QMCI Quotemedia Inc (QB)

Large accelerated filer  ☐	Accelerated filer  ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☑
	Emerging growth company ☐

PART I

 

ITEM 1.

BUSINESS.

 

General

 

QuoteMedia, Inc. (OTCQB: QMCI) is a leading provider of financial data, news feeds, market research information, and financial software solutions to online brokerages, clearing firms, banks, financial service companies, media portals, and public corporations. We are a single source for a wide array of market information and services, including streaming stock market data feeds, research and analysis information, content applications, portfolio management systems, software products, corporate investor relations provisioning, news services, wireless applications, and custom development. Our portfolio management products are provided on a “software as a service” basis, as are our other interactive content and data applications.

 

We have created a scalable system that aggregates, manages, and streams information from the stock exchanges and from other information and content feeds across both the Web and dedicated telecommunication lines. Because QuoteMedia is a comprehensive single-source market data provider, our clients are not required to deal with multiple data vendors, many of which continue to employ outdated infrastructures and delivery technologies. This allows our clients to license comprehensive financial information applications and raw data feeds more efficiently and cost-effectively.

 

QuoteMedia offers clients the advantages of a single source for a broad range of data, information, and services, including:

 

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Streaming Real-time Data Feeds

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Wireless Solutions

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News Feed Aggregation and Delivery

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Streaming Dynamic Content

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Complete Portfolio Management

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Corporate Investor Relations Solutions

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Internet Data and Content Provisioning

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Custom Software Application Development

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Research Information Supply

 

Our data delivery solutions are fast, lightweight, reliable, and easy to implement across all platforms. Our products are technologically advanced, providing a framework for quick implementation, seamless client integration and complete customization.

 

We are a United States reporting public company that was incorporated in the State of Nevada in 1999. Our shares are quoted on the OTCQB tier of the OTC Markets under the trading symbol QMCI. Our corporate head office is located at 17100 East Shea Boulevard, Suite 230, Fountain Hills, Arizona 85268, and our telephone number is (480) 905-7311. All references to our business operations in this report include the operations of QuoteMedia, Inc. and our operating divisions and subsidiaries.

 

Our Web site is located at www.quotemedia.com. Through our Web site we make available free of charge the following company information: our annual reports on Form 10-K; our quarterly reports on Form 10-Q; our current reports on Form 8-K; our proxy statements; and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports are available as soon as reasonably practical after we electronically file these reports with the SEC. We also post on our Web site the charter of our Audit Committee; our Corporate Governance Guidelines; our Code of Business Conduct/Ethics and Code of Ethics for the CEO and Senior Financial Officers, and any amendments or waivers thereto; and any other corporate governance materials contemplated by SEC or applicable regulations. These documents are also available in print to any stockholder requesting a copy from our corporate secretary at our principal executive offices.

 

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Products and Services

 

QuoteMedia has developed a full range of financial data and market information solutions which are licensed to our clients on a monthly, quarterly, or annual basis. Our products and services are divided into three main categories: Data Feed Services; Interactive Content and Data Applications; and Portfolio Management and Real-Time Quote Systems.

 

Data Feed Services

 

QuoteMedia offers comprehensive, ultra low latency, tick-by-tick enterprise level streaming market data feeds delivered over the Internet or via dedicated telecommunication lines, as well as supplemental fundamental, historical, and analytical data, keyed to the same symbology which provides a complete market data solution to our customers. Currently, QuoteMedia’s Data Feed services include complete coverage of North American exchanges and over 70 exchanges worldwide. Data Feeds coverage includes equities, options, futures, commodities, currencies, mutual funds, and indices. The data is normalized for ease of use and is provided in a wide range of formats and delivery methods. Data is available in real-time, delayed, and end-of-day format.

 

QuoteMedia has also created Quotestream Connect TM , a hybrid of our existing Data Feed Services, and our Portfolio Management Systems. It is a new method of delivering real-time data feeds to individual users to power 3 rd party applications. In most cases, this allows QuoteMedia to retain Vendor of Record status with the exchanges – resulting in significant savings for our clients in resources and exchange fees.

 

Interactive Content and Data Applications

 

QuoteMedia’s proprietary financial software applications comprise a unique suite of custom Web technologies that combine the power and depth of established financial databases with the flexibility and efficiency of the Web to deliver customized high-quality content to clients around the world. QuoteMedia financial data delivery application products and components comprise an extensive product line that spans the spectrum of Quote Modules, Charts, Market Movers, News, Watch Lists, Tickers, Market Summaries, Option Chains, SEC Filings, Investor Relations Solutions, Component Fundamentals and much more. Our lightweight and fast-loading applications provide an extensive array of information in a variety of delivery vehicles. All of our content solutions are completely customizable, embed directly into client Web pages for seamless integration with existing content, and are licensed to our Clients on a recurring subscription basis. Our Interactive Content and Data Applications include the following:

 

Quote Modules – allow users to enter information and look up various data points on equities, funds, rates, currencies and the markets. Our Quote Modules provide complete market data and supplemental data coverage. This comprehensive coverage consists of fundamental data (EPS, P/E ratio, dividends, yield, shares outstanding, market cap, etc.), analytical statistics (52 week high/low, moving averages, average volumes, moving performance numbers), historical EOD data (fully adjusted and keyed historical data), market updates, North American indices, market movers, actives, gainers, losers, company information (business description, address, phone, fax, auditors, officers, etc.), classification codes (sector, industry, NAICS, SIC, CIK, etc.), share statistics (shares outstanding, float, holdings, profitability, management effectiveness, short interest, short interest ratio), as well as broader market information such as bank rates and currency values. The data returned is compact, customizable, and incorporates comprehensive information, including charts, news, historical stock prices, market depth, SEC filings, insiders, financials, and other information.

 

Real-Time Snap Quotes – Cost-effective, customizable, instant real-time quotes and market data, real-time charts, real-time level II, and real-time options. The real-time snap quote service features client-controlled entitlements, comprehensive online tracking, detailed reporting capabilities, and North American exchange fee capping. These features are unique to our company and result in greater efficiency and cost savings for our clients.

 

Market Indices – At-a-glance display of market conditions, fed directly from the major North American and international exchanges and index providers.

 

 

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Charts – Markets and equity charting are available in a variety of formats. Static thumbnails or dynamic interactive charting is available to allow full market charting or individual stock performance displays, including comparisons to other equities or indices, as well as the ability to plot a wide range of technical studies.

 

Stock Tickers – Fully customizable vertical or horizontally scrolling tickers supply instant market information.

 

Stock Screeners – Allow users to filter stocks based on a wide variety of selection criteria, including sector/industry, share price, market cap, exchange, EPS, P/E ratio, etc.

 

Fund Screeners – Allow users to filter US or Canadian mutual funds based on an array of different characteristics, including fund types, performance metrics, fee structures, etc.

 

News – Topic-based, sector-based and equity-based lookup of news stories and commentary relating to the markets, individual companies, or specific areas of interest.

 

Watch Lists – Display current values and trends for a group of user-defined equities and indices.

 

Market Statistics – Top gainers and losers on the day for a variety of exchanges and detailed statistical analysis of most actively traded stocks. A variety of economic indicators are also provided.

 

Heat Maps – Provide an "at-a-glance" visual representation of how the markets are performing. Display any of the major indexes, arranging the constituent companies by color according to their share performance, or show the performance of individual securities in different sectors or a heat map of the stocks in individual portfolios.

 

Financial Calendars – Including Corporate Events Calendars, Economic Calendars, Stock Market Holiday and Trading Calendars etc.

 

Wallboards – Deliver updating market data and news headlines in Real-Time for display to power the wall board for trade floors, classrooms or other wall displays. Ideal for displaying Indices, Commodities Prices (such as Gold, Silver, Oil and Gas), Currencies, Rates, News Headlines and Commentary, and can even incorporate a client's own content or advertising.

 

Finance Calculators – Examples include: Bond Yield, Cost Basis, Future Asset Value, Loan Payment, Investment Calculator, Monthly Mortgage Payment, Present Asset Value, Rate of Return, Total Return, Currency Converter, etc.

 

Investor Relations – Information on current value, historical data, charting and news, and other data related to individual public companies for investor relations information provisioning. These products provide a turnkey and self-updating investor relations solution for corporate Web sites and their investors.

 

QMod TM   – QuoteMedia’s proprietary web delivery system, called QMod, was created for secure market data provisioning as well as ease of integration and unlimited customization and responsiveness. QMod is an extensible market data component JavaScript library used to deliver market data content to Web platforms powered by JSON back-ends. With extensibility in mind, QMod can be utilized to build custom applications on demand for clients as well as continue to improve existing and new components with ease. The resulting widgets are mobile-ready, because they automatically re-size and optimize based on the type of device they are viewed on – whether a laptop, tablet, or any model of mobile phone. And, unlike competitive products, QMod is SEO friendly, providing self-generating, automatically updating content that is optimized for search engine indexing – whereas the content and associated links delivered through most competitors’ widgets are essentially invisible to search engine web crawlers.

 

Portfolio Management Systems

 

QuoteMedia offers three leading edge portfolio managements systems: Quotestream™ Desktop and Mobile; Quotestream™ Professional; and a Web Portfolio Management product. Each of these systems can be implemented independently, or they can be employed in conjunction with each other to provide a complete portfolio management solution for both nonprofessionals and professionals.

 

 

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Quotestream™ Desktop and Mobile

 

QuoteMedia’s proprietary software, Quotestream, is our unique, Web-delivered, embedded application providing real-time, tick-by-tick, streaming market quotes and research information. Quotestream is the next generation portfolio management system for nonprofessional users, with enhanced features and functionality compared to our original Quotestream product – most notably tick-by-tick true streaming data, significantly enhanced charting features, and a broad range of additional research and analytical content and custom functionality. Quotestream is geared towards providing a professional-level experience to nonprofessional users. Coverage includes North American and LSE real-time data, NASDAQ, TSX, TSXV and LSE Level 2 data (market depth), market indices, dynamic and interactive charts, options, news and research information, and end-of-day quote data for over 35 international exchanges, in an easy-to-use and highly configurable interface.

 

No downloads or installations are required with this quick, lightweight and robust application. It is a sophisticated streaming portfolio management solution that can readily be embedded in any Web environment, allowing users to track investments and access research data with ease.

 

Quotestream has been designed specifically for syndication and private branding by brokerage, banking, and other corporate clients. It can be fully integrated into existing user registration databases, portfolio systems and on-line trading systems, thus enabling any brokerage, clearing firm, bank or other corporation to seamlessly complement their existing product offerings and differentiate themselves from their competition.

 

QuoteMedia corporate clients purchase volume licenses for their customers, gaining significant increases in customer attraction, retention and activity, and increased revenues as a result.

 

Quotestream offers the user ten portfolios, market summaries, NASDAQ Level 2 data, a last-ten-trade trend meter, volume leaders, top gainers and losers, company news, insider activity, SEC filings, research, analysis and opinions, earnings forecasts, news, stock ticker, intraday through twenty-year historical charting, interactive charting, desktop pop-up alerts, and email alerts. Users may fully customize their workspaces to suit their needs.  The design also offers a very simple point-and-click and drag-and-drop navigation with little or no typing involved.  Quotestream displays in full screen mode, providing a comprehensive professional trade terminal-style interface.

 

 QuoteMedia’s Quotestream Mobile is a revolutionary mobile companion to the desktop product that allows users to access financial data, news, and charting in real-time or delayed modes, from many different handheld devices. Users are able to access and manage their Quotestream portfolios wirelessly through a cellular telephone or other mobile devices. Quotestream Mobile offers an extensive array of features and advanced functionality, and supports a large selection of mobile devices, including iPhone™, Android™, BlackBerry™, and several other handheld devices.

 

Quotestream Mobile can be integrated with any brokerage/clearing firm's existing on-line trading platform without the installation of expensive business enterprise servers. Additionally, the application is designed to allow private branding by brokerage, banking, and other corporate clients.

 

Quotestream Mobile and Quotestream Desktop are true companion products as any changes made to portfolios in either application are automatically reflected in the other.

 

Quotestream™ Professional

Quotestream Professional is designed specifically for use by financial services professionals and their key support personnel, offering exceptional coverage and functionality at extremely aggressive pricing. Quotestream Professional features broad market coverage, reliability, complete flexibility, ultra low-latency tick-by-tick data, as well as completely customizable screens, advanced charting, comprehensive technical analysis, news and research data.

 

Quotestream Professional was created with the latest technology, making QuoteMedia’s professional application one of the most sophisticated, user-friendly and dependable market data and technical analysis solutions available to market p rofessionals today.   It provides true thin client access as there is no software to download, no upgrades to install, and no technical staff required.   Quotestream Professional is accessed via the Internet, avoiding expensive server and circuit infrastructure requirements.

 

 

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Quotestream Professional also features wireless access to the same portfolios and market data entitlements through mobile devices. The desktop and mobile applications work in a companion relationship, where any changes made on one device immediately transfer to the other.

 

Web Portfolio Manager

 

The Web Portfolio Manager is a user-friendly yet powerful solution allowing users to track their holdings, conduct in-depth research and analyze performance for all stocks, mutual funds and indices listed on any of the major global exchanges.

 

The Web Portfolio Manager provides immediate Web access to detailed Quote Data, Market and Company News, Charting, Depth / Level II, Filings, Historical Data, Snap Quotes and more. The Web Portfolio Manager is an efficient and economical solution for both the new and experienced investor.

 

The Web Portfolio Manager offers corporate clients such as banks, wealth management companies, brokerages, clearing firms and Web portals an ideal opportunity to cost-effectively provide premium online portfolio management services for their investor customers.

 

The Web Portfolio Manager can be integrated with the Quotestream products so that changes in any one platform, including real-time data entitlements, are reflected across the other systems.

 

Quotestream Connect TM

 

As discussed previously, Quotestream Connect TM is a hybrid of our existing Data Feed Services, and our Portfolio Management Systems. It is a new method of delivering real-time data feeds to individual users to power third party applications. In most cases, this allows QuoteMedia to retain Vendor of Record status with the exchanges – resulting in significant savings for our clients in resources and exchange fees.

 

Products Competitive Advantage

 

Our products attract a broad market base, targeting corporate clients worldwide and providing comprehensive financial data services in a wide selection of custom packages. Markets for our services include:

 

●   Online brokerages ●   Full-service brokerage firms ●   Banks and other financial institutions ●   Financial Web sites ●   Web portals ●   Public companies ●   Investor relations firms

●   Corporate financial intranets and extranets ●   Mutual fund companies ●   Internet service providers ●   Media companies ●   Publishers ●   Wealth management companies ●   Individual traders and investors ●   Securities exchanges

 

Our financial data services provide a sensible solution to the high up-front cost of in-house developed software. We leverage our technical talent and innovative infrastructure across multiple client platforms, thus creating an economical, efficient and scalable system that can manage and deliver information application capabilities to an unlimited number of entities from data centers and content feeds across the worldwide Web and over telecommunications lines. Our data feeds have among the lowest latency of any available in the market and are developed and delivered using technology that is more current than that used by many major competitors in this market. Our marketing strategy is based on the following key competitive advantages:

 

Superior Products – Our goal has always been to create the best products on the market. We develop all of our products in-house and take pride in creating quality applications. Our products stand out for their superior design, user-friendliness, ease of implementation, customizability, reliability, data speed, accuracy and comprehensiveness.

 

 

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Custom Development – QuoteMedia’s ability to provide complete custom design and development services differentiates us from our competitors. We can create custom market data applications and software engineered precisely to our clients’ specifications, and the speed with which we are able to take a product from concept to deliverable truly sets us apart.

 

Data Speed and Quality – Our connections to the world’s exchanges for equities and derivatives have most sources of latency removed allowing us to deliver extremely fast, accurate, and reliable data.

 

Single Source Provider – Clients are eager to acquire premium market data feeds, financial applications, streaming solutions, and news and research information from a single source provider. Rather than having to license applications, information and market data from multiple sources, our clients enjoy the benefits of dealing with a single comprehensive market data supplier.

 

Cutting Edge Data Delivery Technology - We use state-of-the-art hardware and software systems for maximum speed and efficiency. This provides us with a distinct advantage over our competitors, most of whom use outdated data delivery technologies based on legacy style data networks.

 

Effective Marketing – We have implemented a marketing strategy that focuses on multiple markets for our products and services, from individual nonprofessional end users to corporate and institutional clients and their customers.

 

Low Infrastructure Costs - Because of the unique technological advancements in data delivery developed by our company, our distribution model, and the strategic partnerships that are in place, we have maintained very low corporate overhead. All of our development is completed in-house, resulting in significant cost efficiencies. This allows us to focus our resources on data management, data acquisition, customer satisfaction, and business development activities. Our low-cost base of development and operation also allows us to maintain very competitive pricing.

 

Competition

 

Many companies provide financial market data and related information. Companies such as Bloomberg, Thompson Reuters and Interactive Data Corporation (IDC) are some of the data providers in this highly competitive marketplace.

 

While there are many financial data providers, what mainly differentiates us from others is that we offer clients a comprehensive solution for stock market-related information provisioning with more advanced technologies than employed by most of our competitors. Our diversity of technical expertise, agile responsiveness to custom corporate requirements and development needs, and proven commitment to superior delivery technologies have established QuoteMedia as a frontrunner in the financial market data industry.

 

QuoteMedia's array of products benefit clients with an exceptional number of strong technical differentiators in embedded, fully private-labeled and seamlessly integrated environments which combine to offer strong market differentiation.

 

Trademarks, Domain Names and Intellectual Property

 

We own the trademarks for “QuoteMedia”, “Quotestream” and “QMod”, the domain names www.quotemedia.com; www.quotestream.com; and www.quotestream.ca.  We will continue to own and protect these key assets into the future.

 

We protect our other intellectual property by a combination of copyrights, trademarks and confidentiality agreements with our employees, customers and other agents.

 

Regulatory Issues

 

We are not subject to any special governmental regulation concerning our supplying of products and services to the marketplace, and we believe we are in compliance in all material respects with all existing regulations governing other aspects of our businesses.

 

 

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Employees

 

We currently have 63 full-time employees. Our employees are not members of any union, nor have we entered into any collective bargaining agreements. We believe that we have a good relationship with our employees. With the successful implementation of our business plan, we may hire additional employees during fiscal 2019 to handle anticipated growth in the areas of administration, programming, sales, marketing, and customer care.

 

ITEM 1A.

RISK FACTORS.

 

You should consider carefully the following factors, in addition to those discussed elsewhere in this report, in evaluating our company and our business.

 

Declining activity levels in the securities markets or the failure of market participants, could lower demand for our services . Our business is dependent upon the health of the financial markets as well as the financial health of the participants in those markets. The recent uncertainty in the global financial markets has resulted in lower activity levels, including lower trading volumes and a substantial reduction in the number of issuances of new securities. It has also led to the collapse of some market participants. Some of the demand for financial market data is dependent upon activity levels in the securities markets, while other demand is static and is not dependent on activity levels. In the event that a downturn in the global financial markets results in a prolonged, significant decline in activity levels or continues to have an adverse impact on the financial condition of our customers, our revenue could be materially adversely affected.

 

The impact of cost-cutting pressures across the industries we serve could lower demand for our services. During 2018 we saw customers continue their focus on containing or reducing costs as a result of the more challenging market conditions, and this trend may continue into 2019. Customers within the financial services industry that strive to reduce their operating costs may continue to reduce their spending on financial market data and related services. If customers elect to reduce their spending with us, our results of operations could be materially adversely affected. Alternatively, customers may use other strategies to reduce their overall spending on financial market data services by consolidating their spending with fewer vendors, by selecting vendors with lower-cost offerings or by self-sourcing their need for financial market data. If customers elect to consolidate their spending on financial market data services with other vendors instead of us, if we cannot price our services as aggressively as the competition, or if customers elect to self-source their needs, our results of operations could be materially adversely affected.

 

Consolidation of financial services within and across industries, or the failure of financial services firms could lower demand for our services.  The recent recession has resulted in consolidation among some participants in the financial markets and the collapse of others. We continue to deliver services to a number of customers currently involved in the process of a merger or acquisition. As consolidation occurs and synergies are achieved, there may be fewer potential customers for our services. There are two types of consolidations: consolidations within an industry, such as banking; and across industries, such as consolidations of insurance, banking and brokerage companies. When two companies that separately subscribe to or use our services combine, they may terminate or reduce duplicative subscriptions for our services, or if they are billed on a usage basis, usage may decline due to synergies created by the business combination. A large number of cancellations, or lower utilization on an absolute dollar basis resulting from consolidations, could have a material adverse effect on our revenue. In addition, if financial services firms accounting for a material percentage of our revenues or profit cease operations as a result of bankruptcy and the assets of such customers are not acquired by successor entities, such events could have a material adverse effect on our results of operations.

 

Adverse capital and credit market conditions could limit our access to capital. The capital and credit markets have been experiencing extreme volatility and disruption for the past few years. Disruptions, uncertainty or volatility in the capital and credit markets may limit our access to capital required to operate and grow our business. As such, we may be unable to raise capital or bear an unattractive cost of capital which could reduce our financial flexibility.

 

 

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If we are unable to maintain relationships with key suppliers and providers of market data, we would not be able to provide our services to our customers . We depend on key suppliers for the data we provide to our customers. Some of this data is exclusive to particular suppliers, such as national stock exchanges, and cannot be obtained from other suppliers. In other cases, although the data may be available from secondary sources, the secondary source may not be as adequate or reliable as the primary or preferred source, or we may not be able to obtain replacement data from an alternative supplier without undue cost and expense, if at all. We generally obtain data via license agreements. The disruption of any license agreement with a major data supplier could disrupt our operations and lead to an adverse impact on our results of operations. 

 

A prolonged outage at one of our data centers that we share could result in reduced revenue and the loss of customers . Our customers rely on us for time-sensitive, up-to-date data that is reliably delivered. Our business is dependent on our ability to rapidly and efficiently process substantial quantities of data and transactions on our computer-based networks and systems. Our computer operations and those of our suppliers and customers are vulnerable to interruption by fire, natural disaster, power loss, telecommunications failure, terrorist attacks, acts of war, Internet failures, computer viruses and other events beyond our reasonable control. We maintain a back-up facility for our major data center that we share with Nexa Techologies, Inc. to seek to minimize the risk that any such event will disrupt operations. In addition, we maintain insurance for such events. However, the business interruption insurance we carry may not be sufficient to compensate us fully for losses or damages that may occur as a result of such events. Any such losses or damages incurred by us could have a material adverse effect on our business. Although we seek to minimize these risks through security measures, controls and a backup data center, there can be no assurance that such efforts will be successful or effective.

 

We compete against companies with greater financial resources . We operate in highly competitive markets in which we compete with other distributors of financial and business information and related services. We expect competition to continue to be rigorous. Some of our competitors and potential competitors have significantly greater financial, technical and marketing resources than we have. These competitors may be able to expand product offerings and data content more effectively, and to respond more rapidly than us to new or emerging technologies, changes in the industry or changes in customer needs. They may also be in a position to devote greater resources to the development, promotion and sale of their products. Increased competition in the future could limit our ability to maintain or increase our market share or maintain our margins and could have a material adverse effect on our business, financial condition or operating results.

 

New product offerings by competitors or new technologies could cause our services to become obsolete . We operate in an industry that is characterized by rapid and significant technological change, frequent new services, data content and coverage enhancements, and evolving industry standards. Without the timely introduction of new services and data content and coverage enhancements, our services could become technologically obsolete or inadequate over time, in which case our revenue and operating results would suffer. We expect our competitors to continue to improve the performance of their current services, to enhance data content and coverage and to introduce new services and technologies. These competitors may adapt more quickly to new technologies, changes in the industry and changes in customers’ requirements than we can. If we fail to adequately anticipate customers’ needs and technological trends accurately, we will be unable to introduce new services into the market and our ability to compete would be materially adversely impacted. Further, if we are unsuccessful at developing and introducing new services that are appealing to customers, with acceptable prices and terms, or if any such new services are not made available in a timely manner, our ability to compete would be materially adversely impacted. In both cases our ability to generate revenue could suffer and our business and operating results could be materially adversely affected. We will need to successfully enhance or add to current services in order to effectively expand into new geographic areas. In addition, new services, data content and coverage that we may develop and introduce may not achieve market acceptance and would result in lower revenue.

 

We may need additional capital with which to implement our business plan and there is no agreement with any third party to provide such capital . Implementing our business plan may require additional equity or debt financing. If we require additional funding or determine it appropriate to raise additional funding in the future, there is no assurance that adequate funding, whether through additional equity financing, debt financing, or other sources, will be available when needed or on terms acceptable to us. Further, any such funding may result in significant dilution to existing stockholders. The inability to obtain sufficient funds from operations and external sources when needed may have a material adverse effect on our business, results of operations, and financial condition.

 

 

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We depend on key personnel and expect to hire additional personnel. Our performance substantially depends on the services of David M. Shworan, President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of our company. The loss of Mr. Shworan, or our other key employees, could have a material adverse effect on our business. Our future success will also depend in large part upon our ability to attract and retain highly skilled management, technical engineers, sales and marketing personnel, and finance and technical personnel. Competition for such personnel is intense and there can be no assurance that we will be able to attract and retain such personnel. The loss of the services of any key personnel, the inability to attract or retain qualified personnel in the future, or any delays in hiring required personnel, particularly technical engineers and sales personnel, could have a material adverse effect on our business, results of operations, and financial condition.

 

We may need to spend significant amounts of money to protect against security breaches . A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our Internet operations. We may be required to expend significant capital and resources to protect against the threat of such security breaches or to alleviate problems caused by such breaches. Consumer concern over Internet security has been, and could continue to be, a barrier to commercial activities requiring consumers to send their credit card information over the Internet. Computer viruses, break-ins, or other security problems could lead to misappropriation of proprietary information and interruptions, delays, or cessation in service to our customers. Moreover, until more comprehensive security technologies are developed, the security and privacy concerns of existing and potential customers may inhibit the growth of the Internet as a merchandising medium. Were these risks to occur, our business, results of operations, and financial condition could be materially adversely affected.

 

The success of our anticipated future growth depends upon our ability to manage successfully the growth of our proposed operations . We expect to experience significant growth in our number of employees and scope of operations. Our future success will depend upon our ability to manage successfully the expansion of our operations. Our ability to manage and support our growth effectively will depend on our ability to implement adequate improvements to financial and management controls, reporting, order entry systems, and other procedures and hire sufficient numbers of financial, accounting, administrative, and management personnel. Our expansion and the resulting growth in the number of our employees will result in increased responsibility for both existing and new management personnel. There can be no assurance that we will be able to identify, attract, and retain experienced accounting and financial personnel. Our future operating results will depend on the ability of our management and other key employees to implement and improve our systems for operations, financial control, and information management and to recruit, train, and manage our employee base. There can be no assurance that we will be able to achieve or manage any such growth successfully or to implement and maintain adequate financial and management controls and procedures. Any inability to do so may have a material adverse effect on our business, results of operations, and financial condition. Our future success depends upon our ability to address potential market opportunities while managing our expenses to match our ability to finance operations. This need to manage our expenses may place a significant strain on our management and operational resources. If we are unable to manage our expenses effectively, our business, results of operations, and financial condition may be adversely affected.

 

Penny stock rules may make buying or selling our common stock difficult . Our common stock in the past has been, and from time to time in the future may be, subject to the "penny stock" rules as promulgated under the Securities Exchange Act of 1934. In the event that no exclusion from the definition of a "penny stock" under the Exchange Act is available, then any broker engaging in a transaction in our common stock will be required to provide each customer with:

 

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A risk disclosure document;

 

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Disclosure of market quotations, if any;

 

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Disclosure of the compensation of the broker-dealer and its salesperson in the transaction; and

 

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Monthly account statements showing the market values of our securities held in the customer's accounts.

 

 

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The bid and offer quotation and compensation information must be provided prior to effecting the transaction and must be contained on the customer's confirmation. Certain brokers are less willing to engage in transactions involving "penny stocks" as a result of the additional disclosure requirements described above, which may make it more difficult for holders of our common stock to dispose of their shares.

 

Investors should not expect to receive a dividend in the future. We have never paid any cash dividends on our common stock and do not currently anticipate that we will pay dividends in the foreseeable future. Instead, we intend to apply earnings to the expansion and development of our business.

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS.

 

None.

 

ITEM 2.

PROPERTIES.

 

We lease executive office space in Fountain Hills, Arizona. The term of this lease expires June 30, 2020.

 

We lease office space for technical staff in Vancouver, British Columbia, Canada. The term of this lease expires July 31, 2020. We lease office space for sales and customer support staff in Parksville, British Columbia, Canada. The term of this lease expires April 30, 2021.

 

We believe that our current leased space is sufficient to meet our needs for the next 12 months and that the property is currently in acceptable condition. Beyond that, we anticipate the need to expand our lease facilities in all locations as our company grows. We have no other properties and have no agreements to acquire any properties.

 

ITEM 3.

LEGAL PROCEEDINGS.

 

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES.

 

None.

 

 

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PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Our common stock is quoted on the OTCQB tier of the OTC Markets under the symbol "QMCI." The following table sets forth the high and low bid information for our common stock for the calendar quarters indicated.

 

	High	Low
Year ended December 31, 2016:
First Quarter	$ 0.06	$ 0.03
Second Quarter	0.14	0.03
Third Quarter	0.14	0.04
Fourth Quarter	0.06	0.03
Year ended December 31, 2017:
First Quarter	$ 0.08	$ 0.04
Second Quarter	0.06	0.03
Third Quarter	0.04	0.03
Fourth Quarter	0.05	0.03
Year ended December 31, 2018:
First Quarter	$ 0.14	$ 0.04
Second Quarter	0.11	0.06
Third Quarter	0.14	0.07
Fourth Quarter	0.14	0.07
Year ended December 31, 2019:
First Quarter (through March 6, 2019)	$ 0.14	$ 0.04

 

As of March 6, 2019, there were approximately 166 holders of record of our common stock. As of March 6, 2019, the closing price for our common stock was $0.14.

 

As of March 6, 2019, there were 125,885 shares outstanding of Series A Redeemable Convertible Preferred Stock, par value $0.001 per share. The Series A Redeemable Convertible Preferred Stock have a redeemable value of $25 and is convertible into 83.33 shares of common stock if common stock trades above $0.30 for 90 consecutive trading days.

 

Dividend Policy

 

We have never paid any cash dividends to holders of our common stock, and for the foreseeable future we intend to retain any earnings to finance our operations and do not anticipate paying cash dividends with respect to our common stock. Subject to the preferences that may be applicable to any then-outstanding preferred stock, the holders of our common stock will be entitled to receive such dividends, if any, as may be declared by our Board of Directors, from time to time, out of legally available funds. Payments of any cash dividends in the future will depend on our financial condition, results of operations, and capital requirements as well as other factors deemed relevant by our Board of Directors.

 

Issuer Purchases of Equity Securities

 

During the fourth quarter of 2018, no shares of our common stock were repurchased, and 600 shares of Series A Redeemable Convertible Preferred Stock were redeemed at $25 per share.

 

 

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ITEM 6.

SELECTED FINANCIAL DATA.

 

Not required.

 

ITEM 7.

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

   

Overview

 

We are a developer of financial software and a distributor of market data and research information to online brokerages, clearing firms, banks, media properties, public companies and financial service corporations worldwide. Through the aggregation of information from many direct data, news, and research sources, we offer a comprehensive range of solutions for all market-related information provisioning requirements.

 

We have three general product lines: Interactive Content and Data Applications, Data Feed Services, and Portfolio Management Systems. For financial reporting purposes, our product categories share similar economic characteristics and share costs; therefore, they are combined into one reporting segment.

 

Our Interactive Content and Data Applications consist of a suite of software applications that provide publicly traded company and market information to corporate clients via the Internet.  Products include stock market quotes, fundamentals, historical and interactive charts, company news, filings, option chains, insider transactions, corporate financials, corporate profiles, screeners, market research information, investor relations provisions, level II, watch lists, and real-time quotes. All of our content solutions are completely customizable and embed directly into client Web pages for seamless integration with existing content. We are continuing to develop and launch new modules of QMod TM , our new proprietary Web delivery system. QMod was created for secure market data provisioning as well as ease of integration and unlimited customization. Additionally, QMod delivers search engine optimized (SEO) ready responsive content designed to adapt on the fly when rendered on mobile devices or standard Web pages – automatically resizing and reformatting to fit the device on which it is displayed.

 

Our Data Feed Services consist of raw streaming real-time market data delivered over the Internet or via dedicated telecommunication lines, and supplemental fundamental, historical, and analytical data, keyed to the same symbology, which provides a complete market data solution offered to our customers. Currently, QuoteMedia’s Data Feed services include complete coverage of North American exchanges and over 70 exchanges worldwide. For financial reporting purposes, Data Feed Services revenue is included in the Interactive Content and Data Applications revenue totals.

 

Our Portfolio Management Systems consist of Quotestream TM , Quotestream Mobile, Quotestream Professional, and our Web Portfolio Management systems. Quotestream Desktop is an Internet-based streaming online portfolio management system that delivers real-time and delayed market data to both consumer and corporate markets.  Quotestream has been designed for syndication and private branding by brokerage, banking, and Web portal companies. Quotestream’s enhanced features and functionality – most notably tick-by-tick true streaming data, significantly enhanced charting features, and a broad range of additional research and analytical content and functionality – offer a professional-level experience to nonprofessional users.

 

Quotestream Professional is specifically designed for use by financial services professionals, offering exceptional coverage and functionality at extremely aggressive pricing. Quotestream Professional features broad market coverage, reliability, complete flexibility, ultra-low-latency tick-by-tick data, as well as completely customizable screens, advanced charting, comprehensive technical analysis, news and research data.

 

Quotestream Mobile is a true companion product to the Quotestream desktop products (Quotestream and Quotestream Professional) – any changes made to portfolios in either the desktop or mobile application are automatically reflected in the other.

 

 

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A key feature of QuoteMedia’s business model is that all of our product lines generate recurring monthly licensing revenue from each client. Contracts to license Quotestream to our corporate clients, for example, typically have a term of one to three years and are automatically renewed unless notice is given at least 90 days prior to the expiration of the current license term. We also generate Quotestream revenue through individual end-user licenses on a monthly or annual subscription fee basis.  Interactive Content and Data Applications and Market Data Feeds are licensed for a monthly, quarterly, annual, or semi-annual subscription fee. Contracts to license our Financial Data Products and Data Feeds typically have a term of one to three years and are automatically renewed unless notice is given 90 days prior to the expiration of the contract term.

 

Business environment and trends

 

The global financial markets have experienced extreme volatility and disruption in recent years. As a result, financial institutions globally have acted to control or reduce operational spending. While in some areas the anticipated impact of current market conditions may lead to a decision to reduce demand for market data and related services, we expect overall spending on financial information services will grow modestly over the next several years.

 

We completed a financial restructuring in December 2017 that eliminated over $12 million of debt from our balance sheet and reduced our annual interest expense by about $1.3 million. This restructuring significantly improved our operating results for 2018, and we believe that our strengthened financial position will allow us to attract and service much larger clients.

 

In recent years, the depreciation of the Canadian dollar versus the U.S. dollar resulted in lowering both our reported Canadian dollar revenues and expenses once translated into U.S. dollars. The Canadian dollar remained relatively stable versus the U.S. dollar in 2018, appreciating 0.1% when comparing average exchange rates in 2018 to 2017. As a result, exchange rate fluctuations had minimal impact on Canadian dollar revenues and expenses once translated into U.S. dollars for the year ended December 31, 2018 when compared to the same period in 2017.

 

Our revenue grew 17% year over year in 2018. Through December 31, 2018, we have experienced 12 consecutive quarters of revenue growth. Our revenue growth combined with cost containment measures have led to an improved gross margin percentage compared to prior period. Gross margin percentage was 50% for the year ended December 31, 2018 compared to 45% in the comparative period in 2017. We expect our positive revenue growth to continue for 2019.

 

Plan of operation

 

For 2019 we will maintain our focus on marketing Quotestream for deployments by brokerage firms to their retail clients and continue our expansion into the investment professional market with Quotestream Professional. We also plan to continue the growth of our Data Feed Services client base, particularly through the addition of major new international data feed coverage, as well as new data delivery products.

 

QuoteMedia will continue to focus on increasing the sales of its Interactive Content and Data Applications, particularly in the context of large-scale enterprise deployments encompassing solutions ranging across several product lines. QMod is a major component of this strategy, given the broad demand for mobile-ready, SEO-friendly Web content.

 

  Important development projects for 2019 include broad expansion of data and news coverage, including the addition of a wide array of international exchange data and news and video feeds, expansion of fixed-income coverage, and the introduction of several new and upgraded market information products.

 

New deployments of our trade integration capabilities, which allow our Quotestream applications to interact with our brokerage clients’ back-end trade execution and reporting platforms (enabling on-the-fly trade execution and tracking of holdings) are underway and will continue to be a priority in the coming year.

 

 

14

 

 

Opportunistically, efforts will be made to evaluate and pursue the development of additional new products that may eventually be commercialized by our company. Although not currently anticipated, we may require additional capital to execute our proposed plan of operation. There can be no assurance that such additional capital will be available to our company on commercially reasonable terms or at all.

 

Our future performance will be subject to a number of business factors, including those beyond our control, such as a continuation of market uncertainty and evolving industry needs and preferences, as well as the level of competition and our ability to continue to successfully market our products and technology. There can be no assurance that we will be able to successfully implement our marketing strategy, continue our revenue growth, or achieve profitable operations.

 

Critical Accounting Policies and Estimates  

 

Management’s Discussion and Analysis discusses our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis we evaluate our estimates and judgments. We base our estimates and judgments on historical experience and on various other factors that are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.  

 

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. We account for subscription revenues received in advance of services being performed by deferring such amounts until the related services are performed. We consider 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.

 

We exercise judgment in assessing the creditworthiness of our customers and therefore in our determination of whether collectability is reasonably assured. Should changes in conditions cause us to determine that these criteria are not met for future transactions, revenue recognized in future reporting periods could be adversely affected.

 

Capitalized Application Software

 

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. We exercise significant judgment in determining that capitalized application software costs meet the criteria established in Financial Accounting Standards Board (“FASB”) ASC 350-40, Internal-Use Software.

 

For the years ended December 31, 2018 and 2017, the Company capitalized $879,534 and $789,899 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, 2018 and 2017, amortization expenses associated with the internally developed application software was $746,464 and $724,451 respectively. At December 31, 2018, the remaining book value of the capitalized application software was $1,282,102.

 

 

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Accounting Pronouncements

 

Recently Adopted

 

In May 2014, the FASB issued ASU No. 2014-09, which creates Topic 606, Revenue from Contracts with Customers. The new guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict 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 and services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The new guidance supersedes most current revenue recognition guidance, including industry-specific guidance. On January 1, 2018, we adopted the guidance in ASC 606 and all the related amendments and applied the new revenue standard to all contracts using the modified retrospective method. The impact of the new revenue standard was not material and there was no adjustment required to the opening balance of our accumulated deficit. Refer to Financial Statement Note 3, “Revenue” for additional information.

 

Not Yet Adopted

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the accounting for goodwill by eliminating step 2 from the goodwill impairment test. Under the new ASU, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized for the amount by which the carrying amount exceeds its fair value. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company believes that this pronouncement will have no impact on its consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU is intended to improve the reporting of leasing transactions to provide users of financial statements with more decision-useful information. This ASU will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The Company adopted the new leasing standards on January 1, 2019, using a modified retrospective transition approach to be applied to leases existing as of, or entered into after, January 1, 2019. We have reviewed our existing lease contracts and the impact of the new leasing standards on our consolidated results of operations, financial position and disclosures. Upon adoption of the new leasing standards, we expect to recognize a lease liability and related right-of-use asset on our consolidated balance sheet of approximately $300,000. The impact of adoption of the new leasing standards will have an immaterial impact to our consolidated statements of income.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which removes, modifies and adds various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures. For example, disclosures around transfers between fair value hierarchy Levels will be removed and further detail around changes in unrealized gains and losses for the period and unobservable inputs determining Level 3 fair value measurements will be added. This standard is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company believes that this pronouncement will have no impact on its consolidated financial statements and related disclosures.

 

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract," which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350, "Intangibles - Goodwill and Other" to determine which implementation costs to capitalize as assets or expense as incurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, and an entity can elect to apply the new guidance on a prospective or retrospective basis. The Company is currently evaluating the impact of adopting this guidance.

 

 

16

 

 

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.

 

Results of Operations

 

Revenue

 

	Years ended December 31,
	2018	2017	Change ($)	Change (%)
Corporate Quotestream	$ 3,616,907	$ 3,060,127	$ 556,780	18 %
Individual Quotestream	1,856,840	1,656,814	200,026	12 %
Total Portfolio Management Systems	$ 5,473,747	$ 4,716,941	$ 756,806	16 %
Interactive Content and Data Applications	$ 5,653,923	$ 4,774,797	879,126	18 %
Total Licensing Revenue	$ 11,127,670	$ 9,491,738	$ 1,635,932	17 %

 

Total licensing revenue increased 17% when comparing the years ended December 31, 2018 and 2017. The increase is a result of an increase in revenue from licensing both our Interactive Content and Data Applications and Portfolio Management Systems.

 

Total Portfolio Management System revenue increased by 16% when comparing the years ended December 31, 2018 and 2017, due to increases in both Corporate Quotestream Revenue and Individual Quotestream revenue. The increases are attributable in part to improvements and upgrades made to our Portfolio Management products.

 

Corporate Quotestream revenue increased 18% for the year ended December 31, 2018 from the comparative period in 2017 due to new contracts signed since the comparative period and increases in the number of subscribers for existing clients.

 

Individual Quotestream revenue increased 12% for the year ended December 31, 2018 from the comparative period in 2017. The increase is due to increases in both the number of subscribers and average revenue per subscriber from the comparative period.

 

Interactive Content and Data Application revenue increased 18% for the year ended December 31, 2018 from the comparative period in 2017 due to increases in both the number of clients and the average revenue per client contracts due to increases in both the number of clients and the average revenue per client. The increases are attributable to the launch of new products such as QMod, our proprietary Web delivery system.

 

Cost of Revenue and Gross Profit Summary

 

	Years ended December 31,
	2018	2017	Change ($)	Change (%)
Cost of revenue	$ 5,528,723	$ 5,212,541	$ 316,182	6 %
Gross profit	$ 5,598,947	$ 4,279,197	$ 1,319,750	31 %
Gross margin %	50 %	45 %

 

Our cost of revenue consists of fixed and variable stock exchange fees and data feed provisioning costs. Cost of revenue also includes amortization of capitalized internal-use software costs. We capitalize the costs associated with developing new products during the application development stage.

 

 

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Cost of revenue increased 6% for the year ended December 31, 2018 from the comparative period in 2017. The increase in cost of revenue was mainly due to increased stock exchange fees resulting from increased customer usage, as well as new and increased fees levied by our content providers.

 

Overall, the cost of revenue decreased as a percentage of sales, as evidenced by our gross margin percentage that increased to 50% in 2018 from 45% in 2017.

 

Operating Expenses Summary

 

	Years ended December 31,
	2018	2017	Change ($)	Change (%)
Sales and marketing	$ 1,839,957	$ 1,584,479	$ 255,478	16 %
General and administrative	2,044,337	2,014,119	30,218	2 %
Software development	1,215,151	1,029,822	185,329	18 %
Total operating expenses	$ 5,099,445	$ 4,628,420	$ 471,025	10 %

 

Sales and Marketing

 

Sales and marketing expenses consist primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses increased 16% when comparing the years ended December 31, 2018 and 2017. The increase was due primarily to additional sales personnel hired since the comparative period.

 

General and Administrative

 

General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses remained relatively unchanged, increasing 2% for year ended December 31, 2018 compared to fiscal 2017.

 

Software Development

 

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.

 

Software development expenses increased 18% for the year ended December 31, 2018 when compared to fiscal 2017. The increases were mainly due to hiring additional development personnel since the comparative period.

 

We capitalized $879,534 of development costs for the year ended December 31, 2018, compared to $789,899 in 2017. These costs relate to the development of application software used by subscribers to access, manage, and analyze information in our databases. Capitalized costs associated with application software are amortized over their estimated economic life of three years.

 

Other Income and (Expense) Summary

 

	Years ended December 31,
	2018	2017
Foreign exchange gain (loss)	$ 8,743	$ (92,946 )
Interest expense – related party	-	(1,063,769 )
Interest expense - other	(7,289 )	-
Total other income and (expenses)	$ 1,454	$ (1,156,715 )

 

 

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  Foreign Exchange Gain (Loss)

 

Foreign exchange gains and losses arise from the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars. We have a net Canadian dollar liability; therefore, we incur a foreign exchange gain when the Canadian dollar depreciates from the period beginning date, and a loss when the Canadian dollar appreciates. Gains and losses arising from exchange rate fluctuations between transaction and settlement dates for foreign currency denominated transactions are also included in foreign exchange gains and losses.

 

We incurred a foreign exchange gain of $8,743 for the year ended December 31, 2018 attributable to the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars, as the Canadian dollar depreciated 9% versus the U.S. dollar when comparing the foreign exchange rates at December 31, 2018 to the rate at December 31, 2017. The gain attributable to the re-measurement of Canadian dollar monetary assets and liabilities was offset by net losses incurred on the settlement of foreign currency denominated transactions. We incurred a foreign exchange loss of $96,120 for the comparative 2017 period attributable to the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars as the Canadian dollar appreciated 6% versus the U.S. dollar in 2017.

 

Interest Expense – Related Party

 

No related party interest expense was incurred during the year ended December 31, 2018. Interest expense of $1,063,769 in the comparative 2017 period was accrued at 10% on amounts owed to related parties. On December 28, 2017, the Company entered into Debt Exchange and Debt Forgiveness Agreements with Bravenet Web Services, Inc. (“Bravenet”), and Harrison Avenue Holdings Ltd. (“Harrison”). David M. Shworan, the President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary, is a control person of Bravenet and Harrison. Also, effective December 28, 2017, the Company entered into a Compensation Agreement with David M. Shworan. As a result of these agreements and transactions, all our related party debt and its related interest expense was eliminated.

 

Interest Expense – Other

 

Other interest expenses of $7,289 was incurred for the year ended December 31, 2018 related primarily to financing expenses associated with new capital leases in 2018. The capital lease agreements were effective March 2018, therefore there were no financing expenses in the comparative 2017 period.

 

Provision for Income Taxes

 

In 2018, the Company recorded Canadian income tax expense of $3,085, compared to a Canadian income tax expense of $3,082 in 2017.

 

Net Income for the Period

 

As a result of the foregoing, net income for the year ended December 31, 2018 was $497,871 compared to a net loss of $(1,509,020) for the year ended December 31, 2017. Basic and diluted earnings per share were $0.01 and $0.00 for the year ended December 31, 2018 compared to a basic and diluted $0.02 loss per share for the year ended December 31, 2017.

 

Liquidity and Capital Resources

 

Our cash totaled $810,332 at December 31, 2018, as compared with $451,151 at December 31, 2017, an increase of $359,181. Net cash of $1,504,040 was provided by operations for the year ended December 31, 2018, primarily due to the net income during the period adjusted for non-cash charges, offset by an increase in accounts receivable and the decrease in accounts payable. Net cash used in investing activities for the year ended December 31, 2018 was $1,061,985 resulting primarily from capitalized application software costs and the purchase of new computer equipment and intangible assets. Cash used in financing activities for the year ended December 31, 2018 was $75,614 primarily due to the redemption of 1,800 shares of preferred stock and the repayment of capital lease financing.

 

 

19

 

 

Our current liabilities include $707,880 in deferred revenue. The expected costs necessary to realize the deferred revenue in 2019 are minimal.

 

Based on the factors discussed above, we believe that our cash on hand and cash generated from operations will be sufficient to fund our current operations for at least the next 12 months. However, to implement 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. Further, current adverse capital and credit market conditions could limit our access to capital. We may be unable to raise capital or bear an unattractive cost of capital that could reduce our financial flexibility.

 

Our long-term liquidity requirements will depend on many factors, including the rate at which we expand our business and whether we do so internally or through acquisitions. To the extent that the funds generated from operations are insufficient to fund our activities in the long term, we may be required to raise additional funds through public or private financing. No assurance can be given that additional financing will be available or that, if it is available, it will be on terms acceptable to us.

 

Off-Balance Sheet Arrangements

 

Other than office lease commitments discussed in Financial Statement Note 11, we do not have any off-balance sheet arrangements.

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not required.

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Reference is made to the Financial Statements, the Notes thereto, and the Report of Independent Public Accountants thereon commencing at page F-1 of this Report, which Financial Statements, Notes, and report are incorporated herein by reference.

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

   

 

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ITEM 9A.

CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

We have evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2018. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that we record, process, summarize, and report information required to be disclosed by us in our periodic reports filed under the Exchange Act within the time periods specified by the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Management’s Report on Internal Control over Financial Reporting

 

The management of QuoteMedia, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed by, or under the supervision of our CEO and CFO, and affected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

 

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018.  In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, we believe that, as of December 31, 2018, the Company’s internal control over financial reporting was effective based on those criteria.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to Sarbanes-Oxley Rule 404 (c).

 

Changes in Internal Control over Financial Reporting

 

During the last quarter of the fiscal year covered by this report, there have not been any changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Subsequent to the date of their evaluation, there have not been any significant changes in our internal controls or in other factors that could significantly affect these controls, including any corrective action with regard to significant deficiencies and material weaknesses.

 

 

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ITEM 9B.

OTHER INFORMATION.

 

Not applicable.

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The following table sets forth certain information regarding our directors and executive officers.

 

Name	Age	Position
Robert J. Thompson	76	Chairman of the Board
Keith J. Randall	52	Chief Executive Officer and Chief Financial Officer, and Director
David M. Shworan	51	President and Chief Executive Officer of QuoteMedia, Ltd., and Director

 

Our listed directors will serve until the next annual meeting of stockholders   or until their death, resignation, retirement, removal, disqualification, or until their successors have been duly elected and qualified. Vacancies in our existing Board of Directors are filled by majority vote of the remaining directors. Our officers serve at the will of our Board of Directors. There is no family relationship between any executive officer and director.

 

Robert J. Thompson has served as our Chairman of the Board since February 2000. Mr. Thompson is also a director of several privately-owned corporations. Formerly, Mr. Thompson was Chairman of the Board of C.M. Oliver Inc., a Canadian regulated, publicly traded investment broker/dealer involved in investment banking activities throughout North America and in Europe. For almost 30 years prior, Mr. Thompson practiced as a Chartered Professional Accountant and Certified Management Consultant. He was a Partner of KPMG LLP (formerly Peat Marwick Mitchell & Co.), Woods Gordon/Clarkson Gordon (Arthur Young & Co.) and Ernst & Whinney. In 1989, he withdrew from public practice after serving for five years as the National Partner in Charge of the Senior Management Services Division of Stevenson Kellogg Ernst & Whinney.

 

Keith J. Randall has served as our Vice President, Treasurer, and Chief Financial Officer since September 1999 and Secretary since July 2000. Mr. Randall served as Vice President and Chief Financial Officer of Datawest Solutions, Inc. (formerly C.M. Oliver, Inc.) from August 1999 until March 2000. From August 1998 until August 1999, Mr. Randall served as Controller of C.M. Oliver & Company Ltd., a publicly held Canadian corporation offering brokerage/financial planning and investment banking services. Mr. Randall is a licensed Chartered Professional Accountant in Canada and a Certified Public Accountant in the United States. He received a Bachelor of Commerce degree with Honors from Queen's University in May 1991. Effective March 31, 2018, the Board appointed Mr. Randall as successor to R. Keith Guelpa in his capacity as President, Chief Executive Officer, and Director. Mr. Guelpa served as our President and Director from 1999 until his death on March 19, 2018. Mr. Randall retained his role as Treasurer and Chief Financial Officer.

 

David M. Shworan  has served as President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of our company, since December 2004.  Mr. Shworan has served as a director of our company since November 2002.  Mr. Shworan served as our President and Chief Executive Officer from November 2002 to December 2004.  Mr. Shworan is a veteran of online marketing, technology and business.  Mr. Shworan is the founder of several technology companies and has been a consultant to a number of technology companies.  

 

 

22

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors, officers, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Directors, officers, and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon our review of the copies of such forms that we received during the fiscal year ended December 31, 2018, and written representations that no other reports were required, we believe that each person who at any time during the fiscal year was a director, officer, or beneficial owner of more than 10% of our common stock complied with all Section 16(a) filing requirements during such fiscal year.

 

Code of Ethics

 

Our Board of Directors has adopted Corporate Governance Guidelines; a Code of Business Conduct/Ethics, Code of Ethics for the CEO and Senior Financial Officers, and any amendments or waivers thereto; an Audit Committee Charter; and any other corporate governance materials contemplated by SEC or applicable regulations. We post these corporate governance materials on our Web site at www.quotemedia.com/qmci/investors.php. These documents are also available in print to any stockholder by contacting our corporate secretary at our executive offices.

 

Information Relating to Our Audit Committee of the Board of Directors

 

The purpose of the Audit Committee is to assist our Board of Directors in the oversight of the integrity of the consolidated financial statements of our company, our company’s compliance with legal and regulatory matters, the independent auditor’s qualifications and independence, and the performance of our company’s independent auditors. The primary responsibilities of the Audit Committee are set forth in its charter and include various matters with respect to the oversight of our company’s accounting and financial reporting process and audits of the consolidated financial statements of our company on behalf of our Board of Directors. The Audit Committee also selects the independent certified public accountants to conduct the annual audit of the consolidated financial statements of our company; reviews the proposed scope of such audit; reviews accounting and financial controls of our company with the independent public accountants and our financial accounting staff; and reviews and approves transactions between us and our directors, officers, and their affiliates. The Audit Committee currently consists solely of Robert J. Thompson. The Board of Directors has determined that Mr. Thompson qualifies as an “audit committee financial expert” in accordance with the applicable rules and regulations of the SEC.

 

ITEM 11.

EXECUTIVE COMPENSATION.

 

Summary of Cash and Other Compensation

 

The following table sets forth certain information concerning the compensation for the fiscal years ended December 31, 2018 and 2017 earned by our Chief Executive Officers and one other executive officer (collectively, the “Named Executive Officers”). None of our other executive officers’ cash salary and bonus exceeded $100,000 during fiscal 2018.

 

 

23

 

 

Summary Compensation Table

 

Name and Principal Position	Year	Salary ($)	Bonus ($)	Option Awards ($) (1),(4),(5)	All Other Compensation ($) (2)	Total ($)
Keith J. Randall (3)	2018	$ 162,000	-	-	-	$ 162,000
Chief Executive Officer,	2017	$ 154,000	-	-	-	$ 154,000
QuoteMedia, Inc.
David M. Shworan (4)	2018	-	-	$ 360,000	-	$ 360,000
Chief Executive Officer,	2017	$ 320,833	-	$ 30,000	-	$ 350,833
QuoteMedia, Ltd.
R. Keith Guelpa (5)	2018	$ 48,000	-	-	-	$ 48,000
Chief Executive Officer,	2017	$ 192,000	-	-	-	$ 192,000
QuoteMedia, Inc.

 

(1)

Options Awards represent the fair value of option awards granted, repriced, or otherwise modified, computed in accordance with FASB ASC 718, Stock Compensation .

(2)

The executive officers listed also received certain perquisites, the aggregate value of which did not exceed $10,000 for any year presented.

(3)

Mr. Randall is our Chief Financial Officer, and effective March 31, 2018, was also appointed Chief Executive Officer, and Director. Mr. Randall will retain his role as Chief Financial Officer and will serve as both “Principal Executive Officer” and “Principal Financial and Accounting Officer”.

(4)

Mr. Shworan is President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of QuoteMedia, Inc. Salary from January 1, 2017 through November 2017 was accrued but not paid. On December 28, 2017, the Company entered into a Compensation Agreement with Mr. Shworan, pursuant to which, among other things, Mr. Shworan acknowledged and agreed that he has received from the Company all compensation to which he is entitled for services provided to the Company through the December 28, 2017 transaction date. Also pursuant to the Compensation Agreement, Mr. Shworan is granted 1,250 w arrants per month to purchase shares of Series A Preferred Stock at an exercise price equal to $1.00 per share in lieu of a cash salary . A total of $30,000 and $360,000 of stock-based compensation expense was recognized in December 2017 and 2018. See Financial Statement Note 9 (d).

(5)

Mr. Guelpa was our President and Chief Executive Officer and served as our “Principal Executive Officer” until his death on March 19, 2018.

 

 

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Outstanding Equity Awards at Fiscal Year End

 

	Number of Securities Underlying Unexercised Common Stock Options/Warrants
Name	Exercisable	Unexercisable	Option/Warrant Exercise Price ($)	Option/Warrant Exercise Date
David M. Shworan	200,000	-	$ 0.036	15-May-2025
	2,000,000	-	$ 0.036	15-May-2025
	3,000,000	-	$ 0.036	15-May-2025
	2,400,000	-	$ 0.036	15-May-2025
	-	4,000,000	$ 0.100	28-Dec-2037
Keith J. Randall	100,000	-	$ 0.036	15-May-2025
	50,000	-	$ 0.036	15-May-2025
	50,000	-	$ 0.036	15-May-2025
	100,000	-	$ 0.035	26-Oct-2027

 

	Number of Securities Underlying Unexercised Preferred Stock Warrants
Name	Exercisable	Unexercisable	Option/Warrant Exercise Price ($)	Option/Warrant Exercise Date
David M. Shworan	1,250	-	$ 1.00	28-Dec-2047
	15,000	-	$ 1.00	01-Jan-2048
	-	382,243	$ 1.00	28-Dec-2037

 

Employment Agreements

 

David M. Shworan has served as President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of QuoteMedia, Inc., since December 30, 2004. On December 28, 2017, the Company entered into a Compensation Agreement with Mr. Shworan pursuant to which, among other things, the Company will issue to Mr. Shworan the following:

 

(a) warrants to purchase up to 1,250 shares of Series A Redeemable Convertible Preferred Stock at an exercise price equal to $1.00 per share (the “Preferred Stock Warrant”)

 

(b) warrants to purchase up to 382,243 shares of Series A Redeemable Convertible Preferred Stock at an exercise price equal to $1.00 per share (the “Liquidity Preferred Stock Warrant”)

 

(c) warrants to purchase up to 4,000,000 shares of common stock at an exercise price equal to $0.10 per share (which warrant has specific performance vesting thresholds) (the “Common Stock Warrant”)

 

(d) provided that Mr. Shworan is employed by or otherwise providing services to the Company or its subsidiaries on each of January 1, 2018 and 2019, the Company will at that time issue to Mr. Shworan warrants to purchase up to 15,000 shares of Series A Preferred Stock at an exercise price equal to $1.00 per share in lieu of paying Mr. Shworan a cash salary.

 

(e) provided that Mr. Shworan is employed by or otherwise providing services to the Company or its subsidiaries on January 1, 2020, the Company shall pay Mr. Shworan a base salary at the annual rate of $350,000 during the term of his employment or service with the Company and its subsidiaries.

 

Other than for certain provisions in Mr. Shworan’s Compensation Agreement noted above, we have no compensatory plan or arrangement with respect to any executive officer where such plan or arrangement will result in payments to such officer upon or following his resignation, retirement, or other termination of employment with us and our subsidiaries, or as a result of a change in control of our company or a change in the executive officers’ responsibilities following a change in control.  

 

 

25

 

 

Director Compensation and Other Information

 

The following table shows the amount of compensation earned by our independent director in 2018. We compensate our independent director with directors’ fees and stock options. Options Awards represent the fair value of option awards granted in 2018, computed in accordance with FASB ASC 718, Stock Compensation .

 

Name	Fees Earned or Paid in Cash ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Robert J. Thompson	$ 100,000	-	-	$ 100,000

 

The Chairman of the Board, Robert J. Thompson, currently receives a monthly retainer of $8,333. Directors who are also employees do not receive additional cash compensation for service on our Board of Directors. All directors receive a grant of 200,000 options to purchase shares of common stock upon joining our Board of Directors, which are vested on the date of grant. From time to time, we grant to our directors options or warrants to purchase additional shares of common stock.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth certain information regarding the shares of our outstanding common stock beneficially owned as of March 6, 2019 by (i) each of our directors and executive officers, (ii) all directors and executive officers as a group, and (iii) each other person who is known by us to beneficially own or to exercise voting or dispositive control over more than 5% of our common stock.

 

Name of Beneficial Owner (1)	Number of Shares of Common Stock Owned (2)	Percentage of Common Stock Beneficially Owned (2)
Directors and Executive Officers
David M. Shworan (3)	40,151,800	39.3 %
Robert J. Thompson (4)	1,610,286	1.8 %
Keith J. Randall (5)	793,976	0.9 %
All directors and executive officers as a group	42,556,062	41.2 %
5% Stockholders (6)	13,807,815	15.3 %

 

 (1) 

Each person named in the table has sole voting and investment power with respect to all common stock beneficially owned by him or her, subject to applicable community property law, except as otherwise indicated. Except as otherwise indicated, each person may be reached through us at 17100 E. Shea Blvd., Suite 230, Fountain Hills, Arizona 85268.

 

(2) 

The percentages shown are calculated based upon 90,477,798 shares of common stock outstanding on March 6, 2019. The numbers and percentages shown include the shares of common stock actually owned as of March 6, 2019 and the shares of common stock that the identified person or group had the right to acquire within 60 days of such date. In calculating the percentage of ownership, all shares of common stock that the identified person or group had the right to acquire within 60 days of March 6, 2019 upon the exercise of options are deemed to be outstanding for the purpose of computing the percentage of the shares of common stock owned by such person or group, but are not deemed to be outstanding for the purpose of computing the percentage of the shares of common stock owned by any other person.

 

 

26

 

 

(3) 

Represents the following:

 

●

   10,511,800 shares of common stock owned by Mr. Shworan and vested options and warrants to acquire directly 7,600,000 shares of common stock

 

●

   17,002,500 shares owned by Mr. Shworan's wife

 

●

   1,037,500 shares of common stock owned by Bravenet Web Services, Inc. and vested options and warrants to acquire 1,480,000 shares of common stock. Mr. Shworan is a control person of Bravenet Web Services, Inc. and Mr. Shworan disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein

 

●

    Vested options and warrants to acquire 2,520,000 shares of common stock owned by Harrison Avenue Holdings Ltd. Mr. Shworan is a control person of Harrison Avenue Holdings Ltd. and Mr. Shworan disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein

 

●

   See also Item 11, “Executive Compensation – Employment Agreements.”

 

(4) 

Represents 807,483 shares of common stock and vested options and warrants to acquire 802,803 shares of common stock.

 

(5)

Represents 493,976 shares of common stock and vested options and warrants to acquire 200,000 shares of common stock.

 

(6) 

Represents 6,066,754 shares of our common stock owned by CMG Family Irrevocable Trust. It also includes 2,000,000 and 5,741,061 shares of our common stock owned by Sue Guelpa and White Rock Partners Ltd., respectively. Sue Guelpa is the trustee of White Rock Partners Ltd.

 

Equity Compensation Plan Information

 

The following table sets forth information with respect to our common stock that may be issued upon the exercise of outstanding options, warrants, and rights to purchase shares of our common stock as of December 31, 2018.

 

	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Plan Category	(a)	(b)	(c)
Equity Compensation Plans approved by stockholders	5,320,000	$ 0.04	7,329,628
Equity Compensation Plans not approved by stockholders	21,052,803	$ 0.03	N/A
Total	26,372,803		7,329,628

 

 

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1999 Stock Option Plan

 

During March 1999, we adopted, and our stockholders approved, the 1999 Stock Option Plan to advance the interests of our company by encouraging and enabling key employees to acquire a financial interest in our company and link their interests and efforts to the long-term interests of our stockholders. A total of 400,000 shares of common stock were initially reserved for issuance under the 1999 plan. In September 1999, this number was increased to 2,500,000. As of December 31, 2018, 1,144,817 shares of our common stock had been issued upon exercise of options granted under the 1999 plan, and there were outstanding options to acquire 1,355,183 shares of our common stock under the 1999 plan.

 

The 1999 plan is administered by our Board of Directors or a committee appointed by our board. Our board or the committee has the authority to grant options, determine the purchase price of shares of our common stock covered by each option, determine the persons who are eligible under the 1999 plan, interpret the 1999 plan, determine the terms and provisions of an option agreement, and make all other determinations deemed necessary for the administration of the 1999 plan. Options may be granted to any director, officer, key employee, or any advisory board member of our company. Incentive stock options may not be granted to a director, consultant, or advisory board member that is not an employee of our company.

 

The price of any incentive stock options may not be less than 100% of the fair market value of our common stock on the date of grant. The price of any incentive stock options granted to a person who owns more than 10% of our common stock may not be less than 110% of the fair market value of our common stock on the date of grant. The option price for nonincentive stock options may not be less than 50% of the fair market value of our common stock on the date of grant. Options may be granted for terms of up to, but not exceeding, ten years from the date of grant; however, in the case of an incentive stock option granted to an individual who beneficially owns 10% more of the stock of our company, the exercise period shall not exceed five years from the date of grant. Our Board of Directors may accelerate the exerciseability of any outstanding options at any time for any reason.

 

In the event of any change in the number of shares of our common stock, the number of shares of common stock covered by outstanding options and the price per share of such options will be adjusted accordingly to reflect any such changes. Similar changes will also be made if our company engages in any merger, consolidation, or reclassification in which it is the surviving entity. In the event that we are not the surviving entity, each option shall terminate provided that each holder will have the right to exercise during a ten-day period ending on the fifth day prior to such corporate transaction. In the event of a change of control, our board or the committee may terminate each option, provided that each holder receives the amount of cash equal to the difference between the exercise price of each option and the fair market value of each share of stock subject to such option.

 

Our board may suspend, terminate, modify, or amend the 1999 plan provided that, in certain instances, the holders of a majority of our common stock issued and outstanding approve the amendment.

 

2003 Equity Incentive Compensation Plan

 

Our Board of Directors has approved our 2003 Equity Incentive Compensation Plan, or the 2003 plan, approved by our stockholders at the annual meeting held on February 14, 2003. The purpose of the 2003 plan is to assist our company in attracting, motivating, retaining, and rewarding high-quality executives and other employees, directors, officers, and independent contractors by enabling such persons to acquire or increase a proprietary interest in our company in order to strengthen the mutuality of interests between such persons and our stockholders, and providing such persons with annual and long-term performance incentives to expend their maximum efforts in the creation of stockholder value.

 

At December 31, 2018, there are 15,000,000 shares of common stock authorized for issuance pursuant to the 2003 plan. As of December 31, 2018, 2,350,372 shares of common stock had been issued upon exercise of options granted under the 2003 plan, and there were 5,320,000 options outstanding under the 2003 plan.  

 

 

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Eligibility and Administration

 

The persons eligible to receive awards under the 2003 plan are the officers, directors, employees, and independent contractors of our company. The 2003 plan is to be administered by a committee designated by our Board of Directors consisting of not less than two directors, each member of which must be a "nonemployee director" as defined under Rule 16b-3 under the Exchange Act and an "outside director" for purposes of Section 162(m) of the Code. However, except as otherwise required to comply with Rule 16b-3 of the Exchange Act, or Section 162(m) of the Code, our Board of Directors may exercise any power or authority granted to the committee. Subject to the terms of the 2003 plan, the committee or our Board of Directors is authorized to select eligible persons to receive awards, determine the type and number of awards to be granted and the number of shares of common stock to which awards will relate, specify times at which awards will be exercisable or settleable (including performance conditions that may be required as a condition thereof), set other terms and conditions of awards, prescribe forms of award agreements, interpret and specify rules and regulations relating to the 2003 plan, and make all other determinations that may be necessary or advisable for the administration of the 2003 plan.

 

Stock Options and SARs

 

The committee or our Board of Directors is authorized to grant stock options, including both incentive stock options, or ISOs, which can result in potentially favorable tax treatment to the participant, and nonqualified stock options, and SARs entitling the participant to receive the amount by which the fair market value of a share of common stock on the date of exercise (or defined "change in control price" following a change in control) exceeds the grant price of the SAR. The exercise price per share subject to an option and the grant price of a SAR are determined by the committee, but in the case of an ISO must not be less than the fair market value of a share of common stock on the date of grant. For purposes of the 2003 plan, the term "fair market value" means the fair market value of common stock, awards, or other property as determined by the committee or our Board of Directors or under procedures established by the committee or our Board of Directors. Unless otherwise determined by the committee or our Board of Directors, the fair market value of common stock as of any given date shall be the closing sales price per share of common stock as reported on the principal stock exchange or market on which common stock is traded on the date as of which such value is being determined or, if there is no sale on that date, then on the last previous day on which a sale was reported. The maximum term of each option or SAR, the times at which each option or SAR will be exercisable, and provisions requiring forfeiture of unexercised options or SARs at or following termination of employment generally are fixed by the committee or our Board of Directors, except that no option or SAR may have a term exceeding ten years. Options may be exercised by payment of the exercise price in cash, shares that have been held for at least six months, outstanding awards, or other property having a fair market value equal to the exercise price, as the committee or our Board of Directors may determine from time to time. Methods of exercise and settlement and other terms of the SARs are determined by the committee or our Board of Directors. SARs granted under the 2003 plan may include "limited SARs" exercisable for a stated period of time following a change in control of our company, as discussed below.

 

Restricted and Deferred Stock

 

The committee or our Board of Directors is authorized to grant restricted stock and deferred stock. Restricted stock is a grant of shares of common stock that may not be sold or disposed of, and that may be forfeited in the event of certain terminations of employment, prior to the end of a restricted period specified by the committee or our Board of Directors. A participant granted restricted stock generally has all of the rights of a stockholder of our company, unless otherwise determined by the committee or the Board. An award of deferred stock confers upon a participant the right to receive shares of common stock at the end of a specified deferral period, subject to possible forfeiture of the award in the event of certain terminations of employment prior to the end of a specified restricted period. Prior to settlement, an award of deferred stock carries no voting or dividend rights or other rights associated with share ownership, although dividend equivalents may be granted, as discussed below.

 

Bonus Stock and Awards in Lieu of Cash Obligations

 

The committee or our Board of Directors is authorized to grant shares of common stock as a bonus free of restrictions, or to grant shares of common stock or other awards in lieu of company obligations to pay cash under the 2003 plan or other plans or compensatory arrangements, subject to such terms as the committee or our Board of Directors may specify.

 

 

29

 

 

Acceleration of Vesting; Change in Control

 

The committee or our Board of Directors may in the case of a "change of control" of our company, as defined in the 2003 plan, in its discretion, accelerate the exercisability, the lapsing of restrictions, or the expiration of deferral or vesting periods of any award (including the cash settlement of SARs and "limited SARs" which may be exercisable in the event of a change in control). In addition, the committee or our Board of Directors may provide in an award agreement that the performance goals relating to any performance-based award will be deemed met upon the occurrence of any "change in control." Upon the occurrence of a change in control, if so provided in the award agreement, stock options and limited SARs (and other SARs which so provide) may be cashed out based on a defined "change in control price," which will be the higher of

 

●

The cash and fair market value of property that is the highest price per share paid (including extraordinary dividends) in any reorganization, merger, consolidation, liquidation, dissolution, or sale of substantially all assets of our company; or

 

●

The highest fair market value per share (generally based on market prices) at any time during the 60 days before and 60 days after a change in control.

 

For purposes of the 2003 plan, the term "change in control" generally means

 

●

Approval by stockholders of any reorganization, merger, or consolidation or other transaction or series of transactions if persons who were shareholders immediately prior to such reorganization, merger, or consolidation or other transaction do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged, or consolidated company's then outstanding, voting securities, or a liquidation or dissolution of our company or the sale of all or substantially all of the assets of our company (unless the reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned),

 

●

A change in the composition of our Board of Directors such that the persons constituting the Board of Directors on the date the award is granted, or the Incumbent Board, and subsequent directors approved by the Incumbent Board (or approved by such subsequent directors), cease to constitute at least a majority of our Board of Directors, or

 

●

The acquisition by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act, of more than 50% of either the then outstanding shares of our common stock or the combined voting power of our company's then outstanding voting securities entitled to vote generally in the election of directors excluding, for this purpose, any acquisitions by (1) our company, (2) any person, entity, or "group" that as of the date on which the award is granted owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act) of a controlling interest, or (3) any employee benefit plan of our company.

 

Amendment and Termination

 

Our Board of Directors may amend, alter, suspend, discontinue, or terminate the 2003 plan or the committee's authority to grant awards without further stockholder approval, except stockholder approval must be obtained for any amendment or alteration if such approval is required by law or regulation or under the rules of any stock exchange or quotation system on which shares of common stock are then listed or quoted. Thus, stockholder approval may not necessarily be required for every amendment to the 2003 plan which might increase the cost of the 2003 plan or alter the eligibility of persons to receive awards. Stockholder approval will not be deemed to be required under laws or regulations, such as those relating to ISOs, that condition favorable treatment of participants on such approval, although our Board of Directors may, in its discretion, seek stockholder approval in any circumstance in which it deems such approval advisable. Unless earlier terminated by our Board of Directors, the 2003 plan will terminate at such time as no shares of common stock remain available for issuance under the 2003 plan and we have no further rights or obligations with respect to outstanding awards under the 2003 plan.

 

 

30

 

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Certain Relationships and Related Parties

 

On December 28, 2017, the Company entered into Debt Exchange and Debt Forgiveness Agreements with Bravenet Web Services, Inc. (“Bravenet”), and Harrison Avenue Holdings Ltd. (“Harrison”). David M. Shworan, the President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of Quotemedia, Inc., is a control person of Bravenet and Harrison. Also, effective December 28, 2017, the Company entered into a Compensation Agreement with David M. Shworan. As a result of these agreements and transactions, all of our related party debt was eliminated effective December 28, 2017; therefore, no related party interest expense was incurred for the year ended December 31, 2018. Interest was accrued at 10% on outstanding balances owed to related parties in the comparative period resulting in $1,063,769 in interest expenses for the year ended December 31, 2017. Refer to Financial Statement Note 9, “Stockholders’ Deficit” for additional information.

 

The Company entered into a five-year office lease with 410734 B.C. Ltd. effective May 1, 2016 for approximately $7,365 per month. David M. Shworan is a control person of 410734 B.C. Ltd. At December 31, 2018, there were no amounts due to 410734 B.C. Ltd. As a matter of policy all related party transactions are subject to review and approval by the Company’s Board of Directors.

 

Director Independence

 

Our Board of Directors has determined, after considering all the relevant facts and circumstances, that Mr. Thompson is an “independent” director as such term is defined by NASDAQ.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Aggregate fees billed to our company for the fiscal years ended December 31, 2018 and 2017 by Moss Adams LLP, our principal accountants, are as follows:

 

	2018	2017
Audit Fees	$ 103,665	$ 65,374
Audit-Related Fees	$ -	$ -
Tax Fees	$ 5,250	$ 3,863
All Other Fees	$ -	$ -

 

Audit Committee Pre-Approval Policies

 

The duties and responsibilities of our Audit Committee include the pre-approval of all audit, audit-related, tax, and other services permitted by law or applicable SEC regulations (including fee and cost ranges) to be performed by our independent auditor. Any pre-approved services that will involve fees or costs exceeding pre-approved levels will also require specific pre-approval by the Audit Committee. Unless otherwise specified by the Audit Committee in pre-approving a service, the pre-approval will be effective for the 12-month period following pre-approval. The Audit Committee will not approve any non-audit services prohibited by applicable SEC regulations or any services in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance and the tax treatment of which will not be supported by the Internal Revenue Code and related regulations.

 

To the extent deemed appropriate, the Audit Committee may delegate pre-approval authority to the Chairman of the Board or any one or more other members of the Audit Committee provided that any member of the Audit Committee who has exercised any such delegation must report any such pre-approval decision to the Audit Committee at its next scheduled meeting. The Audit Committee will not delegate the pre-approval of services to be performed by the independent auditor to management.

   

All of the services provided by Moss Adams LLP described above under the captions “Audit Fees” were approved by our Audit Committee.

 

 

31

 

PART IV

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

(a) The following documents are filed as a part of the report:

 

(1) Financial Statements

 

Financial Statements are listed in the Index to Consolidated Financial Statements of this report.

 

(2) Financial Statement Schedules

 

No financial statement schedules are included because such schedules are not applicable, are not required, or because required information is included in the consolidated financial statements or notes thereto.

 

(3) Exhibits

 

ExhibitNumber		Description of Exhibit
3.1		Second Amended and Restated Articles of Incorporation (1)
3.2		Amended and Restated Bylaws (1)
10.4		Amended 1999 Equity Incentive Compensation Plan (2)
10.7		2003 Equity Incentive Compensation Plan (1)
21		List of Subsidiaries
23.1		Consent of Moss Adams LLP, Independent Auditors
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

__________________

 

(1)

Incorporated by reference to the Annual Report on Form 10-KSB filed with the Commission on March 27, 2003.

 

(2)

Incorporated by reference to the Quarterly Report on Form 10-QSB filed with the Commission on August 12, 2003.

 

 

32

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	QUOTEMEDIA, INC.
Date: March 29, 2019	By:	/s/ Keith J. Randall
		Keith J. Randall
		Chief Executive Officer and Chief Financial Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

/s/ Robert J. Thompson		Chairman of the Board		March 29, 2019
Robert J. Thompson
/s/ David M. Shworan		Director		March 29, 2019
David M. Shworan
/s/ Keith J. Randall		Chief Executive Officer and Chief Financial Officer and Director		March 29, 2019
Keith J. Randall		(Principal Executive and Financial and Accounting Officer)

 

 

 

33

 

 

QuoteMedia, Inc.

Index to Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-2
Consolidated Statements of Operations	F-3
Consolidated Statements of Changes in Series A Redeemable Convertible Preferred Stock and Stockholders’ Deficit	F-4
Consolidated Statements of Cash Flows	F-5
Notes to Consolidated Financial Statements	F-6 – F-20

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of

Quotemedia, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated   balance sheets of Quotemedia, Inc. (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, stockholders' deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated   financial statements”). In our opinion, the consolidated   financial statements present fairly, in all material respects, the consolidated   financial position of the Company as of December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Change in Accounting Principle

 

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenues from contracts with customers in 2018.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated   financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Moss Adams LLP

 

Denver, Colorado

March 29, 2019

 

We have served as the Company’s auditor since 2017.

 

 

F-1

QUOTEMEDIA, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31,

 

	2018	2017
ASSETS
Current assets:
Cash and cash equivalents	$ 810,332	$ 451,151
Accounts receivable, net	538,081	344,512
Prepaid expenses	132,356	89,884
Other current assets	170,914	149,379
Total current assets	1,651,683	1,034,926
Deposits	15,339	16,551
Property and equipment, net	1,702,875	1,420,946
Goodwill	110,000	110,000
Intangible assets	57,029	64,657
Total assets	$ 3,536,926	$ 2,647,080
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities	$ 1,495,064	$ 1,565,972
Deferred revenue	707,880	706,819
Current portion of capital lease liability	30,083	-
Total current liabilities	2,233,027	2,272,791
Long-term portion of capital lease liability	46,457	-
Commitments (Note 11)
Mezzanine equity:
Series A Redeemable Convertible Preferred stock,
$0.001 par value, 550,000 shares designated,
125,885 and 127,685 shares issued	3,037,952	3,082,211
Stockholders’ deficit:
Preferred stock, 10,000,000 shares
authorized, 550,000 shares designated	-	-
Common stock, $0.001 par value, 150,000,000 shares
authorized, 90,477,798 shares issued
and outstanding	90,479	90,479
Additional paid-in capital	19,157,202	18,727,661
Accumulated deficit	(21,028,191 )	(21,526,062 )
Total stockholders’ deficit	(1,780,510 )	(2,707,922 )
Total liabilities and stockholders’ deficit	$ 3,536,926	$ 2,647,080

 

The accompanying notes are an integral part of these consolidated financial statements.  

 

 

F-2

QUOTEMEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For each of the years ended December 31,

 

	2018	2017
LICENSING FEES	$ 11,127,670	$ 9,491,738
COST OF REVENUE	5,528,723	5,212,541
GROSS PROFIT	5,598,947	4,279,197
OPERATING EXPENSES
Sales and marketing	1,839,957	1,584,479
General and administrative	2,044,337	2,014,119
Software development	1,215,151	1,029,822
	5,099,445	4,628,420
OPERATING PROFIT (LOSS)	499,502	(349,223 )
OTHER INCOME (EXPENSES)
Foreign exchange gain (loss)	8,743	(92,946 )
Interest expense - related party	-	(1,063,769 )
Interest expense - other	(7,289 )	-
	1,454	(1,156,715 )
NET INCOME (LOSS) BEFORE INCOME TAXES	500,956	(1,505,938 )
Income tax expense	(3,085 )	(3,082 )
NET INCOME (LOSS)	$ 497,871	$ (1,509,020 )
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share	$ 0.01	$ (0.02 )
Diluted earnings (loss) per share	$ -	$ (0.02 )
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	90,477,798	90,477,798
Diluted	101,577,469	90,477,798

 

The accompanying notes are an integral part of these consolidated financial statements. 

 

 

F-3

QUOTEMEDIA, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

For the years ended December 31, 2018 and 2017

 

	Series A Redeemable Convertible  Preferred Stock		Common Stock
	Number of Shares	Amount	Number of Shares	Amount	Additional Paid-in Capital	Accumulated Deficit	Total Stockholders’ Equity (Deficit)
Balance, January 1, 2017	-	-	90,477,798	$ 90,479	$ 9,382,824	$ (20,017,042 )	$ (10,543,739 )
Series A Redeemable Convertible Preferred Stock issued	127,685	3,082,211	-	-	-	-	-
Forgiveness of debt	-	-	-	-	9,244,106	-	9,244,106
Stock-based compensation	-	-	-	-	100,731	-	100,731
Net loss	-	-	-	-	-	(1,509,020 )	(1,509,020 )
Balance, December 31, 2017	127,685	$ 3,082,211	90,477,798	$ 90,479	$ 18,727,661	$ (21,526,062 )	$ (2,707,922 )
Series A Redeemable Convertible Preferred Stock redeemed	(1,800 )	(44,259 )	-	-	(741 )	-	(741 )
Costs associated with forgiveness of debt	-	-	-	-	(8,850 )	-	(8,850 )
Stock-based compensation	-	-	-	-	439,132	-	439,132
Net income	-	-	-	-	-	497,871	497,871
Balance, December 31, 2018	125,885	$ 3,037,952	90,477,798	$ 90,479	$ 19,157,202	$ (21,028,191 )	$ (1,780,510 )

 

The accompanying notes are an integral part of these consolidated financial statements. 

 

 

F-4

QUOTEMEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For each of the years ended December 31,

 

	2018	2017
OPERATING ACTIVITIES:
Net income (loss)	$ 497,871	$ (1,509,020 )
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization	893,248	837,284
Bad debt expense	78,432	45,957
Stock-based compensation expense	439,132	100,731
Changes in assets and liabilities:
Accounts receivable	(272,001 )	43,420
Prepaid expenses	(42,472 )	(14,935 )
Other current assets	(21,535 )	(46,034 )
Deposits	1,212	(996 )
Accounts payable and amounts due to related parties	(70,908 )	1,492,592
Deferred revenue	1,061	157,586
Net cash provided by operating activities	1,504,040	1,106,585
INVESTING ACTIVITIES:
Purchase of fixed assets	(190,161 )	(89,454 )
Capitalized application software	(879,534 )	(789,899 )
Net cash used in investing activities	(1,069,695 )	(879,353 )
FINANCING ACTIVITIES:
Repayment of capital lease financing	(21,314 )	-
Costs associated with forgiveness of debt	(8,850 )	(47,781 )
Redemption of preferred stock	(45,000 )	-
Net cash used in financing activities	(75,614 )	(47,781 )
Net increase in cash	359,181	179,451
Cash and equivalents, beginning of year	451,151	271,700
Cash and equivalents, end of year	$ 810,332	$ 451,151
See supplementary information (Note 12)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

F-5

QUOTEMEDIA, INC.

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 $100,000 and $120,000 at December 31, 2018 and 2017, respectively. Bad debt expense for the years ended December 31, 2018 and 2017 were $78,432 and $45,957 respectively.

 

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. We retired fixed assets with original costs totaling $724,877 and $191,955 during the years ended December 31, 2018 and 2017, respectively. The Company received no proceeds for the fixed assets retired during the years ended December 31, 2018 and 2017. The fixed assets retired were fully depreciated therefore no gains or losses were recognized.

 

 

F-6

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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, 2018 and 2017.

 

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.

 

h) 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 2018, the Company recorded Canadian income tax expense of $3,085. In 2017 the Company recorded Canadian income tax expense of $3,082 (see Note 8).

 

i) 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.

 

j) 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 $1,215,151 and $1,029,822 in software development costs during the years ended December 31, 2018 and 2017, respectively (see Note 4).

 

 

F-7

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

k) Revenue

 

We license financial market data information on a monthly, quarterly, or annual basis. Our products and services are divided into two main categories: Interactive Content and Data Applications and Portfolio Management and Real-Time Quote Systems.

 

Revenue recognition

 

We recognize revenue over time as the performance obligation is satisfied. Our market data services are provided on either a subscription or consumption basis. Revenue related to market data provided on a subscription basis is recognized ratably over the contract period. Revenue related to market data provided on a consumption basis is recognized based on the customer utilization of such data.

 

Contract Balances  

 

Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Upfront set-up or development fees are deferred and recognized over the term of the contract, as set-up and development fees are not distinct from the market data service contracts to which they relate.

 

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.

 

Practical Expedients 

 

As permitted under ASU 2014-09 (and related ASUs), unsatisfied performance obligations are not disclosed, as the original expected duration of substantially all of our contracts is one year or less.

 

l) Financial instruments

 

Financial instruments consist principally of cash, accounts receivable, 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.

 

m) Accounting Pronouncements

 

Recently Adopted

 

In May 2014, the FASB issued ASU No. 2014-09, which creates Topic 606, Revenue from Contracts with Customers. The new guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict 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 and services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The new guidance supersedes most current revenue recognition guidance, including industry-specific guidance. On January 1, 2018, we adopted the guidance in ASC 606 and all the related amendments and applied the new revenue standard to all contracts using the modified retrospective method. The impact of the new revenue standard was not material and there was no adjustment required to the opening balance of our accumulated deficit. Refer to Note 3, “Revenue” for additional information.

 

 

F-8

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Not Yet Adopted

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the accounting for goodwill by eliminating step 2 from the goodwill impairment test. Under the new ASU, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized for the amount by which the carrying amount exceeds its fair value. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company believes that this pronouncement will have no impact on its consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU is intended to improve the reporting of leasing transactions to provide users of financial statements with more decision-useful information. This ASU will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The Company adopted the new leasing standards on January 1, 2019, using a modified retrospective transition approach to be applied to leases existing as of, or entered into after, January 1, 2019. We have reviewed our existing lease contracts and the impact of the new leasing standards on our consolidated results of operations, financial position and disclosures. Upon adoption of the new leasing standards, we expect to recognize a lease liability and related right-of-use asset on our consolidated balance sheet of approximately $300,000. The impact of adoption of the new leasing standards will have an immaterial impact to our consolidated statements of income.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which removes, modifies and adds various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures. For example, disclosures around transfers between fair value hierarchy Levels will be removed and further detail around changes in unrealized gains and losses for the period and unobservable inputs determining Level 3 fair value measurements will be added. This standard is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company believes that this pronouncement will have no impact on its consolidated financial statements and related disclosures.

 

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract," which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350, "Intangibles - Goodwill and Other" to determine which implementation costs to capitalize as assets or expense as incurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, and an entity can elect to apply the new guidance on a prospective or retrospective basis. The Company is currently evaluating the impact of adopting this guidance.

 

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.

 

 

F-9

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.    LIQUIDITY

 

The Company had a net income of $497,871 for the year ended December 31, 2018 and net cash of $1,504,040 was provided by operating activities, and although we have a working capital deficit of $581,344 as of December 31, 2018, current liabilities include $707,880 in deferred revenue and the expected costs necessary to realize the deferred revenue in 2019 are minimal.

 

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. Based on the factors discussed above, management believes that our cash on hand and cash generated from operations will be sufficient to fund operations for a period of one year after issuance of these financials.

 

3.    REVENUE

 

Disaggregated Revenue

 

The Company provides market data, financial web content solutions and cloud-based applications. Our revenue by type of service consists of the following:

 

Years ended December 31,	2018	2017
Portfolio Management Systems:
Corporate Quotestream	$ 1,856,840	$ 1,656,814
Individual Quotestream	3,616,907	3,060,127
Interactive Content & Data Applications	5,653,923	4,774,797
Total revenue	$ 11,127,670	$ 9,491,738

 

Deferred Revenue

 

Changes in deferred revenue for the period were as follows:

 

Balance at January 1, 2018	$ 706,819
Revenue recognized in the current period from the amounts in the beginning balance	(638,207 )
New deferrals, net of amounts recognized in the current period	654,400
Effects of foreign currency translation	(15,132 )
Balance at December 31, 2018	$ 707,880

 

 

F-10

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.    PROPERTY AND EQUIPMENT

 

As of December 31,	2018	2017
Computer equipment	$ 782,202	$ 1,043,346
Office furniture and equipment	22,375	70,904
Leasehold improvements	12,009	58,464
Capitalized application software	8,447,294	7,648,494
Total property and equipment	9,263,880	8,821,208
Less: accumulated depreciation	(7,561,005 )	(7,400,262 )
Property and equipment, net	$ 1,702,875	$ 1,420,946

 

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

 

For the years ended December 31, 2018 and 2017, the Company capitalized $879,534 and $789,899 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, 2018 and 2017, amortization expenses associated with the internally developed application software was $746,464 and $724,451, respectively. At December 31, 2018, the remaining book value of the capitalized application software was $1,282,102.

 

Depreciation expense for equipment and leaseholds for the years ended December 31, 2018 and 2017 was $139,028 and $106,896 respectively.

 

5.    INTANGIBLE ASSETS AND GOODWILL

 

As of December 31,	2018	2017
Intangible assets:
Purchase option for office building	$ -	$ 10,000
Software licenses	104,718	108,085
Domain names	10,570	10,652
	115,288	128,737
Less: accumulated amortization	(58,259 )	(64,080 )
Total intangible assets, net	57,029	64,657
Goodwill:
Purchase of business unit	110,000	110,000

 

 

F-11

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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 $7,628 and $5,937 for the years ended December 31, 2018 and 2017, respectively.

 

The estimated amortization expense of definite-lived intangible assets is as follows:

 

For year ending December 31, 2018	$ 3,579
For year ending December 31, 2019	3,579
For year ending December 31, 2020	3,579
For year ending December 31, 2021	3,579
For year ending December 31, 2022	3,579
For years thereafter	39,134
Total	$ 57,029

 

Goodwill is reported as an indefinite life intangible asset. We evaluate goodwill for impairment on an annual basis in accordance with Financial Accounting Standards Board (“FASB”) ASC 350-20, Goodwill . Through December 31, 2018 we have not had any goodwill impairment.

 

6.    RELATED PARTIES

 

On December 28, 2017, the Company entered into Debt Exchange and Debt Forgiveness Agreements with Bravenet Web Services, Inc. (“Bravenet”), and Harrison Avenue Holdings Ltd. (“Harrison”). David M. Shworan, the President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of Quotemedia, Inc., is a control person of Bravenet and Harrison. Also effective December 28, 2017, the Company entered into a Compensation Agreement with David M. Shworan. As a result of these agreements and transactions, all of our related party debt was eliminated effective December 28, 2017; therefore, no related party interest expense was incurred for the year ended Deember 31, 2018. Interest was accrued at 10% on outstanding balances owed to related parties in the comparative period resulting in $1,063,769 in interest expenses for the year ended December 31, 2017. Refer to Note 9, “Stockholders’ Deficit” for additional information.

 

The Company entered into a five-year office lease with 410734 B.C. Ltd. effective May 1, 2016 for approximately $7,365 per month. David M. Shworan is a control person of 410734 B.C. Ltd. At December 31, 2018, there were no amounts due to 410734 B.C. Ltd. As a matter of policy all related party transactions are subject to review and approval by the Company’s Board of Directors.

 

 

F-12

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

7.    CAPITAL LEASES

 

The Company’s property and equipment includes the following computer equipment on capital lease at December 31, 2018 and 2017:

 

		2018		2017
Computer equipment on capital lease		$ 101,049		-
Less: accumulated depreciation		17,836		-
		$ 83,213		-

 

The Company’s capital lease liability consists of the following at December 31, 2018 and 2017:

 

	2018	2017
Total capital lease liability	$ 85,418	-
Less amount representing interest	8,878	-
Present value of minimum lease payments	76,540	-
Less current portion	30,083	-
Long-term portion	$ 46,457	-

 

8.    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 (benefit) for the years ended December 31, 2018 and 2017 are as follows:

 

	2018	2017
Tax provision (benefit) at the statutory rate of 21%	$ 103,883	$ (512,019 )
State income taxes, net of federal income tax	15,137	(46,082 )
Stock-based compensation	92,218	34,249
Change in federal NOL	(349 )	(1,332 )
Federal Rate Change	-	1,389,456
Debt Exchange	-	3,087,572
Change in valuation allowance and other	(210,890 )	(3,962,025 )
State income tax expense (benefit)	104	-
Canadian income tax expense (benefit)	3,085	3,082
Income tax expense (benefit)	$ 3,189	$ 3,082

 

In 2018, the Company recorded Arizona income tax expense of $104 and Canadian income tax expense of $3,085. The Company does not have any material Canadian deferred tax assets or deferred tax liabilities.

 

As of December 31, 2018, we had net operating loss carryforwards for federal and state income tax reporting purposes amounting to approximately $10,975,000 and $2,171,000 that expire in varying amounts through the year 2037.

 

 

F-13

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The components of our deferred tax asset (liabilities) at December 31, 2018 and 2017 are as follows:

 

	2018	2017
Tax effect of net operating loss carryforward	$ 2,372,000	$ 2,558,000
Property & equipment	1,000	(5,000 )
Intangibles	(315,000 )	(277,000 )
Other	24,000	29,000
Less valuation allowance	(2,082,000 )	(2,305,000 )
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 decreased $223,000 for the year ended December 31, 2018. This is primarily due to the usage of federal and state net operating losses.

 

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 (2015-2018) 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.

 

9.    STOCKHOLDERS’ DEFICIT

 

a) Preferred shares

 

We are authorized to issue up to 10,000,000 non-designated preferred shares at the Board of Directors’ discretion.

 

On December 28, 2017, a total of 550,000 shares of the Company’s Preferred Stock were designated as “Series A Redeemable Convertible Preferred Stock.” The Series A Redeemable Convertible Preferred Stock has no dividend or voting rights. Holders of Series A Redeemable Convertible Preferred Stock shall have the right to convert their shares into shares of common stock at the rate of 83.33 shares of common stock for one share of Series A Redeemable Convertible Preferred Stock, at any time following the date the closing price of a share of common stock on a securities exchange or actively traded over-the-counter market has exceeded $0.30 for ninety (90) consecutive trading days. The conversion rights are subject to the availability of authorized but unissued shares of common stock.

 

In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to any holders of any shares of common stock, the holders of shares of Series A Redeemable Convertible Preferred Stock shall be entitled to be paid first out of the assets of the Corporation available for distribution to holders of the Company’s capital stock whether such assets are capital, surplus, or earnings, an amount equal to $25.00 per share of Series A Redeemable Convertible Preferred Stock.

 

As part of the Debt Exchange and Debt Forgiveness Agreements and Compensation Agreement effective December 28, 2017, we issued 127,685 shares of Series A Redeemable Convertible Preferred Stock. At December 31, 2018, 125,885 shares of Series A Redeemable Convertible Preferred Stock were outstanding. No shares of Series A Redeemable Convertible Preferred Stock were issued, and 1,800 shares were redeemed during the year ended December 31, 2018. The shares were redeemed at their $25 per share liquidation value.

 

 

F-14

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

b) Common stock

 

No shares of common stock were issued during the years ended December 31, 2018 and 2017.

 

c) Stock Options and Warrants

 

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, 2018, 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 common stock option and warrant activity for the years ended December 31, 2018 and 2017:

 

	Common Stock	Weighted-
	Options and	Average
	Warrants	Exercise Price
Outstanding at January 1, 2017	16,372,803	$ 0.04
Options granted	500,000	$ 0.04
Warrants granted	9,500,000	$ 0.03
Outstanding at December 31, 2017	26,372,803	$ 0.04
Options granted	-	N/A
Warrants granted	-	N/A
Outstanding at December 31, 2018	26,372,803	$ 0.04

 

 

F-15

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 The following table summarizes our non-vested common stock option and warrant activity for the years ended December 31, 2018 and 2017:

 

	Common Stock	Weighted-
	Options and	Average Grant
	Warrants	Date Fair Value
Outstanding at January 1, 2017	3,308,315	$ 0.05
Granted during the period	10,000,000	$ 0.03
Vested during the period	(5,683,315 )	$ 0.03
Outstanding at December 31, 2017	7,625,000	$ 0.04
Granted during the period	-	N/A
Vested during the period	(1,400,000 )	$ 0.05
Outstanding at December 31, 2018	6,225,000	$ 0.08

 

		Common Stock Options and Warrants Outstanding						Common Stock Options and Warrants Exercisable
				Weighted
		Number		Average		Weighted		Number		Weighted
		Outstanding at		Remaining		Average		Exercisable at		Average
		December 31,		Contractual		Exercise		December 31,		Exercise
		2018		Life (Years)		Price		2018		Price
$0.03-0.10		26,372,803		10.37		$0.06		20,147,803		$0.05

 

As of December 31, 2018, all common 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, 2018 or 2017.

 

At December 31, 2018 the aggregate intrinsic value of common stock options and warrants outstanding was $940,785. The aggregate intrinsic value of common stock options and warrants exercisable was $835,910. 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.

 

The following table represents preferred stock warrant activity for the years ended December 31, 2018 and 2017:

 

		Weighted-
		Average
	Warrants	Exercise Price
Outstanding at January 1, 2017	-	-
Warrants granted	383,493	$ 1.00
Outstanding at December 31, 2017	383,493	$ 1.00
Warrants granted	15,000	$ 1.00
Outstanding at December 31, 2018	398,493	$ 1.00

 

 

F-16

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table summarizes our non-vested preferred stock warrant activity for the years ended December 31, 2018 and 2017:

 

		Weighted-
		Average
	Warrants	Exercise Price
Outstanding at January 1, 2017	-	-
Granted during the period	383,493	$ 1.00
Vested during the period	(1,250 )	$ 1.00
Outstanding at December 31, 2017	382,243	$ 1.00
Granted during the period	15,000	$ 1.00
Vested during the period	(15,000 )	$ 1.00
Outstanding at December 31, 2018	382,243	$ 1.00

 

As of December 31, 2018, a total of 398,493 Preferred Stock Warrants were outstanding with a weighted average remaining contractual life of 29.0 years. As of December 31, 2018, 16,250 Preferred Stock Warrants were exercisable with a weighted average remaining contractual life of 29.0 years. There was no cash received from the exercise of Preferred Stock Warrants for the years ended December 31, 2018 or 2017.

 

At December 31, 2018 the aggregate intrinsic value of the Preferred Stock Warrants outstanding was $9,563,832. The aggregate intrinsic value of the Preferred Stock Warrants exercisable was $390,000. The intrinsic value of our Preferred Stock Warrants is calculated as the amount by which the liquidation value of our Series A Redeemable Convertible Preferred Stock ($25) exceeds the exercise price of the warrant ($1).

 

d) 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.

 

On December 28, 2017, the Company entered into a Compensation Agreement with David M. Shworan, the President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of Quotemedia, Inc., pursuant to which, among other things, the Company will issue to Mr. Shworan the following:

 

(a) Warrants to purchase up to 1,250 shares of Series A Redeemable Convertible Preferred Stock at an exercise price equal to $1.00 per share (the “Preferred Stock Warrant”)

 

(b) Warrants to purchase up to 382,243 shares of Series A Redeemable Convertible Preferred Stock at an exercise price equal to $1.00 per share (the “Liquidity Preferred Stock Warrant”)

 

(c) Warrants to purchase up to 4,000,000 shares of common stock at an exercise price equal to $0.10 per share (which warrant has specific performance vesting thresholds) (the “Common Stock Warrant”)

 

(d) Provided that Mr. Shworan is employed by or otherwise providing services to the Company or its subsidiaries on each of January 1, 2018 and 2019, the Company will at that time issue to Mr. Shworan warrants to purchase up to 15,000 shares of Series A Preferred Stock at an exercise price equal to $1.00 per share in lieu of paying Mr. Shworan a cash salary.

 

 

F-17

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  

 

(e) Provided that Mr. Shworan is employed by or otherwise providing services to the Company or its subsidiaries on January 1, 2020, the Company shall pay Mr. Shworan a base salary at the annual rate of $350,000 during the term of his employment or service with the Company and its subsidiaries.

 

During 2018, 15,000 Preferred Stock Warrants were issued to Mr. Shworan in lieu of salary. The Preferred Stock Warrants were determined to have a fair value of $24 per share, calculated as the liquidation value of $25 per Series A Redeemable Convertible Preferred Stock share less the $1 exercise price, resulting in a total of $360,000 of stock-based compensation expense for the year ended December 31, 2018. In the comparative 2017 period, $30,000 of stock-based compensation expense was recognized related to 1,250 warrants granted to Mr. Shworan.

 

The Liquidity Preferred Stock Warrants only vest and become exercisable on the consummation of a Liquidity Event as defined in the Company’s Certificate of Designation of Series A Redeemable Convertible Preferred Stock. The probability of the liquidity event performance condition is not currently determinable or probable, therefore, no compensation expense has been recognized as of December 31, 2018. The probability will be re-evaluated each reporting period. As at December 31, 2018, there was $9,173,832 in unrecognized stock-based compensation expense related to these Liquidity Preferred Stock Warrants. Since the Liquidity Preferred Stock Warrants only vest and become exercisable on the consummation of a Liquidity Event which is currently not determinable or probable, we are also unable to determine the weighted-average period over which the unrecognized compensation cost will be recognized.

 

The estimated stock-based compensation expense related to the Company’s stock-based awards was comprised as follows:

 

Years ended December 31,	2018	2017
Sales and marketing	$ 397,164	$ 55,181
General and administrative	37,468	44,800
Development	4,500	750
Stock-based compensation expense	$ 439,132	$ 100,731

 

At December 31, 2018 there was $132,855 of unrecognized compensation cost related to non-vested options and warrants granted to purchase common stock which is expected to be recognized over a weighted-average period of 3.43 years.

 

We calculate the fair value of stock options and warrants granted to purchase common stock under the provisions of FASB ASC 718 using the Black-Scholes valuation model with the following assumptions:

 

	2018	2017
Expected dividend yield	N/A	-
Expected stock price volatility	N/A	219 %
Risk-free interest rate	N/A	4 %
Expected life of options (years)	N/A	9.0
Weighted average fair value of options and
warrants granted	N/A	$ 0.03

 

 

F-18

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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.

 

10.    EARNINGS PER SHARE

 

Basic net income per share is computed by dividing net income during the period by the weighted-average number of common shares outstanding, excluding the dilutive effects of common stock equivalents. Common stock equivalents include redeemable convertible preferred stock, stock options and warrants. Diluted net income per share is computed by dividing net income by the weighted-average number of dilutive common shares outstanding during the period. Diluted shares outstanding is calculated using the treasury stock method by adding to the weighted shares outstanding any potential shares of common stock from outstanding redeemable convertible preferred stock, stock options and warrants that are in-the-money. In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported the calculation of basic and dilutive loss per share results in the same value. The calculations for basic and diluted net income per share for the year ended December 31, 2018 and 2017 are as follows:

 

	2018	2017
Net income (loss)	$ 497,598	$ (1,509,020 )
Weighted average common shares used to calculate
net income per share	90,477,798	90,477,798
Stock options and warrants to purchase common stock	11,099,671	-
Weighted average common shares used to calculate
diluted net income per share	101,577,469	90,477,798
Net income (loss) per share - basic	$ 0.01	$ (0.02 )
Net income (loss) per share - diluted	$ 0.00	$ (0.02 )

 

The number of shares of potentially dilutive common stock related to options, warrants and redeemable convertible preferred stock that were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive for the year ended December 31, 2018 and 2017 are shown below:

 

	2018	2017
Stock options and warrants to purchase common stock	4,000,000	16,372,803
Warrants to purchase redeemable convertible
preferred stock	1,354,113	-
Redeemable convertible preferred stock	10,489,997	-
Total potential common shares excluded	15,844,110	16,372,803

 

 

F-19

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

11.    COMMITMENTS

 

Rent expense for all operating leases was $312,523 and $283,065 for the years ended December 31, 2018 and 2017, respectively. We have office lease commitments totaling $549,188 over the next five years, which includes $328,443 in 2019, $187,055 in 2020, $33,690 in 2021, and $0 in 2022 and 2023.

 

12.    SUPPLEMENTARY CASH FLOW INFORMATION

 

	2018	2017
Cash paid for
Interest	$ 7,289	$ 1,261

 

The non-cash amounts related to the purchase of fixed assets under capital lease are noted below for the years ended December 31,2018 and 2017:

 

	2018	2017
Purchase of fixed assets under capital lease	$ 101,049	$ -

 

 

The non-cash amounts related to the Debt Exchange and Forgiveness Agreements transactions effective December 28, 2017 are noted below (see Note 9) for the years ended December 31,2018 and 2017:

 

	2018	2017
Total related party debt forgiven	$ -	$ 9,181,983
Total related party debt converted into preferred shares & warrants	-	3,192,115
Legal fees associated with debt exchange & forgiveness transactions	(8,850 )	(47,781 )
Total non-cash transactions – debt exchange & forgiveness transactions	$ (8,850 )	$ 12,326,317

 

13.   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-20

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