| 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, Bar Code Specialties, Inc.,
(BCS) a California Corporation, Quest Canada, Inc., (formerly known as ViascanQdata, Inc.), (Viascan)
a Canadian based corporation with operations in the same business line as Quest and Quest Exchange Limited, a Canadian based holding
company. Effective October 1, 2015, the financial statements of Viascan have been consolidated into the Companys consolidated
results of operations. On September 19, 2016, the Company publicly announced the decision of its Board of Directors to enter into
a Letter of Intent to sell the shares of its wholly owned subsidiary, Quest Solution Canada Inc., to Viascan Group Inc. The operations
of Quest Solution Canada Inc. have been classified as a discontinued operation and the assets and liabilities of Quest Solution
Canada Inc have been classified as held for disposal. The companies currently operate as a single business unit. 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 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
(the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles 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 unaudited interim condensed financial
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 audited financial statements of the Company for the year ended December 31, 2015 and notes thereto included
in the Companys Form 10-K filed with the SEC on April 18, 2016. The Company follows the same accounting policies in the
preparation of interim reports. Operating results for the nine months
ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2016. 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 is responsible for the
integrity and objectivity of the financial statements. These accounting policies conform to generally accepted accounting principles
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 September 30, 2016
and December 31, 2015. The Company maintains its cash in bank
deposit accounts which, at times, may exceed federal insured limits. The Company has restricted cash on deposit
with a federally insured bank in the amount of $767,688 at September 30, 2016. This cash is security and collateral for a corporate
credit card agreement with a bank and for deposit against a letter of credit issued for executive life insurance policies owned
by the Company. USE OF ESTIMATES The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America 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. Based on managements evaluation,
accounts receivable has a balance in the allowance for doubtful accounts of $20,249 for the period ending September 30, 2016 and
December 31, 2015, 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 15
years. Upon disposition of property and equipment, related gains and losses are recorded in the results of operations. Depreciation
expense for period ending September 30, 2016 and December 31, 2015 was $70,802 and $92,656, 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 assets are being amortized on the straight-line method over useful lives ranging from 3 to
10 years. Amortization expense for the period ending September 30, 2016 and December 31, 2015 was $1,276,275 and $2,506,167, respectively.
September 30, 2016 December 31, 2015
Goodwill $ 10,114,164 $ 10,114,164
Trade Names 4,390,000 4,390,000
Customer Relationships 9,190,000 9,190,000
Accumulated amortization (3,782,442 ) (2,506,167 )
Intangibles, net $ 19,911,722 $ 21,187,997 Goodwill is not amortized, but is evaluated
for impairment annually or when indicators of a potential impairment are present. Our impairment testing of goodwill is performed
separately from our impairment testing of intangibles. The annual evaluation for impairment of goodwill and intangibles is based
on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. None
of the goodwill is deductible for income tax purposes. For the three month period ended September 30, 2016, the goodwill in relation
to the Companys investments in Viascan was impaired by $2,500,000 and for the nine months ended September 30, 2016 the goodwill
impairment charge was $4,800,000 which was all included in the net loss from discontinued operations. The impairment charge was
driven by the following reasons:
● Net operating losses for the first nine months of the year
● Negative cash flow resulting in the Company funding $8.0 million to date since the acquisition date
● Negative working capital
● Conversion of $1.8 million of notes related to the acquisition to Series C preferred shares at condition significantly move favorable to the Company
● Forgiveness of $0.5 million of notes related to the acquisition
● The Companys decision to dispose of the shares of Viascan making it a discontinued operation ADVERTISING The Company generally expenses advertising
costs as incurred. During the nine month period ending September 30, 2016 and September 30, 2015, the Company spent $77,205 and
$150,689 on advertising (marketing, trade show and store front expense), net of co-operative rebates, respectively. The Company received rebates on advertising
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 of the 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. There were no inventory reserves recorded as of September 30, 2016 and December 31, 2015, respectively. 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 is the price that would be
received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting
guidance provides a hierarchy for inputs used in measuring fair value that prioritize the use of observable inputs over the use
of unobservable inputs, when such observable inputs are available. The three levels of inputs that may be used to measure fair
value are as follows:
● Level 1 - Quoted prices in active markets for identical assets or liabilities.
● Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data.
● Level 3 - Fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including assumptions and judgments made by the Company. Assets and liabilities are classified
based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy
classification on a quarterly basis. Changes in the observable inputs may result in a reclassification of assets and liabilities
within the three levels of the hierarchy outlined above. NET 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 September 30, 2016 and September 30, 2015 were 36,323,489 and 35,702,188, respectively. The fully diluted number of common stock
amounts to 50,195,563 which includes the potential of the existing senior subordinated debt holders converting their debt into
common shareholder equity at $1.00 per share (for $3,231,388 in debt) and $2.00 per share (for $274,882 in debt) and 10,182,560
preferred Series B and C shares converting to common shares. 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. FOREIGN CURRENCY TRANSLATION, FOREIGN EXCHANGE CONTRACTS
AND COMPREHENSIVE LOSS The functional
currency of the Companys foreign subsidiaries is the local currency. Gains and losses resulting from the translation of
the foreign subsidiaries financial statements are included in accumulated other comprehensive income (loss) and reported
as a separate component of stockholders equity. Gains and losses resulting from foreign currency transactions are included
in net income (loss). The Company
currently does not enter into financial instruments for either trading or speculative purposes. There were no forward foreign exchange
contracts used during the nine month periods ended September 30, 2016 and 2015. Total comprehensive loss is comprised
of net loss and other comprehensive earnings losses, such as foreign currency translation gains or losses and unrealized gains
or losses on available-for-sale marketable securities. 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. |
