Notes to the Financial Statements
March 31, 2017
(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, 2016. Operating results for the three months ended March 31,
2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017.
NOTE 2 - GOING CONCERN CONSIDERATIONS
The accompanying unaudited 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, 2016, the Company has incurred operating losses of $16,834,065 from inception of the Company
through December 31, 2016. The Company’s accumulated deficit at March 31, 2017 was $16,771,806 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.
START SCIENTIFIC, INC.
Notes to the Financial Statements
March 31, 2017
(Unaudited)
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES - RELATED PARTIES
Accounts payable and accrued liabilities
– related parties consisted of the following:
|
|
March 31, 2017
|
|
December 31, 2016
|
Accounts payable
|
|
$
|
586,757
|
|
|
$
|
586,757
|
|
Accrued interest
|
|
|
99,458
|
|
|
|
98,395
|
|
Misc. loans and advances
|
|
|
82,154
|
|
|
|
82,154
|
|
Total
|
|
$
|
768,369
|
|
|
$
|
767,306
|
|
NOTE 4 - CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted
of the following:
|
|
March 31,
2017
|
|
December 31,
2016
|
Convertible note payable to an entity, interest at 8%, due on February 25, 2016, in default, net of discount of $-0- and $1,183, respectively (A)
|
|
$
|
23,630
|
|
|
$
|
22,447
|
|
Convertible note payable to an entity, interest at 10%, due on April 29, 2016, in default (B)
|
|
|
47,487
|
|
|
|
47,487
|
|
Convertible note payable to an entity, interest at 10%, due on demand, (C)
|
|
|
22,400
|
|
|
|
22,400
|
|
Total Notes Payable
|
|
|
93,517
|
|
|
|
92,334
|
|
Less: Current Portion
|
|
|
(93,517
|
)
|
|
|
(92,334
|
)
|
Long-Term Notes Payable
|
|
$
|
—
|
|
|
$
|
—
|
|
(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 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 60% discount to the lowest trading price as reported on the OTCQB for the fifteen trading
days previous to the conversion date. As of March 31, 2017 and December 31, 2016, the Company owed a net balance of $23,630 and
$22,447, with unamortized debt discounts of $0 and $1,183, respectively. 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 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. As of March 31, 2017 and December 31, 2016 the Company owed a balance of $47,487. 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 a
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. As of March 31, 2017 the Company had a net balance of $22,400.
The Company recognized debt discount
amortization expense of $1,183 and $14,174 for the three months ended March 31, 2017 and 2016, respectively.
For the periods ended March 31,
2017 and March 31, 2016, the Company recognized interest expense on convertible notes of $2,189 and $40,358, respectively. As
of March 31, 2017 and December 31, 2016, the accrued interest payable was $18,657 and $16,468, respectively, and is included in
accrued expenses.
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following:
|
|
March 31,
2017
|
|
December 31,
2016
|
Note payable to a company, interest at 24% per annum, due on demand, unsecured
|
|
$
|
32,100
|
|
|
$
|
32,100
|
|
Notes payable to individuals, interest at 10% per annum, due on demand, unsecured
|
|
|
15,760
|
|
|
|
15,760
|
|
Note payable to an individual, default interest at 24% 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 March 31,
2017 and December 31, 2016 was $235,802 and $220,516, respectively and is included in accrued expenses.
START SCIENTIFIC, INC.
Notes to the Financial Statements
March 31, 2017
(Unaudited)
NOTE 6 - NOTES PAYABLE – RELATED PARTIES
Notes payable – related parties consisted of the following:
|
|
March 31,
2017
|
|
December 31,
2016
|
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
|
|
|
—
|
|
|
|
—
|
|
Notes payable to a company, due on demand, unsecured
|
|
|
6,253
|
|
|
|
5,032
|
|
Total Notes Payable – Related Parties
|
|
|
87,877
|
|
|
|
86,656
|
|
Less: Current Portion
|
|
|
(87,877
|
)
|
|
|
(86,656
|
)
|
Long-Term Notes Payable – Related Parties
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued interest at March 31,
2017 and December 31, 2016 $99,458 and $98,395, respectively and is included in accrued liabilities – related parties.
NOTE 7 - DERIVATIVE LIABILITY
The Company analyzed its 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 March
31, 2017 and December 31, 2016. 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
March 31, 2017
(Unaudited)
The derivative liability at March
31, 2017 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 $-0- (A) from NOTE 4
|
|
$
|
52,500
|
|
|
$
|
77,053
|
|
Convertible note payable to an entity, interest at
10%, due on April 29, 2016, in default, net of discount of $-0- (B) from NOTE 4
|
|
|
53,500
|
|
|
|
164,087
|
|
Totals
|
|
$
|
106,000
|
|
|
$
|
241,140
|
|
The derivative liability at December
31, 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 $1,183 (A) from NOTE 4
|
|
$
|
52,500
|
|
|
$
|
84,744
|
|
Convertible note payable to an entity, interest at 10%, due on April 29, 2016, in default, net of discount of $15,648 (B) from NOTE 4
|
|
|
53,500
|
|
|
|
239,145
|
|
Totals
|
|
$
|
106,000
|
|
|
$
|
323,889
|
|
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 variable terms of convertible notes (A) and (B) described in NOTE 4 above, it was determined at March 31, 2017 that
there was a derivative liability associated with these notes. The fair values of the derivative liability at March 31, 2017 and
December 31, 2016 were $241,140 and $323,889, respectively, which are reported on the balance sheet. The Company recorded gains
on the change in the fair value of the derivative liability of $82,749 and $111,781 on the statements of operations for the three
months ended March 31, 2017 and 2016, respectively.
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,
2016, the Company issued an aggregate of 188,311,135 shares of its common stock for the conversion of various debt instruments
in the amount of $52,856.
The Company did not engage in any
equity transactions during the three months ended March 31, 2017.
START SCIENTIFIC, INC.
Notes to the Financial Statements
March 31, 2017
(Unaudited)
NOTE 9 - INCOME TAXES
During the three months ended March
31, 2017, the Company recorded net income in the amount of $62,259. 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 Net Operating Loss carryforwards (NOL) has been recorded or disclosed, though taxable losses have increased the NOL in the
current period by $76,000. All NOLs have been completely offset by a valuation allowance.
NOTE 10 - SUBSEQUENT EVENTS
Subsequent to March 31, 2017, 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 March 31, 2017 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.