Quest Solution Reports Third Quarter 2017 Results

EUGENE, OR–(Marketwired – November 17, 2017) – Quest Solution, Inc. (OTCQB: QUES), a specialty systems integrator focused on field and supply chain mobility announced its financial results for the three and nine-month periods ended September 30, 2017.

Highlights

• Revenues for Q3 2017 of .96 million declined slightly from .56 for Q3 2016
• Improved gross margin of 21.8% for the quarter ended September 30, 2017, compared to 19.6% in Q3-2016
• Salary and employee benefits Operating expenses includes 6,548 of non-cash stock based compensation
• Total operating expenses decreased 8.6% to .1 million for the first nine months ended September 30, 2017 compared to million in the prior year period
• Substantial reduction of net loss from continuing operations to {$content}.9 million for the three months ended, an improvement of .6 million compared to the prior year period
• .6 million reduction in current portion of notes payable
• Management focuses on turnaround plan aiming to strengthen the financial structure and turn to profitability

Quest reported revenues of .96 million for the third quarter ended September 30, 2017 compared to .56 million in the comparable 2016 period. The slight decrease was mainly attributable to unavailability of inventory at the manufacturer which delayed shipments into Q4-2017. Gross margin improved to 21.8% in the third quarter of 2017 compared to 19.6% in the prior year period, primarily due to a 7.1% decrease in the cost of goods sold. During the quarter the Company expensed 6,548 in non-cash stock based compensation. The Company reported improved net loss from continuing operations of 2,882, or a net loss from continuing operations of {$content}.03 per share, as compared to net loss from continuing operations of ,467,290, or a net loss from continuing operations of {$content}.07 per share in the same quarter last year. Adjusted EBITDA (Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization) improved to 9,812, or 2.4% of sales, compared to 0,437 or 1.4% of sales in Q3-2016.

Shai Lustgarten, CEO, commented, “One of our primary goals entering the third quarter was to improve operational efficiency, and our results reflect just that. Not only did gross profit increase as a percentage of sales, we significantly reduced net loss from continuing operations. Moreover, while total operating expenses rose slightly during the quarter, this increase was largely related to 6,548 in non-cash, stock based compensation.”

For the nine months ended September 30, 2017, Quest reported revenues of .9 million, compared to .4 million in the comparable 2016 period. The decrease was primarily related to a temporary unavailability of inventory at the manufacturer, as described above. Gross margin improved to 21.1% in the first nine months of 2017 compared to 20.2% in the same period in 2016, primarily related to a 6.9% decrease in the cost of goods sold. During the period the Company expensed 5,593 in non-cash stock based compensation. Net loss from continuing operations improved significantly on a nine-month basis to .7 million, or a loss of {$content}.05 per share, compared to a net loss from continuing operations of .4 million, or a loss from continuing operations of {$content}.15 per share in the prior year period. Adjusted EBITDA for the nine month period improved to ,405,202, or 3.4% of sales, compared to 3,338, or 1.16% of sales for the comparable period.

Mr. Lustgarten continued, “We are pleased with the initial progress we have made in several areas of our turnaround strategy. An initial priority has been to reduce costs in the business, and we have realized significant efficiencies thus far which should translate into over million in savings in 2018. Second, the balance sheet saw marked improvement, with a .6 reduction in the current portion of our notes payable.”

Mr. Lustgarten concluded, “Quest has built a world class customer base of Fortune 100 companies who look to us to help solve their supply chain needs. This market is evolving quickly and Quest sits in a unique position to drive more profitable growth. To that end, a key focus of the new management team is to offer new and enhanced solutions, with a particular focus on software and services. This year Quest launched the Route Edge software product which has been well received. We saw an increase in our more profitable software and services sales during the quarter and our goal is to continue to grow this portion of our sales mix and better leverage our valuable sales channel.”

Please refer to the financial tables included below for a reconciliation of generally accepted accounting principles in the United States (“GAAP”) to non-GAAP financial results. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP results.

About Quest Solution, Inc.
Quest Solution is a Specialty Systems Integrator focused on Field and Supply Chain Mobility. We are also a manufacturer and distributor of consumables (labels, tags, and ribbons), RFID solutions, and barcoding printers. Founded in 1994, Quest is headquartered in Eugene, Oregon, with offices in the United States.

Rated in the Top 1% of global solution providers, Quest specializes in the design, deployment and management of enterprise mobility solutions including Automatic Identification and Data Capture (AIDC), Mobile Cloud Analytics, RFID (Radio Frequency Identification), and proprietary Mobility software. Our mobility products and services offering is designed to identify, track, trace, share and connect data to enterprise systems such as CRM or ERP solutions. Our customers are leading Fortune 500 companies from several sectors including manufacturing, retail, distribution, food / beverage, transportation and logistics, health care and chemicals / gas / oil.

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, the Company’s ability to manage credit and debt structures from vendors, debt holders and secured lenders, the Company’s ability to successfully integrate its acquisitions, risks related to the sale of Quest Solution Canada Inc. to Viascan Group Inc. 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, among others, statements regarding revenue growth, driving sales, operational and financial initiatives, cost reduction and profitability, and simplification of operations. 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, unless otherwise required by law.

Financial Tables Follow

QUEST SOLUTION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
			For the three months								For the nine months
			ending September 30,								ending September 30,
			2017				2016				2017				2016
Revenues
	Gross Sales		$	13,311,109			$	13,841,279			$	41,594,938			$	44,288,975
	Less sales returns, discounts, & allowances			(347,055	)			(277,128	)			(708,184	)			(849,256	)
Total Revenues				12,964,054				13,564,151				40,886,754				43,439,719
Cost of goods sold
	Cost of goods sold			10,132,067				10,910,089				32,263,124				34,648,909
Total costs of goods sold				10,132,067				10,910,089				32,263,124				34,648,909
Gross profit				2,831,987				2,654,062				8,623,630				8,790,810
Operating expenses
	General and administrative			481,287				505,903				1,308,395				1,571,102
	Salary and employee benefits			2,258,873				1,871,610				6,045,564				6,471,563
	Depreciation and amortization			440,433				442,428				1,324,345				1,347,077
	Professional fees			209,086				192,814				450,509				603,190
Total operating expenses				3,389,679				3,012,755				9,128,813				9,992,932
Income (loss) from operations				(557,692	)			(358,693	)			(505,183	)			(1,202,122	)
Other income (expenses):
	Restructuring expenses			–				(84,317	)			(26,880	)			(544,941	)
	Gain on foreign currency			–				(90,215	)			–				129,589
	Write-off of other assets							(450,000	)							(450,000	)
	Interest expense			(343,092	)			(1,110,804	)			(1,075,147	)			(2,802,980	)
	Other (expenses) income			13,202				3,065				16,122				6,871
Total other expenses				(329,890	)			(1,732,271	)			(1,085,905	)			(3,661,461	)
Net Loss Before Income Taxes				(887,582	)			(2,090,964	)			(1,591,088	)			(4,863,583	)
Provision for Income Taxes
	Deferred			–				–				–				–
	Current			(15,300	)			(376,326	)			(91,409	)			(491,254	)
Total Provision for Income Taxes				(15,300	)			(376,326	)			(91,409	)			(491,254	)
Net loss from continuing operations			$	(902,882	)		$	(2,467,290	)		$	(1,682,497	)		$	(5,354,837	)
Net loss from discontinued operations				–				(3,919,175	)			–				(6,851,875	)
Net Loss attributable to Quest Solution Inc.			$	(902,882	)		$	(6,386,465	)		$	(1,682,497	)		$	(12,206,712
Other Comprehensive Loss
Foreign Currency Adjustments								120,333								(361,744	)
Net Loss attributable to Quest Solution Inc.			$	(902,882	)		$	(6,266,132	)		$	(1,682,497	)		$	(12,568,456	)
Less: Preferred stock – Series C dividend				(47,540	)			(43,968	)			(141,071	)			(62,707	)
Net loss attributable to the common stockholders			$	(950,422	)		$	(6,310,100	)		$	(1,823,568	)		$	(12,631,163	)
Net income (loss) per share – basic			$	(0.03	)		$	(0.18	)		$	(0.05	)		$	(0.34	)
Net income (loss) per share – diluted			$	(0.03	)		$	(0.18	)		$	(0.05	)		$	(0.34	)
Net loss per share from continuing operations – basic			$	(0.03	)		$	(0.07	)		$	(0.05	)		$	(0.15	)
Net loss per share from continuing operations – diluted			$	(0.03	)		$	(0.07	)		$	(0.05	)		$	(0.15	)
Net loss per share from discontinued operations – basic			$	–			$	(0.11	)		$	–			$	(0.19	)
Net loss per share from discontinued operations – diluted			$	–			$	(0.11	)		$	–			$	(0.19	)
Weighted average number of common shares outstanding – basic				35,812,210				35,762,326				35,587,238				36,506,733
Weighted average number of common shares outstanding – diluted				35,812,210				35,762,326				35,587,238				36,506,733

QUEST SOLUTION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
				As of
				September 30, 2017				December 31, 2016
ASSETS
Current assets
	Cash			$	260,642			$	289,480
	Restricted Cash				684,610				665,220
	Accounts receivable, net (Note 5)				8,271,965				10,589,677
	Inventory, net (Note 6)				746,894				531,593
	Prepaid expenses				281,215				272,926
	Other current assets				183,347				772,966
		Total current assets			10,428,673				13,121,862
	Fixed assets, net (Note 7)				98,918				136,835
	Goodwill				10,114,164				10,114,164
	Trade name, net				2,503,731				2,936,481
	Customer Relationships, net				5,592,116				6,435,652
	Other assets				41,613				47,563
Total assets				$	28,779,215			$	32,792,557
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
Current liabilities
	Accounts payable and accrued liabilities			$	13,558,337			$	10,566,066
	Accrued interest on note payable				33,428				–
	Line of credit (Note 10)				3,677,661				5,059,292
	Advances, related party				100,000				100,000
	Accrued payroll and sales tax				1,571,821				1,829,934
	Deferred revenue, net (Note 9)				830,903				879,026
	Current portion of note payable (Note 11)				5,229,496				9,782,925
	Other current liabilities (Note 8)				238,700				227,932
		Total current liabilities			25,240,346				28,445,175
Long term liabilities
	Note payable, related party (Note 12)				17,515,345				17,515,345
	Accrued interest, related party				1,121,818				629,238
	Long term portion of note payable (Note 11)				130,294				130,294
	Deferred revenue, net (Note 9)				418,128				565,423
	Other long term liabilities (Note 8)				415,397				332,270
Total liabilities					44,841,328				47,617,745
Stockholders’ (deficit)
	Series A Preferred stock; {$content}.001 par value; 1,000,000 shares designated and 0 shares outstanding as of September 30, 2017 and December 31, 2016, respectively.				–				–
	Series B Preferred stock; {$content}.001 par value; 1 share designated and 0 shares outstanding as of September 30, 2017 and December 31, 2016, respectively.				–				–
	Series C Preferred stock; {$content}.001 par value; 15,000,000 shares designated, 3,143,530 shares outstanding as of September 30, 2017 and December 31, 2016, respectively, liquidation preference of .00 per share and a cumulative dividend of {$content}.06 per share.				3,144				3,144
	Common stock; {$content}.001 par value; 100,000,000 shares designated, 36,157,422 and 35,095,763 shares outstanding of September 30, 2017 and December 31, 2016, respectively.				36,157				35,095
	Common stock to be repurchased by the Company				(230,490	)			(230,490	)
	Additional paid-in capital				18,887,852				18,302,262
	Accumulated (deficit)				(34,758,776	)			(32,935,199	)
		Total stockholders’ (deficit)			(16,062,113	)			(14,825,188	)
Total liabilities and stockholders’ (deficit)				$	28,779,215			$	32,792,557

QUEST SOLUTION, INC.
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)
		For the three months						For the nine months
		ending September 30,						Ending September 30,
EBITDA Calculation:		2017			2016			2017			2016
Net loss		(902,882	)		(6,386,465	)		(1,682,496	)		(12,206,712	)
Net loss from discontinuing operations		–			3,919,175			–			6,851,875
Income Taxes		15,300			376,326			91,410			491,254
Foreign exchange gain		–			90,215			–			(129,589	)
Depreciation & Amortization		440,433			442,428			1,324,345			1,347,077
Interest Expense		340,413			1,110,804			1,072,469			2,802,980
EBITDA		(106,736	)		(447,517	)		805,728			(843,115	)
Adjusted EBITDA Calculation:
EBITDA		(106,736	)		(447,517	)		805,728			(843,115	)
Non Cash stock compensation		416,548			103,637			565,593			308,079
Restructuring expenses		–			84,317			26,880			544,941
Merger related costs *		–			–			7,001			25,188
One time nonrecurring costs		–			450,000			–			468,245
Adjusted EBITDA		309,812			190,437			1,405,202			503,338
Net Revenue		12,964,054			13,564,151			40,886,755			43,439,719
Adjusted EBITDA as a % of Net Revenue		2.39	%		1.40	%		3.44	%		1.16	%

* The merger related costs are fees from an independent valuation firm and legal firm which were related to the business acquisitions.