Attached files
| file | filename |
|---|---|
| EX-32.2 - Quarta-Rad, Inc. | ex32-2.htm |
| EX-32.1 - Quarta-Rad, Inc. | ex32-1.htm |
| EX-31.2 - Quarta-Rad, Inc. | ex31-2.htm |
| EX-31.1 - Quarta-Rad, Inc. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] quarterly REPORT under SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2017
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 333-196078
Quarta-Rad, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware (State or other Jurisdiction of Incorporation or Organization) |
45-4232089 (I.R.S. Employer Identification No.) |
1201 N. Orange St., Suite 700 Wilmington, DE (Address of Principal Executive Offices) |
19801 (Zip Code) |
Registrant’s telephone number, including area code: (302) 575-0877
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§230.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated file,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ]
|
| Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 19, 2017, the number of shares outstanding of the issuer’s sole class of common stock, $0.0001 par value per share, is 15,330,150.
table of contents
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Part I – FINANCIAL INFORMATION
QUARTA-RAD, INC.
| As of | ||||||||
| March 31, 2017 (unaudited) | December 31, 2016 (audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 87,355 | $ | 67,513 | ||||
| Accounts receivable | 24,468 | 46,154 | ||||||
| Inventory | 84,000 | 83,586 | ||||||
| Subscription receivable | - | 5,000 | ||||||
| Total Current Assets | 195,823 | 202,253 | ||||||
| TOTAL ASSETS | $ | 195,823 | $ | 202,253 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 21,194 | $ | 1,000 | ||||
| Related party payable | 28,686 | 78,103 | ||||||
| Total Current Liabilities | 49,880 | 79,103 | ||||||
| TOTAL LIABILITIES | 49,880 | 79,103 | ||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common Stock; Authorized 50,000,000 common shares, $0.0001 par value, 15,330,150 and 15,326,150 shares issued and outstanding on March 31, 2017 and December 31, 2016, respectively | 1,533 | 1,533 | ||||||
| Additional paid-in capital | 65,997 | 65,197 | ||||||
| Retained earnings | 78,413 | 56,420 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY | 145,943 | 123,150 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 195,823 | $ | 202,253 | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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QUARTA-RAD, INC.
Condensed Statements of Operations
(unaudited)
| For the three- months ended March 31, 2017 | For the three- months ended March 31, 2016 | |||||||
| Revenues, net | $ | 288,640 | $ | 208,998 | ||||
| Total Revenues | 288,640 | 208,998 | ||||||
| Cost of Goods Sold | 225,075 | 175,798 | ||||||
| Gross Profit | 63,565 | 33,200 | ||||||
| General and administrative | 7,522 | 7,789 | ||||||
| Professional and consulting fees | 34,050 | 33,908 | ||||||
| Operating expenses | 41,572 | 41,697 | ||||||
| Net income (loss) | 21,993 | (8,497 | ) | |||||
| Basic and diluted income (loss) per common share | $ | 0.00 | $ | (0.00 | ) | |||
| Weighted average number of common shares outstanding | ||||||||
| Basic and diluted | 15,330,150 | 15,000,000 | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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QUARTA-RAD, INC.
Condensed Statements of Cash Flows
(unaudited)
| For the three months ended March 31, 2017 | For the three months ended March 31, 2016 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 21,993 | $ | (8,497 | ) | |||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 21,686 | 25,458 | ||||||
| Inventory | 414 | 19,877 | ||||||
| Accounts payable | 19,364 | 13,548 | ||||||
| Related party payable | (49,415 | ) | (80,060 | ) | ||||
| Net cash used in operating activities | 14,042 | (29,674 | ) | |||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from the issuance of common stock | 5,800 | - | ||||||
| Net cash provided by financing activities | 5,800 | - | ||||||
| Net change in cash for period | 19,842 | (29,673 | ) | |||||
| Cash, beginning of period | 67,513 | 66,390 | ||||||
| Cash, end of period | $ | 87,355 | $ | 36,716 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid of interest | $ | - | $ | - | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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QUARTA-RAD, INC.
Notes to the Unaudited Condensed Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The condensed balance sheet of Quarta-Rad, Inc. (the “Company”) as of March 31, 2017, and the condensed statements of operations and cash flows for the three-month period ended March 31, 2017 and 2016, have not been audited. However, in the opinion of management, such information includes all adjustments (consisting only of normal recurring adjustments), which are necessary to properly reflect the financial position of the Company as of March 31, 2017, the results of operations and cash flows for the three-months ended March 31, 2017 and 2016.
The condensed balance sheet as of December 31, 2016 has been derived from audited financial statements. Certain information and notes normally included in condensed financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. Interim period results are not necessarily indicative of the results to be achieved for an entire year. These condensed 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, 2016.
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. The Company targets homebuilders and home renovation contractors.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods.
Significant estimates made by management include, among others, provisions for the valuation of accounts receivable and the recoverability of inventory. The Company bases its estimates on historical experience, knowledge of current conditions and belief of what could occur in the future considering available information. The Company reviews its estimates on an on-going basis. The actual results experienced by the Company may differ materially and adversely from its estimates. To the extent there are material differences between the estimates and actual results, future results of operations will be affected.
Stock Based Compensation
Accounting Standards Codification (“ASC”) 718 “Compensation - Stock Compensation” prescribes accounting and reporting standards for all stock-based payment awards to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights, may be classified as either equity or liabilities. The Company determines if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity’s past practices or stated policies. If a present obligation exists, the transaction is recognized as a liability; otherwise, the transaction is recognized as equity.
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The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
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, 2017 and 2016, amounted to $5,540, and $5,368, respectively.
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 December 31, 2016, 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 2011 through 2016 Delaware 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.
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Inventory
Inventories are stated at the lower of cost or 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.
Earnings per Share
The Company’s basic earnings per share are calculated by dividing its net income (loss) 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 instruments.
Fair Value of Financial Instruments
The Company’s financial instruments as defined by FASB 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, 2017 and December 31, 2016.
FASB ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, 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. |
Revenue Recognition
Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) 101, Revenue Recognition, as amended by SAB 104, outlines the basic criteria that must be met to recognize revenue and provide guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management believes that the Company’s revenue recognition policy conforms to SAB 101 and 104.
The Company evaluates the criteria of Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force (“EITF”) Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent, in determining whether it is appropriate to record the gross amount of revenue and related costs or the net amount earned as commissions. The Company is the primary obligor, is subject to inventory risk and credit risk, has latitude in establishing prices and selecting suppliers, and has input in establishing product specifications.
The Company imports the goods and pays the import and delivery costs and forwards the goods to a public warehouse. Goods are held by the Company at a public warehouse until the customers requested ship date. The Company arranging for the maintenance of the Goods while in the warehouse at its expense. The Company has title to the Goods when shipped from the manufacturer and in the public warehouse.
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The Company believes it meets the indicators for gross reporting. The Company is the primary obligor, it has inventory risk, it has the ability to determine the price it sells the products to customers, it can change the product, it has supplier discretion, it can determine the nature, type, characteristics and specification of the products, it has physical risk of inventory as it purchases the products and assumes the risk of sale, and it has the credit risk for the customer to pay.
Revenue is recognized upon shipment of goods from the public warehouse to the customers, which is when title transfers to the customers.
Shipping and handling costs billed to the customers are recorded in sales. Shipping and handling costs as incurred by the Company are recorded in cost of sales.
The Company’s financial statements are prepared under the accrual method of accounting. Revenues are recognized when evidence of an agreement exists, the price is fixed or determinable, collectability is reasonably assured and goods have been delivered or services performed. Please refer to Note 5 for related party transactions. The Company reports its revenues as gross revenues rather than net revenues since the Company’s revenues are from unrelated, third party sales rather than consignment sales for its related party.
Recent Accounting Pronouncements
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments. This ASU provides clarification regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The issues addressed in this ASU that will affect us is classifying debt prepayments or debt extinguishment costs and contingent consideration payments made after a business combination. This update is effective for annual and interim periods beginning after December 15, 2017, and interim periods within that reporting period and is to be applied using a retrospective transition method to each period presented. Early adoption is permitted. We have elected to early adopt ASU 2016-15 as of January 1, 2017. The adoption of this ASU did not have a material impact on our condensed financial position, results of operations and related disclosures and had no other impact to the accompanying condensed statement of cash flows for the three months ended March 31, 2017 and 2016.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation - Stock Compensation. The ASU involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. Certain of these changes are required to be applied retrospectively, while other changes are required to be applied prospectively. ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption will be permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. As a result of the adoption of this ASU as of January 1, 2017, we have made an entity-wide accounting policy election to account for forfeitures when they occur. There is no cumulative-effect adjustment as a result of the adoption of this ASU as our estimated forfeiture rate prior to adoption of this ASU was 0%. The adoption of this ASU did not have a material impact on our condensed financial statements and related disclosures.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. Current U.S. GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. The amendments in this update will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards (IFRS) and are effective for fiscal years after December 15, 2016, including interim periods within those annual periods. The adoption of this ASU as of January 1, 2017 did not have a material impact on our condensed financial statements and related disclosures.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Topic 330. Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this ASU more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in IFRS. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of this ASU as of January 1, 2017 did not have a material impact on our condensed financial statements and related disclosures.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU 2014-15 describes how an entity should assess its ability to meet obligations and sets rules for how this information should be disclosed in the condensed financial statements. The standard provides accounting guidance that will be used along with existing auditing standards. The ASU 2014-15 is effective for the annual period ending after December 15, 2016. Early application is permitted. The adoption of this ASU as of January 1, 2017 did not have a material impact on our condensed financial statements and related disclosures.
NOTE 4–STOCKHOLDERS’ EQUITY
The Company was formed with one class of no par value common stock and was authorized to issue 1,500 common shares. The Company amended its Certificate of Incorporation to increase its authorized shares to 50,000,000, $0.0001 par value and effectuated a 10,000 to 1 forward split. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they chose to do so, elect all of the directors of the Company.
From September 27, 2016 to December 20, 2016, the Company issued 330,150 shares of its $0.0001 par value common stock at a price of $0.20 for $66,030. During the three months ended March 31, 2017, the Company recorded an $800 increase to additional paid-in capital to true up such balance. The shares were sold pursuant to the Company’s effective registration statement. $5,000 of such funds were received in February and March 2017.
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 the Company’s minority shareholder. Total inventory purchased was $154,890 and $564,444 for the three months ended March 31, 2017 and for the year ended December 31, 2016, respectively. The Company owes the Russian affiliate $8,686 and $33,726 and such amount is included in related party payables in the accompanying balance sheet at March 31, 2017 and December 31, 2016, respectively. The related payable balance is related to research and development costs incurred in 2016.
Since inception, the Company has not compensated its CEO, who is the majority shareholder, and, as of March 31, 2017 and December 31, 2016, is due approximately $20,000 and approximately $44,000, respectively, for expenses paid by the shareholder on behalf of the Company.
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NOTE 6– COMMITMENTS AND CONTINGENCIES
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–GOING CONCERN
The Company’s financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. While the Company has established sources of capital to cover its operating costs, it incurred a loss in 2016 and cannot support a salary for its CEO, which causes substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to implement its business plan. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
Management intends to focus on raising funds going forward. The Company cannot provide any assurance or guarantee that it will be able to raise funds. Potential investors must be aware if it is unable to raise funds through the sale of its common stock and generate sufficient revenues, any investment made into the Company would be lost in its entirety.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 8–SUBSEQUENT EVENTS
The Company has performed an evaluation of events occurring subsequent to March 31, 2017 through May 19, 2017. Based on its evaluation, there is nothing to be disclosed herein.
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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 ended March 31, 2017 and 2016. 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. In 2012, when a reseller placed an order from us we purchased the product from our related party supplier and have it ship the product directly to the reseller. 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 continued 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. The prices we pay for the products has remained constant since the beginning of 2013.
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 ended March 31, 2017 and 2016, together with notes thereto, which are included in this Quarterly Report on Form 10-Q.
Three months ended March 31, 2017 compared with the three months ended March 31, 2016
Revenues. Our net revenues increased $79,642, or 38.11%, to $288,640 for the three-months ended March 31, 2017 compared with $208,998 for the three-months ended March 31, 2016. The increase in revenues was due to an increase in the sales of our RD1503 model.
Cost of Goods Sold. Our Cost of Goods Sold increased $49,277, or 28.03% to $225,075 for the three months ended March 31, 2017 compared to $175,798 for the comparable period in 2016. The increase is due to an overall increase in sales and the increase of a higher cost unit.
Operating Expenses. For the three-months ended March 31, 2017, our total operating expenses decreased $124, or 0.30%, to $41,572 compared to $41,697 for the three-months ended March 31, 2016. The decrease is attributable to the Company’s decrease in consulting fees offset by an increase in accounting fees.
Net Income (loss). Our net income changed by $30,489, or 358.84%, to a net income of $21,993 for the three-months ended March 31, 2017 compared to a net loss of ($8,497) for the comparable period in 2016. The increase is primarily due to an increase in revenues and a decrease in our cost of goods sold.
Liquidity and Capital Resources. During the three months ended March 31, 2017, 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 $195,823 and $202,253 as of March 31, 2017 and December 31, 2016, respectively, consisting of $87,355 and $67,513, respectively in cash. Our working capital surplus was $145,943 and $123,150 as of March 31, 2017 and December 31, 2016, respectively.
Our total liabilities were $49,880 and $79,103 as of March 31, 2017 and December 31, 2016, respectively.
Our stockholders’ equity was $145,943 and $123,150 as of March 31, 2017 and December 31, 2016, respectively and our retained earnings were $78,413 and $56,420 as of March 31, 2017 and December 31, 2016, respectively.
We provided $14,042 and used $29,674 in cash from operating activities for the three months ended March 31, 2017 and 2016, respectively.
We had no cash provided by investing activities for the three months ended March 31, 2017 and 2016, respectively.
We had $5,800 and $0 cash provided by financing activities for the three months ended March 31, 2017 and 2016, respectively.
We do not have sufficient funds for pursuing our plan of operation, but we are in the process of trying to procure funds sufficient to fund our operations until we are able to finance our operations through cash flow. 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.
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The Company had no formal long-term lines or credit or other bank financing arrangements as of March 31, 2017.
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, 2017.
Plan of Operation
Our business strategy is to continue to market our products on 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: (Estimated cost $40,000-$225,000). 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. We intend to pay for this expense from cash flow from operations.
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.
If we can successfully complete the above goals within the estimated timeframes set forth and are able to raise additional proceeds that may be needed to secure inventory and marketing funds, those funds would be allocated as follows:
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 six (6) 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 six (6) 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.
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Our management does not expect to incur research costs in the next twelve months; we currently do not own any plants or equipment that we would seek to sell soon; we do not have any off-balance sheet arrangements; and we have not paid for expenses on behalf of our directors. Additionally, we believe that this fact shall not materially change. Our majority shareholder and director, Victor Shvetsky, has developed a software program called RadexRead, which is currently being used by Quarta-Rad, Ltd in the manufacture of the RD 1212 product at no cost to the Company.
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, 2016, and Note 1 to the Condensed Financial Statements in this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
Item 4. Controls and Procedures
Disclosure of controls and procedures.
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As required by Rule 13a-15 or Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our principal executive officer and principal accounting officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing evaluation, we have concluded that our disclosure controls and procedures were not effective as of March 31, 2017 and that they do not allow for information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive and Principal Accounting & Financial Officers as appropriate to allow timely decisions regarding required disclosure.
The material weaknesses relate to the following:
| ● | We do not have adequate segregation of duties in the handling of our financial reporting. This is caused by a very limited number of personnel. | |
| ● | Our accounting staff does not have sufficient technical accounting knowledge relating to accounting for income taxes and complex US GAAP matters. | |
Plan for Remediation of Material Weaknesses
We intend to take appropriate and reasonable steps to make the necessary improvements to remediate this deficiency as resources to do so become available. We intend to consider the results of our remediation efforts and related testing as part of our year-end 2017 assessment of the effectiveness of our internal control over financial reporting.
Such remediation would entail enhancing the training and oversight of the accounting personnel responsible for non-routine transactions involving complex accounting matters and engaging the services of an independent consultant with sufficient expertise in income tax and complex US GAAP matters to assist us in the preparation of our financial statements.
Management believes that the aforementioned material weaknesses did not impact our financial reporting or result in a material misstatement of our condensed financial statements.
Changes in internal controls over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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None.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
None.
| (a) | The following exhibits are filed with this quarterly report on Form 10-Q or are incorporated herein by reference: |
| Exhibit | ||
| Number | Description | |
| 31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*. | |
| 31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*. | |
| 32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*. | |
| 32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*. | |
| * | Filed herewith. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| QUARTA-RAD, INC. | |
| May 22, 2017 | /s/ Victor Shvetsky |
| Victor Shvetsky | |
| Chairman and Chief Executive Officer (Principal Executive | |
| Officer) and Chief Financial Officer (Principal Accounting and | |
| Financial Officer) |
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