UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 20, 2014
Quest Solution, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 000-09047 | 20-3454263 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
2580 Anthem Village Dr. Henderson, NV | 89052 |
(Address of principal executive offices) | (Zip Code) |
(702) 399-9777
Registrants telephone number, including area code
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.01 Completion of Acquisition of Disposition of Assets
As previously disclosed by Quest Solution, Inc. (the Company) in a Form 8-K filed on November 19, 2014 (the Initial Form 8-K), the Company entered into a Stock Purchase Agreement on November 17, 2014 (the Agreement) with Bar Code Specialties, Inc., a California corporation (BCS), and David Marin, the sole stockholder of BCS (the BCS Stockholder), pursuant to which the Company agreed to purchase all outstanding shares of common stock of BCS held by the BCS Stockholder for an aggregate purchase price (the Purchase Price) of $11.00 million (the Transaction). The Purchase Price is payable in the form of a five-year secured subordinated convertible promissory note (the Stockholder Note). The Purchase Price is subject to certain adjustments after the closing of the Transaction based on the amount of working capital of the Company on the date of the closing. The Stockholder Note is convertible any time at the election of the holder into shares of common stock of the Company (the Common Stock) at a conversion price of $2.00 per share. In addition, the Agreement provides that the BCS Stockholder will be employed as Western Director of Sales following the closing of the Transaction.
The disclosures set forth in the Initial Form 8-K are hereby incorporated by reference into this Item 2.01.
On November 21, 2014, all closing conditions have been satisfied under the Agreement and the Company closed the Transaction (the Closing Date).
On November 24, 2014, the Company issued a press release announcing the closing of the Transaction, a copy of which is attached hereto as Exhibit 99.2 and incorporated herein by reference.
The description above in this Item 2.01 is only a summary and qualified in its entirety by the Agreement, the Notes (as defined in the Initial Form 8-K), and the Security Agreement (as defined in the Initial Form 8-K), copies of which are filed as exhibits to this Current Report on Form 8-K.
Item 2.03 Creation of a Direct Financial Obligation
The disclosures set forth in Item 2.01 of this Form 8K are incorporated by reference into this Item 2.03.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
Appointment of Chief Financial Officer and Director
On November 20, 2014, the Board of Directors of the Company (the Board) appointed Mr. Scot Ross to serve as Chief Financial Officer of the Company and as member of the Board, effective immediately. Mr. Ross was appointed as a director of the Board pursuant to the terms of the Agreement, which provide that following the Closing Date the Board shall consist of Messrs. Jason Griffith and Scot Ross.
2
Mr. Scot Ross, age 55, was the Executive Vice President and Chief Financial Officer of BCS from 2011 to November 2014. From 2007 to 2010, Mr. Ross served as the Chief Financial Officer of BandCon, Inc., an Internet content service provider. From 2002 to 2007, Mr. Ross served as the Chief Financial Officer and Director of M-Audio, a digital audio and music recording company that was sold to Avid Technologies in 2004. From 2000 to 2002, he was the President and Chief Executive Officer of E-Commerce Exchange, a provider of e-commerce solutions, which was later sold to iPayment, Inc. From 1997 to 2000, Mr. Ross served as the Vice President and Chief Financial Officer of Fresh Start Bakeries, Inc., a supplier to McDonalds Corporation. Prior to that, Mr. Ross held executive financial and accounting management positions at venture backed private companies in various industries. Mr. Ross holds a B.S. from the University of Southern California.
In connection with his appointment as the Chief Financial Officer, on November 20, 2014, Mr. Ross entered into an employment agreement (the CFO Employment Agreement) with the Company. The CFO Employment Agreement has an initial term of five years (the Initial Term) and can be renewed automatically thereafter for one year until ten years after the date of the CFO Employment Agreement (Renewal Term), unless terminated early by the Company or Mr. Ross.
Concurrently, on November 20, 2014, Mr. Jason Griffith, the Chief Executive Officer of the Company, entered into an employment agreement (the CEO Employment Agreement) with the Company.
The agreements for both executives are filed as Exhibits to this 8-K. Both will receive an annual base salary of $180,000, which will be increased at least by 5% per year. They may be eligible to receive discretionary bonuses or acquisition bonuses at the sole discretion of the Board of its Compensation Committee. In addition, the Executives will each be granted the following two stock options under the Companys 2014 Inducement Award Plan, each with an exercise price of $0.50 per share:
·
A service-based stock option to purchase 1,200,000 shares of Common Stock. This Option vests with respect to 200,000 shares on November 20, 2014, and the balance will vest in a series of twenty (20) equal installments on the last day of each complete calendar quarter over the five (5)-year period commencing on December 31, 2014, subject to their continuous service with the Company.
3
·
A performance-based stock option to purchase 2,200,000 shares of Common Stock. This option will vest and become exercisable for all of the shares on November 21, 2023, provided that the Executive remains in continuous service with the Company on such date. The shares subject to the option will vest as follows: (a) if Company achieves annual net revenues between $100 million and $150 million in any given year, an additional 200,000 shares shall immediately vest; (b) if the Company achieves net revenues between $150 million and $200 million in any given year, an additional 400,000 shares shall immediately vest; (c) if the Company achieves annual net revenues between $200 million and $300 million in any given year, an additional 600,000 shares shall immediately vest; and (d) if the Company achieves annual net revenues in excess of $300 million in any given year, an additional 1,000,000 shares shall immediately vest (until in each case the option is fully vested). In the event of any vesting event in (a) through (d) above where net income as a percentage of net revenues exceeds 10%, then the shares vesting on such event shall be increased by 50%. In the event net income as a percentage of net revenues for such year is less than 5%, then the shares vesting on such event shall be decreased by 50%.
In the event the Company terminates the Executives employment for any reason or if the Executive resigns, the Company is required pay certain separation benefits, including (i) unpaid annual salary earned through the termination date; (ii) unused vacation; (iii) accrued and unpaid expenses; and (iv) other vested and accrued benefits to which he is entitled under the Companys employee benefit plan. In the event the Executive voluntarily resigns for good reason (as defined in their Employment Agreement) or the Company terminates their employment for any reason other than for cause (as defined under the Employment Agreement), the Company will be required to pay certain termination benefits, including (i) a lump sum payment equal to the greater of (A) unpaid annual salary through the end of the Initial Term or Renewal Term or (B) two years of annual salary and (ii) COBRA reimbursement.
On November 20, 2014, the Company issued a press release announcing the appointment of Mr. Ross, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference.
Appointment of President
On November 20, 2014, the Board appointed Mr. Kurt Thomet to serve as President of the Company, effective immediately.
Mr. Kurt Thomet, age 55, was the Founder and President of Quest Solution, Inc. prior to its purchase by Amerigo Energy Inc., the prior name of the Registrant, in January 2014, and he has served as the President of Quest Marketing, Inc., a wholly-owned subsidiary of the Company, since its founding in 1994. Prior to founding Quest Marketing, Inc., from 1993 to 1994, he served as the VAR (value-added-reseller) manager for Percon, Inc. a developer and manufacturer of mobile data terminals before it went public and sold to Spectra Physics. From 1991 to 1993, Mr. Thomet served as the VAR manager for PI System Corp., a venture-backed company developing pen-based tablet computer products. Prior to that from 1988 to 1991, Mr. Thomet served as a sales representative for public company Telxon Inc., a developer of the original Wi-Fi technology that was acquired by Cisco, and Telxon Inc. was sold to Symbol Technologies in 2000.
4
Mr. Thomets contract is for $17,205 per month along with a separate annual bonus amount to be paid equivalent to a 401K contribution for employees.
In January 2014, the Company acquired Quest Solution, Inc. (the Target) for an aggregate purchase price of $16,000,000. As a part of the consideration for the acquisition, the Company issued to Mr. Thomet, who was then a shareholder of the Target, a promissory note for an original principal amount of $11,031,000 (the Original Thomet Note).
As previously disclosed in the Initial Form 8-K and in connection with the closing of the Transaction, Mr. Thomet has entered into amended and restated secured subordinated promissory notes with the Company to amend and restate the Original Thomet Note (the Restated Thomet Notes). The other shareholder of Quest Marketing, Inc. also entered into an amendment and restated secured subordinated promissory notes with the Company to amend and restate the Original Note (the Restated Zicman Note) with substantially identical terms as the Restated Thomet Notes.
The Restated Thomet Notes bear interest at a fixed rate of 1.89% per annum. The principal balance and accrued interest on the Restated Thomet Notes will be paid in quarterly installments, and the amount of each such quarterly payment will be equal to the greater of $51,975 per quarter or Mr. Thomets pro rata share of the Maximum Payment (based on the then principal balance of the Stockholder Note, the Restated Thomet Notes and Restated Zicman Notes). The term Maximum Payment for each quarter shall be an amount equal to 35% of the net income of the Company and its subsidiaries on a consolidated basis less (i) the Companys consolidated interest expense, provision for taxes, depreciation and amortization and (ii) the amount of any required payments on certain senior indebtedness up to $8,000,000. The Restated Note also provides the minimum 2015 payment on the Notes shall not be less than $2,000,000 of the principal balance and accrued interest on such notes and shall be paid no later than December 31, 2015. All remaining outstanding principal and interests under the Restated Notes are due on December 31, 2018. The Restated Thomet Note contains customary events of defaults, including failure to make payments under the Restated Note and other indebtedness, voluntary and involuntary bankruptcy and a change of control of the Company.
As disclosed in the Initial Form 8-K, Mr. Thomet is also a party to the security agreement (the Security Agreement) pursuant to which the obligations of the Company under the Restated Notes is secured by substantially all of the assets and properties of the Company.
In addition, in January 2014, the Company issued to Mr. Thomet the following warrants to purchase shares of Common Stock:
·
A warrant to purchase 4,000,000 share of Common Stock at an exercise price of $1.00 per share. Such warrant shall vest and become exercisable when the Company reaches $35,000,000 in sales. This warrant expires on January 9, 2016.
·
A warrant to purchase 1,600,000 shares of Common Stock at an exercise price of $3.00 per share. Such warrant shall vest when the Companys securities are listed on NASDAQ, AMEX or a national securities exchange. This warrant expires on January 9, 2017.
5
·
An agreement to issue 1,500,000 shares of Common Stock when the Company reaches $40,000,000 in sales. This agreement expires on January 9, 2014.
The description above in this Item 5.02 is only a summary and qualified in its entirety by the Agreement, the Restated Thomet Notes, the Restated Zicman Notes, the Security Agreement, and the CFO Employment Agreement and CEO Employment Agreement copies of which are filed as exhibits to this Current Report on Form 8-K.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The Company intends to file all financial statements required by Item 9.01(a) of Form 8-K with respect to the Transaction, including any annual and interim financial statements of BCS, no later than 71 calendar days after the date that this Current Report on Form 8-K must be filed.
(b) Pro Forma Financial Information
The Company intends to file all pro forma financial information required by Item 9.01(b) of Form 8-K with respect to the Transaction no later than 71 calendar days after the date that this Current Report on Form 8-K must be filed.
(d) Exhibits.
Exhibit Number |
| Description of Document |
|
| |
4.1 |
| Secured Subordinate Convertible Promissory Note to David Marin* |
4.2 |
| Amended and Restated Secured Subordinated Convertible Promissory Note to Kurt Thomet* |
4.3 |
| Amended and Restated Secured Subordinated Promissory Note to Kurt Thomet* |
4.4 |
| Amended and Restated Secured Subordinated Convertible Promissory Note to George Zicman* |
4.5 |
| Amended and Restated Secured Subordinated Promissory Note to George Zicman* |
4.6 |
| Employment Contract, Scot Ross, Chief Financial Officer* |
4.7 |
| Employment Contract, Jason Griffith, Chief Executive Officer* |
10.1 |
| Stock Purchase Agreement dated November 17, 2014 between the Company, BCS and the BCS Stockholder* |
10.2 |
| Security Agreement dated November 21, 2014 between the Company in favor of David Marin, Kurt Thomet and George Zicman* |
10.3 | Security Agreement dated November 21, 2014 between Bar Code Specialties, Inc. in favor of David Marin, Kurt Thomet and George Zicman* | |
16.5 | Financial statements and footnotes for BCS for the nine months ended September 30, 2014, and for year ended December 31, 2013 and 2012 | |
16.6 | Proforma financials for Quest Solution and Bar Code Specialties as of September 30, 2014, December 31, 2013 and 2012 | |
99.1 |
| Press Release date November 20, 2014 announcing appointment of CFO* |
99.2 |
| Press Release date November 24, 2014 announcing closing of transaction* |
* filed with the original Form 8-K on November 26, 2014
6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
| |
|
| Quest Solution, Inc. | |
|
| ||
January 20, 2014 |
| /s/ Jason F. Griffith |
|
|
| Chief Executive Officer |
|
7
BAR CODE SPECIALTIES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
BAR CODE SPECIALTIES, INC.
TABLE OF CONTENTS
DECEMBER 31, 2013 AND 2012
| Page |
|
|
Report of Independent Registered Public Accounting Firm | 1 |
|
|
Financial Statements: |
|
|
|
Combined Balance Sheets | 2 |
|
|
Combined Statements of Operations | 3 |
|
|
Combined Statements of Stockholders Equity | 4 |
|
|
Combined Statements of Cash Flows | 5 |
|
|
Notes to Financial Statements | 6 - 16 |
2
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Bar Code Specialties, Inc.
Garden Grove, California
We have audited the accompanying balance sheets of Bar Code Specialties, Inc. as of December 31, 2013 and 2012, and the related statements of operations, stockholders equity, and cash flows for each of the years in the two-year period ended December 31, 2013. These financial statements are the responsibility of the entitys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bar Code Specialties, Inc. as of December 31, 2013 and 2012, and the results of its operations, stockholders equity and its cash flows for each of the years in the two-year period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
/s/ L.L. Bradford & Company, LLC
Las Vegas, Nevada
November 14, 2014
3
Bar Code Specialties, Inc. | ||||||
Combined Balance Sheets | ||||||
December 31, 2013 and 2012 | ||||||
| ||||||
Assets |
| 2013 |
| 2012 | ||
Current Assets |
|
|
|
| ||
Cash and cash equivalents |
| $ | 170,973 |
| $ | 576,070 |
Accounts receivable, less allowance for doubtful accounts |
|
| 3,753,091 |
|
| 2,790,244 |
Other receivables |
|
| 554,704 |
|
| 540,735 |
Inventories |
|
| 361,255 |
|
| 576,748 |
Prepaid expenses |
|
| 57,057 |
|
| 82,227 |
Deferred tax asset |
|
| 55,879 |
|
| 57,186 |
Assets Held for Sale |
|
| 107,284 |
|
| - |
Total current assets |
|
| 5,060,243 |
|
| 4,623,210 |
|
|
|
|
|
|
|
Property, plant, and equipment, net |
|
| 157,940 |
|
| 789,486 |
Non-compete agreement |
|
| - |
|
| 400,000 |
Deferred tax asset, non-current |
|
| 147,007 |
|
| 256,685 |
Other assets |
|
| 73,113 |
|
| 82,353 |
Assets held for sale |
|
| 529,147 |
|
| - |
Total Assets |
| $ | 5,967,450 |
| $ | 6,151,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
Accounts payable |
| $ | 1,540,973 |
| $ | 1,278,801 |
Accrued expenses |
|
| 412,288 |
|
| 192,986 |
Accrued payroll |
|
| 57,102 |
|
| 185,349 |
Current maturities of long-term debt |
|
| 153,132 |
|
| 147,267 |
Deferred revenue |
|
| 278,992 |
|
| 315,618 |
Total current liabilities |
|
| 2,442,487 |
|
| 2,120,021 |
Net income/(loss) from continuing operations |
|
|
|
|
|
|
Long term debt, less current maturities |
|
| 499,674 |
|
| 652,733 |
Note payable to stockholder |
|
| 2,163,597 |
|
| 2,263,370 |
Deferred tax liability |
|
| 45,119 |
|
| 60,455 |
Total liabilities |
|
| 5,150,877 |
|
| 5,096,579 |
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
Common stock, no par value; 10,000 shares authorized, issued and outstanding |
|
| 1,616,648 |
|
| 1,616,648 |
Retained earnings (deficit) |
|
| (75) |
|
| 238,507 |
Stockholder's note receivable |
|
| (800,000) |
|
| (800,000) |
Total stockholders' equity |
|
| 816,573 |
|
| 1,055,155 |
Total liabilities and stockholders' equity |
| $ | 5,967,450 |
| $ | 6,151,734 |
4
Bar Code Specialties, Inc. | ||||||
Combined Statements of Operations | ||||||
Years Ended December 31, 2013 and 2012 | ||||||
| ||||||
| ||||||
|
| 2013 |
| 2012 | ||
|
|
|
|
| ||
Net sales from continuing operations |
| $ | 26,299,245 |
| $ | 21,630,369 |
|
|
|
|
|
|
|
Cost of goods sold: |
|
|
|
|
|
|
Labor |
|
| 3,085,063 |
|
| 3,268,088 |
Materials |
|
| 17,782,584 |
|
| 14,435,794 |
Other |
|
| 580,232 |
|
| 497,271 |
Total cost of goods sold |
|
| 21,448,919 |
|
| 18,201,153 |
|
|
|
|
|
|
|
Gross profit |
|
| 4,850,326 |
|
| 3,429,216 |
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
Sales and marketing |
|
| 2,063,486 |
|
| 1,756,002 |
General and administrative |
|
| 1,627,628 |
|
| 1,183,655 |
Research and development |
|
| - |
|
| 322,873 |
Depreciation and amortization |
|
| 69,713 |
|
| 84,120 |
Total operating expenses |
|
| 3,760,827 |
|
| 3,346,650 |
|
|
|
|
|
|
|
Operating income from continuing operations |
|
| 1,089,499 |
|
| 82,566 |
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
Other income (expense), net |
|
| (58,015) |
|
| 10,531 |
Interest expense |
|
| (170,176) |
|
| (143,124) |
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
| 861,308 |
|
| (50,027) |
|
|
|
|
|
|
|
Provision for income taxes /(benefit) |
|
| 344,523 |
|
| (19,998) |
|
|
|
|
|
|
|
Net income/(loss) from continuing operations |
|
| 516,785 |
|
| (30,029) |
|
|
|
|
|
|
|
Discontinued operations (Note 10): |
|
|
|
|
|
|
Loss from discontinued operations, including writedown of assets of $530,000 |
|
| (982,115) |
|
| (597,741) |
Income tax benefit |
|
| (226,748) |
|
| (244,272) |
Loss on discontinued operations |
|
| (755,367) |
|
| (353,469) |
|
|
|
|
|
|
|
Net loss |
| $ | (238,582) |
| $ | (383,498) |
5
Bar Code Specialties, Inc. | |||||||||
Combined Statements of Stockholders Equity | |||||||||
Years Ended December 31, 2013 and 2012 | |||||||||
| |||||||||
| |||||||||
|
| Retained | Stockholder's | Total | |||||
| Common | Earnings | Note | Stockholders' | |||||
| Stock | (Deficit) | Receivable | Equity | |||||
|
|
|
|
| |||||
Balance, December 31, 2011 | $ | 816,648 | $ | 622,005 | $ | - | $ | 1,438,653 | |
|
|
|
|
|
|
|
|
| |
| Stock issuance - Officer |
| 800,000 |
| - |
| (800,000) |
| - |
|
|
|
|
|
|
|
|
| |
| Net loss |
| - |
| (383,498) |
| - |
| (383,498) |
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2012 |
| 1,616,648 |
| 238,507 |
| (800,000) |
| 1,055,155 | |
|
|
|
|
|
|
|
|
| |
| Net loss |
| - |
| (238,582) |
| - |
| (238,582) |
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2013 | $ | 1,616,648 | $ | (75) | $ | (800,000) | $ | 816,573 |
6
Bar Code Specialties, Inc. | ||||||
Combined Statements of Cash Flows | ||||||
Years Ended December 31, 2013 and 2012 | ||||||
| ||||||
|
| 2013 |
| 2012 | ||
Cash flows from operating activities: |
|
|
|
| ||
Net loss |
| $ | (238,582) |
| $ | (383,498) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
| 83,523 |
|
| 92,850 |
Impairment of software of discontinued operation |
|
| 130,000 |
|
| - |
Write-off noncompete asset of discontinued operation |
|
| 400,000 |
|
| - |
Change in deferred income taxes |
|
| 95,649 |
|
| (218,452) |
Interest accrued on note payable to stockholder |
|
| - |
|
| 20,295 |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
| (1,049,255) |
|
| 1,006,612 |
Other receivables |
|
| (87,082) |
|
| (317,070) |
Inventories |
|
| 194,617 |
|
| (155,136) |
Prepaid expenses |
|
| 25,170 |
|
| (43,044) |
Other assets |
|
| - |
|
| 64 |
Accounts payable |
|
| 262,172 |
|
| (842,824) |
Accrued expenses |
|
| 219,302 |
|
| 45,396 |
Accrued payroll |
|
| (128,247) |
|
| (22,004) |
Deferred revenue |
|
| (36,626) |
|
| 29,039 |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| (129,359) |
|
| (787,772) |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
Purchase of property and equipment |
|
| (28,772) |
|
| (40,152) |
Net cash used in investing activities |
|
| (28,772) |
|
| (40,152) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
Borrowings on long-term debt |
|
| - |
|
| 800,000 |
Payments on note payable to stockholder |
|
| (99,773) |
|
| - |
Payments on long term debt |
|
| (147,193) |
|
| (47,479) |
Net cash (used in) provided by financing activities |
|
| (246,966) |
|
| 752,521 |
|
|
|
|
|
|
|
Net decrease in cash |
|
| (405,097) |
|
| (75,403) |
|
|
|
|
|
|
|
Cash and Cash Equivalents: |
|
|
|
|
|
|
Beginning |
|
| 576,070 |
|
| 651,473 |
Ending |
| $ | 170,973 |
| $ | 576,070 |
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 122,285 |
| $ | 124,165 |
Taxes paid |
| $ | 22,000 |
| $ | - |
Issuance of common stock for note receivable |
| $ | - |
| $ | 800,000 |
7
BAR CODE SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
1.
COMPANY BACKGROUND AND ORGANIZATION
The Company was founded in 1992 and later incorporated in California on July 28, 1994, and has its corporate headquarters and warehouse in Garden Grove, California. The Company also has a regional sales office in Florida and a research and development facility in Sanford, North Carolina. The Company has sales employees in four states other than California. The Company sells Automated Information/Data Collection (AIDC) equipment, systems and solutions. The Company also manufactures a wide variety of custom labels and sells various related label printing products. Beginning in August 2011, the Company acquired and continued developing radio frequency identification (RFID) technology based solutions for government and commercial applications in its Sanford, NC facility.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Combination
The combined financial statements have been prepared under the accrual basis of accounting, in accordance with accounting principles generally accepted in the United States of America and include the accounts of Bar Code Specialties, Inc. and its wholly owned subsidiary, RFID Resolution Team, Inc. Intercompany balances and transactions have been eliminated in combination.
Use of Estimates
The preparation of 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 and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers cash in operating bank accounts and cash-on-hand as cash equivalents in determining the net change in cash.
The Company maintains cash balances at one financial institution which insures deposits up to the Federal Deposit Insurance Corporation (FDIC) insurance limit. As of and during the years ended December 31, 2013, and 2012 the Company had bank deposits in excess of the FDICs insurance limit. To date, the Company has not experienced any losses in these accounts.
Management believes that the Company is not exposed to any significant credit risk with respect to its cash deposits.
8
BAR CODE SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If the financial condition of the Companys customers were to deteriorate, adversely affecting their ability to make payments, an allowance would be required. Based on managements assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
Other Receivables
The Company has entered into various agreements with key suppliers that allow the Company to earn annual volume incentive rebates from the suppliers, provided a certain cumulative level of purchases is achieved over a certain period of time. The Company recognizes the rebate amounts receivable based on actual company purchase volumes as specified in the agreements. As of December 31, 2013 and 2012, accrued vendor rebates of $395,610 and $190,711 respectively, have been recorded as other receivables and a reduction in the cost of goods sold.
In May 2012, the Company entered into a volume rebate agreement with a bank based on corporate credit card purchases made by the Company during the rebate period. The Company recognizes the rebate amounts earned based on the actual charge card volumes. As of December 31, 2013 and 2012, accrued credit card rebates of $105,984 and $147,491, respectively have been recorded as other receivables and a reduction in the cost of goods sold.
Also included in other receivables are commission advances, loans and advances to employees and anticipated income tax refunds of $53,110 and $202,533, as of December 31, 2013 and 2012, respectively.
9
BAR CODE SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Inventories
Inventories consist primarily of printing materials and are stated at the lower of cost, on a first-in, first-out method, or market. Management routinely evaluates the carrying value of inventory and provides reserves when appropriate to reduce inventories to the lower of cost or market to reflect estimated net realizable value. Inventories as of December 31, 2013 and 2012 consist of the following:
|
| 2013 |
| 2012 | ||
|
|
|
|
| ||
Raw materials |
| $ | 41,495 |
| $ | 83,824 |
Work in process |
|
| 161,858 |
|
| 285,604 |
Finished goods |
|
| 157,902 |
|
| 216,230 |
Less: inventory reserves |
|
| - |
|
| (8,910) |
Inventories, net of reserves |
| $ | 361,255 |
| $ | 576,748 |
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to ten years. Leasehold improvements are expensed over the shorter of the life of the asset or the remaining term of the lease. The cost of normal maintenance and repairs is charged to expense as incurred. Additions and betterments of a major nature are capitalized. When property and equipment are retired from use or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gains or losses are recorded in the financial statements.
Long-lived Assets
Long-lived assets, which include property and equipment, are evaluated for impairment whenever events or changes in circumstances have indicated that an asset may not be recoverable. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
10
BAR CODE SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Long-lived Assets - continued
If the sum of the projected undiscounted cash flows (excluding interest charges) is less than the carrying value of the assets, the assets will be written down to the estimated fair value and a loss will be recognized in income from operations in the period in which the determination is made. See note 9 regarding impairment of certain long-lived assets.
Revenue Recognition
The Company recognizes revenue from the sale of product when title and risk of loss has passed to the customer, which is generally when product is shipped. The Company recognizes revenue from service contracts over the term of the agreements which range from 1 to 5 years.
Advertising Costs
Costs associated with advertising and promoting products are expensed as incurred. During the years ended December 31, 2013 and 2012, advertising and promotion expense, inclusive of trade shows, was approximately $40,089 and $48,823, respectively.
Income Taxes
The Company has adopted authoritative guidance issued by the Financial Accounting Standards Board (FASB) on accounting for uncertainty in income taxes. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance requires that the Company determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is more likely than not of being sustained in the financial statements. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit in the financial statements. Additionally, the interpretation provides guidance on de-recognition, classification, interest and penalties, disclosure and transition. As of December 31, 2013 and 2012, the Company had no accruals for any uncertain income tax positions. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Management believes it is no longer subject to income tax examinations for years prior to 2009.
11
BAR CODE SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Fair Value Measurements
The FASB provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:
Level 1
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2
Inputs to the valuation methodology include:
·
quoted prices for similar assets or liabilities in active markets;
·
quoted prices for identical or similar assets or liabilities in inactive markets;
·
inputs other than quoted prices that are observable for the asset or liability;
·
inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Accordingly, the Company believes the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses to be representative of their fair values based on their short term nature. Additionally, the Company believes carrying value of the line of credit and notes payable approximate the fair value of such debt based on current rates offered to the Company for debt with the same remaining maturities and similar collateral requirements.
12
BAR CODE SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Fair Value Measurements - (Continued)
Additional disclosures regarding liabilities measured at fair value on a recurring basis are as follows:
Description | Total | Level 1 | Level 2 | Level 3 | ||||
December 31, 2013 |
|
|
|
| ||||
Note payable | $ | 652,806 | $ | - | $ | 652,806 | $ | - |
Note payable to stockholder |
| 2,163,597 |
| - |
| 2,163,597 |
| - |
|
|
|
|
|
|
|
|
|
December 31, 2012 |
|
|
|
|
|
|
|
|
Notes payable | $ | 800,000 | $ | - | $ | 800,000 | $ | - |
Note payable to stockholder |
| 2,263,370 |
| - |
| 2,263,370 |
| - |
There were no transfers between Levels 1, 2 and 3 during the years ended December 31, 2013 and 2012.
Consolidation of Variable Interest Entities
The Company accounted for the consolidation of variable interest entities (VIE) under the required provisions of accounting guidance issued by the FASB. In accordance with the accounting guidance, the Company uses a qualitative approach for identifying which enterprise should consolidate a variable interest entity, based on which enterprise has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb the losses of, or the right to receive the benefits from, the entity that could potentially be significant to the variable interest entity. These considerations impact the way the Company accounts for its existing relationships and determines the consolidation of companies or entities with which the Company has a variable interest. Determination about whether an enterprise should consolidate a variable interest entity is required to be evaluated continuously as changes to existing relationships or future transactions may result in the Company consolidation or deconsolidating its variable interest entities.
13
BAR CODE SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Consolidation of Variable Interest Entities - (Continued)
Beginning with the December 31, 2013 year-end, the Company has early adopted the provisions of ASU 2014-07, which permit the Company to elect an alternative not to apply VIE guidance to certain related party lessor entities. This alternative accounting policy for privately held companies can be applied to common control leasing arrangements, in place of the previously required VIE guidance, if (a) the Company and the lessor entity are under common control, (b) the Company has a lease arrangement with the lessor entity, (c) substantially all of the activities between the Company and the lessor entity are related to leasing activities, and (d) if the Company explicitly guarantees or provides collateral for any obligation of the lessor entity related to the asset leased by the Company, then the principal amount of the obligation at the inception of the guarantee or collateral arrangement cannot exceed the value of the asset leased by the Company. The Company met the criteria above with respect to its common control leasing arrangement.
3.
LINE OF CREDIT
The Company entered into a line of credit with a bank which provides for borrowings up to $2,500,000. The agreement expires on July 1, 2014. Advances against the line of credit are secured by substantially all Company assets and are guaranteed by the majority stockholder. Interest on borrowings is at LIBOR plus 2.9% at December 31, 2013. As of December 31, 2013 and 2012, outstanding borrowings were $0 and $0, respectively. The agreement requires the Company to maintain a minimum on a fixed charge coverage ratio, and certain other financial ratios, as defined. At December 31, 2013 the Company was in compliance with these covenants, while for December 31, 2012, the Company was not in compliance with these covenants.
4.
LITIGATION
The Company is subject to legal proceedings that arise in the ordinary course of business. In the opinion of management, the aggregate liability, if any, with respect to these actions will not materially affect the financial position, results of operations or cash flows of the Company.
14
BAR CODE SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
5.
INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2013 and 2012 is as
follows:
Current income tax | 2013 |
| 2012 | |||
| Federal | $ | 22,000 |
| $ | (47,418) |
| State |
| 126 |
|
| 1,600 |
Total current tax provision |
| 22,126 |
|
| (45,818) | |
|
|
|
|
|
| |
Deferred income tax |
|
|
|
|
| |
| Federal |
| 81,302 |
|
| (185,684) |
| State |
| 14,347 |
|
| (32,768) |
Total deferred tax provision (benefit) |
| 95,649 |
|
| (218,452) | |
|
|
|
|
|
| |
Total income tax provision (benefit) | $ | 117,775 |
| $ | (264,270) |
The components of deferred tax assets and liabilities as of December 31, 2013 and 2012 are as follows:
Deferred tax assets | 2013 |
| 2012 | |||
| Reserves and allowances | $ | 55,879 |
| $ | 57,186 |
| Impairment of discontinued operations |
| 80,000 |
|
| - |
| Net operating loss carry-forward |
| 67,007 |
|
| 256,685 |
Deferred tax liabilities: |
|
|
|
|
| |
Fixed asset |
| (45,119) |
|
| (60,455) | |
Net deferred tax asset | $ | 157,767 |
| $ | 253,416 |
The company has net operating loss carry-forwards to offset Federal and California taxable income of approximately $171,000 and $150,000, respectively as of December 31, 2013. These carry-forwards expire in 2032.
The effective tax rate differs from the statutory Federal tax rate of 34 percent due to state income taxes and the non-deductibility of a portion of the RFID asset impairment.
15
BAR CODE SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
6.
NOTES PAYABLE
Notes payable at December 31, consist of the following:
| 2013 | 2012 |
|
|
|
Note payable to a bank in monthly fixed installments of $14,837 including interest at 4.23% through December 15, 2017. The note is secured by substantially all of the Companys assets and is guaranteed by the majority stockholder. | $ 652,806 | $ 800,000 |
|
|
|
Less: current portion | (153,132) | (147,267) |
|
|
|
Total long-term portion of notes payable | $ 499,673 | $ 652,733 |
Future principal maturities are as follows:
Year Ending December 31, |
|
|
|
2014 | $ 153,132 |
2015 | 159,733 |
2016 | 166,623 |
2017 | 173,318 |
| $ 652,806 |
7.
LEASES
The Company has both a third party capital lease relating to a company automobile and commercial real estate operating lease with the majority shareholder for the companys primary office and warehouse location in Garden Grove, CA. The following is a schedule of future minimum equipment rental and facility lease payments required under third party capital and related party operating leases that have initial or remaining lease terms in excess of one year as of December 31, 2013. Future commitments under the leases are as follows:
December 31, |
|
2014 | $ 125,177 |
2015 | 125,177 |
2016 | 125,177 |
2017 | 125,177 |
2018 | 115,157 |
Thereafter | 324,000 |
|
|
Total | $ 939,865 |
16
BAR CODE SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
7.
LEASES - (Continued)
Rental expense paid to third parties for the years ended December 31, 2013 and 2012 was approximately $119,000 per year.
8.
DUE TO RELATED PARTIES / RELATED PARTY TRANSACTIONS
Note payable to stockholder consists of cash advances made from the Companys majority stockholder to the Company evidenced by a note agreement. Total interest, computed at 5.5% per annum was either paid or accrued to the stockholder by the Company. During the years ended December 31, 2013 and 2012, interest expense on this note was $122,825 and $124,165, respectively. The stockholder note is subordinated to the line of credit and term loan agreement with the bank.
In addition, the Company is paying monthly operating lease real estate rental payments of $9,000 to its majority stockholder. A total of $108,000 was paid to the majority stockholder during the years ended December 31, 2013 and 2012, respectively for building rent.
9.
IMPAIRMENT OF LONG-LIVED ASSET
The Company announced a plan to dispose of the RFID Division on August 29, 2013. Accordingly, the Company evaluated the ongoing value of the developed software. Based on this valuation, the software was determined to have a current value of $400,000 which is less than the carrying value of $530,000. This resulted in a $130,000 write-down of the asset, which was included in the discontinued operations adjustment for 2013.
10.
DISCONTINUED OPERATIONS
The disposal of the RFID division is consistent with the Company's long-term strategy to focus its activities in the areas of barcode scanning reselling and distribution, and to divest unrelated activities. The disposal of the RFID division is consistent with the Company's long-term strategy to focus its activities in the areas of barcode scanning reselling and distribution, and to divest unrelated activities. At December 31, 2013, the carrying amount of the assets of the RFID division are as follows:
17
BAR CODE SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
10.
DISCONTINUED OPERATIONS - (Continued)
Assets classified as held for sale |
| |
Cash | $ | 178 |
Accounts receivable, net |
| 86,409 |
Inventories |
| 20,697 |
Current assets held for sale | $ | 107,284 |
|
|
|
Other assets |
| $ 82,352 |
Software and equipment, net |
| 446,795 |
Non-current assets held for sale | $ | 529,147 |
11.
SUBSEQUENT EVENTS
In October 2014, an $800,000 non-recourse, non-interest bearing stockholders note receivable that was secured by a stock purchase agreement between a minority stockholder and the company was cancelled by written agreement with the company, without compensation. The shares were returned to the company and cancelled.
18
Quest Solution, Inc. | ||||||||||
Pro-Forma Consolidated Balance Sheet | ||||||||||
December 31, 2012 | ||||||||||
(unaudited) | ||||||||||
|
|
|
|
|
| |||||
| Quest Solution, Inc. | Quest Marketing, Inc | Bar Code Specialties, Inc. | Pro-Forma | Pro-Forma | |||||
|
|
|
| Adjustments | Consolidated | |||||
ASSETS |
|
|
|
|
| |||||
Current assets: |
|
|
|
|
| |||||
Cash | $ | 55 | $ | 117,366 | $ | 576,070 |
| - | $ | 693,491 |
Account receivable |
| - |
| 2,861,084 |
| 2,790,245 |
| - |
| 5,651,329 |
Inventory |
| - |
| 149,166 |
| 576,748 |
| - |
| 725,914 |
Prepaids |
| - |
| 19,592 |
| 82,226 |
| - |
| 101,818 |
Prepaids, related party |
| - |
| 645,333 |
| - |
| - |
| 645,333 |
Deferred tax asset, current |
| - |
| - |
| 57,186 |
| - |
| 57,186 |
Loan receivable, related party |
| - |
| 544,575 |
| - |
| - |
| 544,575 |
Total current assets |
| 55 |
| 4,337,116 |
| 4,082,475 |
| - |
| 8,419,646 |
|
|
|
|
|
|
|
|
|
|
|
Fixed assets: |
|
|
|
|
|
|
|
|
|
|
Total fixed assets |
| - |
| 60,308 |
| 789,485 |
| - |
| 849,793 |
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
Other assets |
| - |
| - |
| 879,774 |
| - |
| 879,774 |
Deposits |
| 950 |
| 3,450 |
| - |
| - |
| 4,400 |
Intangibles |
| - |
| 44,759 |
| 400,000 |
| - |
| 444,759 |
Total other assets |
| 950 |
| 48,209 |
| 1,279,774 |
| - |
| 1,328,933 |
|
|
|
|
|
|
|
|
|
|
|
Total assets | $ | 1,005 | $ | 4,445,633 | $ | 6,151,734 | $ | - | $ | 10,598,372 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities | $ | 38,087 | $ | 1,972,401 | $ | 1,471,789 | $ | - | $ | 3,482,277 |
Accounts payable - related party |
| 154,732 |
| - |
| - |
| - |
| 154,732 |
Sales tax payable |
|
|
| 126,645 |
| - |
| - |
| 126,645 |
Payroll liabilities |
| 108,000 |
| 487,707 |
| 185,348 |
| - |
| 781,055 |
Accrued Interest - related Parties |
| 36,571 |
| - |
| - |
| - |
| 36,571 |
Unearned revenue |
|
|
| 88,787 |
| 315,618 |
| - |
| 404,405 |
Line of credit & interest accrued |
| - |
| 92,199 |
| - |
| - |
| 92,199 |
Note payable, current |
| - |
| - |
| 147,267 |
| - |
| 147,267 |
Judgment payable |
| 120,000 |
| - |
| - |
| - |
| 120,000 |
Total current liabilities |
| 457,390 |
| 2,767,739 |
| 2,120,024 |
| - |
| 5,345,153 |
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
Long term debt |
| - |
| - |
| 652,733 |
| - |
| 652,733 |
Deferred Taxes |
| - |
| - |
| 60,455 |
| - |
| 60,455 |
Long term debt, related party |
| - |
| - |
| 2,263,370 |
| - |
| 2,263,370 |
Total liabilities |
| 457,390 |
| 2,767,739 |
| 5,096,581 |
| - |
| 8,321,710 |
|
|
|
|
|
| - |
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
Preferred stock; $0.001 par value; 25,000,000 shares authorized 500,000 shares outstanding as of December 31, 2012 |
| 500 |
| - |
| - |
| - |
| 500 |
Common stock; $0.001 par value; 100,000,000 shares authorized; 24,124,824 shares outstanding as of December 31, 2012 |
| 24,124 |
| 1,677,894 |
| 1,616,648 |
| (3,294,542) |
| 24,124 |
Additional paid-in capital |
| 15,441,512 |
| - |
| - |
| 2,494,542 |
| 17,936,054 |
Shareholder note receivable |
| - |
| - |
| (800,000) |
| 800,000 |
| - |
Accumulated (deficit) |
| (15,922,521) |
| - |
| 238,506 |
| - |
| (15,684,015) |
Total Stockholders' Equity |
| (456,385) |
| 1,677,894 |
| 1,055,154 |
| - |
| 2,276,663 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity | $ | 1,005 | $ | 4,445,633 | $ | 6,151,734 | $ | - | $ | 10,598,372 |
Quest Solution, Inc. | |||||||||||||||
Pro-Forma Consolidated Statement | |||||||||||||||
For the Year Ended December 31, 2012 | |||||||||||||||
(unaudited) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Quest Solution, Inc. |
| Quest Marketing, Inc |
| Bar Code Specialties, Inc. |
| Pro-Forma |
| Pro-Forma | |||||
|
|
|
|
|
|
|
| Adjustments |
| Consolidated | |||||
|
|
|
|
|
|
|
|
|
|
| |||||
Revenue |
|
|
|
|
|
|
|
|
|
| |||||
Sales |
| $ | 1,248 |
| $ | 20,666,119 |
| $ | 21,630,372 |
| $ | - |
| $ | 42,297,739 |
Allowance and discounts |
|
| - |
|
| (625,536) |
|
| - |
|
| - |
|
| (625,536) |
Net sales |
|
| 1,248 |
|
| 20,040,583 |
|
| 21,630,372 |
|
| - |
|
| 41,672,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| - |
|
| 16,168,572 |
|
| 18,184,833 |
|
| - |
|
| 34,353,405 |
Cost of sales - related party |
|
| - |
|
| 700,333 |
|
| - |
|
| - |
|
| 700,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 1,248 |
|
| 3,171,678 |
|
| 3,445,538 |
|
| - |
|
| 6,618,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
| 671 |
|
| - |
|
| - |
|
| - |
|
| 671 |
Depreciation and amortization |
|
| - |
|
| 109,997 |
|
| 84,120 |
|
| - |
|
| 194,118 |
Salary and employee benefits |
|
| - |
|
| 2,584,198 |
|
| 1,768,721 |
|
| - |
|
| 4,352,919 |
Professional fees |
|
| 186,326 |
|
| - |
|
| - |
|
| - |
|
| 186,326 |
General and administrative expenses |
|
| 4,635 |
|
| 822,075 |
|
| 1,508,813 |
|
| - |
|
| 2,335,524 |
Total expenses |
|
| 191,632 |
|
| 3,516,271 |
|
| 3,361,654 |
|
| - |
|
| 7,069,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense |
|
| - |
|
| (98,820) |
|
| (8,330) |
|
| - |
|
| (107,150) |
Provision for income taxes |
|
| - |
|
| - |
|
| (264,270) |
|
|
|
|
| (264,270) |
Interest expenses, net |
|
| 980 |
|
| 2,158 |
|
| 142,241 |
|
| - |
|
| 145,379 |
|
|
| 980 |
|
| (96,662) |
|
| (130,359) |
|
| - |
|
| (226,041) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (191,364) |
| $ | (247,931) |
| $ | 214,243 |
| $ | - |
| $ | (225,051) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
| - |
|
| - |
|
| (597,741) |
|
|
|
|
| (597,741) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) after discontinued operations |
| $ | (191,364) |
| $ | (247,931) |
| $ | (383,497) |
| $ | - |
| $ | (822,792) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 24,194,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (0.01) |
Net loss after discontinued operations per share - basic |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (0.01) |
Quest Solution, Inc. | ||||||||||
Pro-Forma Consolidated Balance Sheet | ||||||||||
December 31, 2013 | ||||||||||
(unaudited) | ||||||||||
|
|
|
|
|
| |||||
| Quest Solution, Inc. | Quest Marketing, Inc | Bar Code Specialties, Inc. | Pro-Forma | Pro-Forma | |||||
|
|
|
| Adjustments | Consolidated | |||||
ASSETS |
|
|
|
|
| |||||
Current assets: |
|
|
|
|
| |||||
Cash | $ | 13,302 | $ | 1,950,121 | $ | 170,973 |
| - | $ | 2,134,396 |
Account receivable |
| 1,559 |
| 3,444,744 |
| 3,753,091 |
| - |
| 7,199,394 |
Inventory |
| - |
| 59,741 |
| 361,255 |
| - |
| 420,996 |
Prepaids |
| 76,032 |
| 39,276 |
| 57,057 |
| - |
| 172,365 |
Note receivable |
| 23,262 |
| - |
| - |
| - |
| 23,262 |
Deferred tax asset, current |
| - |
| - |
| 55,879 |
| - |
| 55,879 |
Prepaids, related party |
| - |
| 1,273,292 |
| - |
| - |
| 1,273,292 |
Loan receivable, related party |
| 78,733 |
| 688,676 |
| - |
| - |
| 767,409 |
Total current assets |
| 192,888 |
| 7,455,850 |
| 4,398,255 |
| - |
| 12,046,993 |
|
|
|
|
|
|
|
|
|
|
|
Fixed assets: |
|
|
|
|
|
|
|
|
|
|
Total fixed assets |
| - |
| 68,081 |
| 157,941 |
| - |
| 226,022 |
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
Other assets |
| - |
| - |
| 774,823 |
| - |
| 774,823 |
Assets held for sale |
| - |
| - |
| 636,431 |
| - |
| 636,431 |
Deposits |
| 950 |
| 3,450 |
| - |
| - |
| 4,400 |
Intangibles |
| 2,212,400 |
| 26,246 |
| - |
| - |
| 2,238,646 |
Total other assets |
| 2,213,350 |
| 29,696 |
| 1,411,254 |
| - |
| 3,654,300 |
|
|
|
|
|
|
|
|
|
|
|
Total assets | $ | 2,406,238 | $ | 7,553,627 | $ | 5,967,450 | $ | - | $ | 15,927,315 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities | $ | 278,010 | $ | 3,939,641 | $ | 1,953,262 | $ | - | $ | 6,170,913 |
Accounts payable - related party |
| 42,000 |
| - |
| - |
| - |
| 42,000 |
Sales tax payable |
| - |
| 217,509 |
| - |
| - |
| 217,509 |
Payroll liabilities |
| 45,000 |
| 781,343 |
| 57,102 |
| - |
| 883,445 |
Advances, related party |
| 32,442 |
| - |
| - |
| - |
| 32,442 |
Unearned revenue |
| - |
| 44,992 |
| 278,992 |
| - |
| 323,984 |
Line of credit & interest accrued |
| 97,491 |
| - |
| - |
| - |
| 97,491 |
Other liabilities, short term |
| 20,000 |
| - |
| 153,132 |
| - |
| 173,132 |
Current portion of long term convertible debt |
| 25,000 |
| - |
| - |
| - |
| 25,000 |
Total current liabilities |
| 539,943 |
| 4,983,485 |
| 2,442,488 |
| - |
| 7,965,916 |
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
Long term debt |
| 1,975,000 |
| - |
| 499,674 |
| - |
| 2,474,674 |
Deferred Taxes |
| - |
| - |
| 45,119 |
| - |
| 45,119 |
Long term debt, related party |
| - |
| - |
| 2,163,597 |
| - |
| 2,163,597 |
Total liabilities |
| 2,514,943 |
| 4,983,485 |
| 5,150,878 |
| - |
| 12,649,306 |
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
Preferred stock; $0.001 par value; 25,000,000 shares authorized 3,500,000 shares outstanding as of December 31, 2013 |
| 3,500 |
| - |
| - |
| - |
| 3,500 |
Common stock; $0.001 par value; 100,000,000 shares authorized; 34,935,416 shares outstanding as of December 31, 2013 |
| 34,935 |
| 293,156 |
| 1,616,648 |
| (1,909,804) |
| 34,935 |
Unamortized stock-based compensation |
| (23,400) |
|
|
|
|
|
|
| (23,400) |
Unissued shares |
| 360 |
|
|
|
|
|
|
| 360 |
Shareholder note receivable |
| - |
| - |
| (800,000) |
| 800,000 |
| - |
Additional paid-in capital |
| 16,919,705 |
| - |
| - |
| 1,109,804 |
| 18,029,509 |
Accumulated (deficit) |
| (17,043,805) |
| 2,276,986 |
| (76) |
| - |
| (14,766,895) |
Total Stockholders' Equity |
| (108,705) |
| 2,570,142 |
| 816,572 |
| - |
| 3,278,009 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity | $ | 2,406,238 | $ | 7,553,627 | $ | 5,967,450 | $ | - | $ | 15,927,315 |
Quest Solution, Inc. | |||||||||||||||
Pro-Forma Consolidated Statement | |||||||||||||||
For the Year Ended December 31, 2013 | |||||||||||||||
(unaudited) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Quest Solution, Inc. |
| Quest Marketing, Inc |
| Bar Code Specialties, Inc. |
| Pro-Forma |
| Pro-Forma | |||||
|
|
|
|
|
|
|
| Adjustments |
| Consolidated | |||||
|
|
|
|
|
|
|
|
|
|
| |||||
Revenue |
|
|
|
|
|
|
|
|
|
| |||||
Sales |
| $ | 4,069 |
| $ | 33,922,760 |
| $ | 26,299,243 |
| $ | - |
| $ | 60,226,072 |
Allowance and discounts |
|
| - |
|
| (471,357) |
|
| - |
|
| - |
|
| (471,357) |
Net sales |
|
| 4,069 |
|
| 33,451,403 |
|
| 26,299,243 |
|
| - |
|
| 59,754,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| - |
|
| 27,716,990 |
|
| 21,448,916 |
|
| - |
|
| 49,165,906 |
Cost of sales - related party |
|
| - |
|
| 914,542 |
|
| - |
|
| - |
|
| 914,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 4,069 |
|
| 4,819,871 |
|
| 4,850,327 |
|
| - |
|
| 9,674,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
| 366 |
|
| - |
|
| - |
|
| - |
|
| 366 |
Depreciation and amortization |
|
| - |
|
| 49,506 |
|
| 69,713 |
|
| - |
|
| 119,219 |
Salary and employee benefits |
|
| 274,375 |
|
| 2,849,280 |
|
| 2,063,489 |
|
| - |
|
| 5,187,144 |
Professional fees |
|
| 710,374 |
|
| - |
|
| - |
|
| - |
|
| 710,374 |
General and administrative expenses |
|
| 11,397 |
|
| 966,056 |
|
| 1,627,626 |
|
| - |
|
| 2,605,079 |
Total expenses |
|
| 996,512 |
|
| 3,864,842 |
|
| 3,760,828 |
|
| - |
|
| 8,622,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense |
|
| - |
|
| (163,588) |
|
| 58,014 |
|
| - |
|
| (105,574) |
Gain on debt settlement |
|
| (133,593) |
|
| - |
|
| - |
|
| - |
|
| (133,593) |
Interest income |
|
| (16,266) |
|
| - |
|
| - |
|
| - |
|
| (16,266) |
Provision for income taxes |
|
| - |
|
| - |
|
| 117,775 |
|
| - |
|
| 117,775 |
Interest expenses, net |
|
| 278,700 |
|
| 1,762 |
|
| 170,176 |
|
| - |
|
| 450,638 |
Total other (income) expense |
|
| 128,841 |
|
| (161,826) |
|
| 345,965 |
|
| - |
|
| 312,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (1,121,284) |
| $ | 1,116,855 |
| $ | 743,534 |
| $ | - |
| $ | 739,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
| - |
|
| - |
|
| (982,116) |
|
| - |
|
| (982,116) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) after discontinued operations |
| $ | (1,121,284) |
| $ | 1,116,855 |
| $ | (238,582) |
| $ | - |
| $ | (243,011) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 26,396,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share - basic |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 0.03 |
Net income per share - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 0.03 |
Net loss after discontinued operations per share - basic |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (0.01) |
Quest Solution, Inc. | ||||||||
Pro-Forma Balance Sheet | ||||||||
September 30, 2014 | ||||||||
(unaudited) | ||||||||
|
|
|
|
| ||||
|
|
|
|
| ||||
| Quest Solution, Inc. | Bar Code Specialties, Inc. | Pro-Forma | Pro-Forma | ||||
|
|
| Adjustments | Consolidated | ||||
ASSETS |
|
|
|
| ||||
Current assets: |
|
|
|
| ||||
Cash | $ | 1,584,699 | $ | 655,845 | $ | - | $ | 2,240,544 |
Account receivable |
| 4,505,617 |
| 4,151,628 |
| - |
| 8,657,245 |
Inventory |
| 63,552 |
| 1,676,627 |
| - |
| 1,740,179 |
Prepaids |
| 289,590 |
| 55,199 |
| - |
| 344,789 |
Prepaid related party |
| 231,508 |
| - |
| - |
| 231,508 |
Loan receivable |
| 500 |
| 1,014,099 |
| - |
| 1,014,599 |
Total current assets |
| 6,675,466 |
| 7,553,398 |
| - |
| 14,228,864 |
|
|
|
|
|
|
|
|
|
Fixed assets: |
|
|
|
|
|
|
|
|
Total fixed assets |
| 69,530 |
| 102,955 |
| - |
| 172,485 |
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
Other assets |
| - |
| 254,363 |
| - |
| 254,363 |
Assets held for sale |
| - |
| 659,422 |
| - |
| 659,422 |
Deposits |
| 4,400 |
| - |
| - |
| 4,400 |
Goodwill |
| 14,691,372 |
| - |
| - |
| 14,691,372 |
Intangibles |
| 469,214 |
| - |
| - |
| 469,214 |
Total other assets |
| 15,164,986 |
| 913,785 |
| - |
| 16,078,771 |
|
|
|
|
|
|
|
|
|
Total assets | $ | 21,909,982 | $ | 8,570,138 | $ | - | $ | 30,480,120 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities | $ | 4,949,817 | $ | 2,443,293 | $ | - | $ | 7,393,110 |
Accounts payable - related party |
| 15,678 |
| - |
| - |
| 15,678 |
Deferred revenue |
| - |
| 2,313,538 |
| - |
| 2,313,538 |
Payroll liabilities |
| 413,670 |
| 391,456 |
| - |
| 805,126 |
Accrued payroll, related party |
| 180,000 |
| - |
| - |
| 180,000 |
Advances, related party |
| 101,456 |
| - |
| - |
| 101,456 |
Loan payable |
| 10,000 |
| 153,132 |
| - |
| 163,132 |
Line of credit & interest accrued |
| - |
| 75,000 |
| - |
| 75,000 |
Other liabilities |
| 755,344 |
| - |
| - |
| 755,344 |
Note payable, related party |
| 834,960 |
| - |
| - |
| 834,960 |
Current portion of long-term debt |
| 3,155,250 |
| - |
| - |
| 3,155,250 |
Total current liabilities |
| 10,416,175 |
| 5,376,419 |
| - |
| 15,792,594 |
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
Long term debt |
| - |
| 385,519 |
| - |
| 385,519 |
Deferred Taxes |
| - |
| 29,783 |
| - |
| 29,783 |
Long term debt, related party |
| 11,251,000 |
| 2,028,700 |
| - |
| 13,279,700 |
Total liabilities |
| 21,667,175 |
| 7,820,421 |
| - |
| 29,487,596 |
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Preferred stock; $0.001 par value; 25,000,000 shares authorized 500,000 shares outstanding as of September 30, 2014 |
| 500 |
| - |
| - |
| 500 |
Common stock; $0.001 par value; 100,000,000 shares authorized; 33,460,416 shares outstanding of September 30, 2014 |
| 33,460 |
| - |
| - |
| 33,460 |
Common stock-authorized and unissued; 755,592 shares and no shares as of September 30, 2013 |
| - |
| 1,616,648 |
| (1,616,648) |
| - |
Shareholder note receivable |
|
|
| (800,000) |
| 800,000 |
| - |
Additional paid-in capital |
| 17,205,649 |
| - |
| 816,648 |
| 18,022,297 |
Accumulated (deficit) |
| (16,996,802) |
| (66,931) |
| - |
| (17,063,733) |
Total Stockholders' Equity |
| 242,807 |
| 749,717 |
| - |
| 992,524 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity | $ | 21,909,982 | $ | 8,570,138 | $ | - | $ | 30,480,120 |
Quest Solution, Inc. | ||||||||
Pro-Forma Consolidated Statement | ||||||||
For the Nine Months Ended September 30, 2014 | ||||||||
(unaudited) | ||||||||
|
|
|
|
| ||||
|
|
|
|
| ||||
| Quest Solution, Inc. | Bar Code Specialties, Inc. | Pro-Forma | Pro-Forma | ||||
|
|
| Adjustments | Consolidated | ||||
|
|
|
|
| ||||
Revenue |
|
|
|
| ||||
Sales | $ | 26,140,868 | $ | 17,790,981 | $ | - | $ | 43,931,849 |
Net sales |
| 26,140,868 |
| 17,790,981 |
| - |
| 43,931,849 |
|
|
|
|
|
|
|
|
|
Cost of sales, related party |
| 1,041,784 |
| - |
| - |
| 1,041,784 |
Cost of sales |
| 20,086,597 |
| 14,148,181 |
| - |
| 34,234,778 |
|
|
|
|
|
|
|
|
|
Gross profit |
| 5,012,487 |
| 3,642,800 |
| - |
| 8,655,287 |
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Lease operating expenses |
| - |
| - |
| - |
| - |
Depreciation and amortization |
| 17,889 |
| 30,893 |
| - |
| 48,782 |
Consulting expenses |
| 84,215 |
| - |
| - |
| 84,215 |
Salary and employee benefits |
| 3,895,458 |
| 1,437,973 |
| - |
| 5,333,431 |
Taxes |
| - |
| 25,722 |
| - |
| - |
Professional fees |
| 377,769 |
| - |
| - |
| 377,769 |
General and administrative expenses |
| 723,447 |
| 1,635,281 |
| - |
| 2,358,728 |
Total expenses |
| 5,098,778 |
| 3,129,869 |
| - |
| 8,202,925 |
|
|
|
|
|
|
|
|
|
Other (income) expenses: |
|
|
|
|
|
|
|
|
(Gain) on settlement of debt |
| (181,948) |
| - |
| - |
| (181,948) |
Other income |
| (65,294) |
| (1,074) |
| - |
| (66,368) |
Loss on license settlement |
| 93,578 |
| - |
| - |
| 93,578 |
Loss on note receivable settlement |
| 18,995 |
| - |
| - |
| 18,995 |
Other expenses |
| - |
| 462,101 |
| - |
| 462,101 |
Interest expenses, net |
| 1,375 |
| 118,911 |
| - |
| 120,286 |
Total other (income) expenses |
| (133,294) |
| 579,938 |
| - |
| 446,644 |
|
|
|
|
|
|
|
|
|
Net income (loss) | $ | 47,003 | $ | (67,007) | $ | - | $ | 5,718 |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
|
|
|
|
|
| 33,334,616 |
Weighted average number of common shares outstanding - diluted |
|
|
|
|
|
|
| 40,061,030 |
|
|
|
|
|
|
|
|
|
Net income per share - basic |
|
|
|
|
|
| $ | 0.00 |
Net income per share - diluted |
|
|
|
|
|
| $ | 0.00 |