UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark one) 

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

 

For the fiscal year ended December 31, 2017

 

OR

 

¨	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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Name of exchange on which registered
Common stock, par value $.001 per share		OTCQB tier of the OTC Markets

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section15(d) of the Act. Yes ¨ No x

 

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 x 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 x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

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”, “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	x
		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 x

 

As of March 16, 2018, there were outstanding 90,477,798 shares of the issuer's common stock, par value $.001 per share and 127,685 shares of Series A Redeemable Convertible Preferred Stock, par value $.001 per share.

 

The aggregate market value of common stock held by non-affiliates of the issuer (52,883,478 shares) based on the closing price of the issuer's common stock as quoted on the OTCQB tier of the OTC Markets as of the last business day of the issuer’s most recently completed second fiscal quarter, June 30, 2017, was $2,115,339. For purposes of this computation, all executive officers, directors, and 10% beneficial owners of the issuer are deemed to be affiliates. Such determination should not be deemed an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the issuer.

 

Documents incorporated by reference: None

 

 

QUOTEMEDIA, INC.

ANNUAL REPORT ON FORM 10-K

FISCAL YEAR ENDED DECEMBER 31, 2017

 

TABLE OF CONTENTS

 

 

			Page
PART I
ITEM 1.	BUSINESS		3
ITEM 1A.	RISK FACTORS		9
ITEM 1B.	UNRESOLVED STAFF COMMENTS		12
ITEM 2.	PROPERTIES		12
ITEM 3.	LEGAL PROCEEDINGS		12
ITEM 4.	MINE SAFETY DISCLOSURES		12
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.		13
ITEM 6.	SELECTED FINANCIAL DATA		13
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		14
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		20
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		20
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		20
ITEM 9A.	CONTROLS AND PROCEDURES		21
ITEM 9B.	OTHER INFORMATION		21
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		22
ITEM 11.	EXECUTIVE COMPENSATION		24
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		27
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		33
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		34
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		35
SIGNATURES			36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1

 

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

The statements contained in this report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our "expectations," "anticipation," "intentions," "beliefs," or "strategies" regarding the future. Our actual results could differ materially from those in the forward-looking statements. Among the factors that could cause actual results to differ materially are the factors discussed in Item 1A. "Risk Factors."

 

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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:

 

	·	Streaming Real-time Data Feeds
	·	Wireless Solutions
	·	News Feed Aggregation and Delivery
	·	Streaming Dynamic Content
	·	Complete Portfolio Management
	·	Corporate Investor Relations Solutions
	·	Internet Data and Content Provisioning
	·	Custom Software Application Development
	·	Research Information Supply

  

Our array of 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 which 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 realtime 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 professionals 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:

 

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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.

 

Custom Development – QuoteMedia’s ability to provide complete custom design and development services differentiates us from our competitors. We are able to 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.

 

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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.

 

Employees

 

We currently have 60 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 2018 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 2017 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 2018. 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.

 

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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.

 

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:

 

	·	a risk disclosure document;
	·	disclosure of market quotations, if any;
	·	disclosure of the compensation of the broker-dealer and its salesperson in the transaction; and
	·	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 (through March 16, 2018)		$	0.14			$	0.04

 

As of March 16, 2018, there were approximately 180 holders of record of our common stock. As of March 16, 2018, the closing price for our common stock was $0.10.

 

As of March 16, 2018, there were 127,685 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

 

We did not repurchase any of our equity securities during the fourth quarter of 2017.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

Not required.

 

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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 designed specifically 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.

 

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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.

 

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 2017, appreciating 2% when comparing average exchange rates in 2017 to 2016. 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, 2017 when compared to the same period in 2016.

 

Our revenue grew 7% year over year in 2017. Through December 31, 2017, we have experienced eight 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 45% for the year ended December 31, 2017 compared to 43% in the comparative period in 2016. We expect both our gross margin and revenue growth percentages to continue to improve in 2018.

 

Plan of operation

 

For 2018 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.

 

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 2018 include broad expansion of data and news coverage, including the addition of a wide array of international exchange data and news feeds (including foreign language sources), expansion of fixed-income coverage, launching a new Quotestream Mobile application, 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.

 

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.

 

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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, 2017 and 2016, the Company capitalized $789,899 and $690,051 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, 2017 and 2016, amortization expenses associated with the internally developed application software was $724,451 and $757,864 respectively. At December 31, 2017, the remaining book value of the capitalized application software was $1,149,032.

 

Recent Accounting Pronouncements

 

Accounting Pronouncements 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.

 

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In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain cash receipts and payments in the statement of cash flows in order to eliminate diversity in practice. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the potential impact that adoption will have 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 amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, using a modified retrospective approach. Early adoption is permitted. The Company is evaluating the potential impact that adoption will have on its consolidated financial statements and related disclosures.

 

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 retained earnings. We expect the impact of the adoption of the new revenue standard to be immaterial to our net income on an ongoing basis.

 

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,
		2017				2016				Change ($)				Change (%)
Corporate Quotestream		$	3,060,127			$	2,769,344			$	290,783				11	%
Individual Quotestream			1,656,814				1,519,201				137,613				9	%
Total Portfolio Management Systems		$	4,716,941			$	4,288,545			$	428,396				10	%
Interactive Content and Data Applications		$	4,774,797			$	4,581,610				193,187				4	%
Total Licensing Revenue		$	9,491,738			$	8,870,155			$	621,583				7	%

 

Total licensing revenue increased 7% when comparing the years ended December 31, 2017 and 2016. 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 10% when comparing the years ended December 31, 2017 and 2016, 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.

 

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Corporate Quotestream revenue increased 11% for the year ended December 31, 2017 from the comparative period in 2016 due to new contracts signed since the comparative period and increases in the number of subscribers for existing clients.

 

Individual Quotestream revenue increased 9% for the year ended December 31, 2017 from the comparative period in 2016. 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 4% for the year ended December 31, 2017 from the comparative period in 2016 due to increases in the average revenue per Interactive Content and Data Application client contracts partially attributable to the launch new products such as QMod, our new proprietary Web delivery system.

 

Cost of Revenue and Gross Profit Summary

 

		Years ended December 31,
		2017				2016				Change ($)				Change (%)
Cost of revenue		$	5,212,541			$	5,073,340			$	139,201				3	%
Gross profit		$	4,279,197			$	3,796,815			$	482,382				13	%
Gross margin %			45	%			43	%

 

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 application software costs. We capitalize the costs associated with developing new products once technological feasibility has been established.

 

Cost of revenue increased 3% for the year ended December 31, 2017 from the comparative period in 2016. The increase in cost of revenue were due to increased financial content fees from the comparative period due to new and increased fees levied by a number of content providers, offset by cost savings from switching data line vendors.

 

Overall, the cost of revenue decreased as a percentage of sales, as evidenced by our gross margin percentage that increased to 45% in 2017 from 43% in 2016.

 

Operating Expenses Summary

 

		Years ended December 31,
		2017				2016				Change ($)				Change (%)
Sales and marketing		$	1,584,479			$	1,507,706			$	76,773				5	%
General and administrative			2,014,119				1,966,713				47,406				2	%
Software development			1,029,822				935,786				94,036				10	%
Total operating expenses		$	4,628,420			$	4,410,205			$	218,215				5	%

 

Sales and Marketing

 

Sales and marketing consists primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses increased 5% when comparing the years ended December 31, 2017 and 2016. The increase was due primarily to additional sales personnel hired since the comparative period.

 

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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, 2017 compared to fiscal 2016.

 

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 10% for the year ended December 31, 2017 when compared to fiscal 2016. The increases were mainly due to hiring additional development personnel since the comparative period.

 

We capitalized $789,899 of development costs for the year ended December 31, 2017, compared to $690,051 in 2016. 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,
		2017				2016
Foreign exchange gain (loss)		$	(92,946	)		$	(50,516	)
Interest expense			(1,063,769	)			(1,014,379	)
Total other income and (expenses)		$	(1,156,715	)		$	(1,064,895	)

 

Foreign Exchange Gain (Loss)

 

Exchange gains and losses primarily 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.

 

The Canadian dollar appreciated 6% versus the U.S. dollar when comparing the foreign exchange rates at December 31, 2017 to the rate at December 31, 2016. This resulted in a foreign exchange loss of $92,946 for the year ended December 31, 2017, compared to a foreign exchange loss of $50,516 for the same period in 2016 when the Canadian dollar appreciated 3% versus the U.S. dollar.

 

Interest Expense

 

Interest expense in 2017 was $1,063,769, compared to $1,014,379 in 2016. Interest expense increased for the year ended December 31, 2017 due to additional borrowings compared to the same period in 2016. Interest was accrued at 10% per annum on certain amounts owed to related parties. Interest income earned on cash balances is netted against interest expense.

 

Provision for Income Taxes

 

In 2017, the Company recorded Canadian income tax expense of $3,082, compared to a Canadian income tax expense of $3,018 in 2016.

 

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Net Loss for the Period

 

As a result of the foregoing, net loss for the year ended December 31, 2017 was $(1,509,020) or $(0.02) per share compared to a net loss of $(1,681,303) or $(0.02) per share for the year ended December 31, 2016.

 

Liquidity and Capital Resources

 

Our cash totaled $451,151 at December 31, 2017, as compared with $271,700 at December 31, 2016, an increase of $179,451. Net cash of $1,058,804 was provided by operations for the year ended December 31, 2017, primarily due to noncash depreciation and the increase in accounts payable and amounts due to related parties. This was offset by the net loss for the period. Net cash used in investing activities for the year ended December 31, 2017 was $879,353 resulting primarily from capitalized application software costs and the purchase of new computer equipment and intangible assets.

 

Our current liabilities include $706,819 in deferred revenue. The expected costs necessary to realize the deferred revenue in 2018 are minimal.

 

Substantially all of the $1,063,769 in interest expense incurred in 2017 pertained to related party debt. The Debt Exchange and Debt Forgiveness Agreements and Compensation Agreement effective December 28, 2017 extinguished all related party debt and eliminates substantially all of our interest expense going forward. (See Financial Statement Notes 5 & 7).

 

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 Note 9 to our financial statements, 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, 2017. 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, 2017. 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, 2017, 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.

 

ITEM 9B. OTHER INFORMATION.

 

Not applicable.

 

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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		75		Chairman of the Board
R. Keith Guelpa		71		President, Chief Executive Officer, and Director
David M. Shworan		50		President and Chief Executive Officer of QuoteMedia, Ltd., and Director
Keith J. Randall		51		Vice President, Treasurer, Chief Financial Officer, and Secretary

 

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 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.

 

R. Keith Guelpa was a co-founder of QuoteMedia and served as our President and Director from 1999 until his death on March 19, 2018. Mr. Guelpa's prominent career spanned nearly forty years, during which he served as President/CEO of high-tech firms involved in telecommunications, digital imaging and Internet communications. Mr. Guelpa also served as President/COO of a public company offering brokerage, financial planning, and investment banking services. Mr. Guelpa's considerable management, marketing, investment banking, and board experience provided QuoteMedia with well-seasoned public company expertise. Effective March 31, 2018, the Board appointed Keith J. Randall as successor to Mr. Guelpa in his capacity as President, Chief Executive Officer, and Director.

 

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 and Internet business. Mr. Shworan is the founder of Bravenet Web Services, Inc., a webmaster tools and services site for over 8 million Web developers, and has served as the Chief Executive Officer of Bravenet since September 1997. Mr. Shworan is the founder of several Internet companies and has been a consultant to a number of other Internet companies.

 

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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 Mr. Guelpa in his capacity as President, Chief Executive Officer, and Director. Mr. Randall will retain his role as Treasurer and Chief Financial Officer.

 

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, 2017, 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.

 

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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, 2017 and 2016 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 2017.

 

Summary Compensation Table

 

Name and Principal Position		Year		Salary ($)				Bonus ($)				Option Awards ($) (1),(4),(5)				All Other Compensation ($) (2)				Total ($)
R. Keith Guelpa (3)		2017		$	192,000				-				-				-			$	192,000
Chief Executive Officer,		2016		$	192,000				-				-				-			$	192,000
QuoteMedia, Inc.
David M. Shworan (4)		2017		$	320,833				-			$	30,000				-			$	350,833
Chief Executive Officer,		2016		$	350,000				-				-				-			$	350,000
QuoteMedia, Ltd.
Keith J. Randall (5)		2017		$	154,000				-				-				-			$	154,000
Chief Executive Officer,		2016		$	150,000				-				-				-			$	150,000
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. Guelpa was our President and Chief Executive Officer, and served as our “Principal Executive Officer” until his death on March 19, 2018. Effective March 31, 2018, the Board appointed Keith J. Randall as successor to Mr. Guelpa in his capacity as President, 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 for 2016 and 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, warrants to purchase up to 1,250 shares of Series A Preferred Stock at an exercise price equal to $1.00 per share were granted to Mr. Shworan in lieu of a cash salary. A total of $30,000 of stock-based compensation expense was recognized in December 2017 related to the warrant granted to Mr. Shworan. See Financial Statement Note 7 (e).
(5)	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”.

 

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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-2037
			-				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:

 

(i) Warrants to purchase up to 1,250 shares of Series A Preferred Stock at an exercise price equal to $1.00 per share. A total of $30,000 of stock based compensation expense was recognized in December 2017 related to the warrants granted to Mr. Shworan. See Financial Statement Note 1 (h).

 

(ii) Warrants to purchase up to 382,243 shares of Series A Preferred Stock at an exercise price equal to $1.00 per share (the “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 December 31, 2017. The probability will be re-evaluated each reporting period. See Financial Statement Note 1 (h).

 

(iii) Warrants to purchase up to 4,000,000 shares of common stock at an exercise price equal to $0.10 per share, subject to specific performance vesting thresholds. The Black-Scholes valuation model was used to calculate the value of common stock warrants granted to Mr. Shworan. The warrants vest according to a schedule based on meeting certain gross profit targets. A probability was assigned to meeting each performance condition and applied to the fair value of the warrants. After applying the probability of meeting the performance condition, the total fair value of the warrants was calculated at $84,750 which will be expensed evenly over 5 years. See Financial Statement Note 1 (h).

 

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In addition, 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. Finally, 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.

 

Also, as part of the Compensation Agreement, 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. As of December 28, 2017, the Company had accrued an allowance of $8,024,232 for potential salary expense due to Mr. Shworan. See Financial Statement Note 7 (e).

 

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.

 

Director Compensation and Other Information

 

The following table shows the amount of compensation earned by our independent director in 2017. We compensate our independent director with directors’ fees and stock options. Options Awards represent the fair value of option awards granted in 2017, 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		$126,895			7			-		$126,895

 

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.

 

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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 16, 2018 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)			50,791,791				45.1	%
R. Keith Guelpa (4)			7,741,061				8.6	%
Robert J. Thompson (5)			1,610,286				1.8	%
Keith J. Randall (6)			793,976				0.9	%
All directors and executive officers as a group			60,937,114				53.5	%
5% Stockholders (7)			7,627,854				8.4	%

________ 

(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 16, 2018. The numbers and percentages shown include the shares of common stock actually owned as of March 16, 2018 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 16, 2018 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.
(3)	Represents 10,511,800 shares of common stock owned by Mr. Shworan and 17,002,500 shares owned by Mr. Shworan's wife. Also includes 1,037,500 shares of common stock owned by Bravenet Web Services, Inc., of which Mr. Shworan is a control person. Mr. Shworan disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Also includes vested options and warrants to acquire directly 7,600,000 shares of common stock. See Item 11, “Executive Compensation – Employment Agreements.”
(4)	Represents 5,741,061 shares of our common stock owned by Mr. Guelpa and 2,000,000 shares of our common stock owned by Mr. Guelpa's wife. Mr. Guelpa disclaimed ownership of any shares of common stock or warrants held by his wife. Mr. Guelpa died March 19, 2018. Effective March 31, 2018, the Board appointed Keith J. Randall as successor to Mr. Guelpa in his capacity as Chief Executive Officer and Director.
(5)	Represents 807,483 shares of common stock and vested options and warrants to acquire 802,803 shares of common stock.
(6)	Represents 493,976 shares of common stock and vested options and warrants to acquire 200,000 shares of common stock.
(7)	Represents 2,590,051 shares of our common stock owned by Colin M. Gilbert and 5,037,803 shares owned by CMG Family Irrevocable Trust.

 

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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, 2017.

 

		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

 

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, 2017, 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.

 

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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 receive 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, 2017, there are 15,000,000 shares of common stock authorized for issuance pursuant to the 2003 plan. As of December 31, 2017, 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.

 

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.

 

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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.

 

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 to have been 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),

 

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	·	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.

 

Debt Exchange and Forgiveness Agreements

 

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.

 

On December 28, 2017, the Company entered into a Debt Exchange Agreement with Bravenet Web Services, Inc. (“Bravenet”), and Harrison Avenue Holdings Ltd. (“Harrison”). The President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary, is a control person of Bravenet and Harrison. Bravenet and Harrison agreed to exchange an aggregate of $3,192,116 of indebtedness of the Company held by Bravenet and Harrison in exchange for the following:

 

(i) 127,685 shares of Series A Redeemable Convertible Preferred Stock. The Series A Redeemable Convertible Preferred Stock has 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.

 

In accordance with ASC 470-20-35-3, a contingent beneficial conversion feature shall not be recognized in earnings until the contingency is resolved. Therefore, the beneficial conversion feature was not recognized, and only the intrinsic value of $25 was used to determine the $3,192,125 total fair value of the Series A Redeemable Convertible Preferred Stock issued.

 

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(ii) Warrants to purchase up to 4,000,000 shares of common stock at an exercise price equal to $0.10 per share. The Black-Scholes valuation model was used to calculate the value of common stock warrants granted to Bravenet and Harrison. The fair value per warrant was calculated at $0.03, and the total fair value of the warrants was calculated at $120,000.

 

In accordance with ASC 470-20-25-2, a relative fair value allocation was applied to the difference between the fair value of the Series A Redeemable Convertible Preferred Stock and common stock warrants and the $3,192,116 of indebtedness for which they were exchanged. The adjusted fair value for the Series A Redeemable Convertible Preferred Stock and common stock warrants was $3,082,211 and $109,905, respectively.

 

Redemption Rights

 

In accordance with the Debt Exchange Agreement, Bravenet and Harrison may redeem a limited amount of Series A Redeemable Convertible Preferred Stock 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.

 

(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, we evaluated the criteria for classification of the Series A Redeemable Convertible Preferred Stock as either mezzanine equity or permanent equity. The key criteria for determining its classification as either mezzanine equity or permanent equity is whether control over redemption resides with the Company or the holder. If the control over redemption resides with the Company, the Series A Redeemable Convertible Preferred Stock should be classified as permanent equity. If it resides with the holder it should be classified as mezzanine equity.

 

The redemption of the Series A Redeemable Convertible Preferred Stock is dependent on meeting the cash balance levels noted above. While the Company has the ability to manage its cash balances to influence whether the cash balance levels above are exceeded, circumstances outside the Company’s control might arise that could over-ride any such ability the Company may have to modulate cash balances at any quarter's end. We therefore determined that since the redemption right was not completely and certainly under the Company’s control the Series A Redeemable Convertible Preferred Stock should be appropriately classified as mezzanine equity.

 

On December 28, 2017, the Company also entered into a Debt Forgiveness Agreement with Bravenet and Harrison, pursuant to which Bravenet and Harrison agreed to forgive an aggregate of $1,157,752 of indebtedness of the Company held by Bravenet and Harrison in exchange for $1. In accordance to ASC 470-50-40-2, the extinguishment of debt between related entities should be treated as a capital transaction; therefore it was recorded as a contribution to Paid-in Capital.

 

We incurred $47,781 of professional fees associated with Debt Exchange and Forgiveness transactions. These issuance costs were treated as reduction to paid-in capital as the issuance costs were not part of normal operations and were a function of capital transactions.

 

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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, 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. See Financial Statement Note 7 for additional disclosures.

 

The Company had a loan agreement with Bravenet for which interest was accrued at 10% on the outstanding loan balance. On December 28, 2017, the outstanding loan balance due to Bravenet of $1,079,975 was settled as part of the Debt Exchange and Debt Forgiveness Agreements disclosed in Financial Statement Note 7.

 

On September 29, 2006, QuoteMedia, Ltd. purchased the Bravenet business unit that was responsible for providing the Company customer promotion and lead generation services. The $110,000 purchase price due to Bravenet was accrued in amounts due to related parties and interest was accrued at 10% on the outstanding balance. On December 28, 2017, the outstanding balance due to Bravenet for the unpaid purchase price of $208,083 was settled as part of the Debt Exchange and Debt Forgiveness Agreements disclosed in Financial Statement Note 7.

 

Bravenet provided computer hosting and maintenance services to the Company for approximately $6,250 per month. Interest was accrued at 10% on the outstanding balance. On December 28, 2017, the balance due to Bravenet for unpaid computer hosting and maintenance services of $223,565 was settled as part of the Debt Exchange and Debt Forgiveness Agreements disclosed in Financial Statement Note 7.

 

The Company entered into a five-year office lease with 410734 B.C. Ltd. effective May 1, 2016 for $7,365 per month, which replaced the Company’s office lease with Harrison that expired April 30, 2016. At December 31, 2017, there were no amounts due to 410734 B.C. Ltd. David M. Shworan is a control person of both Harrison and 410734 B.C. Ltd. Interest was accrued at 10% on the unpaid office rent. On December 28, 2017, the balance due to Harrison for unpaid office rent of $2,268,995 was settled as part of the Debt Exchange and Debt Forgiveness Agreements disclosed in Financial Statement Note 7.

 

From January 1, 2005 to November 30, 2006, Bravenet provided customer promotion and lead generation services to the Company. Interest was accrued at 10% on the outstanding balance. On December 28, 2017, the balance due to Bravenet for customer promotion and lead generation services of $1,551,975 was settled as part of the Debt Exchange and Debt Forgiveness Agreements disclosed in Financial Statement Note 7.

 

On December 28, 2017, as part of the employment agreement with the David M. Shworan, the Company settled the $8,024,232 that had been accrued as an allowance for unpaid compensation. The outstanding allowance balance included interest accrued at 10%. See Financial Statement Note 7 for additional disclosures.

 

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.

 

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Aggregate fees billed to our company for the fiscal years ended December 31, 2017 and 2016 by Moss Adams LLP, our principal accountants, are as follows:

 

		2017				2016
Audit Fees		$	65,374			$	-
Audit-Related Fees		$	-			$	-
Tax Fees		$	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.

 

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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

 

Exhibit Number		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
23.2		Consent of Hein & Associates 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.

  

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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: April 11, 2018	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		April 11, 2018
Robert J. Thompson
/s/ David M. Shworan		Director		April 11, 2018
David M. Shworan
/s/ Keith J. Randall		Chief Executive Officer and Chief Financial Officer		April 11, 2018
Keith J. Randall		and Director (Principal Executive and Financial and Accounting Officer)

 

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QuoteMedia, Inc.

Index to Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm (2017)		F-2
Report of Independent Registered Public Accounting Firm (2016)		F-3
Consolidated Balance Sheets		F-4
Consolidated Statements of Operations		F-5
Consolidated Statements of Changes in Series A Redeemable Convertible Preferred Stock and Stockholders’ Deficit		F-6
Consolidated Statements of Cash Flows		F-7
Notes to Consolidated Financial Statements		F-8 – F-25

 

F-1

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of

Quotemedia, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Quotemedia, Inc. (the “Company”) as of December 31, 2017, the related consolidated statements of operations, stockholders' deficit, and cash flows for the year 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, 2017, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

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 audit. We are a public accounting firm registered with the 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. 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 audit 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.

 

We conducted our audit 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.

 

/s/ Moss Adams LLP

 

Denver, Colorado

April 11, 2018

 

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

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

Quotemedia, Inc.

 

We have audited the accompanying consolidated balance sheet of Quotemedia, Inc. and subsidiary as of December 31, 2016, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Quotemedia, Inc. and subsidiary as of December 31, 2016, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

 

/s/ Hein & Associates LLP

 

Denver, Colorado

March 31, 2017

 

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QUOTEMEDIA, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31,

 

		2017				2016
ASSETS
Current assets:
Cash and cash equivalents		$	451,151			$	271,700
Accounts receivable, net			344,512				433,889
Prepaid expenses			89,884				74,949
Other current assets			149,379				103,345
Total current assets			1,034,926				883,883
Deposits			16,551				15,555
Property and equipment, net			1,420,946				1,372,940
Goodwill			110,000				110,000
Intangible assets			64,657				70,594
Total assets		$	2,647,080			$	2,452,972
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities		$	1,565,972			$	1,499,827
Deferred revenue			706,819				549,233
Current portion of amounts due to related parties			-				44,212
Total current liabilities			2,272,791				2,093,272
Long-term portion of amounts due to related parties			-				10,903,439
Commitments (Note 9)
Mezzanine equity:
Series A Redeemable Convertible Preferred stock, 550,000 shares designated, 127,685 shares issued			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			18,727,661				9,382,824
Accumulated deficit			(21,526,062	)			(20,017,042	)
Total stockholders’ equity (deficit)			(2,707,922	)			(10,543,739	)
Total liabilities and stockholders’ equity (deficit)		$	2,647,080			$	2,452,972

 

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

 

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QUOTEMEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For each of the years ended December 31,

 

		2017				2016
LICENSING FEES		$	9,491,738			$	8,870,155
COST OF REVENUE			5,212,541				5,073,340
GROSS PROFIT			4,279,197				3,796,815
OPERATING EXPENSES
Sales and marketing			1,584,479				1,507,706
General and administrative			2,014,119				1,966,713
Software development			1,029,822				935,786
			4,628,420				4,410,205
OPERATING LOSS			(349,223	)			(613,390	)
OTHER EXPENSES
Foreign exchange loss			(92,946	)			(50,516	)
Interest expense - related party			(1,063,769	)			(1,014,379	)
			(1,156,715	)			(1,064,895	)
LOSS BEFORE INCOME TAXES			(1,505,938	)			(1,678,285	)
Income tax expense			(3,082	)			(3,018	)
NET LOSS		$	(1,509,020	)		$	(1,681,303	)
LOSS PER SHARE
Basic and diluted loss per share		$	(0.02	)		$	(0.02	)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic and diluted			90,477,798				90,477,798

 

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

 

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QUOTEMEDIA, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE

CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

For the years ended December 31, 2017 and 2016

 

		Series A Redeemable Convertible Preferred Stock								Common Stock								Additional								Total Stockholders’
		Number of Shares				Amount				Number of Shares				Amount				Paid-in Capital				Accumulated Deficit				Equity (Deficit)
Balance, January 1, 2016			-				-				90,477,798			$	90,479			$	9,301,338			$	(18,335,739	)		$	(8,943,922	)
Stock-based compensation			-				-				-				-				81,486				-				81,486
Net loss			-				-				-				-				-				(1,681,303	)			(1,681,303	)
Balance, December 31, 2016			-				-				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				-				-				-				-				-
Debt forgiven			-				-				-				-				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	)

 

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

 

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QUOTEMEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For each of the years ended December 31,

 

		2017				2016
OPERATING ACTIVITIES
Net loss		$	(1,509,020	)		$	(1,681,303	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			837,284				861,216
Bad debt expense			45,957				93,741
Stock-based compensation expense			100,731				81,486
Changes in assets and liabilities:
Accounts receivable			43,420				(108,532	)
Prepaid expenses			(14,935	)			7,336
Other current assets			(46,034	)			(56,058	)
Deposits			(996	)			3,416
Accounts payable and amounts due to related parties			1,444,811				1,700,809
Deferred revenue			157,586				(57,791	)
Net cash provided by operating activities			1,058,804				844,320
INVESTING ACTIVITIES
Purchase of fixed assets			(89,454	)			(134,403	)
Capitalized application software			(789,899	)			(690,051	)
Net cash used in investing activities			(879,353	)			(824,454	)
Net increase in cash			179,451				19,866
Cash, beginning of year			271,700				251,834
Cash, end of year		$	451,151			$	271,700
See supplementary information (Note 10)

 

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

 

F-7

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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 $120,000 at December 31, 2017 and 2016. Bad debt expenses for the years ended December 31, 2017 and 2016 were $45,957 and $93,741 respectively.

 

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QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

f) Property and equipment

 

Fixed assets are recorded at cost less accumulated depreciation. Furniture and equipment are depreciated using the straight-line method over their estimated useful lives of five years. Leasehold improvements are amortized using the straight-line method over the terms of the respective leases or useful lives, whichever is shorter. Retirements, sales, and disposals of assets are recorded by removing the cost and accumulated depreciation from the asset and accumulated depreciation accounts with the resulting gain or loss reflected in income.

 

Capitalized software costs include costs incurred in connection with the internal development of software. These costs relate to software used by subscribers to access, manage and analyze information in the Company’s databases. Capitalized costs associated with internally developed software are amortized over three years which is their estimated economic life.

 

Depreciable and amortizable assets are evaluated for impairment upon a significant change in the operating environment. In these circumstances, if an evaluation of the undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value, which is based on discounted future cash flows. Useful lives are periodically evaluated to determine whether events or circumstances have occurred which indicate the need for revision. There were no impairments recorded for the years ended December 31, 2017 and 2016.

 

g) Earnings per share

 

Basic earnings per share are computed by dividing income by the weighted average number of shares outstanding during the year. Diluted earnings per share takes into account shares outstanding (computed under basic earnings per share) and potentially dilutive common shares (such as stock options outstanding). The effect of a stock split or reverse split is applied retroactively to preceding periods. For the years ended 2017 and 2016 all common stock equivalents were anti-dilutive.

 

h) Stock-based compensation

 

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

 

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 (a) a warrant 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) a warrant 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”), and (c) a warrant 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”).

 

In addition, 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 Series A Redeemable Convertible Preferred Stock at an exercise price equal to $1.00 per share.

 

F-9

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QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Black-Scholes valuation model was used to calculate the value of Common Stock Warrants granted to Mr. Shworan. The fair value per warrant was calculated at $0.03, and the total fair value of the warrants was calculated at $120,000. The warrants vest according to a schedule based on meeting certain gross profit targets. Compensation expense for an award with a performance condition shall be based on the probable outcome of that performance condition. A probability was assigned to meeting each performance condition and applied to the fair value of the warrants. After applying the probability of meeting the performance conditions, the total fair value of the warrants was calculated at $84,750, which will be expensed evenly over 5 years.

 

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. Therefore, a total of $30,000 of stock based compensation expense was recognized in December 2017 related to the 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, 2017. The probability will be re-evaluated each reporting period. As at December 31, 2017, 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,		2017				2016
Sales and marketing		$	55,181			$	21,504
General and administrative			44,800				59,982
Development			750				-
Stock-based compensation expense		$	100,731			$	81,486

 

At December 31, 2017 there was $211,987 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 3.83 years.

 

F-10

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QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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:

 

		2017				2016
Expected dividend yield			-				-
Expected stock price volatility			219	%			243	%
Risk-free interest rate			4	%			4	%
Expected life of options (years)			9.0				5.0
Weighted average fair value of options and warrants granted		$	0.03			$	0.04

 

Expected volatility is based on the historical volatility of the Company’s share price in the period prior to option grant equivalent to the expected life of the options. The expected term is determined under the “simplified” method as allowed under the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletins No. 107 and No. 110, and represents the period of time that options granted are expected to be outstanding. We believe that it is appropriate to use this simplified method as there is not sufficient historical exercise data to provide a reasonable basis upon which to estimate an expected term. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

 

i) Income taxes

 

Income taxes are provided in accordance with FASB ASC 740, Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between income for financial statement purposes and income for tax purposes as well as operating loss carryforwards. Deferred tax expenses or recovery result from the net change during the year of deferred tax assets and liabilities.

 

Deferred tax assets are reduced by a valuation allowance, when, in the opinion of management, it is likely that some portion of the deferred tax asset will not be realized. Deferred taxes are adjusted for the effects of changes in tax laws and rates. Interest and penalties, if applicable, would be recorded in operations. In 2017, the Company recorded Canadian income tax expense of $3,082. In 2016 the Company recorded Canadian income tax expense of $3,018 (see Note 6).

 

F-11

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QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

j) Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities as of the year end and the reported amount of revenues and expenses during the year. Such estimates include (i) fair values used to test goodwill and capitalized development costs for impairment; (ii) the amount of allowance for doubtful accounts, (iii) the capitalization of software development costs. Actual results and outcomes may differ from management’s estimates and assumptions.

 

k) Software development expenses

 

Software development expenses consist primarily of costs associated with the design, programming, and testing of our software applications during the preliminary project stage. Software development expenses also include costs incurred to maintain our software applications. The Company expensed $1,029,822 and $935,786 in software development costs during the years ended December 31, 2017 and 2016, respectively (see Note 3).

 

l) Revenue recognition

 

Revenue is recognized over contractual periods as services are performed and when collection of the amount due is reasonably assured. Amounts recognized as revenue are determined based upon contractually agreed-upon fee schedules with our customers. The Company accounts for subscription revenues received in advance of services being performed by deferring such amounts until the related services are performed. The Company considers the following factors when determining if collection of a fee is reasonably assured: customer creditworthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If these factors do not indicate collection is reasonably assured, revenue is deferred until collection becomes reasonably assured, which is generally upon receipt of cash.

 

m) Financial instruments

 

Financial instruments consist principally of cash, accounts 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.

 

F-12

Table of Contents

 

QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

n) Accounting Pronouncements

 

Accounting Pronouncements 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 August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain cash receipts and payments in the statement of cash flows in order to eliminate diversity in practice. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the potential impact that adoption will have 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 amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, using a modified retrospective approach. Early adoption is permitted. The Company is evaluating the potential impact that adoption will have on its consolidated financial statements and related disclosures.

 

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 retained earnings. We expect the impact of the adoption of the new revenue standard to be immaterial to our net income on an ongoing basis.

 

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-13

Table of Contents

 

QUOTEMEDIA, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

2. LIQUIDITY

 

The Company has an accumulated deficit of $21,526,062 as of December 31, 2017, and for the year ended December 31, 2017 had a net loss of $1,509,020. As a result, there are concerns about the liquidity of our company at December 31, 2017. The following discussion addresses those concerns.

 

Net cash of $1,058,804 was provided by operating activities, and although we have a working capital deficit of $1,237,865 as of December 31, 2017, current liabilities include $706,819 in deferred revenue and the expected costs necessary to realize the deferred revenue in 2018 are minimal.

 

Substantially all of the $1,063,769 in interest expense incurred in 2017 relates to related party debt. The Debt Exchange and Debt Forgiveness Agreements and Compensation Agreement effective December 28, 2017 extinguished all related party debt and eliminate substantially all of our interest expense going forward. (See Notes 5 and Note 7).

 

Implementation of our business plan may require additional financing. Additional financings may come from future equity or debt offerings that could result in dilution to our stockholders. Although the Company must ultimately achieve profitable operations, based on the factors discussed above, management believes that our cash on hand and cash to be generated from operations will be sufficient to fund operations through April 2019.

 

3. PROPERTY AND EQUIPMENT

  

As of December 31,		2017				2016
Computer equipment		$	1,043,346			$	955,681
Office furniture and equipment			70,904				69,115
Leasehold improvements			58,464				58,464
Capitalized application software			7,648,494				7,050,550
Total property and equipment			8,821,208				8,133,810
Less: accumulated depreciation			(7,400,262	)			(6,760,870	)
Property and equipment, net		$	1,420,946			$	1,372,940

 

F-14

Table of Contents

 

QUOTEMEDIA, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

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, 2017 and 2016, the Company capitalized $789,899 and $690,051 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, 2017 and 2016, amortization expenses associated with the internally developed application software was $724,451 and $757,864 respectively. At December 31, 2017, the remaining book value of the capitalized application software was $1,149,032.

 

Depreciation expense for equipment and leaseholds for the years ended December 31, 2017 and 2016 was $106,896 and $97,415 respectively.

 

4. INTANGIBLE ASSETS

 

As of December 31,		2017				2016
Amortized intangible assets:
Purchase option for office building		$	10,000			$	10,000
Software licenses			108,085				108,085
Domain names			10,652				10,652
			128,737				128,737
Less: accumulated amortization			(64,080	)			(58,143	)
Amortized intangible assets, net			64,657				70,594
Unamortized intangible assets:
Goodwill associated with purchase of business unit
business unit			110,000				110,000
Total intangible assets, net		$	174,657			$	180,594

 

Amortization for amortized intangible assets is calculated on a straight-line basis over the assets’ estimated useful lives. The useful life of the purchase option is 5 years which is the term of the option. The useful life of the software licenses and domain names is estimated to be 20 years. Amortization expense for amortized intangible assets was $5,937 for the years ended December 31, 2017 and 2016. We evaluate goodwill for impairment on an annual basis in accordance with Financial Accounting Standards Board (“FASB”) ASC 350-20, Goodwill. Through December 31, 2017 we have not had any goodwill impairment.

 

F-15

Table of Contents

 

QUOTEMEDIA, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

For year ending December 31, 2018		$	5,937
For year ending December 31, 2019			5,937
For year ending December 31, 2020			5,937
For year ending December 31, 2021			5,937
For year ending December 31, 2022			5,937
For years thereafter			34,972
Total		$	64,657

 

5. RELATED PARTIES

 

The following table summarizes amounts due to related parties at December 31, 2017 and 2016:

 

		December 31, 2017								December 31, 2016
		Current				Long-term				Current				Long-term
Purchase of business unit		$	-			$	-			$	-			$	182,183
Computer hosting services			-				-				-				137,931
Office rent			-				-				7,365				1,113,079
Other			-				-				36,847				17,276
Loan			-				-				-				997,072
Lead generation services			-				-				-				1,416,574
Due to Management			-				-				-				7,039,324
Total stock-based compensation		$	-			$	-			$	44,212			$	10,903,439

 

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 of our related party debt was eliminated. See Note 7 for additional disclosures.

 

The Company had a loan agreement with Bravenet for which interest was accrued at 10% on the outstanding loan balance. On December 28, 2017, the outstanding loan balance due to Bravenet of $1,079,975 was settled as part of the Debt Exchange and Debt Forgiveness Agreements disclosed in Note 7.

 

On September 29, 2006, QuoteMedia, Ltd. purchased the Bravenet business unit that was responsible for providing the Company customer promotion and lead generation services. The $110,000 purchase price due to Bravenet was accrued in amounts due to related parties and interest was accrued at 10% on the outstanding balance. On December 28, 2017, the outstanding balance due to Bravenet for the unpaid purchase price of $208,083 was settled as part of the Debt Exchange and Debt Forgiveness Agreements disclosed in Note 7.

 

F-16

Table of Contents

 

QUOTEMEDIA, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Bravenet provided computer hosting and maintenance services to the Company for approximately $6,250 per month. Interest was accrued at 10% on the outstanding balance. On December 28, 2017, the balance due to Bravenet for unpaid computer hosting and maintenance services of $223,565 was settled as part of the Debt Exchange and Debt Forgiveness Agreements disclosed in Note 7.

 

The Company entered into a five-year office lease with 410734 B.C. Ltd. effective May 1, 2016 for $7,365 per month, which replaced the Company’s office lease with Harrison that expired April 30, 2016. At December 31, 2017, there were no amounts due to 410734 B.C. Ltd. David M. Shworan is a control person of both Harrison and 410734 B.C. Ltd. Interest was accrued at 10% on the unpaid office rent. On December 28, 2017, the balance due to Harrison for unpaid office rent of $2,268,995 was settled as part of the Debt Exchange and Debt Forgiveness Agreements disclosed in Note 7.

 

From January 1, 2005 to November 30, 2006, Bravenet provided customer promotion and lead generation services to the Company. Interest was accrued at 10% on the outstanding balance. On December 28, 2017, the balance due to Bravenet for customer promotion and lead generation services of $1,551,975 was settled as part of the Debt Exchange and Debt Forgiveness Agreements disclosed in Note 7.

 

On December 28, 2017, as part of the employment agreement with the David M. Shworan, the Company settled the $8,024,232 that had been accrued as an allowance for unpaid compensation. The outstanding allowance balance included interest accrued at 10%. See Note 7 for additional disclosures.

 

6. INCOME TAXES

 

We account for income taxes according to the provisions of FASB ASC 740, Income Taxes, which prescribes an asset and liability approach for computing deferred income taxes.

 

Reconciliations of income taxes computed at the statutory federal rate to income tax expense (benefit) for the years ended December 31, 2017 and 2016 are as follows:

 

		2017				2016
Tax provision (benefit) at the statutory rate of 34%		$	(512,019	)		$	(571,643	)
State income taxes, net of federal income tax			(46,082	)			(51,448	)
Stock-based compensation			34,249				27,705
Change in federal NOL			(1,332	)			13,693
Expiration of state NOL			-				10,181
Federal Rate Change			1,389,456				-
Debt Exchange			3,087,572				-
Change in valuation allowance and other			(3,962,025	)			571,512
Canadian income tax expense (benefit)			3,082				3,018
Income tax expense (benefit)		$	3,082			$	3,018

 

F-17

Table of Contents

 

QUOTEMEDIA, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

In 2017, the Company recorded Canadian income tax expense of $3,082. The Company does not have any material Canadian deferred tax assets or deferred tax liabilities.

 

As of December 31, 2017, we had net operating loss carryforwards for federal and state income tax reporting purposes amounting to approximately $11,748,000 and $2,943,000 which expire in varying amounts through the year 2037.

 

The components of our deferred tax asset (liabilities) at December 31, 2017 and 2016 are as follows:

 

		2017				2016
Tax effect of net operating loss carryforward		$	2,558,000			$	3,574,000
Accrued liabilities			-				3,369,000
Property & equipment			(5,000	)			(8,000	)
Capitalized software			(277,000	)			(402,000	)
Other			29,000				45,000
Less valuation allowance			(2,305,000	)			(6,578,000	)
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 $4,273,000 for the year ended December 31, 2017. This is primarily due to the federal statutory rate decreasing to 21% and a debt exchange that occurred between the Company and related parties.

 

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 (2014-2017) in these jurisdictions. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded.

 

7. STOCKHOLDERS’ DEFICIT

 

a) Preferred shares

 

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

 

F-18

Table of Contents

 

QUOTEMEDIA, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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 - see Notes 7 (c) to (e) below.

 

b) Common stock

 

No shares of common stock were issued during the years ended December 31, 2017 and 2016.

 

c) Debt Exchange

 

On December 28, 2017, the Company entered into a Debt Exchange Agreement with Bravenet Web Services, Inc. (“Bravenet”), and Harrison Avenue Holdings Ltd. (“Harrison”). The President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary, is a control person of Bravenet and Harrison. Bravenet and Harrison agreed to exchange an aggregate of $3,192,116 of indebtedness of the Company held by Bravenet and Harrison in exchange for the following:

 

(i) 127,685 shares of Series A Redeemable Convertible Preferred Stock. The Series A Redeemable Convertible Preferred Stock has 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.

 

In accordance with ASC 470-20-35-3, a contingent beneficial conversion feature shall not be recognized in earnings until the contingency is resolved. Therefore, the beneficial conversion feature was not recognized, and only the intrinsic value of $25 was used to determine the $3,192,125 total fair value of the Series A Redeemable Convertible Preferred Stock issued.

 

(ii) Warrants to purchase up to 4,000,000 shares of common stock at an exercise price equal to $0.10 per share. The Black-Scholes valuation model was used to calculate the value of common stock warrants granted to Bravenet and Harrison. The fair value per warrant was calculated at $0.03, and the total fair value of the warrants was calculated at $120,000.

 

F-19

Table of Contents

 

QUOTEMEDIA, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

In accordance with ASC 470-20-25-2, a relative fair value allocation was applied to the difference between the fair value of the Series A Redeemable Convertible Preferred Stock and common stock warrants and the $3,192,116 of indebtedness for which they were exchanged. The adjusted fair value for the Series A Redeemable Convertible Preferred Stock and common stock warrants was $3,082,211 and $109,905, respectively.

 

Redemption Rights

 

In accordance with the Debt Exchange Agreement, Bravenet and Harrison may redeem a limited amount of Series A Redeemable Convertible Preferred Stock 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.

 

(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 held by Bravenet and Harrison may be redeemed if the above criteria are met, it was classified as mezzanine equity and not permanent equity.

 

d) Debt Forgiveness

 

On December 28, 2017, the Company also entered into a Debt Forgiveness Agreement with Bravenet and Harrison, pursuant to which Bravenet and Harrison agreed to forgive an aggregate of $1,157,752 of indebtedness of the Company held by Bravenet and Harrison in exchange for $1. In accordance to ASC 470-50-40-2, the extinguishment of debt between related entities should be treated as a capital transaction; therefore it was recorded as a contribution to Paid-in Capital.

 

We incurred $47,781 of professional fees associated with Debt Exchange and Forgiveness transactions. These issuance costs were treated as reduction to paid-in capital as the issuance costs were not part of normal operations and were a function of capital transactions.

 

e) Compensation Agreement

 

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, pursuant to which, among other things, the Company will issue to Mr. Shworan the following:

 

F-20

Table of Contents

 

QUOTEMEDIA, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

(i) Warrants to purchase up to 1,250 shares of Series A Preferred Stock at an exercise price equal to $1.00 per share. A total of $30,000 of stock-based compensation expense was recognized in December 2017 related to the warrants granted to Mr. Shworan. See Note 1 (h).

 

(ii) Warrants to purchase up to 382,243 shares of Series A Preferred Stock at an exercise price equal to $1.00 per share (the “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 December 31, 2017. The probability will be re-evaluated each reporting period. See Note 1 (h).

 

(iii) Warrants to purchase up to 4,000,000 shares of common stock at an exercise price equal to $0.10 per share, subject to specific performance vesting thresholds. The Black-Scholes valuation model was used to calculate the value of common stock warrants granted to Mr. Shworan. The warrants vest according to a schedule based on meeting certain gross profit targets. A probability was assigned to meeting each performance condition and applied to the fair value of the warrants. After applying the probability of meeting the performance condition, the total fair value of the warrants was calculated at $84,750 which will be expensed evenly over 5 years. See Note 1 (h).

 

Also, as part of the Compensation Agreement, 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. As of December 28, 2017, the Company had accrued an allowance of $8,024,232 for potential compensation due to Mr. Shworan. In accordance to ASC 470-50-40-2, the extinguishment of debt between related entities should be treated as a capital transaction; therefore it was recorded as a contribution to Paid-in Capital.

 

e) 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, 2017, 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.

 

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QUOTEMEDIA, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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, 2017 and 2016:

 

		Common Stock				Weighted-
		Options and				Average
		Warrants				Exercise Price
Outstanding at January 1, 2016			13,372,803			$	0.04
Warrants granted			3,000,000			$	0.04
Outstanding at December 31, 2016			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

 

The following table summarizes our non-vested common stock option and warrant activity for the years ended December 31, 2017 and 2016:

 

		Common Stock				Weighted- Average
		Options and				Grant Date
		Warrants				Fair Value
Outstanding at January 1, 2016			1,878,319			$	0.06
Granted during the period			3,000,000			$	0.04
Vested during the period			(1,570,004	)		$	0.04
Outstanding at December 31, 2016			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

 

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

2017

Life (Years)

Price

2017

Price

$

0.03-0.07

26,372,803

11.37

$

0.04

18,747,803

$

0.04

 

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QUOTEMEDIA, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

As of December 31, 2017 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, 2017 or 2016.

 

The outstanding common stock options and warrants had no intrinsic value as of December 31, 2017. 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 common stock option or warrant.

 

The following table represents preferred stock warrant activity for the year ended December 31, 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

 

The following table summarizes our non-vested preferred stock warrant activity for the year ended December 31, 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

 

As of December 31, 2017, a total of 383,493 Preferred Stock Warrants were outstanding with a weighted average remaining contractual life of 20.0 years. As of December 31, 2017, 1,250 Preferred Stock Warrants were exercisable with a weighted average remaining contractual life of 20.0 years. There was no cash received from the exercise of Preferred Stock Warrants for the years ended December 31, 2017 or 2016.

 

At December 31, 2017 the aggregate intrinsic value of the Preferred Stock Warrants outstanding was $9,203,832. The aggregate intrinsic value of the Preferred Stock Warrants exercisable was $30,000. 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).

 

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QUOTEMEDIA, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8. LOSS PER SHARE

 

Basic earnings per share is calculated by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income or loss applicable to common stockholders, adjusted to exclude potentially dilutive securities, by the weighted average number of common shares outstanding during the period, plus any additional common shares that would have been outstanding if potentially dilutive common shares had been exercised, using the treasury stock method. Due to the net loss incurred for the years ended 2017 and 2016, the diluted loss per share is the same as basic, because any potentially dilutive securities would reduce the loss per share. The following tables summarize the components of the loss per share:

 

		2017				2016
Numerator:
Net loss		$	(1,509,020	)		$	(1,681,303	)
Denominator:
Weighted average shares outstanding – basic and diluted			90,477,798				90,477,798
Loss per share - basic and diluted		$	(0.02	)		$	(0.02	)
Stock options and warrants excluded from the calculation of dilutive loss per share because they were anti-dilutive			16,372,803				16,372,803

 

9. COMMITMENTS

 

Rent expense for all operating leases was $283,065 and $266,967 for the years ended December 31, 2017 and 2016, respectively. We have office lease commitments totaling $844,103 over the next five years, which include $310,551 in 2018, $315,434 in 2019, $185,095 in 2020, $33,023 in 2021, and $0 in 2022.

 

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10. SUPPLEMENTARY CASH FLOW INFORMATION

 

		2017				2016
Cash paid for
Interest		$	1,261			$	1,214
Cash received for
Interest		$	-			$	46
Cash paid for taxes			-				-

 

The non-cash amounts related to the Debt Exchange and Forgiveness Agreements transactions effective December 28, 2017 are noted below (see Notes 5 and Note 7):

 

		2017				2016
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			(47,781	)			-
Total non-cash transactions – debt exchange & forgiveness transactions		$	12,326,317				-

 

11. SUBSEQUENT EVENTS

 

The Company has evaluated events up to the filing date of these consolidated financial statements and determined that no subsequent event activity required disclosure.

 

 

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