The Financial Statements of the Registrant required to be filed with this 10-Q Quarterly Report were prepared by management and commence below, together with related notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Registrant.
Consolidated Notes to the Financial Statements
September 30, 2016 (Unaudited)
Note 1 – Nature of Business
(a) Description of Business
RadTek, 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 September 30, 2016 and December 31, 2015.
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 RadTek’s 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) Basis of Presentation and Going Concern Considerations
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the
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information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016.
The consolidated financial statements include the accounts of RadTek, Inc. and its 100% owned subsidiary, RadTek, Co. Ltd., a company incorporated in Korea. All significant intercompany balances and transactions have been eliminated upon consolidation.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2015.
These consolidated financial statements present the financial condition, and results of operations and cash flows of the operating companies.
The Company’s 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 $3,217 thousand and a working capital deficit of approximately $1,865 thousand at September 30, 2016. These conditions raise uncertainty about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is contingent upon its ability to secure additional financing, increase sales of its products and attain profitable operations. It is the intent of management to continue to raise additional capital to sustain operations and to pursue acquisitions of operating companies in order to generate future profits for the Company. However, there can be no assurance that the Company will be able to secure such additional funds or obtain such on terms satisfactory to the Company, if at all.
The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
Recent Accounting Pronouncements
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
Note 2 – Inventories
Inventories consist of the following as of September 30, 2016 and December 31, 2015:
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September 30, 2016
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December 31, 2015
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Raw materials
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$ -
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$ 2,850
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Finished goods
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-
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-
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Total
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$ -
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$ 2,850
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Note 3 – Intangibles
The Company’s intangible assets are composed of the following as of September 30, 2016 and December 31, 2015:
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September 30, 2016
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December 31, 2015
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Patents
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$ 13,057
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$ 12,213
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Technical rights
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109,333
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102,271
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122,389
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114,484
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Accumulated amortization
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(47,132)
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(37,321)
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Intangible assets, net
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$ 75,257
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$ 77,163
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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 September 30, 2016.
Amortization expenses for the nine month ended September 30, 2016 and 2015 were $6,827 and $4,445, respectively.
Note 4 – Short-term Borrowings
Short term borrowings consist of the following as of September 30, 2016 and December 31, 2015:
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September 30, 2016
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December 31, 2015
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Note payable to a bank at interest rate of 4.39%. The line matures in November 2016. (KRW 150,000,000)
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$ 136,824
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$ 127,987
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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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200,675
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187,713
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Total short-term borrowings
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$ 337,449
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$ 315,700
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Note 5- 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. The Company paid off convertible note of $5,000 and accrued interest of $233 on February 12, 2016
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 $254 was recognized as derivative expense.
Note 6 Derivative Liabilities
The embedded conversion option of the Company’s convertible debenture contains a conversion feature that qualifies for embedded derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative liabilities.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:
For the nine month ended
September 30, 2016
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Balance at the beginning, December 31, 2015
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$ 7,001
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Change in fair value of derivative
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7,001
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Balance at end of period, September 30, 2016
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$ -
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Note 7– Advances from Related Party
The Company, as need basis, borrows funds from a shareholder. The borrowings are unsecured and payments are made at the Company’s discretion. The borrowings are non-interest rate. Total borrowing as of September 30, 2016 and December 31, 2015 were $980,025 and $895,528 respectively.
Note 8 – Loan from related parties
As of September 1, 2015, the Company borrowed $100,000 from related party. The interest is 2.5% per annum and repayment date is September 2, 2016. As of September 30, 2016, accrued interest of $2,716 was recorded as other payable. On September 1, 2016, the repayment date is extended to September 1, 2017.
On September 28, 2016, the Company entered loan agreement of up to $250,000 with related party. The Company borrowed $15,000 on September 28, 2016. The interest is 2.5% per annum and repayment date is September 29, 2017.
Note 9 – Common stock
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.
As of December 31, 2013, the Company holds 55,375,000 common shares ($375,053) as treasury stocks recorded as capital adjustment.
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 RadTek’s 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.
On January 14, 2014, the Company issued 20,000,000 common shares to two employees and three consultants valued at the market close and recorded as $435,736 in selling and administrative expenses and $435,736 in consulting fees, respectively, for an aggregate expense of $871,472.
On July 7 and August 21, 2015, the Company issued 129,250 and 41,000 common shares at $0.1931 and $0.1805 respectively to Dutchess Opportunity Fund referred to the investment agreement made on April 22, 2014. The Company paid stock issuance cost of $17,000 and $2,000, respectively and deducted from additional paid in capital.
Note 10 – Significant contracts
The Company has contracted with Korea Research Institute of Ships and Ocean Engineering (KRISO) for delivery of Cargo Inspection System (CIS) X-ray Accelerator which worth $945,447 on February 13, 2014. Under the payment term, 80% before shipment and 20% after the delivery, the Company has received 756,000 USD, the 80%, from KRISO on May 23, 2014. The delivery due date was postponed as request from KRISO. It was delivered but not installed, and the final 20% of the whole payment was billed to KRISO as of November 10, 2014. Final 20% was received by RadTek Inc. on 17th of November, 2014. The installation was completed on June 10, 2016. 1-year warranty starts after the installation.
The Company also got the delivery contract with KRISO for Temperature Control Unit of the X-ray Accelerator, which worth $25,500, on July 21, 2014. On January 21, 2015, KRISO and the Company contracted for CIS Array Detection System which worth $332,956. The installation schedule of all two items has been postponed until due of KRISO’s construction, and it was completed on June 10, 2016.
The Company received $1,304 thousand and paid $1,132 thousand regarding KRISO project.
The Company contracted with SKTelecom for maintenance service of Korea Customs Service’s ‘Cargo Inspection Center II in Busan New Port.’ The contract ends on Dec 31, 2018 and the amount is 762,685,000 KRW ($672,000). The Company recognized revenue of KRW 97,500,000 ($84,000) for the
nine
month ended September 30, 2016. Due to the contract condition with SKTelecom, the Company must have had a service contract with linear accelerators manufacturer, Varian Medical Systems. The service contract with Varian Medical Systems started from June 1, 2015 and it ends until May 31, 2019 or it expires if the Company decides not to continue managing the container inspection center. The Company agreed to make quarterly payment of $10,590 to Varian Medical Systems.
On April 28, 2015, the Company entered into an agreement with C&D Co. Ltd., a South Korean company, for the purposes of creating a new corporation. The new corporation will be an Internet Protocol television platform establishment and equipment delivery service. Under the agreement, the Company will raise $2 million for the purposes of establishing the new corporation and registering the shares with FINRA. The Company will then transfer all related resources to the new corporation after its establishment. C&D will provide use of its patents, licenses, trademarks and registered service marks to the Company, as well as its products, marketing support, and technical support. Once the new corporation has been established, all of the patents, licenses, trademarks, and registered service marks will be transferred to the new corporation.
Vietnam Multimedia Corporation (VTC), RadTek co., Ltd. and Giltz Capital Finance AG Group has made Memorandum of Agreement on May 27, 2015. The parties have agreed on supplying IPTV service and set-top boxes in Vietnam. In order to perform the business, the parties will establish a Joint Venture Company (JVC) in Vietnam and they will make 50 million USD investment in the business.
On April 6, 2015, RadTek Co., Ltd. has signed a Memorandum of Agreement (MOA) with C&D Corporation Co., Ltd. in purpose of a business which is supplying IPTV platform installation and devices to domestic and international customers. RadTek’s duty in the contract is to promote investment for the fund problems of the business while C&D supplies required devices and service by providing IPTV related technical licenses and exclusivities. RadTek has loaned to Daeyoung Lim who is CEO of C&D and the loan is limited to use only for the company normalization.
Note 11 – Investment Agreement and Marketing Agreement
On April 22, 2014, the Company entered into an investment agreement and a corresponding registration rights agreement with Dutchess Opportunity Fund, II, LP, a Delaware Limited Partnership. Under the terms of the investment agreement, Dutchess will invest up to $20,000,000 to purchase the Company’s common shares. From time to time, the Company may deliver a put notice to Dutchess which states the dollar amount of shares they wish to sell. This amount shall be equal to up to either 1) 300% of the average daily US market value of the common stock for three trading days prior to the date of the put notice, or 2) $300,000.
Once a put notice has been delivered to Dutchess, Dutchess will purchase the shares at a price equal to 95% of the lowest daily volume weighted average price of the common stock for the five consecutive trading days following delivery of the put notice. The closing date for the put notice is at the end of that five-day period. If the Company has not issued the shares at the end of that period, they agree to pay a cumulative late fee for each trading day beyond the closing date.
Dutchess cannot purchase more than 4.99% of the total common shares outstanding as of the closing date.
Dutchess is not obligated to purchase any shares unless 1) a registration statement has been declared effective and remains effective and available for the resale of all registerable securities at all times until the closing of each subject put notice; 2) the common stock is listed on a principal trading market and is not suspended from trading; 3) the Company has not breached the terms of the investment agreement or the registration agreement; 4) no injunction has been issued prohibiting the purchase or issuance of the securities; and 5) the issuance of shares will not violate any shareholder approval requirements of the principal trading markets.
The investment agreement terminates when Dutchess has purchased an aggregate of $20,000,000 of the Company’s common stock pursuant to the agreement, upon written notice of the registrant to Dutchess, or on April 22, 2017.
Under the terms of the registration rights agreement, the Company shall register up to 40,000,000 common shares for resale. No other securities shall be registered under this agreement without the written approval of Dutchess.
Under this investment agreement, the Company issued 129,250 and 41,000 common shares at $0.1931 and $0.1805, respectively, On July 7 and August 21, 2015
Note 12 – Subsequent Event
The Company follows the guidance in ASC Topic 855 “Subsequent Events” for the disclosure of subsequent events. The Company evaluated subsequent events through the date of the financial statements were issued.
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