QUARTA-RAD,
INC. AND SUBSIDIARIES
CONDENSED
AND CONSOLIDATED BALANCE SHEETS
|
|
As
of
|
|
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
113,422
|
|
|
$
|
108,126
|
|
Accounts
receivable
|
|
|
75,605
|
|
|
|
48,490
|
|
Marketable
securities, trading
|
|
|
421,038
|
|
|
|
-
|
|
Inventory
|
|
|
86,041
|
|
|
|
89,497
|
|
Deferred
tax asset
|
|
|
36,826
|
|
|
|
50,768
|
|
Due
from officer
|
|
|
-
|
|
|
|
332,553
|
|
Total
Current Assets
|
|
|
732,932
|
|
|
|
629,434
|
|
|
|
|
|
|
|
|
|
|
Fixed
Assets, Net
|
|
|
3,770
|
|
|
|
3,970
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
736,702
|
|
|
$
|
633,404
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
104,531
|
|
|
$
|
77,241
|
|
Income
taxes payable
|
|
|
70,660
|
|
|
|
70,660
|
|
Related
party payable
|
|
|
190,883
|
|
|
|
167,324
|
|
Total
Liabilities
|
|
|
366,074
|
|
|
|
315,225
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Common Stock: authorized 50,000,000 common shares, $0.0001 par value 15,659,483 were issued and outstanding on March 31, 2021 and December 31, 2020
|
|
|
1,866
|
|
|
|
1,866
|
|
Additional
paid-in capital
|
|
|
337,427
|
|
|
|
337,427
|
|
Retained
Earnings/(Accumulated Deficit)
|
|
|
31,335
|
|
|
|
(21,114
|
)
|
Total
Stockholders’ Equity
|
|
|
370,628
|
|
|
|
318,179
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
736,702
|
|
|
$
|
633,404
|
|
QUARTA-RAD,
INC. AND SUBSIDIARIES
CONDENSED
AND CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
For
the Three Months Ended March 31, 2021
|
|
|
For
the Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
Sales
-Quarta Rad, Inc., net
|
|
$
|
244,679
|
|
|
$
|
180,597
|
|
Sales
- Sellavir, Inc., net - related party
|
|
|
90,000
|
|
|
|
-
|
|
Total
sales, net
|
|
|
334,679
|
|
|
|
180,597
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold - Quarta Rad, Inc.
|
|
|
190,328
|
|
|
|
140,966
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
144,351
|
|
|
|
39,631
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
General
& administrative
|
|
|
5,028
|
|
|
|
1,694
|
|
Advertising
|
|
|
16,060
|
|
|
|
6,870
|
|
Professional
and consulting fees
|
|
|
60,346
|
|
|
|
34,559
|
|
Operating
expenses
|
|
|
81,434
|
|
|
|
43,123
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) from operations
|
|
|
62,917
|
|
|
|
(3,492
|
)
|
|
|
|
|
|
|
|
|
|
Other income - Unrealized
gain/(loss) on investments
|
|
|
3,474
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income before for provision
for income taxes
|
|
|
66,391
|
|
|
|
(3,492
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
13,942
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$
|
52,449
|
|
|
$
|
(3,492
|
)
|
|
|
|
|
|
|
|
|
|
Income/(loss)
per share - basic and diluted
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares - basic and diluted
|
|
|
15,659,483
|
|
|
|
15,326,150
|
|
QUARTA-RAD,
INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/DEFICIT
Three Months Ended March 31, 2021
(Unaudited)
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Retained
Earnings/
(Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Equity
|
|
Balance,
December 31, 2020
|
|
|
15,659,483
|
|
|
$
|
1,866
|
|
|
$
|
337,427
|
|
|
$
|
(21,114
|
)
|
|
$
|
318,179
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,449
|
|
|
|
52,449
|
|
Balance,
March 31, 2021
|
|
|
15,659,483
|
|
|
$
|
1,866
|
|
|
$
|
337,427
|
|
|
$
|
31,335
|
|
|
$
|
370,628
|
|
QUARTA-RAD,
INC.
CONDENSED
AND CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
Three
Months Ended March 31, 2020
(Unaudited)
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance,
December 31, 2019
|
|
|
15,326,150
|
|
|
$
|
1,533
|
|
|
$
|
65,197
|
|
|
$
|
(96,570
|
)
|
|
$
|
(29,840
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,492
|
)
|
|
|
(3,492
|
)
|
Balance,
March 31, 2020
|
|
|
15,326,150
|
|
|
$
|
1,533
|
|
|
$
|
65,197
|
|
|
$
|
(100,062
|
)
|
|
$
|
(33,332
|
)
|
QUARTA-RAD,
INC. AND SUBSIDIARIES
CONDENSED
AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
For
the Three Months Ended March 31, 2021
|
|
|
For
the Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$
|
52,449
|
|
|
$
|
(3,492
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
200
|
|
|
|
-
|
|
Unrealized
gain/loss on investments
|
|
|
(3,474
|
)
|
|
|
|
|
Deferred
tax asset
|
|
|
13,942
|
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(27,116
|
)
|
|
|
51,617
|
|
Inventory
|
|
|
3,456
|
|
|
|
4,832
|
|
Accounts
payable and accrued expenses
|
|
|
27,290
|
|
|
|
(4,909
|
)
|
Related
party payable
|
|
|
23,559
|
|
|
|
(7,006
|
)
|
Net
cashed provided by operating activities
|
|
|
90,306
|
|
|
|
41,042
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of marketable securities, trading
|
|
|
(85,010
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
5,296
|
|
|
|
41,042
|
|
Cash,
beginning of period
|
|
|
108,126
|
|
|
|
41,962
|
|
Cash,
end of period
|
|
$
|
113,422
|
|
|
$
|
83,004
|
|
|
|
|
|
|
|
|
|
|
Non-cash
Investing Transactions:
|
|
|
|
|
|
|
|
|
Repayment
of officer advance by transfer of marketable securities at fair value
|
|
$
|
332,553
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid on interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
QUARTA-RAD,
INC. AND SUBSIDIARIES
Notes
to the Condensed and Consolidated Unaudited Financial Statements
NOTE
1 - BASIS OF PRESENTATION
The
condensed and consolidated balance sheet of Quarta-Rad, Inc. and Subsidiaries (the “Company”)
as of March 31, 2021, and the statements of operations and changes in stockholders’ equity/deficit for the three months
ended March 31, 2021 and 2020, and the cash flows for the three months ended March 31, 2021 and 2020 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 March 31, 2021, the results of operations and cash
flows for the periods ended March 31, 2021 and 2020.
The
condensed and consolidated balance sheet as of December 31, 2020 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 consolidated and condensed 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, 2020.
During
April 2020 the Company 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 March 31, 2021.
During
December 2020, the Company acquired the common controlled entity, Sellavir, Inc., a Delaware Corporation. Sellavir was owned 100%
by Quarta-Rad’s majority shareholder. 333,333 shares of common stock in Quarta-Rad were exchanged for 100% of the outstanding
shares of Sellavir.
Under
an acquisition of common control, the purchase is recorded at historical cost. The fair value of the common stock issued was approximately
$170,000. The excess carry-over basis of the net assets acquired was treated as a capital contribution and included in additional
paid-in capital.
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.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 ended March 31, 2021 and 2020, amounted to $16,060,
and $6,870 respectively.
Inventory
Inventories
are stated at the lower of cost or market (net realizable value). The Company periodically reviews the value of items in inventory
and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are
charged to cost of goods sold. The Company’s inventory consists of finished goods available for sale. There were no write-offs
for the three months ended March 31, 2021 or 2020.
Marketable Securities
Our investment securities consist of
available-for-sale instruments which include $421,038 of tradable equities. Substantially all of our available-for-sale securities
are Level 1. Realized gains and losses on these securities are included in other income in the consolidated statements of operations.
Unrealized gains and losses, net of tax, on available-for-sale securities are recorded in other income. Unrealized losses that
are considered other than temporary are recorded in other income with the corresponding reduction to the carrying basis of the
investment.
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.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the
related assets, which is five years. Leasehold improvements are amortized over the shorter of their estimated useful lives or
their related lease terms. Repairs and maintenance costs are charged to expense when incurred.
Long-Lived
Assets
The
Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual
disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the fair value
of the related asset. No impairment charges were incurred during the three months ended March 31, 2021 and 2020. There can be
no assurance, however, that market conditions will not change or demand for the Company’s services will continue, which
could result in impairment of long-lived assets in the future.
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740-10, “Accounting for
Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for
the current year; and, (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized
in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period
that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the
weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets
will not be realized.
ASC
740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position
taken or expected to be taken on a tax return. Under ASC 740-10, a tax benefit from an uncertain tax position taken or expected
to be taken may be recognized only if it is “more likely than not” that the position is sustainable upon examination,
based on its technical merits. The tax benefit of a qualifying position under ASC 740-10 would equal the largest amount of tax
benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge
of all the relevant information. A liability (including interest and penalties, if applicable) is established to the extent a
current benefit has been recognized on a tax return for matters that are considered contingent upon the outcome of an uncertain
tax position. Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.
As
of March 31, 2021, we have analyzed filing positions in each of the federal and state jurisdictions where we are required to file
income tax returns, as well as all open tax years in these jurisdictions. We have identified the U.S. federal and Delaware as
our “major” tax jurisdictions. Generally, we remain subject to Internal Revenue Service examination of our 2017 through
2020 tax returns. However, we have certain tax attribute carry forwards, which will remain subject to review and adjustment by
the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes are utilized.
We
believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that
will result in a material change to our financial position. Therefore, no reserves for uncertain income tax position have been
recorded pursuant to ASC 740. In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740.
Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.
Earnings
per Share
The
Company’s basic earnings per share are calculated by dividing its net income available to common stockholders by the weighted
average number of common shares outstanding for the period. The Company’s dilutive earnings per share is calculated by dividing
its net income available to common shareholders by the diluted weighted average number of shares outstanding during the period.
The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially
dilutive debt or equity. There were no potentially dilutive instruments outstanding at March 31, 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 are accounted for on a historical cost basis, which, due to the short maturity
of these financial instruments, approximates fair value at March 31, 2021 and December 31, 2020. 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.
|
Use
of Estimates in Preparation of Financial Statements
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant
estimates include reserves for accounts receivable and inventory, and the European VAT exposure accrual (Note 6).
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.
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 March 31, 2021 and December 31, 2020, 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.
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.
NOTE
4–PROPERTY AND EQUIPMENT
Property and Equipment at March 31, 2021 & December 31, 2020 consisted of:
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
|
December
31,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
Computer Equipment
|
|
$
|
4,005
|
|
|
$
|
4,005
|
|
Accumulated Depreciation
|
|
|
(235
|
)
|
|
|
(35
|
)
|
Net Property & Equipment
|
|
$
|
3,770
|
|
|
$
|
3,970
|
|
The
Company recognized $200 in depreciation expense for the three months ended March 31, 2021.
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 $156,975 and $114,665 for the three months ended March 31,
2021 and 2020, respectively.
During
July 2017, the Company entered into an agreement with the Russian Affiliate to develop and update software for a new device for
$180,000. The development contract ended December 31, 2019. The amount due in connection with this agreement as of March 31, 2021
and December 31, 2020 is $126,390. In addition, the Company owes an additional $17,000 at March 31, 2021 for purchased inventory
during the three months ended March 31, 2021. No additional amounts are included at December 31, 2020.
Since
inception, the Company has not compensated its CEO, who is the majority shareholder, and, as of March 31, 2021 and December 31,
2020, is due $47,494 and $40,935, respectively, for expenses paid by the shareholder on behalf of the Company, included in related
party payables. The Company intends to initiate a salary to its CEO in the second quarter of 2021.
Sellavir
had advanced its Officer and sole Shareholder $332,553 during 2019 and 2020 and was included in the December 2020 Sellavir acquisition.
The full amount was paid to the Company in March 2021 through transfer of marketable securities at fair value.
Sellavir
had $90,000 of revenue for the three months ended March 31, 2021 from a related entity wholly owned by the majority shareholder
of the Company.
NOTE
6– COMMITMENTS AND CONTINGENCIES
Contingencies
The
Company is currently undergoing a multi-year VAT tax examination by certain European tax authorities. As of March 31, 2021, 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 $0 to $125,000 based on estimates and information provided to management. The Company believes
its exposure is limited to $100,000, which was accrued in 2019. The Company paid $41,822 during 2020 towards the estimated liability,
a remainder of $58,178 is included in accounts payable and accrued expenses as of March 31, 2021 and December 31, 2020. Actual
results from this matter could differ from this estimate. In April 2021, we paid $35,679 towards this balance.
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
7–SUBSEQUENT EVENTS
The
Company has performed an evaluation of events occurring subsequent to March 31, 2021 through May 17, 2021. Based on its evaluation,
other than the note below, there is nothing to be disclosed herein.
NOTE
8 - COVID-19
On
January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain
of coronavirus (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally
beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase
in exposure globally.
The
full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management is actively monitoring the
global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution
of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19
outbreak on its results of operations, financial condition, or liquidity. However, if the pandemic continues, it may have an adverse
effect on the Company’s results of future operations, financial position, and liquidity.
The
uncertainty as to the future impact on the Company of the recent COVID-19 outbreak has been considered as part of the Company’s
adoption of the going concern basis. Thus far, we have not observed a material impact on our sales in the first four months of
the year against the same period in the previous year.
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 months ended March 31, 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 March 31, 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 have 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, a remainder of $58,178 is
included in accounts payable and accrued expenses as of March 31, 2021. In April 2021, we paid $35,679 towards this balance.
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 months ended March 31, 2021 and 2020, together with notes thereto, which are included in this Quarterly
Report on Form 10-Q.
The Company has two operating segments
through the operations of Quarta-Rad and Sellavir. Net income for the three months ended March 31, 2021 is comprised of:
|
|
Quarta Rad
|
|
|
Sellavir
|
|
|
Total
|
|
Sales
|
|
|
244,679
|
|
|
|
90,000
|
|
|
|
334,679
|
|
Cost of Good Sold
|
|
|
190,328
|
|
|
|
-
|
|
|
|
190,328
|
|
Gross Profit
|
|
|
54,351
|
|
|
|
90,000
|
|
|
|
144,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General & administrative
|
|
|
3,701
|
|
|
|
1,327
|
|
|
|
5,028
|
|
Advertising
|
|
|
16,060
|
|
|
|
-
|
|
|
|
16,060
|
|
Professional and consulting fees
|
|
|
39,540
|
|
|
|
20,806
|
|
|
|
60,346
|
|
Operating expenses
|
|
|
59,301
|
|
|
|
22,133
|
|
|
|
81,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations
|
|
|
(4,950
|
)
|
|
|
67,867
|
|
|
|
62,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain/(loss) on investments
|
|
|
-
|
|
|
|
3,474
|
|
|
|
3,474
|
|
Income tax (expense)/benefit
|
|
|
1,040
|
|
|
|
(14,982
|
)
|
|
|
(13,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
(3,910
|
)
|
|
|
56,359
|
|
|
|
52,449
|
|
Consolidated
Totals
Three
months ended March 31, 2021 compared with the three months ended March 31, 2020
Revenues.
Our net revenues increased $154,082, or 85.32% to $334,679 for the three months ended March 31, 2021 compared with $180,597
for the three months ended March 31, 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 $49,362 or 35.02% to $190,328 for the three months ended March 31, 2021 compared
to $140,966 for the comparable period in 2020. The increase is due to the increase in sales during the quarter.
Operating
Expenses. For the three months ended March 31, 2021, our total operating expenses increased 38,311 or 88.84% to $81,434 compared
to $43,123 for the three months ended March 31, 2020. The increase is primarily attributable to the Company’s increase professional
fees and advertising.
Net
Income. Our net income increased $55,941 to $52,449 for the three months ended March 31, 2021 compared to a net loss of $3,492
for the comparable period in 2020. The increase was primarily due to an increase in sales and acquisition of Sellavir.
Quarta-Rad
Three months ended March 31, 2021 compared
with the three months ended March 31, 2020
Revenues. Our net revenues increased
$64,082, or 35.48% to $244,679 for the three months ended March 31, 2021 compared with $180,597 for the three months ended March
31, 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 $49,362 or 35.02% to $190,328 for the three months ended March 31, 2021 compared to $140,966 for the comparable
period in 2020. The increase is due to the increase in sales during the quarter.
Operating Expenses. For the
three months ended March 31, 2021, our total operating expenses increased $16,178 or 37.52% to $59,301 compared to $43,123 for
the three months ended March 31, 2020. The increase is primarily attributable to the Company’s increase professional fees
and advertising.
Net Loss. Our net loss increased
$418 or 11.97% to $3,910 for the three months ended March 31, 2021 compared to a net loss of $3,492 for the comparable period
in 2020. The increase was primarily due to an increase in expenses.
Sellavir
Three months ended March 31, 2021 compared
with the three months ended March 31, 2020
Revenues. Our net revenues were
$90,000 for the three months ended March 31, 2021 compared with $-0- for the three months ended March 31, 2020. The increase was
due to the acquisition of Sellavir in December 2020.
Operating Expenses. For the
three months ended March 31, 2021, our total operating expenses were $22,133 compared to $-0- for the three months ended March
31, 2020. The increase was due to the acquisition of Sellavir in December 2020.
Net Income. Our net income was
$56,359 for the three months ended March 31, 2021 compared to $-0- for the comparable period in 2020. The increase was due to
the acquisition of Sellavir in December 2020.
Liquidity and Capital Resources.
During the three months ended March 31, 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 $736,702 and $633,404 as of March 31, 2021 and December 31, 2020, respectively, consisting of $113,442 and $108,126,
respectively, in cash. Our working capital was $366,858 and $314,209 as of March 31, 2021 and December 31, 2020, respectively.
We
had $90,306 and $41,042 in cash provided by operating activities for the three months ended March 31, 2021 and 2020, respectively.
We
had $85,010 and $-0- used by investing activities for purchase of marketable securities for the three months ended March
31, 2021 and 2020, respectively.
We
had no cash provided by financing activities for the three months ended March 31, 2021 and 2020, respectively.
The
Company had no formal long-term lines of credit or other bank financing arrangements as of March 31, 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 three months ended March 31, 2021.
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 contractors 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, 2020 and Note 1 to the Condensed and Consolidated Financial
Statements in this Form 10-Q.