10-Q 1 quotemedia10q11122014.htm QUOTEMEDIA, INC. - 10-Q CA Filed by Filing Services Canada Inc. 403-717-3898


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 (Mark one)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2014
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period _________ to _________
 
 
Commission File Number: 0-28599

QUOTEMEDIA, INC.
 (Exact name of registrant as specified in its charter)
 
Nevada
 
91-2008633
(State or Other Jurisdiction of Incorporation or Organization)
 
(IRS Employer Identification Number)
 
 
17100 East Shea Boulevard, Suite 230, Fountain Hills, AZ 85268
(Address of Principal Executive Offices)

(480) 905-7311
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
(Do not check if a smaller reporting 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
 
The Registrant has 90,444,162 shares of common stock outstanding as at November 7, 2014.
 


 
 

 
 
QUOTEMEDIA, INC.
FORM 10-Q for the Quarter Ended September 30, 2014

INDEX
 
   
Page
 
Part I.
Financial Information
   
       
Item 1.
Financial Statements (unaudited):
3  
       
 
Condensed Consolidated Balance Sheets at September 30, 2014 and December 31, 2013
3  
       
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013
4  
       
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013
5  
       
 
Notes to Condensed Consolidated Financial Statements
6  
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
12  
       
Item 4.
Controls and Procedures
20  
       
Part II.
Other Information
   
       
Item 6.
Exhibits
21  
       
Signatures   22  
 
 
2

 
 
PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
   
September 30,
2014
   
December 31,
2013
 
             
ASSETS
 
             
Current assets:
           
Cash
  $ 526,864     $ 425,899  
Accounts receivable, net of allowance for doubtful accounts of $90,000 and $200,000 at September 30, 2014 and December 31, 2013, respectively
    446,596       538,995  
Prepaid expenses
    43,526       42,017  
Other current assets
    30,271       305,603  
Total current assets
    1,047,257       1,312,514  
                 
Deposits
    20,140       20,962  
Property and equipment, net
    1,471,882       1,377,625  
Goodwill
    110,000       110,000  
Intangible assets
    83,952       88,405  
Total assets
  $ 2,733,231     $ 2,909,506  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 1,306,409     $ 1,258,374  
Deferred revenue
    599,999       543,507  
Total current liabilities
    1,906,408       1,801,881  
                 
Long-term portion of amounts due to related parties
    8,164,207       7,380,675  
                 
Stockholders’ deficit:
               
Preferred stock, nondesignated, 10,000,000 shares authorized, none issued
    -       -  
Common stock, $0.001 par value, 150,000,000 shares authorized, 90,444,162 and 90,444,162 shares issued and outstanding
    90,445       90,445  
Additional paid-in capital
    8,940,381       8,930,743  
Accumulated deficit
    (16,368,210 )     (15,294,238 )
Total stockholders’ deficit
    (7,337,384 )     (6,273,050 )
Total liabilities and stockholders’ deficit   $
2,733,231
    $
2,909,506
 
 
See accompanying notes
 
 
3

 
 
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
                         
Revenue
  $ 2,292,698     $ 2,395,733     $ 6,795,721     $ 7,160,432  
                                 
Cost of revenue
    1,280,244       1,298,590       3,793,020       3,904,274  
                                 
Gross profit
    1,012,454       1,097,143       3,002,701       3,256,158  
                                 
Operating expenses
                               
                                 
Sales and marketing
    390,343       415,270       1,211,203       1,241,560  
General and administrative
    471,243       493,039       1,529,605       1,545,308  
Software development
    250,612       233,133       793,784       832,446  
      1,112,198       1,141,442       3,534,592       3,619,314  
                                 
Operating loss
    (99,744 )     (44,299 )     (531,891 )     (363,156 )
                                 
Other income and (expense)
                               
                                 
Foreign exchange gain (loss)
    58,995       (17,901 )     36,410       31,834  
Interest expense (related party)
    (198,903 )     (175,381 )     (575,748 )     (510,693 )
      (139,908 )     (193,282 )     (539,338 )     (478,859 )
                                 
Loss before income taxes
    (239,652 )     (237,581 )     (1,071,229 )     (842,015 )
                                 
Provision for income taxes
    (919 )     (961 )     (2,743 )     (2,930 )
                                 
Net loss
  $ (240,571 )   $ (238,542 )   $ (1,073,972 )   $ (844,945 )
Loss per share
                               
Basic and diluted loss per share
    (0.00 )     (0.00 )     (0.01 )     (0.01 )
Weighted average shares outstanding
                               
Basic and diluted
    90,444,162       90,039,311       90,444,162       89,596,430  
 
See accompanying notes
 
 
4

 
 
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Nine months ended September 30,
 
   
2014
   
2013
 
             
Operating activities:
           
             
Net loss
  $ (1,073,972 )   $ (844,945 )
                 
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Depreciation and amortization
    636,407       601,513  
Bad debt expense
    23,988       152,461  
Stock-based compensation expense
    9,638       7,281  
Changes in assets and liabilities:
               
Accounts receivable
    68,411       (95,972 )
Prepaid expenses
    (1,509 )     18,728  
Other current assets
    275,332       (33,078 )
Deposits
    822       688  
Accounts payable and amounts due to related parties
    831,567       581,914  
Deferred revenue
    56,492       79,740  
Net cash provided by operating activities
    827,176       468,330  
                 
Investing activities:
               
                 
Purchase of fixed assets
    (100,511 )     (73,136 )
Purchase of intangible assets
    -       (2,380 )
Capitalized application software
    (625,700 )     (603,496 )
Net cash used in investing activities
    (726,211 )     (679,012 )
                 
Net increase (decrease) in cash
    100,965       (210,682 )
                 
Cash and equivalents, beginning of period
    425,899       658,100  
                 
Cash and equivalents, end of period
  $ 526,864     $ 447,418  
 
See accompanying notes
 
 
5

 

QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
1.  BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the generally accepted accounting principles for interim financial statements and instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for a full year. In connection with the preparation of the condensed financial statements, the Company evaluated subsequent events after the balance sheet date of September 30, 2014 through the filing of this report.
 
These financial statements should be read in conjunction with our financial statements and the notes thereto for the fiscal year ended December 31, 2013 contained in our Form 10-K filed with the Securities and Exchange Commission dated March 28, 2014.

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

 
6

 
 
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
d) Accounting Pronouncements

New Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The standard is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the impact that this guidance will have on our consolidated financial position, results of operations and related disclosures.

In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718), which makes amendments to the codification topic 718, Accounting for Share-Based Payments, when the terms of an award provide that a performance target could be achieved after the requisite service period. The new accounting standards update becomes effective for the Company on January 1, 2016. The Company does not expect that this guidance will have an impact on its financial position, results of operations or cash flows as the Company does not currently have any outstanding awards with a performance target that could be achieved after the requisite service period.

In August 2014, the FASB issued ASU No. 2014-15, Disclosures of Uncertainties About an Entity's Ability to Continue as a Going Concern. The new standard provides guidance around management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on our consolidated financial position, results of operations and related disclosures.
 
3.  FINANCIAL INSTRUMENTS

a) Fair value of financial instruments

FASB ASC 820, Fair Value Measurements and Disclosures establishes three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), observable inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2), and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).

From time to time we utilize forward contracts that are measured at fair market value on a recurring basis based on Level 2 inputs. The fair market values for forward contracts at September 30, 2014 and December 31, 2013 were liabilities of $4,400 and $6,535, respectively, and were included in accrued liabilities.

 
7

 
 
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
b) Derivative instruments

A significant portion of our expenses are paid in Canadian dollars; therefore, changes to the exchange rate between the U.S. and Canadian dollar affect our operating results. To manage this exchange rate risk, from time to time we utilize forward contracts to purchase Canadian dollars. Our Company policy limits contracts to maturities of one year or less from the date of issuance. We do not enter into foreign exchange forward contracts for trading purposes.

We account for derivatives and hedging activities in accordance with FASB ASC 815, Derivatives and Hedging, which requires that all derivative instruments be recorded on the balance sheet at their respective fair values. The accounting for changes in the fair value of a derivative instrument is dependent upon whether the derivative has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship.

We have chosen not to elect hedge accounting for these forward contracts; therefore, changes in fair value for these instruments are immediately recognized in earnings and included in our foreign exchange gain (loss). The fluctuations in the value of these forward contracts do, however, generally offset the impact of changes in the value of the underlying risk that they are intended to economically hedge.

The following table provides gross notional value of foreign currency derivative financial instruments and the related net asset or liability. The table presents the notional amount (at contract exchange rates) and the fair value of the derivatives in U.S. dollars:
 
   
September 30, 2014
   
December 31, 2013
 
   
Notional
Amount
   
Net Asset
(Liability)
   
Notional
Amount
   
Net Asset
(Liability)
 
                         
Forward contracts
  $ 200,000     $ (4,400 )   $ 300,000     $ (6,535 )
 
We are required to maintain a margin deposit with a foreign exchange corporation based on the value of the forward contracts outstanding. Margin deposits totaling $11,000 and $16,900 are included in other current assets on our September 30, 2014 and December 31, 2013 balance sheets, respectively.
 
8

 
 
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
4.  RELATED PARTIES

The following table summarizes amounts due to related parties at September 30, 2014 and December 31, 2013:

   
September 30,
2014
   
December 31,
2013
 
Purchase of business unit
  $ 175,350     $ 182,910  
Computer hosting services
    33,806       13,931  
Office rent
    1,027,672       995,215  
Other
    17,276       17,276  
Loan
    841,078       790,983  
Lead generation services
    1,132,212       1,050,729  
Due to Management
    4,936,813       4,329,631  
    $ 8,164,207     $ 7,380,675  

As a matter of policy, all related party transactions are subject to review and approval by the Company’s Board of Directors. All repayments of amounts due to related parties must be approved by our Board of Directors. Repayments are subject to our company having sufficient cash on hand and are intended not to impair continuing business operations. All amounts due to related parties have been classified as non-current liabilities as we do not expect to make any repayments within a year of the September 30, 2014 balance sheet date. Our related party creditors have agreed to these repayment terms.
 
5.  STOCK-BASED COMPENSATION

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

Total estimated stock-based compensation expense, related to all of the Company’s stock-based awards, recognized for the three and nine months ended September 30, 2014 and 2013 was comprised as follows:
 
   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Sales and marketing
  $ 1,899     $ 426     $ 3,635     $ 1,278  
General and administrative
    2,001       2,001       6,003       6,003  
Total stock-based compensation
  $ 3,900     $ 2,427     $ 9,638     $ 7,281  

At September 30, 2014 there was $28,006 of unrecognized compensation cost related to non-vested share-based payments which is expected to be recognized over a weighted-average period of 1.57 years.

 
9

 
 
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
We calculate the fair value of stock options and warrants granted under the provisions of FASB ASC 718 using the Black-Scholes valuation model with the following assumptions:

   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Expected dividend yield
    N/A       N/A       -       N/A  
Expected stock price volatility
    N/A       N/A       206 %     N/A  
Risk-free interest rate
    N/A       N/A       4 %     N/A  
Expected life of options
    N/A       N/A       5.86       N/A  
Weighted average fair value of options and warrants granted
    N/A       N/A     $ 0.03       N/A  

The following table represents stock option and warrant activity for the nine months ended September 30, 2014:
 
         
Weighted-
 
   
Options and
   
Average
 
   
Warrants
   
Exercise Price
 
Outstanding at December 31, 2013
    12,027,803     $ 0.05  
                 
Stock options granted
    350,000     $ 0.03  
                 
Outstanding at September 30, 2014
    12,377,803     $ 0.05  
 
 
10

 
 
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
The following table summarizes our non-vested stock option and warrant activity for the nine months ended September 30, 2014:
 
         
Weighted-
 
   
Options and
   
Average Grant
 
   
Warrants
   
Date Fair Value
 
Non-vested stock options and warrants at
           
December 31, 2013
    375,551     $ 0.04  
Stock options granted
    350,000     $ 0.03  
Vested during the period
    (329,179 )   $ 0.04  
Non-vested stock options and warrants at
               
September 30, 2014
    396,372     $ 0.04  
 
                       
Options and Warrants
 
     
Options and Warrants Outstanding
   
Exercisable
 
           
Weighted
                   
     
Number
   
Average
   
Weighted
   
Number
   
Weighted
 
     
Outstanding at
   
Remaining
   
Average
   
Exercisable at
   
Average
 
     
September 30,
   
Contractual
   
Exercise
   
September 30,
   
Exercise
 
     
2014
   
Life
   
Price
   
2014
   
Price
 
                                 
$ 0.03-0.10       11,877,803       1.62     $ 0.04       11,481,431     $ 0.04  
$ 0.11-0.40       500,000       0.13     $ 0.40       500,000     $ 0.40  

As at September 30, 2014 all stock options and warrants have been granted with exercise prices equal to or greater than the market value of the underlying common shares on the date of grant.

The options and warrants outstanding and exercisable at September 30, 2014 had no intrinsic value. The intrinsic value of stock options and warrants are calculated as the amount by which the market price of our common stock exceeds the exercise price of the option or warrant.

6.  LOSS PER SHARE

The basic and diluted net loss per share was $(0.00) and $(0.00) per share for the three months ended September 30, 2014 and 2013, respectively. The basic and diluted net loss per share was $(0.01) and $(0.01) per share for the nine months ended September 30, 2014 and 2013, respectively. There were 12,377,803 stock options and warrants excluded from the calculation of dilutive loss per share for the three and nine months ended September 30, 2014, because they were anti-dilutive. There were 13,727,803 stock options and warrants excluded from the calculation of dilutive loss per share for the comparative three and nine months ended September 30, 2013, because they were anti-dilutive.
 
 
11

 
 
ITEM 2. Management’s Discussion and Analysis

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report. We caution readers regarding certain forward looking statements in the following discussion, elsewhere in this report, and in any other statements, made by, or on behalf of our company, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on behalf of, our company. Uncertainties and contingencies that might cause such differences include those risk factors disclosed in our annual report on Form 10-K for the year ended December 31, 2013 and other reports filed from time to time with the SEC.

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

This report should be read in conjunction with our Form 10-K for the fiscal year ended December 31, 2013 filed with the Securities and Exchange Commission.

Overview

We are a developer of financial software and a distributor of market data and research information to online brokerages, clearing firms, banks, media properties, public companies and financial service corporations worldwide. Through the aggregation of information from many direct data, news, and research sources, we offer a comprehensive range of solutions for all market-related information provisioning requirements.
 
We have three general product lines: Data Feed Services, Interactive Content and Data Applications, and Portfolio Management Systems.
 
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 to be offered to our customers. Currently, QuoteMedia’s Data Feed services include complete coverage of North American exchanges and over 70 exchanges worldwide.
 
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.
 
 
12

 
 
Our Portfolio Management Systems consist of Quotestream, 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 and their 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 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 biannual subscription fee. Contracts to license our Financial Data Products and Data Feeds typically have a term of one to three years and are automatically renewed unless notice is given 90 days prior to the expiration of the contract term.
 
Business environment and trends
 
The global financial markets have experienced extreme volatility and disruption in recent years. As a result, financial institutions globally have acted to control or reduce operational spending. While in some areas the anticipated impact of current market conditions may lead to a decision to reduce demand for market data and related services, we expect overall spending on financial information services will grow modestly over the next several years.

On average, the U.S. dollar exchange rate has appreciated versus the Canadian dollar since the comparative periods in 2013. This has resulted in lowering both our reported Canadian dollar revenues and expenses in 2014 compared to 2013 once translated into U.S. dollars. Approximately 29% of our revenues and 36% of our expenses are in Canadian dollars, so while the appreciation of the U.S. dollar has lowered revenue figures compared to 2013, it also has positively impacted our bottom line in 2014.
 
 
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Plan of operation

For the remainder of 2014 and for 2015 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. Our deployment of native applications for the iPhone, Android and Blackberry mobile devices is an important new development that we are planning to exploit this year. We also plan to continue the growth of our Data Feed Services client base and to increase 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. Broad expansion of data and news coverage is also an ongoing priority.
 
Important new development projects for remainder of 2014 and for 2015 include completion of trade integration capabilities, allowing our Quotestream to interact with our brokerage clients’ back-end trade execution and reporting platforms to enable on-the-fly trade execution and tracking of holdings. Additionally, we will be adding transactional and enhanced reporting functionality to our portfolio management systems and launching new Web content solutions and data feed products using new dynamically updating data delivery mechanisms, proprietary content libraries and advanced HTML5 solutions.
 
One of our larger clients, Penson Worldwide Inc., filed for Chapter 11 protection in January 2013. The loss of revenue from the Penson Worldwide Inc. contract and its affiliate companies negatively impacted our revenue growth in 2013 and continued to impact our growth for the remainder of 2014. Revenue in 2014 was also negatively impacted by the strength of the U.S. dollar versus the Canadian dollar as discussed above; however, based on new product deployments that have been recently completed or are near completion, we anticipate that we will return to positive revenue growth in 2015.
 
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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Results of Operations
 
Revenue
 
   
2014
   
2013
   
Change ($)
   
Change (%)
 
Three months ended September 30,                        
                         
Corporate Quotestream
  $ 697,430     $ 742,346     $ (44,916 )     (6 )%
Individual Quotestream
    436,366       429,280       7,086       2 %
Total Portfolio Management Systems
    1,133,796       1,171,626       (37,830 )     (3 )%
Interactive Content and Data Applications
    1,158,902       1,224,107       (65,205 )     (5 )%
Total Licensing Revenue
  $ 2,292,698     $ 2,395,733     $ (103,035 )     (4 %)
 
Nine months ended September 30,

Corporate Quotestream
  $ 2,008,673     $ 2,224,667     $ (215,994 )     (10 )%
Individual Quotestream
    1,312,185       1,246,076       66,109       5 %
Total Portfolio Management Systems
    3,320,858       3,470,743       (149,885 )     (4 )%
Interactive Content and Data Applications
    3,474,863       3,689,689       (214,826 )     (6 )%
Total Licensing Revenue
  $ 6,795,721     $ 7,160,432     $ (364,711 )     (5 )%
 
Licensing revenue has decreased 4% and 5% when comparing the three and nine months ended September 30, 2014 and 2013. Our revenue was negatively impacted by the change in average exchange rates from the comparatives periods in 2013. The U.S. dollar has appreciated an average of 4.7% and 6.8% versus the Canadian dollar for the three and nine months ending September 30, 2014 compared to the same periods in 2013. This resulted in lowering our reported Canadian dollar revenues by approximately $30,000 and $132,000 for the three and nine month periods ending September 30, 2014 once translated into U.S. dollars.

Our Portfolio Management System revenue decreased by a total of $37,830 (3%) when comparing the three month periods ended September 30, 2014 and 2013. Portfolio Management System revenue decreased by a total of $149,885 (4%) when comparing the nine month periods ended September 30, 2014 and 2013.

Corporate Quotestream revenue decreased $44,916 (6%) for the three month period ended September 30, 2014 from the comparative period in 2013. Corporate Quotestream revenue decreased $215,994 (10%) when comparing the nine month periods ended September 30, 2014 and 2013. One of our larger clients, Penson Worldwide Inc., filed for Chapter 11 protection in January 2013. We lost the revenue from the Penson Worldwide Inc. contract in the first quarter of 2013, and lost the revenue from its affiliate companies in July 2013 which negatively impacted our results for the first three quarters of 2014 versus the comparative periods in 2013.

 
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Individual Quotestream revenue increased $7,086 (2%) and $66,109 (5%) from the three and nine month comparative periods in 2013, resulting mainly from an increase in the number of subscribers from the comparative periods.

Interactive Content and Data Application revenue decreased $65,205 (5%) when comparing the three month periods ended September 30, 2014 and 2013. Interactive Content and Data Application revenue decreased $214,826 (6%) when comparing the nine month periods ended September 30, 2014 and 2013. The decreases are due to a decrease in the average monthly dollar value of our Interactive Content and Data Application client contracts.

Cost of Revenue and Gross Profit Summary
 
     
2014
     
2013
     
Change ($)
   
Change (%)
 
Three months ended September 30,                              
                               
Cost of revenue
  $ 1,280,244     $ 1,298,590     $ (103,965 )   (1 )%
Gross profit
  $ 1,012,454     $ 1,097,143     $ (84,689 )   (8 )%
Gross margin %
    44 %     46 %              

Nine months ended September 30,
 
Cost of revenue
  $ 3,793,020     $ 3,904,274     $ (111,254 )     (3 )%
Gross profit
  $ 3,002,701     $ 3,256,158     $ (253,457 )     (8 )%
Gross margin %
    44 %     45 %                

Our cost of revenue consists of fixed and variable stock exchange fees and data feed provisioning costs. Cost of revenue also includes amortization of capitalized application software costs. We capitalize the costs associated with developing new products once technological feasibility has been established.

Cost of revenue decreased 1% and 3% when comparing the three and nine month periods ended September 30, 2014 and 2013. The decreases are primarily due to decreases in variable stock exchange fees resulting from losing some larger Quotestream clients as discussed above. The decreases are also due to negotiating more favorable terms for our data feeds and lines. The decreases were offset by increased fixed fees levied by a number of stock exchanges since the comparable periods.

Overall, the cost of revenue remained relatively unchanged as a percentage of sales, as evidenced by our gross margin percentages of 44% and 44% for the three and nine month periods ended September 30, 2014 compared to 46% and 45% in the respective periods in 2013.
 
 
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Operating Expenses Summary

   
2014
   
2013
   
Change ($)
   
Change (%)
 
                         
Three months ended September 30,
 
                         
Sales and marketing
  $ 390,343     $ 415,270     $ (24,927 )     (6 )%
General and administrative
    471,243       493,039       (21,796 )     (4 )%
Software development
    250,612       233,133       17,479       7 %
Total operating expenses
  $ 1,112,198     $ 1,141,442     $ (29,244 )     (3 )%

Nine months ended September 30,
                   
                         
Sales and marketing
  $ 1,211,203     $ 1,241,560     $ (30,357 )     (2 )%
General and administrative
    1,529,605       1,545,308       (15,703 )     (1 )%
Software development
    793,784       832,446       (38,662 )     (5 )%
Total operating expenses
  $ 3,534,592     $ 3,619,314     $ (84,722 )     (2 )%

Sales and Marketing

Sales and marketing consists primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses decreased $24,927 (6%) and $30,357 (2%) for the three and nine month periods ended September 30, 2014. The decreases for the three and nine month periods ending September 30, 2014 are due mainly to the appreciation of the U.S. dollar, as the U.S. dollar appreciated an average of 4.7% and 6.8% versus the Canadian dollar when compared to the same periods in 2013 and our sales and marketing expenses are incurred mainly in Canadian dollars.
 
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, decreasing $21,796 (4%) and $15,703 (1%) for the three and nine month periods ended September 30, 2014 when compared to the same periods in 2013.

The decreases from the comparative periods was mainly due to a decrease in bad debt expense, as we were able to recover some significant accounts receivable balances that had been previously written off. The decrease for the nine month period ended September was offset by customer service outsourcing expenses. Starting in July 2013, we outsourced our level 1 customer service functions. Prior to outsourcings customer service functions, level 1 customer service functions were performed internally and included in development expenses. This outsourcing agreement was terminated effective May 31, 2014 and customer service functions were moved back in house.
 
 
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Software Development

Software development expenses consist primarily of costs associated with the design, programming, and testing of our software applications prior to the establishment of technological feasibility. Software development expenses also include costs incurred to maintain our software applications.

Software development expenses increased $17,479 (7%) for the three month period ended September 30, 2014 and decreased $38,662 (5%) for the nine month period ended September 30, 2014 when compared to the same periods in 2013.

The 7% increase for the three month period ended September 30, 2014 was due to the termination of our agreement to outsource our level 1 customer service functions effective May 31, 2014. We added development personnel in June 2014 to perform all customer service functions internally. Customer service outsourcing expense was recorded in General and Administrative expense. The increase was offset by the 4.7% average appreciation of the U.S. dollar from the comparative period, as our development expenses are incurred mainly in Canadian dollars.

The 5% decrease for the nine month period ending September 30, 2014 is due mainly to the 6.8% appreciation of the U.S. dollar from the comparative period.

We capitalized $222,454 and $625,700 of development costs for the three and nine months ended September 30, 2014, compared to $216,991 and $603,496 for the same periods in 2013. 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

   
2014
   
2013
 
             
Three months ended September 30,
           
             
Foreign exchange gain (loss)
  $ 58,995     $ (17,901 )
Interest expense
    (198,903 )     (175,381 )
Total other income and (expenses)
  $ (139,908 )   $ (193,282 )

Nine months ended September 30,

Foreign exchange gain (loss)
  $ 36,410     $ 31,834  
Interest expense
    (575,748 )     (510,693 )
Total other income and (expenses)
  $ (539,338 )   $ (478,859 )
 
 
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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. The change in fair value for outstanding foreign exchange forward contracts is also included in foreign exchanges gains and losses as well as gains and losses recognized from foreign exchange forward contracts exercised during the period.

We recognized foreign exchange gains of $58,995 and $36,410 for the three and nine month periods ended September 30, 2014, compared to a foreign exchange loss of $17,901 and a gain of $31,834 for the same periods in 2013. The foreign exchange gain for the three and nine month periods ended September 30, 2014 are due to the gains arising from the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars, as we have a net Canadian dollar liability and the U.S. dollar appreciated versus the Canadian dollar. The U.S. dollar appreciated 4.6% when comparing the foreign exchange rate at June 30, 2014 to September 30, 2014 and appreciated 4.3% when comparing the foreign exchange rate at December 31, 2013 to September 30, 2014. The foreign exchange gains were offset by losses on foreign exchange forward contracts exercised during 2014 and outstanding at September 30, 2014.

Interest Expense

Interest is accrued on certain amounts owed to related parties. Interest expense increased for the three and nine month periods ended September 30, 2014 due to additional borrowings compared to the same periods in 2013. Interest is accrued at 10% per annum. Interest income earned on cash balances is netted against interest expenses.

Provision for Income Taxes

For the three and nine month periods ended September 30, 2014, the Company recorded Canadian income tax expense of $919 and $2,743, compared to $961 and $2,930 in the comparative periods in 2013.

Net Loss for the Period

As a result of the foregoing, net loss for the three months ended September 30, 2014 was $(240,571) or $(0.00) per share compared to a net loss of $(238,542) or $(0.00) per share for the three months ended September 30, 2013. The net loss for the nine months ended September 30, 2014 was $(1,073,972) or $(0.01) per share compared to a net loss of $(844,945) or $(0.01) per share for the nine months ended September 30, 2013.

Liquidity and Capital Resources

Our cash totaled $526,864 at September 30, 2014, as compared with $425,899 at December 31, 2013, an increase of $100,965. Net cash of $827,176 was provided by operations for the nine months ended September 30, 2014, primarily due to the increase in amounts due to related parties and deferred revenue, offset by the net loss for the period adjusted for non-cash charges. Net cash used in investing activities for the nine months ended September 30, 2014 was $726,211 resulting from capitalized application software costs and the purchase of new computer equipment. There were no financing activities for the nine month period ended September 30, 2014.

 
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For the nine months ended September 30, 2014 we had a net loss of $1,073,972, and at September 30, 2014 we have a net working capital deficit of $859,151 which represented current assets minus current liabilities.

We have a plan in place for the next 12 months to ensure that our ongoing expenditures are balanced with our expected revenue growth rate. We anticipate that based on product deployments that have recently been completed and are near completion, we will see moderate revenue growth for the next 12 months. Our current liabilities include deferred revenue of $599,999. The costs expected to be incurred to realize the deferred revenue in the next 12 months are minimal. Our long-term liabilities include $8,164,207 due to related parties. All repayments of amounts due to related parties must be approved by our Board of Directors. Repayments are subject to our company having sufficient cash on hand and are intended not to impair continuing business operations.

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, implementing 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.

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.
 
ITEM 4. Controls and Procedures

Under the supervision and with the participation of our Chairman of the Board and Chairman of the Audit Committee, Chief Executive Officer and Chief Financial Officer, we completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, we and our management have concluded that our disclosure controls and procedures at September 30, 2014 were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and are designed to ensure that information required to be disclosed by us in these reports is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosures. In the three months ended September 30, 2014, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

We will consider further actions and continue to evaluate the effectiveness of our disclosure controls and internal controls and procedures on an ongoing basis, taking corrective action as appropriate. Management does not expect that disclosure controls and procedures or internal controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. While management believes that its disclosure controls and procedures provide reasonable assurance that fraud can be detected and prevented, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
 
 
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PART II - OTHER INFORMATION
 
ITEM 6. EXHIBITS

Exhibit
Number
 
Description of Exhibit
     
31.1
 
31.2
 
32.1
 
32.2
 
101
 
Interactive Data Files (Quarterly Report on Form 10-Q, for the quarterly period ended September 30, 2014, furnished in XBRL (eXtensible Business Reporting Language)).
 
 
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SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  QUOTEMEDIA, INC.  
       
Dated: November 12, 2014
By:
/s/ R. Keith Guelpa  
    R. Keith Guelpa,  
   
President and Chief Executive Officer
 
    (Principal Executive Officer)  

Dated: November 12, 2014
By:
/s/ Keith J. Randall  
    Keith J. Randall,  
   
Chief Financial Officer
 
    (Principal Accounting Officer)  
 
 
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