The accompanying unaudited notes to the financials should be read in conjunction with these condensed consolidated financial statements.

QUEST SOLUTION, INC

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION AND Summary of Significant Accounting PoliciesPolicies-

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The interim consolidated financial statements of Quest Solution, Inc. includesinclude the combined accounts of Quest Marketing, Inc., an Oregon corporation (“QMI”), andCorporation, Bar Code Specialties, Inc., (“BCS”) a California corporationCorporation and Quest Canada, Inc., (formerly known as ViascanQdata, Inc.), (“BCS”Viascan”). a Canadian based operation in the same business line as Quest.. BCS was acquired on November 21, 2014, and as such the operating results of BCS have been consolidated into the Company’s consolidated results of operations beginning on November 22, 2014. Quest Solution, Inc. and its wholly-owned subsidiariesEffective October 1, 2015, the financial statements of Viascan have been consolidated into the Company’s consolidated results of operations. The companies currently operate as a single business unit under the Quest Solution brand.unit. All material intercompany transactions and accounts have been eliminated in consolidation. Unless the context otherwise requires, all references in this report to “Quest Solution, Inc.,” “Quest Solution,” or “Quest” refer only to Quest Solution, Inc., a Delaware corporation, and not to any of its consolidated subsidiaries. Unless the context otherwise requires, all references in this report to “we,” “us,” “our,” or the “Company” refer collectively to Quest Solution, Inc., together with its consolidated subsidiaries, including QMI and BCS.

The interim consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles (“GAAP”) and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the SEC.Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAPgenerally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 20142015 and notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on April 9, 2015.10-K. The Company follows the same accounting policies in the preparation of interim reports.

Operating results for the ninethree months ended September 30, 2015March 31, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015.2016.

Summary of Significant Accounting Policies

This summary of significant accounting policies of CompanyQuest Solution, Inc. is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management who areis responsible for the integrity and objectivity of the financial statements. These accounting policies conform to GAAPgenerally accepted accounting principles and have been consistently applied in the preparation of the financial statements.

Cash

Cash consists of petty cash, checking, savings, and money market accounts. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of September 30, 2015March 31, 2016 and December 31, 2014.2015.

The Company maintains its cash in bank deposit accounts which, at times, may exceed federal insured limits.

The Company has restricted cash on deposit with a federally insured bank in the amount of $553,439 at March 31, 2016. This cash is security and collateral for a corporate credit card agreement with a bank and for deposit against a letter of credit issued for executive life insurance policies owned by the Company.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with GAAPaccounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. The Company evaluates its estimates and assumptions on a regular basis. The Company uses historical experience and various other assumptions that are believed to be reasonable under the circumstances to form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates and assumptions used in preparation of the consolidated financial statements.

PURCHASE ACCOUNTING AND BUSINESS COMBINATIONS

The Company accounts for its business combinations using the purchase method of accounting which requires that intangible assets be recognized apart from goodwill if they are contractual in nature or separately identifiable. Acquisitions are measured on the fair value of consideration exchanged and, if the consideration given is not cash, measurement is based on the fair value of the consideration given or the fair value of the assets acquired, whichever is more reliably measurable. The excess of cost of an acquired entity over the fair value of identifiable acquired assets and liabilities assumed is allocated to goodwill.

The valuation and allocation process relies on significant assumptions made by management. In certain situations, the allocations of excess purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision when the Company receives updated information, including appraisals and other analyses, which are completed within one year of the acquisition. Revisions to the fair values, which may be significant, are recorded when pending information is finalized, within one year from the acquisition date.

ACCOUNTS RECEIVABLE

Accounts receivable are carried at their estimated collectible amounts. The Company provides allowances for uncollectible accounts receivable equal to the estimated collection losses that will be incurred in collection of all receivables. Accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. The Company’s management determines which accounts are past due and if deemed uncollectible, the Company charges off the receivable in the period the determination is made. The Company generally requires no collateral to secure its ordinary accounts receivable. At September 30, 2015 and December 31, 2014, accounts receivable 90 days past due totaled $78,624 and $118,913, respectively. Based on management’s evaluation, accounts receivable has a balance in the allowance for doubtful accounts of $20,249,$88,215 and $62,800$83,870 for the period ending September 30, 2015March 31, 2016 and December 31, 2014,2015, respectively.

PROPERTY AND EQUIPMENT

Property and equipment are stated at purchased cost and depreciated using both straight-line and accelerated methods over estimated useful lives ranging from 3 to 1015 years. Upon disposition of property and equipment, related gains and losses are recorded in the results of operations. Depreciation expense for period ending September 30, 2015March 31, 2016 and December 31, 20142015 was $57,264$70,162 and $8,523,$155,798, respectively. For federal income tax purposes, depreciation is computed using the modified accelerated cost recovery system. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred.

INTANGIBLE ASSETS

Intangible assets are stated at cost, net of accumulated amortization. The intangible assets are being amortized on the straight-line method over useful lives ranging from 3 to 10 years. Amortization expense for the period ending September 30, 2015March 31, 2016 and December 31, 20142015 was $12,652$425,428 and $9,376,$2,506,168, respectively.

On August 27, 2015, Quest Solution entered into an Omnibus Settlement Agreement (the “Settlement Agreement”) with its former President, Kurt Thomet (“Thomet”) reducing Intangible License asset by $450,000. Included in this agreement wasTotal expected amortization expense for the assignment of license rights to Mr. Thomet that were previously acquired for $450,000 from Rampart Systems. Further details can be found in Note 10.next 2 years are as follows:

There

Goodwill is not amortized, but is evaluated for impairment annually or when indicators of a potential impairment are nopresent. Our impairment testing of goodwill is performed separately from our impairment testing of intangibles. The annual evaluation for impairment of goodwill and intangibles is based on valuation models that incorporate assumptions and internal projections of expected amortization expenses going forward.future cash flows and operating plans. None of the goodwill is deductible for income tax purposes.

The Company has made a significant investment in software over the years. This amount is treated as intangible assets which are being amortized over the expected useful life. Intangible assets are evaluated annually for potential impairment.

Purchased intangible assets with finite useful lives are amortized over their respective estimated useful lives (using an accelerated method for customer relationships and trade names) to their estimated residual values, if any. The Company’s finite-lived intangible assets consist of customer relationships, contractor and resume databases, trade names, and internal use software and are being amortized over periods ranging from two to nine years. Purchased intangible assets are reviewed annually to determine if facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, recoverability is assessed by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the rate of amortization is accelerated and the remaining carrying value is amortized over the new shorter useful life. No impairments were identified or changes to estimated useful lives have been recorded.

DEFERRED FINANCING COSTS

Deferred Financing Costs incurred byrecorded as of March 31, 2016 and December 31, 2015. The net value of these intangible assets of March 31, 2016 and December 31, 2015 was $9,567 and $8,250. No additions were made in the Company in connection with the issuancefirst quarter of debt and the bank credit facility are deferred and amortized to interest expense over the life of the underlying indebtedness using the straight line method.

SHIPPING AND HANDLING COSTS

The Company classifies shipping and handling costs for purchases of raw materials and freight out net of freight charged to customers as a component of cost of goods sold. Total delivery costs for the three months ending September 30, 2015 and September 30, 2014 were $29,637 and $11,298, respectively. Total delivery costs for the nine months ending September 30, 2015 and September 30, 2014 were $84,968 and $11,881, respectively.2016.

ADVERTISING

The Company generally expenses advertising costs as incurred,incurred. During the period ending March 31, 2016 and March 31, 2015, the Company spent $21,688 and $77,410 on advertising (marketing, trade show and store front expense), net of co-operative rebates. Total advertising costs for the three months ending September 30, 2015 and September 30, 2014 were $5,166 and $7,338, respectively. Total advertising costs for the nine months ending September 30, 2015 and September 30, 2014 were $150,689 and $124,745,rebates, respectively.

The Company received rebates on advertising from co-operative advertising agreements with several vendors and suppliers. These rebates have been recorded as a reduction to the related advertising and marketing expense in the period earned.

INVENTORY

Substantially all inventory consists of raw materials and finished goods and are valued based upon first-in first-out (“FIFO”) cost, not in excess of market. The determination of whether the carrying amount of inventory requires a write-down is based on a detailed evaluation of inventory relative to any potential slow moving products or discontinued items as well as the market conditions for the specific inventory items. Inventory reserves relating primarily to the acquisition of Viascan on October 1, 2015 of $649,511 and $609,443, were recorded as of March 31, 2016 and December 31, 2015, respectively.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense primarily consists of the non-cash write-down of tangible and intangible assets over their expected economic lives. We expect this expense to continue to grow in absolute dollars and potentially as a percentage of revenue as we continue to grow and incur capital expenditures to improve our technological infrastructure and acquire assets through potential future acquisitions.

Fair Value of Financial InstrumentsFAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments include cash, accounts receivable, accounts payable, and notes payable. All instruments are accountedFair value is the price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at September 30, 2015 and December 31, 2014. The Company did not engageasset or liability in anyan orderly transaction involving derivative instruments.

As required by the Fair Value Measurements and Disclosures Topicbetween market participants as of the FASB ASC, fair value is measured based onmeasurement date. Applicable accounting guidance provides a three-tier fair value hierarchy which prioritizes thefor inputs used in measuring fair value as follows: (Level 1)that prioritize the use of observable inputs such as quoted prices in active markets; (Level 2) inputs, other thanover the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3)use of unobservable inputs, in which there is little or no market data, which require the reporting entity to develop its own assumptions.

when such observable inputs are available. The three levels of theinputs that may be used to measure fair value hierarchy are described below:as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in marketsAssets and liabilities are classified based on the lowest level of input that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are bothis significant to the fair value measurementmeasurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observable inputs may result in a reclassification of assets and unobservable (supported by little or no market activity).liabilities within the three levels of the hierarchy outlined above.

REVENUE RECOGNITIONLiabilities Measured and Recorded at Fair Value on a Recurring Basis

Recurring technology, deferred maintenance service agreementsThe Company measures certain liabilities at fair value on a recurring basis such as our contingent consideration related to business combinations and contract service revenue consistsrecognizes transfers within the fair value hierarchy at the end of subscription-based fees, software subscription license fees, software maintenance fees and hosting feesthe fiscal quarter in which the change in circumstances that caused the transfer occurred. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the period ending March 31, 2016 or fiscal year ending December 31, 2015.

The Company has classified its contingent consideration related to the useacquisitions as a Level 3 liability.Revenue and other assumptions used in the calculation require significant management judgment. The Company reassesses the fair value of our solutionthe contingent consideration liabilities on a quarterly basis. Based on that assessment, the Company recognized an adjustment of $0 to manage our customers’ communications expenses, as well as fees for perpetual software licenses, professional servicesthe actual calculation of the earn-out obligations during the quarter ending March 31, 2016 and products sold.in the fiscal year ended December 31, 2015.

We recognize revenue when persuasive evidenceAs of an arrangement exists, pricing is fixedMarch 31, 2016 and determinable, collection is reasonably assured and delivery or performance of service has occurred. Recurring technology and services subscription-based fees, software subscription license fees, software maintenance fees and hosting fees are recognized ratably overDecember 31, 2015, the term of the period of service. The subscription-based services we provide include help desk, staging, carrier activations and provisioning.

Sales revenue is recognized upon the shipment of merchandise to customers. The Company recognizes revenues from software sales when software products are shipped.

Software license fees consist of fees paid for a perpetual license agreement for our technology, which are recognized in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC 605, Software Revenue Recognition, as amended.

Professional services related to the implementation of our software products, which we refer to as consulting services, are generally performed on a fixed fee basis under separate service arrangements. Consulting services revenue is recognized as the services are performed by measuring progress towards completion based upon either costs or the achievement of certain milestones.

does not have any unrecorded contingent liabilities.

NET INCOME (LOSS)LOSS PER COMMON SHARE

Net loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share.”Share”. Basic net loss per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless doing so is anti-dilutive. The weighted-average number of common shares outstanding for computing basic EPS as of September 30,March 31, 2016 and March 31, 2015 were 36,947,978 and December 31, 2014 were 35,702,188 and 33,362,776,35,029,495, respectively.

The fully diluted number of 39,630,570,45,213,835, includes the potential of the existing senior subordinated debt holders converting a portion of their debt into common stockholdershareholder equity at $1.00 per share (for $1,594,000$2,656,382 in debt) and $2.00 per share (for $1,962,382 in debt). Despite the fact the conversion is “out of the money”, accounting rules require these amounts to be included in diluted shares outstanding. Additional terms of the debt would require the boardBoard of directors of Quest Solution (the “Board”)Directors to consent to any debt holder converting and having a position greater than 4.99% outstanding on the date of conversion.

GOODWILL

Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill is tested annually at December 31 for impairment. The annual qualitative or quantitative assessments involve determining an estimate of the fair value of reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill exists. A qualitative assessment evaluates whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step quantitative goodwill impairment test. The first step of a quantitative goodwill impairment test compares the fair value of the reporting unit to its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss may be recognized. The amount of impairment loss is determined by comparing the implied fair value of reporting unit goodwill with the carrying amount. If the carrying amount exceeds the implied fair value then an impairment loss is recognized equal to that excess. No impairment charges have been recorded as a result of the Company’s annual impairment assessments.

We test our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our testing determines the recorded amount of goodwill exceeds the fair value. Our annual measurement date for testing goodwill impairment is December 31, at which date we test our reporting units, which is currently our ownership in Quest Solution, Inc.

INCOME TAXESForeign currency translation, foreign exchange contracts and comprehensive loss

The functional currency of the Company’s foreign subsidiaries is the local currency. Gains and losses resulting from the translation of the foreign subsidiaries’ financial statements are included in accumulated other comprehensive income (loss) and reported as a separate component of stockholders’ equity. Gains and losses resulting from foreign currency transactions are included in net income (loss).

The Company accountscurrently does not enter into financial instruments for its income taxes in accordance with Income Taxes Topic ofeither trading or speculative purposes. There were no forward foreign exchange contracts used during the FASB ASC 740, which requires recognition of deferred tax assetsthree month periods ended March 31, 2016 and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for consolidated financial reporting purposes and such amounts recognized for tax purposes, and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse.

The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company has evaluated the deferred income taxes with regards to Section 382 of the Internal Revenue Code and has determined no limitations on the use of net operating loss carryforwards exist at September 30, 2015.

STOCK-BASED COMPENSATION

The Company recognizes stock-based compensation in accordance with ASC Topic 718 “Stock Compensation”, which requires the measurementTotal comprehensive loss is comprised of net loss and recognition of compensation expense for all share-based payment awards made to employeesother comprehensive earnings losses 1,858, such as foreign currency translation gains or losses and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan basedunrealized gains or losses on the estimated fair values.

For non-employee stock-based compensation, we have adopted ASC Topic 505 “Equity-Based Payments to Non-Employees”, which requires stock-based compensation related to non-employees to be accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable in accordance with ASC Topic 718.available-for-sale marketable securities.

RECENT ACCOUNTING PRONOUNCEMENTS

The Company has evaluated the recent pronouncements and believes that none of them will have a material effect on the Company’s financial statements.

NOTE 2 – GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has acquired a significant working capital deficit and issued a substantial amount of subordinated debt in connection with its recent acquisitions. As of March 31, 2016, the Company had a working capital deficit of $21,858,064 and an accumulated deficit and accumulated other comprehensive loss of $20,387,516. The Company is dependent on the completion of working capital financings, vendor trade credit extensions, restructuring of subordinated debt and private placement of its securities in order to continue operations. Additionally, the company is currently in default under it’s financing agreements with FGI, as more fully discussed in Note 10 to these financial statements. These factors taken together raise doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 23 – CONCENTRATIONS

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash, accounts receivable, and accounts payable. Beginning January 1, 2015, all of our cash balances were insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per depositor at each financial institution. This coverage is available at all FDIC member institutions. The Company uses Citizens National Bank and Wells Fargo Bank, which is anare FDIC insured institution.institutions. In Canada, the Canada Deposit Insurance Corporation (CDIC) insures eligible deposits at each member bank/institution up to a maximum of $100,000 CDN (principal and interest combined) per depositor. Based on these facts, collectability of bank balances appears to be adequate.

For the quarter and year ending September 30,March 31, 2016 and March 31, 2015, and December 31, 2014, one customer accounted for 15%20% and another customer in 2014 accounted for 16%5% of the Company’s net revenues, respectively.

Accounts receivable at September 30, 2015March 31, 2016 and December 31, 20142015 are made up of trade receivables due from customers in the ordinary course of business. One customer made up 35%30.7% and another customer 34%13.6% of the trade accounts receivable balances at September 30, 2015March 31, 2016 and December 31, 2014,2015, respectively.

Accounts payable are made up of payables due to vendors in the ordinary course of business at September 30, 2015March 31, 2016 and December 31, 2014.2015. One vendor made up 82%55.0% and 82%62.2%, respectively of the outstanding balance, which represented greater than 10% of accounts payable at September 30, 2015March 31, 2016 and December 31, 2014,2015, respectively.

NOTE 34 – ACQUISITION OF VIASCANQDATA, INC.

On November 6, 2015, effective as of October 1, 2015, the Company completed the purchase of ViascanQdata, a Canadian based company in the same industry of technology, software, and mobile data collection systems business which also has a media and label business.

The purchase price for the shares of ViascanQdata was 5,200,000 shares of Series A Preferred Shares of Quest Exchange Ltd. (the “Exchangeable Shares”) (which are convertible on a 1:1 basis into common shares of Quest Solution, Inc., with no other preferential rights) as well as a promissory note of one million five hundred thousand dollars ($1,500,000). Given the associated assumed debts at the closing, the goodwill acquired is estimated at $11,137,861. In 2016, the Company will do a valuation of the assets and liabilities acquired and recognize any intangibles that were acquired.

ViascanQdata historically has used the Canadian Dollar (CDN) as its functional currency. All numbers have been adjusted based on the exchange rate with the US Dollar as of the date of the transaction.

In accordance with ASC 805-10-25-13, the following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition and the preliminary allocation of the purchase price to the fair value of net assets acquired:

NOTE 5 – INVENTORY

At September 30, 2015March 31, 2016 and December 31, 2014,2015, inventories consisted of the following:

NOTE 4 – COST OF GOODS SOLD, RELATED PARTY

At the acquisition of QMI on January 1, 2014, there was $1,273,292 of related party prepaid expenses for business related insurance policies QMI previously maintained insurance policies with an insurance company for which the stockholders also own. The Company deemed this to be a related party and the insurance expenses paid during 2013, which was for 2014 coverage while not a cash expense for 2014, was taken as an expense from January 2014 through November 2014. The amount of expense was $1,273,292 in prepaid expenses for insurance coverage, paid in 2013, for 2014 coverage. As of January 1, 2014, the Company did not renew any of these policies now that they have expired.

For the nine months ended September 30, 2014, the Company recorded $1,041,784 of expense related to this, as opposed to $0 recorded during the nine months ended September 30, 2015.

NOTE 56 – PREPAIDS

The Company currently has $936,064$699,679 and $191,498$730,591 of expenses that were prepaid as of September 30, 2015March 31, 2016 and December 31, 2014,2015, respectively, which we expect to expense approximately over the next 12 months. during 2016.

The Company issuedplans to repurchase at least 4,500,000 shares of restricted Commoncommon stock (including the 900,000 shares acquired on December 31, 2015 with the Thomet settlement) through the end of 2016. It is anticipated that the completion of this will be completed before the end of third Quarter 2016. The Company is repurchasing these shares to create the Company’s Employee Stock Purchase Plan (“ESPP”) and to consultants duringreduce the nine months endedissued and outstanding shares of the Company. The ESPP will allow all employees to purchase shares of stock directly from the Company and eventually directly from the market. The Company has begun the launch of this program in the United States and will be launching soon with its Canada operations. The Company intends for this process to be non-dilutive to shareholders. The Company has recorded a $980,490 prepaid deposit on the balance sheet relative to the plan to repurchase shares for the ESPP.

NOTE 7 – INTELLECTUAL PROPERTY

On August 27, 2015, the Company entered into a Settlement Agreement with a former owner and current subordinated debt holder. Under the terms of the Settlement Agreement, the Company was required to pay $7,036,000 as full satisfaction for two (2) promissory notes by September 30, 2015,2015. Included in this agreement (and deducted from the $7.036 million settlement) was the assignment of license rights with an assigned value of $1.15 million. The licenses were previously acquired for which $321,389$450,000 from Rampart Systems. The assignee has agreed to pay Quest Solution a royalty fee of 3.5% of revenue related to the “gun-barrel,” “rebar inspection,” and “air frame” licenses for a five (5) year period, beginning on the effective date of the expense isAssignment Agreement (as defined in prepaid expense andthe Settlement Agreement). The parties agreed to exclude the existing mining distribution license from the royalties to be expensed overpaid to the course ofCompany by the remainder ofassignee. On October 19, 2015, Quest Solution entered into that First Amendment to the 12-month contracts.Omnibus Settlement Agreement, which modified the payment schedule under the Settlement Agreement.

NOTE 68 – OTHER LIABILITIES

In connection with the BCS acquisition on November 12, 2014, the Company assumed a related party note payable to the former Chief Technology Officer of the RFID division of BCS. The note is payable in equal monthly installments of $4,758 beginning October 31, 2014 and ending October 2018. The loan bears interest at 1.89% and is unsecured and subordinated to the Company’s bank debt.

The Company has purchased key man life insurance policies for certainsome of its executives to insure the Company against risk of loss of an executive. Should loss of an executive occur, those funds would be used to settle pay off their respective promissory notes, repurchase their shares of Common Stock and settle out any amounts owed to them or toand their respective estates.estate.

As of September 30,At March 31, 2015, the Company balancesbalance of amount of premium financed notes are $1,194,074 and the cash value of the policy as of this date is $1,087,826, along with $39,694 of prepaid insurance expense costs, with a net negative cash value of the policies of $106,248.

The value of the policies are recorded at the new value per the right of offset noted in FASB No. 39 and 41.41 and Topics 210-220. To have right of offset, the Company would need to show (1) amounts of debt are determinable, (2) reporting entity has the “right”‘right’ to setoff, (3) the right is enforceable by law, and (4) reporting entity has the ‘intention’ to setoff. Given that the Company has satisfiedmet all of these, requirements, the Company has elected to use the right of setoff as the cash value of the policies are being used as the collateral for the loans. Should the Company default on payments to the policy or determine to not continue with the policies, the cash value of the policy is intended to pay off of the loan. The Company also intends on settlingto settle out the loans in the future with the cash value of the policy.

As of September 30, 2015, the balance of amount of premium financed notes are $1,194,074 and the cash value of the policy as of this date is $1,114,774, along with $59,540 of prepaid insurance expense costs, with a net negative cash value of the policies of $19,760.

NOTE 79 – PROFIT SHARING PLANDEFERRED REVENUE

QMI maintains a contributory profit sharing plan covering substantially all fulltime employees within the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”). QMI is required to make a safe harbor non-elective contribution equal to 3% of a participant’s compensation. The plan also includes a 401(k) savings plan feature that allows substantially all employees to make voluntary contributions and provides for discretionary matching contributions determined annually. QMI’s safe harbor contributions were $98,066 for 2014 and paid in 2015.

BCS also has a safe harbor plan within the requirements of ERISA that provides matching contributions equal to 100% of the employee deferred contribution up to 3% of the compensation, plus 50% of the deferred contributions that exceed 3% up to 5% of total participant compensation. The BCS matching contributions for the nine months ending September 30, 2015 were $29,300.

NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

Deferred revenue consists of prepaid third party hardware service agreements, software maintenance service contracts and the related costs and expenses recorded net of the revenue charged to the customer and paid within normal business terms. The net amount recorded as a deferred revenue liability is being amortizedrecognized into the results of operations over the related periods on a straight line basis, normally 1-5 years with 3 years being the average term.

Expected future amortizationrecognition of net deferred revenue as of March 31, 2016, are as follows; 

NOTE 10 – CREDIT FACILITIES AND LINE OF CREDIT

The Company maintains operating lines of credit, factoring and revolving credit facilities with banks and finance companies to provide working capital for the business. These financing relationships are all classified as current liabilities in the financial statements.

On December 31, 2014, the Company entered into a 3 year, $8 million revolving line of credit agreement with Wells Fargo Bank (“WFB”) which provides for borrowings based on eligible trade accounts receivable, as defined in the WFB loan agreement dated December 31, 2014. The line was secured by trade accounts receivable and a first priority lien on substantially all of the assets of the Company. All other debt of the Company was subordinated to the WFB bank line of credit. In November 2015, the WFB line of credit was paid off. The Company continues to maintain a purchasing card relationship with WFB with a limit of approximately $300,000, of which $14,578 was outstanding as of March 31, 2016 and included in trade accounts payable.

In November 2015, the Company entered into a Sale of Accounts and Security Agreement with Faunus Group International (“FGI”) for the USA with a maximum credit limit of $15,000,000. The line is secured by trade accounts receivable and a first priority lien on substantially all of the assets of the Company. The agreement contains certain pricing and fee structures for collateral management, minimum usage, early termination and facility fees. The interest rate at March 31, 2016 was 8.75% which included penalty interest of 3%. The balance outstanding at March 31, 2016 owed to FGI under this credit facility was $ 3,838,331. On April 25, 2016, the maximum amount of credit under the facility was reduced to $7,500,000 by written amendment between FGI and the Company. The amendment also modified the agreement (i) to reduce the minimum monthly net funds employed during each contract year from no less than $4,000,000 to no less than $2,500,000 and (ii) to increase the non-refundable monthly collateral management fee from 0.37% to 0.40%.

As of March 31, 2016 and December 31, 2015, the Company was not in compliance with the minimum current ratio requirement of .7 to 1.0 and certain other non-financial covenants and the Company received a default notice from FGI in March 2016. FGI has increased the default interest rate 3% and has not enforced any other default remedy actions and is currently working with the Company to resolve the default.

Concurrent with the acquisition of ViascanQdata, the Company assumed the existing factoring agreement with FGI with a maximum credit limit of $4,800,000 CDN. The line is secured by trade accounts receivable and a first priority lien on substantially all of the assets of the Company. The balance outstanding and owed to FGI under this agreement at March 31, 2016 was $1,336,416 CDN or $1,029,040 USD. The agreement contains certain pricing and fee structures for collateral management, minimum usage, early termination and facility fees. The interest rate at March 31, 2016 was 8.25% which included penalty interest of 3%, the maximum amount of credit under the facility was reduced to $2,500,000 CDN by written amendment between FGI and the Company.

As of March 31, 2016 and December 31, 2015, the Company was not in compliance with the certain other non-financial covenants and the Company received a default notice from FGI in March 2016. FGI has increased the default interest rate 3% and has not enforced any other default remedy actions and is currently working with the Company to resolve the default. Deposit in transit to FGI at March 31, 2016 were $317,797.

NOTE 11 - NOTES PAYABLE

Notes payable at March 31, consists of the following:

Future maturities of notes payable are as follows;

On October 1, 2015, with the acquisition of ViascanQdata the Company assumed the following Viascan note payable agreements:

BDC loan facility #1 – Qdata, The loan facility from the BDC in the amount of $1,250,000CDN was entered into on September 15, 2011, matures on November 12, 2017 and bears interest at a rate of 6.20% per annum. The facility is repayable in monthly installments of $21,105CDN, including interest. The facility is secured by a first rank hypothec on the Company’s property, plant and equipment, with the exception of certain furniture and fixtures, vehicle, computer hardware and computer software.

BDC loan facility #2 – ViascanQdata, The loan facility from the BDC in the amount of $700,000 was entered into on July 23, 2012, matures on November 15, 2017 and bears interest at a rate of 7.70% per annum. The facility is repayable in monthly installments of $11,103CDN, including interest. In addition to the facility being secured by a first rank hypothec on the Company’s property, plant and equipment, with the exception of certain furniture and fixtures, vehicle, computer hardware and computer software, the facility is guaranteed by security interest on all intangible assets and has priority on accounts receivable and inventory to a maximum of $450,000.

The company recorded net deferred revenueCompany finances its Directors and Officers Liability Insurance with First Insurance Funding. The Insurance period is for twelve months and the premium is financed over 9 months in equal monthly installments of $218,619 and $158,513, for the quarters ending September 30 and June 30, 2015, respectively.

NOTE 9 – TERM DEBT / WELLS FARGO LINE OF CREDIT DETAILS

As of September 30, 2015, the Company’s$15,688 at 6% interest. The outstanding balance withat March 31, 2016 was $99,193 and the Wells Fargo revolving line of credit $1,247,634. As of the date of this report, the Wells Fargo revolving line of credit is fully paid off, as further described in Note 14 herein.

Related Partymonthly payments are current.

On SeptemberMarch 24, 2015, Quest Solution issued subordinated2016, the Company converted by negotiated settlement a $1,598,423 CDN ($1,150,864 USD) past due and outstanding trade payable into a 14 month commercial promissory notes (the “Promissory Notes”note due May 31, 2017. Monthly payments are structured to the cash flow cycles of the business ranging from $56,667 CDN to $130,000 CDN per month ($40,800 USD to $93,600 USD per month.) to three investors (who are also Quest Solution employees) inThe monthly installments under this note total $1,568,422 CDN and the aggregate principal amount of $400,000. final $30,000 balance will be forgiven if all monthly payments have been timely made under this commercial note agreement.

In connection with this, Quest Solution issued 170,000 sharesthe BCS acquisition the company assumed a related party note payable to the former CTO of Quest Solution’s restricted Common Stock. Promissory Notes accruethe RFID division of BCS. The note is payable in equal monthly installments of $4,758 beginning October 31, 2014 and ending October 2018. The loan bears interest at six percent (6%) per annum1.89% and are payable in twelve (12) equal, monthly installments.is unsecured and subordinated to the company’s bank debt. The Promissory Notes are duebalance on Julythis loan at March 31, 2016.2016 was $143,926 of which $53,657 is classified as current and $19,876 is long term.

NOTE 1012 – SUBORDINATED NOTES PAYABLE

Notes and loans payable consisted of the following:

As of September 30, 2015March 31, 2016 and December 31, 2014,2015, the Company recorded interest expense in connection with these notes in the amount of $335,768$216,770 and $51,806,$177,774, respectively.

On August 27,The note payable for acquisition of Quest was issued on January 9, 2014 in conjunction with the acquisition of Quest Marketing, Inc. The current interest is at 1.89%, subsequent to December 31, 2015, Quest Solution entered into a Settlement Agreementthe interest was increased to 6% and is due in 2017. Principal payments have been postponed.

The note payable for acquisition of BCS was issued on November 21, 2014 in conjunction with Thomet. Under the termsacquisition of BCS. The current interest is at 1.89% and is due in 2018. This note is convertible at $2.00 per share, subject to board approval such that no debt holder can own more than 5% of the Settlement Agreement,outstanding shares. Principal payments have been postponed.

The note payable in relation to the acquisition of ViascanQdata was issued effective October 1, 2015. $1,500,000 of the note was issued to Viascan Group, a related party due to the ownership interest of our CEO and head of Media Sales (the former owners of ViascanQData). The interest rate is 6% on this note with payments due in 2016 and 2018. The balance are debts assumed by the Company on the transaction. Principal payments have been postponed.

The Company has a contingent liability of $150,000 in connection with the acquisition of technology licenses in 2015. This payment becomes due when the respective technology becomes operable and viable. As of the date of this filing, it is unknown when that will become due.

The shareholder note in conjunction with the amounts owed to the former owner of ViascanQData. This note bears interest at 6%. Principal payments have been postponed.

The Quest Solution was required to pay Thomet $7,036,000.00 as full satisfaction for two (2)preferred stock 6% note payable is in conjunction with the promissory notes held by Thomet by September 30, 2015. Includednote issued in this agreement (and deducted from the $7.036 million settlement) was the assignment of license rights to Thomet with an assigned value of $1.15 million. The licenses were previously acquired for $450,000 from Rampart Systems. Thomet shall pay Quest Solution a royalty fee of 3.5% of revenueOctober 2015 related to the “gun-barrel,” “rebar inspection,”redemption and “air frame” licenses for a five (5) year period, beginning on the effective datecancelation of 100% of the Assignment Agreement (as defined in the Settlement Agreement).issued and outstanding Series A preferred stock as well as 3,400,000 stock options that had been issued to an employee. The parties agreed to exclude the existing mining distribution license from the royalties to be paid to Quest Solution by Thomet. On October 19, 2015, Quest Solution and Thomet entered into that certain First Amendmentprincipal payments have been postponed.

Subsequent to the Omnibus Settlement Agreement (the “Settlement Agreement Amendment”), which modifiedacquisition of Quest Marketing, the payment schedule under the Settlement Agreement. The foregoing descriptionCompany engaged an independent valuation analysis to do a valuation of the material termspurchase accounting. During this process, it was determined a debt discount of each$4,000,000 (original issue discount, OID) should be assigned to the promissory note. That debt discount is being accreted over the term of the Settlement Agreement and Settlement Agreement Amendment are not complete and are qualified in their entirety by reference to the full text of such agreements, which are filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on September 3, 2015, and Exhibit 10.9 to the Company’s Current Report on Form 8-K, filed with the SEC on November 10, 2015.5 years at $200,000 per quarter.

On September 28,Future expected maturities of subordinated notes payable at March 31, 2016 is as follows:

As of March 31, 2016 and December 31, 2015, the Company entered into that certain Noticerecorded interest expense in connection with these notes in the amount of $223,305 and Offer of Settlement under an Amended and Restated Secured Subordinated Convertible Promissory Note (the “Zicman Settlement Agreement”) with George Zicman, an investor and employee of the Company (“Zicman”), pursuant to which Zicman agreed to settle debt obligations with the Company of approximately $1,617,000 in exchange for (i) 1,000,000 shares of restricted common stock at $0.357 per share, (ii) a fixed payment of $50,000 per month, beginning January 15, 2016, with a balloon payment due April 15, 2017, at 1.89%, expected to be approximately $426,500, and (iii) within 30 days of the Zicman Settlement Agreement, a payment of Eighty-Four Thousand Dollars ($84,000). The foregoing description of the material terms of the Zicman Settlement Agreement is not complete and is qualified in its entirety by reference to the full text of such agreement, which is filed as Exhibit 10.10 to the Company’s Current Report on Form 8-K, filed with the SEC on November 10, 2015.$1,157,842, respectively.

NOTE 1113 – STOCKHOLDERS’ EQUITYDEFICIT

PREFERRED STOCK

Series A

As of September 30, 2015,March 31, 2016, there were 25,000,000 shares of10,000,000 Series A preferred stock, par value $0.001 per share (the “Preferred Stock”),shares authorized and 500,0000 Series A preferred shares of Preferred Stock outstanding. The Board previously established the voting rights for the Preferred Stock, whereby each share of Preferred Stock entitles the holder thereof to 250 votes on all matters submitted to a vote of the stockholders of Quest Solution. On October 1, 2015, the Company redeemedBoard of directors authorized the repurchase and retirement of all of the issued and outstanding Series A preferred shares of Preferred Stock held by an employee of the Company, along with certain of the employee’sand 3,400,000 stock options in exchange for a promissory note in$3,120,000 subordinated note.

Series B

As of March 31, 2016 and December 31, 2015, there was 1 Series B preferred share authorized and 1 Series B preferred share outstanding. This preferred share was issued solely for the principal amountpurpose of $3,120,000.00.the acquisition of ViascanQdata. It has no preferential rights above common shares.There are 5,200,000 Exchangeable Shares of Quest Exchange Ltd. outstanding, each of which is exchangeable into one (1) share of common stock of Quest Solution, Inc. The redemptionholder of the Series B Preferred Stock is described more fully inentitled to a number of votes equal to the Company’s Current Report on Form 8-K, filed withnumber of the SEC on November 10, 2015.Exchangeable Shares of Quest Exchange Ltd.

COMMON STOCK

During the nine monthsquarter ended September 30, 2015,March 31, 2016, the Company issued the following shares.

On May 19, 2015, Quest entered into a Security Purchase Agreement (the “SPA”) with an accredited investor, who is also a subordinated debt holder and an employee of Quest, pursuant to which Quest issued 667,000 shares of Common Stock in exchange for $200,000.

On June 24, 2015, Quest issued subordinated promissory notes (the “Promissory Notes”) to three investors (who are also Quest employees) in the aggregate principal amount of $400,000 in exchange for an aggregate 170,000 shares of Quest’s restricted common stock, par value $0.001 per share. The company recorded an interest expense of $62,731 relative to this issuance.

During the quarter ended June 30, 2015, the company issued 650,000 shares of restricted common stock to consultants of the Company relative to a 12 month contract. The Company has the option to repurchase 550,000 of the shares issued with the 12 month period. The Company also issued 100,00037,500 shares to the Chief Executive Officerboard members in connection with his employment contract on Mayrelation to the vesting schedule agreed to during 4^th quarter 2015, which gives 12,500 common shares per independent board member as compensation. The shares were valued at $9,000. In addition, 39,000 shares were issued to certain employees in the quarter that had a value of $7,000. On April 1, 2015,2016, the company also granted 37,500 shares for board compensation.

As of March 31, 2016 the Company recorded a $288,880 expense related to the consulting contracts to be amortized over the period of these contracts.

During the quarter ended September 30, 2015, a stockholder of the Company voluntarily returned 2,517had 36,947,978 common shares of Common Stock, which were canceled from the Company’s issued and outstanding shares.

Quest Solution issued no shares of restricted Common Stock to consultants for services rendered to the Company during the quarter ended September 30, 2015.

Related Party

As discussed in Note 10, Quest Solution agreed to redeem 900,000 shares of Common Stock from Thomet pursuant to the Settlement Agreement.

As discussed in Note 10, Quest Solution issued 1,000,000 shares of restricted Common Stock to Zicman pursuant to the Zicman Settlement Agreement valued at $357,000.outstanding.

Warrants and Options

On May 1, 2015, the Company issued one Board member a total of 36,000 Stock options/warrants valued at $10,320 for their service. The value of these warrants was estimated by using the Black-Scholes option pricing model with the following assumptions: exercise price of $0.43, term of 3 years; risk free interest rate of 1.04%; dividend yield of 0% and expected volatility of 104%.

During the quarter the company recognized approximately $38,624 related to the employee stock options which vested during the quarter.

On July 15, 2015, the Board, appointed W. Austin Lewis, IV to the Board to fill a vacancy on the Board.

In connection with his appointment to the Board, Mr. Lewisfirst quarter of March 2016, there were 143,750 stock options vested for employees. The calculated value of the vesting was granted a$44,233.

Included in Salary and Employment Benefit Expenses is $149,011 and $38,624 of stock option to purchase 36,000 shares of restricted Common Stock granted atcompensation expense for the Company’s then-current stock price, which vests over a three-year term.three months ending March 31, 2016 and 2015, respectively.

DuringThe Company plans to repurchase at least 4,500,000 shares of common stock (including the quarter ended September 30,900,000 shares acquired on December 31, 2015 with the Thomet settlement) through the end of 2016. It is anticipated that the completion of this will be completed before the end of third Quarter 2016. The Company is repurchasing these shares to create the Company’s Employee Stock Purchase Plan (“ESPP”) and to reduce the issued and outstanding shares of the Company. The ESPP will allow all employees (other than executive officers) to purchase shares of stock directly from the Company recognized approximately $74,533 relatedand eventually directly from the market. The Company has begun the launch of this program in the United States and will be launching soon with its Canada operations. The Company intends for this process to the employee stock options which vested during the quarter.

During the quarter ended September 30, 2015, an employee of Quest Solution voluntarily terminated his warrants and stock options exercisable for an aggregate 1,900,000 shares of Common Stock, which warrants and stock options had been exercisable upon meeting certain milestones.be non-dilutive to shareholders.

NOTE 1214 – LITIGATION

As of September 30, 2015,March 31, 2016, the Company is not a party to any pending material legal proceeding. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the Company. To the knowledge of management, no director, executive officer or affiliate of the Company, any owner of record or beneficially of more than five percent of the Company’s Common Stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.

NOTE 1315 – RELATED PARTY TRANSACTIONS

The Company leases a building in Garden Grove, California from the former owner of BCS for $9,000 per month, which is believed management believes to be the current fair market value of similar buildings in the area.

In connection with the BCS acquisition Quest Solutionthe Company has an earn out/royalty receivable from the new owners of the BCS RFID business that was sold on November 19, 2014, prior to the acquisition by Quest Solution.the Company. The maximum amount to be paid during the 4-year4 year earn out period ending December 31, 2018 is $700,000. Payments to Quest Solutionthe Company are due within 30 days of the closing of each calendar quarter and the first royalty calculation and payment is due to the companyCompany on April 30, 2015. Prior to its acquisition by Quest Solution, BCSThe Company recorded a 50% valuation reserve to the fair market value of this earn out receivable at $350,000 as of the acquisition date by Quest Solution. Quest Solution has not recordedthe Company. No royalties have been earned and no payments made to or received any payments related to this earn out in 2015.

As of September 30, 2015, Quest Solution owes $67,000 to an entity controlled by the CFO for services provided to BCS prior to its acquisition by Quest Solution on November 21, 2014.

Additional related party transactions are further discussed in Notes 9, 10,Company as of March 31, 2016 and 11 to the financial statements included in this report.December 31, 2015, respectively.

NOTE 1416 – SUBSEQUENT EVENTS

On May 2, 2016, Joey Trombino, CPA, CA, was appointed as the Chief Financial Officer of the Company, effective immediately. Mr. Trombino will be located in the Company’s Montreal, Canada office with the Company’s Chief Executive Officer.

In connection with Mr. Trombino’s appointment as Chief Financial Officer of the Company, the Company and Mr. Trombino entered into an Employment Agreement, dated April 19, 2016 (the “Trombino Employment Agreement”). The Trombino Employment Agreement has an initial term of two years (the “Term”), which Term shall automatically renew for successive one year terms unless terminated by either party upon notice given no later than 60 days’ before to the end of the then-current Term. Mr. Trombino’s initial base salary shall be CAD$180,000 per year. Mr. Trombino shall be eligible to receive (i) a one-time sign-on bonus of 100,000 shares of the Company’s restricted common stock, which shares will vest on the one year anniversary of the effective date of the Trombino Employment Agreement and (ii) a performance bonus at the end of the Company’s fiscal year 2016 based on measurable objectives, to be approved by the CEO and the Compensation Committee, equal to up to 30% of his base salary.

Mr. Trombino does not have a family relationship with any of the current officers or directors of the Company. Other than the Trombino Employment Agreement, there are no arrangements or understandings between Mr. Trombino and any other person pursuant to which Mr. Trombino was appointed to serve as the Chief Financial Officer.

On May 2, 2016, Scot Ross resigned as the Chief Financial Officer of the Company, effective immediately. Mr. Ross will continue with the Company as the Company’s Vice-President Finance. In connection with his reassignment, Mr. Ross and the Company entered into a Second Amendment to Employment Agreement, effective May 2, 2016 to Mr. Ross’s Employment Agreement, dated November 20, 2014, as amended by that First Amendment to Employment Agreement, dated April 27, 2015, to reflect Mr. Ross’s new position with the Company.

On May 2, 2016 the company entered into an Omnibus Amendment to the Sale of Accounts and Security agreement, dated April 25, 2016 with FGI. The Amendment reduces the Facility Amount from $15,000,000 to $7,500,000 for the Quest Agreement and from $4,800,000 to $2,500,000 in the Viascan Agreement. The Amendment also modifies the Quest Agreement to reduce the minimum monthly net fund employed during each contract year from no less than $4,000,000 to no less than $2,500,000 and to increase the non-refundable monthly collateral management fee from 0.37% to 0.40%.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

On November 6, 2015, Quest Solution’s wholly owned subsidiaries, QMIWe have filed with the Securities and BCS (“Exchange Commission this Form 10-Q, including exhibits. You may read and copy all or any portion of the sellers”) entered into that certain Sale of Accounts and Security Agreement (the “SAS Agreement”) with Faunus Group International, Inc.registration statement or any reports, statements or other information in the files at SEC’s Public Reference Room located at 100 F Street, NE., a Delaware corporation (“FGI”), to establish a sale of accounts facility (the “FGI Facility”), whereby Sellers may offer to sell their accounts receivable to FGI each monthWashington, DC 20549, on official business days during the termhours of 10 a.m. to 3 p.m.

You can request copies of these documents upon payment of a duplicating fee by writing to the SAS Agreement, upCommission. You may call the Commission at 1-800-SEC-0330 for further information on the operation of its public reference room. Our filings, including the registration statement, will also be available to a maximum amount outstandingyou on the website maintained by the Commission at any timehttp://www.sec.gov.

We intend to furnish our stockholders with annual reports which will be filed electronically with the SEC containing consolidated financial statements audited by our independent auditors, and to make available to our stockholders quarterly reports for the first three quarters of Fifteen Million Dollars ($15,000,000). Performance of Sellers’ obligations under the SAS Agreement is secured by a security interest in all of Sellers’ assets.each year containing unaudited interim consolidated financial statements.

Acquisition Agreement

The Company entered into an Acquisition Agreement (the “Acquisition Agreement”), which closed on November 6, 2015, simultaneous with the closing of the SAS Agreement with FGI, which Acquisition AgreementQuest’s website is effective as of October 1, 2015, among the Company, Quest Exchange, Ltd., a Canadian corporation and a wholly-owned subsidiary of the Company (“Quest Exchange”), Viascan Group, Inc., a Canadian corporation (“Viascan Group”), and ViascanQData, Inc. a Canadian corporation (“ViascanQData”). Pursuant to the terms of the Acquisition Agreement, the Company acquired all of the issued and outstanding common shares of ViascanQData from Viascan Group, the sole stockholder of ViascanQData, in exchange for the issuance of 5,200,000 exchangeable shares of Quest Exchange, and two (2) subordinated promissory notes in the principal amounts of $1,000,000.00 and $500,000.00, respectively (as described in more detail herein). Each exchangeable share of Quest Exchange is exchangeable into one (1) share of the Company’s common stocklocated at the election of Viascan Group or, in certain circumstances, of the Company.

Employment Agreements

Concurrent with the closing of the Acquisition Agreement, and effective as of October 1, 2015, the Company entered into Employment Agreements with the following former employees (the “Employees”) of Viascan Group (the “Employment Agreements”):

The Employment Agreements provide for a base salary for each of the Employees, in addition to one-time sign-on or performance bonuses, as well as customary confidentiality, non-solicitation, non-disparagement and cooperation provisions.

Amendment to Settlement Agreement

On August 27, 2015, the Company entered into a Settlement Agreement with Thomet. Under the terms of the Settlement Agreement, the Company was required to pay Thomet $7,036,000.00 as full satisfaction for two (2) promissory notes held by Thomet by September 30, 2015. Related to the Company’s entry into the FGI Facility and acquisition of ViascanQData, which occurred after September 30, 2015, the Company was unable to make such payments to Thomet and was required to amend the terms of the Settlement Agreement. The Settlement Agreement was previously filed with the SEC on September 3, 2015 as Exhibit 10.1 to the Company’s Current Report on Form 8-K.

On October 19, 2015, the Company and Thomet entered into that certain First Amendment to the Omnibus Settlement Agreement (the “Settlement Agreement Amendment”), which modified the payment schedule under the Settlement Agreement.

Wells Fargo Pay-Out

On November 5, 2015, Wells Fargo Bank, National Association (“Wells Fargo”) accepted full payment of all obligations of the Company and Sellers (together the “Borrowers”) under that certain Credit Agreement, dated December 31, 2014, as amended from time to time (the “Existing Credit Agreement”), terminated the Existing Credit Agreement and released Wells Fargo’s security interests in Sellers’ collateral. The Borrowers paid to Wells Fargo approximately $2.8 million representing payment for all unpaid principal, interest, fees, costs and expenses under the Existing Credit Agreement, as well as funds for additional reserves (the “Pay-Out Amount).

Notwithstanding the pay-out of Wells Fargo with respect to the amounts owed under the Existing Credit Agreement, Wells Fargo will continue to offer Borrowers, on an interim basis, depository account services and treasury management products. Further, Borrowers will continue to maintain in effect a letter of credit number with Wells Fargo, issued by Wells Fargo in favor of Barrington Bank & Trust Company, pursuant to the terms of the Existing Credit Agreement and any letter of credit agreement entered into between Wells Fargo and Borrowers.

Stock Repurchase and Cancellation

Under the terms of the Settlement Agreement, the Company agreed to redeem Thomet’s stock in the Company, totaling 900,000 shares, no later than December 31, 2015 for $342,000.

On October 1, 2015, the Company entered into a Stock Redemption Agreement (the “Stock Redemption Agreement”), pursuant to which the Company redeemed (i) 500,000 shares of the Company’s Series A Preferred Stock, par value $0.001 per share (the “Series A Preferred”), and (ii) certain stock options to purchase up to 3,400,000 shares of the Company’s Common Stock at $0.50 per share, in exchange for a promissory note in the principal amount of $3,120,000.

Amendment to Subordinated Note Agreement

On October 8, 2015, the Company entered into that certain Second Amendment to Secured Subordinated Convertible Promissory Note (the “Second Amendment”) with David Marin, an investor and employee of the Company (“Marin”), pursuant to which the Company and Marin agreed to modify the payment schedule of Marin’s secured subordinated convertible promissory note, dated November 21, 2014, in the original principal amount of $11,000,000 (the “Marin Note”). Under the terms of the Second Amendment, the Company agreed to pay to Marin $100,000 within five (5) business days’ of the signing of the Second Amendment and, upon the closing of one or more financings by the Company that raise in the aggregate $10,000,000 (not including the FGI Facility), a $1,000,000 payment toward the Marin Note. The Second Amendment further modified the payment schedule of the Marin Note, providing for Maximum Payments and True-Up Payments (as those terms are defined in the Second Amendment) to Marin, contingent upon the occurrence of the Company’s regular monthly payments. The previous agreement was based off of interest only payments and a true-up related to a pro-rata share of EBITDA, whereas the amendment has fixed payments and a true-up related to pro-rata share of Net Income.

Additions to the Board of Directors and Changes to Management

Pursuant to the terms of the Acquisition Agreement, Thomas O. Miller, the Company’s then Chief Executive Officer, President and Chairman of the Board, resigned from his position as Chief Executive Officer, effective October 1, 2015. Mr. Miller will remain as the Company’s President and Chairman of the Board.

Simultaneous with the resignation of Mr. Miller as Chief Executive Officer and pursuant to the terms of the Acquisition Agreement, Gilles Gaudreault, was appointed as the Company’s Chief Executive Officer, effective October 1, 2015.

Certificate of Designation

The Company filed a Certificate of Designation of Series B Preferred Stock with the Delaware Secretary of State on October 10, 2015, pursuant to the Board’s unanimous approval, at a meeting held on October 1, 2015, to create a series of convertible preferred stock designated as Series B Preferred Stock (the “Series B Preferred Stock”)http://www.QuestSolution.com. The sharesCompany’s website and the information to be contained on that site, or connected to that site, is not part of Series B Preferred Stock shall have a par value of $0.001 per share and each shall constitute one (1) share. These shares are only being issued for purposes of facilitating the ViascanQData transaction in the amount of 5.2 million shares.

Change of Headquarters

Effective October 1, 2015, the Company changed the location of its principal executive corporate office. The Company’s new address is 860 Conger Street, Eugene, Oregon 97402.

The foregoing description of the material terms of each of the transactions described in Note 14 of this report are not complete and are qualified in their entiretyor incorporated by reference to the full text of and the exhibits contained in the Company’s Current Report on Form 8-K, filed with the SEC on November 10, 2015.into this filing.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. The reader should understand that several factors govern whether any forward-looking statement contained herein will be or can be achieved. Any one of those factors could cause actual results to differ materially from those projected herein. These forward-looking statements include plans and objectives of management for future operations, including plans and objectives relating to the products and the future economic performance of the Company. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development projects, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in any of the forward-looking statements contained herein will be realized. Based on actual experience and business development, the Company may alter its marketing, capital expenditure plans or other budgets, which may in turn affect the Company’s results of operations. In light of the significant uncertainties inherent in the forward-looking statements included therein, the inclusion of any such statement should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.

A complete discussion of these risks and uncertainties are contained in our Annual Financial Statements included in the Form 10-K for the fiscal year ended December 31, 2015, as filed with the Securities and Exchange Commission on April 18, 2016.

Introduction

Quest Solution, Inc., a Delaware corporation (“QUES” or the “Company”), formerly named Amerigo Energy, Inc. was incorporated in 1973. Prior to 2008, Quest Solutionthe Company was involved in various unrelated business activities. Between 2008 and 2014, Quest SolutionFrom 2008-2014, the Company was involved in multiple businesses inclusive of an oil and gas investment company. Due to changes in market conditions, Quest Solution management determined to look for acquisitions which hadwere positive cash flow and would provide immediate stockholdershareholder value. In January 2014, we made our first such acquisition of Quest Marketing Inc. (dba Quest Solution, proceeded with a change in its business operations through its acquisition of QMI in January 2014 and BCS in November 2014.Inc.).

Quest Solution is a national mobility systems integrator with a focus on design, delivery, deployment and support of fully integrated mobile solutions. Quest SolutionThe Company takes a consultative approach by offering end to end solutions that include hardware, software, communications and full lifecycle management services. Quest Solution’sThe professionals simplify the integration process and deliver the solutions to itsour customers. Quest Solution counts Motorola, Intermec, Honeywell, Panasonic, AirWatch, Wavelink, SOTI and Zebra among itsare major suppliers.suppliers which Quest Solution uses in the solutions we provide to our customers.

In May 2014, our Board of Directors voted to receiveget approval from its stockholders to effectthe shareholders of the Company for a name change from Amerigo Energy, Inc. to Quest Solution, Inc. WeThe Company received the approval from a majority of ourits stockholders and filed anthe amendment to ourits Certificate of Incorporation with the State of Delaware. The name change became effective by the State of Delaware on May 30, 2014. The Company also requested a new stock symbol as a result of the name change and we assigned our new trading symbol “QUES.”“QUES”.

The Quest Solution business plan previously included developing oil and gas reserves while increasing the production rate base and cash flow. Due to declines in production on the oil leases the Company had an interest in, the Company was forced to revisit its position in the oil industry.

The Company’s business strategy developed into leveraging management’s relationships in the business world for investments for the Company. The Company intends on continuing with its acquisition of existing companies with revenues and positive cash flow.

In November 2014, Quest Solutionthe Company acquired BCS.100% of the shares of Bar Code Specialties, Inc. (“BCS”) located in Southern California. BCS is a national mobility systems integrator and label manufacturer with a focus on warehouse and distribution industries. Effective October 1, 2015, the company acquired 100% of the shares of ViascanQData (“Viascan”) located in Canada. The company’s currently operate as a single business unit. Since the combination of the twothree companies, we havethe Company has been exploring efficiencies in all facets of the businesses and learning best practices from both executive teams.

As further discussed in Note 14 to the financial statements included in this report, Quest Solution acquired ViascanQData. ViascanQData is a national mobility systems integrator and label manufacturer with a focus on warehouse and distribution industries as well as having a strong media division selling labels and ribbons.

In October 2015, our Board voted to relocate our corporate headquarters from Henderson, Nevada to Eugene, Oregon. The relocation was effective as of November 6, 2015.teams

The following is a discussion of the Company’s financial condition, results of operations, financial resources and working capital. This discussion and analysis should be read in conjunction with the Company’s financial statements contained in this Form 10-Q.

Overview

RESULTS OF OPERATIONS

Revenues

For the three months ended September 30,March 31, 2016 and 2015, and 2014, the Company generated net revenues in the amount of $16,711,339$18,394,562 and $9,084,462, respectively, the$10,675,970, respectively. The 2016 increase of $7,626,877 or 84% and is primarily attributable to the acquisition of BCS in November 2014 and additional Quest sales activity in the third quarter ending September 30, 2015. Third quarter net revenues of $16,711,339 represented an increase of $3,112,489 or 23% over the second quarter revenues ending June 30, 2015.

For the nine months ended September 30, 2015 and 2014, the company generated net revenues in the amount of $40,944,924 and $26,140,868, respectively, the increase of $14,804,055 or 57% is attributable to the organic growth from US operations and the acquisition of BCSViascan in November 2014, as well as additional synergies and organic growthOctober 2015, which accounted for approximately $3.5 million of the Company.increase. Revenue increase by approximately $4.2 million or 39.5% for U.S. based companies.

TheIn 2015, the Company has adopted a policy related to the monthly recurringreoccurring revenue on the sale of service contracts. This amounted to approximately $803,119$2,138,015 of additional gross marginnet revenue sold in the 3rdfirst quarter of 20152016 which will be amortized over the respective life of the service contracts. These agreements generally have a life of 1-5 years and are being recognized over the actual term of the contract.

Cost of Goods Sold

For the three months ended September 30,March 31, 2016 and 2015, and 2014, the Company recognized a total of $13,523,544$14,576,548 and $7,072,614,$8,281,365, respectively, inof cost of goods sold. The increase is attributable to the increased sales and the BCS acquisition in November 2014.

For the three months ended September 30, 2014, the Company recorded $347,261 of additional cost of goods sold-related party expense, as opposed to $0 recorded during the three months ended September, 2015. There was no related party costCost of goods sold in 2015 as the Company did not renew those agreements.

For the nine months ended September 30,were 77.6% of net revenues at March 31, 2015 and 2014, the company recognized a total79.2% of $32,031,714 and $20,086,597, respectively, in cost of goods sold. The increase is attributable to the increased sales and the BCS acquisition in November 2014.

For the nine months ended September 30, 2014, the Company recorded $1,041,784 of additional cost of goods sold-related party expense, as opposed to $0 recorded during the nine months ended September 30, 2015. There was no related party cost of goods sold in 2015 as the Company did not renew those agreements.revenues at March 31, 2016.

Operating expenses

Total operating expense for the three months ended September 30,March 31, 2016 and 2015 and 2014 recognized was $2,550,609$4,475,700 and $1,646,504, respectively the$2,489,476, respectively. The increase is attributable to the BCS acquisition. ForViascan acquisitions accounted for approximately $1,071,000 of the nine months ended September 30, 2015 and 2014, the amount recognized was $8,341,119 and $5,098,778, respectively, which the increase is also attributable to the BCS acquisition.increase.

General and administrative expenses for the three months ended September 30,March 31, 2016 and 2015 totaled $894,257 and 2014 totaled $597,269 and $222,857 during the comparable three month period. The increase is primarily the result of an increase in business activities related to the BCS acquisition as well as the reallocation of resources. For the nine months ended September 30, 2015, and 2014, the amount recognized was $2,507,423 and $723,447,$856,600, respectively.

Salary and employee benefits for the three months ended September 30, 2015March 31, 2016 totaled $1,704,989$3,126,401 as compared to $1,252,445$1,518,900 for the three months ended September 30, 2014.March 31, 2015. The increase is related primarily to the acquisition and changing leadership positions related tobusiness activities of the BCS acquisition. For the nine months ended September 30, 2015, and 2014, the amount recognized was $5,137,962 and $3,895,458, respectively.Viascan acquisitions.

Stock based compensation for the three months ended September 30, 2015 were $131,940March 31, 2016 was $149,011 as compared to $54,130$38,624 for the three months ended September 30, 2014.March 31, 2015. The increase was related to the vesting ofCompany issuing stock options. Forfor services during the nine months ended September 30, 2015, and 2014, the amount recognized was $336,896 and $84,215, respectively.period.

Professional fees for the three months ended September 30, 2015March 31, 2016 were $92,359$229,455 as compared to $110,005$88,480 for the three months ended September 30, 2014.March 31, 2015. The decreaseincrease was related to the reduction in usageincrease of professional accounting, consulting and legal services that were provided by firms outside consultants versus personnel on staff. For the nine months ended September 30, 2015, and 2014, the amount recognized was $288,922 and $377,769, respectively.Company.

Other income and expenses

Interest expenseExpense - Interest expense for the three months ended September, 2015March 31, 2016 totaled $274,349,$915,389, including $187,501$200,000 of OID discount on the Quest subordinated debt, as compared to $0$395,272 for the three months ended September, 2014.March 31, 2015. The increase is directly related to accrued interest associated with the BCS acquisition and the OID discount charge relating to the outstanding balances on the Quest acquisition subordinated debt. For the nine months ended September, 2015, and 2014, the amount recognized was $1,012,415 and $1,375, respectively.

On August 27, 2015, Quest Solution entered into a Settlement Agreement with Thomet which resulted in a gain on sale of assets of $374,500. Further details can be found in Note 10.

Net income (loss)loss attributable to common stock

The Company realized a net gainloss of $697,356$1,502,729 for the three months ended September, 2015,March 31, 2016, compared to a net gainloss of $62,786$422,082 for the three months ended September, 2014,March 31, 2015, an increase of $634,570.$1,080,647. The decrease in net loss for the nine months ended September, 2015 was $10,115, while for the same period in 2014 there was a net gainincome is attributable to $915,389 of $47,003, an decrease of $57,118, which is directly attributable a single large sale offset by the increase in interest expense ($200,000 of $1,012,415 during that same period.which was debt discount on the accretion of promissory note), as well as the additional costs incurred related to the acquisitions.

Liquidity and capital resources

At September, 2015, The CompanyMarch 31, 2016, we had unrestricted cash in the amount of $264,943$1,136,578 and a working capital deficit of $8,941,337.$21,858,064. In addition, The Company’sour stockholders’ equitydeficit and accumulated other comprehensive loss was $2,325,802$20,387,516 at September, 2015March 31, 2016 and $1,193,512$18,457,236 at December 31, 2014.

The Company accumulated deficit increased from $16,742,156 at December 31, 2014 to $16,752,272 at September 30, 2015.

The CompanyOur operations resulted in net cash provided of $2,893,518$1,493,476 during the ninethree months ended September, 2015,March 31, 2016, compared to net cash generatedprovided of $980,728$131,560 during the ninethree months ended September,March 31, 2015, an increase of $1,912,792.$1,361,916. This increase in net cash is predominantly attributable to the net cash provided by increases in accounts payables offset by anfrom the increase in trade accounts receivablepayable and accrued liabilities of $3,801,009, both partially attributable to Quest Solutions with$2,952,822 during the acquisition of BCS in November 2014 and better terms on our accounts payable.quarter ended March 31, 2016.

Net cash usedprovided by investing activities was $396,806$128,305 for the ninethree months ended September, 2015,March 31, 2016, compared to net cash provided of $1,803,341$13,543 for the ninethree months ended September, 2014,March 31, 2015, a decrease of $2,200,147. The large decrease was attributable to the March 2014 acquisition of QMI and in the third quarter 2015 we did not have an acquisition.$114,762.

Our financing activities used net cash of $2,465,510$1,327,918 during the ninethree months ended September, 2015,March 31, 2016, compared to net cash used of $1,212,672$101,412 during the ninethree months ended September, 2014,March 31, 2015, an increase of $1,252,838.$1,226,506. The increase is attributable to the borrowings and payments on promissory notes during the nine months ended September, 2015.proceeds from our line of credit of $940,411.

Inflation

The Company’s results of operations have not been affected by inflation and management does not expect inflation to have a material impact on its operations in the future.

Off- Balance Sheet Arrangements

The Company currently does not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSUREDISCLOSURES ABOUT MARKET RISK

Not Applicable.Applicable

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and ProceduresEVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

OurThe Company’s management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e)) as of March 31, 2016, the end of the period covered by this Quarterly Report on Form 10-Q.

Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are designedeffective to ensure that information required to be disclosed byin our reports filed with the issuer inSecurities and Exchange Commission pursuant to the reports that it files or submits under theSecurities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’sSecurities and Exchange Commission's rules and forms. The Company’s Chief Executive Officerforms and Chief Financial Officer have evaluated the effectiveness of the designis accumulated and operation ofcommunicated to the Company’s disclosure controlsmanagement, including its principal executive officer and proceduresprincipal financial officer, as of September 30, 2015, the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.appropriate to allow timely decisions regarding required disclosure.

Changes in Internal ControlsCHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There has beenwere no changechanges in our internal control over financial reporting that occurred during the last fiscal quarter, covered by this Quarterly Report on Form 10-Qi.e., the three months ended March 31, 2016, that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.As of the date of the report there are no material legal proceedings to which we are a party.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSPROCEEDS.

During the quarter ended September 30,March 31, 2016, the Company issued 37,500 shares to the board members in relation to the vesting schedule agreed to during fourth quarter 2015, Quest Solution issued 36,000 stock options to a Boardwhich gives 12,500 common shares per independent board member as compensation for Board service.

Quest Solutioncompensation. On February 16, 2016, the Company issued no39,000 shares of restricted Common Stockcommon stock to a consultants for service rendered to the Company during the quarter ended September 30, 2015.

See Notes 9, 10 and 14 to the financial statementcertain employees as part of the Company included in this report for additional information regarding unregistered sales of equity securities.an employee performance bonus.

ITEM 3. DEFAULTS UPON SENIOR SECURITIESSECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATIONINFORMATION.

None.

ITEM 6. EXHIBITS

SIGNATURES

In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, the registrant hadhas duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 23, 2016

QUEST SOLUTION, INC.

EXHIBIT INDEX

Date: November 12, 2015