The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
SIGNIFICANT ACCOUNTING POLICIES
a) Nature of operations
We are a software developer and distributor of financial market data and related services to a global marketplace. We specialize in the collection, aggregation, and delivery of both delayed and real-time financial data content via the Internet. We develop and license software components that deliver dynamic content to banks, brokerage firms, financial institutions, mutual fund companies, online information and financial portals, media outlets, public companies, and corporate intranets.
b) Basis of consolidation
The consolidated financial statements include the operations of QuoteMedia, Ltd., a wholly owned subsidiary of QuoteMedia, Inc. All intercompany transactions and balances have been eliminated.
c) Foreign currency translation and transactions
The U.S. dollar is the functional currency of all our company's operations. Foreign currency asset and liability amounts are remeasured into U.S. dollars at end-of-period exchange rates, except for equipment and intangible assets, which are remeasured at historical rates. Foreign currency income and expenses are remeasured at average exchange rates in effect during the year, except for expenses related to balance sheet amounts remeasured at historical exchange rates. Because the U.S. dollar is the functional currency, exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which they occur.
d) Cash and cash equivalents
Cash equivalents include money market investments that have an original maturity of three months or less and are redeemable on demand. We maintain our accounts primarily at one financial institution. At times throughout the year, our cash and cash equivalents balances may exceed amounts insured by the Federal Deposit Insurance Corporation.
e) Allowance for doubtful accounts
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments. The Company determines the allowance by reviewing the age of the receivables and assessing the anticipated ability of customers to pay. No collateral is required for any of the receivables and the Company does not usually apply financing charges to outstanding accounts receivable balances. If the financial condition of our customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. The allowance for doubtful accounts was $120,000 and $90,000 at December 31, 2016 and 2015 respectively. Bad debt expense for the years ended December 31, 2016 and 2015 were $93,741 and $108,306 respectively.
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
f) Property and equipment
Fixed assets are recorded at cost less accumulated depreciation. Furniture and equipment are depreciated using the straight-line method over their estimated useful lives of five years. Leasehold improvements are amortized using the straight-line method over the terms of the respective leases or useful lives, whichever is shorter. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the asset and accumulated depreciation accounts with the resulting gain or loss reflected in income.
Capitalized software costs include costs incurred in connection with the internal development of software. These costs relate to software used by subscribers to access, manage and analyze information in the Company’s databases. Capitalized costs associated with internally developed software are amortized over three years which is their estimated economic life.
Depreciable and amortizable assets are evaluated for impairment upon a significant change in the operating environment. In these circumstances, if an evaluation of the undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value, which is based on discounted future cash flows. Useful lives are periodically evaluated to determine whether events or circumstances have occurred which indicate the need for revision. There were no impairments recorded for the years ended December 31, 2016 and 2015.
g) Earnings per share
Basic earnings per share are computed by dividing income by the weighted average number of shares outstanding during the year. Diluted earnings per share takes into account shares outstanding (computed under basic earnings per share) and potentially dilutive common shares (such as stock options outstanding). The effect of a stock split or reverse split is applied retroactively to preceding periods. For the years ended 2016 and 2015 all common stock equivalents were anti-dilutive.
h) Stock-based compensation
FASB ASC 718,
Stock Compensation
requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized.
Total estimated stock-based compensation expense, related to all of the Company’s stock-based awards, recognized for the years ended December 31, 2016 and 2015 was comprised as follows:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
21,504
|
|
|
$
|
280,508
|
|
General and administrative
|
|
|
59,982
|
|
|
|
18,912
|
|
Development
|
|
|
-
|
|
|
|
60
|
|
Total stock-based compensation
|
|
$
|
81,486
|
|
|
$
|
299,480
|
|
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2016 there was $137,968 of unrecognized compensation cost related to nonvested share-based payments which is expected to be recognized over a weighted-average period of 2.39 years.
We calculate the fair value of stock options granted under the provisions of FASB ASC 718 using the Black-Scholes valuation model with the following assumptions:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected stock price volatility
|
|
|
243
|
%
|
|
|
257
|
%
|
Risk-free interest rate
|
|
|
4
|
%
|
|
|
4
|
%
|
Expected life of options
|
|
|
5.0
|
|
|
|
5.0
|
|
Weighted average fair value of options and
|
|
|
|
|
|
|
|
|
warrants granted
|
|
$
|
0.04
|
|
|
$
|
0.10
|
|
Expected volatility is based on the historical volatility of the Company’s share price in the period prior to option grant equivalent to the expected life of the options. The expected term is determined under the “simplified” method as allowed under the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletins No. 107 and No. 110, and represents the period of time that options granted are expected to be outstanding. We believe that it is appropriate to use this simplified method as there is not sufficient historical exercise data to provide a reasonable basis upon which to estimate an expected term. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
i) Income taxes
Income taxes are provided in accordance with FASB ASC 740,
Income Taxes
. A deferred tax asset or liability is recorded for all temporary differences between income for financial statement purposes and income for tax purposes as well as operating loss carryforwards. Deferred tax expenses or recovery result from the net change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance, when, in the opinion of management, it is likely that some portion of the deferred tax asset will not be realized. Deferred taxes are adjusted for the effects of changes in tax laws and rates. Interest and penalties, if applicable, would be recorded in operations. In 2016, the Company recorded Canadian income tax expense of $3,018. In 2015 the Company recorded Canadian income tax expense of $3,129 (see Note 6).
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
j) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities as of the year end and the reported amount of revenues and expenses during the year. Such estimates include (i) fair values used to test goodwill and capitalized development costs for impairment; (ii) the amount of allowance for doubtful accounts, (iii) the capitalization of software development costs. Actual results and outcomes may differ from management’s estimates and assumptions.
k) Software development expenses
Software development expenses consist primarily of costs associated with the design, programming, and testing of our software applications during the preliminary project stage. Software development expenses also include costs incurred to maintain our software applications. The Company expensed $935,786 and $1,026,106 in software development costs during the years ended December 31, 2016 and 2015, respectively (see Note 3).
l) Revenue recognition
Revenue is recognized over contractual periods as services are performed and when collection of the amount due is reasonably assured. Amounts recognized as revenue are determined based upon contractually agreed-upon fee schedules with our customers. The Company accounts for subscription revenues received in advance of services being performed by deferring such amounts until the related services are performed. The Company considers the following factors when determining if collection of a fee is reasonably assured: customer creditworthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If these factors do not indicate collection is reasonably assured, revenue is deferred until collection becomes reasonably assured, which is generally upon receipt of cash.
m) Financial instruments
Financial instruments consist principally of cash, accounts receivables, accounts payable and notes payable. We believe that the fair value of financial instruments approximates the recorded book value of those instruments due to the short-term nature of the instruments, or stated interest rates that approximate market interest rates.
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
n) Accounting Pronouncements
Accounting Pronouncements Adopted During the Current Year
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The amendment requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. The new standard is limited to the presentation of debt issuance costs and does not affect the recognition or measurement of debt issuance costs. This update became effective for all annual periods and interim reporting periods beginning after December 15, 2015. The adoption of this standard did not have a material impact on our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard describes how an entity’s management should assess whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management should consider both quantitative and qualitative factors in making its assessment. If after considering management’s plans, substantial doubt about an entity’s going concern is alleviated, an entity shall disclose information in the footnotes that enables the users of the financial statements to understand the events that raised the going concern and how management’s plan alleviated this concern. If after considering management’s plans, substantial doubt about an entity’s going concern is not alleviated, the entity shall disclose in the footnotes indicating that a substantial doubt about the entity’s going concern exists within one year of the date of the issued financial statements. Additionally, the entity shall disclose the events that led to this going concern and management’s plans to mitigate them. We adopted this standard on January 1, 2016. Our adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures.
Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, which creates Topic 606, Revenue from Contracts with Customers. In summary, revenue recognition would occur upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, ASU 2014-09 requires enhanced financial statement disclosures over revenue recognition as part of the new accounting guidance. The standard will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. In March 2016, the FASB released certain implementation guidance through ASU 2016-08 to clarify principal versus agent considerations. We are currently evaluating the impact of adopting this ASU and do not expect this standard to have a significant impact on our consolidated financial statements and related disclosures.
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) which amends lease accounting by lessors and lessees. This new standard will require, among other things, that lessees recognize a right-to-use asset and related lease liability for all significant financing and operating leases, and specifies where in the statement of cash flows the related lease payments are to be presented. The standard is effective for years beginning after December 15, 2018, including interim periods within those years (beginning in calendar year 2019 for the Company), and early adoption is permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2016-02 will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718). This ASU changes how companies account for certain aspects of share-based payment awards to employees, including accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. We are currently evaluating the impact of adopting this ASU and expect this standard to not have a significant impact on our consolidated financial statements and related disclosures, which is effective for us in our fiscal year beginning January 1, 2017. Early adoption is permitted.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payment. The main purpose of this update is to address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard eliminates Step 2 of the goodwill impairment test. If a company determines in Step 1 of the goodwill impairment test that the carrying value of goodwill is less than the fair value, an impairment in that amount should be recorded to the income statement, rather than proceeding to Step 2. The new guidance is effective for the Company beginning after December 31, 2019, although early adoption is permitted. The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements.
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
LIQUIDITY
The Company has an accumulated deficit of $20,017,042 as of December 31, 2016, and for the year ended December 31, 2016 had a net loss of $1,681,303. As a result, there are concerns about the liquidity of our company at December 31, 2016. The following discussion addresses those concerns.
Net cash of $844,320 was provided by operating activities, and although we have a working capital deficit of $1,209,389 as of December 31, 2016, current liabilities include $549,233 in deferred revenue and the expected costs necessary to realize the deferred revenue in 2016 are minimal.
As of December 31, 2016, long-term liabilities consist of $10,903,439 due to related parties which are classified as long term because we do not expect to repay amounts owed to related parties during 2016. All repayments of amounts due to related parties must be approved by our Board of Directors. Repayments are subject to our company having sufficient cash on hand and are intended not to impair continuing business operations.
Implementation of our business plan may require additional financing. Additional financings may come from future equity or debt offerings that could result in dilution to our stockholders. Although the Company must ultimately achieve profitable operations, based on the factors discussed above, management believes that our cash on hand and cash to be generated from operations will be sufficient to fund operations through fiscal 2016.
3.
PROPERTY AND EQUIPMENT
As of December 31,
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
955,681
|
|
|
$
|
836,294
|
|
Office furniture and equipment
|
|
|
69,115
|
|
|
|
66,108
|
|
Leasehold improvements
|
|
|
58,464
|
|
|
|
46,455
|
|
Capitalized application software
|
|
|
7,050,550
|
|
|
|
6,360,499
|
|
Total property and equipment
|
|
|
8,133,810
|
|
|
|
7,309,356
|
|
Less: accumulated depreciation
|
|
|
(6,760,870
|
)
|
|
|
(5,905,591
|
)
|
Property and equipment, net
|
|
$
|
1,372,940
|
|
|
$
|
1,403,765
|
|
Property and Equipment are recorded at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the assets’ estimated useful lives as follows:
Computer equipment
|
5 years
|
Office Furniture and equipment
|
5 years
|
Leasehold improvements
|
Term of lease
|
Capitalized application software
|
3 years
|
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2016 and 2015, the Company capitalized $690,051 and $677,638 of costs, respectively, related to upgrades and enhancements made to existing software applications. Software applications are used by our subscribers to access, manage and analyze information in our databases. For the years ended December 31, 2016 and 2015, amortization expenses associated with the internally developed application software was $757,864 and $791,475 respectively. At December 31, 2016, the remaining book value of the capitalized application software was $1,083,583.
Depreciation expense for equipment and leaseholds for the years ended December 31, 2016 and 2015 was $97,415 and $84,824 respectively.
4.
INTANGIBLE ASSETS
As of December 31,
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
Purchase option for office building
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
Software licenses
|
|
|
108,085
|
|
|
|
108,085
|
|
Domain names
|
|
|
10,652
|
|
|
|
10,652
|
|
|
|
|
128,737
|
|
|
|
128,737
|
|
Less: accumulated amortization
|
|
|
(58,143
|
)
|
|
|
(52,206
|
)
|
Amortized intangible assets, net
|
|
|
70,594
|
|
|
|
76,531
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill associated with purchase of business unit
|
|
|
110,000
|
|
|
|
110,000
|
|
Total intangible assets, net
|
|
$
|
180,594
|
|
|
$
|
186,531
|
|
Amortization for amortized intangible assets is calculated on a straight-line basis over the assets’ estimated useful lives. The useful life of the purchase option is 5 years which is the term of the option. The useful life of the software licenses and domain names is estimated to be 20 years. Amortization expense for amortized intangible assets was $5,937 for the years ended December 31, 2016 and 2015. We evaluate goodwill for impairment on an annual basis in accordance with Financial Accounting Standards Board (“FASB”) ASC 350-20,
Goodwill
. Through December 31, 2016 we have not had any goodwill impairment.
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated amortization expense of definite-lived intangible assets is as follows:
For year ending December 31, 2017
|
|
$
|
5,937
|
|
For year ending December 31, 2018
|
|
|
5,937
|
|
For year ending December 31, 2019
|
|
|
5,937
|
|
For year ending December 31, 2020
|
|
|
5,937
|
|
For year ending December 31, 2021
|
|
|
5,937
|
|
For years thereafter
|
|
|
40,909
|
|
Total
|
|
$
|
70,594
|
|
5.
RELATED PARTIES
The following table summarizes amounts due to related parties at December 31, 2016 and 2015:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Current
|
|
|
Long-term
|
|
|
Current
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of business unit
|
|
$
|
-
|
|
|
$
|
182,183
|
|
|
$
|
-
|
|
|
$
|
159,790
|
|
Computer hosting services
|
|
|
-
|
|
|
|
137,931
|
|
|
|
-
|
|
|
|
60,122
|
|
Office rent
|
|
|
7,365
|
|
|
|
1,113,079
|
|
|
|
-
|
|
|
|
967,839
|
|
Other
|
|
|
36,847
|
|
|
|
17,276
|
|
|
|
-
|
|
|
|
17,276
|
|
Loan
|
|
|
-
|
|
|
|
997,072
|
|
|
|
-
|
|
|
|
894,952
|
|
Lead generation services
|
|
|
-
|
|
|
|
1,416,574
|
|
|
|
-
|
|
|
|
1,282,300
|
|
Due to Management
|
|
|
-
|
|
|
|
7,039,324
|
|
|
|
-
|
|
|
|
6,054,644
|
|
Total stock-based compensation
|
|
$
|
44,212
|
|
|
$
|
10,903,439
|
|
|
$
|
-
|
|
|
$
|
9,436,923
|
|
The Company has a loan agreement with Bravenet Web Services, Inc. (“Bravenet”). The President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary, is a control person of Bravenet. At December 31, 2016, the loan balance due to Bravenet including accrued interest at 10% is $997,072.
On September 29, 2006, QuoteMedia, Ltd. purchased the Bravenet business unit that was responsible for providing the Company customer promotion and lead generation services. The $110,000 purchase price due to Bravenet has been accrued in amounts due to related parties and remains unpaid as of December 31, 2016. At December 31, 2016, the balance due to Bravenet for the unpaid purchase price is $182,183 which includes interest accrued at 10%.
Bravenet provides computer hosting and maintenance services to the Company for approximately $6,250 per month. At December 31, 2016, the balance due to Bravenet for unpaid computer hosting and maintenance services is $137,931. This amount includes interest accrued at 10%.
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company entered into a five year office lease with 410734 B.C. Ltd. effective May 1, 2016 for $7,365 per month. The President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary, is a control person of 410734 B.C. Ltd. At December 31, 2016, $7,365 was due to 410734 B.C. Ltd and included in amounts due to related parties. The lease replaced the Company’s office lease with Harrison Avenue Holdings Ltd. (“Harrison”), which expired April 30, 2016. The President and Chief Executive Officer of QuoteMedia, Ltd. is also a control person of Harrison. As of December 31, 2016, the balance due to Harrison for unpaid office rent is $1,113,079. This amount is included in amounts due to related parties and includes interest accrued at 10%.
From January 1, 2005 to November 30, 2006, Bravenet provided the Company customer promotion and lead generation services. At December 31, 2016, all amounts due to Bravenet for customer promotion and lead generation services have been accrued in amounts due to related parties and total $1,416,574 including accrued interest at 10% per annum.
At December 31, 2016, the Company owed $7,039,324 to officers of the Company for accrued salary and other amounts advanced to the Company.
As a matter of policy all related party transactions are subject to review and approval by the Company’s Board of Directors. Amounts due to related parties that have been classified as non-current liabilities are not expected to be repaid within a year of the December 31, 2016 balance sheet date. All repayments of amounts due to related parties must be approved by our Board of Directors. Repayments are subject to our company having sufficient cash on hand and are intended not to impair continuing business operations. Our related party creditors have agreed to these repayment terms.
6.
INCOME TAXES
We account for income taxes according to the provisions of FASB ASC 740,
Income Taxes,
which prescribes an asset and liability approach for computing deferred income taxes.
Reconciliations of income taxes computed at the statutory federal rate to income tax expense for the years ended December 31, 2016 and 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
Tax benefit at the statutory rate of 34%
|
|
$
|
(571,643
|
)
|
|
$
|
(562,242
|
)
|
State income taxes, net of federal income tax
|
|
|
(51,448
|
)
|
|
|
(50,602
|
)
|
Stock-based compensation
|
|
|
27,705
|
|
|
|
101,823
|
|
Change in federal NOL
|
|
|
13,693
|
|
|
|
296
|
|
Expiration of state NOL
|
|
|
10,181
|
|
|
|
22,468
|
|
Change in valuation allowance and other
|
|
|
571,512
|
|
|
|
488,257
|
|
Canadian income tax expense
|
|
|
3,018
|
|
|
|
3,129
|
|
Income tax expense
|
|
$
|
3,018
|
|
|
$
|
3,129
|
|
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2016, the Company recorded Canadian income tax expense of $3,018. The Company does not have any material Canadian deferred tax assets or deferred tax liabilities.
As of December 31, 2016, we had net operating loss carryforwards for federal and state income tax reporting purposes amounting to approximately $10,371,000 and $1,567,000 which expire in varying amounts through the year 2036.
The components of our deferred tax asset (liabilities) at December 31, 2016 and 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
Tax effect of net operating loss carryforward
|
|
$
|
3,574,000
|
|
|
$
|
3,487,000
|
|
Accrued liabilities
|
|
|
3,369,000
|
|
|
|
2,902,000
|
|
Property & equipment
|
|
|
(8,000
|
)
|
|
|
(8,000
|
)
|
Capitalized software
|
|
|
(402,000
|
)
|
|
|
(427,000
|
)
|
Other
|
|
|
45,000
|
|
|
|
33,000
|
|
Less valuation allowance
|
|
|
(6,578,000
|
)
|
|
|
(5,987,000
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
A valuation allowance has been recognized to offset the entire effect of the Company’s net deferred tax asset as the realization of this deferred tax benefit is uncertain. The valuation allowance increased $591,000 for the year ended December 31, 2016.
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years (2013-2016) in these jurisdictions. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded.
7.
STOCKHOLDERS’ DEFICIT
a) Preferred shares
We are authorized to issue up to 10,000,000 nondesignated preferred shares at the Board of Directors’ discretion. As of December 31, 2016 no preferred shares have been issued.
b) Common stock
No shares of common stock were issued during the year ended December 31, 2016. During the year ended December 31, 2015, 33,636 shares of common stock were issued.
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c) Stock option plan
We have stock option plans whereby shares of our common stock may be issued pursuant to the exercise of stock options granted to employees, officers, directors, advisors, and our independent contractors. The exercise price of the common stock underlying an option will be determined by the Board of Directors or compensation committee and may be equal to, greater than, or less than the market value of our common stock at the date of grant but in no event less than 50% of such market value. The options generally vest in one to four years unless, at the discretion of the Board of Directors, alternative vesting methods are allowed. The term of each option is determined at the time of grant and may extend to a maximum of ten years.
At December 31, 2016, there are a total of 17,500,000 options authorized for issuance under our stock option plans. There are 15,000,000 and 2,500,000 shares of common stock authorized for issuance pursuant to the Company’s 2003 and 1999 Equity Incentive Compensation Plans respectively.
Options may also be granted outside our stock option plan. Options granted outside the plan generally contain terms that are more restrictive in nature and have a maximum expiration term of ten years. We may grant an unlimited number of options outside our stock option plan at the discretion of the Board of Directors.
The following table represents stock option and warrant activity for the years ended December 31, 2016 and 2015:
|
|
Options and
Warrants
|
|
|
Weighted-
Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2015
|
|
|
11,877,803
|
|
|
$
|
0.04
|
|
Stock options granted
|
|
|
2,090,000
|
|
|
$
|
0.05
|
|
Stock options forfeited/expired
|
|
|
(595,000
|
)
|
|
$
|
0.04
|
|
Warrants granted
|
|
|
7,968,803
|
|
|
$
|
0.04
|
|
Warrants forfeited/expired
|
|
|
(7,968,803
|
)
|
|
$
|
0.04
|
|
Outstanding at December 31, 2015
|
|
|
13,372,803
|
|
|
$
|
0.04
|
|
Warrants granted
|
|
|
3,000,000
|
|
|
$
|
0.04
|
|
Outstanding at December 31, 2016
|
|
|
16,372,803
|
|
|
$
|
0.04
|
|
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes our nonvested stock option and warrant activity for the years ended December 31, 2016 and 2015:
|
|
Options and
Warrants
|
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Non-vested stock options and warrants at
|
|
|
|
|
|
|
|
|
January 1, 2015
|
|
|
298,323
|
|
|
$
|
0.04
|
|
Granted during the period
|
|
|
1,600,000
|
|
|
$
|
0.06
|
|
Vested during the period
|
|
|
(20,004
|
)
|
|
$
|
0.07
|
|
Non-vested stock options and warrants at
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
1,878,319
|
|
|
$
|
0.06
|
|
Granted during the period
|
|
|
3,000,000
|
|
|
$
|
0.04
|
|
Vested during the period
|
|
|
(1,570,004
|
)
|
|
$
|
0.04
|
|
Non-vested stock options and warrants at
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
3,308,315
|
|
|
$
|
0.05
|
|
|
|
Options and Warrants Outstanding
|
|
|
Options and Warrants
Exercisable
|
|
|
|
Number
Outstanding at
December 31,
2016
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable at
December 31,
2016
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.03-0.07
|
|
|
16,372,803
|
|
|
|
8.34
|
|
|
$
|
0.04
|
|
|
|
13,064,488
|
|
|
$
|
0.04
|
|
As of December 31, 2016 all stock options and warrants have been granted with exercise prices equal to or greater than the market value of the underlying common shares on the date of grant.
There was no cash received from the exercise of stock options or warrants for the years ended December 31, 2016 or 2015.
At December 31, 2016 the aggregate intrinsic value of options and warrants outstanding was $193,373. The aggregate intrinsic value of options and warrants exercisable was $179,373. The intrinsic value of stock options and warrants are calculated as the amount by which the market price of our common stock exceeds the exercise price of the option or warrant.
8.
LOSS PER SHARE
Basic earnings per share is calculated by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income or loss applicable to common stockholders, adjusted to exclude potentially dilutive securities, by the weighted average number of common shares outstanding during the period, plus any additional common shares that would have been outstanding if potentially dilutive common shares had been exercised, using the treasury stock method. Due to the net loss incurred for the years ended 2016 and 2015, the diluted loss per share is the same as basic, because any potentially dilutive securities would reduce the loss per share. The following tables summarize the components of the loss per share:
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,681,303
|
)
|
|
$
|
(1,656,782
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic and diluted
|
|
|
90,477,798
|
|
|
|
90,465,357
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Stock options and warrants excluded from the calculation of dilutive loss per share because they were anti-dilutive
|
|
|
16,372,803
|
|
|
|
13,372,803
|
|
9.
COMMITMENTS
Rent expense for all operating leases was $266,967 and $271,904 for the years ended December 31, 2016 and 2015, respectively. We have office lease commitments totaling $1,079,546 over the next five years, which include $286,767 in 2017, $291,721 in 2018, $296,323 in 2019, $173,840 in 2020, and $30,895 in 2021.
The Company extended its office lease with A2Z Arizona Holdings VIII, LLC effective April 1, 2017 for an additional 39 months at approximately $1,600 per month. The office lease commitments associated with the extended office lease total $60,770 over the next four years, which include $13,069 in 2017, $18,351 in 2018, $18,895 in 2019, and $10,455 in 2020.
10.
SUPPLEMENTARY CASH FLOW INFORMATION
|
|
2016
|
|
|
2015
|
|
Cash paid for
|
|
|
|
|
|
|
Interest
|
|
$
|
1,214
|
|
|
$
|
1,065
|
|
Cash received for
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
46
|
|
|
$
|
1,549
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
|
-
|
|
|
|
-
|
|
11.
SUBSEQUENT EVENTS
The Company has evaluated events up to the filing date of these consolidated financial statements and determined that no subsequent event activity required disclosure.
F-19