Start Scientific, Inc. - Quarter Report: 2018 June (Form 10-Q)

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 June 30, 2018

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 [ ] No [ X ]

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 [ ] No [ X ]

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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

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 October 1, 2018, the Company had issued and outstanding 745,024,353 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 June 30, 2018 and December 31, 2017, and for the Three and Six Months Ended June 30, 2018 and 2017.

START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2018

(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, 2017. Operating results for the six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018.

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, 2017, the Company has incurred operating losses of $16,842,389 from inception of the Company through December 31, 2017. The Company’s accumulated deficit at June 30, 2018 was $16,944,359 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 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - RELATED PARTIES

Accounts payable and accrued liabilities – related parties consisted of the following:

START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2018

(Unaudited)

NOTE 4 - CONVERTIBLE NOTES PAYABLE

Convertible notes payable consisted of the following:

(A) On February 25, 2015, the Company issued a promissory note in the original principal amount of $52,500 to a lender. The Note matured on February 25, 2016 and carried an interest rate of 8% per annum. The Note is 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 60% discount to the lowest trading price as reported on the OTCQB for the fifteen trading days previous to the conversion date. As of June 30, 2018 and December 31, 2017, the Company owed a balance of $23,630. The derivative liability associated with this convertible note payable is discussed in NOTE 7.

(B) On April 29, 2015, the Company issued a promissory note in the original principal amount of $53,500 to a lender. The Note matured on April 29, 2016 and carries an interest rate of 10% per annum. The Note is 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 55% discount to the lowest trading price as reported on the OTCQB for the fifteen trading days previous to the conversion date. As of June 30, 2018 and December 31, 2017, the Company owed a balance of $43,185. The derivative liability associated with this convertible note payable is discussed in NOTE 7.

(C) On January 12, 2016, the Company issued a promissory note in the original principal amount of $25,000 to an unrelated lender. The Note is due on demand and carries an interest rate of 10% per annum. The Note shall 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 conversion price equal to $0.00005. During the six months ended June 30, 2018, $1,500 of the principal balance of the note was converted into 30,000,000 shares of common stock. As of June 30, 2018 and December 31, 2017, the Company owed balances of $20,900 and $22,400, respectively.

The Company recognized amortization expense related to the debt discount of $-0- and $1,183 for the six months ended June 30, 2018 and 2017, respectively.

START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2018

(Unaudited)

For the six months ended June 30, 2018 and 2017, the Company recognized interest expense on convertible notes of $3,435 and $3,292, respectively. As of June 30, 2018 and December 31, 2017, the accrued interest payable was $26,820 and $25,294, respectively, which is included in accrued expenses.

NOTE 5 - NOTES PAYABLE

Accrued interest at June 30, 2018 and December 31, 2017 was $306,276 and $274,794, respectively, and is included in accrued expenses.

START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2018

(Unaudited)

NOTE 6 - NOTES PAYABLE – RELATED PARTIES

Accrued interest at June 30, 2018 and December 31, 2017 was $104,808 and $102,707, respectively and is included in accrued liabilities – related parties.

NOTE 7 - DERIVATIVE LIABILITY

The Company analyzed the convertible notes for derivative accounting consideration under ASC 815, “Derivatives and Hedging,” and determined that the conversion options associated with two of its convertible notes from NOTE 4 above should be classified as a liability since the conversion options became effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement. 

The Company determined its derivative liability to be a Level 2 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of June 30, 2018 and December 31, 2017. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each conversion option is estimated using the Black-Scholes valuation model.

START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2018

(Unaudited)

The derivative liability at June 30, 2018 consisted of the following:

The derivative liability at December 31, 2017 consisted of the following:

The above convertible notes contain variable conversion features based on the future trading price of the Company’s common stock. Therefore, the number of shares of common stock issuable upon conversion of the notes is indeterminate. Due to the variable conversion terms of convertible notes (A) and (B) described in NOTE 4 above, it was determined that there was a derivative liability associated with these notes. The fair values of the derivative liability at June 30, 2018 and December 31, 2017 were $228,479 and $201,643, respectively, which are reported on the balance sheet. The Company recorded a loss on the statement of operations for the six months ended June 30, 2018 of $26,836 on the changes in the fair values of the derivative liability. The Company recorded a gain on the statement of operations for the six months ended June 30, 2017 of $76,122 on the changes in the fair value of the derivative liability.

NOTE 8 - EQUITY TRANSACTIONS

On January 8, 2016, the Company amended and restated its Certificate of Incorporation to increase the number of authorized shares of common stock to be issued to 5,000,000,000. The par value of both the Preferred Stock and common stock was also changed from $0.0001 to $0.00001.

During the year ended December 31, 2017, the Company issued an aggregate of 140,800,000 shares of its common stock for the conversion of various debt instruments in the amount of $48,107.

START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2018

(Unaudited)

During the six months ended June 30, 2018, the Company issued an aggregate of 92,125,000 shares of its common stock for the conversion of accrued interest in the amount of $2,982 and conversion of convertible notes of $1,500.

NOTE 9 - SUBSEQUENT EVENTS

The Company has evaluated subsequent events for the period of June 30, 2018 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’s 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.

Results of Operations

Following is our discussion of the relevant items affecting results of operations for the three and six month periods ended June 30, 2018 and 2017.

Revenues. The Company generated net revenues of $-0- for the three and six month periods ended June 30, 2018 and 2017.

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 June 30, 2018 were $20,192 compared to $20 during the three months ended June 30, 2017. Professional fees for the six months ended June 30, 2018 were $36,952 compared to $620 during the six months ended June 30, 2017. The increase is mainly the result of legal and accounting fees associated with the Company becoming current in its filings with the Securities and Exchange Commission.

Other Income (Expense). Other income and expenses for the three months ended June 30, 2018 resulted in net other expense of $70,862 compared to net other expense of $25,378 during the three months ended June 30, 2017. Other income and expenses for the six months ended June 30, 2018 resulted in net other expense of $65,018 compared to net other income of $37,481 during the six months ended June 30, 2017. Other expenses incurred were comprised primarily of interest expenses related to the promissory notes and other liabilities of the Company in the amount of $38,182 during the six months ended June 30, 2018. Also included in this category is the loss on the change in fair value of derivative liability in the amount of $26,836 during the six months ended June 30, 2018. During the six months ended June 30, 2017, the Company incurred interest expenses of $38,641 which includes the amortization of debt discount of $1,183. Also included in this category is the gain on the change in fair value of derivative liability in the amount of $76,122 during the six months ended June 30, 2017.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Personnel

Start Scientific has 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.

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 June 30, 2018, our primary source of liquidity consisted of $-0- 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 ineffective 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 June 30, 2018 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

During the six months ended June 30, 2018, the Company issued an aggregate of 92,125,000 shares of its common stock for the conversion of various debt instruments in the amount of $4,482.

On November 30, 2017, the Company converted into 31,000,000 shares of common stock, $1,730 of a note, originally issued by the Company on April 29, 2015, which decreased the derivative liability by $30,208.

On November 28, 2017, the Company converted into 29,500,000 shares of common stock, $1,610 of a note, originally issued by the Company on April 29, 2015, which decreased the derivative liability by $4,222.

On November 16, 2017, the Company converted into 28,000,000 shares of common stock, $370 of a note, originally issued by the Company on April 29, 2015, which decreased the derivative liability by $1,996.

On November 8, 2017, the Company converted into 26,800,000 shares of common stock, $322 of a note, originally issued by the Company on April 29, 2015, which decreased the derivative liability by $3,481.

On November 3, 2017, the Company converted into 25,500,000 shares of common stock, $270 of a note, originally issued by the Company on April 29, 2015, which decreased the derivative liability by $3,898.

Exemption From Registration Claimed

All of the sales by the Company of its unregistered securities were made by the Company in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). All of the individuals and/or entities listed above that purchased the unregistered securities were all known to the Company and its management, through pre-existing business relationships. All purchasers were provided access to all material information, which they requested, and all information necessary to verify such information and were afforded access to management of the Company in connection with their purchases. All purchasers of the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledging such intent to the Company. All certificates or agreements representing such securities that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such securities, without such securities either being first registered or otherwise exempt from registration in any further resale or disposition.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS:

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

INDEX TO EXHIBITS

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.