10-Q: Quarta-Rad Shifts to AI, Faces Mounting Losses

Quarta-Rad, Inc. reports increased consolidated net losses despite significant revenue growth in its AI subsidiary, Sellavir, while its traditional Geiger counter business declines and internal control weaknesses persist.

Summary

• Consolidated net revenues increased by 133.13% to $162,686 for the nine months ended September 30, 2025, primarily driven by the Sellavir segment.
• Consolidated net loss widened by 38.02% to $216,145 for the nine months ended September 30, 2025, largely due to increased operating expenses, including stock-based compensation, in Sellavir.
• The Quarta-Rad segment's revenues decreased by 87.14% to $7,686 for the nine months, attributed to reduced sales of its RD1503 model.
• Sellavir's revenues surged by 1,450.00% to $155,000 for the nine months, but its net loss increased by 87.26% to $90,050.
• The company faces substantial doubt about its ability to continue as a going concern due to recurring operating losses and limited revenues, with current operations funded by the shareholder.
• Management identified material weaknesses in internal control over financial reporting, including inadequate segregation of duties and insufficient technical accounting knowledge.
• A strategic shift is underway from Geiger counter distribution to developing and marketing the AI-driven call center software, CenterEye, with plans to explore a spin-off of current operations.

Sentiment

Score: 3

Explanation: While there's significant revenue growth in the new AI segment, this is overshadowed by substantial increases in net losses, a going concern warning, declining traditional business, and identified material weaknesses in internal controls. The strategic pivot is positive, but execution and profitability remain major concerns.

Positives

• Consolidated net revenues increased by 133.13% to $162,686 for the nine months ended September 30, 2025, compared to $69,783 in the prior year.
• Sellavir segment revenue grew by 1,450.00% to $155,000 for the nine months ended September 30, 2025, indicating strong traction in its new AI services.
• Cash used in operating activities significantly decreased to $29,913 for the nine months ended September 30, 2025, from $87,864 in the prior year, showing improved operational cash efficiency.
• Working capital deficit improved from ($260,907) at December 31, 2024, to ($228,153) at September 30, 2025.
• The company is actively expanding its Artificial Intelligence business, transforming from an import-heavy revenue entity to one focused on AI services.

Negatives

• Consolidated net loss increased by 38.02% to $216,145 for the nine months ended September 30, 2025, compared to $156,604 in the prior year.
• Consolidated net loss for the three months ended September 30, 2025, dramatically increased by 2,454.27% to $66,641 from $2,609 in the comparable period.
• The Quarta-Rad segment's revenues decreased by 87.14% to $7,686 for the nine months ended September 30, 2025, indicating a severe decline in its traditional business.
• Sellavir's net loss increased by 87.26% to $90,050 for the nine months ended September 30, 2025, primarily due to increased operating expenses, including stock-based compensation.
• Cash balance decreased from $63,021 at December 31, 2024, to $33,108 at September 30, 2025.
• Total assets decreased from $577,814 at December 31, 2024, to $376,867 at September 30, 2025.
• Sellavir shifted from a net income of $27,836 in Q3 2024 to a net loss of $38,407 in Q3 2025.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to recurring operating losses and limited revenues.
• The success of the CenterEye call center product depends on the ability to develop features that meet client needs, keep up with technological advancements, and address any software bugs or security vulnerabilities promptly.
• There is no guarantee that CenterEye will achieve market acceptance, and failure to gain traction could adversely affect the company's financial condition and results of operations.
• The Russian invasion of Ukraine has impacted the company's ability to purchase inventory from Russia and diminished its ability to sell in the EU.
• Reliance on a single selling platform/distributor accounted for 100% of accounts receivable at September 30, 2025, creating a concentration of credit risk.
• Material weaknesses in internal control over financial reporting were identified, including inadequate segregation of duties, insufficient technical accounting knowledge, lack of risk assessment, and inadequate entity-level and system/manual controls.
• Significant estimates and judgments are required in the preparation of financial statements, and actual results may differ materially and adversely from these estimates.

Future Outlook

The company plans to expand the development and marketing of CenterEye, its proprietary AI-driven call center software, aiming to enhance efficiency and customer engagement. Efforts will focus on software development, marketing, and establishing partnerships in the U.S., Japan, and other international markets. The company intends to invest in inventory for its Quarta-Rad segment, with an estimated marketing cost of $25,000-$75,000 and client acquisition costs of $20,000 for Sellavir. There are also plans to potentially distribute current operations (Quarta-Rad and Sellavir) in a spin-off to support alternate service lines.

Management Comments

• Management intends to maintain adequate working capital and adhere to prudent financial forecasting to address going concern considerations.
• We are actively developing this software (CenterEye) and pursuing sales opportunities in the U.S., Japan, and other international markets. Recent traction in Japan indicates growing interest in our product.
• The Company is exploring plans to potentially distribute its current operations of both Quarta-Rad and Sellavir and use the company to support operations in alternate services lines.
• Our management does not anticipate the need to hire additional full or part-time employees over the next three (3) months, as the services provided by our officers and directors and our independent contractor appear sufficient at this time.
• Management believes that the aforementioned material weaknesses did not impact our financial reporting or result in a material misstatement of our condensed financial statements.

Industry Context

The company's strategic pivot towards AI-driven call center software, specifically CenterEye, aligns with broader industry trends of digital transformation and the increasing adoption of artificial intelligence in customer service and operational efficiency. The shift from traditional on-premise solutions to cloud-hosted platforms in the call center industry presents a significant market opportunity for Sellavir. While the traditional Geiger counter market faces supply chain challenges and diminished EU sales due to geopolitical events, the AI sector offers higher growth potential, albeit with intense competition and the need for continuous innovation to meet evolving client needs and technological advancements.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to global benchmarks for direct comparison.
• The significant revenue growth in the AI segment (Sellavir) is positive, but the substantial increase in net losses, largely due to stock-based compensation, suggests that profitability is not yet aligned with industry leaders in the AI software space.
• The identified material weaknesses in internal controls, particularly regarding segregation of duties and technical accounting knowledge, are below industry best practices for publicly traded companies, regardless of size.
• The 'going concern' warning is a critical indicator of financial distress, which is a significant deviation from the stability expected of established industry players.

Management Changes

Corporate Governance

Legal Proceedings

• None.

Related Party Transactions

• Sellavir entered into a loan agreement with a related Thai Corporation for $261,038 (9,000,000 Thai Bhat) in March 2023, with the CEO becoming a minority shareholder in May 2023. The interest rate was reduced from 15% to 10% in January 2024, and Sellavir is to receive 3% of the selling price of the secured property. Payments are deferred until April 1, 2027.
• An additional loan of $175,000 was issued to the Thai Corporation in May 2023, also with a 15% interest rate, reduced to 10% in January 2024, and 3% of the selling price. Payments are deferred until April 1, 2027.
• During March 2025, the second note of $164,375 and accrued interest of $35,000 was assigned to the CEO to satisfy certain obligations, finalized in May 2025.
• The company owes Star Systems Corporation (owned by the majority shareholder) $42,502 as of September 30, 2025, for inventory and upgrades from 2022.
• The company owes a Russian affiliate $91,850 as of September 30, 2025, for software development from an agreement that ended December 31, 2019.
• The CEO's compensation was $8,000 for the three months and $24,000 for the nine months ended September 30, 2025. Accrued CEO compensation was $109,000 as of September 30, 2025.
• The CEO advanced funds for operations and is due $6 as of September 30, 2025.
• Sellavir recognized $60,000 (3 months) and $155,000 (9 months) of revenue from contract services to STAR (CEO is majority shareholder) to develop software.
• The current shareholder is funding operations due to the company's going concern issues.

Stakeholder Impact

• Shareholders face significant dilution risk from stock-based compensation and potential future capital raises. The 'going concern' warning indicates high financial risk. The strategic shift to AI could offer long-term growth but carries execution risk.
• Employees/Consultants: Sellavir consultants received substantial stock-based compensation, aligning their interests with the company's growth.
• Customers: Quarta-Rad customers may face supply chain issues due to geopolitical restrictions. Sellavir customers (call centers) could benefit from new AI-driven solutions if CenterEye gains market acceptance.
• Creditors: Related party creditors (Thai Corporation, CEO) have had loan terms modified and payments deferred, indicating potential repayment challenges.
• Regulatory Authorities: The identified material weaknesses in internal controls will require remediation and ongoing scrutiny.

Next Steps

• Continue to invest in the development and enhancement of CenterEye software, including adding new features, improving user experience, and ensuring scalability.
• Increase marketing efforts for CenterEye on the Internet and develop marketing materials for industry professionals (estimated cost $25,000-$75,000).
• Establish partnerships with call center operators and technology resellers, and secure pilot projects for CenterEye (estimated cost $20,000).
• Purchase inventory to increase sales for the Quarta-Rad segment.
• Remediate identified material weaknesses in internal control over financial reporting by enhancing training, oversight, and potentially engaging independent consultants.
• Explore plans to distribute current operations (Quarta-Rad and Sellavir) in a spin-off.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a 'going concern' warning, substantial and increasing net losses, and a declining traditional business segment. While the AI segment shows revenue growth, it is not yet profitable and contributes significantly to the overall losses due to high operating expenses, including stock-based compensation. The identified material weaknesses in internal controls raise concerns about financial reporting reliability. Extensive related-party transactions, including deferred loan payments and assignment of notes to the CEO, add to governance concerns. The strategic pivot to AI is a long-term play with significant execution risk, and current financial health suggests a high probability of further dilution or financial restructuring. Investors should consider selling to mitigate exposure to these substantial risks.

Keywords

Quarta-Rad, Sellavir, AI, Call Center Software, CenterEye, Geiger Counter, SEC Filing, 10-Q, Financial Results, Going Concern, Related Party Transactions, Internal Controls, Stock-based Compensation, Radiation Detection, Video Analytics, Artificial Intelligence