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, 2016

 

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)

 

Delaware   20-4910418

(State or Other Jurisdiction

of Incorporation or Organization)

 

(IRS Employer

Identification No.)

     
521 Wilshire Blvd., Suite 101    
Oklahoma City, OK   73116
(Address of Principal Executive Offices)   (Zip Code)

 

 

 

  (210) 758-5898  
  Issuer’s Telephone Number, Including Area Code  
     

 

(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 [ ]

 

     
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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):

 

Large Accelerated Filer [  ] Non-Accelerated Filer [  ]
Accelerated Filer [  ] Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] 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 March 14, 2018, the Company had issued and outstanding 652,899,353 shares of common stock.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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, 2016.

 

 

 

CONTENTS

 

Balance Sheets (Unaudited)

 

4

S tatements of Operations (Unaudited)

 

5

S tatements of Cash Flows (Unaudited)

 

6

N otes to the Financial Statements (Unaudited)

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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START SCIENTIFIC, INC.
Balance Sheets
(Unaudited)
 
ASSETS
    June 30,   December 31,
    2016   2015
         
CURRENT ASSETS                
                 
Cash and cash equivalents   $ —       $ —    
                 
Total Current Assets     —         —    
                 
TOTAL ASSETS   $ —       $ —    
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
                 
CURRENT LIABILITIES                
                 
Accounts payable   $ 26,698     $ 24,603  
Accrued expenses     634,512       611,865  
Accounts payable and accrued liabilities - related parties     765,132       769,373  
Convertible debenture/notes payable (net of discount of $2,114 and $20,763, respectively)     91,403       58,989  
Notes payable     547,860       547,860  
Notes payable - related parties     85,006       101,656  
Derivative liability     27,287       151,344  
                 
Total Current Liabilities     2,177,898       2,265,690  
                 
TOTAL LIABILITIES     2,177,898       2,265,690  
                 
STOCKHOLDERS' DEFICIT                
                 
Preferred stock, $0.00001 par value; 100 shares authorized,                
 100 and 100 issued and outstanding, respectively     —         —    
Common stock, $0.00001 par value; 5,000,000,000 shares authorized,                
 512,099,353 and 323,788,218 shares issued and outstanding, respectively     5,121       3,238  
Additional paid-in-capital     14,284,879       14,233,906  
Accumulated deficit     (16,467,898 )     (16,502,834 )
                 
Total Stockholders' Deficit     (2,177,898 )     (2,265,690 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ —       $ —    
                 
The accompanying notes are an integral part of these condensed financial statements

 

 

 

 

 

 

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START SCIENTIFIC, INC.
Statements of Operations
(Unaudited)
                 
    For the Three Months Ended   For the Six Months Ended
    June 30,   June 30,
    2016   2015   2016   2015
                 
                 
                 
NET REVENUES   $ —       $ —       $ —       $ —    
                                 
OPERATING EXPENSES                                
                                 
Salaries and consulting     —         15,000       —         1,065,000  
Professional fees     856       55,658       2,036       132,215  
Other selling, general and administrative     —         10,138       —         10,962  
                                 
Total Operating Expenses     856       80,796       2,036       1,208,177  
                                 
LOSS FROM OPERATIONS     (856 )     (80,796 )     (2,036 )     (1,208,177 )
                                 
OTHER INCOME (EXPENSES)                                
                                 
Gain on change in fair value of derivative liability     18       103,656       111,799       59,200  
Interest expense - related parties     (1,075 )     (7,749 )     (2,133 )     (15,483 )
Interest expense (including amortization of debt discount of $4,464, $46,747, $18,649 and $61,274, respectively)     (17,247 )     (84,414 )     (72,694 )     (195,515 )
                                 
Total Other Income (Expenses)     (18,304 )     11,493       36,972       (151,798 )
                                 
INCOME (LOSS) BEFORE INCOME TAXES     (19,160 )     (69,303 )     34,936       (1,359,975 )
                                 
INCOME TAX EXPENSE     —         —         —         —    
                                 
NET INCOME (LOSS)   $ (19,160 )   $ (69,303 )   $ 34,936     $ (1,359,975 )
                                 
BASIC AND DILUTED:                                
Net income (loss) per common share   $ (0.00 )   $ (0.00 )   $ 0.00     $ (0.01 )
                                 
Weighted average shares outstanding     512,099,353       131,665,000       478,257,699       130,234,061  
                                 
The accompanying notes are an integral part of these condensed financial statements

 

 

 

 

 

 

 

 

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START SCIENTIFIC, INC.
Statements of Cash Flows
(Unaudited)
         
    For the Six Months Ended
    June 30,
    2016   2015
         
CASH FLOWS FROM OPERATING ACTIVITIES:                
                 
Net income (loss)   $ 34,936     $ (1,359,975 )
Adjustments to reconcile net loss to net                
 cash used by operating activities:                
Stock based compensation     —         1,050,000  
Loss on conversion of accrued interest     6,791       108,054  
(Gain) Loss on change in fair value of derivative liability     (111,799 )     (59,200 )
Amortization of debt discounts     18,649       61,274  
Changes in operating assets and liabilities:                
Accounts payable and accrued liabilities - related parties     (4,241 )     60,664  
Accounts payable and accrued expenses     30,664       (22,922 )
Convertible notes payable     25,000       —    
                 
Net Cash Used by Operating Activities     —         (162,105 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:     —         —    
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
                 
Proceeds from convertible debentures     —         194,000  
Payments on notes payable - related parties     —         (32,300 )
                 
Net Cash Provided by Financing Activities     —         161,700  
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS   $ —       $ (405 )
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     —         452  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ —       $ 47  
                 
SUPPLEMENTAL CASH FLOW INFORMATION                
                 
Cash Payments For:                
Interest   $ —       $ 1,047  
Income taxes   $ —       $ —    
                 
Non-cash financing activities:                
Common stock issued for the conversion of accrued interest   $ 4,617     $ —    
Common stock issued for the conversion of derivative liability   $ 12,004     $ —    
Common stock issued for the conversion of convertible debenture   $ 11,235     $ —    
Transfer of notes payable - related parties to convertible notes   $ 25,000     $ —    
                 
The accompanying notes are an integral part of these condensed financial statements

 

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START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2016

(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, 2015. Operating results for the six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016.

 

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, 2015, the Company has incurred operating losses of $16,502,834 from inception of the Company through December 31, 2015. The Company’s accumulated deficit at June 30, 2016 was $16,467,898 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 six months ended June 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.

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START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2016

(Unaudited)

 

NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - RELATED PARTIES

 

Accounts payable and accrued liabilities – related parties consisted of the following as of June 30, 2016 and December 31, 2015:

 

   

June 30,

2016

  December 31, 2015
Accounts payable   $ 586,757     $ 586,757  
Accrued interest     96,221       100,462  
Misc. loans and advances     82,154       82,154  
Total   $ 765,132     $ 769,373  

 

NOTE 5 - CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consisted of the following as of June 30, 2016 and December 31, 2015:

 

    June 30,
2016
  December 31,
2015
Convertible note payable to an entity, interest at 8%, due on February 25, 2016, in default, net of discount of $2,114 and $4,267, respectively (A)   $ 21,516     $ 23,058  
Convertible note payable to an entity, interest at 10%, due on March 6, 2016, in default, net of discount of   $-0- and $848, respectively (B)     —         3,853  
Convertible note payable to an entity, interest at 10%, due on April 29, 2016, in default, net of discount of  $-0- and $15,647, respectively (C)     47,487       32,078  
Convertible note payable to an entity, interest at 10%, due on demand, (D)     22,400       —    
 Total Notes Payable     91,403       58,989  
Less: Current Portion     (91,403 )     (58,989 )
 Long-Term 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 matured on November 12, 2015 and carried 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 55% 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. During the year ended December 31, 2015, the entire principal amount of the note was converted into common stock of the Company.

 

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START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2016

(Unaudited)

 

(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 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 60% discount to the lowest trading price as reported on the OTCQB for the fifteen trading days previous to the conversion date. During the year ended December 31, 2015, $25,175 of the principal amount of the note was converted into common stock of the Company leaving a net balance of $23,058 with the debt discount of $4,267. During the six months ended June 30, 2016, $3,695 of the principal amount of the note was converted into common stock of the Company leaving a net balance of $21,516 with the debt discount of $2,114.

 

(B) 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 matured on March 6, 2016 and bore 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. During the year ended December 31, 2015, $50,299 of the principal amount of the note was converted into common stock of the Company leaving a net balance of $3,853 with the debt discount of $848, which was converted during the quarter ended March 31, 2016. As of June 30, 2016, the balance was $-0-.

 

(C) 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 carried 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 55% discount to the lowest trading price as reported on the OTCQB for the fifteen trading days previous to the conversion date. During the year ended December 31, 2015, $5,774 of the principal amount of the note was converted into common stock of the Company leaving a net balance of $31,840 with the debt discount of $15,647. During the six months ended June 30, 2016, $238 of the note was converted leaving a balance of $47,487 with the debt discount of $-0-.

 

(D) On January 12, 2016, the Company issued a promissory note in the original principal amount of $25,000 to a lender. The Note matures on demand 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 conversion price equal to $0.00005. During the six months ended June 30, 2016, $2,600 of the principal amount of the note was converted into common stock of the Company leaving a net balance of $22,400 as of June 30, 2016.

 

The Company recognized amortization expense related to the debt discount of $18,649 and $61,274 for the six months ended June 30, 2016 and 2015, respectively.

 

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START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2016

(Unaudited)

 

For the periods ended June 30, 2016 and December 31, 2015, the Company recognized interest expense on convertible notes of $34,099 and $11,160, respectively. As of June 30, 2016 and December 31, 2015, the accrued interest payable was $11,984 and $8,405, respectively.

 

NOTE 6 - NOTES PAYABLE

 

Notes payable consisted of the following:   June 30,
2016
  December 31,
2015
Note payable to a company, interest at 24% per annum, due on demand, unsecured   $ 7,100     $ 7,100  
Notes payable to individuals, interest at 10% per annum, due on demand, unsecured     40,760       40,760  
Note payable to an individual, interest at 10% per annum, due on August 27, 2012, unsecured, in default     100,000       100,000  
Notes payable to an individual, interest at 6% per annum, due on July 13, 2013, unsecured, in default     100,000       100,000  
Notes payable to individuals, interest at 8% per annum, due on August 30, 2013 and September 9, 2013, unsecured, in default     300,000       300,000  
 Total Notes Payable     547,860       547,860  
Less: Current Portion     (547,860 )     (547,860 )
 Long-Term Notes Payable   $ —       $ —    

 

Accrued interest at June 30, 2016 and December 31, 2015 was $152,722 and $138,826, respectively.

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START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2016

(Unaudited)

 

NOTE 7 - NOTES PAYABLE – RELATED PARTIES

 

Notes payable – related parties consisted of the following:   June 30,
2016
  December 31,
2015
Note payable to a related individual, interest at 24%  per annum, due on demand, unsecured   $ 60,901     $ 60,901  
Note payable to a related individual, interest at 10%  per annum, due on demand, unsecured     16,578       16,578  
Note payable to a related individual, interest at 10%  per annum, due on demand, unsecured     4,145       4,145  
Note payable to a related individual, interest at 10%  per annum, due on demand, unsecured     —         16,578  
Notes payable to a company, due on demand, unsecured     3,382       3,454  
Total Notes Payable – Related Parties     85,006       101,656  
 Less: Current Portion     (85,006 )     (101,656 )
 Long-Term Notes Payable – Related Parties   $ —       $ —    

 

Accrued interest at June 30, 2016 and December 31, 2015 $87,920 and $100,462, respectively.

 

NOTE 8 - DERIVATIVE LIABILITY

 

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “ Derivatives and Hedging,”  and   determined that the convertible notes should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The Company accounts for warrants as a derivative liability due to there being no explicit limit to the number of shares to be delivered upon settlement of all conversion options.

 

The Company determined our derivative liabilities to be a Level 2 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of June 30, 2016 and December 31, 2015. 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 convertible note and warrant is estimated using the Black-Scholes valuation model.

 

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START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2016

(Unaudited)

 

The derivative liability at June 30, 2016 consisted of the following:

 

    Original Note
Face Value
  Derivative Liability
Convertible note payable to an entity, interest at 8%, due on February 25, 2016, in default, net of discount of $2,114 (A)   $ 52,500     $ 7,869  
Convertible note payable to an entity, interest at 10%, due on March 6, 2016, in default, net of discount of $-0- (B)     55,000       -0-  
Convertible note payable to an entity, interest at 10%, due on April 29, 2016, in default, net of discount of $-0- (C)     53,500       19,418  
Totals   $ 161,000     $ 27,287  

 

The derivative liability at December 31, 2015 consisted of the following:

 

    Original Note
Face Value
  Derivative Liability
Convertible note payable to an entity, interest at 8%, due on February 25, 2016, in default, net of discount of $4,267 (A)   $ 52,500     $ 46,656  
Convertible note payable to an entity, interest at 10%, due on March 6, 2016, in default, net of discount of $848 (B)     55,000       8,343  
Convertible note payable to an entity, interest at 10%, due on April 29, 2016, in default, net of discount of $15,648 (C)     53,500       96,345  
Totals   $ 161,000     $ 151,344  

 

The above convertible notes contain a variable conversion feature 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 note is indeterminate. Due to the convertible notes described in Note 5 above, it was determined at June 30, 2016 that there was a derivative liability associated with these notes. The amount of the derivative liability at June 30, 2016 was $27,287, which is reported on the balance sheet. The Company recorded a gain on the change in the fair value of the derivative liability of $111,799 on the statement of operations for the six months ended June 30, 2016.

 

NOTE 9 - 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.

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START SCIENTIFIC, INC.

Notes to the Financial Statements

June 30, 2016

(Unaudited)

 

During the six months ended June 30, 2016, the Company issued an aggregate of 188,311,135 shares of its common stock for the conversion of notes payable and accrued interest in the amount of $29,617.

 

NOTE 10 - INCOME TAX DISCLOSURE

 

During the six months ended June 30, 2016, the Company recorded net income in the amount of $34,936. The reported net income is mainly derived from the gain on change in fair value of derivative liability, a non-taxable permanent difference. Accordingly, no income tax expense or reduction in the NOL has been recorded or disclosed, though taxable losses have increased the NOL in the current period by $76,000.

 

NOTE 11 - SUBSEQUENT EVENTS

 

Subsequent to June 30, 2016, the Company issued an aggregate of 140,800,000 shares of its common stock for the conversion of notes payable and accrued interest. The Company has evaluated subsequent events for the period of June 30, 2016 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.

 

 

 

  13  

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 January 2, 2015, the Company entered into a Farmout Agreement with BPS Operating Services LLC, located in Jackson, Mississippi. The Company has until April 1, 2015 to tender $500,000 for the first well to be drilled. The production interest includes 40 acres around the new well and the Company will earn a 75% working interest before payout, and a 60% working interest after payout. All of the production facilities, salt water disposal systems, and 33 well bores are in place. The Company may drill additional wells for $400,000 per well within 60 days of completion of each previously drilled well completion. No payments towards this Farmout Agreement have been made yet by the Company as of the date of this quarterly report.

 

On January 21, 2015, the Company entered into a Farmout Agreement with Durban Energy, Inc., located in Jackson, Mississippi. The Company will receive 100% of the net revenue until payout of all costs, at which time the Company will assign a 25% working interest to Durban and partners. There is a 30% royalty burden on the leases, which means that before payout the Company will have 70% of net revenue and after payout the Company will have 52.5% of net revenue and Durban will have 17.5% of net revenue. Each well will be treated separately for payout calculation. No payments towards this Farmout Agreement have been made yet by the Company as of the date of this quarterly report.

 

Results of Operations

 

Following is our discussion of the relevant items affecting results of operations for the periods ended June 30, 2016 and 2015.

 

Revenues. The Company generated net revenues of $-0- for the three and six month periods ended June 30, 2016 and 2015.

 

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 June 30, 2016 were $-0- compared to $15,000 during the three months ended June 30, 2015. Salaries and consulting expenses for the six months ended June 30, 2016 were $-0- compared to $1,065,000 during the six months ended June 30, 2015. For the six months ended June 30, 2015, stock valued at $1,050,000 was issued for consulting services. The stock was valued at the market price on the date of issuance.

 

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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, 2016 were $856 compared to $55,658 during the three months ended June 30, 2015. Professional fees for the six months ended June 30, 2016 were $2,036 compared to $132,215 during the six months ended June 30, 2015. Due to the decrease in business activity, legal and accounting fees have decreased approximately $15,000 per month during 2016. Furthermore, the Company incurred approximately $29,000 in legal fees during the six months ended June 30, 2015 related to the convertible debentures.

 

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 June 30, 2016 were $-0- compared to $10,138 during the three months ended June 30, 2015. Selling, general and administrative expenses for the six months ended June 30, 2016 were $-0- compared to $10,962 during the six months ended June 30, 2015. During the six months ended June 30, 2015, the Company incurred marketing and office expenses as it explored the change in business model.

 

Other Income (Expense). Other income and expenses for the three months ended June 30, 2016 resulted in net other expenses of $18,304 compared to net other income of $11,493 during the three months ended June 30, 2015. Other income and expenses for the six months ended June 30, 2016 resulted in net other income of $36,972 compared to net other expenses of $151,798 during the six months ended June 30, 2015. Other expenses incurred were comprised primarily of interest expenses related to the promissory notes and other liabilities of the Company in the amount of $74,827 which includes the amortization of debt discount of $18,638 during the six months ended June 30, 2016. Also included in this category is the gain on the change in fair value of derivative liability in the amount of $111,799 during the six months ended June 30, 2016. During the six months ended June 30, 2015, the Company incurred approximately $108,000 in costs associated with the initial setup of the convertible debentures which was recorded as interest expense. 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 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, 2016, 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.

 

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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 second quarter ended June 30, 2016 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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

 

On March 23, 2016, the Company converted into 23,920,000 shares of common stock, $239 of a note, originally issued by the Company on April 29, 2015.

 

On February 4, 2016, the Company converted into 21,000,000 shares of common stock, $1,050 of a note, originally issued by the Company on January 1, 2005.

 

On February 4, 2016, the Company converted into 42,452,830 shares of common stock, $2,250 of a note, originally issued by the Company on March 6, 2015.

 

On January 29, 2016, the Company converted into 20,041,333 shares of common stock, $1,202 of a note, originally issued by the Company on February 25, 2015.

 

On January 25, 2016, the Company converted into 19,000,000 shares of common stock, $950 of a note, originally issued by the Company on January 1, 2005.

 

On January 20, 2016, the Company converted into 34,591,195 shares of common stock, $5,500 of a note, originally issued by the Company on March 6, 2015.

 

On January 12, 2016, the Company converted into 12,000,000 shares of common stock, $600 of a note, originally issued by the Company on January 1, 2005.

 

On January 11, 2016, the Company converted into 15,305,777 shares of common stock, $2,755 of a note, originally issued by the Company on February 25, 2015.

 

On December 30, 2015, the Company converted into 14,564,041 shares of common stock, $3,275 of a note and $220 of interest, originally issued by the Company on February 25, 2015.

 

On December 14, 2015, the Company converted into 14,627,000 shares of common stock, $3,300 of a note and $210 of interest, originally issued by the Company on February 25, 2015.

 

On November 20, 2015, the Company converted into 6,792,166 shares of common stock, $3,080 of a note and $180 of interest, originally issued by the Company on February 25, 2015.

 

On November 16, 2015, the Company converted into 6,874,687 shares of common stock, $3,120 of a note and $180 of interest, originally issued by the Company on February 25, 2015.

 

On November 4, 2015, the Company converted into 13,122,579 shares of common stock, $5,774of a note, originally issued by the Company on April 29, 2015.

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On October 30, 2015, the Company converted into 18,300,000 shares of common stock, $9,699 of a note, originally issued by the Company on March 6, 2015.

 

On October 27, 2015, the Company converted into 22,075,472 shares of common stock, $11,700 of a note, originally issued by the Company on March 6, 2015.

 

On October 26, 2015, the Company converted into 6,493,750 shares of common stock, $3,700 of a note and $196 of interest, originally issued by the Company on February 25, 2015.

 

On October 22, 2015, the Company converted into 19,622,642 shares of common stock, $10,400 of a note, originally issued by the Company on March 6, 2015.

 

On October 21, 2015, the Company converted into 4,418,182 shares of common stock, $3,540 of a note and $1,320 of interest, originally issued by the Company on February 10, 2015.

 

On October 19, 2015, the Company converted into 6,484,300 shares of common stock, $3,700 of a note and $191 of interest, originally issued by the Company on February 25, 2015.

 

On October 19, 2015, the Company converted into 13,145,455 shares of common stock, $14,460 of a note, originally issued by the Company on February 10, 2015.

 

On October 16, 2015, the Company converted into 16,037,736 shares of common stock, $8,500 of a note, originally issued by the Company on March 6, 2015.

 

On October 13, 2015, the Company converted into 2,333,755 shares of common stock, $2,000 of a note and$100 of interest, originally issued by the Company on February 25, 2015.

 

On October 1, 2015, the Company issued to a former officer and director of the Company, 20,000,000 restricted shares of common stock. The shares were issued pursuant to the conversion of $40,000 in outstanding debt held on the books and records of the Company. No solicitation was made and no underwriting discounts were given or paid in connection with this transaction. The Company believes that the issuance of shares pursuant to the Agreement was exempt from registration with the Securities and Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933.

 

On September 14, 2015, the Company converted into 2,657,454 shares of common stock, $10,000 portion of a note, originally issued by the Company on March 6, 2015.

 

On September 10, 2015, the Company converted into 4,054,054 shares of common stock, $15,000 of a note, originally issued by the Company on February 10, 2015.

 

On August 27, 2015, the Company converted into 519,945 shares of common stock, $3,000 portion of a note and $120 of interest, originally issued by the Company on February 25, 2015.

 

On August 13, 2015, Kenneth I. Denos, the Company’s controlling shareholder assigned all 100 shares of Series A Preferred Stock (the “Control Stock”) of Start Scientific, Inc. (the “Company”) to the Company’s Chief Executive Officer and Chairman Norris R. Harris. The Control Stock is not convertible into common stock but collectively hold 1,000,000,000 voting rights and are entitled to vote together with holders of common stock on all such matters upon which common stockholders may vote. As a result, Mr. Harris now holds a controlling beneficial interest in the Company and may unilaterally determine the election of the Board and other substantive matters requiring approval of the Company’s stockholders.

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On April 1, 2015, the Company issued 1,000,000 shares of common stock of the Company to a consultant for services rendered.

 

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, at the election of the lender is convertible into fully paid and non-assessable shares of Common Stock of the Company at (i) the Closing sale price of the Common Stock on the trading day immediately preceding the Closing Date; or (ii) 55% of the lowest sale price for the fifteen prior days trading of 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.

 

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, at the election of the lender is convertible into fully paid and non-assessable shares of Common Stock of the Company at 60% of the lowest trading price for the fifteen prior days trading, including the date of conversion.

 

On February 3, 2015, the Company issued 5,000,000 shares of its common stock to a consultant of the Company for services rendered.

 

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, at the election of the lender is convertible into fully paid and non-assessable shares of Common Stock of the Company at a 55% discount to the average of the three lowest trading days in the twelve trading days previous to the conversion.

 

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.

 

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. OTHER INFORMATION

 

Not applicable.

 

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ITEM 5. EXHIBITS:

 

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

 

INDEX TO EXHIBITS

 

 

Exhibit

Number

 

 

Title of Document

3.1  

Certificate of Incorporation of Start Scientific, Inc., a Delaware corporation.(1)

 

3.2  

Bylaws of Start Scientific, Inc., a Delaware corporation.(2)

 

31.1   Certification by Chief Financial Officer, Jim Frazier, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification by Chief Financial Officer, Jim Frazier, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .

 

(1) Filed as an Exhibit to the Company’s Current Report on Form 8-k filed on November 23, 2011.
(2) Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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.

 

 

    START SCIENTIFIC, INC.
     
Date:  March __, 2018   By: /s/ Jim Frazier
    Jim Frazier
   

Chief Executive Officer and

Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Exhibit 31.1

 

CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Jim Frazier of Start Scientific, Inc. (the “Company”), certify that:

 

1.       I have reviewed this 10-Q of the Company;

 

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 

4.       Together with the Company’s principal accounting and financial officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

a.       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.       Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.       Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and

 

5.       The Company’s other certifying officers and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):

 

a.       All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and

 

b.       Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

 

Date: March __, 2018

 

/s/ Jim Frazier

Jim Frazier

Chief Executive Officer and

Chief Financial Officer

Exhibit 32.1

 

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Jim Frazier, Chief Financial Officer of Start Scientific, Inc. (the “Company”) certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of the Company;

 

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and

 

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this report.

 

Date: March __, 2018

 

/s/ Jim Frazier

Jim Frazier

Chief Executive Officer and

Chief Financial Officer