Start Scientific, Inc. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

[ X ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarter ended September 30, 2015

OR

[ ] 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: 000-52227

START SCIENTIFIC, INC.

(Name of Small Business Issuer in Its Charter)

(Former name or former address and former fiscal year, if changed since last report.)

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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 [X] No [ ]

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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. As of November 5, 2015, the Company had outstanding 138,896,453 shares of common stock.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q

The Financial Statements of the Company are prepared as of September 30, 2015.

START SCIENTIFIC, INC.

Notes to the Financial Statements

September 30, 2015

(Unaudited)

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited financial statements have been prepared by Start Scientific, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim financial statements be read in conjunction with the Company’s audited financial statements and notes thereto included in its Form 10-K for the year ended December 31, 2014. Operating results for the nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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.

Basic and Fully Diluted Net Loss per Share of Common Stock

In accordance with Financial Accounting Standards No. ASC 260, “Earnings per Share,” basic net loss per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. There are no common stock equivalents as of September 30, 2015 and 2014.

Derivative Liabilities

The Company assessed the classification of its derivative financial instruments as of September 30, 2015, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

START SCIENTIFIC, INC.

Notes to the Financial Statements

September 30, 2015

(Unaudited)

NOTE 2 - GOING CONCERN CONSIDERATIONS

The accompanying condensed financial statements have been prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As reported in its Annual Report on Form 10-K for the year ended December 31, 2014, the Company has incurred operating losses of $14,581,637 from inception of the Company through December 31, 2014. The Company’s accumulated deficit at September 30, 2015 was $16,157,210 and had a working capital deficit, continued losses, and negative cash flows from operations. These factors combined, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address and alleviate these concerns are as follows:

The Company’s management continues to develop a strategy of exploring all options available to it so that it can develop successful operations and have sufficient funds, therefore, as to be able to operate over the next twelve months. The Company is attempting to improve these conditions by way of financial assistance through issuances of additional equity and by generating revenues through sales of products and services. No assurance can be given that funds will be available, or, if available, that it will be on terms deemed satisfactory to management. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually attain profitable operations. The accompanying condensed financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties.

NOTE 3 - STOCK BASED COMPENSATION

During the nine months ended September 30, 2015, the Company issued a total of 6,000,000 shares of common stock for consulting services rendered to the Company. The stock was valued at the market price on the date of issuance which totaled $1,050,000. This amount is included in salaries and consulting expenses on the statement of operations.

NOTE 4 - RELATED PARTY TRANSACTIONS

During the nine months ended September 30, 2015, the Company received proceeds from notes payable to related parties in the amount of $300 and made payments on notes payable to related parties in the amount of $32,300. During the nine months ended September 30, 2014, the Company received proceeds from notes payable to related parties in the amount of $2,529 and made payments on notes payable to related parties in the amount of $550. Also, accounts payable and accrued liabilities to related parties increased by $112,604.

NOTE 5 - CONVERTIBLE NOTES PAYABLE

On February 10, 2015, the Company issued a promissory note in the original principal amount of $33,000 to a lender. The Note matures on November 12, 2015 and carries an interest rate of 8% per annum. The Note shall at the maturity date, be due and payable in full unless converted partially or in its entirety upon the election of the lender into fully paid and non-assessable shares of common stock of the Company at a 45% discount to the average of the three lowest daily trading prices as reported on the OTCQB for the twelve trading days previous to the conversion date.

START SCIENTIFIC, INC.

Notes to the Financial Statements

September 30, 2015

(Unaudited)

On February 25, 2015, the Company issued a promissory note in the original principal amount of $52,500 to a lender. The Note matures on February 25, 2016 and carries an interest rate of 8% per annum. The Note shall at the maturity date, be due and payable in full unless converted partially or in its entirety upon the election of the lender into fully paid and non-assessable shares of common stock of the Company at a 40% discount to the lowest trading price as reported on the OTCQB for the fifteen trading days previous to the conversion date.

On March 6, 2015, the Company entered into a Note Purchase Agreement in respect of a credit line and associated convertible debenture in the original principal amount up to $220,000. As of March 6, 2015, the Company recorded a $55,000 draw down and consideration in respect of the credit line. The Debenture matures on March 6, 2016 and bears interest at the rate of 10% per annum. The Debenture, together with all interest as accrued, is convertible into shares of the Company’s common stock at a price equal to the lower of $.10 or 58% of the lowest trading price of the Company’s common stock during the 20 previous consecutive trading days. The Note Purchase and the Debenture contain representations, warranties, conditions, restrictions, and covenants of the Company that are customary in such transactions with smaller companies.

On April 29, 2015, the Company issued a promissory note in the original principal amount of $53,500 to a lender. The Note matures on April 29, 2016 and carries an interest rate of 10% per annum. The Note shall at the maturity date, be due and payable in full unless converted partially or in its entirety upon the election of the lender into fully paid and non-assessable shares of common stock of the Company at a 45% discount to the lowest trading price as reported on the OTCQB for the fifteen trading days previous to the conversion date.

NOTE 6 - DERIVATIVE LIABILITY

Due to the convertible notes described in Note 5 above, it was determined at September 30, 2015 that there was a derivative liability associated with these notes. The amount of the derivative liability at September 30, 2015 was $244,921, which is reported on the balance sheet. The Company also recorded a loss on the change in the fair value of the derivative liability of $85,951 and $26,751, respectively, on the statement of operations for the three and nine months ended September 30, 2015.

NOTE 7 - COMMON STOCK TRANSACTIONS

During the nine months ended September 30, 2015, the Company converted $28,000 of the convertible promissory notes described in Note 5 into 7,231,453 shares of common stock.

NOTE 8 - SUBSEQUENT EVENTS

Subsequent to September 30, 2015, the Company converted $44,211 of the convertible promissory notes described in Note 5 into 62,042,070 shares of common stock.

The Company has evaluated subsequent events for the period of September 30, 2015 through the date the financial statements were issued, and concluded there were no other events or transactions occurring during this period that required recognition or disclosure in its financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion of the company's financial condition and results of operations in conjunction with the audited financial statements and related notes included in the filing of the company’s latest annual 10-K. This discussion may contain forward-looking statements, including, without limitation, statements regarding our expectations, beliefs, intentions, or future strategies that are signified by the words "expects," "anticipates," "intends," "believes," or similar language. Actual results could differ materially from those projected in the forward looking statements. We caution you that Start Scientific’ business and financial performance is subject to substantial risks and uncertainties.

Overview

Prior to April 2012, we were a reseller of technology-related hardware and software, including laptops, desktops, networking devices, telecommunication systems and networks, servers and software. In April, 2012 in connection with the acquisition of two separate one-fourth (1/4) working interests in certain oil and gas leases located in Yazoo County, Mississippi, our principal business became the exploration, development, and production of oil and gas interests.

On May 16, 2012, the Company entered into an agreement to acquire all of the outstanding shares of Carpathian Energy SRL (“Carpathian”), in exchange for 90,000,000 shares of restricted common stock of the Company. Carpathian is a Romanian limited liability company engaged in oil and gas exploration and development. Pursuant to the terms of agreement, the current owners of Carpathian may rescind the Acquisition and reclaim the shares of Carpathian in the event that the Company does not invest at least $5 million toward development of Carpathian’s oil and gas assets within 60 days from the date of the agreement. In addition, since the acquisition is being acquired with shares issued to an entity under common control, the assets were recorded at a nominal historical cost in accordance with ASC Topic 805-50-05-4. As of March 31, 2014, the Company has issued 90,000,000 shares to the current owners of Carpathian but the acquisition has not closed and the ownership of Carpathian has not yet been transferred to the Company. Thus the issued shares are considered to be a prepaid deposit with a zero value.

Results of Operations

Following is our discussion of the relevant items affecting results of operations for the periods ended September 30, 2015 and 2014.

Revenues. The Company generated net revenues of $-0- for the three and nine month periods ended September 30, 2015 and 2014. The lack of revenues is mainly the result of the change in our business model from a reseller of computer hardware and software to an oil and gas exploration and development company.

Salaries and Consulting Expenses. Salaries and consulting expenses consist of salaries and benefits, company paid payroll taxes and outside consulting expenses. Salaries and consulting expenses for the three months ended September 30, 2015 were $-0- compared to $5,550,000 during the three months ended September 30, 2014. Salaries and consulting expenses for the nine months ended September 30, 2015 were $1,065,000 compared to $6,531,667 during the nine months ended September 30, 2014. For the nine months ended September 30, 2015, stock valued at $1,050,000 was issued for consulting services compared to stock valued at $6,515,000 during the nine months ended September 30, 2014. The stock was valued at the market price on the date of issuance. We anticipate salaries expenses to increase in the future as our activity increases.

Professional Fees. Professional fees consist of legal and accounting fees associated with the preparation, audits and reviews of the Company’s financial statements. Professional fees for the three months ended September 30, 2015 were $50,919 compared to $45,927 during the three months ended September 30, 2014. Professional fees for the nine months ended September 30, 2015 were $183,134 compared to $149,312 during the nine months ended September 30, 2014. We anticipate that professional fees will increase in the future as we more fully develop our oil and gas business.

Other Selling, General and Administrative Expenses. Selling, general and administrative expenses have been comprised of advertising; occupancy and office expenses; travel and other miscellaneous administrative expenses. Selling, general and administrative expenses for the three months ended September 30, 2015 were $275 compared to $210 during the three months ended September 30, 2014. Selling, general and administrative expenses for the nine months ended September 30, 2015 were $11,237 compared to $359 during the nine months ended September 30, 2014. We expect selling, general and administrative expenses to increase in the future.

Other Income (Expense). Other income and expenses for the three months ended September 30, 2015 resulted in net other expenses of $164,404 compared to net other expense of $18,428 during the three months ended September 30, 2014. Other income and expenses for the nine months ended September 30, 2015 resulted in net other expense of $316,202 compared to net other expense of $55,005 during the nine months ended September 30, 2014. Other expenses incurred were comprised primarily of interest expenses related to the promissory notes and other liabilities of the Company in the amount of $82,297 which includes the amortization of debt discount of $120,699 during the nine months ended September 30, 2015. Also included in this category is the loss on the change in fair value of derivative liability in the amount of $26,751 during the nine months ended September 30, 2015. The Company also recorded a gain on the conversion of debt in the amount of $3,844 during the nine months ended September 30, 2015. We do not anticipate any major changes in other income and expenses in the near future.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Personnel

Start Scientific has two full-time employees, and other project-based contract personnel that we utilize to carry out our business. We utilize contract personnel on a continuous basis, primarily in connection with service contracts which require a high level of specialization for one or more of the service components offered. We expect to hire full-time employees in the future.

Liquidity and Capital Resources

Since inception, the Company has financed its operations through a series of loans, credit accounts with hardware vendors, and the use of Company credit to procure goods and services. As of September 30, 2015, our primary source of liquidity consisted of $5 in cash and cash equivalents. We may seek to secure additional debt or equity capital to finance substantial business development initiatives or acquire additional oil and gas resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company we are not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES

Management’s Report on Disclosure Controls and Procedures

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a Company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the chief executive officer and chief financial officer concluded that the disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in the Company’s periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported within the time periods specified. The Company’s chief executive officer and chief financial officer also concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance of the achievement of these objectives.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2015 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 1A. RISK FACTORS

As a smaller reporting company, we are not required to provide the information required by this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 29, 2014, pursuant to a consulting agreement entered into on July 23, 2013, the Company issued 1,000,000 restricted shares of its common stock.

On April 7, 2014, pursuant to a consulting agreement entered into on July 23, 2013, the Company issued 500,000 restricted shares of its common stock.

On July 28, 2014, pursuant to the Company’s 2012 Equity Incentive Plan, the Board approved the issuance of an aggregate of 15,000,000 shares of the Company’s common stock to certain directors and consultants of the Company.

On February 10, 2015, the Company issued a promissory note in the original principal amount of $33,000 (“Note”) to a lender. The Note matures on November 12, 2015 and carries an interest rate of 8% per annum. The Note shall at the maturity date, be due and payable in full unless converted partially or in its entirety upon the election of the lender into fully paid and non-assessable shares of common stock of the Company at a 45% discount to the average of the three lowest daily trading prices as reported on the OTCQB for the twelve trading days previous to the conversion date.

On February 25, 2015, the Company issued a promissory note in the original principal amount of $52,500 (“Note”) to a lender. The Note matures on February 25, 2016 and carries an interest rate of 8% per annum. The Note shall at the maturity date, be due and payable in full unless converted partially or in its entirety upon the election of the lender into fully paid and non-assessable shares of common stock of the Company at a 40% discount to the lowest trading price as reported on the OTCQB for the fifteen trading days previous to the conversion date.

On March 6, 2015, the Company entered into a Note Purchase Agreement (the “Note Purchase”) in respect of a credit line and associated convertible debenture (“Debenture”) in the original principal amount up to $220,000. As of March 6, 2015, the Company recorded a $55,000 draw down and consideration in respect of the credit line. The Debenture matures on March 6, 2016 (the “Maturity Date”), and bears interest at the rate of 10% per annum. The Debenture, together with all interest as accrued, is convertible into shares of the Company’s common stock at a price equal to the lower of $.10 or 58% of the lowest trading price of the Company’s common stock during the 20 previous consecutive trading days. The Note Purchase and the Debenture contain representations, warranties, conditions, restrictions, and covenants of the Company that are customary in such transactions with smaller companies.

On April 29, 2015, the Company issued a promissory note in the original principal amount of $53,500 (“Note”) to a lender. The Note matures on April 29, 2016 and carries an interest rate of 10% per annum. The Note shall at the maturity date, be due and payable in full unless converted partially or in its entirety upon the election of the lender into fully paid and non-assessable shares of common stock of the Company at a 45% discount to the lowest trading price as reported on the OTCQB for the fifteen trading days previous to the conversion date.

On August 27, 2015, the Company converted a portion of a certain convertible promissory note originally issued by the Company on February 26, 2015 into 519,945 shares of common stock.

On September 10, 2015, the Company converted a portion of a certain convertible promissory note originally issued by the Company on February 19, 2015 into 4,054,054 shares of common stock.

On September 14, 2015, the Company converted a portion of a certain convertible promissory note originally issued by the Company on March 11, 2015 into 2,657,454 shares of common stock.

With respect to the securities issuances described above, No solicitations were made and no underwriting discounts were given or paid in connection with these transactions. The Company believes that the issuance of these securities as described above were exempt from registration with the Securities and Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. OTHER INFORMATION

Not applicable.

ITEM 5. EXHIBITS:

The following documents are filed as exhibits to this Form 10-Q:

INDEX TO EXHIBITS

SIGNATURES

Pursuant to the requirements 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.