Quarterly Report (10-q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period _________ to _________

Commission File Number: 0-28599

QUOTEMEDIA, INC.

(Exact name of registrant as specified in its charter)

Nevada	91-2008633
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification Number)

17100 East Shea Boulevard, Suite 230, Fountain Hills, AZ 85268

(Address of Principal Executive Offices)

(480) 905-7311

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The Registrant has 90,477,798 shares of common stock outstanding as of November 2, 2020.

QUOTEMEDIA, INC.

FORM 10-Q for the Quarter Ended September 30, 2020

INDEX

		Page
Part I.	Financial Information	3

Item 1.	Financial Statements (unaudited):	3

	Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019	3

	Condensed Consolidated Statements of Operations for the three and nine-months ended September 30, 2020 and 2019	4

	Condensed Consolidated Statements of Changes in Series A Redeemable Convertible Preferred Stock and Stockholders’ Deficit for the three and nine-months ended September 30, 2020 and 2019	5

	Condensed Consolidated Statements of Cash Flows for the nine-months ended September 30, 2020 and 2019	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 4.	Controls and Procedures	22

Part II.	Other Information

Item 6.	Exhibits	23

Signatures		24

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

QUOTEMEDIA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30, 2020	December 31, 2019
ASSETS

Current assets:
Cash and cash equivalents	$678,552	$815,487
Accounts receivable, net	728,740	680,759
Prepaid expenses	135,029	103,093
Other current assets	90,263	47,793
Total current assets	1,632,584	1,647,132

Deposits	16,755	16,084
Property and equipment, net	2,643,666	2,273,087
Goodwill	110,000	110,000
Intangible assets	63,498	51,265
Operating lease right-of-use assets	699,658	328,676

Total assets	$5,166,161	$4,426,244

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable and accrued liabilities	$1,759,714	$1,286,340
Deferred revenue	666,516	579,343
Current portion of operating lease liabilities	171,542	172,049
Current portion of finance lease liabilities	19,583	33,914
Total current liabilities	2,617,355	2,071,646

Paycheck Protection Program loan (Note 8)	141,257	-
Long-term portion of operating lease liabilities	520,414	167,496
Long-term portion of finance lease liabilities	2,777	13,949

Mezzanine equity:
Series A Redeemable Convertible Preferred stock, $0.001 par value,
550,000 shares designated; Shares issued and outstanding:
123,685 at September 30, 2020 and December 31, 2019	2,983,857	2,983,857

Stockholders’ deficit:
Preferred stock, 10,000,000 shares authorized, 550,000 shares designated	-	-
Common stock, $0.001 par value, 150,000,000 shares authorized, shares issued and
outstanding: 90,477,798 at September 30, 2020 and December 31, 2019	90,479	90,479
Additional paid-in capital	19,598,944	19,568,011
Accumulated deficit	(20,788,922)	(20,469,194)
Total stockholders’ deficit	(1,099,499)	(810,704)

Total liabilities and stockholders’ deficit	$5,166,161	$4,426,244

QUOTEMEDIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three-months ended September 30,		Nine-months ended September 30,
	2020	2019	2020	2019

LICENSING FEES	$3,140,358	$2,963,172	$9,136,141	$8,818,637

COST OF REVENUE	1,706,476	1,429,308	4,795,150	4,355,110

GROSS PROFIT	1,433,882	1,533,864	4,340,991	4,463,527

OPERATING EXPENSES

Sales and marketing	552,960	463,929	1,602,501	1,393,929
General and administrative	555,002	600,329	1,817,748	1,646,388
Software development	405,703	311,028	1,246,722	923,218
	1,513,665	1,375,286	4,666,971	3,963,535

OPERATING PROFIT (LOSS)	(79,783)	158,578	(325,980)	499,992

OTHER INCOME (EXPENSES)

Foreign exchange gain (loss)	5,930	(543)	11,887	(21,857)
Interest and other expense, net	(701)	(1,349)	(3,419)	(4,533)
	5,229	(1,892)	8,468	(26,390)

INCOME (LOSS) BEFORE INCOME TAXES	(74,554)	156,686	(317,512)	473,602

Provision for income taxes	(751)	(758)	(2,216)	(2,257)

NET INCOME (LOSS)	$(75,305)	$155,928	$(319,728)	$471,345

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share	$(0.00)	$0.00	$(0.00)	$0.01
Diluted earnings (loss) per share	$(0.00)	$0.00	$(0.00)	$0.00

WEIGHTED AVERAGE SHARES OUTSTANDING

Basic	90,477,798	90,477,798	90,477,798	90,477,798
Diluted	90,477,798	107,173,219	90,477,798	105,577,615

QUOTEMEDIA, INC.

CONDENSED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(UNAUDITED)

	Series A Redeemable Convertible Preferred Stock		Common Stock
Three-months ended September 30, 2020:	Number of Shares	Amount	Number of Shares	Amount	Additional Paid-in Capital	Accumulated Deficit	Total Stockholders’ Equity (Deficit)
Balance, June 30, 2020	123,685	$2,983,857	90,477,798	$90,479	$19,592,005	$(20,713,617)	$(1,031,133)

Stock-based compensation	-	-	-	-	6,939	-	6,939

Net loss	-	-	-	-	-	(75,305)	(75,305)

Balance, September 30, 2020	123,685	$2,983,857	90,477,798	$90,479	$19,598,944	$(20,788,922)	$(1,099,499)

	Series A Redeemable Convertible Preferred Stock		Common Stock
Nine-months ended September 30, 2020:	Number of Shares	Amount	Number of Shares	Amount	Additional Paid-in Capital	Accumulated Deficit	Total Stockholders’ Equity (Deficit)
Balance, December 31, 2019	123,685	$2,983,857	90,477,798	$90,479	$19,568,011	$(20,469,194)	$(810,704)

Stock-based compensation	-	-	-	-	30,933	-	30,933

Net loss	-	-	-	-	-	(319,728)	(319,728)

Balance, September 30, 2020	123,685	$2,983,857	90,477,798	$90,479	$19,598,944	$(20,788,922)	$(1,099,499)

	Series A Redeemable Convertible Preferred Stock		Common Stock
Three-months ended September 30, 2019:	Number of Shares	Amount	Number of Shares	Amount	Additional Paid-in Capital	Accumulated Deficit	Total Stockholders’ Equity (Deficit)
Balance, June 30, 2019	124,485	$3,003,528	90,477,798	$90,479	$19,362,858	$(20,712,774)	$(1,259,437)

Preferred shares redeemed	(800)	(19,671)	-	-	(329)	-	(329)

Stock-based compensation	-	-	-	-	103,116	-	103,116

Net income	-	-	-	-	-	155,928	155,928

Balance, September 30, 2019	123,685	$2,983,857	90,477,798	$90,479	$19,465,645	$(20,556,846)	$(1,000,722)

	Series A Redeemable Convertible Preferred Stock		Common Stock
Nine-months ended September 30, 2019:	Number of Shares	Amount	Number of Shares	Amount	Additional Paid-in Capital	Accumulated Deficit	Total Stockholders’ Equity (Deficit)
Balance, December 31, 2018	125,885	$3,037,952	90,477,798	$90,479	$19,157,202	$(21,028,191)	$(1,780,510)

Preferred shares redeemed	(2,200)	(54,095)	-	-	(905)	-	(905)

Stock-based compensation	-	-	-	-	309,348	-	309,348

Net income	-	-	-	-	-	471,345	471,345

Balance, September 30, 2019	123,685	$2,983,857	90,477,798	$90,479	$19,465,645	$(20,556,846)	$(1,000,722)

QUOTEMEDIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine-months ended September 30,
	2020	2019
OPERATING ACTIVITIES:

Net income (loss)	$(319,728)	$471,345

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	971,274	790,563
Stock-based compensation expense	30,933	309,348
Bad debt expense	120,509	12,619
Changes in assets and liabilities:
Accounts receivable	(168,490)	(119,572)
Prepaid expenses	(31,936)	42,044
Other current assets	(42,470)	(68,182)
Deposits	(671)	(3,073)
Accounts payable, accrued and other liabilities	454,803	217,678
Deferred revenue	87,173	(82,704)
Net cash provided by operating activities	1,101,397	1,570,066

INVESTING ACTIVITIES:

Purchase of fixed assets	(111,060)	(322,124)
Purchase of intangible assets	(17,127)	-
Capitalized application software	(1,225,899)	(1,007,189)
Net cash used in investing activities	(1,354,086)	(1,329,313)

FINANCING ACTIVITIES:

Paycheck Protection Program loan	141,257	-
Repayment of finance lease obligations	(25,503)	(21,364)
Redemption of preferred stock	-	(55,000)
Net cash provided by (used) in financing activities	115,754	(76,364)

Net increase (decrease) in cash	(136,935)	164,389

Cash and equivalents, beginning of period	815,487	810,332

Cash and equivalents, end of period	$678,552	$974,721

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the generally accepted accounting principles for interim financial statements and instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for a full year. In connection with the preparation of the condensed consolidated financial statements the Company evaluated subsequent events after the balance sheet date of September 30, 2020 through the filing of this report.

As of September 30, 2020, the Company has a working capital deficit of $984,771. Our current liabilities include deferred revenue of $666,516. The costs expected to be incurred to realize the deferred revenue in the next 12 months are minimal.

The Company has a plan in place for the next 12 months to ensure ongoing expenditures are balanced with the expected growth rate and believes cash on hand and cash generated will be sufficient to fund operations for 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. 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.

These financial statements should be read in conjunction with our financial statements and the notes thereto for the fiscal year ended December 31, 2019 contained in our Form 10-K filed with the Securities and Exchange Commission dated March 27, 2020.

Risks and Uncertainties

We are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact team members, customers, suppliers, and global markets. While our licensed-based revenue is generally more recurring in nature, the uncertainty caused by the COVID-19 pandemic has led some clients to delay purchasing decisions, product and service implementations or cancel or reduce spending with us. The COVID-19 pandemic has also caused some of our smaller clients to cease operations altogether resulting in an increase in bad debts from 2019. Given the dynamic nature of these circumstances, it is too early to assess the full impact of the COVID-19 pandemic on our ongoing business, results of operations, and overall future financial performance.

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.

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 period, except for expenses related to balance sheet amounts remeasured at historical exchange rates. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in earnings in the period in which they occur.

d) Allowances 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 $110,000 and $73,500 as of September 30, 2020 and December 31, 2019, respectively. Bad debt expense was $25,664 and $120,509 for the three and nine-months ended September 30, 2020, respectively. Bad debt expense was $13,395 and $12,619 for the three and nine-months ended September 30, 2019, respectively.

e) Accounting Pronouncements

Recently 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. The Company adopted the new standard on January 1, 2020. There was no impact upon adoption to our consolidated financial statements and related disclosures.

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. The Company adopted the new standard on January 1, 2020. There was no impact upon adoption to our 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 Company adopted the new standard on January 1, 2020. There was no impact upon adoption to our consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13: Financial Instruments-Credit Losses (Topic 326), which changes the impairment model for most financial assets, including accounts receivable, and replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The guidance is effective for the Company for interim and annual periods beginning after December 15, 2022. Early adoption is permitted. The Company is currently assessing the timing and impact of adopting ASU 2016-13 on the Company’s consolidated financial statements.

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Not Yet Adopted

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.

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:

	Three-months ended September 30,		Nine-months ended September 30,
	2020	2019	2020	2019
Portfolio Management Systems
Corporate Quotestream	$1,127,941	$944,122	$3,158,076	$2,864,166
Individual Quotestream	485,392	458,338	1,379,518	1,383,196
Interactive Content & Data Application	1,527,025	1,560,712	4,598,547	4,571,275
Total revenue	$3,140,358	$2,963,172	$9,136,141	$8,818,637

Deferred Revenue

Changes in deferred revenue for the period were as follows:

Balance at December 31, 2019	$579,343
Revenue recognized in the current period from the amounts in the beginning balance	(429,616)
New deferrals, net of amounts recognized in the current period	512,066
Effects of foreign currency translation	4,723
Balance at September 30, 2020	$666,516

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.

RELATED PARTIES

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 September 30, 2020, there were no amounts due to 410734 B.C. Ltd.

The Company entered into a marketing agreement with Bravenet Web Services, Inc. (“Bravenet”) effective November 28, 2019 for approximately $2,500 per month. David M. Shworan is a control person of Bravenet. At September 30, 2020, $7,500 are due to Bravenet related to this agreement. As a matter of policy all related party transactions are subject to review and approval by the Company’s Board of Directors.

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

LEASES

We have operating leases for corporate offices and finance leases for certain equipment. Our leases have remaining lease terms of 1 year to 5 years. We determine if an arrangement is a lease at inception. Operating lease assets and liabilities are included in operating lease right-of-use assets and operating lease liabilities, respectively, on our consolidated balance sheets. Finance lease assets and liabilities are included in property and equipment and finance lease liabilities, respectively, on our consolidated balance sheets. The Company renewed its lease for office space in Vancouver, Canada as of August 1, 2020 for an additional 5 years resulting in a right of use asset and an offsetting lease liability of $507,753.

Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. We elected the short-term lease exception and therefore only recognize right-of-use assets and lease liabilities for leases with a term greater than one year. When determining lease terms, we factor in options to extend or terminate leases when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases we account for the lease and non-lease components as a single lease component.

Supplemental balance sheet information related to leases was as follows:

	September 30, 2020	December 31, 2019

Operating Leases

Operating lease right-of-use assets	$699,658	$328,676

Current portion of operating lease liability	$171,542	$172,049
Long-term portion of operating lease liability	520,414	167,496
Total operating lease liability	$691,956	$339,545

Finance Leases

Computer equipment on financing lease	$101,049	$101,049
Less: accumulated depreciation	80,371	52,888
	$20,678	$48,161

Current portion of finance lease liability	19,583	33,914
Long-term portion of finance lease liability	2,777	13,949
Total finance lease liability	$22,360	$47,863

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	September 30, 2020	December 31, 2019

Weighted Average Remaining Lease Term
Operating leases	4.3 years	2.9 years
Finance leases	1.0 years	1.5 years

Weighted Average Discount Rate
Operating leases	9.7%	9.3%
Finance leases	8.8%	8.9%

Maturities of lease liabilities were as follows:

Year ending December 31,	Operating Leases	Finance Leases

2020 (for the remainder of the year)	$64,571	$9,051
2021	213,556	12,061
2022	178,695	2,151
2023	164,374	-
2024	148,877	-
Thereafter	79,581	-
Total lease payments	849,654	23,263
Less imputed interest	(157,698)	(903)
Total	$691,956	$22,360

The components of lease expense for the three and nine-months ended September 30, 2020 and 2019 were as follows:

	Three-months ended September 30,		Nine-months ended September 30,
	2020	2019	2020	2019
Operating lease costs:
Operating lease costs	$62,235	$38,440	$176,396	$130,463
Short-term lease costs	20,661	31,765	71,660	97,526
Total operating lease costs	$82,896	$70,205	$248,056	$227,989

Finance lease costs:
Amortization	$8,763	$8,763	$26,289	$26,289
Interest	645	1,327	2,415	4,544
Total finance lease costs	$9,408	$10,090	$28,704	$30,833

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Supplemental cash flow information for the nine-months ended September 30, 2020 and 2019 related to leases was as follows:

	2020	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$118,985	$131,803
Operating cash flows from finance leases	2,415	4,544

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	507,753	-

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.

At September 30, 2020, 123,685 shares of Series A Redeemable Convertible Preferred Stock were outstanding. No shares of Series A Redeemable Convertible Preferred Stock were issued or redeemed during the three and nine-months ended September 30, 2020. During the three and nine-months ended September 30, 2019 2,200 shares of Series A Redeemable Convertible Preferred Stock were redeemed.

Redemption 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 addition, a limited amount of Series A Redeemable Convertible Preferred Stock may be redeemed at the holder’s option if the following criteria are met:

(i) If the cash balance of the Company as reported at the end of each fiscal quarter in 2018 exceeds $350,000, up to an aggregate of 600 Series A Redeemable Convertible Preferred Stock may be redeemed at the liquidation value of $25 per share.

(ii) If the cash balance of the Company as reported at the end of each fiscal quarter in 2019 exceeds $375,000, up to an aggregate of 800 Series A Redeemable Convertible Preferred Stock may be redeemed at the liquidation value of $25 per share.

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(iii) If the cash balance of the Company as reported at the end of each fiscal quarter in 2020 and in subsequent years exceeds $400,000, up to an aggregate of 1,000 Series A Redeemable Convertible Preferred Stock may be redeemed at the liquidation value of $25 per share.

In accordance with ASC 480-10-S99, because a limited amount of Series A Redeemable Convertible Preferred Stock may be redeemed at the holder’s option if the above criteria are met, it was classified as mezzanine equity and not permanent equity.

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.

b) Common Stock

No shares of common stock were issued during the three and nine-months ended September 30, 2020 and 2019.

c) Stock Options and Warrants

FASB ASC 718, Stock Compensation, requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized.

Total stock-based compensation expense, related to all of the Company’s stock-based awards, recognized for the three and nine-months ended September 30, 2020 and 2019 was comprised as follows:

	Three-months ended September 30,		Nine-months ended September 30,
	2020	2019	2020	2019

Sales and marketing	$4,239	$99,291	$22,833	$297,873
General and administrative	2,700	2,700	8,100	8,100
Development	-	1,125	-	3,375
Stock-based compensation expense	$6,939	$103,116	$30,933	$309,348

Common Stock Options and Warrants

There were 26,372,803 common stock warrants and options outstanding at September 30, 2020. No stock options or warrants to purchase common stock were granted or exercised during the three and nine-months ended September 30, 2020 and 2019.

The following table summarizes our non-vested common stock option and warrant activity for the nine-months ended September 30, 2020:

	Common Stock Options and Warrants	Weighted-Average Grant Date Exercise Price

Non-vested at January 1, 2020	5,625,000	$0.08
Vested during the period	(675,000)	$0.05
Non-vested at September 30, 2020	4,950,000	$0.09

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table summarizes the weighted average remaining contractual life and exercise price of common stock options and warrants outstanding at September 30, 2020:

	Common Stock Options and Warrants Outstanding			Common Stock Options and Warrants Exercisable
		Weighted Average Remaining	Weighted Average		Weighted Average
	Number Outstanding	Contractual Life (Years)	Exercise Price	Number Exercisable	Exercise Price

$0.03-0.11	26,372,803	8.6	$0.06	21,422,803	$0.05

At September 30, 2020, there was $50,208 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 2.1 years.

All stock options and warrants to purchase common stock have been granted with exercise prices equal to or greater than the market value of the underlying common shares on the date of grant. At September 30, 2020, the aggregate intrinsic value of options and warrants outstanding was $940,785. The aggregate intrinsic value of options and warrants exercisable was $888,535. 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.

Preferred Stock Warrants

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, in lieu of receiving a cash salary the Company will issue to Mr. Shworan warrants to purchase shares of Series A Redeemable Convertible Preferred Stock (“Compensation Preferred Stock Warrants”). 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 issue to Mr. Shworan warrants to purchase up to 15,000 shares of Compensation Preferred Stock Warrants at an exercise price equal to $1.00 per share. A total of $90,000 of stock-based compensation expense was recognized related to the Compensation Preferred Stock Warrants during the comparative three-months ended March 31, 2019.

Also pursuant to the Compensation Agreement with Mr. Shworan, on December 28, 2017 the Company issued Mr. Shworan 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 (“Liquidity Preferred Stock Warrant”). 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 September 30, 2020. The probability is re-evaluated each reporting period. As of September 30, 2020, 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 determined not to be probable, we are also unable to determine the weighted-average period over which the unrecognized compensation cost will be recognized.

As of September 30, 2020, there were a total of 413,493 preferred stock warrants outstanding with a weighted average remaining contractual life of 27.3 years. As of September 30, 2020; 31,250 preferred stock warrants were exercisable. No preferred stock warrants were exercised for the three and nine-months ended September 30, 2020 and 2019.

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 three and nine-months ended September 30, 2020 and 2019 are as follows:

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Three-months ended September 30,		Nine-months ended September 30,
	2020	2019	2020	2019

Net income (loss)	$(75,305)	$155,928	$(319,728)	$471,345

Weighted average common shares used
to calculate net income per share	90,477,798	90,477,798	90,477,798	90,477,798
Stock options and warrants to purchase
common stock	-	16,695,421	-	15,099,817
Weighted average common shares used
to calculate diluted net income per share	90,477,798	107,173,219	90,477,798	105,577,615

Net income per share – basic	$(0.00)	$0.00	$(0.00)	$0.01
Net income per share – diluted	$(0.00)	$0.00	$(0.00)	$0.00

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 three and nine-months ended September 30, 2020 and 2019 are shown below:

	Three-months ended September 30,		Nine-months ended September 30,
	2020	2019	2020	2019

Stock options and warrants to purchase
common stock	11,245,134	-	13,021,821	-
Warrants to purchase redeemable
convertible preferred stock	2,499,900	2,604,063	2,499,900	2,604,063
Redeemable convertible preferred stock	10,306,671	10,306,671	10,306,671	10,306,671
Total potential common shares excluded	24,051,705	12,910,734	25,828,392	12,910,734

PAYCHECK PROTECTION PROGRAM

On April 24, 2020, the Company received an $8,000 grant as part of the Economic Injury Disaster Loan (“EIDL”) program through the Small Business Administration (“SBA”), and on May 4, 2020, the Company received a $133,257 loan under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides qualifying businesses with these proceeds for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The proceeds and accrued interest are forgivable after twenty-four weeks, known as the covered period, as long as the borrower uses the proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of forgiveness will be reduced if the borrower terminates employees or reduces salaries during the twenty-four-week period. EIDL grants received are also deducted from the forgivable portion of PPP loans. The unforgiven portion of the PPP proceeds will be payable over two years at an interest rate of 1%, with a deferral of payments for the first six-months after the covered period. The Company is accounting for the PPP loan in accordance with ASC 470, Debt.

ITEM 2. Management’s Discussion and Analysis

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report. We caution readers regarding certain forward looking statements in the following discussion, elsewhere in this report, and in any other statements, made by, or on behalf of our company, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on behalf of, our company. Uncertainties and contingencies that might cause such differences include those risk factors disclosed in our annual report on Form 10-K for the year ended December 31, 2019 and other reports filed from time to time with the SEC.

We disclaim any obligation to update forward-looking statements. All references to “we”, “our”, “us”, or “QuoteMedia” refer to QuoteMedia, Inc., and its predecessors, operating divisions, and subsidiaries.

This report should be read in conjunction with our Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission.

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 QModTM, 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 QuotestreamTM, 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.

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 months. The outbreak of the COVID-19 pandemic and the resulting response by governments and individuals around the world has caused contraction in global economies. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact team members, customers, suppliers, and global markets.

Our operations also have been affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, many jurisdictions imposed a wide range of restrictions on the physical movement of our employees and vendors to limit the spread of COVID-19. We have taken numerous steps, and will continue to take further actions, in our approach to addressing the COVID-19 pandemic. To protect the health and safety of our team members, we successfully transitioned our workforce to remote work environments. We are also working closely with our clients to support them as they implement their own contingency plans, helping them access our products and services remotely.

While our licensed-based revenue is generally more recurring in nature, the uncertainty caused by the COVID-19 pandemic has led some clients to delay purchasing decisions, product and service implementations or cancel or reduce spending with us. We are focused on maintaining a strong balance sheet and liquidity position and have been actively evaluating the potential impact of COVID-19. We have implemented certain cost control efforts to help us mitigate the impact that COVID-19 has had on our financial position and operating results. As much uncertainty still exists, and we will continue to adjust our COVID-19 response going forward as circumstances dictate.

The Canadian dollar depreciated 2% when comparing average exchange rates for the nine-months ended September 30, 2020 and 2019. The exchange rate fluctuation decreased both Canadian dollar revenues and expenses once translated into U.S. dollars for the nine-months ended September 30, 2020 when compared to the same period in 2019 but had a minimal impact on our net income.

Our revenue grew 6 % and 4% when comparing the three and nine-months ended September 30, 2020 to the comparative periods in 2019. Based on clients currently under contract, and new contracts signed subsequent to September 30, 2020, we expect accelerated revenue growth for the remainder of 2020 and for 2021 despite current market conditions related to COVID-19.

Plan of Operation

For the remainder of 2020 and for 2021 we plan to continue to expand our product lines and improve our infrastructure. We plan to continue to add more features and data to our existing products and release newer versions with improved performance and flexibility for client integration.

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 2020 and 2021 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.

We are also creating new proprietary data sets, analytics, and scoring mechanisms. We are now aggregating data direct from the sources to produce data sets that are proprietary to QuoteMedia. This allows us to offer our clients new data products and lower our product costs structure as we replace some of our existing data providers with our own lower cost data.

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.

Results of Operations

Revenue

Three-months ended September 30,	2020	2019	Change ($)	Change (%)

Corporate Quotestream	$1,127,941	$944,122	$183,819	19%
Individual Quotestream	485,392	458,338	27,054	6%
Total portfolio management systems	1,613,333	1,402,460	210,873	15%

Interactive content and data applications	1,527,025	1,560,712	(33,687)	(2%)

Total subscription revenue	$3,140,358	$2,963,172	$177,186	6%

Nine-months ended September 30,	2020	2019	Change ($)	Change (%)

Corporate Quotestream	$3,158,076	$2,864,166	$293,910	10%
Individual Quotestream	1,379,518	1,383,196	(3,678)	(0%)
Total portfolio management systems	4,537,594	4,247,362	290,232	7%

Interactive content and data applications	4,598,547	4,571,275	27,272	1%

Total subscription revenue	$9,136,141	$8,818,637	$317,504	4%

Total subscription revenue increased 6% and 4% when comparing the three and nine-months ended September 30, 2020 and 2019, respectively.

Our total Portfolio Management System revenue increased by 15% and 7%, respectively, when comparing the three and nine-month periods ended September 30, 2020 and 2019.

Corporate Quotestream revenue increased 19% and 10% for the three and nine-month periods ended September 30, 2020, respectively, from the comparative periods in 2019 due to new Corporate Quotestream customers signed since the comparative periods and increases in users for existing customers.

Individual Quotestream revenue increased 6% for the three-month period ended September 30, 2020 from the comparative 2019 period but was relatively unchanged year to date versus the comparative 2019 period. The increase was due mostly to an increase in average revenue per customer.

Interactive Content and Data Application revenue decreased 2% when comparing the three-months ended September 30, 2020 and 2019, primarily due to the impact of COVID-19 as we have seen an increase in bad debts and a number of our smaller customers have temporarily suspended their services or ceased operations altogether. Interactive Content and Data Application revenue increased 1% when comparing the nine-month periods ended September 30, 2020 and 2019, mainly attributable to an increase in the average revenue per client despite a decrease in number of clients. The increase in average revenue per client results from the launch of new products such as QMod, our new proprietary Web delivery system, the expansion of our data coverage, as well as the general strengthening of our financial position, all of which have allowed us to attract larger clients.

Cost of Revenue and Gross Profit Summary

Three-months ended September 30,	2020	2019	Change ($)	Change (%)

Cost of revenue	$1,706,476	$1,429,308	$277,168	19%
Gross profit	$1,433,882	$1,533,864	$(99,982)	(7%)
Gross margin %	46%	52%

Nine-months ended September 30,	2020	2019	Change ($)	Change (%)

Cost of revenue	$4,795,150	$4,355,110	$440,040	10%
Gross profit	$4,340,991	$4,463,527	$(122,536)	(3%)
Gross margin %	48%	51%

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.

Cost of revenue increased 19% and 10% when comparing the three and nine-month periods ended September 30, 2020 and 2019, respectively. The increases in cost of revenue are primarily due to increases in stock exchange fees due to increased customer usage from the comparative periods that are consistent with increases in Corporate Quotestream revenue. The increases are also due to increases in the amortization of capitalized internal-use software costs resulting from increased investment in product development and data collection.

Overall, our cost of revenue increases led to a decrease in gross margin percentage, which decreased to 46% and 48% for the three and nine-month periods ended September 30, 2020 from 52% and 51% in the comparative periods.

Operating Expenses Summary

Three-months ended September 30,	2020	2019	Change ($)	Change (%)

Sales and marketing	$552,960	$463,929	$89,031	19%
General and administrative	555,002	600,329	(45,327)	(8%)
Software development	405,703	311,028	94,675	30%
Total operating expenses	$1,513,665	$1,375,286	$138,379	10%

Nine-months ended September 30,	2020	2019	Change ($)	Change (%)

Sales and marketing	$1,602,501	$1,393,929	$208,572	15%
General and administrative	1,817,748	1,646,388	171,360	10%
Software development	1,246,722	923,218	323,504	35%
Total operating expenses	$4,666,971	$3,963,535	$703,436	18%

Sales and Marketing

Sales and marketing consist primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses increased by 19% and 15% when comparing the three and nine-month periods ended September 30, 2020 and 2019, respectively. The increases are primarily a result of additional sales personnel hired since the comparative periods. We also implemented a new marketing program in February 2020 targeted at potential new Individual Quotestream customers.

General and Administrative

General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses decreased 8% and increased 10% when comparing the three and nine-month periods ended September 30, 2020 and 2019, respectively. The quarter to date decrease is mainly due to one-time recruiting fees in the comparative period. The year to date increase is primarily due to additional hiring of personnel to meet expected future growth and an increase in bad debts related to the impact of COVID-19.

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 30% and 35% for the three and nine-month periods ended September 30, 2020, respectively, when compared to the same periods in 2019. The increases were mainly due to hiring additional development personnel since the comparative periods to accelerate new product development and data collection.

We capitalized $460,666 and $1,225,898 of development costs for the three and nine-month periods ended September 30, 2020, respectively, compared to $346,949 and $1,007,189 for the same periods in 2019. 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. Amortization of capitalized costs of software were $290,791 and $814,410 for the three and nine-month periods ended September 30, 2020, respectively, compared to $229,677 and $648,169 for the same periods in 2019.

Other Income and (Expense) Summary

Three-months ended September 30,	2020	2019

Foreign exchange loss	$5,930	$(543)
Interest expense	(701)	(1,349)
Total other income (expenses)	$5,229	$(1,892)

Nine-months ended September 30,	2020	2019

Foreign exchange gain (loss)	$11,887	$(21,857)
Interest expense	(3,419)	(4,533)
Total other income (expenses)	$8,468	$(26,390)

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 generally 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 $5,930 for the three-months ended September 30, 2020. The Company renewed its lease for office space in Vancouver, Canada as of August 1, 2020 for an additional 5 years resulting in a right of use asset and an offsetting lease liability of $CAD681,999 ($US507,753). The remeasurement of this operating lease liability into U.S. dollars at September 30, 2020 resulted in a foreign exchange gain as the Canadian dollar depreciated 2% versus the U.S. dollar from the lease renewal date. This foreign exchange gain was offset by the foreign exchange re-measurement loss arising from the Canadian dollar appreciating 2% versus the U.S. dollar when comparing the foreign exchange rate at June 30, 2020 to the rate at September 30, 2020. We incurred a foreign exchange loss of $543 for the same quarterly period in 2019 arising from exchange rate fluctuations between transaction and settlement dates for foreign currency denominated transactions.

We incurred a foreign exchange gain of $11,887 for the nine-months ended September 30, 2020 primarily due to the foreign exchange re-measurement gain as the Canadian dollar depreciated 5% versus the U.S. dollar when comparing the foreign exchange rate at September 30, 2020 to the rate at December 31, 2019. We incurred a foreign exchange loss of $21,857 for the comparative 2019 period mainly attributable to the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars as the Canadian dollar appreciated 2.9% versus the U.S. dollar in 2018.

Interest Expense

Interest expense relates primarily to the interest expense associated with our finance leases and was relatively unchanged from the comparative period. Interest expense of $701 and $3,419 was incurred for the three and nine-month periods ended September 30, 2020, respectively, compared to $1,349 and $4,533 incurred in the same 2019 periods.

Provision for Income Taxes

For the three and nine-month periods ended September 30, 2020, the Company recorded Canadian income tax expense of $751 and $2,216, respectively, compared to $758 and $2,257 in the comparative periods in 2019.

Net Income (Loss) for the Period

As a result of the foregoing, the Company recognized net loss of $75,305 and $319,728 for the three and nine-month periods ended September 30, 2020 compared to net income of $155,928 and $471,345 for the three and nine-month periods ended September 30, 2019. Basic and diluted earnings per share were $(0.00) for the three and nine-month periods ended September 30, 2020. Basic and diluted earnings per share were $0.00 and $0.01 for the three and nine-month periods ended September 30, 2019.

Liquidity and Capital Resources

Our cash totaled $678,552 at September 30, 2020, as compared with $815,487 at December 31, 2019, a decrease of $136,935. Net cash of $1,101,397 was provided by operations for the nine-months ended September 30, 2020, primarily due to cash generated from the results of operations excluding non-cash charges and the increase in accounts payable, offset by the increase in accounts receivable and net loss. Net cash used in investing activities for the nine-months ended September 30, 2020 was $1,354,086 resulting primarily from capitalized application software costs and the purchase of new computer equipment. Cash provided by financing activities for the nine-months ended September 30, 2020 was $115,754 related to the PPP loan offset by repayment of capital lease financing.

We have a working capital deficit of $984,771 as of September 30, 2020, however current liabilities include $666,516 in deferred revenue and the expected costs necessary to realize the deferred revenue 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 a period of one year after issuance of these Financial Statements. 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.

ITEM 4. Controls and Procedures

Under the supervision and with the participation of our Chairman of the Board and Chairman of the Audit Committee, Chief Executive Officer and Chief Financial Officer, we completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, we and our management have concluded that our disclosure controls and procedures at September 30, 2020 were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and are designed to ensure that information required to be disclosed by us in these reports is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosures. In the three-months ended September 30, 2020, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

We will consider further actions and continue to evaluate the effectiveness of our disclosure controls and internal controls and procedures on an ongoing basis, taking corrective action as appropriate. Management does not expect that disclosure controls and procedures or internal controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. While management believes that its disclosure controls and procedures provide reasonable assurance that fraud can be detected and prevented, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS

ExhibitNumber		Description of Exhibit

31.1		Certification of Principal 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 Principal 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 Principal 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 Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

QUOTEMEDIA, INC.