Consolidated Notes to Financial Statements
December 31, 2015 and 2014
Note 1 Nature of Business
(a) Description of Business
RadTek, Inc. (Formerly USChina Taiwan, Inc.) (the Company) was incorporated in Nevada on December 18, 2009, under the laws of the State of Nevada, for the purpose of providing management consulting services to the small or median sized private companies in the Taiwan that want to look for business partners, or agencies, or financing resources, or to become public through IPO or reverse merger in the United States, or Canada.
The Company was a subsidiary of USChina Channel Inc., and spun off on March 15, 2010. As of March 18, 2013 the company filed with the Nevada Secretary of State and subsequently with the SEC and FINRA for a name change to RadTek, Inc., change to the Articles of Incorporation. With this the ticker of the company also changed to RDTK and created a class of preferred stock with 10,000,000 shares issuable. No preferred shares have been issued to date.
On November 26, 2013, the Company acquired RadTek, Co. Ltd. RadTek, Co., Ltd. was incorporated under the laws of Republic of Korea in May 2001, and is engaged in developing and marketing radiation-imaging system and equipment that employ digital radiography technology. The systems offered are primarily in the line of radiation scanning and related engineering services for users in various fields such as biotechnology, medical, product quality control, and security system. The specific product line includes food inspection systems, X-ray diagnosis related systems, baggage and container inspection systems, and radiation safety engineering. As the market in this field is dominated by high-priced systems for large users, the Company aims to focus on the niche market of small users by offering low-cost models.
On December 31, 2012, RadTek, Co., Ltd. entered into an agreement to acquire a company (a Nevada corporation) listed on Over-the-Counter Market of the United States. This transaction was completed in February 2013, and has resulted in the acquisition of 89.6% of the outstanding voting shares of the listed company at the consideration of $367,000 including transaction expenses. All amounts recorded as treasury stock in consolidated balance sheet as of December 31, 2015 and 2014.
On November 26, 2013, the Company entered into a definitive agreement with RadTek, Co. Ltd.s shareholders. Pursuant to the agreement, the Company purchased all of the outstanding securities of the RadTek, Co. Ltd. (1,900,000) in exchange for 95,000,000 common shares of the Company. RadTek Co. Ltd. shall be a wholly owned subsidiary of the Company. RadTek, Co. Ltd. is treated as the accounting acquirer in the accompanying financial statements. In the transaction, the Company issued 95,000,000 common shares to the shareholders of RadTek, Co. Ltd.; such shares represented, immediately following the transaction, 94% of the outstanding shares of the Company (excluding treasury stock of 55,375,000 shares). The transaction was accounted for as a reverse merger and a reverse recapitalization and the issuances of common stock were recorded as a reclassification between paid-in-capital and par value of Common Stock.
On January 15, 2014, the Board of Directors approved to increase authorized common shares from 60,000,000 common shares, par value $0.001 to 1,990,000,000 common shares, par value $0.001 per common shares and to effectuate a forward split of RadTeks common stock at an exchange ratio of 50 for 1 so that each outstanding common share before the forward split shall represent 50 common shares after the forward split. All share amounts have been retroactively adjusted for all periods presented.
(b) Going Concern Considerations
The Companys financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced recurring losses over the past years which have resulted in stockholders accumulated deficits of approximately $3,192 thousand and a working
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capital deficit of approximately $1,695 thousand at December 31, 2015. These conditions raise uncertainty about the Companys ability to continue as a going concern.
The Companys ability to continue as a going concern is contingent upon its ability to secure additional financing, increase sales of its products and attain profitable operations. It is the intent of management to continue to raise additional capital to sustain operations and to pursue acquisitions of operating companies in order to generate future profits for the Company. However, there can be no assurance that the Company will be able to secure such additional funds or obtain such on terms satisfactory to the Company, if at all.
The accompanying 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 this uncertainty.
Note 2 Significant Accounting Policies
The Company follows accounting principles generally accepted in the United States of America in the preparation of its financial statements. The following summary of significant accounting policies of the Company is presented to assist in understanding the Companys financial statements. These accounting policies conform to the U.S. GAAP, and have been consistently applied. The financial statements and notes are representations of the Companys management, who is responsible for their integrity and objectivity.
Basis of Accounting
The Company's consolidated financial statements are prepared using the accrual method of accounting. These consolidated statements include the accounts of the Company and its subsidiary RadTek, Co. Ltd. a Korean Corporation. All significant intercompany transactions and balances have been eliminated. The Company has elected a December 31 year-end.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with 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.
The Companys significant estimates and assumptions include the fair value of financial instruments, valuation of deferred tax assets and allowance for doubtful accounts. Actual results may ultimately differ from estimates, although management does not believe such changes will materially affect the financial statements in any individual year.
Operation in Foreign Country
Substantially, all of the Companys operations are carried out in the Republic of Korea. The Companys operations are subject to various political, economic, and other risks and uncertainties inherent in the country in which the Company operates. Among other risks, the Companys operations are subject to the risks of political conditions and governmental regulations.
Foreign Currency Translation and Transaction
The financial position and results of operations of the Company are measured using the foreign local currency as the functional currency. Revenues and expenses have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
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Cash and Cash Equivalents
Cash includes currency, checks issued by others, other currency equivalents, current deposits and passbook deposits held by financial institutions. For financial statement purposes, all highly liquid debt instruments with insignificant interest rate risk and maturity of three months or less when purchased are considered to be cash equivalent. Cash equivalents consist primarily of cash deposits in money market funds that are available for withdrawal without restriction.
Accounts Receivable
Trade accounts receivable are presented at face value less allowance for doubtful accounts. The allowance for doubtful accounts is the Companys best estimate of probable credit losses in the existing accounts receivable. The Company determines the allowance based on Companys historical experience and review of specifically identified accounts and aging data. The Company reviews its allowance for doubtful accounts periodically. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Inventory
Inventories, consisting of raw materials and finished goods, are stated at lower of cost or market where cost is computed on a first in, first out basis.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets:
Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When property and equipment are retired, sold, or otherwise disposed of, the assets carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount, an impairment loss would be measured based on the discounted cash flows compared to the carrying amount. No impairment charge has been recorded in any of the periods presented.
Intangible Assets Other Than Goodwill
The Company follows guidelines of FASB Accounting Standards Codification (ASC) Topic 350 Intangibles Goodwill and Other with regards to accounting and reporting of intangible assets other than goodwill. Intangible assets that have finite lives are amortized over the period during which the asset is expected to contribute directly or indirectly to future cash flows of the entity. Intangible assets that have finite lives are evaluated for impairment when events and circumstances warrant. Intangible assets that have indefinite lives are not amortized. They are evaluated for impairment annually and on an interim basis as events and circumstances warrant by comparing the fair value of the intangibles asset with its carrying amount.
Accrued Severance Benefits
Employees with at least one year of service are entitled to receive a lump-sum payment upon termination of their employment with the Company based on their length of service and rate of pay at the time of termination. Accrued severance benefits represent the amount which would be payable assuming all eligible employees were to terminate their employment as of the balance sheet date.
Research and Development
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Research and development costs are expensed as incurred. Research and development expenses consist primarily of salaries and related personnel costs and subcontract fees.
Revenue Recognition
The Company follows guidelines of ASC Topic 605 Revenue Recognition for revenue recognition. The Company recognizes revenue when revenue is realized or realizable and earned. Revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the price to the buyer is fixed or determinable; and collectability is reasonably assured.
The Company recognizes revenue from the sale of radiation sealing construction under the completed contract method accounted for as one element.
Revenue from research services recognized as service are rendered and billed each month under a term service agreement.
Fair Value of Financial Instruments
The Company follows ASC Topic 820 Fair Value Measurements and Disclosures to measure the fair value of its financial instruments and to make disclosures about fair value of its financial instruments. Topic 820 requires the categorization of the fair value of financial instruments into three broad levels which form a hierarchy.
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Level 1
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Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
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Level 2
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Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
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Level 3
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Pricing inputs that are generally observable inputs and not corroborated by market data.
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The Company follows this hierarchy for its financial instruments. The classifications are based on the lowest level of input that is significant to the fair value measurement.
The carrying amounts of the Companys financial assets and liabilities, such as cash equivalents, accounts receivable, prepaid expenses, and accrued expenses approximate their fair values because of the short maturity of these instruments.
Net Income (Loss) per Share
Net income (loss) per common share is computed pursuant to ASC Topic 260 Earnings per Share. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through stock options and warrants.
There were no potentially outstanding dilutive common shares for the periods ended December 31, 2015 and, 2014
Related Parties
The Company follows ASC Topic 850 Related Party Disclosures for the identification of related parties and disclosure of related party transactions.
Commitment and Contingencies
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The Company follows subtopic ASC Topic 450 Contingencies to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such an assessment inherently involves an exercise of judgment. As of December 31, 2015, management is not aware of any such contingencies that would have a material adverse effect on the Companys financial position or results of operations.
Concentrations and Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of accounts receivable.
Two customers represented approximately 87% (66% and 21%) of total gross accounts receivable as of December 31, 2015.
Three customers in the year ended December 31, 2015 represented approximately 77% (14%, 19% and 44%) of total revenues for that period. One customer in the year ended December 31, 2014 represented approximately 76% of total revenues for that period.
No other individual customer represented greater than 10% of total revenues in the years ended December 31, 2015 and 2014. No other individual customer balance represented more than 10% of the total gross accounts receivable at December 31, 2015
Reclassification
Certain account totals and other figures from prior year have been reclassified to conform to current period presentation.
Recent Accounting Pronouncements
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
Note 3 Inventories
Inventories consist of the following as of December 31, 2015 and 2014:
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2015
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2014
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Raw materials
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$ 2,850
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$ 1,513
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Finished goods
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-
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-
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Total
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$ 2,850
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$ 1,513
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Note 4 Notes receivable
The Company loaned $292,700 (KRW 349,626,745) to C&D Corporation Co., Ltd. (See Note 9). It is on demand without interest. The Company loaned $226,036. It is initially due on July 28, 2015. The interest is 6% per annum. The company wrote off all outstanding balance as bad debt as of December 31, 2015.
Note 5 Property and Equipment
The Companys property and equipment consists of the following as of December 31, 2015 and 2014:
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2015
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2014
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Equipment and fixture
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$ 78,705
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$ 78,705
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Automobile
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23,675
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23,675
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102,380
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102,380
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Accumulated depreciation
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(102,380)
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(102,380)
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Net property and equipment
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$ -
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$ -
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Depreciation expenses for the years ended December 31, 2015 and 2014 were $nil and $nil, respectively.
Note 6 Investment
The Company invested W30,000,000 (about US$28,000) in KTEX Ltd. in 2012. The Company has ownership of 3% of KTEX. The company recorded gain of $3,513 as comprehensive income in 2014. The Company recognized loss on investment of $7,975 in 2015. As of December 31, 2015, book value of investment is zero.
Note 7 Intangibles
The Companys intangible assets are composed of the following as of December 31, 2015 and 2014:
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2015
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2014
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Patents
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$ 12,213
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$ 13,023
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Technical rights
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102,271
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109,044
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114,484
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122,067
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Accumulated amortization
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(37,321)
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(33,742)
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Intangible assets, net
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$ 77,163
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$ 88,325
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Direct costs incurred in obtaining patents and technical rights are capitalized. These patents and rights are subject to amortization as their lives are statutorily limited in South Korea, typically over the period of twenty years. Accordingly, they are being amortized over the statutory lives. Management considered recoverability of the balances of these assets and determined that no adjustment was necessary as of December 31, 2015.
Amortization expenses for the years ended December 31, 2015 and 2014 were $5,879 and $6,316, respectively.
Note 8 Short-term Borrowings
Short term borrowings consist of the following as of December 31, 2015 and 2014:
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2015
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2014
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Note payable to a bank at interest rate of 4.39%. The line matures in November 2016. (KRW 150,000,000)
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$ 127,987
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$ 136,463
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Notes payable to individuals at interest rate of 0% to 7%. The maturity is August 10, 2016 (KRW220,000,000)
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187,713
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-
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Total short-term borrowings
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$ 315,700
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$ 136,463
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Note 9- Convertible Note
On July 27, 2015, the Company issued a $5,000 Convertible Note for services. The Convertible Not bears interest at 9% without a maturity date. The Noteholder shall have the right to convert any unpaid sums into common stock of the Company at the rate of 50% of the lowest trade reported in the 20 days prior to date of conversion. As at December 31, 2015, the Company has recorded interest of $198.
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The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15
Derivatives and Hedging
. The initial fair value of the conversion feature of $5,254 resulted in a discount to the note payable of $5,000 and the remaining $254 was recognized as derivative expense.
Note 10 Derivative Liabilities
The embedded conversion option of the Companys convertible debenture contains a conversion feature that qualifies for embedded derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative liabilities.
The table below sets forth a summary of changes in the fair value of the Companys Level 3 financial liabilities:
For the year Ended
December 31, 2015
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Balance at the beginning of period
Fair value of new derivative liabilities (embedded conversion option)
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$
5,254
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Change in fair value of derivative
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1,747
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Balance at end of period
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$ 7,001
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The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Companys common stock, volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations: