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, 2021 and 2020. 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, 2021.
During December 2020, we 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.
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.
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, and $35,679 in
April 2021. A remainder of $22,498 is included in accounts payable and accrued
expenses as of September 30, 2021.
13
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
three and nine months ended September 30, 2021 and 2020, together with notes
thereto, which are included in this Quarterly Report on Form 10-Q.
14
The Company has two operating segments through the operations of Quarta-Rad and
Sellavir. Net income for the nine months ended September 30, 2021 is comprised
of:
Quarta Rad Sellavir Total
Sales 734,340 180,000 914,340
Cost of Good Sold 538,397 - 538,397
Gross Profit 195,943 180,000 375,943
Expenses:
General & administrative 25,404 3,008 28,412
Advertising 46,095 7,530 53,625
Professional and consulting fees 107,133 89,285 196,418
Operating expenses
178,632 99,823 278,455
Net income (loss) from operations 17,311 80,177 97,488
Interest and dividends - 8 8
Unrealized gain on investments - 22,435 22,435
Realized loss on investments - (37,435 ) (37,435 )
Income tax expense (3,635 ) (13,689 ) (17,324 )
Net income 13,676 51,496 65,172
15
The Company has two operating segments through the operations of Quarta-Rad and
Sellavir. Net income for the three months ended September 30, 2021 is comprised
of:
Quarta Rad Sellavir Total
Sales 218,488 - 218,488
Cost of Good Sold 152,914 - 152,914
Gross Profit 65,574 - 65,574
Expenses:
General & administrative 9,118 925 10,043
Advertising 15,610 1,530 17,140
Professional and consulting fees 17,345 42,773 60,118
Operating expenses
42,073 45,228 87,301
Net income (loss) from operations 23,501 (45,228 ) (21,727 )
Interest and dividends - 6 6
Unrealized loss on investments - (14,356 ) (14,356 )
Realized gain on investments - 186 186
Income tax expense (4,935 ) 12,472 7,537
Net income/(loss) 18,566 (46,920 ) (28,354 )
Consolidated Totals:
Three months ended September 30, 2021 compared with the three months ended
September 30, 2020
Revenues. Our net revenues increased $7,858, or 3.73% to $218,488 for the three
months ended September 30, 2021 compared with $210,630 for the three months
ended September 30, 2020. The increase was due to an increase in the demand of
our RD1503 model.
Cost of Goods Sold. Our Cost of Goods Sold decreased $20,792 or 11.97% to
$152,914 for the three months ended September 30, 2021 compared to $173,706 for
the comparable period in 2020. The decrease is due to the decrease in product
cost during the quarter and change in the distribution channels utilized.
Operating Expenses. For the three months ended September 30, 2021, our total
operating expenses increased $45,082 or 106.78% to $87,301 compared to $42,219
for the three months ended September 30, 2020. The increase is primarily
attributable to the Company's increase professional fees in Sellavir.
Net Loss. Our net loss increased $23,059 or 435.49% to $28,354 for the three
months ended September 30, 2021 compared to a net loss of $5,295 for the three
months ended September 30, 2020. The increase was primarily due to an increase
in unrealized loss and professional fees.
16
Nine months ended September 30, 2021 compared with the nine months ended
September 30, 2020
Revenues. Our net revenues increased $291,123, or 46.71% to $914,340 for the
nine months ended September 30, 2021 compared with $623,217 for the nine months
ended September 30, 2020. The increase was due to an increase in the demand of
our RD1503 model and revenue from Sellavir
Cost of Goods Sold. Our Cost of Goods Sold increased $40,689 or 8.18% to
$385,483 for the nine months ended September 30, 2021 compared to $324,003 for
the comparable period in 2020. The increase is due to the increase in sales.
Operating Expenses. For the nine months ended September 30, 2021, our total
operating expenses increased $148,791 or 114.75% to $278,455 compared to
$129,664 for the nine months ended September 30, 2020. The increase is primarily
attributable to the Company's increase in professional fees and advertising.
Net Income. Our net income increased 69,327 to $65,172 for the nine months ended
September 30, 2021 compared to a net loss of ($4,155) for the nine months ended
September 30, 2020. The increase was primarily due to an increase in sales and
acquisition of Sellavir.
QUARTA-RAD
Three months ended September 30, 2021 compared with the three months ended
September 30, 2020
Revenues. Our net revenues increased $7,858, or 3.73% to $218,488 for the three
months ended September 30, 2021 compared with $210,630 for the three months
ended September 30, 2020. The increase was due to an increase in the demand of
our RD1503 model.
Cost of Goods Sold. Our Cost of Goods Sold decreased $20,792 or 11.97% to
$152,914 for the three months ended September 30, 2021 compared to $173,706 for
the comparable period in 2020. The decrease is due to the decrease in product
cost during the quarter and change in the distribution channels utilized.
Operating Expenses. For the three months ended September 30, 2021, our total
operating expenses decreased $146 or 0.35% to $42,073 compared to $42,219for the
three months ended September 30, 2020. The increase is primarily attributable to
the Company's decrease in professional fees.
Net Income. Our net income increased $23,861 to $18,566 for the three months
ended September 30, 2021 compared to a net loss of $5,295 for the three months
ended September 30, 2020. The increase was primarily due to a reduction in cost
of goods sold.
Nine months ended September 30, 2021 compared with the nine months ended
September 30, 2020
Revenues. Our net revenues increased $111,123 or 17.83% to $734,340 for the nine
months ended September 30, 2021 compared with $623,217 for the nine months ended
September 30, 2020. The increase was due to an increase in the demand of our
RD1503 model.
Cost of Goods Sold. Our Cost of Goods Sold increased $40,689 or 8.18% to
$538,397 for the nine months ended September 30, 2021 compared to $497,708 for
the comparable period in 2020. The increase is due to the increase in sales.
Operating Expenses. For the nine months ended September 30, 2021, our total
operating expenses increased $48,968 or 37.77% to $178,632 compared to $129,664
for the nine months ended September 30, 2020. The increase is primarily
attributable to the Company's increase professional fees and advertising.
Net Income. Our net income increased $17,831 to $13,676 for the nine months
ended September 30, 2021 compared to a net loss of $4,155 for the nine months
ended September 30, 2020. The increase was primarily due to an increase in
sales.
SELLAVIR
Three months ended September 30, 2021 compared with the three months ended
September 30, 2020
Revenues. Our net revenues were $-0- for the three months ended September 30,
2021 compared with $-0- for the three months ended September 30, 2020.
17
Operating Expenses. For the three months ended September 30, 2021, our total
operating expenses were $45,2286 compared to $-0- for the three months ended
September 30, 2020. The increase was due to the acquisition of Sellavir in
December 2020.
Net Loss. Our net loss was $46,920 for the three months ended September 30, 2021
compared to $-0-for the three months ended September 30, 2020. The increase was
due to the acquisition of Sellavir in December 2020.
Nine months ended September 30, 2021 compared with the nine months ended
September 30, 2020
Revenues. Our net revenues were $180,000 for the nine months ended September 30,
2021 compared with $-0- for the nine months ended September 30, 2020. The
increase was due to the acquisition of Sellavir in December 2020.
Operating Expenses. For the nine months ended September 30, 2021, our total
operating expenses were $80,177 compared to $-0- for the nine months ended
September 30, 2020. The increase was due to the acquisition of Sellavir in
December 2020.
Net Income. Our net income was $51,496 for the nine months ended September 30,
2021 compared to $-0-for the nine months ended September 30, 2020. The increase
was due to the acquisition of Sellavir in December 2020.
Liquidity and Capital Resources. During the three months ended September 30,
2021, 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 $629,824 and $633,404 as of September 30, 2021 and
December 31, 2020, respectively, consisting of $165,843 and $108,126,
respectively, in cash. Our working capital was $379,981 and $314,209 as of
September 30, 2021 and December 31, 2020, respectively.
We had $42,863 used in and $76,376 in cash provided by operating activities for
the nine and nine months ended September 30, 2021 and 2020, respectively.
We had $100,580 and $-0- in cash provided by investing activities for net sale
of marketable securities for the nine months ended September 30, 2021 and 2020,
respectively.
We had no cash provided by financing activities for the nine months ended
September 30, 2021 and 2020, respectively.
The Company had no formal long-term lines of credit or other bank financing
arrangements as of September 30, 2021.
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.
Capital Expenditures
The Company expended no amounts on capital expenditures for the nine months
ended September 30, 2021.
18
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.
19
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, 2020
and Note 3 to the Condensed and Consolidated Financial Statements in this Form
10-Q.
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