Notes
to the Financial Statements
December
31, 2017 and 2016
NOTE
1 - NATURE OF BUSINESS
Quarta-Rad,
Inc. (the “Company”) was incorporated under the laws of the state of Delaware on November 29, 2011, under the name
Quatra-Rad, Inc. and amended its Certificate of Incorporation on February 29, 2012 to change its name to Quarta-Rad, Inc. On July
2, 2012, the Company amended and restated its Certificate of Incorporation to increase its authorized shares of common stock to
50,000,000, $0.0001 par value from 1,500, no par value and effected a 10,000 to 1 forward split. The Company distributes detection
devices, including but not limited to Geiger counters, to homeowners and interested customers in North America, Europe, and Asia.
The Company targets homebuilders and home renovation contractors.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
These
financial statements and related notes are presented in accordance with accounting principles generally accepted in the United
States and are expressed in United States (US) dollar. The Company’s financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 fiscal year end.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. The
Company does not have any cash equivalents as of December 31, 2017 and 2016.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S.
GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during
the reporting periods.
Significant
estimates made by management include, among others, provisions for the valuation of accounts receivable and the recoverability
of inventory. The Company bases its estimates on historical experience, knowledge of current conditions and belief of what could
occur in the future considering available information. The Company reviews its estimates on an on-going basis. The actual results
experienced by the Company may differ materially and adversely from its estimates. To the extent there are material differences
between the estimates and actual results, future results of operations will be affected.
Stock
Based Compensation
Accounting
Standards Codification (“ASC”) 718
“Compensation - Stock Compensation”
prescribes accounting and
reporting standards for all stock-based payment awards to employees, including employee stock options, restricted stock, employee
stock purchase plans and stock appreciation rights, may be classified as either equity or liabilities. The Company determines
if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to
settle in cash or other assets exists if: (
a
) the option to settle by issuing equity instruments lacks commercial substance
or (
b
) the present obligation is implied because of an entity’s past practices or stated policies. If a present obligation
exists, the transaction is recognized as a liability; otherwise, the transaction is recognized as equity.
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 at the earlier of performance commitment date or performance
completion date.
Advertising
The
Company expenses advertising costs, consisting primarily of placement in multiple publications, along with design and printing
costs of sales materials, when incurred. Advertising expense for the years ended December 31, 2017 and 2016 amounted to $29,116
and $15,028, respectively.
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740-10, “Accounting for
Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for
the current year; and, (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized
in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period
that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the
weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets
will not be realized.
ASC
740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position
taken or expected to be taken on a tax return. Under ASC 740-10, a tax benefit from an uncertain tax position taken or expected
to be taken may be recognized only if it is “more likely than not” that the position is sustainable upon examination,
based on its technical merits. The tax benefit of a qualifying position under ASC 740-10 would equal the largest amount of tax
benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge
of all the relevant information. A liability (including interest and penalties, if applicable) is established to the extent a
current benefit has been recognized on a tax return for matters that are considered contingent upon the outcome of an uncertain
tax position. Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.
As
of December 31, 2017, we have analyzed filing positions in each of the federal and state jurisdictions where we are required to
file income tax returns, as well as all open tax years in these jurisdictions. We have identified the U.S. federal and Delaware
as our “major” tax jurisdictions. Generally, we remain subject to Internal Revenue Service examination of our 2011
through 2017 Delaware Tax Returns. However, we have certain tax attribute carry forwards, which will remain subject to review
and adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which such
attributes are utilized.
We
believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that
will result in a material change to our financial position. Therefore, no reserves for uncertain income tax position have been
recorded pursuant to ASC 740. In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740.
Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.
Inventory
Accounting Policy
Inventories
are stated at the lower of cost or market (net realizable value). The Company periodically reviews the value of items in inventory
and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are
charged to cost of goods sold. The Company’s inventory consists entirely of finished goods available for sale.
Earnings
per Share
The
Company’s basic earnings per share are calculated by dividing its net income available to common stockholders by the weighted
average number of common shares outstanding for the period. The Company’s dilutive earnings per share is calculated by dividing
its net income available to common shareholders by the diluted weighted average number of shares outstanding during the period.
The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially
dilutive debt or equity.
Fair
Value of Financial Instruments
The
Company’s financial instruments as defined by ASC 825,
“Financial Instruments”
include cash, trade accounts
receivable, and accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due
to the short maturity of these financial instruments, approximates fair value at December 31, 2017 and 2016.
FASB
ASC 820
“Fair Value Measurements and Disclosures”
defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
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Level
1. Observable inputs such as quoted prices in active markets;
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Level
2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
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●
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Level
3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own
assumptions.
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Revenue
Recognition
Securities
and Exchange Commission Staff Accounting Bulletin (“SAB”) 101,
Revenue Recognition
, as amended by SAB 104,
outlines the basic criteria that must be met to recognize revenue and provide guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management
believes that the Company’s revenue recognition policy conforms to SAB 101 and 104.
The
Company evaluates the criteria of ASC 605-45, Gross Versus Net Revenue Presentations,
,
in determining whether it is appropriate
to record the gross amount of revenue and related costs or the net amount earned as commissions. The Company is the primary obligor,
is subject to inventory risk and credit risk, has latitude in establishing prices and selecting suppliers, and has input in establishing
product specifications.
The
Company imports the goods and pays the import and delivery costs and forwards the goods to a public warehouse. Goods are held
by the Company at a public warehouse until the customers requested ship date. The Company arranging for the maintenance of the
Goods while in the warehouse at its expense. The Company has title to the Goods when shipped from the manufacturer and in the
public warehouse.
The
Company believes it meets the indicators for gross reporting. The Company is the primary obligor, it has inventory risk, it has
the ability to determine the price it sells the products to customers, it can change the product, it has supplier discretion,
it can determine the nature, type, characteristics and specification of the products, it has physical risk of inventory as it
purchases the products and assumes the risk of sale, and it has the credit risk for the customer to pay.
Revenue
is recognized upon shipment of goods from the public warehouse to the customers, which is when title transfers to the customers.
Shipping
and handling costs billed to the customers are recorded in sales. Shipping and handling costs as incurred by the Company are recorded
in cost of sales.
The
Company’s financial statements are prepared under the accrual method of accounting. Revenues are recognized when evidence
of an agreement exists, the price is fixed or determinable, collectability is reasonably assured and goods have been delivered
or services performed. Please refer to Note 5 for related party transactions. In 2013, the Company began reporting its revenues
as gross revenues rather than net revenues since the Company’s revenues are from unrelated, third party sales rather than
consignment sales for its related party.
Recent
Accounting Pronouncements
In
February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02,
Income Statement
Reporting, Comprehensive Income (Topic 220)
. Effective for all entities for fiscal years beginning after December 15, 2018,
and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption
in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been
issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for
issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or
periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.
The adoption of this guidance by the Company is not expected to have a material impact on its financial statements.
In
January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04,
Intangibles-Goodwill
and Other (Topic 350)
. The ASU eliminates Step 2 of the goodwill impairment test, which requires determining the fair value
of assets acquired or liabilities assumed in a business combination. Under the amendments in this update, a goodwill impairment
test is performed by comparing the fair value of the reporting unit with its carrying amount. An entity should recognize an impairment
charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized
should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual periods beginning
after December 15, 2019, and interim periods within those annual periods, with early adoption permitted. The adoption of this
guidance by the Company is not expected to have a material impact on its financial statements.
In
August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts
and Cash Payments. This ASU provides clarification regarding how certain cash receipts and cash payments are presented and classified
in the statement of cash flows. This ASU addresses eight specific cash flow issues with the objective of reducing the existing
diversity in practice. The issues addressed in this ASU that will affect us is classifying debt prepayments or debt extinguishment
costs and contingent consideration payments made after a business combination. This update is effective for annual and interim
periods beginning after December 15, 2017, and interim periods within that reporting period and is to be applied using a retrospective
transition method to each period presented. Early adoption is permitted. We have elected to early adopt ASU 2016-15 as of January
1, 2017. The adoption of this ASU did not have a material impact on our condensed financial position, results of operations and
related disclosures and had no other impact to the accompanying condensed statement of cash flows.
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. The guidance in this ASU supersedes the leasing guidance
in Topic 840,
Leases
. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the
balance sheet for those leases previously classified as operating leases. For leases with a term of 12 months or less, a lessee
is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.
If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the
lease term. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal
years, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its financial statements
but does expects the ASU to have a material impact on its financial position since it does not have any leases.
In
July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory.
The ASU requires entities using the first-in,
first-out (FIFO) inventory costing method to subsequently value inventory at the lower of cost and net realizable value. The ASU
defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs
of completion, disposal, and transportation. This ASU requires prospective application and is effective for fiscal years beginning
after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The adoption of this guidance
by the Company did not have a material impact on its financial statements.
In
May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
. The ASU is a comprehensive new revenue recognition
model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015,
the FASB issued ASU 2015-14, which deferred the effective date of the ASU to fiscal years beginning after December 15, 2017, and
interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2016. Companies
may use either a full retrospective or a modified retrospective approach to adopt this ASU.
NOTE
3–INCOME TAXES
The
Company is subject to taxation in the United States and California. The benefit from income taxes for the years ended December
31, 2017 and 2016 are summarized below:
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2017
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2016
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Current:
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Federal
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$
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-
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$
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-
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State
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-
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-
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Total
current
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-
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-
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Deferred:
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Federal
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21,760
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(12,116
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)
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State
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-
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-
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Change
in valuation allowance
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(21,760
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)
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12,116
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Total
deferred
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-
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-
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Income
tax provision (benefit)
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$
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-
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$
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-
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At
December 31, 2016, the Company had federal net operating loss carry forwards of approximately $95,084 which may be offset against
future taxable income through 2036. No net deferred tax assets are recorded at December 31, 2016 or 2015, as all deferred tax
assets and liabilities have been fully offset by a valuation allowance due to the uncertainty of future utilization.
At December
31, 2017 and 2016, deferred tax assets (liabilities) consist of the following:
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2017
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2016
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Net
operating loss carry-forwards
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$
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5,527
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$
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27,287
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Other
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-
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-
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Total
deferred tax assets
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5,527
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27,287
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Less:
valuation allowance
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(5,527
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)
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(27,287
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)
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Net
deferred tax assets
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-
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-
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The
change in the valuation allowance during the years ended December 31, 2017 and 2016 was an approximate $22,000 decrease and an
approximate $12,000 increase, respectively, and a full valuation allowance has been recorded since, in the judgement of management,
these net deferred tax assets are not more likely than not to be realized. The ultimate realization of deferred tax assets and
liabilities is dependent upon the generation of future taxable income during periods in which those temporary differences and
carryforwards become deductible or are utilized.
A
reconciliation of the statutory federal income tax rate for the year ended December 31, 2017 and 2016 to the effective tax rate
is as follows:
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2017
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2016
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Expected
federal tax
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21.00
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%
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34.00
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%
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Valuation
allowance
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(21.00
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)%
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(34.00
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)%
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Total
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-
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%
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-
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%
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The
Company follows ASC 740-10, Uncertainty in Income Taxes. The Company recognizes interest and penalties associated with uncertain
tax positions as a component of income tax expense. The Company does not have any unrecognized tax benefits or a liability for
uncertain tax positions at December 31, 2017 and 2016. The Company does not expect to have any unrecognized tax benefits within
the next twelve months. The Company recognizes accrued interest and penalties associated with uncertain tax positions, if any,
as part of income tax expense. There were no tax related interest and penalties recorded for 2017 and 2016. Since the Company
incurred net operating losses in every tax year since inception, all of its income tax returns are subject to examination and
adjustments by the IRS for at least three years following the year in which the tax attributes are utilized.
NOTE
4–STOCKHOLDERS’ EQUITY
The
Company was formed with one class of no par value common stock and was authorized to issue 1,500 common shares. Voting rights
are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they chose to do so, elect all of
the directors of the Company.
From
September 27, 2016 to December 20, 2016, the Company issued 326,150 shares of its $0.0001 par value common stock at a price of
$0.20 for $65,230. The shares were sold pursuant to the Company’s effective registration statement.
NOTE
5–RELATED PARTY TRANSACTIONS
The
Company sells radiation monitors and to date has purchased all of it inventory from a company in Russia, which is owned by the
Company’s minority shareholder. Total inventory purchased was $765,725 and $564,444 for 2017 and 2016, respectively. The
Company owes the Russian affiliate $9,443 and $33,726 and such amount is included in related party payables in the accompanying
balance sheet at December 31, 2017 and 2016, respectively. The related payable balance is related to a research and development
contract entered into by the parties noted below.
During
July 2017, the Company entered into an agreement with the Russian Affiliate to develop and update software for a new device for
$180,000. The development contract goes through December 31, 2019. The amount due in connection with services performed in 2017
is $9,443.
Since
inception, the Company has not compensated its CEO, who is the majority shareholder, and, as of December 31, 2017 and 2016, is
due $35,222 and $44,375, respectively, for expenses paid on behalf of the Company.
NOTE
6– COMMITMENTS AND CONTINGENCIES
Legal
In
the normal course of business, the Company may become involved in various legal proceedings. The Company knows of no pending or
threatened legal proceeding to which the Company is or will be a party that, if successful, might result in material adverse change
in the Company’s business, properties or financial condition.
Going
Concern
The
Company’s financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. While the Company has established sources of capital
to cover its operating costs, it incurred a loss in 2016 and cannot support a salary for its CEO, which causes substantial doubt
about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the
Company obtaining adequate capital to implement its business plan. If the Company is unable to obtain adequate capital, it could
be forced to cease operations.
Management
intends to focus on raising funds going forward. The Company cannot provide any assurance or guarantee that it will be able to
raise funds. Potential investors must be aware if it is unable to raise funds through the sale of its common stock and generate
sufficient revenues, any investment made into the Company would be lost in its entirety.
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 secure other sources of financing and attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
7–SUBSEQUENT EVENTS
The
Company has performed an evaluation of events occurring subsequent to December 31, 2017 through March April 10, 2018. Based on
its evaluation, there is nothing to be disclosed herein.