Khine and Dr. Michelle Khine are brother and sister, respectively.  Mr. Baum and Mr. Khine are long time friends and attended law school together from 1995 to 1998.





Mr. Khine, who is now one of our new directors appointed at the time of the Shrink acquisition, is the person from whom we acquired Shrink and was issued 44,444,440 shares of our common stock and 50 shares of our Series C Preferred Stock (which have since been cancelled).





Series C Preferred Stock





Noctua Fund LP and Khine collectively owned 150 shares of Series Preferred Stock at the time of the Shrink Acquisition, issued for consideration valued at $15,000 and contained certain onerous protective provisions.  In late October of 2010, each of these persons agreed to return all of the Series C Preferred Stock in exchange for cash consideration and certain releases.  Neither the issuance nor cancellation of the Series C Preferred Stock were valued by independent valuation agents.





Other Contracts





In addition, we may enter into contracts, agreements of arrangements from time to time with such persons, or with Mr. Marshall Khine, a member of our board of director and significant shareholder, or other persons on our scientific advisory board.  The Board endeavors to require that all interested party transactions be approved by a majority of the disinterested directors.  In addition, the Board, in good faith, negotiates or intends to negotiate transactions with affiliates at terms that are no less favorable to the Company than would otherwise be available from bona fide third party sources.





As a result of control by these persons, and their ability to appoint board members and officers, and, as a result of the outstanding Series A Preferred Stock, such persons has and will continue to have and be able to exert, substantial control over the Company’s and Shrink’s day to day operations, contracts, and long term prospects.





Mark L. Baum and James B. Panther are both limited partners in Noctua, and through entities which Mr. Baum and Mr. Panther own, equally own and control Noctua Fund Manager LLC, the general partner of Noctua.  As part of the consideration for the acquisition of Shrink, the Company assumed, pursuant to the terms of a note exchange agreement, the outstanding notes due to Noctua Fund LP, which had an aggregate currently outstanding balance of approximately $118,121, in consideration of Noctua consenting to the transaction.  Noctua also loaned the company $10,000 on March 31, 2009, at 15% interest, with a maturity date of March 31, 2010.  This loan was reflected as an amended promissory note.






Page 53





Promoters and Certain Control Persons





We did not have any promoters at any time during the past five fiscal years.





Director Independence





We currently do not have any independent directors other than Dr. Heiner Dreismann, and Victor Hollander as the term “independent” is defined by the rules of the Nasdaq Stock Market.





ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.





Independent Auditors’ Fees





The following is a summary of the fees billed to the Company by its principal accountants for professional services rendered for the fiscal years ended December 31, 2010 and 2009:





Fiscal Year Ended December 31,2010

2009Audit Fees
$
30,993
$
36,384Audit-Related Fees

-

-All Other Fees

-

-TOTAL
$
30,993
$
36,384





“Audit Fees” consisted of the aggregate fees billed for professional services rendered for the audit of our annual financial statements and the reviews of the financial statements included in our Forms 10-Q and for any other services that were normally provided in connection with our statutory and regulatory filings or engagements. Audit fees were paid to Chisholm, Bierwolf, Nilson & Morrill, LLC, as our auditors for the year ended December 31, 2009, and to Mark Bailey & Company, Ltd., as our auditors during the year ended December 31, 2010.  No fees were paid to Peterson Sullivan LLP, our current auditors, during the year ended December 31, 2010.





Our present account balance owed to Chisholm Bierwolf, Nilson & Morrill, LLC is approximately $15,993, all of which are for audit services and $8,000 owed to Mark Bailey & Company, Ltd.





Chisholm, Bierwolf, Nilson & Morrill, LLC billed us $27,993 in fees for review of our quarterly financial statements during 2010 and annual audit for the year ended December 31, 2009 and $36,384 during the year ended 2009. Mark Bailey & Company, Ltd. billed us $3,000 for review of our quarterly financial statements during 2010.





“Audit Related Fees” consisted of the aggregate fees billed for professional services rendered for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements and were not otherwise included in Audit Fees. We were not invoiced by our auditors for any such Audit Related Fees” or “Tax Fees” during 2009 and 2010 and our auditors did not provide such services.





“Tax Fees” consisted of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning. Included in such Tax Fees were fees for preparation of our tax returns and consultancy and advice on other tax planning matters.  We did not pay any fees to Peterson Sullivan LLP, Mark Bailey & Company, Ltd. or Chisholm, Bierwolf, Nilson & Morrill, LLC for tax compliance, tax advice, tax planning or other work during our fiscal years ending December 31, 2010 or December 31, 2009.  During 2010, we paid $2,794 in fees to our tax preparation and filing firm.





“All Other Fees” consisted of the aggregate fees billed for products and services provided and not otherwise included in Audit Fees, Audit Related Fees or Tax Fees.





Pre-Approval Policies and Procedures





Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our auditors must be approved in advance by our board of directors to assure that such services do not impair the auditors’ independence from us.  In accordance with its policies and procedures, our board of directors pre-approved the audit and non-audit service performed by our auditors for our consolidated financial statements as of and for the year ended December 31, 2009.





Page 54





PART IV





ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.





Financial Statements and Schedules





The financial statements are set forth under Item 8 of this Annual Report on Form 10-K. 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 filingsForm 10-SB
10/19/20063.1.1
Certificate of Incorporation3.1.2
Amended and Restated Certificate of Incorporation3.2
BylawsForm 10-QSB
11/14/20073.1.3
Certificate of Designation (Series A and B Preferred Stock)Form 10-Q
11/19/200810.1
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, 200810.3
The Sonkei Trust $25,000 First Amended 10% Convertible Promissory Note, dated July 1, 200810.4
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 Burkett10.6
September 30, 2008 Settlement Agreement with Luis LeungForm 8-K10.1
Licensing Consent Agreement, dated as of September 30, 2008, between BCGU, LLC, the Company and Dao Information Systems, LLC10.2
First Amended Licensing Consent Agreement, dated as of November 25, 2008, between BCGU, LLC, the Company and Dao Information Systems, LLCForm 10-K Report
4/14/200911.1.1
September 30, 2008 Settlement Agreements between the Company and  For Goodness11.1.2
September 30, 2008 Settlement Agreements between the Company and  Mathew Luchak11.1.3
October 1, 2008 Omnibus Settlement Agreement between the Company and Luis Leung11.1.4
Second Amended License Consent Agreement dated as of November 30, 2008 between the Company and BCGU11.1.5
Exhibit 3.1  March 19, 2009 Amendment to the Articles of Incorporation11.1.6
March 19, 2008 Designation of Series C Preferred Stock11.1.7
Code of Ethics adopted on February 10, 200611.1.8
Share Exchange Agreement, dated as of January 15, 2009 between the Company and BCGUForm 8-K
5/8/200910.1
Debt Consolidation Agreement with Noctua Fund L.P., dated May 7, 200910.2
$100,000  14% Secured Convertible Secured Promissory Note, issued May 7, 2009Form 8-K
5/13/200910.1
Binding Letter of Intent to acquire Shrink Technologies, Inc., a California corporationForm 8-K
5/15/20093.1
Certificate of ownership and merger, name change to Shrink Nanotechnologies, Inc.Form 8-K
6/5/200910.1
Share Exchange Agreement between the Company, Marshall Khine and Shrink Technologies, Inc.  (“Shrink”), dated as of May 29, 200910.2
Exclusive License Agreement for Processes for Microfluidic Fabrication and Other Inventions, between the Regents of the University of California (“UC Regents”) and Shrink10.3
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, LLC10.6
Debt Consolidation Agreement, May 29, 2009, between Shrink and Noctua Fund LP10.7
Note Exchange Agreement10.8
Consulting Agreement with Dr. Michelle Khine21.1
List of Subsidiaries of Registrant99.1
Unaudited Pro Forma Financial Statements: Shrink Nanotechnologies, Inc.99.2
Audited Financial Statements of Shrink Technologies, Inc.Form 8-K
6/19/20093.2
Amended and restated Bylaws of Shrink Nanotechnologies, Inc.Form 8-K
6/25/200910.1
Consulting Agreement Heiner Dreismann, dated June 22, 2009Form 10-Q
11/25/200910.1
First Amended Operating AgreementForm 8-K
12/29/200910.1
First Amended Asset Purchase Agreement with Dao Information Systems, Inc., dated as of December 7, 2009Form 8-K
2/3/2010 and Amended on 4/8/201099.1
Overview of Shrink Nanotechnologies, Inc.Form 10-K Report
4/14/20103.1
Certificate of Amendment to Articles of Incorporation4.1
Form of Convertible Note 12%4.2
Form of Series A Warrant10.1
Subscription AgreementForm 8-K
5/7/201010.1
Sponsored Research Agreement Between the Company and The Regents of the University of California on behalf of Irvine campus dated May 3, 201010.2
Consortium Agreement among Academic Partners and Sponsors of the Micro/Nano Fluidics Fundamentals Focus MF3 Center, effective as of June 1, 2010Form 10-Q
5/24/201010.12
Agreement dated as of January 4, 2010, between the Company and Justin Heit10.13
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 Boll10.16
Consulting Agreement, dated April 23, 2010, between the Company and Bruce PetersonForm 10-Q
8/16/201010.17
Scientific Advisory Board Consulting Agreement, between the Company and Dr. Sayantani GhoshForm 8-K
10/18/201010.1
Patent and Know-How License Agreement between Shrink Nanotechnologies, Inc. and Corning Incorporated, dated as of July 26, 201010.2
Lease Agreement between Shrink Nanotechnologies, Inc. and The University of California on behalf of Irvine campus, dated as of October 1, 2010Form 8-K/A
10/25/201016.1
Letter from Auditor, Chisholm, Bierwolf, Nilson & Morrill, LLCForm 10-Q/A
11/29/201010.16
Sponsored Research Agreement, dated as of September 14, 2010, between Shrink Nanotechnologies, Inc. and University of California, Irvine10.18
Consulting Agreement between the Company and Equire, LLC. Business Financial AdvisoryForm 8-K
12/21/201010.1
License Agreement between Blackbox Semiconductor, Inc. and the University of Chicago, dated as of November 30, 201010.2
Shrink Nanotechnologies, Inc. 2010 Stock Incentive PlanForm S-8
1/13/20114.1
2010 Stock Incentive Plan5.1
Opinion of Levy International Law, LLC on legality23.1
Consent of Independent Registered Public Accounting Firm23.2
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
3/23/201110.1
Second Amended Operating Agreement between Shrink Nanotechnologies, Inc. and BCGU, LLC10.2
Extension of Research Agreement with University of California Regents, Irvine16.1
Letter from Auditor, Mark Bailey & Company, Ltd. Reno NevadaForm 8-K
4/12/201110.1
Letter of Intent, dated as of March 29, 2011, between Shrink Nanotechnologies, Inc. and Nanopoint, Inc.Filed Herewith in This Form 10-K Report4.1
Principal Balance $60,000 14% Convertible Promissory Note issued to Noctua Fund, LP4.2
Principal Balance $675,000 4% Convertible Promissory Note issued to BCGU, LLC21.1
Subsidiaries31.1
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 200232.1
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 President32.2
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







Page 55







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: April 15, 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)





In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.





Each person whose signature appears below hereby authorizes Mark L. Baum, Esq. as attorney-in-fact to sign on his or her behalf, individually, and in each capacity stated below, and to file all amendments and/or supplements to this Annual Report on Form 10-K.





Signature
Title
Date/s/ Mark L. Baum, Esq.

CEO and President
April 15, 2011Mark L. Baum, Esq.
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)/s/ James B. Panther

Chairman of the Board of Directors
April 15, 2011James B. Panther/s/ Marshall Khine, Esq.

Director
April 15, 2011Marshall Khine, Esq./s/ Heiner Dreismann, Ph.D

Director
April 15, 2011Heiner Dreismann, Ph.D/s/ Victor Hollander
Director
April 15, 2011Victor Hollander

















Page 56