10-Q: Quarta-Rad Shifts Focus to AI Software, Faces Revenue Dip

Quarta-Rad, Inc. reports a 21.38% decrease in net revenues for Q1 2026, driven by the wind-down of its legacy radiation detection business and a strategic pivot towards AI-driven software solutions via its subsidiary, Sellavir, Inc.

Summary

• Quarta-Rad, Inc. reported a net loss of $104,178 for the first quarter ended March 31, 2026, an increase from $77,409 in the same period of 2025.
• Total net revenues decreased by 21.38% to $25,856 for Q1 2026, compared to $32,887 for Q1 2025, primarily due to the phase-out of the Quarta-Rad legacy business and timing of Sellavir revenue recognition.
• Operating expenses increased by 14.24% to $101,147 in Q1 2026, up from $88,537 in Q1 2025, largely attributed to Sellavir's operational costs.
• The company continues to face substantial doubt about its ability to continue as a going concern due to recurring operating losses and negative cash flows.
• Management plans to address going concern issues through continued software development, strategic partnerships, customer acquisition, and potential additional capital raises.
• The company has identified material weaknesses in its internal controls over financial reporting, including inadequate segregation of duties and insufficient technical accounting knowledge.
• Quarta-Rad is actively winding down its legacy radiation detection equipment business to focus on Sellavir's AI-driven software solutions for the call center and customer engagement industry, specifically the CenterEye platform.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to increased net losses, declining revenues, and significant going concern and internal control issues, despite the strategic shift to AI.

Positives

• Sellavir, Inc., the AI software subsidiary, generated $25,000 in revenue in Q1 2026, contributing significantly to the company's ongoing operations.
• The company is actively developing and commercializing its AI-driven software platform, CenterEye, with plans for enhanced features and marketing efforts.
• Management is pursuing strategic partnerships and client acquisition for CenterEye, aiming to establish recurring revenue opportunities.
• The company's majority shareholder has historically provided financial support and may continue to do so, mitigating immediate liquidity concerns.

Negatives

• Net loss increased by 34.58% to $104,178 in Q1 2026 compared to $77,409 in Q1 2025.
• Total net revenues decreased by 21.38% to $25,856 in Q1 2026.
• Operating expenses increased by 14.24% to $101,147 in Q1 2026.
• The company has a working capital deficit of $293,847 as of March 31, 2026.
• Cash used in operating activities was $58,341 in Q1 2026, compared to $13,267 in Q1 2025.
• Substantial doubt exists about the company's ability to continue as a going concern within one year.
• Material weaknesses in internal controls over financial reporting have been identified, including inadequate segregation of duties and insufficient technical accounting knowledge.

Risks

• The company's future success depends on its ability to successfully develop, commercialize, and achieve market acceptance of its AI-driven software products and services.
• The company operates in a rapidly evolving and highly competitive industry characterized by changing technologies, evolving customer requirements, and frequent introductions of new products and services.
• The success of the CenterEye platform depends on the company's ability to develop features that meet customer needs, maintain compatibility with third-party platforms, respond to technological advancements, and address software defects, cybersecurity risks, and operational challenges in a timely manner.
• There can be no assurance that the company will successfully commercialize CenterEye or achieve significant market acceptance, which could adversely affect its financial condition, results of operations, and future growth prospects.
• The company's majority shareholder has historically provided financial support, and its continued support is not guaranteed.
• The company is evaluating strategic alternatives for its legacy operations, including potential separation or spin-off, which could introduce further uncertainty.
• The company has identified material weaknesses in its internal controls over financial reporting, which could lead to errors in financial reporting.

Future Outlook

The company intends to continue investing in the development and enhancement of CenterEye, increase marketing efforts, and pursue strategic relationships with call center operators, technology providers, and resellers. Management anticipates these efforts will lead to initial software deployments and support future recurring revenue opportunities. The company also continues to evaluate strategic alternatives for its legacy operations.

Management Comments

• Management believes that the identified material weaknesses in internal controls did not impact the financial reporting or result in a material misstatement of the condensed financial statements.
• Management intends to take appropriate and reasonable steps to make the necessary improvements to remediate deficiencies in internal controls as resources become available.
• Management is actively pursuing opportunities in the United States, Japan, and other international markets through reseller relationships and direct marketing efforts for CenterEye.

Industry Context

StockSavvy.ai notes that Quarta-Rad's strategic pivot towards AI-driven software solutions for the call center industry aligns with broader market trends favoring automation and enhanced customer engagement technologies. However, the company faces intense competition in this rapidly evolving sector.

Comparison to Industry Standards

• The company's revenue decline of 21.38% in Q1 2026 is concerning, especially when compared to the growth often seen in the AI and software sectors, where many companies are experiencing double-digit or even triple-digit revenue increases.
• The net loss of $104,178 in Q1 2026, coupled with a working capital deficit of $293,847, highlights significant financial challenges. Many emerging AI companies, while also investing heavily, are typically showing a clearer path to profitability or are supported by substantial venture capital funding rounds that are not evident here.
• The identified material weaknesses in internal controls are a significant concern. Industry best practices and established companies typically maintain robust internal controls to ensure financial reporting reliability, a standard Quarta-Rad appears to be struggling to meet.

Corporate Governance

Legal Proceedings

• The company knows of no pending or threatened legal proceedings that, if successful, might result in a material adverse change in the company's business, properties, or financial condition.

Related Party Transactions

• Sellavir entered into a loan agreement with a related Thai corporation for land purchase, with amendments to interest rates and participation in property sale.
• A second loan was issued to the same related Thai corporation, also amended for interest rates and payment due dates.
• A portion of the second note receivable and accrued interest was assigned to the Company's CEO in satisfaction of accrued compensation and advances.
• Amounts are due to Star Systems Corporation (STAR), a Japanese entity owned by the majority shareholder, for inventory purchases.
• Amounts payable relate to a software development agreement with QRR, a former minority shareholder's company.
• Compensation expense recognized for the Chief Executive Officer (CEO), who is also the majority shareholder.
• Advances made by the CEO on behalf of the Company for operating expenses.
• Sellavir recognized software development and consulting revenue from STAR, which is majority-owned by the Company's CEO.

Stakeholder Impact

• Shareholders: Increased net loss and going concern issues may negatively impact share value and investor confidence. The strategic shift to AI offers potential long-term upside but carries significant execution risk.
• Employees: The company does not anticipate the need to hire additional full-time employees in the next three months, indicating a lean operational structure. Future growth in AI may require specialized hires.
• Creditors: The company's working capital deficit and going concern status could raise concerns for creditors regarding timely repayment of obligations.
• Suppliers: No specific impact mentioned, but continued operations depend on financial stability.

Next Steps

• Continue development and enhancement of the CenterEye platform.
• Increase marketing efforts for CenterEye and related software solutions.
• Pursue strategic relationships with call center operators, technology providers, and resellers.
• Evaluate strategic alternatives for legacy operations.
• Implement remediation steps for material weaknesses in internal controls.

Key Dates

Recommendation

The company is undergoing a significant strategic shift towards AI, which has long-term potential. However, the current financial performance shows worsening losses, declining revenues, and critical going concern and internal control issues. A 'hold' recommendation reflects the speculative nature of the AI pivot balanced against the immediate financial and operational risks.

Keywords

Quarta-Rad, Sellavir, AI Software, Call Center Solutions, CenterEye Platform, Quarterly Report, SEC Filing, Financial Statements, Going Concern, Internal Controls