Notes to the Financial Statements
December 31, 2017 and 2016
NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS
Start Scientific, Inc. (the Company)
was formed in the state of Utah on February 4, 2004, with authorized common stock of 10,000,000 shares. The Company was subsequently
reincorporated in the State of Delaware on February 14, 2006 with authorized common stock of 5,000,000,000 shares and authorized
preferred stock of 100 shares. Both classes of stock have a par value of $0.00001 per share.
Prior to March 2012, we were a computer
and technology hardware reseller to businesses and other organizations. Most of our clients were small and medium sized organizations,
although we attempted to market our products and services to larger organizations. We also outsourced technology-related services
to provide a full solution basket of technology products and services including hardware, software, network development and services.
Our clients consisted of some retail purchasers and small to medium-sized organizations, operating mostly in North America, but
we did have occasional clients in Europe. Our future business is expected to be based on the exploration, development, drilling,
and production of various oil and gas properties. In particular, we intend to look for oil and gas opportunities in international
markets. Whether in respect to the development of oil and gas interests in North America or overseas, we expect to align with industry
partners in respect of the drilling and operation of these wells. Our long-term focus is to grow and develop existing oil and gas
leasehold interests and acquire new interests within and without the continental United States. In addition, we intend to acquire
interests in older wells that, with the application of newer technologies, may increase production and reserves.
NOTE 2 SIGNIFICANT
ACCOUNTING POLICIES
This summary of significant accounting
policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements
and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently
applied in the preparation of the financial statements. The following policies are considered to be significant:
a. Accounting Method
The Company recognizes income and
expenses based on the accrual method of accounting. The Company has elected a calendar year-end.
b. Cash and Cash Equivalents
Cash equivalents are generally comprised
of certain highly liquid investments with original maturities of less than three months.
c. Use of Estimates in
the Preparation of Financial Statements
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.
START SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2017 and 2016
d.
I
ncome
(Loss) Per Share
The computation of basic earnings
(loss) per common share is based on the net income (loss) divided by the weighted average number of shares outstanding during each
period.
The computation of diluted earnings
(loss) per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents
as detailed in the following chart. During the years ended December 31, 2017 and 2016, the inclusion of these common
stock equivalents on the statement of operations would have resulted in a weighted average shares fully diluted number that was
anti-dilutive, and as such they are excluded. Fully diluted shares for the years ended December 31, 2017 and 2016 are as follows:
|
|
2017
|
|
2016
|
Basic weighted average shares outstanding
|
|
|
528,875,791
|
|
|
|
495,270,990
|
|
Convertible debt
|
|
|
168,430,399
|
|
|
|
1,158,772,636
|
|
Fully diluted weighted average shares outstanding
|
|
|
697,306,190
|
|
|
|
1,654,043,626
|
|
e. Accounts Receivable
Accounts receivable are recorded
net of the allowance for doubtful accounts. The Company generally offers 15-day credit terms on sales to its customers and requires
no collateral. The Company maintains an allowance for doubtful accounts which is determined based on a number of factors, including
each customer’s financial condition, general economic trends and management judgment. The Company had $-0- in accounts receivable
at December 31, 2017 and 2016.
f. Revenue Recognition
Revenue is recognized upon completion
of services or delivery of goods where the sales price is fixed or determinable and collectability is reasonably assured. Advance
customer payments are recorded as deferred revenue until such time as they are recognized. The Company recognized no revenue in
2017 or 2016.
g. Recent Accounting
Pronouncements
We have reviewed accounting pronouncements
issued during the past two years and have adopted any that are applicable to the Company. We have determined that none had a material
impact on our financial position, results of operations, or cash flows for the years ended December 31, 2017 and 2016.
h. Income Taxes
The Financial Accounting Standards
Board (FASB) has issued FASB ASC 740-10 (Prior authoritative literature: Financial Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN 48)). FASB ASC 740-10 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with prior literature FASB Statement
No. 109, Accounting for Income Taxes. This standard requires a company to determine whether it is more likely than not that
a tax position will be sustained will be sustained upon examination based upon the technical merits of the position. If the
more-likely-than- not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial
START SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2017 and 2016
statements. As a result of
the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition
and measurement standards established by FASB ASC 740-10.
Deferred taxes are provided on a
liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
At December 31, 2017, the Company
had net operating loss carryforwards of approximately $6,512,000 which may be offset against future taxable income through 2037.
No tax benefit has been reported in the financial statements because the potential tax benefits of the net operating loss carryforwards
are offset by a valuation allowance of the same amount.
Due to the change in ownership provisions
of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual
limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to future use. In December
2017, Congress enacted the Tax Cuts and Jobs Act which changed the corporate income tax rate to a flat 21% for the tax year beginning
in 2018.
Net deferred tax assets consist
of the following components as of December 31, 2017 and 2016:
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL Carryover (at 21% Federal, 5% State)
|
|
$
|
1,700,400
|
|
|
$
|
1,698,000
|
|
Valuation allowance
|
|
|
(1,700,400
|
)
|
|
|
(1,698,000
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The income tax provision differs
from the amount of income tax determined by applying the current applicable U.S. federal and state income tax rates of 34% to pretax
income from continuing operations for the years ended December 31, 2017 and 2016 due to the following:
|
|
2017
|
|
2016
|
Federal tax benefit at 34%
|
|
$
|
(3,000
|
)
|
|
$
|
(113,000
|
)
|
State tax benefit at 5%
|
|
|
(400
|
)
|
|
|
(16,000
|
)
|
Change in Valuation allowance
|
|
|
2,400
|
|
|
|
91,000
|
|
Impact of rate changes on NOL
|
|
|
1,000
|
|
|
|
38,000
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Cumulative reduction in
deferred tax assets and resulting valuation allowance attributable to the tax rate changes in the Tax Cuts and Jobs Act of 2018
was $841,000.
START SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2017 and 2016
At December 31, 2017, the Company
had no unrecognized tax benefits that, if recognized, would affect the effective tax rate.
The Company did not have any
tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase
or decrease within the next 12 months.
The Company includes interest
and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes.
As of December 31, 2017 and 2016, the Company had no accrued interest or penalties related to uncertain tax positions.
The tax years that remain subject
to examination by major taxing jurisdictions are those for the years ended December 31, 2017, 2016 and 2015, and since inception.
i. Concentrations of Credit Risk
Financial instruments that potentially
subject the Company to concentrations of credit risks consist of cash and cash equivalents. The Company places cash and cash equivalents
at well-known quality financial institutions. Cash and cash equivalents at banks are insured by the Federal Deposit Insurance Corporation
for up to $250,000. The Company did not have any cash or cash equivalents in excess of this amount at December 31, 2017 and 2016.
j. Going Concern
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. At December 31, 2017 the Company had negative working capital of
$2,504,282 and an accumulated deficit of $16,842,389. These factors raise substantial doubt regarding the Company’s ability
to continue as a going concern.
To date the Company has funded its
operations through a combination of loans and sales of common stock. The Company anticipates another net loss for the fiscal year
ended December 31, 2018 and with the expected cash requirements for the coming year, there is substantial doubt as to the Company’s
ability to continue operations.
The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
k. Stock-based Compensation
The Company accounts for stock-based
compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity-Based Payments
to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever
is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based
payment transaction is determined on the earlier of performance commitment date or performance completion date.
Share-based expense totaled $-0-
for the years ended December 31, 2017 and 2016, respectively.
START SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2017 and 2016
l. Financial Instruments
The Company has adopted FASB ASC
820-10-50, “
Fair Value Measurements.
” This guidance defines fair value, establishes a three-level valuation
hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three
levels are defined as follows:
Level 1 inputs
to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs
to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs
to valuation methodology are unobservable and significant to the fair measurement.
The carrying amounts reported in
the balance sheets for the cash and cash equivalents and current liabilities (including derivative liabilities) each qualify as
financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of
such instruments and their expected realization and their current market rate of interest.
m.
Options and Warrants
The Company has adopted FASB ASC 718, “Share-Based Payments” (“ASC 718”) to account
for its stock options. The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option
pricing model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to
reflect market conditions and our experience. Compensation expense is recognized only for those options expected to vest, with
forfeitures estimated at the date of grant based on our historical experience and future expectations.
NOTE 3 RELATED
PARTY TRANSACTIONS
The Company issued certain promissory
notes to related individuals and/or their companies as disclosed in Note 7. The individuals consist of an officer of the Company
and a director of the Company. The Company received advances of $3,737 and $-0-, respectively; and made payments on these advances
of $-0- and $-0-, respectively, during the years ended December 31, 2017 and 2016.
Accounts payable and accrued liabilities
– related parties consisted of the following as of December 31, 2017 and 2016:
|
|
2017
|
|
2016
|
Accounts payable
|
|
$
|
586,757
|
|
|
$
|
586,757
|
|
Accrued interest
|
|
|
102,707
|
|
|
|
98,395
|
|
Misc. loans and advances
|
|
|
82,154
|
|
|
|
82,154
|
|
Total
|
|
$
|
771,618
|
|
|
$
|
767,306
|
|
START SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2017 and 2016
NOTE 4 CONVERTIBLE NOTES PAYABLE
Convertible notes payable
consisted of the following:
|
|
December 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)
|
|
|
43,185
|
|
|
|
47,487
|
|
Convertible note payable to an entity, interest at 10%, due on demand (C)
|
|
|
22,400
|
|
|
|
22,400
|
|
Total Notes Payable
|
|
|
89,215
|
|
|
|
92,334
|
|
Less: Current Portion
|
|
|
(89,215
|
)
|
|
|
(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 carried
an interest rate of 8% per annum. As the loan is in default, it carries and interest rate of 24% 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 December 31, 2017 and 2016, the Company owed balances
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 December 31, 2016, the Company owed a balance of $47,487. During 2017, the lender converted $4,302 of the note’s principal
and $43,805 of its associated derivative liability into a total of 140,800,000 shares of the Company’s common stock, resulting
in a principal balance of $43,185 at December 31, 2017. 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. As of December 31, 2017 and 2016, the Company owed a balance of $22,400.
START SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2017 and 2016
The Company recognized amortization
expense related to the debt discount of $1,183 and $19,580 for the years ended December 31, 2017 and 2016, respectively.
For the years ended December 31,
2017 and 2016, interest expense on convertible notes was $8,826 and $38,010, respectively. As of December 31, 2017 and 2016, the
accrued interest payable was $25,294 and $16,468, respectively, which is included in accrued expenses.
NOTE 5 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 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of 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. Assumptions used for the calculation of the derivative liability of the notes
at December 31, 2017 include (1) stock price of $0.0012 per share, (2) exercise price of $0.0004 per share, (3) term between 28
and 310 days, (4) expected volatility between 177.91% and 368.72% and (5) risk free interest rate of between 0.15% and 27%.
The derivative liability at December
31, 2017 consisted of the following:
|
|
Note Original
Face Value
|
|
Derivative Liability
|
Convertible note payable to an entity, interest at 8%, due on February 25, 2016, in default, (A) from Note 4
|
|
$
|
52,500
|
|
|
$
|
67,386
|
|
Convertible note payable to an entity, interest at 10%, due on April 29, 2016, in default, (B) from Note 4
|
|
|
53,500
|
|
|
|
134,257
|
|
Totals
|
|
$
|
106,000
|
|
|
$
|
201,643
|
|
START SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2017 and 2016
The derivative liability at December
31, 2016 consisted of the following:
|
|
Note Original
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)
|
|
$
|
52,500
|
|
|
$
|
84,744
|
|
Convertible note payable to an entity, interest at 10%, due on April 29, 2016, in default, (B)
|
|
|
53,500
|
|
|
|
239,145
|
|
Totals
|
|
$
|
106,000
|
|
|
$
|
323,889
|
|
The
above convertible notes contain variable conversion features based on the future trading price of the Company 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 at December 31, 2017 and 2016 that there was
a derivative liability associated with these notes. The fair value of the derivative liability at December 31, 2017 and 2016 was
$201,643 and $323,889, respectively, which are reported on the balance sheet. The Company recorded a gain on the change in the
fair value of the derivative liability of $78,441 on the statement of operations for the year ended December 31, 2017. The Company
recorded a loss on the change in the fair value of the derivative liability of $184,803 on the statement of operations for the
year ended December 31, 2016.
START SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2017 and 2016
NOTE 6 NOTES PAYABLE
Notes payable consisted of the following:
|
|
December 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 an individual, 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
|
|
Notes payable to an individual, interest at 8% per annum, due on demand, unsecured
|
|
|
19,150
|
|
|
|
—
|
|
Total Notes Payable
|
|
|
567,010
|
|
|
|
547,860
|
|
Less: Current Portion
|
|
|
(567,010
|
)
|
|
|
(547,860
|
)
|
Long-Term Notes Payable
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued interest at December
31, 2017 and 2016 was $240,549 and $220,516, respectively. These amounts are included in accrued expenses on the balance sheet.
START SCIENTIFIC, INC.
Notes to the Financial Statements
December 31, 2017 and 2016
NOTE 7 NOTES PAYABLE – RELATED PARTIES
Notes payable – related parties consisted of the following:
|
|
December 31,
2017
|
|
December 31,
2016
|
Note payable to a related individual, interest at 24% per annum, due on demand, unsecured
|
|
$
|
62,252
|
|
|
$
|
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
|
|
Notes payable to a company, non-interest bearing, due on demand, unsecured
|
|
|
7,418
|
|
|
|
5,032
|
|
Total Notes Payable – Related Parties
|
|
|
90,393
|
|
|
|
86,656
|
|
Less: Current Portion
|
|
|
(90,393
|
)
|
|
|
(86,656
|
)
|
Long-Term Notes Payable – Related Parties
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued interest at December
31, 2017 and 2016 was $102,707 and $98,395, respectively which is included in accounts payable and accrued liabilities –
related parties.
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 188,311,135 shares of its common stock for the conversion of various debt instruments in the amount of
$52,856.
During the year ended December 31,
2017, the Company issued 140,800,000 shares of its common stock for the conversion of various debt instruments in the amount of
$48,107.
NOTE 9 SUBSEQUENT EVENTS
The Company has evaluated subsequent
events through the date of issuance of this report. There have been no subsequent events that would require adjustment to or disclosure
in the financial statements as of and for the year ended December 31, 2017.