UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 14, 2015
QUEST SOLUTION, INC.
(Exact name of registrant as specified in charter)
| Delaware | 000-09047 | 20-3454263 | ||
| (State or other jurisdiction | (Commission | (IRS Employer | ||
| of incorporation) | File Number) | Identification No.) |
2580 Anthem Village Dr. Henderson, NV 89052
(Address of Principal Executive Offices)
(702) 399-9777
(Registrant’s 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 2.02. Results of Operations and Financial Condition.
On May 21, 2015, Quest Solution, Inc. (the “Company”) issued a press release (the “Q1 Results Press Release”) announcing financial results for the first quarter ended March 31, 2015, and selected first quarter and year-to-date highlights. A copy of the Q1 Results Press Release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 7.01. Regulation FD Disclosure.
On May 14, 2015, the Company issued a press release (the “Viascan Press Release”) announcing that the Company entered into a Letter of Intent to merge with ViascanQData a leading provider of Data Collection and label-ribbon converter services and technology. A copy of the Viascan Press Release is attached hereto as Exhibit 99.2 and incorporated into this Item 7.01 by reference.
Pursuant to the rules and regulations of the Securities and Exchange Commission, the information in these Items 2.02 and 7.01 disclosures, including Exhibits 99.1 and 99.2, and the information set forth therein, is deemed to have been furnished and shall not be deemed to be “filed” under the Securities Exchange Act of 1934.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit
Number |
Description | |
| 99.1 | Q1 Results Press Release, dated May 21, 2015 | |
| 99.2 | Viascan Press Release, dated May 14, 2015 |
| 2 |
SIGNATURE
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 hereunto duly authorized.
Date: June 15, 2015
| QUEST SOLUTION, INC. | ||
| By: | /s/ Tom Miller | |
| Tom Miller | ||
| Chief Executive Officer | ||
| 3 |
EXHIBIT INDEX
| Exhibit Number |
Description | |
| 99.1 | Q1 Results Press Release, dated May 21, 2015 | |
| 99.2 | Viascan Press Release, dated May 14, 2015 |
| 4 |
Quest Solution Reports First Quarter Results
First Quarter net Revenue of $10.7 Million
HENDERSON, Nev., May 21, 2015 — Quest Solution, Inc., “The Company” (OTCBB: QUES), today announced financial results for the first quarter ended March 31, 2015.
First Quarter and Year-to-Date Highlights
| ● | First quarter Total Revenues of $10.7 million, up 11% compared to the prior year. | |
| ● | Tom Miller named as Chairman of the Board and Chief Executive Officer effective May 1, 2015 | |
| ● | Announced signing of a Letter of Intent to merge with ViascanQData, a leading provider of Data Collection and label-ribbon converter services and technology based in Ontario, Canada. |
First Quarter Comparative Select Pro forma Financial Results
| For the Three Months Ended | ||||||||
| March 31, 2015 | March 31, 2014 | |||||||
| Revenues | $ | 10,675,970 | $ | 9,622,160 | ||||
| Gross profit | $ | 2,394,605 | $ | 1,987,576 | ||||
| Pro forma Gross profit margin | 22.4 | % | 20.6 | % | ||||
| Interest expense | $ | (395,272 | ) | $ | (600 | ) | ||
| Net income (loss) | $ | (422,082 | ) | $ | 246,419 | |||
| Earnings per share - basic | $ | (0.01 | ) | $ | 0.01 | |||
| Earnings per share - diluted | $ | (0.01 | ) | $ | 0.01 | |||
| Weighted average shares outstanding - basic | 35,029,495 | 33,362,776 | ||||||
| Weighted average shares outstanding - diluted | 39,971,337 | 34,630,416 | ||||||
| Deferred revenue, net | $ | 827,228 | $ | - | ||||
| Adjusted EBITDA | $ | 37,197 | $ | 279,412 | ||||
Please refer to the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, and the financial tables included below for the Company’s GAAP financial statements and a reconciliation of GAAP results to Pro Forma Results and other Non-GAAP measures.
“We are just beginning to capitalize on the strategic synergies and cross-selling opportunities related to the combination of Quest and Bar Code Specialties,” commented Tom Miller, Quest Solution’s recently appointed Chief Executive Officer. “Today, we are going to the market with increased scale, a comprehensive, mobile and cloud-based technology solutions offering, and a world-class customer base which we believe we can further penetrate. Our customers are looking for solutions to drive operational efficiency by effectively harnessing technology in order to increase productivity and drive enhanced profitability. Our pipeline of opportunities continues to grow as companies respond to our increased value proposition and I am increasingly excited about the future.”
Scot Ross, Quest’s CFO added, “Beginning with the first quarter of 2015, the Company is recording hardware and service contract revenue and the related costs and expenses over the life of the service agreement, typically 1-5 years. We expect this monthly recurring revenue model will provide greater visibility into the results of operations, less volatility and greater efficiency as we continue to scale the services portion of our business-. As of March 31, 2015, the net revenue deferred into future periods totaled $827,228. This metric represents a leading indicator of our solutions based strategy.”
First Quarter Financial Results
Pro forma Revenue
Revenues for the three month period ended March 31, 2015 increased 11% to $10.7 million compared to $9.63 million for the three months ended March 31, 2014. This increase was due primarily to the acquisition of BCS in November 2014. The increase in revenue excludes the additional $1.57 million of contracts with customers which were sold, and are being recorded over the term of the contract in our deferred net revenue account.
Pro forma Gross Margin
For the first quarter of 2015, gross profit margin was 22.4% of pro forma revenues compared to 20.6% in the first quarter of 2014. The gross margin improvement was due primarily to the removal of the related party cost of goods sold which was reflected on our 2014 financials due to the non-cash reinsurance funds paid when the company was a private company.
Net Income (Loss)
Net loss for the three month period ended March 31, 2015 was $422,000 compared to net income of $246,000 for the three months ended March 31, 2014. The decrease in net income is attributable to $395,000 of interest expense, ($200,000 of which was a non cash debt discount on the accretion of a promissory note issued in the acquisition of Quest Marketing, Inc. in January 2014), as well as the additional costs incurred related to the BCS acquisition in November 2014.
Adjusted EBITDA
The company’s operating expenses during both quarters ended March 31, 2015 and 2014 included non-cash expenses including depreciation, amortization of acquisition intangibles and stock-based compensation for employee and director stock options. Without the effect of these non-cash expenses, Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization (“Adjusted EBITDA”) for the quarter ended March 31, 2015 was approximately $37,197. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP financial results.
Balance Sheet Summary
As of December 31, 2014, the Company had recorded net deferred tax assets of approximately $1.3 million which included net operating loss (“NOLs”) carryforwards for U.S. federal income tax purposes of $11.6 million, and are available to offset future taxable income, if any. The NOLs begin to expire in 2021. This deferred tax asset created an income tax benefit in a gain on the financial statements of the company.
Backlog
The Company’s backlog of signed, contracted orders at March 31, 2015 was approximately $3.66 million. The backlog reflects orders expected to be delivered during 2015.
About Quest Solution, Inc.
Quest Solution, Inc. is a leading provider in the technology, software, and mobile data collection systems business. In November 2014, the Company announced that Bar Code Specialties, Inc. (BCS) joined with Quest Solution, Inc. The Company intends on continuing to acquire existing companies with revenues and positive cash flow.
Quest Solution, Inc. serves as a national mobility and data collection systems integrator with a focus on design, delivery, deployment and support of fully integrated mobile solutions. The Company takes a consultative approach by offering end to end solutions that include hardware, software, communications and full lifecycle management services. The highly tenured team of professionals simplifies the integration process and delivers proven problem solving solutions backed by numerous customer references.
The recent BCS acquisition is in addition to the recently announced creation of a wholly-owned division focused on commercializing Intellectual Property, Patents and Distribution of industry-specific technologies in an array of new verticals. The new division will focus on the acquisition of existing intangibles, which we anticipate will build future value to the company.
On May 14, 2015 Quest announced a letter of intent to merge with ViascanQData. ViascanQData currently serves in excess of 4,000 enterprise customers, mainly in Canada. Unaudited financials indicate annual revenues of about CDN$28 million (approximately $24 million USD), and ViascanQData is currently on track to deliver unaudited double digit EBITDA for 2015. The Company estimates the proforma revenue for the combined entities for 2014 would have been approximately US $83 - 85 million.
Information about Forward-Looking Statements
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995 Statements in this press release relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. This release contains “forward-looking statements” that include information relating to future events and future financial and operating performance. The words “may,” “would,” “will,” “expect,” “estimate,” “can,” “believe,” “potential” and similar expressions and variations thereof are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to: fluctuations in demand for Quest Solution, Inc.’s products, the introduction of new products, the Company’s ability to maintain customer and strategic business relationships, the impact of competitive products and pricing, growth in targeted markets, the adequacy of the Company’s liquidity and financial strength to support its growth, and other information that may be detailed from time-to-time in Quest Solution Inc.’s filings with the United States Securities and Exchange Commission. Examples of such forward looking statements in this release include statements regarding growth in our parts and vehicle sales and increases in our ability to produce new products. For a more detailed description of the risk factors and uncertainties affecting Quest Solution, Inc. please refer to the Company’s recent Securities and Exchange Commission filings, which are available at http://www.sec.gov. Quest Solution, Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Financial Tables Follow
Investor Relations & Financial Media:
Investor Contact:
Hayden IR
Brett Maas
(646) 536-7331
brett@haydenir.com
or
Cameron Donahue
(651) 653-1854
cameron@haydenir.com
Quest Solution, Inc.
Consolidated Statements of Earnings
| For the three months ending March 31, | ||||||||
| 2015 | 2014 | |||||||
| Revenues | ||||||||
| Gross Sales | $ | 10,712,016 | $ | 9,650,265 | ||||
| Less sales returns, discounts, & allowances | (36,046 | ) | (28,105 | ) | ||||
| Total Revenues | 10,675,970 | 9,622,160 | ||||||
| Cost of goods sold | ||||||||
| Cost of goods sold | 8,281,365 | 7,287,323 | ||||||
| Cost of goods sold, related party | - | 347,261 | ||||||
| Total costs of good sold | 8,281,365 | 7,634,584 | ||||||
| Gross profit | 2,394,605 | 1,987,576 | ||||||
| Operating expenses | ||||||||
| General and administrative | 1,012,444 | 245,155 | ||||||
| Salary and employee benefits | 1,324,432 | 1,381,716 | ||||||
| Depreciation and amortization | 25,496 | 7,894 | ||||||
| Stock compensation | 38,624 | 24,499 | ||||||
| Professional fees | 88,480 | 129,775 | ||||||
| Total operating expenses | 2,489,476 | 1,789,039 | ||||||
| Income (loss) from operations | (94,871 | ) | 198,537 | |||||
| Other income (expenses): | ||||||||
| Gain on debt settlement | - | 151,949 | ||||||
| Loss on license settlement | - | (93,578 | ) | |||||
| Loss on note receivable settlement | - | (18,995 | ) | |||||
| Taxes | 113 | - | ||||||
| Interest expense | (395,272 | ) | (600 | ) | ||||
| Other expenses | (392 | ) | - | |||||
| Other income | 68,340 | 9,106 | ||||||
| Total other income (expenses) | (327,211 | ) | 47,882 | |||||
| Net Income Before Income Taxes | (422,082 | ) | 246,419 | |||||
| (Provision) Benefit for Income Taxes | ||||||||
| Deferred | - | - | ||||||
| Current | - | - | ||||||
| Net income (loss) | $ | (422,082 | ) | $ | 246,419 | |||
| Net income (loss) per share - basic | $ | (0.01 | ) | $ | 0.01 | |||
| Net income (loss) per share - diluted | $ | (0.01 | ) | $ | 0.01 | |||
| Weighted average number of common shares outstanding - basic | 35,029,495 | 33,362,776 | ||||||
| Weighted average number of common shares outstanding - diluted | 39,971,337 | 34,630,416 | ||||||
Quest Solution, Inc.
Consolidated Balance Sheets
| As of | ||||||||
| March 31, 2015 | December 31, 2014 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 277,432 | $ | 233,741 | ||||
| Accounts receivable, net of allowances of $52,924 and $62,800, respectively | 8,511,074 | 9,099,229 | ||||||
| Inventory | 502,964 | 606,231 | ||||||
| Prepaids | 296,753 | 191,498 | ||||||
| Other current assets | 389,657 | 377,060 | ||||||
| Total current assets | 9,977,880 | 10,507,759 | ||||||
| Fixed assets, net of accumulated depreciation of $3,062,903 and $1,781,086, respectively | 189,600 | 206,662 | ||||||
| Deferred tax asset | 1,299,417 | 1,299,417 | ||||||
| Goodwill | 14,101,306 | 14,101,306 | ||||||
| Trade name | 2,700,000 | 2,700,000 | ||||||
| Intangibles, net | 464,058 | 466,870 | ||||||
| Customer Relationships | 4,390,000 | 4,390,000 | ||||||
| Other assets | 309,946 | 317,304 | ||||||
| Total assets | $ | 33,432,207 | $ | 33,989,318 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 6,032,839 | $ | 7,406,146 | ||||
| Accounts payable and accrued liabilities, related party | - | 51,806 | ||||||
| Line of credit | 2,513,940 | 1,819,345 | ||||||
| Advances, related party | 47,776 | 50,000 | ||||||
| Accrued payroll and sales tax | 1,581,655 | 917,079 | ||||||
| Deferred revenue, net | 827,228 | - | ||||||
| Current portion of note payable | 300,000 | 310,000 | ||||||
| Notes payable, related parties, current portion | 3,601,650 | 4,201,650 | ||||||
| Other current liabilities | 189,000 | 845,327 | ||||||
| Total current liabilities | 15,094,088 | 15,601,353 | ||||||
| Long term liabilities | ||||||||
| Note payable, related party, net of debt discount | 17,372,975 | 17,007,175 | ||||||
| Deferred tax liability | 29,783 | 29,783 | ||||||
| Other long term liabilities | 144,173 | 157,495 | ||||||
| Total liabilities | 32,641,019 | 32,795,806 | ||||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock; $0.001 par value; 25,000,000 shares authorized 500,000 and 500,000 shares outstanding as of March 31, 2015 and December 31, 2014, respectively. | 500 | 500 | ||||||
| Common stock; $0.001 par value; 100,000,000 shares authorized; 35,029,495 and 35,029,495 shares outstanding of March 31, 2015 and December 31, 2014, respectively. | 35,029 | 35,029 | ||||||
| Additional paid-in capital | 17,919,897 | 17,900,139 | ||||||
| Accumulated (deficit) | (17,164,238 | ) | (16,742,156 | ) | ||||
| Total stockholders’ equity (deficit) | 791,188 | 1,193,512 | ||||||
| Total liabilities and stockholders’ equity | $ | 33,432,207 | $ | 33,989,318 | ||||
Quest Solution, Inc.
Unaudited
Reconciliation of GAAP Measures to Non-GAAP Measures
EBITDA Calculation
| Three Months Ending March 31, | ||||||||
| 2015 | 2014 | |||||||
| EBITDA Calculation: | ||||||||
| Net (loss) Income | $ | (422,082 | ) | $ | 246,419 | |||
| Depreciation & Amortization | $ | 25,496 | $ | 7,894 | ||||
| Income Tax (benefit) | $ | (113 | ) | $ | - | |||
| Interest Expense | $ | 395,272 | $ | 600 | ||||
| EBITDA | $ | (1,427 | ) | $ | 254,913 | |||
| Adjusted EBITDA Calculation: | ||||||||
| EBITDA | $ | (1,427 | ) | $ | 254,913 | |||
| Stock Compensation | $ | 38,624 | $ | 24,499 | ||||
| Stock Issued for Services | $ | 41,900 | ||||||
| Adjusted EBITDA | $ | 37,197 | $ | 321,312 | ||||
Quest
Solution Enters LOI to Merge with Canadian
Company, ViascanQData
Merger
Provides Quest Solution Full North America Coverage,
Increased Market Share and Significantly Expanded Label
Business
HENDERSON, Nev., May 14, 2015 — Quest Solution, Inc., “The Company” (OTCBB: QUES), announced today that the Company has entered into a Letter of Intent (LOI) to merge with ViascanQData (“Viascan”) a leading provider of Data Collection and label-ribbon converter services and technology.
ViascanQData currently serves in excess of 4,000 enterprise customers, mainly in Canada. Unaudited financials indicate annual revenues of about CDN$28 million (approximately $24 million USD), and ViascanQData is currently on track to deliver unaudited double digit EBITDA for 2015. The Company estimates the proforma revenue for the combined entities for 2014 would have been approximately US$83 - 85 million.
The combination is expected to provide a significant discount across Quest’s robust label business through the addition of ViaScanQData’s purchasing volume. While Quest’s previous combination with BCS Solutions was 30% labels and 70% hardware, ViascanQData is approximately 55% labels and 45% hardware. ViascanQData leases a 44,000 square foot facility in Ontario and a 21,000 square foot facility in Montreal and is one of the largest suppliers of labels and ribbons along with being one of the main suppliers of data collection products and services in all of Canada.
Once the transaction is completed, Quest Solution will have a sales force in excess of 45 experienced professionals servicing three countries and strengthened operations management team. All Quest employees will look to provide the Company’s growing suite of services to all customers of Quest, BCS and ViascanQData.
“ViacanQData is an ideal and complementary addition to Quest Solution,” said Tom Miller, Chief Executive Officer of Quest Solution, Inc. “ViascanQData is a proven leader throughout Canada and will blend synergistically into our model. We expect to enjoy immediate buying power benefits (from their label expertise) and on critical supplies, an influx of managerial and sales talent, and perhaps most importantly, access to customers to whom we expect to offer additional services and solutions.”
“The fit with Quest is something we are extremely excited about,” said Gilles Gaudreault, CEO of ViascanQData.
“ViascanQdata, especially with its new manufacturing facility in Ajax, Ontario was ready to aggressively enter the American market which was part of the strategic growth plan from management. Merging with Quest is a giant leap in that direction. Quest market coverage, synergies, sales force and management philosophy was at the heart of our decision. We know that together our growth path is just at its beginning.”
Denis Kurdi, founder of ViascanQData added “I am delighted by the synergies created by this transaction. We now have the ability to offer, to our mutual customers, a more complete products offering from a single source. The ‘no borders’ approach will be a unique differentiator to grow the company.”
Viascan shareholders will receive approximately 5.2 mm restricted shares of Quest Solution’s common stock as consideration for the transaction.
The Company valuation was determined based on a CDN$13,000,000 valuation at the USD$2 price used in the combination with the company’s acquisition of BCS Solutions in November 2014.
The Company expects to close this transaction within the next 60 days.
About ViascanQData Inc.
ViascanQDdata is a Canadian leader in data collection system and identification solutions, covering the country with a coast to coast offering. Founded in 1995, the company specializes in supply chain business process technologies and automated data collection systems. ViascanQData manufactures a full range of labels and ribbons. They also distribute printers, barcode readers, traceability RFID tags and readers, mobile computers, and wireless networks. Headquartered in Montreal, Quebec has regional sales and service offices in Ajax, Montreal, Markham, Winnipeg and Vancouver.
www.viascanqdata.com
About Quest Solution, Inc.
Quest Solution, Inc. is a leading provider in the technology, software, and mobile data collection systems business. In November 2014, the Company announced that Bar Code Specialties, Inc. (BCS) joined with Quest Solution, Inc. The Company intends on continuing to acquire existing companies with revenues and positive cash flow.
Quest Solution, Inc. serves as a national mobility systems integrator with a focus on design, delivery, deployment and support of fully integrated mobile solutions. The Company takes a consultative approach by offering end to end solutions that include hardware, software, communications and full lifecycle management services. The highly tenured team of professionals simplifies the integration process and delivers proven problem solving solutions backed by numerous customer references.
The recent BCS acquisition is in addition to the recently announced creation of a wholly-owned division focused on commercializing Intellectual Property, Patents and Distribution of industry specific technologies in an array of new verticals. The new division will focus on the acquisition of existing intangibles, which we anticipate will provide immediate value to the company.
Quest Solution Investor Relations & Financial Media:
Hayden IR
Brett Maas (646) 536-7331, brett@haydenir.com
or
Cameron Donahue (651) 653-1854, cameron@haydenir.com