Quest Solution Reports Second Quarter 2018 Results; Company Achieves Positive Shareholders’ Equity

  • First half revenue increased 4% to $29M over 2017
  • Shareholders’ Equity improved by $9.9 Million compared to December 31,2017 and by $15.8 million over June 30 2017; Company achieves positive Shareholders’ Equity of $0.3 million

EUGENE, Ore., Aug. 20, 2018 (GLOBE NEWSWIRE) — Quest Solution, Inc. (OTCQB:QUES), a specialty systems integrator focused on field and supply chain mobility announced its financial results for the three and six-month periods ended June 30, 2018.

Highlights:

  • First half revenue growth of 4% to $29.0 million compared to first six months of 2017
  • Second quarter revenue growth of 2% compared to the second quarter of last year
  • Adjusted EBITDA for the first six months of 2018 of $1.04 million
  • Strengthening balance sheet and positive shareholders’ equity of $0.3 million, a $15.8 million increase over June 30, 2017

Financial Results:

Shai Lustgarten, CEO, commented, “When we began our turnaround efforts several months ago, we emphasized our commitment to turning the business around and building sustained shareholder value.  Within only one year we reduced the total liabilities by $15.2M and achieved positive Shareholders’ equity of $0.3M compared to a $15.5M deficit at June 30, 2017.  This elimination of debt and enhanced financial strength also resulted in millions in future cash savings and an improved foundation for the future growth of the Company, but resulted in non-cash one-time charges and restructuring costs for the quarter.” 

Mr. Lustgarten continued, “Concurrent with the balance sheet enhancements we achieved 4% revenue growth for the six month period and modest 2% revenue growth for the second quarter.   Leveraging our unmatched Fortune 500 customer base, talented employee base and dedicated sales team we are focused on adding new proprietary technologies to our product offering to further distinguish Quest from its competitors and drive growth and higher margins.”

Quest reported revenues of $13.8 million for the quarter ended June 30, 2018 compared to $13.5 million in the comparable 2017 period.  The increase was primarily related to strong execution by the Company’s sales team.  Gross margin of 21% was consistent with the second quarter of 2017.   Total operating expenses for the second quarter of 2018 increased 33% to $3.8 million, primarily related to equity grants to the Company’s officers, directors, employees and key consultants, increases in sales commissions related to revenue growth, and increased professional fees. 

Net loss attributable to common stockholders in the second quarter of 2018 was $2.4 million, or a loss of $0.06 per share, compared to a net loss of $0.4 million, or a loss of $0.01 per share, in the second quarter of 2017. This is primarily due to charges related to the conversion of $1.5 million in debt and accrued interest equity in the second quarter, which resulted in a non-cash expense of $1.26 million. Adjusted EBITDA (Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization) for the second quarter of 2018 was $0.57 million compared to $0.54 million in the prior year. Shareholders’ equity improved to $0.3 million at June 30, 2018, compared to a deficit of $1.2 million at December 31, 2017 and $15.5 million at June 30, 2017.

For the six months ended June 30, 2018, Quest reported revenues of $29.0 million as compared to $27.9 million in the prior year period.  The increase was primarily related to strong execution by the Company’s sales team. Gross margin of 21% was consistent with the first half of 2017.   Total operating expenses for the first six months of 2018 increased 32% to $7.6 million, primarily related to equity grants to the Company’s officers, directors, employees and key consultants, increases in sales commissions related to revenue growth, and increased professional fees.

Net loss attributable to common stockholders was $3.3 million, or a loss of $0.08 per share on a six-month basis, compared to a net loss of $0.7 million, or a loss of $0.02 per share in the comparable 2017 period.  Adjusted EBITDA for the first half of 2018 was $1.04 million compared to $1.09 million in the prior year.

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.

QUEST SOLUTION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)

             
    For the three months     For the six months  
    ending June 30,     ending June 30,  
    2018     2017     2018     2017  
Revenues                                
Total Revenues   $ 13,777,187     $   13,485,145     $  28,957,734     $ 27,922,701  
                                 
Cost of goods sold                                
Cost of goods sold     10,927,850         10,685,448        22,942,305       22,131,057  
Total costs of goods sold     10,927,850         10,685,448        22,942,305       22,131,057  
                                 
Gross profit     2,849,337         2,799,697         6,015,430       5,791,644  
                                 
Operating expenses                                
General and administrative     560,154         414,162         1,037,009       827,107  
Salary and employee benefits     2,258,777         1,840,807         4,861,342       3,786,690  
Depreciation and amortization     435,179         441,512         872,577       883,912  
Professional fees     513,058         138,147         805,920       241,424  
Total operating expenses     3,767,167         2,834,628         7,576,848       5,739,133  
                                 
Income (loss) from operations     (917,831 )       (34,931 )       (1,561,418 )     52,511  
                                 
Other income (expenses):                                
Interest expense     (364,852 )       (376,398 )       (659,617 )     (732,056 )
Other (expenses) income     (1,126,841 )       (17,917 )       (1,124,297 )     (23,959 )
Total other expenses     (1,491,693 )       (394,315 )       (1,783,914 )     (756,015 )
                                 
Net Loss Before Income Taxes     (2,409,524 )       (429,246 )       (3,345,332 )     (703,504 )
                                 
Provision for Income Taxes                                
Current     (45,848 )       (19,210 )       (59,044 )     (76,110 )
Total Provision for Income Taxes     (45,848 )       (19,210 )       (59,044 )     (76,110 )
                                 
Net Loss attributable to Quest Solution Inc.   $ (2,455,372 )   $   (448,456 )   $   (3,404,376 )   $ (779,614 )
Less: Preferred stock – Series C dividend     (46,826 )       (47,024 )       (94,950 )     (93,531 )
                                 
Net loss attributable to the common stockholders   $ (2,408,546 )   $ (402,432 )   $   (3,309,426 )   $ (686,083 )
                                 
Net income (loss) per share – basic   $ (0.06 )   $ (0.01 )   $ (0.08 )   $ (0.02 )
                                 
Net loss per share from continuing operations – basic   $ (0.06 )   $ (0.01 )   $ (0.08 )   $ (0.02 )
Weighted average number of common shares outstanding – basic     41,856,966         35,795,675        42,099,171       35,472,251  
                                 

QUEST SOLUTION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

       
    As of  
    June 30,
2018
    December 31,
2017
 
ASSETS                
Current assets                
Cash   $ 30,799     $ 24,634  
Restricted Cash     665,477       684,610  
Accounts receivable, net     8,975,241       6,387,734  
Inventory, net     1,049,045       439,720  
Prepaid expenses     278,099       476,840  
Other current assets     23,449       126,187  
Total current assets     11,022,109       8,139,725  
                 
Fixed assets, net     69,589       92,803  
Goodwill     10,114,164       10,114,164  
Trade name, net     2,070,981       2,359,481  
Customer Relationships, net     4,748,581       5,310,938  
Other assets     34,963       39,512  
                 
Total assets   $ 28,060,386     $ 26,056,623  
                 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)                
Current liabilities                
Accounts payable and accrued liabilities   $ 13,958,637     $ 13,239,810  
Accrued interest on note payable           38,430  
Line of credit     4,954,169       3,667,417  
Accrued payroll and sales tax     3,129,622       1,531,233  
Deferred revenue, net     4,360       761,194  
Current portion of note payable     2,062,940       3,429,025  
Notes payable, related parties     319,500       106,500  
Other current liabilities     1,041,410       121,117  
Total current liabilities     25,470,638       22,894,726  
                 
Long term liabilities                
Note payable, related party     1,810,500       3,222,900  
Accrued interest, related party     4,880       165,014  
Long term portion of note payable     130,294       130,294  
Deferred revenue, net           452,024  
Other long term liabilities     383,218       439,833  
Total liabilities     27,799,530       27,304,791  
                 
Stockholders’ (deficit)                
Series A Preferred stock; $0.001 par value; 1,000,000 shares designated and
0 shares outstanding as of June 30, 2018 and December 31, 2017, respectively.
           
Series B Preferred stock; $0.001 par value; 1 share designated and 0 shares
outstanding as of June 30, 2018 and December 31, 2017, respectively.
           
Series C Preferred stock; $0.001 par value; 15,000,000 shares designated, 4,828,530
shares outstanding as of June 30, 2018 and December 31, 2017, respectively, liquidation
preference of $1.00 per share and a cumulative dividend of $0.06 per share.
    4,829       4,829  
Common stock; $0.001 par value; 100,000,000 shares designated, 48,433,472 and
36,828,371 shares outstanding of June 30, 2018 and December 31, 2017, respectively.
    48,522       36,828  
Common stock to be repurchased by the Company     (230,490 )     (230,490 )
Additional paid-in capital     38,279,099       34,495,659  
Accumulated (deficit)     (37,841,103 )     (35,554,994 )
Total stockholders’ equity / (deficit)     260,856       (1,248,168 )
Total liabilities and stockholders’ equity / (deficit)   $ 28,060,386     $ 26,056,623  
                 

QUEST SOLUTION, INC.
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)

         
    For the three months   For the six months
    ending June 30,   ending June 30,
EBITDA Calculation:   2018     2017     2018     2017  
                 
Net loss   (2,455,372 )   (448,456 )   (3,404,376 )   (779,614 )
Income Taxes   45,848     19,210     59,044     76,110  
Depreciation & Amortization   435,179     441,512     872,577     883,912  
Interest Expense   364,852     376,398     659,617     732,056  
EBITDA   (1,609,493 )   388,664     (1,816,138 )   912,464  
                 
Adjusted EBITDA Calculation:                
                 
EBITDA   (1,609,493 )   388,664     (1,816,138 )   912,464  
                 
Non Cash stock compensation   396,371     122,289     1,077,847     149,045  
Debt conversion expenses   1,264,237         1,264,237      
Restructuring expenses   14,222     26,880     14,222     26,880  
One time nonrecurring costs   501,660         501,660      
Adjusted EBITDA   566,997     537,833     1,041,828     1,088,389  
                 
Net Revenue   13,777,187     13,485,145      

28,957,734

     

27,922,701

 
                 
Adjusted EBITDA as a % of Net Revenue   4.11 %   3.98 %   3.60 %   3.90 %
                         

Investor Contact:

John Nesbett/Jen Belodeau
Institutional Marketing Services (IMS)
203.972.9200
jnesbett@institutionalms.com

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