COMMITMENTS AND LEASES - RELATED PARTY

3 Months Ended

Mar. 31, 2012

COMMITMENTS AND LEASES - RELATED PARTY

NOTE 3. COMMITMENTS AND LEASES – RELATED PARTY

Mark L. Baum, Esq. (“Baum”) our former 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. Noctua Fund Manager, LLC has subsequently assigned ownership of this debt to an entity controlled exclusively by Panther. This liability is recorded as due to related parties our balance sheets.

The Company subleased space from Business Consulting Group Unlimited, Inc., an entity owned by Panther and Baum, pursuant to which the Company 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. The lease agreement was terminated on January 31, 2011. This liability is recorded in recorded in Due to related parties on our balance sheets. Business Consulting Group Unlimited, Inc. has subsequently assigned ownership of this debt to an entity controlled exclusively by Panther.

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. 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 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. In April 2011, the Company issued to BCGU, LLC a 4% $675,000 convertible note for the amounts due. This liability is recorded in Due to related parties on our balance sheets whereas the expense for 2011 was $250,000. 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. BCGU, LLC has subsequently assigned ownership of this debt to an entity controlled exclusively by Panther.

Due to related parties consist of:

		March 31,		December 31,
		2012		2011
Due to BCGU, LLC	$	220,000	$	160,000
Due to Business Consulting Group Unlimited, Inc.		7,333		7,333
Due to Noctua Fund Manager, LLC		61,650		61,650
Total	$	288,983	$	228,983

There have been no payments made to related parties during the three months ended March 31, 2012.

- Definition

The entire disclosure for related party transactions, including the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

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+ Details

Shrink Nanotechnologies, Inc. 10-Q/A