Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2015 | Aug. 11, 2015 | |
Document and Entity Information | ||
Entity Registrant Name | QUEST SOLUTION, INC. | |
Entity Central Index Key | 278,165 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2015 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Trading Symbol | QUES | |
Entity Common Stock, Shares Outstanding | 36,616,495 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,015 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Jun. 30, 2015 | Dec. 31, 2014 |
Current assets | ||
Cash | $ 322,317 | $ 233,741 |
Accounts receivable, net of allowances of $35,990 and $62,800, respectively | 10,109,443 | 9,099,229 |
Inventory | 383,350 | 606,231 |
Prepaids | 669,887 | 191,498 |
Other current assets | 167,958 | 377,060 |
Total current assets | 11,652,955 | 10,507,759 |
Fixed assets, net of accumulated depreciation of $1,818,516 and $1,781,086, respectively | 173,152 | 206,662 |
Deferred tax asset | 1,299,417 | 1,299,417 |
Goodwill | 14,101,306 | 14,101,306 |
Trade name | 2,700,000 | 2,700,000 |
Intangibles, net | 458,435 | 466,870 |
Customer Relationships | 4,390,000 | 4,390,000 |
Other assets | 593,308 | 317,304 |
Total assets | 35,368,573 | 33,989,318 |
Current liabilities | ||
Accounts payable and accrued liabilities | 8,564,562 | 7,406,146 |
Accrued interest and liabilities, related party | 278,770 | 51,806 |
Line of credit | 1,718,128 | 1,819,345 |
Advances, related party | 400,000 | 50,000 |
Accrued payroll and sales tax | 1,661,789 | 917,079 |
Deferred revenue, net | 804,584 | 297,277 |
Current portion of note payable | 150,000 | 310,000 |
Notes payable, related parties, current portion | 2,799,226 | 4,201,650 |
Other current liabilities | 403,608 | 548,425 |
Total current liabilities | 16,780,667 | 15,601,353 |
Long term liabilities | ||
Note payable, related party, net of debt discount | $ 17,076,599 | 17,007,175 |
Deferred tax liability | 29,783 | |
Other long term liabilities | $ 314,453 | 157,495 |
Total liabilities | 34,171,719 | 32,795,806 |
Stockholders' equity | ||
Preferred stock; $0.001 par value; 25,000,000 shares authorized 500,000 and 500,000 shares outstanding as of June 30, 2015 and December 31, 2014, respectively. | 500 | 500 |
Common stock; $0.001 par value; 100,000,000 shares authorized; 36,616,495 and 35,029,495 shares outstanding of June 30, 2015 and December 31, 2014, respectively. | 36,616 | 35,029 |
Additional paid-in capital | 18,609,425 | 17,900,139 |
Accumulated (deficit) | (17,449,687) | (16,742,156) |
Total stockholders' equity | 1,196,854 | 1,193,512 |
Total liabilities and stockholders' equity | $ 35,368,573 | $ 33,989,318 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) | Jun. 30, 2015 | Dec. 31, 2014 |
Statement of Financial Position [Abstract] | ||
Allowance of accounts receivable | $ 35,950 | $ 62,800 |
Accumulated depreciation of fixed assets | $ 1,818,516 | $ 1,781,086 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 25,000,000 | 25,000,000 |
Preferred stock, shares outstanding | 500,000 | 500,000 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares outstanding | 36,616,495 | 35,029,495 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2015 | Jun. 30, 2014 | Jun. 30, 2015 | Jun. 30, 2014 | |
Revenues | ||||
Gross Sales | $ 13,731,186 | $ 7,516,700 | $ 24,443,202 | $ 17,166,965 |
Less sales returns, discounts, & allowances | (173,571) | (82,454) | (209,617) | (110,559) |
Total Revenues | 13,557,615 | 7,434,246 | 24,233,585 | 17,056,406 |
Cost of goods sold | ||||
Cost of goods sold | $ 10,226,805 | 5,726,660 | $ 18,508,170 | 13,013,983 |
Cost of goods sold, related party | 347,262 | 694,523 | ||
Total costs of goods sold | $ 10,226,805 | 6,073,922 | $ 18,508,170 | 13,708,506 |
Gross profit | 3,330,810 | 1,360,324 | 5,725,415 | 3,347,900 |
Operating expenses | ||||
General and administrative | 795,026 | 255,538 | 1,807,520 | 500,693 |
Salary and employee benefits | 1,854,620 | 1,261,297 | 3,179,052 | 2,643,013 |
Depreciation and amortization | 20,368 | 2,928 | 45,864 | 10,822 |
Stock compensation | 420,253 | 5,586 | 458,877 | 30,085 |
Professional fees | 108,083 | 137,989 | 196,563 | 267,764 |
Total operating expenses | 3,198,400 | 1,663,338 | 5,687,876 | 3,452,377 |
Income (loss) from operations | $ 132,410 | $ (303,014) | $ 37,539 | (104,477) |
Other income (expenses): | ||||
Gain on debt settlement | 151,949 | |||
Loss on license settlement | (93,578) | |||
Loss on note receivable settlement | $ (18,995) | |||
Taxes | $ (64,322) | $ (64,209) | ||
Interest expense | (342,794) | $ (400) | (738,066) | $ (1,000) |
Other expenses | (38,093) | (38,485) | ||
Other income | 27,350 | $ 41,109 | 95,690 | $ 50,215 |
Total other income (expenses) | (417,859) | 40,709 | (745,070) | 88,591 |
Net Loss Before Income Taxes | $ (285,449) | $ (262,305) | $ (707,531) | $ (15,886) |
(Provision) Benefit for Income Taxes | ||||
Deferred | ||||
Current | ||||
Net income (loss) | $ (285,449) | $ (262,305) | $ (707,531) | $ (15,886) |
Net income (loss) per share - basic | $ (0.01) | $ (0.01) | $ (0.02) | $ 0 |
Net income (loss) per share - diluted | $ (0.01) | $ (0.01) | $ (0.02) | $ 0 |
Weighted average number of common shares outstanding - basic | 35,414,484 | 35,510,416 | 35,224,128 | 33,385,416 |
Weighted average number of common shares outstanding - diluted | 40,219,637 | 35,510,416 | 40,219,637 | 33,385,416 |
Condensed Consolidated Stateme5
Condensed Consolidated Statement of Cash Flow (Unaudited) - USD ($) | 6 Months Ended | |
Jun. 30, 2015 | Jun. 30, 2014 | |
Cash flows from operating activities: | ||
Net loss | $ (707,531) | $ (15,886) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Stock based compensation - shares for services | 434,119 | 20,800 |
Warrants granted | $ 19,758 | 13,663 |
License settlement | 93,578 | |
Loss on cancelled shares | $ (105,901) | |
Debt discount accretion | $ 400,000 | |
Depreciation and amortization | $ 45,864 | $ 1,473 |
Loss on receivable settlement | (37,491) | |
Loss on note receivable settlement | 18,995 | |
Bad debt expense | 1,559 | |
Changes in operating assets and liabilities: | ||
(Increase) / decrease in accounts receivable | $ (1,010,214) | (975,866) |
(Increase) / decrease in prepaid | $ (404,523) | 66,131 |
(Increase) / decrease in prepaid, related party | $ 694,523 | |
(Increase) / decrease in inventory | $ 222,881 | |
(Increase) / decrease in customer deposit | 5,275 | $ (2,007) |
Increase / (decrease) in accounts payable and accrued liabilities | 1,758,310 | $ 333,627 |
increase in deferred revenues, net | 507,307 | |
Increase / (decrease) in accrued interest and liabilities, related party | 226,964 | $ (25,808) |
(Increase) / decrease in salary payable, related party | 90,000 | |
(Increase) / decrease in other liabilities | $ 127,175 | 62,249 |
Increase / (decrease) in advances from related party | 112 | |
Net cash provided by (used in) operating activities | $ 1,625,385 | 233,751 |
Cash flows from investing activities: | ||
(Purchase of) cash from acquisitions | 1,950,120 | |
Change in other assets | $ (71,802) | $ 4,262 |
(Purchase of) Sale of property and equipment | (20,789) | |
Net cash provided by (used in) investing activities | $ (92,591) | $ 1,954,382 |
Cash flows from financing activities: | ||
Proceeds from loan receivable | 78,000 | |
Proceeds from note receivable | 4,500 | |
Proceeds from notes payable | $ 350,000 | |
Proceeds (payment) on line of credit | (101,217) | (60,000) |
Repayment of notes/loans payable | (1,893,000) | $ (1,325,000) |
Proceeds from shares sold | 200,000 | |
Net cash provided by (used in) financing activities | (1,444,217) | $ (1,302,500) |
Net (decrease) increase in cash | 88,576 | 885,633 |
Cash, beginning of period | 233,741 | 13,302 |
Cash, end of period | 322,317 | $ 898,935 |
Cash paid for interest | 34,708 | |
Cash paid for taxes | 49,484 | |
Supplementary cash flow information: | ||
Stock issued for services | 294,614 | $ 41,900 |
Stock options vested during period | 139,505 | |
Warrants issued | $ 19,758 | $ 13,663 |
Basis of Presentation and Summa
Basis of Presentation and Summary of Significant Accounting Policies | 6 Months Ended |
Jun. 30, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation and Summary of Significant Accounting Policies | NOTE 1 BASIS OF PRESENTATION AND Summary of Significant Accounting Policies BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The interim consolidated financial statements of Quest Solution, Inc. include the combined accounts of Quest Marketing, Inc., an Oregon corporation and Bar Code Specialties, Inc., (BCS) a California corporation. BCS was acquired on November 21, 2014, and the operating results of BCS have been consolidated into the Companys consolidated results of operations beginning on November 22, 2014. The companies currently operate as a single business unit under the Quest Solution brand. All material intercompany transactions and accounts have been eliminated in consolidation. The interim consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles (GAAP) and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2014 and notes thereto included in the Companys Form 10-K. The Company follows the same accounting policies in the preparation of interim reports. Operating results for the six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. Summary of Significant Accounting Policies This summary of significant accounting policies of Quest Solution, Inc. is presented to assist in understanding the Companys consolidated financial statements. The consolidated financial statements and notes are representations of the Companys management who are responsible for the integrity and objectivity of the financial statements. These accounting policies conform to GAAP and have been consistently applied in the preparation of the financial statements. Cash Cash consists of petty cash, checking, savings, and money market accounts. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of June 30, 2015 and December 31, 2014. The Company maintains its cash in bank deposit accounts which, at times, may exceed federal insured limits. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. The Company evaluates its estimates and assumptions on a regular basis. The Company uses historical experience and various other assumptions that are believed to be reasonable under the circumstances to form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates and assumptions used in preparation of the consolidated financial statements. PURCHASE ACCOUNTING AND BUSINESS COMBINATIONS The Company accounts for its business combinations using the purchase method of accounting which requires that intangible assets be recognized apart from goodwill if they are contractual in nature or separately identifiable. Acquisitions are measured on the fair value of consideration exchanged and, if the consideration given is not cash, measurement is based on the fair value of the consideration given or the fair value of the assets acquired, whichever is more reliably measurable. The excess of cost of an acquired entity over the fair value of identifiable acquired assets and liabilities assumed is allocated to goodwill. The valuation and allocation process relies on significant assumptions made by management. In certain situations, the allocations of excess purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision when the Company receives updated information, including appraisals and other analyses, which are completed within one year of the acquisition. Revisions to the fair values, which may be significant, are recorded when pending information is finalized, within one year from the acquisition date. ACCOUNTS RECEIVABLE Accounts receivable are carried at their estimated collectible amounts. The Company provides allowances for uncollectible accounts receivable equal to the estimated collection losses that will be incurred in collection of all receivables. Accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. The Companys management determines which accounts are past due and if deemed uncollectible, the Company charges off the receivable in the period the determination is made. The Company generally requires no collateral to secure its ordinary accounts receivable. At June 30, 2015 and December 31, 2014, accounts receivable 90 days past due totaled $643,012 and $118,913, respectively. Based on managements evaluation, accounts receivable has a balance in the allowance for doubtful accounts of $35,990, and $66,215 for the period ending June 30, 2015 and December 31, 2014, respectively. PROPERTY AND EQUIPMENT Property and equipment are stated at purchased cost and depreciated using both straight-line and accelerated methods over estimated useful lives ranging from 3 to 10 years. Upon disposition of property and equipment, related gains and losses are recorded in the results of operations. Depreciation expense for period ending June 30, 2015 and December 31, 2014 was $37,429 and $16,222, respectively. For federal income tax purposes, depreciation is computed using the modified accelerated cost recovery system. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred. INTANGIBLE ASSETS Intangible assets are stated at cost, net of accumulated amortization. The intangible assets are being amortized on the straight-line method over useful lives ranging from 3 to 10 years. Amortization expense for the period ending June 30, 2015 and December 31, 2014 was $8,436 and $9,376, respectively. June 30, 2015 December 31, 2014 Software $ 1,276,524 $ 1,276,524 Licenses 450,000 450,000 Accumulated amortization (1,268,089 ) (1,259,654 ) Intangibles, net $ 458,435 $ 466,870 Total expected amortization expense for the next 2 years are as follows: Years ending December 31, 2015 8,435 2016 16,845 Total $ 25,280 The Company has made a significant investment in software over the years. This amount is treated as intangible assets which are being amortized over the expected useful life. Intangible assets are evaluated annually for potential impairment. Purchased intangible assets with finite useful lives are amortized over their respective estimated useful lives (using an accelerated method for customer relationships and trade names) to their estimated residual values, if any. The Companys finite-lived intangible assets consist of customer relationships, contractor and resume databases, trade names, and internal use software and are being amortized over periods ranging from two to nine years. Purchased intangible assets are reviewed annually to determine if facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, recoverability is assessed by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the rate of amortization is accelerated and the remaining carrying value is amortized over the new shorter useful life. No impairments were identified or changes to estimated useful lives have been recorded. DEFERRED FINANCING COSTS Deferred Financing Costs incurred by the Company in connection with the issuance of debt and the bank credit facility are deferred and amortized to interest expense over the life of the underlying indebtedness using the straight line method. SHIPPING AND HANDLING COSTS The Company classifies shipping and handling costs for purchases of raw materials and freight out net of freight charged to customers as a component of cost of goods sold. Total delivery costs for the three months ending June 30, 2015 and June 30, 2014 were $25,066 and $654 respectively. ADVERTISING The Company generally expenses advertising costs as incurred. During the three months ending June 30, 2015 and June 30, 2014, the Company spent $51,487 (marketing, trade show and store front expense) and $47,797 on advertising, net of co-operative rebates, respectively. The Company received rebates from co-operative advertising agreements with several vendors and suppliers. These rebates have been recorded as a reduction to the related advertising and marketing expense in the period earned. INVENTORY Substantially all inventory consists of raw materials and finished goods and are valued based upon first-in first-out (FIFO) cost, not in excess of market. The determination of whether the carrying amount of inventory requires a write-down is based on a detailed evaluation of inventory relative to any potential slow moving products or discontinued items as well as the market conditions for the specific inventory items. DEPRECIATION AND AMORTIZATION Depreciation and amortization expense primarily consists of the non-cash write-down of tangible and intangible assets over their expected economic lives. We expect this expense to continue to grow in absolute dollars and potentially as a percentage of revenue as we continue to grow and incur capital expenditures to improve our technological infrastructure and acquire assets through potential future acquisitions. Fair Value of Financial Instruments The Companys financial instruments include cash, accounts receivable, accounts payable, and notes payable. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at June 30, 2015 and December 31, 2014. The Company did not engage in any transaction involving derivative instruments. As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on 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 require the reporting entity to develop its own assumptions. The three levels of the fair value hierarchy are described below: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). REVENUE RECOGNITION Recurring technology, deferred maintenance service agreements and contract service revenue consists of subscription-based fees, software subscription license fees, software maintenance fees and hosting fees related to the use of our solution to manage our customers communications expenses, as well as fees for perpetual software licenses, professional services and products sold. We recognize revenue when persuasive evidence of an arrangement exists, pricing is fixed and determinable, collection is reasonably assured and delivery or performance of service has occurred. Recurring technology and services subscription-based fees, software subscription license fees, software maintenance fees and hosting fees are recognized ratably over the term of the period of service. The subscription-based services we provide include help desk, staging, carrier activations and provisioning. Sales revenue is recognized upon the shipment of merchandise to customers. The Company recognizes revenues from software sales when software products are shipped. Software license fees consist of fees paid for a perpetual license agreement for our technology, which are recognized in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC 605, Software Revenue Recognition, as amended. Professional services related to the implementation of our software products, which we refer to as consulting services, are generally performed on a fixed fee basis under separate service arrangements. Consulting services revenue is recognized as the services are performed by measuring progress towards completion based upon either costs or the achievement of certain milestones. NET INCOME (LOSS) PER COMMON SHARE Net loss per share is provided in accordance with FASB ASC 260-10, Earnings per Share. Basic net loss per common share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless doing so is anti-dilutive. The weighted-average number of common shares outstanding for computing basic EPS as of June 30, 2015 and December 31, 2014 were 35,414,484 and 33,362,776, respectively. The fully diluted number of 40,219,637, includes the potential of the existing senior subordinated debt holders converting a portion of their debt into common shareholder equity at $1.00 per share (for $2,656,382 in debt) and $2.00 per share (for $1,962,382 in debt). Despite the fact the conversion is out of the money, accounting rules require these amounts to be included in diluted shares outstanding. Additional terms of the debt would require the Board of Directors to consent to any debt holder converting and having a position greater than 4.99% outstanding on the date of conversion. GOODWILL Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill is tested annually at December 31 for impairment. The annual qualitative or quantitative assessments involve determining an estimate of the fair value of reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill exists. A qualitative assessment evaluates whether it is more likely than not that a reporting units fair value is less than its carrying amount before applying the two-step quantitative goodwill impairment test. The first step of a quantitative goodwill impairment test compares the fair value of the reporting unit to its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss may be recognized. The amount of impairment loss is determined by comparing the implied fair value of reporting unit goodwill with the carrying amount. If the carrying amount exceeds the implied fair value then an impairment loss is recognized equal to that excess. No impairment charges have been recorded as a result of the Companys annual impairment assessments. We test our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our testing determines the recorded amount of goodwill exceeds the fair value. Our annual measurement date for testing goodwill impairment is December 31, at which date we test our reporting units, which is currently our ownership in Quest Solution, Inc. INCOME TAXES The Company accounts for its income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. 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 operations in the period that includes the enactment date. Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for consolidated financial reporting purposes and such amounts recognized for tax purposes, and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse. The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company has evaluated the deferred income taxes with regards to Section 382 of the Internal Revenue Code and has determined no limitations on the use of net operating loss carryforwards exist at June 30, 2015. STOCK-BASED COMPENSATION The Company recognizes stock-based compensation in accordance with ASC Topic 718 Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values. For non-employee stock-based compensation, we have adopted ASC Topic 505 Equity-Based Payments to Non-Employees, which requires stock-based compensation related to non-employees to be accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable in accordance with ASC Topic 718. RECENT ACCOUNTING PRONOUNCEMENTS The Company has evaluated the recent pronouncements and believes that none of them will have a material effect on the Companys financial statements. |
Concentrations
Concentrations | 6 Months Ended |
Jun. 30, 2015 | |
Risks and Uncertainties [Abstract] | |
Concentrations | NOTE 2 CONCENTRATIONS Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash, accounts receivable, and accounts payable. Beginning January 1, 2015, all of our cash balances were insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor at each financial institution. This coverage is available at all FDIC member institutions. The Company uses Wells Fargo Bank, which is an FDIC insured institution. Based on these facts, collectability of bank balances appears to be adequate. For the quarter and year ending June 30, 2015 and December 31, 2014, one customer accounted for 12.7% and another customer in 2014 accounted for 16% of the Companys net revenues, respectively. Accounts receivable at June 30, 2015 and December 31, 2014 are made up of trade receivables due from customers in the ordinary course of business. One customer made up 14% and another customer 34% of the trade accounts receivable balances at June 30, 2015 and December 31, 2014, respectively. Accounts payable are made up of payables due to vendors in the ordinary course of business at June 30, 2015 and December 31, 2014. One vendor made up 74% and 82%, respectively of the outstanding balance, which represented greater than 10% of accounts payable at June 30, 2015 and December 31, 2014, respectively. |
Inventory
Inventory | 6 Months Ended |
Jun. 30, 2015 | |
Inventory Disclosure [Abstract] | |
Inventory | NOTE 3 INVENTORY At June 30, 2015 and December 31, 2014, inventories consisted of the following: June 30, 2015 December 31, 2014 Equipment held for resale $ 85,324 $ 45,011 Raw Materials 133,167 44,216 Work in Progress 101,826 18,623 Finished goods 63,033 487,317 Clearing service 0 11,064 Total inventories $ 383,350 $ 606,231 |
Cost of Goods Sold, Related Par
Cost of Goods Sold, Related Party | 6 Months Ended |
Jun. 30, 2015 | |
Related Party Transactions [Abstract] | |
Cost of Goods Sold, Related Party | NOTE 4 COST OF GOODS SOLD, RELATED PARTY At the acquisition of Quest Marketing on January 1, 2014, there was $1,273,292 of related party prepaid expenses for business related insurance policies Quest Marketing previously maintained insurance policies with an insurance company for which the stockholders also own. The Company deemed this to be a related party and the insurance expenses paid during 2013 which was for 2014 coverage while not a cash expense for 2014, was taken as an expense from January 2014 through November 2014. The amount of expense was $1,273,292 in prepaid expenses for insurance coverage, paid in 2013, for 2014 coverage. As of January 1, 2014, the Company did not be renew any of these policies now that they have expired. For the six months ended June 30, 2014, the Company recorded $347,261 of expense related to this, as opposed to $0 recorded during the six months ended June 30, 2015. |
Prepaids
Prepaids | 6 Months Ended |
Jun. 30, 2015 | |
Prepaid Expense, Current [Abstract] | |
Prepaids | NOTE 5 PREPAIDS The Company currently has $669,887 and $191,498 of expenses that were prepaid as of June 30, 2015 and December 31, 2014, respectively which we expect to expense during 2015. The Company issued shares of restricted common stock to consultants during the quarter, for which $293,232 of the expense is in prepaid expense and to be expensed over the course of the remainder of the 12 month contracts. |
Other Liabilities
Other Liabilities | 6 Months Ended |
Jun. 30, 2015 | |
Other Liabilities Disclosure [Abstract] | |
Other Liabilities | NOTE 6 OTHER LIABILITIES In connection with the BCS acquisition the Company assumed a related party note payable to the former Chief Technology Officer of the RFID division of BCS. The note is payable in equal monthly installments of $4,758 beginning October 31, 2014 and ending October 2018. The loan bears interest at 1.89% and is unsecured and subordinated to the companys bank debt. |
Profit Sharing Plan
Profit Sharing Plan | 6 Months Ended |
Jun. 30, 2015 | |
Compensation Related Costs [Abstract] | |
Profit Sharing Plan | NOTE 7 PROFIT SHARING PLAN The Company maintains a contributory profit sharing plan covering substantially all fulltime employees within the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). The Company is required to make a safe harbor non-elective contribution equal to 3% of a participants compensation. The plan also includes a 401(k) savings plan feature that allows substantially all employees to make voluntary contributions and provides for discretionary matching contributions determined annually by the Board of Directors. Company safe harbor contributions were $98,066 for 2014 and paid in 2015. BCS also has a Safe Harbor plan within the requirements of ERISA that provides matching contributions equal to 100% of the employee deferred contribution up to 3% of the compensation, plus 50% of the deferred contributions that exceed 3% up to 5% of total participant compensation. The BCS matching contributions for the six months ending June 30, 2015 were $35,336. |
Accrued Expenses and Other Curr
Accrued Expenses and Other Current Liabilities | 6 Months Ended |
Jun. 30, 2015 | |
Payables and Accruals [Abstract] | |
Accrued Expenses and Other Current Liabilities | NOTE 8 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following: June 30, 2015 December 31, 2014 Salaries, commissions, benefits and sales tax $ 1,661,789 $ 917,079 Other current liabilities 403,608 845,327 Total accrued expenses and other current liabilities $ 2, 065,397 $ 1,762,406 Deferred revenue consists of prepaid third party hardware service agreements, software maintenance service contracts and the related costs and expenses recorded net of the revenue charged to the customer and paid within normal business terms. The net amount recorded as a deferred revenue liability is being amortized into the results of operations over the related periods on a straight line basis, normally 1-5 years with 3 years being the average term. June 30, 2015 December 31, 2014 Deferred revenue $ 7,272,469 . $ 3,793,181 Less deferred costs and expenses (6,467,885) (3,495,903 ) Net deferred revenue $ 804,584 $ 297,277 Expected future amortization of net deferred revenue, are as follows; 2015 255,740 2016 254,207 2017 199,245 2018 95,392 Total $ 804,584 The company recorded net deferred revenue of $158,512 and $318,951, for the quarters ending June 30 and March 31, 2015, respectively. |
Term Debt_Wells Fargo Line of C
Term Debt/Wells Fargo Line of Credit Details | 6 Months Ended |
Jun. 30, 2015 | |
Debt Disclosure [Abstract] | |
Term Debt/Wells Fargo Line of Credit Details | NOTE 9 TERM DEBT / WELLS FARGO LINE OF CREDIT DETAILS As of June 30, 2015, the Companys outstanding balance with the Wells Fargo revolving line of credit was $1,718,128. Related Party On June 24, 2015, the Company issued subordinated promissory notes (the Promissory Notes) to three investors (who are also Quest employees) in the aggregate principal amount of $400,000 in exchange for an aggregate 170,000 shares of Quests restricted common stock, par value $0.001 per share (the Common Stock). The Promissory Notes accrue interest at six percent (6%) per annum and are payable in twelve (12) equal, monthly installments. The Promissory Notes are due on July 31, 2016. |
Subordinated Notes Payable
Subordinated Notes Payable | 6 Months Ended |
Jun. 30, 2015 | |
Debt Disclosure [Abstract] | |
Subordinated Notes Payable | NOTE 10 SUBORDINATED NOTES PAYABLE Notes and loans payable consisted of the following: June 30, 2015 December 31, 2014 Note payable - acquisition of Quest / BCS $ 22,675,825 $ 24,408,825 Total notes payable 22,675,825 24,408,825 Less: debt discount (2,800,000 ) (3,200,000 ) Less: current portion (2,799,226 ) (4,201,650 ) Total long-term notes payable $ 17,076,599 $ 17,077,175 As of June 30, 2015 and December 31, 2014, the Company recorded interest expense in connection with these notes in the amount of $668,574 and $51,806, respectively. |
Stockholders' Equity
Stockholders' Equity | 6 Months Ended |
Jun. 30, 2015 | |
Equity [Abstract] | |
Stockholders' Equity | NOTE 11 STOCKHOLDERS EQUITY PREFERRED STOCK As of June 30, 2015, there were 25,000,000 preferred shares authorized and 500,000 preferred shares outstanding. The board of directors had previously set the voting rights for the preferred stock at 1 share of preferred to 250 common shares. COMMON STOCK During the six months ended June 30, 2015, the Company issued the following shares. On May 19, 2015, Quest entered into a Security Purchase Agreement (the SPA) with an accredited investor, who is also a subordinated debt holder and an employee of Quest, pursuant to which Quest issued 667,000 shares of Common Stock in exchange for $200,000. Related Party As discussed in Note 9, on June 24, 2015, Quest issued subordinated promissory notes (the Promissory Notes) to three investors (who are also Quest employees) in the aggregate principal amount of $400,000 in exchange for an aggregate 170,000 shares of Quests restricted common stock, par value $0.001 per share. The company recorded an interest expense of $62,731 relative to this issuance. During the quarter ended June 30, 2015, the company issued 650,000 shares of restricted common stock to consultants of the Company relative to a 12 month contract. The Company has the option to repurchase 550,000 of the shares issued with the 12 month period. The Company recorded a $288,880 expense related to all of the consulting contracts. The Company also issued 100,000 shares to the Chief Executive Officer in connection with his employment contract on May 1, 2015. Warrants and Options On May 1, 2015, the Company issued one member of its board of directors a total of 36,000 warrants valued at $10,320 for their service. The value of these warrants was estimated by using the Black-Scholes option pricing model with the following assumptions: exercise price of $0.43, term of 3 years; risk free interest rate of 1.04%; dividend yield of 0% and expected volatility of 104%. During the quarter ended June 30, 2015, the Company recognized approximately $38,624 related to the employee stock options which vested during the quarter. |
Litigation
Litigation | 6 Months Ended |
Jun. 30, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
Litigation | NOTE 12 LITIGATION As of June 30, 2015, the Company is not a party to any pending material legal proceeding. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the Company. To the knowledge of management, no director, executive officer or affiliate of the Company, any owner of record or beneficially of more than five percent of the Companys Common Stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding. |
Related Party Transactions
Related Party Transactions | 6 Months Ended |
Jun. 30, 2015 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | NOTE 13 RELATED PARTY TRANSACTIONS The Company leases a building from the former owner of BCS for $9,000 per month, which is believed to be the current fair market value of similar buildings in the area. These amounts are included in the lease disclosure schedule, footnote 8. In connection with the BCS acquisition the Company has an earn out/royalty receivable from the new owners of the BCS RFID business that was sold on November 19, 2014, prior to the acquisition by the Company. The maximum amount to be paid during the 4 year earn out period ending December 31, 2018 is $700,000. Payments to the company are due within 30 days of the closing of each calendar quarter and the first royalty calculation and payment is due to the company on April 30, 2015. Prior to the merger with Quest, BCS recorded a 50% valuation reserve to the fair market value of this earn out receivable as of the acquisition date by Quest Solution. The Company has not recorded or received any payments related to this earn out in 2015. As of June 30, 2015, the Company owes $67,000 to an entity controlled by the CFO for services provided to BCS prior to its acquisition by Quest in November 2014. Additional related party transactions discussed in Notes 9 (Term Debt), 10 (Notes Payable) and 11 (Stockholders Equity). |
Subsequent Events
Subsequent Events | 6 Months Ended |
Jun. 30, 2015 | |
Subsequent Events [Abstract] | |
Subsequent Events | NOTE 14 SUBSEQUENT EVENTS On July 15, 2015, the Board of Directors, appointed W. Austin Lewis, IV to the Board to fill a vacancy on the Board. In connection with his appointment to the Board, Mr. Lewis will receive (i) $3,000 per quarter as Board compensation and (ii) stock options for 36,000 shares of common stock, par value $0.001 per share (the Common Stock) granted at the Companys current stock price, which vest over a three-year term. The Company entered into key man life insurance for certain of its executives during the 2nd quarter. Although the policies were put in place in the 2nd quarter, they were not officially effective until the first few weeks of July 2015. These policies are being treated as premium financed life insurance, which means the premium for the policies is being financed by a third party, with the cash value of the policies serving as the collateral. The company was required to post a letter of credit in the amount of $121,424 towards the policies in July 2015. The purpose of the policy is should something happen to the respective executive the funds would be used for the pay-off of their promissory note, repurchase of shares and/or settlement of their employment contract. The annual cost to the company will be based on the interest rate of LIBOR + 1.35%, with a floor of 2.35%. The executives have agreed to reimburse the company upon payment of such interest cost so it should have a net zero effect to the company. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission this Form 10-Q, including exhibits, under the Securities Act. You may read and copy all or any portion of the registration statement or any reports, statements or other information in the files at SECs Public Reference Room located at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You can request copies of these documents upon payment of a duplicating fee by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for further information on the operation of its public reference room. Our filings, including the registration statement, will also be available to you on the website maintained by the Commission at http://www.sec.gov. We intend to furnish our stockholders with annual reports which will be filed electronically with the SEC containing consolidated financial statements audited by our independent auditors, and to make available to our stockholders quarterly reports for the first three quarters of each year containing unaudited interim consolidated financial statements. Quests website is located at http://www.QuestSolution.com |
Basis of Presentation and Sum20
Basis of Presentation and Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation and Principles of Consolidation | BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The interim consolidated financial statements of Quest Solution, Inc. include the combined accounts of Quest Marketing, Inc., an Oregon corporation and Bar Code Specialties, Inc., (BCS) a California corporation. BCS was acquired on November 21, 2014, and the operating results of BCS have been consolidated into the Companys consolidated results of operations beginning on November 22, 2014. The companies currently operate as a single business unit under the Quest Solution brand. All material intercompany transactions and accounts have been eliminated in consolidation. The interim consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles (GAAP) and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2014 and notes thereto included in the Companys Form 10-K. The Company follows the same accounting policies in the preparation of interim reports. Operating results for the six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies This summary of significant accounting policies of Quest Solution, Inc. is presented to assist in understanding the Companys consolidated financial statements. The consolidated financial statements and notes are representations of the Companys management who are responsible for the integrity and objectivity of the financial statements. These accounting policies conform to GAAP and have been consistently applied in the preparation of the financial statements. |
Cash | Cash Cash consists of petty cash, checking, savings, and money market accounts. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of June 30, 2015 and December 31, 2014. The Company maintains its cash in bank deposit accounts which, at times, may exceed federal insured limits. |
Use of Estimates | USE OF ESTIMATES The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. The Company evaluates its estimates and assumptions on a regular basis. The Company uses historical experience and various other assumptions that are believed to be reasonable under the circumstances to form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates and assumptions used in preparation of the consolidated financial statements. |
Purchase Accounting and Business Combinations | PURCHASE ACCOUNTING AND BUSINESS COMBINATIONS The Company accounts for its business combinations using the purchase method of accounting which requires that intangible assets be recognized apart from goodwill if they are contractual in nature or separately identifiable. Acquisitions are measured on the fair value of consideration exchanged and, if the consideration given is not cash, measurement is based on the fair value of the consideration given or the fair value of the assets acquired, whichever is more reliably measurable. The excess of cost of an acquired entity over the fair value of identifiable acquired assets and liabilities assumed is allocated to goodwill. The valuation and allocation process relies on significant assumptions made by management. In certain situations, the allocations of excess purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision when the Company receives updated information, including appraisals and other analyses, which are completed within one year of the acquisition. Revisions to the fair values, which may be significant, are recorded when pending information is finalized, within one year from the acquisition date. |
Accounts Receivable | ACCOUNTS RECEIVABLE Accounts receivable are carried at their estimated collectible amounts. The Company provides allowances for uncollectible accounts receivable equal to the estimated collection losses that will be incurred in collection of all receivables. Accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. The Companys management determines which accounts are past due and if deemed uncollectible, the Company charges off the receivable in the period the determination is made. The Company generally requires no collateral to secure its ordinary accounts receivable. At June 30, 2015 and December 31, 2014, accounts receivable 90 days past due totaled $643,012 and $118,913, respectively. Based on managements evaluation, accounts receivable has a balance in the allowance for doubtful accounts of $35,990, and $66,215 for the period ending June 30, 2015 and December 31, 2014, respectively. |
Property and Equipment | PROPERTY AND EQUIPMENT Property and equipment are stated at purchased cost and depreciated using both straight-line and accelerated methods over estimated useful lives ranging from 3 to 10 years. Upon disposition of property and equipment, related gains and losses are recorded in the results of operations. Depreciation expense for period ending June 30, 2015 and December 31, 2014 was $37,429 and $16,222, respectively. For federal income tax purposes, depreciation is computed using the modified accelerated cost recovery system. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred. |
Intangible Assets | INTANGIBLE ASSETS Intangible assets are stated at cost, net of accumulated amortization. The intangible assets are being amortized on the straight-line method over useful lives ranging from 3 to 10 years. Amortization expense for the period ending June 30, 2015 and December 31, 2014 was $8,436 and $9,376, respectively. June 30, 2015 December 31, 2014 Software $ 1,276,524 $ 1,276,524 Licenses 450,000 450,000 Accumulated amortization (1,268,089 ) (1,259,654 ) Intangibles, net $ 458,435 $ 466,870 Total expected amortization expense for the next 2 years are as follows: Years ending December 31, 2015 8,435 2016 16,845 Total $ 25,280 The Company has made a significant investment in software over the years. This amount is treated as intangible assets which are being amortized over the expected useful life. Intangible assets are evaluated annually for potential impairment. Purchased intangible assets with finite useful lives are amortized over their respective estimated useful lives (using an accelerated method for customer relationships and trade names) to their estimated residual values, if any. The Companys finite-lived intangible assets consist of customer relationships, contractor and resume databases, trade names, and internal use software and are being amortized over periods ranging from two to nine years. Purchased intangible assets are reviewed annually to determine if facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, recoverability is assessed by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the rate of amortization is accelerated and the remaining carrying value is amortized over the new shorter useful life. No impairments were identified or changes to estimated useful lives have been recorded. |
Deferred Financing Costs | DEFERRED FINANCING COSTS Deferred Financing Costs incurred by the Company in connection with the issuance of debt and the bank credit facility are deferred and amortized to interest expense over the life of the underlying indebtedness using the straight line method. |
Shipping and Handling Costs | SHIPPING AND HANDLING COSTS The Company classifies shipping and handling costs for purchases of raw materials and freight out net of freight charged to customers as a component of cost of goods sold. Total delivery costs for the three months ending June 30, 2015 and June 30, 2014 were $25,066 and $654 respectively. |
Advertising | ADVERTISING The Company generally expenses advertising costs as incurred. During the three months ending June 30, 2015 and June 30, 2014, the Company spent $51,487 (marketing, trade show and store front expense) and $47,797 on advertising, net of co-operative rebates, respectively. The Company received rebates from co-operative advertising agreements with several vendors and suppliers. These rebates have been recorded as a reduction to the related advertising and marketing expense in the period earned. |
Inventory | INVENTORY Substantially all inventory consists of raw materials and finished goods and are valued based upon first-in first-out (FIFO) cost, not in excess of market. The determination of whether the carrying amount of inventory requires a write-down is based on a detailed evaluation of inventory relative to any potential slow moving products or discontinued items as well as the market conditions for the specific inventory items. |
Depreciation and Amortization | DEPRECIATION AND AMORTIZATION Depreciation and amortization expense primarily consists of the non-cash write-down of tangible and intangible assets over their expected economic lives. We expect this expense to continue to grow in absolute dollars and potentially as a percentage of revenue as we continue to grow and incur capital expenditures to improve our technological infrastructure and acquire assets through potential future acquisitions. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Companys financial instruments include cash, accounts receivable, accounts payable, and notes payable. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at June 30, 2015 and December 31, 2014. The Company did not engage in any transaction involving derivative instruments. As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on 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 require the reporting entity to develop its own assumptions. The three levels of the fair value hierarchy are described below: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
Revenue Recognition | REVENUE RECOGNITION Recurring technology, deferred maintenance service agreements and contract service revenue consists of subscription-based fees, software subscription license fees, software maintenance fees and hosting fees related to the use of our solution to manage our customers communications expenses, as well as fees for perpetual software licenses, professional services and products sold. We recognize revenue when persuasive evidence of an arrangement exists, pricing is fixed and determinable, collection is reasonably assured and delivery or performance of service has occurred. Recurring technology and services subscription-based fees, software subscription license fees, software maintenance fees and hosting fees are recognized ratably over the term of the period of service. The subscription-based services we provide include help desk, staging, carrier activations and provisioning. Sales revenue is recognized upon the shipment of merchandise to customers. The Company recognizes revenues from software sales when software products are shipped. Software license fees consist of fees paid for a perpetual license agreement for our technology, which are recognized in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC 605, Software Revenue Recognition, as amended. Professional services related to the implementation of our software products, which we refer to as consulting services, are generally performed on a fixed fee basis under separate service arrangements. Consulting services revenue is recognized as the services are performed by measuring progress towards completion based upon either costs or the achievement of certain milestones. |
Net Income (Loss) Per Common Share | NET INCOME (LOSS) PER COMMON SHARE Net loss per share is provided in accordance with FASB ASC 260-10, Earnings per Share. Basic net loss per common share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless doing so is anti-dilutive. The weighted-average number of common shares outstanding for computing basic EPS as of June 30, 2015 and December 31, 2014 were 35,414,484 and 33,362,776, respectively. The fully diluted number of 40,219,637, includes the potential of the existing senior subordinated debt holders converting a portion of their debt into common shareholder equity at $1.00 per share (for $2,656,382 in debt) and $2.00 per share (for $1,962,382 in debt). Despite the fact the conversion is out of the money, accounting rules require these amounts to be included in diluted shares outstanding. Additional terms of the debt would require the Board of Directors to consent to any debt holder converting and having a position greater than 4.99% outstanding on the date of conversion. |
Goodwill | GOODWILL Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill is tested annually at December 31 for impairment. The annual qualitative or quantitative assessments involve determining an estimate of the fair value of reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill exists. A qualitative assessment evaluates whether it is more likely than not that a reporting units fair value is less than its carrying amount before applying the two-step quantitative goodwill impairment test. The first step of a quantitative goodwill impairment test compares the fair value of the reporting unit to its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss may be recognized. The amount of impairment loss is determined by comparing the implied fair value of reporting unit goodwill with the carrying amount. If the carrying amount exceeds the implied fair value then an impairment loss is recognized equal to that excess. No impairment charges have been recorded as a result of the Companys annual impairment assessments. We test our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our testing determines the recorded amount of goodwill exceeds the fair value. Our annual measurement date for testing goodwill impairment is December 31, at which date we test our reporting units, which is currently our ownership in Quest Solution, Inc. |
Income Taxes | INCOME TAXES The Company accounts for its income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. 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 operations in the period that includes the enactment date. Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for consolidated financial reporting purposes and such amounts recognized for tax purposes, and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse. The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company has evaluated the deferred income taxes with regards to Section 382 of the Internal Revenue Code and has determined no limitations on the use of net operating loss carryforwards exist at June 30, 2015. |
Stock-Based Compensation | STOCK-BASED COMPENSATION The Company recognizes stock-based compensation in accordance with ASC Topic 718 Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values. For non-employee stock-based compensation, we have adopted ASC Topic 505 Equity-Based Payments to Non-Employees, which requires stock-based compensation related to non-employees to be accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable in accordance with ASC Topic 718. |
Recent Accounting Pronouncements | RECENT ACCOUNTING PRONOUNCEMENTS The Company has evaluated the recent pronouncements and believes that none of them will have a material effect on the Companys financial statements. |
Basis of Presentation and Sum21
Basis of Presentation and Summary of Significant Accounting Policies (Table) | 6 Months Ended |
Jun. 30, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Summary of Intangiable Assets | June 30, 2015 December 31, 2014 Software $ 1,276,524 $ 1,276,524 Licenses 450,000 450,000 Accumulated amortization (1,268,089 ) (1,259,654 ) Intangibles, net $ 458,435 $ 466,870 |
Schedule of Amortization Expense | Total expected amortization expense for the next 2 years are as follows: Years ending December 31, 2015 8,435 2016 16,845 Total $ 25,280 |
Inventory (Tables)
Inventory (Tables) | 6 Months Ended |
Jun. 30, 2015 | |
Inventory Disclosure [Abstract] | |
Schedule of Inventory | At June 30, 2015 and December 31, 2014, inventories consisted of the following: June 30, 2015 December 31, 2014 Equipment held for resale $ 85,324 $ 45,011 Raw Materials 133,167 44,216 Work in Progress 101,826 18,623 Finished goods 63,033 487,317 Clearing service 0 11,064 Total inventories $ 383,350 $ 606,231 |
Accrued Expenses and Other Cu23
Accrued Expenses and Other Current Liabilities (Tables) | 6 Months Ended |
Jun. 30, 2015 | |
Payables and Accruals [Abstract] | |
Schedule of Accrued Expenses and Other Current Liabilities | Accrued expenses and other current liabilities consist of the following: June 30, 2015 December 31, 2014 Salaries, commissions, benefits and sales tax $ 1,661,789 $ 917,079 Other current liabilities 403,608 845,327 Total accrued expenses and other current liabilities $ 2, 065,397 $ 1,762,406 |
Schedule of Deferred Revenue | The net amount recorded as a deferred revenue liability is being amortized into the results of operations over the related periods on a straight line basis, normally 1-5 years with 3 years being the average term. June 30, 2015 December 31, 2014 Deferred revenue $ 7,272,469 . $ 3,793,181 Less deferred costs and expenses (6,467,885) (3,495,903 ) Net deferred revenue $ 804,584 $ 297,277 |
Schedule of Expected Future Amortization of Net Deferred Revenue | Expected future amortization of net deferred revenue, are as follows; 2015 255,740 2016 254,207 2017 199,245 2018 95,392 Total $ 804,584 |
Subordinated Notes Payable (Tab
Subordinated Notes Payable (Tables) | 6 Months Ended |
Jun. 30, 2015 | |
Debt Disclosure [Abstract] | |
Schedule of Notes and Loans Payable | Notes and loans payable consisted of the following: June 30, 2015 December 31, 2014 Note payable - acquisition of Quest / BCS $ 22,675,825 $ 24,408,825 Total notes payable 22,675,825 24,408,825 Less: debt discount (2,800,000 ) (3,200,000 ) Less: current portion (2,799,226 ) (4,201,650 ) Total long-term notes payable $ 17,076,599 $ 17,077,175 |
Basis of Presentation and Sum25
Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2015 | Jun. 30, 2014 | Jun. 30, 2015 | Jun. 30, 2014 | Dec. 31, 2014 | |
Cash equivalents | |||||
Accounts receivable | $ 643,012 | $ 643,012 | $ 118,913 | ||
Allowance for doubtful accounts | $ 35,990 | $ 35,990 | 66,215 | ||
Property and equipment estimated useful lives | |||||
Depreciation expense | $ 37,429 | 16,222 | |||
Amortization expense | 8,436 | $ 9,376 | |||
Shipping And Handling Costs | 25,066 | $ 654 | |||
Advertising expense | 51,487 | 47,797 | |||
Fair value of adjustment on obligations | $ 51,487 | $ 47,797 | |||
Weighted average number of common shares outstanding - basic | 35,414,484 | 35,510,416 | 35,224,128 | 33,385,416 | 33,362,776 |
Number of diluted shares | 40,219,637 | ||||
Percentage of debt holder converting outstanding on date of conversion | 4.99% | ||||
Percentage of recognized benefits greater than likelihood of being realized upon ultimate settlement with relevant tax authority | 50% | ||||
Shareholder Equity $1.00 per share [Member] | |||||
Senior subordinated debt holder converting debt into common shareholder equity | $ 2,656,382 | ||||
Shareholder Equity $2.00 per share [Member] | |||||
Senior subordinated debt holder converting debt into common shareholder equity | $ 1,962,382 | ||||
Minimum [Member] | |||||
Property and equipment estimated useful lives | 3 years | ||||
Amortized on straight-line method over useful lives | 3 years | ||||
Finite useful lives of amortized over period | 2 years | ||||
Maximum [Member] | |||||
Property and equipment estimated useful lives | 10 years | ||||
Amortized on straight-line method over useful lives | 10 years | ||||
Finite useful lives of amortized over period | 9 years |
Basis of Presentation and Sum26
Basis of Presentation and Summary of Significant Accounting Policies - Summary of Intangiable Assets (Details) - USD ($) | Jun. 30, 2015 | Dec. 31, 2014 |
Accumulated amortization | $ (1,268,089) | $ (1,259,653) |
Intangibles, net | 458,435 | 466,870 |
Software [Member] | ||
Intagibles gross | 1,276,524 | 1,276,524 |
Licenses [Member] | ||
Intagibles gross | $ 450,000 | $ 450,000 |
Basis of Presentation and Sum27
Basis of Presentation and Summary of Significant Accounting Policies - Schedule of Amortization Expense (Details) | Jun. 30, 2015USD ($) |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
2,015 | $ 8,435 |
2,016 | 16,845 |
Total | $ 25,280 |
Concentrations (Details Narrati
Concentrations (Details Narrative) - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2015 | Dec. 31, 2014 | |
Maximum cash insured | $ 250,000 | |
Revenue [Member] | ||
Percentage of concentration rate | 12.70% | 16.00% |
Number of customer | One customer | One customer |
Accounts Receivable [Member] | ||
Percentage of concentration rate | 14.00% | 34.00% |
Number of customer | One customer | One customer |
Accounts Payable [Member] | ||
Percentage of concentration rate | 74.00% | 82.00% |
Number of vendor | One vendor | One vendor |
Accounts Payable [Member] | Minimum [Member] | ||
Percentage of concentration rate | 10.00% | 10.00% |
Number of vendor | One vendor | One vendor |
Inventory - Schedule of Invento
Inventory - Schedule of Inventory (Details) - USD ($) | Jun. 30, 2015 | Dec. 31, 2014 |
Inventory Disclosure [Abstract] | ||
Equipment held for resale | $ 85,324 | $ 45,011 |
Raw Materials | 133,167 | 44,216 |
Work in Progress | 101,826 | 18,623 |
Finished goods | 63,033 | 487,317 |
Clearing service | 0 | 11,064 |
Total inventories | $ 383,350 | $ 606,231 |
Cost Of Goods Sold, Related P30
Cost Of Goods Sold, Related Party (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2015 | Jun. 30, 2014 | Jun. 30, 2015 | Jun. 30, 2014 | Dec. 31, 2014 | Dec. 31, 2013 | |
Related Party Transactions [Abstract] | ||||||
Related party prepaid expense | $ 347,262 | $ 694,523 | ||||
Prepaid expenses | $ 1,273,292 | $ 1,273,292 | ||||
Related party expense | $ 0 | $ 347,261 |
Prepaids (Details Narrative)
Prepaids (Details Narrative) - USD ($) | 3 Months Ended | |
Jun. 30, 2015 | Dec. 31, 2014 | |
Prepaid Expense, Current [Abstract] | ||
Prepaid expenses | $ 669,887 | $ 191,498 |
Number of restricted shares issued for consultants | $ 293,232 |
Other Liabilities (Details Narr
Other Liabilities (Details Narrative) - Jun. 30, 2015 - BCS Acquisition [Member] - Beginning October 31, 2014 and Ending October 2018 [Member] - USD ($) | Total |
Note payable, monthly installment amount | $ 4,758 |
Loan bear interest rate | 1.89% |
Profit Sharing Plan (Details Na
Profit Sharing Plan (Details Narrative) - USD ($) | 6 Months Ended | |
Jun. 30, 2015 | Jun. 30, 2014 | |
Percentage of non-elective contribution of participant's compensation | 3.00% | |
Safe harbor contributions | $ 98,066 | |
Safe Harbor Plan [Member] | BCS Subsidiary [Member] | ||
Percentage of matching contribution | 100.00% | |
Percentage of employee deferred contribution | 50.00% | |
Matching contribution | $ 35,336 | |
Safe Harbor Plan [Member] | BCS Subsidiary [Member] | Minimum [Member] | ||
Percentage of non-elective contribution of participant's compensation | 3.00% | |
Safe Harbor Plan [Member] | BCS Subsidiary [Member] | Maximum [Member] | ||
Percentage of non-elective contribution of participant's compensation | 5.00% | |
Percentage of employee deferred contribution | 3.00% |
Accrued Expenses and Other Cu34
Accrued Expenses and Other Current Liabilities (Details Narrative) - USD ($) | 6 Months Ended | |
Jun. 30, 2015 | Mar. 31, 2015 | |
deferred revenue | $ 158,512 | $ 318,951 |
Minimum [Member] | ||
Agreement term | 1 year | |
Maximum [Member] | ||
Agreement term | 5 years |
Accrued Expenses and Other Cu35
Accrued Expenses and Other Current Liabilities - Schedule of Accrued Expenses and Other Current Liabilities (Details) - USD ($) | Jun. 30, 2015 | Dec. 31, 2014 |
Payables and Accruals [Abstract] | ||
Salaries, commissions, benefits and sales tax | $ 1,661,789 | $ 917,079 |
Other liabilities | 403,608 | 845,327 |
Total accrued expenses and other current liabilities | $ 2,065,397 | $ 1,762,406 |
Accrued Expenses and Other Cu36
Accrued Expenses and Other Current Liabilities - Schedule of Deferred Revenue (Details) - USD ($) | Jun. 30, 2015 | Dec. 31, 2014 |
Payables and Accruals [Abstract] | ||
Deferred revenue | $ 7,272,469 | $ 3,793,181 |
Less deferred costs and expenses | (6,467,885) | (3,495,903) |
Net deferred revenue | $ 804,584 | $ 297,277 |
Accrued Expenses and Other Cu37
Accrued Expenses and Other Current Liabilities - Schedule of Expected Future Amortization of Net Deferred Revenue (Details) - USD ($) | Jun. 30, 2015 | Dec. 31, 2014 |
Net deferred revenue | $ 804,584 | $ 297,277 |
2015 [Member] | ||
Net deferred revenue | 255,740 | |
2016 [Member] | ||
Net deferred revenue | 254,207 | |
2017 [Member] | ||
Net deferred revenue | 199,245 | |
2018 [Member] | ||
Net deferred revenue | $ 95,392 |
Term Debt_Wells Fargo Line of38
Term Debt/Wells Fargo Line of Credit Details (Details Narrative) - USD ($) | Jun. 24, 2015 | Jun. 30, 2015 | Dec. 31, 2014 |
Line of credit, balance | $ 1,718,128 | $ 1,819,345 | |
Three Investors [Member] | |||
Proceeds from issuance of debt | $ 400,000 | ||
Number of stock exchange during period | 170,000 | ||
Sale of stock during period | $ 0.001 | ||
Debt instruments interest rate | 6.00% | ||
Debt instrument maturity date | Jul. 31, 2016 | ||
Line of Credit Agreement [Member] | Wells Fargo Bank [Member] | |||
Line of credit, balance | $ 1,718,128 |
Subordinated Notes Payable (Det
Subordinated Notes Payable (Details Narrative) - USD ($) | 6 Months Ended | |
Jun. 30, 2015 | Jun. 30, 2014 | |
Debt Disclosure [Abstract] | ||
Interest expense | $ 668,574 | $ 51,806 |
Subordinated Notes Payable - Sc
Subordinated Notes Payable - Schedule of Notes and Loans Payable (Details) - USD ($) | Jun. 30, 2015 | Dec. 31, 2014 |
Total notes payable | $ 22,675,825 | $ 24,408,825 |
Less: debt discount | (2,800,000) | (3,200,000) |
Less: current portion | 150,000 | 310,000 |
Total long-term notes payable | 17,076,599 | 17,077,175 |
Note Payable - Acquisition of Quest/BCS [Member] | ||
Total notes payable | $ 22,675,825 | $ 24,408,825 |
Stockholders' Equity (Details N
Stockholders' Equity (Details Narrative) - USD ($) | Jun. 24, 2015 | May. 19, 2015 | May. 01, 2015 | Jun. 30, 2015 | Jun. 30, 2014 | Jun. 30, 2015 | Dec. 31, 2014 |
Preferred shares authorized | 25,000,000 | 25,000,000 | 25,000,000 | ||||
Preferred shares outstanding | 500,000 | 500,000 | |||||
Notes conversion price per share | $ 2 | $ 2 | |||||
Option to repurchase, number of shares | 550,000 | 550,000 | |||||
Employee stock option recognized | $ 38,624 | ||||||
Security Purchase Agreement [Member] | |||||||
Stock issued during the period | $ 200,000 | ||||||
Stock issued during the period, shares | 667,000 | ||||||
Board Of Directors [Member] | |||||||
Preferred stock voting rights | voting rights for the preferred stock at 1 share of preferred to 250 common shares | ||||||
Consulting contracts expene | $ 288,880 | ||||||
Warrants issued for service | 36,000 | ||||||
Warrants issued for service, value | $ 10,320 | ||||||
Fair value assumption of exercise price per share | $ 0.43 | ||||||
Fair value assumption of term | 3 years | ||||||
Fair value assumption of risk free interest rate | 1.04% | ||||||
Fair value assumption of dividend yield | 0.00% | ||||||
Fair value assumption of expected volatility | 104.00% | ||||||
Investors [Member] | |||||||
Promissory notes principal amount | $ 400,000 | ||||||
Notes exchange number of shares | 170,000 | ||||||
Interest expense | $ 62,731 | ||||||
Notes conversion price per share | $ 0.001 | ||||||
Consultants [Member] | |||||||
Notes exchange number of shares | 650,000 | ||||||
Chief Executive Officer [Member] | |||||||
Stock issued during the period | $ 100,000 |
Litigation (Details Narrative)
Litigation (Details Narrative) | 6 Months Ended |
Jun. 30, 2015 | |
Maximum [Member] | |
Percentage of beneficially in common stock interest adverse | 5.00% |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - 6 months ended Jun. 30, 2015 - Bar Code Specialties Inc. [Member] - USD ($) | Total |
Rent expense | $ 9,000 |
Earn out period | 4 years |
Earn out expiration date | Dec. 31, 2018 |
Payment for royalty | $ 700,000 |
Royalty payment due date | Apr. 30, 2015 |
Percentage of valuation reserve to the fair market value prior to the merger | 50.00% |
Chief Financial Officer [Member] | |
Compensation | $ 67,000 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | Jul. 15, 2015 | Jun. 30, 2015 | Dec. 31, 2014 |
Common stock, par value | $ 0.001 | $ 0.001 | |
Subsequent Event [Member] | Mr Shepard [Member] | |||
Officer compensation | $ 3,000 | ||
Stock option granted shares | 36,000 | ||
Stock option vested over term | 3 years | ||
Common stock, par value | $ 0.001 | ||
Letter of credit | $ 121,424 | ||
Debt interest rate description | LIBOR + 1.35%, with a floor of 2.35%. | ||
Debt instrument variable rate percentage | 1.35% | ||
Debt instrument variable rate floor percentage | 2.35% |