Notes to the Financial Statements
September 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 nine months ended September 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 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 September 30, 2018 was $16,890,373 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:
|
|
September 30,
2018
|
|
December 31, 2017
|
Accounts payable
|
|
$
|
1,000
|
|
|
$
|
586,757
|
|
Accrued interest
|
|
|
23,370
|
|
|
|
102,707
|
|
Misc. loans and advances
|
|
|
—
|
|
|
|
82,154
|
|
Total
|
|
$
|
24,370
|
|
|
$
|
771,618
|
|
START SCIENTIFIC, INC.
Notes to the Financial Statements
September 30, 2018
(Unaudited)
During the three months ended September
30, 2018, the Company negotiated with related parties for the settlement of accounts payable and other liabilities of the Company.
The amount settled of $613,245 was recorded as additional paid in capital.
NOTE 4 - CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted
of the following:
|
|
September 30,
2018
|
|
December 31,
2017
|
Convertible note payable to an entity, interest at 8%, due on February 25, 2016, in default (A)
|
|
$
|
23,630
|
|
|
$
|
23,630
|
|
Convertible note payable to an entity, interest at 10%, due on April 29, 2016, in default. The note carries a 24% interest rate in the event of default. (B)
|
|
|
43,185
|
|
|
|
43,185
|
|
Convertible note payable to an entity, interest at 10%, due on demand (C)
|
|
|
20,900
|
|
|
|
22,400
|
|
Total Notes Payable
|
|
|
87,715
|
|
|
|
89,215
|
|
Less: Current Portion
|
|
|
(87,715
|
)
|
|
|
(89,215
|
)
|
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. 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 September 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 September 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
START SCIENTIFIC, INC.
Notes to the Financial Statements
September 30, 2018
(Unaudited)
Company at a conversion price equal
to $0.00005. During the nine months ended September 30, 2018, $1,500 of the principal balance of the note was converted into 30,000,000
shares of common stock. As of September 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 nine months ended September 30, 2018 and 2017, respectively.
For the nine months ended September
30, 2018 and 2017, the Company recognized interest expense on convertible notes of $6,599 and $6,640, respectively. As of September
30, 2018 and December 31, 2017, the accrued interest payable was $28,911 and $25,294, respectively, which is included in accrued
expenses.
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following:
|
|
September 30,
2018
|
|
December 31,
2017
|
Note payable to a company, interest at 24% per annum, due on demand, unsecured
|
|
$
|
25,000
|
|
|
$
|
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, default interest at 24% per annum, due on July 13, 2013, unsecured, in default
|
|
|
100,000
|
|
|
|
100,000
|
|
Notes payable to individuals, default interest at 24% 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
|
|
|
47,496
|
|
|
|
19,150
|
|
Notes payable to a company , interest at 8% per annum, due on demand, unsecured
|
|
|
14,600
|
|
|
|
—
|
|
Total Notes Payable
|
|
|
602,856
|
|
|
|
567,010
|
|
Less: Current Portion
|
|
|
(602,856
|
)
|
|
|
(567,010
|
)
|
Long-Term Notes Payable
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued interest at September
30, 2018 and December 31, 2017 was $322,722 and $274,794, respectively, and is included in accrued expenses.
START SCIENTIFIC, INC.
Notes to the Financial Statements
September 30, 2018
(Unaudited)
NOTE 6 - NOTES PAYABLE – RELATED PARTIES
Notes payable – related parties consisted of the following:
|
|
September 30,
2018
|
|
December 31,
2017
|
Note payable to a related individual, interest at 24% per annum, due on demand, unsecured
|
|
$
|
—
|
|
|
$
|
62,252
|
|
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, due on demand, unsecured
|
|
|
759
|
|
|
|
7,418
|
|
Notes payable companies, interest at 8%, due on demand, unsecured
|
|
|
182,160
|
|
|
|
—
|
|
Total Notes Payable – Related Parties
|
|
|
203,642
|
|
|
|
90,393
|
|
Less: Current Portion
|
|
|
(203,642
|
)
|
|
|
(90,393
|
)
|
Long-Term Notes Payable – Related Parties
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued interest at September
30, 2018 and December 31, 2017 was $23,370 and $102,707, respectively and is included in accrued liabilities – related parties.
During the nine months ended
September 30, 2018, the Company transferred $196,233 of Accounts Payable - Related Parties to Notes Payable -
Related Parties, and received $3,136 in note proceeds from related parties. In addition, as discussed in NOTE 3 , during the
nine months ended September 30, 2018, the Company negotiated with related parties for the settlement of accounts payable and
other liabilities of the Company. The amount settled of $613,245 was recorded as additional paid-in capital, and included
$86,120 in Notes Payable - Related Party.
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.
START SCIENTIFIC, INC.
Notes to the Financial Statements
September 30, 2018
(Unaudited)
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 September
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.
The derivative liability at September
30, 2018 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, (A) from NOTE 4
|
|
$
|
52,500
|
|
|
$
|
60,006
|
|
Convertible note payable to an entity, interest at 10%, due on April 29, 2016, in default, (B) from NOTE 4
|
|
|
53,500
|
|
|
|
119,630
|
|
Totals
|
|
$
|
106,000
|
|
|
$
|
179,636
|
|
The derivative liability at December
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 $1,183 (A)
|
|
$
|
52,500
|
|
|
$
|
67,386
|
|
Convertible note payable to an entity, interest at 10%, due on April 29, 2016, in default (B)
|
|
|
53,500
|
|
|
|
134,257
|
|
Totals
|
|
$
|
106,000
|
|
|
$
|
201,643
|
|
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 September 30, 2018 and December 31, 2017 were $179,636 and $201,643, respectively, which
are reported on the balance sheet. The Company recorded a gain on the changes in the fair values of the derivative liability of
$22,007 on the statement of operations for the nine months ended September 30, 2018. The Company recorded a gain on the changes
in the fair value of the derivative liability of $199,323 on the statement of operations for the nine months ended September 30,
2017.
START SCIENTIFIC, INC.
Notes to the Financial Statements
September 30, 2018
(Unaudited)
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 nine months ended September
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.
During the three months ended September
30, 2018, the Company negotiated with related parties for the settlement of accounts payable and other liabilities of the Company.
The amount settled of $613,245 was recorded as additional paid in capital.
NOTE 9 - SETTLEMENT OF DEBT
During the three months ended September
30, 2018, the Company negotiated with non-related party creditors for the settlement of accounts payable and other liabilities
of the Company. This resulted in a gain on the settlement of debt in the amount of $53,029 as shown on the statement of operations.
NOTE 10 - SUBSEQUENT EVENTS
The Company has evaluated subsequent
events for the period of September 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.