QURT 10-Q
Quarta-Rad, Inc. (QURT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended:
or
For the transition period from ______ to ______
Commission
File No.
(Exact Name of Registrant as Specified in its Charter)
| (State
or other Jurisdiction of Incorporation or Organization) |
(I.R.S.
Employer Identification No.) | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| OTC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§230.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated file,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ☐ No ☐
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 21, 2022, the number of shares outstanding of the issuer’s sole class of common stock, $0.0001 par value per share, is .
table of contents
| 2 |
QUARTA-RAD, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(unaudited)
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Marketable securities, trading | ||||||||
| Inventory | ||||||||
| Total Current Assets | ||||||||
| Fixed Assets, Net | ||||||||
| Other Assets - Deferred tax asset | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Deferred revenue – related party | ||||||||
| Related party payable | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Common Stock: authorized common shares, $ par value and were issued and outstanding on September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the condensed and consolidated financial statements
| 3 |
QUARTA-RAD, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | For the nine months ended September 30, 2022 | For the nine months ended September 30, 2021 | |||||||||||||
| Sales -Quarta Rad, Inc., net | $ | $ | $ | $ | ||||||||||||
| Sales - Sellavir, Inc., net - related party | ||||||||||||||||
| Total sales, net | ||||||||||||||||
| Cost of goods sold - Quarta-Rad, Inc. | ||||||||||||||||
| Cost of goods sold - Sellavir Inc. | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Expenses: | ||||||||||||||||
| General & administrative | ||||||||||||||||
| Advertising | ||||||||||||||||
| Professional and consulting fees | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Net income/(loss) from operations | ( | ) | ( | ) | ||||||||||||
| Other income - interest and dividends | ||||||||||||||||
| Other income - unrealized gain/( loss) on investments | ( | ) | ( | ) | ||||||||||||
| Other income - realized gain/(loss) on investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income/(loss) before provision for income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense/(benefit) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income/(loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Loss per share - basic and diluted | $ | $ | $ | ( | ) | $ | ||||||||||
| Weighted average shares - basic and diluted | ||||||||||||||||
See accompanying notes to the condensed and consolidated financial statements
| 4 |
QUARTA-RAD, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2022
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
CONDENSED AND CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended September 30, 2022
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to the condensed and consolidated financial statements
| 5 |
QUARTA-RAD, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2021
(Unaudited)
| Additional | Retained Earnings/ | Total | ||||||||||||||||||
| Common Stock | Paid-In | (Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit) | Equity | ||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ||||||||||||||||
CONDENSED AND CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Three Months Ended September 30, 2021
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-In | Retained | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ||||||||||||||||
See accompanying notes to the condensed and consolidated financial statements
| 6 |
QUARTA-RAD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the nine months ended September 30, 2022 | For the nine months ended September 30, 2021 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income/(loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income to net cash provided by /(used in) operating activities: | ||||||||
| Depreciation | ||||||||
| Net realized (gain)/loss on investments | ( | ) | ||||||
| Net unrealized loss on investments | ||||||||
| Income tax expense/(benefit) | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Miscellaneous liabilities | ( | ) | ||||||
| Deferred revenue – related party | ||||||||
| Related party payable | ||||||||
| Net cashed provided by (used in) operating activities | ( | ) | ||||||
| INVESTING ACTIVITIES: | ||||||||
| Sale of marketable securities, trading | ||||||||
| Purchase of marketable securities, trading | ( | ) | ( | ) | ||||
| Net cash provided by (used in) Investing Activities | ( | ) | ||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Non-cash Investing and Financing Transactions: | ||||||||
| Repayment of officer advance by transfer or marketable securities at fair value | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
See accompanying notes to the condensed and consolidated financial statements
| 7 |
QUARTA-RAD, INC. AND SUBSIDIARIES
Notes to the (unaudited) Condensed and Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The condensed and consolidated balance sheet of Quarta-Rad, Inc. and Subsidiaries (the “Company”) as of September 30, 2022, and the statements of operations and changes in stockholders’ equity/deficit for the three months and nine months ended September 30, 2022 and 2021, and the cash flows for nine months ended September 30, 2022 and 2021 have not been audited. However, in the opinion of management, such information includes all adjustments (consisting of normal recurring adjustments), which are necessary to accurately reflect the financial position of the Company as of September 30, 2022, the results of operations and cash flows for the periods ended September 30, 2022, and 2021.
The condensed and consolidated balance sheet as of December 31, 2021 has been derived from audited financial statements. Certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted, although management believes that the disclosures are adequate to make the information presented not misleading. Interim period results are not necessarily indicative of the results to be achieved for an entire year. These condensed and consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2021.
NOTE 2 - NATURE OF BUSINESS
The Company distributes detection devices, including but not limited to Geiger counters, to homeowners and interested customers in North America and Europe. The Company targets homebuilders and home renovation contractors.
Sellavir is a video analytics company whose platform empowers organizations to decode videos to develop creative marketing strategies and analysis through advanced and proprietary technologies using artificial intelligence (“AI”).
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts Quarta-Rad, Inc. and its wholly-owned subsidiaries Quarta-Rad USA, Inc. and Sellavir, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
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, accrual of European VAT reserve, the recoverability of deferred tax assets, 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.
| 8 |
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 three months and nine months ended September 30, 2022, and 2021, amounted
to $
Concentration of Credit Risk
Credit is extended to online platforms and suppliers based on an evaluation of their financial condition, and collateral is generally not required. The Company performs ongoing credit evaluations of its customers and provides an allowance for doubtful accounts as appropriate.
One
customer accounted for
Quarta
Rad purchased
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. There were potentially dilutive instruments outstanding at during the periods ended September 30, 2022, and 2021.
Fair Value of Financial Instruments
The Company’s financial instruments as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, “Financial Instruments” include cash, trade accounts receivable, and accounts payable and accrued expenses. All instruments, except marketable securities are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at September 30, 2022 and December 31, 2021. Marketable securities are level one assets recorded at fair value.
FASB ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, 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:
| ● | Level 1. Observable inputs such as quoted prices in active markets; | |
| ● | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and | |
| ● | Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions. |
| 9 |
The Company’s investment securities consist of common and options. Substantially all the Company’s investments are Level 1. The fair market value is based on quoted prices in active markets for identical assets. Financial assets are measured at fair value on a recurring basis. The following table provides information at September 30, 2022 about the Company’s financial assets measured at fair value on a recurring basis.
Values on September 30, 2022:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets at fair value: | ||||||||||||||||
| Marketable Securities | $ | $ | $ | $ | ||||||||||||
| Total assets at fair value, September 30, 2022 | $ | $ | $ | $ | ||||||||||||
Values on December 31, 2021:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets at fair value: | ||||||||||||||||
| Marketable Securities | $ | $ | $ | $ | ||||||||||||
| Total assets at fair value, December 31, 2021 | $ | $ | $ | $ | ||||||||||||
Revenue Recognition
The Company follows guidance from FASB Accounting Standards Codification ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The guidance sets forth a five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance.
Our principal activities from which we generate our revenue are product sales and consulting services.
Revenue is measured based on consideration specified in a contract with a customer. A contract with a customer exists when we enter into an enforceable contract with a customer. The contract is based on either the acceptance of standard terms and conditions on the websites for e-commerce customers and via telephone with our third-party call center for our print media and direct mail customers, or the execution of terms and conditions contracts with retailers and wholesalers. These contracts define each party’s rights, payment terms and other contractual terms and conditions of the sale. Consideration is typically paid prior to shipment via credit card or check when our products are sold direct to consumers or approximately 30 days from the time control is transferred when sold to wholesalers, distributors and retailers. We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience and, in some circumstances, published credit and financial information pertaining to the customer.
A performance obligation is a promise in a contract to transfer a distinct product to the customer, which for us is transfer of devices to our customers. Performance obligations promised in a contract are identified based on the goods that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other promises in the contract. We have concluded the sale of goods and related shipping and handling are accounted for as the single performance obligation.
| 10 |
The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods to the customer. We issue refunds to e-commerce and print media customers, upon request, within 30 days of delivery. We estimate the amount of potential refunds at each reporting period using a portfolio approach of historical data, adjusted for changes in expected customer experience, including seasonality and changes in economic factors. For retailers, distributors and wholesalers, we do not offer a right of return or refund and revenue is recognized at the time products are shipped to customers. In all cases, judgment is required in estimating these reserves. Actual claims for returns could be materially different from the estimates. There was no reserve for sales returns and allowances, at September 30, 2022 and December 31, 2021, respectively.
We recognize revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when product is shipped. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfilment cost and are included in cost of product sales.
We recognize consulting revenue over times as services are performed.
During the third quarter of 2022, Sellavir billed and received $
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12 Simplifying the Accounting for Income Taxes. Effective for public entities for fiscal years beginning after December 15, 2020. The ASU is intended to simplify aspects of accounting for income taxes, including deferred taxes on investments, and calculation of taxes in interim periods. The adoption of this guidance by the Company did not have a material impact on its financial statements and related disclosures.
Risks and Uncertainties
RUSSIAN INVASION OF UKRAINE
In February 2022, Russia invaded the nation of Ukraine and certain sanctions and banking restrictions were levied upon Russia. As a result, the Company’s ability to purchase inventory from Russia has been impacted. The Company has been able to resume purchasing inventory and fulfill upcoming orders.
The Company is actively monitoring the situation and working closely with their suppliers and logistics companies to mitigate the impact. During October 2022 the Company has encountered additional restrictions in the EU and believes their ability to continue to sell in the EU will be diminished.
The
Company is continuing to expand its AI business and are in the process of transforming our company from an import heavy revenue entity
to AI services revenue becoming the majority of total sales. The Company is focusing its unique footprint in the Japanese market to continue
to expand Sellavir products and services. Due to the constraints with the Quarta Rad related income, additional focus and resources
will be utilized by Sellaivr. Sellavir has received $
| 11 |
NOTE 4–PROPERTY AND EQUIPMENT
Property and Equipment at September 30, 2022 and December 31, 2021 consisted of:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Computer Equipment | $ | $ | ||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Net Property & Equipment | $ | $ | ||||||
The
Company recognized $
NOTE 5–RELATED PARTY TRANSACTIONS
The
Company sells radiation monitors and to date has purchased all of its inventory from a company in Russia, which is owned by a minority
shareholder of the Company. Total inventory purchased was $
During
July 2017, the Company entered into an agreement with the Russian Affiliate to develop and update software for a new device for $
In April 2021, the Company began compensating its CEO, who is the majority shareholder. As of September 30, 2022, the Company has accrued $for this compensation. The Company expensed $and $for the nine months ended September 30, 2022, and 2021, respectively. As of September 30, 2022, and December 31, 2021, is due $and $ , respectively, for expenses paid by the shareholder on behalf of the Company, included in related party payables. The shareholder paid for $and $in expenses during the nine months ended September 30, 2022, and 2021 respectively.
Sellavir
had $-
NOTE 6–SEGMENTS
The
Company has
| 12 |
Segment information for the three months and nine months ended September 2022 and 2021 is as follows:
| For the nine months ended September 30, 2022 | ||||||||||||
| Quarta-Rad | Sellavir | Consolidated | ||||||||||
| Revenues | $ | $ | ||||||||||
| Income from operations | ||||||||||||
| Net income | $ | ( | ) | $ | ( | ) | ||||||
| For the three months ended September 30, 2022 | ||||||||||||
| Quarta-Rad | Sellavir | Consolidated | ||||||||||
| Revenues | $ | - | $ | |||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Net loss | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| For the nine months ended September 30, 2021 | ||||||||||||
| Quarta-Rad | Sellavir | Consolidated | ||||||||||
| Revenues | $ | $ | $ | |||||||||
| Income from operations | ||||||||||||
| Net income | $ | $ | $ | |||||||||
| For the three months ended September 30, 2021 | ||||||||||||
| Quarta-Rad | Sellavir | Consolidated | ||||||||||
| Revenues | $ | $ | $ | |||||||||
| Income/(loss) from operations | ( | ) | ( | ) | ||||||||
| Net income/(loss) | $ | $ | ( | ) | $ | ( | ) | |||||
| Total Assets | As of September 30, 2022 | As of December 31, 2021 | ||||||
| Quarta-Rad | $ | $ | ||||||
| Sellavir | ||||||||
| Total Assets | $ | $ | ||||||
NOTE 7– COMMITMENTS AND CONTINGENCIES
Contingencies
The
Company is currently undergoing a multi-year VAT tax examination by certain European tax authorities. As of September 30, 2022, the outcome
of these examinations is uncertain, and the Company is disputing any amounts due. The estimated liabilities on the VAT tax exposure could
anywhere from $
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.
NOTE 8–SUBSEQUENT EVENTS
The Company has performed an evaluation of events occurring subsequent to September 30, 2022 through November 21, 2022. Based on its evaluation, there is nothing to be disclosed herein.
| 13 |
Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
The following is management’s discussion and analysis of financial condition and results of operations and is provided as a supplement to the accompanying unaudited condensed financial statements and notes to help provide an understanding of our financial condition, results of operations and cash flows during the periods included in the accompanying unaudited condensed financial statements.
In this Quarterly Report on Form 10-Q, “Company,” “the Company,” “us,” and “our” refer to Quarta-Rad, Inc., a Delaware corporation, unless the context requires otherwise.
We intend the following discussion to assist in the understanding of our financial position and our results of operations for the three and nine months ended September 30, 2022 and 2021. You should refer to the Financial Statements and related Notes in conjunction with this discussion.
Results of Operations
General
We were incorporated under the laws of the State of Delaware on November 29, 2011 with fiscal year end in December 31. We were formed to distribute and sell detection devices to homeowners and interested consumers in North America. Initially, our business plan was to sell products on consignment from Star Systems Japan, a corporation owned by our majority shareholder. We purchased these products from Quarta-Rad, Ltd., a company owned by our minority shareholder. We also targeted direct-to-consumer sales since we believe we can distribute these products through the Internet. We have never been party to any bankruptcy, receivership or similar proceeding, nor have we undergone any material reclassification, merger, consolidation, purchase or sale of a significant amount of assets not in the ordinary course of business.
During April 2020, we acquired Quarta-Rad USA, Inc., a Delaware corporation, as a wholly owned subsidiary. There was no consideration paid for the shares. The purpose of the acquisition is to separate the sales of certain products in separate entities. There was no activity, assets or liabilities in the subsidiary through September 30, 2022.
During December 2020, we acquired Sellavir, Inc. Sellavir is a video analytics company whose platform empowers organizations to decode videos to develop creative marketing strategies and analysis through advanced and proprietary technologies.
As of the date of this Form 10-Q, we continue to expand our operations and expect to increase our revenues with additional working capital. Our chief executive officer and director, Victor Shvetsky, and our director and president, Alexey Golovanov, are our only employees. Mr. Shvetsky and Mr. Golovanov will devote at least ten hours per week to us but may increase the number of hours as necessary. Beginning in 2013, we began purchasing the products from Quarta-Rad, Ltd., our related party supplier and it shipped the products to us. We then shipped the products to a third-party online retailer, to hold for Internet sales and sales to our third-party resellers.
Our administrative office is located at 1201 N. Orange St., Suite 700, Wilmington, DE 19801, which is a virtual office.
| 14 |
We continue to focus our business operations on the development of our distribution agreements and reseller network as well as continue to advertise on the Internet. We plan to continue to utilize our website to promote the products to home renovation contractors and other purchasers of detection devices. We are promoting the detection products by advertising our website and marketing to independent distributors and others interested in detection devices. We purchase the products from QRR, which is owned by our minority shareholder and is the original manufacturer for RADEX product line. Under an oral agreement with QRR, we have the exclusive distribution rights for sale of QRR products in Europe, the US, and Asia (excluding China) for a period of 10 years. We sell the products we purchase from QRR directly to third party buyers and to resellers. The purchase terms require us to prepay for the products we purchase at a price that is set forth in each purchase order. In October 2018, our United Kingdom retail platform was suspended due to certain UK restrictions. We are in the process of becoming compliant in order to lift these restrictions and exploring and testing new partners for EU distribution. We initially reserved $100,000 on our balance sheet as accrued expenses in connection with this matter. The Company paid $41,822 during 2020 towards the estimated liability, $35,679 in April 2021, and $3,783 in April 2022. A remainder of $18,715 is included in accounts payable and accrued expenses as of September 30, 2022.
Sellavir Consulting:
We expanded our operations through the acquisition of Sellavir Inc. in December 2020. Sellavir is an AI company that leverages its knowledge in neural networks to provide customized AI and development services to our clients. Our services are focused on offering customized solutions for image processing. Our current business model relies on identifying the specific customer needs and developing a software solution to address them. We currently do not have any clients in the US, and our sole revenue stream is from our Japanese reseller. We rely on their sales staff for the identification of new opportunities in the Japanese market. Quarta-Rad has acquired the company to:
- leverage Sellavir capabilities to combine it with its Radex series to offer AI-enhanced radiation detection capabilities
- expand its scope outside the radiation measurement
Critical Accounting Policy and Estimates. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our condensed financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. In addition, these accounting policies are described at relevant sections in this discussion and analysis and in the notes to the condensed financial statements included in this Quarterly Report on Form 10-Q.
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements for the nine months ended September 30, 2022, and 2021, together with notes thereto, which are included in this Quarterly Report on Form 10-Q.
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The Company has two operating segments through the operations of Quarta-Rad and Sellavir. Net income for the nine months ended September 30, 2022 is comprised of:
| Quarta Rad | Sellavir | Total | ||||||||||
| Sales | $ | 693,313 | $ | 94,000 | $ | 787,313 | ||||||
| Cost of Good Sold | 499,517 | 61,158 | 560,675 | |||||||||
| Gross Profit | 193,796 | 32,842 | 226,638 | |||||||||
| Expenses: | ||||||||||||
| General & administrative | 33,992 | 3,304 | 37,296 | |||||||||
| Advertising | 33,212 | - | 33,212 | |||||||||
| Professional and consulting fees | 103,485 | 8,000 | 111,485 | |||||||||
| Operating expenses | 170,689 | 11,304 | 181,993 | |||||||||
| Net income (loss) from operations | 23,107 | 21,538 | 44,645 | |||||||||
| Interest and dividends | - | 82 | 82 | |||||||||
| Unrealized loss on investments | - | (108,580 | ) | (108,580 | ) | |||||||
| Realized loss on investments | - | (43,116 | ) | (43,116 | ) | |||||||
| Interest expense | - | - | ||||||||||
| Income tax expense | (4,852 | ) | 27,315 | 22,463 | ||||||||
| Net income/(loss) | $ | 18,255 | $ | (102,761 | ) | $ | (84,506 | ) | ||||
The Company has two operating segments through the operations of Quarta-Rad and Sellavir. Net income for the three months ended September 30, 2022, is comprised of:
| Quarta Rad | Sellavir | Total | ||||||||||
| Sales | $ | 160,757 | $ | - | $ | 160,757 | ||||||
| Cost of Good Sold | 133,957 | 16,500 | 150,457 | |||||||||
| Gross Profit | 26,800 | (16,500 | ) | 10,300 | ||||||||
| Expenses: | ||||||||||||
| General & administrative | 8,868 | 1,244 | 10,112 | |||||||||
| Advertising | 13,559 | - | 13,559 | |||||||||
| Professional and consulting fees | 25,199 | 7,000 | 32,199 | |||||||||
| Operating expenses | 47,626 | 8,244 | 55,870 | |||||||||
| Net loss from operations | (20,826 | ) | (24,744 | ) | (45,570 | ) | ||||||
| Interest and dividends | - | 77 | 77 | |||||||||
| Unrealized gain on investments | - | 18,390 | 18,390 | |||||||||
| Realized loss on investments | - | (29,465 | ) | (29,465 | ) | |||||||
| Interest expense | - | - | - | |||||||||
| Income tax benefit | 4,374 | 7,505 | 11,879 | |||||||||
| Net loss | $ | (16,452 | ) | $ | (28,237 | ) | $ | (44,689 | ) | |||
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Consolidated Totals:
Three months ended September 30, 2022 compared with the three months ended September 30, 2021
Revenues. Our net revenues decreased $57,731, or 26.42% to $160,757 for the three months ended September 30, 2022 compared with $218,488 for the three months ended September 30, 2021. The reduction was primarily attributable to the demand of our RD1503 model.
Cost of Goods Sold. Our Cost of Goods Sold decreased $ $2,457 or 1.61% to $150,457 for the three months ended September 30, 2022 compared to $152,914 for the comparable period in 2021. The decrease was a result of Quarta Rad direct costs due to reduced revenue.
Operating Expenses. For the three months ended September 30, 2022, our total operating expenses decreased $31,431 or 36.00% to $55,870 compared to $87,301 for the three months ended September 30, 2021. The decrease is primarily attributable to the Company’s decrease in professional fees and advertising.
Net Income. Our net loss increased $16,335 or 57.61% to ($44,689) for the three months ended September 30, 2022 compared to a net loss of ($28,354) for the three months ended September 30, 2021. The increase was primarily due to a decrease in revenue.
Nine months ended September 30, 2022 compared with the nine months ended September 30, 2021
Revenues. Our net revenues decreased $127,027, or 13.89% to $787,313 for the nine months ended September 30, 2022, compared with $914,310 for the nine months ended September 30, 2021. The decrease was due to the timing of Sellavir revenue and reduced demand of our RD1503 model.
Cost of Goods Sold. Our Cost of Goods Sold increased $22,278 or 4.10% to $560,675 for the nine months ended September 30, 2022 compared to $538,397 for the comparable period in 2021. The increase was a result in classification of Sellavir direct costs.
Operating Expenses. For the nine months ended September 30, 2022, our total operating expenses decreased $96,462 or 34.64% to $181,993 compared to $278,455 for the nine months ended September 30, 2021. The decrease is primarily attributable to the Company’s decrease in professional fees and advertising.
Net Income. Our net loss increased $149,678 to ($84,506) for the nine months ended September 30, 2022 compared to $65,172 of net income for the nine months ended September 30, 2021. The increase was due to the timing of Sellavir revenue and reduced demand of products sold by Quarta Rad.
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QUARTA-RAD
Three months ended September 30, 2022 compared with the three months ended September 30, 2021
Revenues. Our net revenues decreased $57,731, or 26.42% to $160,757 for the three months ended September 30, 2022 compared with $218,488 for the three months ended September 30, 2021. The decrease was due to a decrease in the demand of our RD1503 model.
Cost of Goods Sold. Our Cost of Goods Sold decreased $18,957 or 12.40% to $133,957 for the three months ended September 30, 2022 compared to $152,914 for the comparable period in 2021. The decrease was a result of decreased sales.
Operating Expenses. For the three months ended September 30, 2022, our total operating expenses increased $5,553 or 13.20% to $47,626 compared to $42,0731for the three months ended September 30, 2021. The increase is primarily attributable to the Company’s increase in professional fees.
Net Income. Our net loss increased $35,018 to a net loss of ($16,452) for the three months ended September 30, 2022 compared to net income of $18,566 for the three months ended September 30, 2021. The increase was primarily related to a decrease in sales.
Nine months ended September 30, 2022 compared with the three months ended September 30, 2021
Revenues. Our net revenues decreased $41,027, or5.59% to $693,313 for the nine months ended September 30, 2022, compared with $734,340 for the nine months ended September 30, 2021. The decrease was due to a decrease in the demand of our RD1503 model.
Cost of Goods Sold. Our Cost of Goods Sold decreased $38,880 or 7.22% to $499,517 for the nine months ended September 30, 2022, compared to $538,397 for the comparable period in 2021. The decrease was a direct result of the decrease in sales.
Operating Expenses. For the nine months ended September 30, 2022, our total operating expenses decreased $7,941 or 4.45% to $170,691 compared to $178,632 for the nine months ended September 30, 2021. The decrease is primarily attributable to the Company’s decrease in professional fees and advertising.
Net Income. Our net income increased $4,577 or 33.47% to $18,253 for the nine months ended September 30, 2022, compared to $13,676 for the nine months ended September 30, 2021. The increase was primarily due to a reduction of expenses.
SELLAVIR
Three months ended September 30, 2022 compared with the three months ended September 30, 2021
Revenues. Our net recognized revenue was $-0- for the three months ended September 30, 2022 compared with $-0- for the three months ended September 30, 2021. Sellavir received $220,000 during the three months ended September 30, 2022 as a deposit for future work.
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Cost of Goods Sold. Our Cost of Goods Sold increased $16,500 to $16,500 for the three months ended September 30, 2022, compared to $-0- for the comparable period in 2021. The increase was a result in classification of direct costs.
Operating Expenses. For the three months ended September 30, 2022, our total operating expenses decreased $36,984 or 81.77% to. $8,244 compared to $45,228 for the three months ended September 30, 2021. The decrease was primarily attributable to a decrease and classification of professional fees.
Net Income. Our net loss decreased $18,863 or 39.82% to ($28,237) for the three months ended September 30, 2022 compared to a net loss of ($46,920) for the three months ended September 30, 2021. The decrease was primarily due to a decrease in expenses.
Nine months ended September 30, 2022 compared with the nine months ended September 30, 2021
Revenues. Our net revenues decreased $86,000 or 47.78% to $94,000 for the nine months ended September 30, 2022, compared with $180,000 for the nine months ended September 30, 2021. The decrease was primarily attributable to the timing of recognized revenue.
Cost of Goods Sold. Our Cost of Goods Sold increased $61,158 to $61,158 for the nine months ended September 30, 2022, compared to $-0- for the comparable period in 2021. The increase was a result in classification of direct costs.
Operating Expenses. For the nine months ended September 30, 2022, our total operating expenses decreased $88,521 or 88.68% to. $11,302 compared to $99,823 for the nine months ended September 30, 2021. The decrease was primarily attributable to a decrease in professional fees and classification of direct costs.
Net Loss. Our net loss increased $154,255 to a net loss of ($102,759) for the nine months ended September 30, 2022, compared to net income of $51,496 for the nine months ended September 30, 2021. The increase was primarily attributable to timing of billed services and increase in realized and unrealized losses on investments.
Liquidity and Capital Resources. During the nine months ended September 30, 2022, we used cash for operating expenses from cash on hand and the sale of products on the Internet and from independent, third-party resellers and from consulting revenue from Sellavir.
Our total assets were $752,306 and $581,602 as of September 30, 2022, and December 31, 2021, respectively, consisting of $246,569 and $260,200, respectively, in cash. Our working capital was $185,213 and $291,782 as of September 30, 2022 and December 31, 2021, respectively.
We had $194,242 in cash provided by and $42,863 in cash used in operating activities for the nine months ended September 30, 2022 and 2021, respectively.
We had $207,873 in cash used and $100,580 in cash provided by investing activities for net sale and purchase of marketable securities for the nine months ended September 30, 2022 and 2021, respectively.
We had no cash provided by financing activities for the nine months ended September 30, 2022 and 2021, respectively.
The Company had no formal long-term lines of credit or other bank financing arrangements as of September 30, 2022.
The Company has no current plans for the purchase or sale of any plant or equipment.
The Company has no current plans to make any changes in the number of employees.
Impact of Inflation
The Company believes that inflation has had a negligible effect on operations over the past quarter.
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Capital Expenditures
The Company expended no amounts on capital expenditures for the nine months ended September 30, 2022.
Plan of Operation
Our business strategy is to continue to market our website (www.quartarad.com). We have used our website to market products for sale to consumers as well to third party distributors. We will continue to strengthen our presence on e-commerce sites. We are also focusing on expanding our reseller network by targeting large consumer retail chains.
The number of detection devices, which we will be able to sell will depend upon the success of our marketing efforts through our website and the distributors that we will enter into agreement with to sell the products.
During December 2020, Quarta-Rad acquired Sellavir, Inc, a Delaware corporation, under common control, as a wholly owned subsidiary. We acquired the company in exchange for 333,333 shares of our common stock. The value of the stock on the date of issue was approximately $170,000. Sellavir is a video analytics company whose platform empowers organizations to decode videos to develop creative marketing strategies and analysis through advanced and proprietary technologies. Quarta-Rad has acquired the company to leverage Sellavir capabilities to combine it with its Radex series to offer AI-enhanced radiation detection capabilities and expand its scope outside of radiation measurement.
We intend to implement the following tasks within the next twelve months:
Inventory: We intend to purchase inventory to increase our sales. We believe that these funds will be initially sufficient for us to increase our inventory from Quarta-Rad, Ltd. The amount needed for inventory purchases is directly related to the demand for sales of our product.
Marketing: (Estimated cost $25,000-$75,000). In addition to the website modification costs, we intend to increase our marketing efforts on the Internet to generate leads and sales. We will also utilize funds to develop marketing brochures and materials to market the products to industry professionals such as home renovation contractors.
Secure Distribution Agreements: (Estimated cost $10,000). We plan to seek and secure distribution agreements for the sale of our detection devices.
Our management does not anticipate the need to hire additional full or part- time employees over the next three (3) months, as the services provided by our officers and directors and our independent contractor appear sufficient at this time. We believe that our operations are currently on a small scale that is manageable by these two individuals as well as our independent contractor. Our management’s responsibilities are mainly administrative at this stage. While we believe that the addition of employees is not required over the next three (3) months, the professionals we plan to utilize will be considered independent contractors. We do not intend to enter into any employment agreements with any of these professionals. Thus, these persons are not intended to be employees of our company.
We currently do not own any equipment that we would seek to sell in the near future; we do not have any off-balance sheet arrangements; and we have not paid for expenses on behalf of our directors.
Off-Balance Sheet Arrangements
None.
Forward Looking Statements
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report include forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 (collectively, the “Reform Act”). The Reform Act provides a safe harbor for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements, other than statements of historical fact that we make in this Quarterly Report on Form 10-Q are forward-looking. The words “anticipates,” “believes,” “expects,” “intends,” “will continue,” “estimates,” “plans,” “projects,” the negative of these terms and similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean the statement is not forward-looking.
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Forward-looking statements involve risks, uncertainties or other factors which may cause actual results to differ materially from the future results, performance or achievements expressed or implied by the forward-looking statements. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Certain risks, uncertainties or other important factors are detailed in this Quarterly Report on Form 10-Q and may be detailed from time to time in other reports we file with the Securities and Exchange Commission, including on Forms 8-K and 10-K.
We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all those risks, nor can we assess the impact of all those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. We believe these forward-looking statements are reasonable. However, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to update publicly any of them considering new information or future events.
Critical Accounting Policies
Our condensed financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the condensed financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended December 31, 2021 and Note 1 to the Condensed and Consolidated Financial Statements in this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
Item 4. Controls and Procedures
Disclosure of controls and procedures.
The Company is responsible for establishing and maintaining adequate internal control over financial reporting in accordance with the Rule 13a-15 of the Securities Exchange Act of 1934. The Company’s officer, its president, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2022 based on the criteria establish in Internal Control Integrated Framework issued by the 2013 Committee of Sponsoring Organizations of the Treadway Commission. Based on the foregoing evaluation, we have concluded that our disclosure controls and procedures were not effective as of September 30, 2022 and that they do not allow for information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive and Principal Accounting & Financial Officers as appropriate to allow timely decisions regarding required disclosure.
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The material weaknesses relate to the following:
| ● | We do not have adequate segregation of duties in the handling of our financial reporting. This is caused by a very limited number of personnel. | |
| ● | Our accounting staff does not have sufficient technical accounting knowledge relating to accounting for income taxes and complex US GAAP matters. | |
| ● | The Company has not performed a risk assessment and mapped our process to control objectives. | |
| ● | The Company has not implemented comprehensive entity-level internal controls. | |
| ● | The Company has not implemented adequate system and manual controls. |
Plan for Remediation of Material Weaknesses
We intend to take appropriate and reasonable steps to make the necessary improvements to remediate this deficiency as resources to do so become available. We intend to consider the results of our remediation efforts and related testing as part of our year-end 2022 assessment of the effectiveness of our internal control over financial reporting.
Such remediation would entail enhancing the training and oversight of the accounting personnel responsible for non-routine transactions involving complex accounting matters and engaging the services of an independent consultant with sufficient expertise in income tax and complex U.S. GAAP matters to assist us in the preparation of our financial statements.
Management believes that the aforementioned material weaknesses did not impact our financial reporting or result in a material misstatement of our condensed financial statements.
Changes in internal controls over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
| (a) | The following exhibits are filed with this quarterly report on Form 10-Q or are incorporated herein by reference: |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| QUARTA-RAD, INC. | |
| November 21, 2022 | /s/ Victor Shvetsky |
| Victor Shvetsky | |
| Chairman and Chief Executive Officer (Principal Executive | |
| Officer) and Chief Financial Officer (Principal Accounting and Financial Officer) |
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