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 three months
ended June 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 June 30, 2022.
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, $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 June 30, 2022.
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
six months ended June 30, 2022, and 2021, 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 six months ended June 30, 2022 is comprised of:
Quarta Rad Sellavir Total
Sales $ 532,556 $ 94,000 $ 626,566
Cost of Good Sold 365,560 44,658 410,218
Gross Profit 166,996 49,342 216,338
Expenses:
General & administrative 25,124 2,060 27,184
Advertising 19,653 - 19,653
Professional and consulting fees 78,286 1,000 79,286
Operating expenses 123,063 3,060 126,123
Net income (loss) from operations 43,933 46,282 90,215
Interest and dividends - 5 5
Unrealized gain/(loss) on investments - (126,970 ) (126,970 )
Realized gain/(loss) on investments - (13,651 ) (13,651 )
Interest expense - -
Income tax (expense)/benefit (9,226 ) 19,810 10,584
Net income/(loss) $ 34,707 $ (74,524 ) $ (39,817 )The Company has two operating segments through the operations of Quarta-Rad and
Sellavir. Net income for the three months ended June 30, 2022, is comprised of:
Quarta Rad Sellavir Total
Sales $ 214,177 $ 30,000 $ 244,177
Cost of Good Sold 163,605 26,691 190,296
Gross Profit 50,572 3,309 53,881
Expenses:
General & administrative 12,055 1,073 13,128
Advertising 8,453 - 8,453
Professional and consulting fees 47,060 1,000 48,060
Operating expenses 67,568 2,073 69,641
Net income (loss) from operations (16,996 ) 1,236 (15,760 )
Interest and dividends - 2 2
Unrealized gain/(loss) on investments - (78,003 ) (78,003 )
Realized gain/(loss) on investments - 11,188 11,188
Interest expense - - -
Income tax benefit 3,569 13,771 17,340
Net income/(loss) $ (13,427 ) $ (51,806 ) $ (65,233 )
15
Consolidated Totals:
Three months ended June 30, 2022 compared with the three months ended June 30,
2021
Revenues. Our net revenues decreased $116,996, or 32.39% to $244,177 for the
three months ended June 30, 2022 compared with $361,173 for the three months
ended June 30, 2021. The decrease was due to a decrease in Sellavir revenue due
to timing of project billing and decrease in Quarta Rad revenue due to a
temporary delay in the ability to purchase inventory.
Cost of Goods Sold. Our Cost of Goods Sold decreased $4,859 or 2.49% or to
$190,296 for the three months ended June 30, 2022 compared to $195,155 for the
comparable period in 2021. The decrease was a result of a decrease in sales.
Operating Expenses. For the three months ended June 30, 2022, our total
operating expenses decreased $40,079 or 36,53% to $69,641 compared to $109,720
for the three months ended June 30, 2021. The decrease is primarily attributable
to the Company's decrease in professional fees and advertising.
Net Income. Our net income decreased $106,310 to a net loss of ($65,233) for the
three months ended June 30, 2022 compared to net income of $41,077 for the three
months ended June 30, 2021. The decrease was primarily due to unrealized losses
on investments.
Six months ended June 30, 2022 compared with the six months ended June 30, 2021
Revenues. Our net revenues decreased $69,296, or 9.96% to $626,566 for the six
months ended June 30, 2022, compared with $695,852 for the six months ended June
30, 2021. The decrease was due to a decrease in Sellavir revenue due to timing
of project billing.
Cost of Goods Sold. Our Cost of Goods Sold increased $24,735 or 6.40% to
$410,218 for the six months ended June 30, 2022 compared to $385,483 for the
comparable period in 2021. The increase was a result in classification of
Sellavir direct costs.
Operating Expenses. For the six months ended June 30, 2022, our total operating
expenses decreased $65,031 or 34.02% to $126,123 compared to $191,154 for the
six months ended June 30, 2021. The decrease is primarily attributable to the
Company's decrease in professional fees and advertising.
Net Income. Our net income decreased $133,343 to a net loss of ($39,817) for the
six months ended June 30, 2022 compared to net income of $93,526 for the six
months ended June 30, 2021. The decrease was primarily due to realized and
unrealized losses on investments.
16
QUARTA-RAD
Three months ended June 30, 2022 compared with the three months ended June 30,
2021
Revenues. Our net revenues decreased $56,996, or 21.02% to $214,177 for the
three months ended June 30, 2022 compared with $271,173 for the three months
ended June 30, 2021. Quarta Rad revenue due to a temporary delay in the ability
to purchase inventory.
Cost of Goods Sold.
Our Cost of Goods Sold decreased $31,550 or 16.17% to $163,605 for the three
months ended June 30, 2022 compared to $195,155 for the comparable period in
2021. The decrease was a result of the decrease in recognized sales.
Operating Expenses. For the three months ended June 30, 2022, our total
operating expenses decreased $9,690 or 12.54% to $67,568 compared to $77,2581for
the three months ended June 30, 2021. The decrease is primarily attributable to
the Company's decrease in professional fees and advertising.
Net Income. Our net loss increased $12,447 to a net loss of ($13,427) for the
three months ended June 30, 2022 compared to a net loss of ($980) for the three
months ended June 30, 2021. The increase was primarily related to decrease in
sales.
Six months ended June 30, 2022 compared with the three months ended June 30,
2021
Revenues. Our net revenues increased $16,704, or 3.24% to $532,556 for the six
months ended June 30, 2022, compared with $515,852 for the six months ended June
30, 2021. The increase was due to an increase in the demand of our RD1503 model.
Cost of Goods Sold. Our Cost of Goods Sold decreased $19,923 or 5.17% to
$365,560 for the six months ended June 30, 2022, compared to $385,483 for the
comparable period in 2021. The decrease was a result of shipping costs.
Operating Expenses. For the six months ended June 30, 2022, our total operating
expenses decreased $13,494 or 9.88% to $123,065 compared to $136,559 for the six
months ended June 30, 2021. The decrease is primarily attributable to the
Company's decrease in professional fees and advertising.
Net Income. Our net income increased $39,595 to $34,705 for the six months ended
June 30, 2022, compared to a net loss of ($4,890) for the six months ended June
30, 2021. The increase was primarily due to an increase in sales and reduction
of expenses.
SELLAVIR
Three months ended June 30, 2022 compared with the three months ended June 30,
2021
Revenues. Our net revenues decreased $60,000 or 66,67% to $30,000 for the three
months ended June 30, 2022 compared with $90,000 for the three months ended June
30, 2021. The decrease was primarily attributable to the timing of billed
services
Operating Expenses. For the three months ended June 30, 2022, our total
operating expenses decreased $30,389 or 93,61% to. $2,073 compared to $32,462
for the three months ended June 30, 2021. The decrease was primarily
attributable to a decrease and classification of professional fees.
17
Net Loss. Our net loss increased $93,863 to ($51,806) for the three months ended
June 30, 2022 compared to net income of $42,057 for the three months ended June
30, 2021. The increase was primarily attributable to realized and unrealized
losses on investments.
Six months ended June 30, 2022 compared with the six months ended June 30, 2021
Revenues. Our net revenues decreased $86,000 or 47.78% to $94,000 for the six
months ended June 30, 2022, compared with $90,000 for the six months ended June
30, 2021. The decrease was primarily attributable to the timing of billed
services
Operating Expenses. For the six months ended June 30, 2022, our total operating
expenses decreased $21,148 or 95.55% to. $985 compared to $22,133 for the six
months ended June 30, 2021. The decrease was primarily attributable to a
decrease in professional fees.
Net Loss. Our net loss increased $172,938 to ($74,552) for the six months ended
June 30, 2022, compared to net income of $98,416 for the six months ended June
30, 2021. The increase was primarily attributable to realized and unrealized
losses on investments.
Liquidity and Capital Resources. During the six months ended June 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 $606,809 and $581,602 as of June 30, 2022 and December 31,
2021, respectively, consisting of $196,607and $260,200, respectively, in cash.
Our working capital was $294,706 and $334,523 as of June 30, 2022 and December
31, 2021, respectively.
We had $96,005and $13,534 in cash provided by operating activities for the six
months ended June 30, 2022 and 2021, respectively.
We had $159,598 in cash used and $250,814 in cash provided by investing
activities for net sale of marketable securities for the six months ended June
30, 2022 and 2021, respectively.
We had no cash provided by financing activities for the six months ended June
30, 2022 and 2021, respectively.
The Company had no formal long-term lines of credit or other bank financing
arrangements as of June 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.
Capital Expenditures
The Company expended no amounts on capital expenditures for the six months ended
June 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.
18
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.
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.
19
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.
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