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, 2020 and 2019. 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.

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 and the US 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 have reserved $100,000 on our balance sheet as accrued expenses in connection with this matter.

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.





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The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements for the three months and nine months ended September 30, 2020 and 2019, together with notes thereto, which are included in this Quarterly Report on Form 10-Q.

Three months ended September 30, 2020 compared with the three months ended September 30, 2019

Revenues. Our net revenues decreased $50,951, or 19.48% to $210,630 for the three months ended September 30, 2020 compared with $261,581 for the three months ended September 30, 2019. The decrease was due to a decrease in the sale of our RD1503 model. We attribute the decrease to a decrease in demand.

Cost of Goods Sold. Our Cost of Goods Sold decreased $7,284 or 4.02% to $173,706 for the three months ended September 30, 2020 compared to $180,990 for the comparable period in 2019. The decrease is due to the decrease in sales during the quarter. We had a decrease in our gross margins due to increased shipping costs and underperforming sales in the EU.

Operating Expenses. For the three months ended September 30, 2020, our total operating expenses decreased $58,625 or 58.13% to $42,219 compared to $100,844 for the three months ended September 30, 2019. The decrease is primarily attributable to the Company's reduction in prior VAT accruals and research and development expense.

Net Loss. Our net loss decreased $14,958 or 73.86% to $5,295 for the three months ended September 30, 2020 compared to a net loss of $20,253 for the comparable period in 2019. The decrease was primarily due to a decrease in operating expenses.

Liquidity and Capital Resources. During the three months ended September 30, 2020, we used cash for operating expenses from cash on hand and the sale of products on the Internet and from independent, third party resellers.

Nine months ended September 30, 2020 compared with the nine months ended September 30, 2019

Revenues. Our net revenues decreased $85,393 or 12.05% to $623,217 for the nine months ended September 30, 2020 compared with 708,610 for the nine months ended September 30, 2019. The decrease was due to a decrease in the sale of our RD1503 Model. We attribute the decrease to a decrease in demand.

Cost of Goods Sold. Our Cost of Goods Sold decreased $5,512 or 1.10% to $497,708 for the nine months ended September 30, 2020 compared to $503,220 for the comparable period in 2019. The decrease is due to a decrease in sales. We had a decrease in our gross margins due to increased shipping costs and underperforming sales in the EU.

Operating Expenses. For the nine months ended September 30, 2020, our total operating expenses decreased $140,202 or 51.95% to $129,664 compared to $269,866 for the nine months ended September 30, 2019. The decrease is primarily attributable to the Company's reduction in professional fees, prior VAT accruals and research and development expense.

Net Loss. Our net loss decreased $60,321, or 93.56% to $4,155 for the nine months ended September 30, 2020 compared to a net loss of $64,476 for the comparable period in 2019. The increase was primarily due a reduction of operating expenses.

Liquidity and Capital Resources. During the nine months ended September 30, 2020, we used cash for operating expenses from cash on hand and the sale of products on the Internet and from independent, third party resellers.

Our total assets were $253,953 and $244,937 as of September 30, 2020 and December 31, 2019, respectively, consisting of $118,338 and $41,962, respectively, in cash. Our working capital deficit was $33,995 and $29,840 as of September 30, 2020 and December 31, 2019, respectively.





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We had $76,376 in cash provided by and $6,227 in cash used in operating activities for the nine months ended September 30, 2020 and 2019, respectively.

We had no cash provided by investing activities for the nine months ended September 30, 2020 and 2019, respectively.

We had no cash provided by financing activities for the nine months ended September 30, 2020 and 2019, respectively.

We do not have sufficient funds for pursuing our plan of operation, which includes acquisitions, but we are in the process of trying to procure funds sufficient to fund our plan. There can be no assurance that we will be able to procure funds sufficient for such purpose. If operating difficulties or other factors (many of which are beyond our control) delay our realization of revenues or cash flows from operations, we may be limited in our ability to pursue our business plan. Moreover, if our resources from obtaining additional capital or cash flows from operations, once we commence them, do not satisfy our operational needs or if unexpected expenses arise due to unanticipated pressures or if we decide to expand our business plan beyond its currently anticipated level or otherwise, we will require additional financing to fund our operations, in addition to anticipated cash generated from our operations. Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise respond to competitive pressures would be significantly limited. In a worst-case scenario, we might not be able to fund our operations or to remain in business, which could result in a total loss of our stockholders' investment. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders would be reduced, and these newly issued securities might have rights, preferences or privileges senior to those of existing stockholders.

The Company had no formal long-term lines of credit or other bank financing arrangements as of September 30, 2020.

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, 2020.





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.

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.





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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.

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, 2019 and Note 1 to the Condensed Financial Statements in this Form 10-Q.

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