| 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 Quest Exchange Ltd.,
a Canadian based holding company. Divesture of Canadian Operations Effective September 30, 2016, the Company sold
all of the outstanding shares of Quest Solution Canada Inc., and the consideration received was $1.0 million in cash, which was
all collected at June 30, 2017. In addition, the Company has redeemed 1 share of Preferred Class B Stock and 1,839,030 shares of
Preferred Class C Stock of the Company, as well as the accrued dividend of $31,742 thereon. Lastly, Quest Exchange Ltd., a wholly
owned subsidiary of the Company, redeemed 5,200,000 exchangeable shares as part of the divestiture. Additionally, as part of the transaction, Viascan
Group Inc., the acquirer, assumed $1.0 million of liabilities which the Company had at September 30, 2016. Other consideration
that is part of the transaction included:
●
Full release from five employment contracts,
inclusive of the former CEO, Gilles Gaudreault. This release included cancelation of the contracts as well as the deferred salary
and signing bonus provisions which would have inured to the employee.
●
The Company canceled the intercompany debts
of approximately $7.0 million as well. The Company will also receive a contingent consideration of 15% of the net value proceeds,
up to a maximum of $2.3 million, receivable upon a liquidity event or a change of control of Quest Solution Canada Inc. for a
period of 7 years subsequent to the transaction.
● The Company also has a right of first refusal for any offer to purchase Quest Solution Canada Inc. for a 7 year period.
● The assets sold consisted primarily of accounts receivable, inventories, property and equipment, and other assets. The buyer also assumed certain accounts payable and accrued liabilities. 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. On December 31, 2016, the Company merged BCS
in Quest Marketing to form one US legal entity as part of its streamlining efforts. 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.
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 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, 2016 and notes thereto included in the Company’s Form 10-K filed with the SEC on April 17,
2017. The Company follows the same accounting policies in the preparation of interim reports. Operating results for the three months ended
September 30, 2017 are not necessarily indicative of the results that may be expected for the year ended December 31, 2017. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies
of Quest Solution, Inc. is presented to assist in understanding the Company’s consolidated financial statements. The consolidated
financial statements and notes are representations of the Company’s 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, 2017 and December
31, 2016. 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 $684,610 at September 30, 2017. 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 Company’s 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. 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. 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, 2017 and December 31, 2016 was $1,276,286 and $1,701,700, respectively.
September 30, 2017 December 31,2016
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 (5,484,153 ) (4,207,867 )
Intangibles, net $ 18,210,011 $ 19,486,297 The future amortization
expense on the Trade Names and Customer Relationships are as follows:
Years ending December 31,
2017 $ 425,429
2018 1,679,599
2019 1,471,714
2020 1,471,714
2021 1,405,791
Thereafter 1,641,600
Total $ 8,095,847 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. Purchased intangible assets with finite useful
lives are amortized over their respective estimated useful lives to their estimated residual values, if any. The Company’s
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 as of
September 30, 2017 and December 31, 2016. ADVERTISING The Company generally expenses advertising
costs as incurred. During the nine month periods ending September 30, 2017 and 2016, the Company spent $183,301 and $77,205 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 periods they are received. 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 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. Liabilities Measured and Recorded at Fair
Value on a Recurring Basis The Company measures certain liabilities at
fair value on a recurring basis such as our contingent consideration related to business combinations and recognizes transfers
within the fair value hierarchy at the end of the fiscal quarter in which the change in circumstances that caused the transfer
occurred. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the period ending September 30, 2017
or fiscal year ending December 31, 2016. The Company has classified its contingent consideration
related to the acquisitions as a Level 3 liability. Revenue and other assumptions used in the calculation require significant management
judgment. The Company reassesses the fair value of the contingent consideration liabilities on a quarterly basis. Based on that
assessment, the Company recognized an adjustment of $0 to the actual calculation of the earn-out obligations during the quarter
ending September 30, 2017 and in the fiscal year ended December 31, 2016. As of September 30, 2017 and December 31, 2016,
the Company does not have any unrecorded contingent liabilities. 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 for the nine months ended September 30, 2017 and 2016 were 35,587,238 and 36,506,733, respectively. Diluted net loss per share
of common stock is the same as basic net loss per share of common stock because the effects of potentially dilutive securities
are antidilutive. Dilutive securities are excluded from the computation
of diluted net loss per share because such securities have no anti-dilutive impact due to losses reported. 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 unit’s 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 Company’s 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. FOREIGN CURRENCY TRANSLATION The consolidated financial statements of the
Company are presented in U.S. dollars. The functional currency for the Company is U.S. dollars. Transactions in currencies other
than the functional currency are recorded using the appropriate exchange rate at the time of the transaction. All of the Company’s
continuing operations are conducted in U.S. dollars. The Company owns a non-operating subsidiary in Canada, from which it has received
no revenue since October 1, 2016. Canadian records of the divested Canadian operation were maintained in the local currency and
re-measured to the functional currency as follows: monetary assets and liabilities are converted using the balance sheet period-end
date exchange rate, while the non-monetary assets and liabilities are converted using the historical exchange rate. Expenses and
income items are converted using the weighted average exchange rates for the reporting period. Foreign transaction gains and losses
are reported on the consolidated statement of operations and were included in the amount of loss from discontinued operations. RECENT ACCOUNTING PRONOUNCEMENTS In August 2014, the FASB issued ASU 2014-15
requiring management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt
about the entity’s ability to continue as a going concern, which is currently performed by the external auditors. Management
will be required to perform this assessment for both interim and annual reporting periods and must make certain disclosures if
it concludes that substantial doubt exists. This ASU is effective for annual periods, and interim periods within those annual periods,
beginning on or after December 15, 2016. The adoption of this guidance is not expected to have a material effect on our financial
statements. In May 2014, the FASB issued new revenue recognition
guidance under ASU 2014-09 that will supersede the existing revenue recognition guidance under U.S. Generally Accepted Accounting
Principles (“GAAP”). The new standard focuses on creating a single source of revenue guidance for revenue arising from
contracts with customers for all industries. The objective of the new standard is for companies to recognize revenue when it transfers
the promised goods or services to its customers at an amount that represents what the company expects to be entitled to in exchange
for those goods or services. In July 2015, the FASB deferred the effective date by one year (ASU 2015-14). This ASU will now be
effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2017. Early adoption
is permitted, but not before the original effective date of December 15, 2016. Since the issuance of the original standard, the
FASB has issued several other subsequent updates including the following: 1) clarification of the implementation guidance on principal
versus agent considerations (ASU 2016-08); 2) further guidance on identifying performance obligations in a contract as well as
clarifications on the licensing implementation guidance (ASU 2016-10); 3) rescission of several SEC Staff Announcements that are
codified in Topic 605 (ASU 2016-11); and 4) additional guidance and practical expedients in response to identified implementation
issues (ASU 2016-12). The new standard will be effective for us beginning January 1, 2018 and we expect to implement the standard
with the modified retrospective approach, which recognizes the cumulative effect of application recognized on that date. We are
evaluating the impact of adoption on our consolidated results of operations, consolidated financial position and cash flows. In July 2015, the Financial Accounting Standard
Board (“FASB”) issued ASU 2015-11 (ASC 330) , Simplifying the Measurement of Inventory In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes In February 2016, the FASB issued ASU 2016-02
amending the existing accounting standards for lease accounting and requiring lessees to recognize lease assets and lease liabilities
for all leases with lease terms of more than 12 months, including those classified as operating leases. Both the asset and liability
will initially be measured at the present value of the future minimum lease payments, with the asset being subject to adjustments
such as initial direct costs. Consistent with current U.S GAAP, the presentation of expenses and cash flows will depend primarily
on the classification of the lease as either a finance or an operating lease. The new standard also requires additional quantitative
and qualitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases in order to provide
additional information about the nature of an organization’s leasing activities. This ASU is effective for annual periods,
and interim periods within those annual periods, beginning after December 15, 2018 and requires modified retrospective application.
Early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements
and related disclosures. In March 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09 amending several aspects of share-based
payment accounting. This guidance requires all excess tax benefits and tax deficiencies to be recorded in the income statement
when the awards vest or are settled, with prospective application required. The guidance also changes the classification of such
tax benefits or tax deficiencies on the statement of cash flows from a financing activity to an operating activity, with retrospective
or prospective application allowed. Additionally, the guidance requires the classification of employee taxes paid when an employer
withholds shares for tax-withholding purposes as a financing activity on the statement of cash flows, with retrospective application
required. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15,
2016. Early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements
and related disclosures. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard clarifies the definition of a business
and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that
when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable
asset or a group of similar identifiable assets, the set is not a business. This new standard will be effective for the Company
on January 1, 2018; however, early adoption is permitted with prospective application to any business development transaction. In January 2017, the FASB issued ASU 2017-04,
Intangibles – Goodwill and Other (Topic 350) The Company has evaluated other recent pronouncements
and believes that none of them will have a material effect on the company’s financial statements. |
