UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
☑
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2020
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)
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Nevada
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91-2008633
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(IRS
Employer Identification Number)
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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:
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Title
of each class
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Name of
exchange on which registered
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Common
stock, par value $.001 per share
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OTCQB
tier of the OTC Markets
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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
☑
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
☑
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90
days. Yes ☑ No
☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ☑ No
☐
Indicate
by check mark 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. ☑
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 ☐
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Accelerated
filer ☐
|
|
Non-accelerated
filer ☐ (Do not check if a smaller reporting
company)
|
Smaller
reporting company ☑
|
|
|
Emerging
growth company ☐
|
Indicate
by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes
☐ No ☑
As of
March 8, 2021, there were outstanding 90,477,798 shares of the
issuer's common stock, par value $.001 per share and 123,685 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 (60,624,539 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, 2020, was
$6,668,699. 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-KFISCAL YEAR ENDED
DECEMBER 31, 2020
TABLE OF CONTENTS
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________________________________________________________
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."
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
data delivery solutions are fast, lightweight, reliable, and easy
to implement across all platforms. Our products are technologically
advanced, providing a framework for quick implementation, seamless
client integration and complete customization.
We are
a United States reporting public company that was incorporated in
the State of Nevada in 1999. Our shares are quoted on the OTCQB
tier of the OTC Markets under the trading symbol QMCI. Our
corporate head office is located at 17100 East Shea Boulevard,
Suite 230, Fountain Hills, Arizona 85268, and our telephone number
is (480) 905-7311. All references to our business operations in
this report include the operations of QuoteMedia, Inc. and our
operating divisions and subsidiaries.
Our Web
site is located at www.quotemedia.com. Through our Web site we make
available free of charge the following company information: our
annual reports on Form 10-K; our quarterly reports on Form 10-Q;
our current reports on Form 8-K; our proxy statements; and any
amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934. These
reports are available as soon as reasonably practical after we
electronically file these reports with the SEC. We also post on our
Web site the charter of our Audit Committee; our Corporate
Governance Guidelines; our Code of Business Conduct/Ethics and Code
of Ethics for the CEO and Senior Financial Officers, and any
amendments or waivers thereto; and any other corporate governance
materials contemplated by SEC or applicable regulations. These
documents are also available in print to any stockholder requesting
a copy from our corporate secretary at our principal executive
offices.
2
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 ConnectTM, 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 3rd 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.
3
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.
QModTM –
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.
4
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.
5
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
ConnectTM
As
discussed previously, Quotestream ConnectTM 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:
6
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 can
create custom market data applications and software engineered
precisely to our clients’ specifications, and the speed with
which we are able to take a product from concept to deliverable
truly sets us apart.
Data Speed and Quality – Our
connections to the world’s exchanges for equities and
derivatives have most sources of latency removed allowing us to
deliver extremely fast, accurate, and reliable data.
Single Source Provider – Clients
are eager to acquire premium market data feeds, financial
applications, streaming solutions, and news and research
information from a single source provider. Rather than having to
license applications, information and market data from multiple
sources, our clients enjoy the benefits of dealing with a single
comprehensive market data supplier.
Cutting Edge Data Delivery Technology -
We use state-of-the-art hardware and software systems for maximum
speed and efficiency. This provides us with a distinct advantage
over our competitors, most of whom use outdated data delivery
technologies based on legacy style data networks.
Effective Marketing – We have
implemented a marketing strategy that focuses on multiple markets
for our products and services, from individual nonprofessional end
users to corporate and institutional clients and their
customers.
Low Infrastructure Costs - Because of
the unique technological advancements in data delivery developed by
our company, our distribution model, and the strategic partnerships
that are in place, we have maintained very low corporate overhead.
All of our development is completed in-house, resulting in
significant cost efficiencies. This allows us to focus our
resources on data management, data acquisition, customer
satisfaction, and business development activities. Our low-cost
base of development and operation also allows us to maintain very
competitive pricing.
Competition
Many
companies provide financial market data and related information.
Companies such as Bloomberg and Thomson Reuters 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.
7
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 a total of 85 full-time employees, with 7 located in
the United States and 78 located in Canada. 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 2021
to handle anticipated growth in the areas of administration,
programming, sales, marketing, and customer care.
ITEM 1A.
RISK FACTORS.
You should carefully consider the following factors, in addition to
those discussed elsewhere in this report, in evaluating our company
and our business.
Catastrophic events outside of our control may impact our
business. The U.S. and global markets have, from time to
time, experienced periods of disruptions due to a natural disaster,
such as a tsunami, power shortage, or flood; public health crises,
such as a pandemic or epidemic; political crises, such as
terrorism, war, or other conflict; or other events outside of our
control that may occur and adversely impact our business and
operating results. The outbreak of the COVID-19 pandemic and the
resulting response by governments and individuals around the world
has caused contraction in global economies. We are closely
monitoring the impact of the COVID-19 pandemic on all aspects of
our business, including how it will impact team members, customers,
suppliers, and global markets. The extent to which COVID-19 may
impact our business will depend on future developments, which are
highly uncertain and cannot be predicted.
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 2020 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 2021. 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.
8
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
multiple redundant data centers 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 redundant data centers, 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.
9
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.
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 successfully manage 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 successfully manage
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.
10
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.
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, 2023.
We
lease office space for technical staff in Vancouver, British
Columbia, Canada. The term of this lease expires July 31, 2025. 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.
11
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." As of March 8, 2020, there were approximately
161 holders of record of our common stock. As of March 8, 2021, the
closing price for our common stock was $0.19.
As of
March 8, 2021, there were 125,885 shares outstanding of Series A
Redeemable Convertible Preferred Stock, par value $0.001 per share.
The Series A Redeemable Convertible Preferred Stock have a
redeemable value of $25 and is convertible into 83.33 shares of our
common stock if the common stock trades above $0.30 for 90
consecutive trading days.
Dividend Policy
We have
never paid any cash dividends to holders of our common stock, and
for the foreseeable future we intend to retain any earnings to
finance our operations and do not anticipate paying cash dividends
with respect to our common stock. Subject to the preferences that
may be applicable to any then-outstanding preferred stock, the
holders of our common stock will be entitled to receive such
dividends, if any, as may be declared by our Board of Directors,
from time to time, out of legally available funds. Payments of any
cash dividends in the future will depend on our financial
condition, results of operations, and capital requirements as well
as other factors deemed relevant by our Board of
Directors.
Issuer Purchases of Equity Securities
During
the fourth quarter of 2020, no shares of our common stock were
repurchased, and no Series A Redeemable Convertible Preferred Stock
were redeemed.
ITEM 6.
SELECTED FINANCIAL DATA.
Not
required.
ITEM 7.
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Overview
We are
a developer of financial software and a distributor of market data
and research information to online brokerages, clearing firms,
banks, media properties, public companies and financial service
corporations worldwide. Through the aggregation of information from
many direct data, news, and research sources; we offer a
comprehensive range of solutions for all market-related information
provisioning requirements.
We have
three general product lines: Interactive Content and Data
Applications, Data Feed Services, and Portfolio Management Systems.
For financial reporting purposes, our product categories share
similar economic characteristics and share costs; therefore, they
are combined into one reporting segment.
Our
Interactive Content and Data Applications consist of a suite of
software applications that provide publicly traded company and
market information to corporate clients via the Internet. Products
include stock market quotes, fundamentals, historical and
interactive charts, company news, filings, option chains, insider
transactions, corporate financials, corporate profiles, screeners,
market research information, investor relations provisions, level
II, watch lists, and real-time quotes. All of our content solutions
are completely customizable and embed directly into client Web
pages for seamless integration with existing content. We are
continuing to develop and launch new modules of QModTM, our new
proprietary Web delivery system. QMod was created for secure market
data provisioning as well as ease of integration and unlimited
customization. Additionally, QMod delivers search engine optimized
(SEO) ready responsive content designed to adapt on the fly when
rendered on mobile devices or standard Web pages –
automatically resizing and reformatting to fit the device on which
it is displayed.
12
Our
Data Feed Services consist of raw streaming real-time market data
delivered over the Internet or via dedicated telecommunication
lines, and supplemental fundamental, historical, and analytical
data, keyed to the same symbology, which provides a complete market
data solution offered to our customers. Currently,
QuoteMedia’s Data Feed services include complete coverage of
North American exchanges and over 70 exchanges worldwide. For
financial reporting purposes, Data Feed Services revenue is
included in the Interactive Content and Data Applications revenue
totals.
Our
Portfolio Management Systems consist of QuotestreamTM, Quotestream
Mobile, Quotestream Professional, and our Web Portfolio Management
systems. Quotestream Desktop is an Internet-based streaming online
portfolio management system that delivers real-time and delayed
market data to both consumer and corporate markets. Quotestream has
been designed for syndication and private branding by brokerage,
banking, and Web portal companies. Quotestream’s enhanced
features and functionality – most notably tick-by-tick true
streaming data, significantly enhanced charting features, and a
broad range of additional research and analytical content and
functionality – offer a professional-level experience to
nonprofessional users.
Quotestream
Professional is specifically designed for use by financial services
professionals, offering exceptional coverage and functionality at
extremely aggressive pricing. Quotestream Professional features
broad market coverage, reliability, complete flexibility,
ultra-low-latency tick-by-tick data, as well as completely
customizable screens, advanced charting, comprehensive technical
analysis, news and research data.
Quotestream Mobile
is a true companion product to the Quotestream desktop products
(Quotestream and Quotestream Professional) – any changes made
to portfolios in either the desktop or mobile application are
automatically reflected in the other.
A key
feature of QuoteMedia’s business model is that all of our
product lines generate recurring monthly licensing revenue from
each client. Contracts to license Quotestream to our corporate
clients, for example, typically have a term of one to three years
and are automatically renewed unless notice is given at least 90
days prior to the expiration of the current license term. We also
generate Quotestream revenue through individual end-user licenses
on a monthly or annual subscription fee basis. Interactive Content
and Data Applications and Market Data Feeds are licensed for a
monthly, quarterly, annual, or semi-annual subscription fee.
Contracts to license our Financial Data Products and Data Feeds
typically have a term of one to three years and are automatically
renewed unless notice is given 90 days prior to the expiration of
the contract term.
Business Environment and Trends
The
global financial markets have experienced extreme volatility and
disruption in recent months. The outbreak of the COVID-19 pandemic
and the resulting response by governments and individuals around
the world has caused contraction in global economies. We are
closely monitoring the impact of the COVID-19 pandemic on all
aspects of our business, including how it will impact team members,
customers, suppliers, and global markets.
Our
operations also have been affected by a range of external factors
related to the COVID-19 pandemic that are not within our control.
For example, many jurisdictions imposed a wide range of
restrictions on the physical movement of our employees and vendors
to limit the spread of COVID-19. We have taken numerous steps, and
will continue to take further actions, in our approach to
addressing the COVID-19 pandemic. To protect the health and safety
of our team members, we successfully transitioned our workforce to
remote work environments. We are also working closely with our
clients to support them as they implement their own contingency
plans, helping them access our products and services
remotely.
While
our licensed-based revenue is generally more recurring in nature,
the uncertainty caused by the COVID-19 pandemic has led some
clients to delay purchasing decisions, product and service
implementations or cancel or reduce spending with us. We are
focused on maintaining a strong balance sheet and liquidity
position and have been actively evaluating the potential impact of
COVID-19. We have implemented certain cost control efforts to help
us mitigate the impact that COVID-19 has had on our financial
position and operating results. As much uncertainty still exists,
and we will continue to adjust our COVID-19 response going forward
as circumstances dictate.
13
On
April 24, 2020, the Company received an $8,000 grant as part of the
Economic Injury Disaster Loan (“EIDL”) program through
the Small Business Administration (“SBA”). The SBA grant was
recorded as other income on our consolidated statements of
operations in 2020. On May 4, 2020, the Company received a $133,257
loan under the Paycheck Protection Program (“PPP”). On
February 19, 2021, the Company received forgiveness from the SBA
for its PPP loan in its entirety. The Company will recognize the
forgiveness of the loan as other income on our consolidated
statements of operations in 2021. See Financial Statement Note 12
– Paycheck Protection Program and Note 14 – Subsequent
Events.
The
Canadian dollar depreciated 1% when comparing average exchange
rates for the year ended December 31, 2020 and 2019. The exchange
rate fluctuation decreased both Canadian dollar revenues and
expenses once translated into U.S. dollars for the year ended
December 31, 2020 when compared to the same period in 2019 but had
a minimal impact on our net income. In recent months, the Canadian
dollar has appreciated versus the U.S. dollar, which will have a
minimal impact on our net income but could have a negative impact
on cashflow.
Our
revenue grew 5% when comparing the year ended December 31, 2020 to
the comparative 2019 period. Based on clients currently under
contract, and new contracts signed subsequent to 2020, we expect
accelerated revenue growth for 2021 despite current market
conditions related to COVID-19.
Plan of Operation
For
2021 we plan to continue to expand our product lines and improve
our infrastructure. We plan to continue to add more features and
data to our existing products and release newer versions with
improved performance and flexibility for client
integration.
We will
maintain our focus on marketing Quotestream for deployments by
brokerage firms to their retail clients and continue our expansion
into the investment professional market with Quotestream
Professional. We also plan to continue the growth of our Data Feed
Services client base, particularly through the addition of major
new international data feed coverage, as well as new data delivery
products.
QuoteMedia will
continue to focus on increasing the sales of its Interactive
Content and Data Applications, particularly in the context of
large-scale enterprise deployments encompassing solutions ranging
across several product lines. QMod is a major component of this
strategy, given the broad demand for mobile-ready, SEO-friendly Web
content.
Important
development projects for 2021 include broad expansion of data and
news coverage, including the addition of a wide array of
international exchange data and news and video feeds, expansion of
fixed-income coverage, and the introduction of several new and
upgraded market information products.
New
deployments of our trade integration capabilities, which allow our
Quotestream applications to interact with our brokerage
clients’ back-end trade execution and reporting platforms
(enabling on-the-fly trade execution and tracking of holdings) are
underway and will continue to be a priority in the coming
year.
We are
also creating new proprietary data sets, analytics, and scoring
mechanisms. We are now aggregating data direct from the sources to
produce data sets that are proprietary to QuoteMedia. This allows
us to offer our clients new data products and lower our product
costs structure as we replace some of our existing data providers
with our own lower cost data.
Opportunistically,
efforts will be made to evaluate and pursue the development of
additional new products that may eventually be commercialized by
our company. Although not currently anticipated, we may require
additional capital to execute our proposed plan of operation. There
can be no assurance that such additional capital will be available
to our company on commercially reasonable terms or at
all.
14
Our
future performance will be subject to a number of business factors,
including those beyond our control; such as a continuation of
market uncertainty and evolving industry needs and preferences, as
well as the level of competition and our ability to continue to
successfully market our products and technology. There can be no
assurance that we will be able to successfully implement our
marketing strategy, continue our revenue growth, or achieve
profitable operations.
Critical Accounting Policies and
Estimates
Management’s
Discussion and Analysis discusses our financial statements which
have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the balance
sheet date and reported amounts of revenue and expenses during the
reporting period. On an ongoing basis we evaluate our estimates and
judgments. We base our estimates and judgments on historical
experience and on various other factors that are reasonable under
the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
We
believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
financial statements.
Revenue recognition
In
accordance with Accounting Standards Update (“ASU”)
2014-09, Revenue from Contracts with Customers (Topic 606), we
recognize revenue when promised goods or services are transferred
to customers in an amount that reflects the consideration to which
an entity expects to be entitled for those goods or services by
applying the following steps: (1) identify the contract(s) with a
customer; (2) identify the performance obligations in the contract;
(3) determine the transaction price; (4) allocate the transaction
price to the performance obligations in the contract; and (5)
recognize revenue when (or as) the entity satisfies a performance
obligation.
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, 2020 and 2019, the Company capitalized
$1,673,689 and $1,351,922 of costs, respectively, related to
upgrades and enhancements made to existing software applications.
For the years ended December 31, 2020 and 2019, amortization
expenses associated with the internally developed application
software was $1,125,918 and $918,902, respectively. At December 31,
2020, the remaining book value of the capitalized application
software was $2,262,893
Accounting Pronouncements
Recently Adopted
In
January 2017, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) 2017-04, Intangibles - Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment. This ASU
simplifies the accounting for goodwill by eliminating step 2 from
the goodwill impairment test. Under the new ASU, if the carrying
amount of a reporting unit exceeds its fair value, an impairment
loss will be recognized for the amount by which the carrying amount
exceeds its fair value. The Company adopted the new standard on
January 1, 2020. There was no impact upon adoption to our
consolidated financial statements and related
disclosures.
15
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement
(Topic 820), which removes, modifies and adds various disclosure
requirements around the topic in order to clarify and improve the
cost-benefit nature of disclosures. For example, disclosures around
transfers between fair value hierarchy Levels will be removed and
further detail around changes in unrealized gains and losses for
the period and unobservable inputs determining Level 3 fair value
measurements will be added. The Company adopted the new standard on
January 1, 2020. There was no impact upon adoption to our
consolidated financial statements and related
disclosures.
In
August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill
and Other - Internal-Use Software (Subtopic 350-40): Customer's
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That is a Service Contract, which requires a customer
in a cloud computing arrangement that is a service contract to
follow the internal-use software guidance in Topic 350,
"Intangibles - Goodwill and Other" to determine which
implementation costs to capitalize as assets or expense as
incurred. The Company adopted the new standard on January 1, 2020.
There was no impact upon adoption to our consolidated financial
statements and related disclosures.
In June
2016, the FASB issued ASU 2016-13: Financial Instruments-Credit
Losses (Topic 326), which changes the impairment model for most
financial assets, including accounts receivable, and replaces the
existing incurred loss impairment model with an expected loss
methodology, which will result in more timely recognition of credit
losses. The guidance is effective for the Company for interim and
annual periods beginning after December 15, 2022. Early adoption is
permitted. The Company is currently assessing the timing and impact
of adopting ASU 2016-13 on the Company’s consolidated
financial statements.
Not Yet Adopted
Other
accounting standards that have been issued by the FASB or other
standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the
Company’s consolidated financial statements upon
adoption.
Results of Operations
Revenue
|
|
Years ended
December 31
|
|
|
|
|
|
2020
|
2019
|
Change
($)
|
Change
(%)
|
|
|
|
|
|
|
|
Corporate
Quotestream
|
$4,520,099
|
$3,841,722
|
$678,377
|
18%
|
|
Individual
Quotestream
|
1,871,728
|
1,829,149
|
42,579
|
2%
|
|
Total Portfolio
Management Systems
|
6,391,827
|
5,670,871
|
720,956
|
13%
|
|
Interactive Content
and Data Applications
|
6,010,397
|
6,122,860
|
(112,463)
|
(2%)
|
|
Total Licensing
Revenue
|
$12,402,224
|
$11,793,731
|
$608,493
|
5%
|
Total
licensing revenue increased 5% when comparing the years ended
December 31, 2020 and 2019. The increase is a result of a 13%
increase in revenue from licensing our Portfolio Management Systems
partially offset by a 2% decrease in revenue from our Interactive
Content and Data Applications.
16
Total
Portfolio Management System revenue increased by 13% when comparing
the years ended December 31, 2020 and 2019, due to increases in
both Corporate Quotestream and Individual Quotestream revenue. The
increases are attributable in part to improvements and upgrades
made to our Portfolio Management products. We have also been able
to take advantage of new opportunities arising from the economic
downturn related to COVID-19 as financial sector firms are looking
for more efficient and cost-effective solutions to their data and
technology needs. We also believe there has been an increase in the
need for our services for customers working remotely during the
pandemic, a trend we expect to be permanent.
Corporate
Quotestream revenue increased 18% for the year ended December 31,
2020 from the comparative period in 2019 due to new contracts
signed since the comparative period and an increase in the number
of subscribers for existing clients.
Individual
Quotestream revenue increased 2% for the year ended December 31,
2020 from the comparative period in 2019. The increase is due to an
increase in users.
Interactive Content
and Data Application revenue decreased 2% for the year ended
December 31, 2020 from the comparative period in 2019 due to an
increase in cancellations and temporary suspensions driven by the
economic hardship on some of our smaller customers related to
COVID-19.
Cost of Revenue and Gross Profit Summary
|
|
Years ended
December 31
|
|
|
|
|
|
2020
|
2019
|
Change
($)
|
Change
(%)
|
|
|
|
|
|
|
|
Cost of
revenue
|
$6,702,321
|
$5,781,756
|
$920,565
|
16%
|
|
|
|
|
|
|
|
Gross
profit
|
$5,699,903
|
$6,011,975
|
$(312,072)
|
(5%)
|
|
|
|
|
|
|
|
Gross margin
%
|
46%
|
51%
|
|
|
Our
cost of revenue consists of fixed and variable stock exchange fees
and data feed provisioning costs. Cost of revenue also includes
amortization of capitalized internal-use software costs. We
capitalize the costs associated with developing new products during
the application development stage.
We
launched a major growth initiative in 2020, investing in
infrastructure, new product development, data collection, and the
expansion of our global market coverage. As a result, our cost of
revenue increased 16% for the year ended December 31, 2020 from the
comparative period in 2019. We incurred increased stock exchange
fees related to increased usage and new market data added in 2020,
and a $207,016 increase in amortization expense associated with
internally developed application software.
Overall, the cost
of revenue increased as a percentage of sales, as evidenced by our
gross margin percentage that decreased to 46% in 2020 from 51% in
2019. Our gross margins have also been impacted by our revenue mix,
as our Portfolio Management System revenue has been growing at a
higher rate than our Interactive Content revenue which typically
has higher gross margins.
Operating Expenses Summary
|
|
Years ended
December 31
|
|
|
|
|
|
2020
|
2019
|
Change
($)
|
Change
(%)
|
|
|
|
|
|
|
|
Sales and
marketing
|
$2,214,815
|
$1,879,404
|
$335,411
|
18%
|
|
General and
administrative
|
2,479,037
|
2,279,861
|
199,176
|
9%
|
|
Software
development
|
1,649,765
|
1,253,055
|
396,711
|
32%
|
|
Total operating
expenses
|
$6,343,617
|
$5,412,320
|
$931,297
|
17%
|
Sales
and Marketing
Sales
and marketing expenses consist primarily of sales and customer
service salaries, investor relations, travel and advertising
expenses. Sales and marketing expenses increased 18% when comparing
the years ended December 31, 2020 and 2019 mainly due to an
increase in salaries from personnel added during the
period.
General
and Administrative
General
and administrative expenses consist primarily of salaries expense,
office rent, insurance premiums, and professional fees. General and
administrative increased 9% when comparing the years ended December
31, 2020 and 2019. Increase was due to increases in salary and
health benefits as we added new personnel in 2020, and an increase
in bad debts primarily due to the impacts of COVID-19.
17
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 32% for the year ended December 31,
2020 when compared to fiscal 2019. This increase was mainly due to
hiring additional development personnel required to expand our
product lines and improve our infrastructure.
We
capitalized $1,673,688 of development costs for the year ended
December 31, 2020, compared to $1,351,922 in 2019. These costs
relate to the development of application software used by
subscribers to access, manage, and analyze information in our
databases. Capitalized costs associated with application software
are amortized over their estimated economic life of three
years.
Other Income and (Expense) Summary
|
|
Years ended
December 31,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Foreign exchange
loss
|
$(3,791)
|
$(31,385)
|
|
Interest
expense
|
(4,582)
|
(6,259)
|
|
Other
income
|
8,000
|
-
|
|
Total other income
and (expenses)
|
$(373)
|
$(37,644)
|
Foreign
Exchange Gain (Loss)
Foreign
exchange gains and losses arise from the re-measurement of Canadian
dollar monetary assets and liabilities into U.S. dollars. We have a
net Canadian dollar liability; therefore, we incur a foreign
exchange gain when the Canadian dollar depreciates from the period
beginning date, and a loss when the Canadian dollar appreciates.
Gains and losses arising from exchange rate fluctuations between
transaction and settlement dates for foreign currency denominated
transactions are also included in foreign exchange gains and
losses.
We
incurred a foreign exchange loss of $3,791 for the year ended
December 31, 2020 mainly attributable to the re-measurement of
Canadian dollar monetary assets and liabilities into U.S. dollars,
as the Canadian dollar appreciated 2% versus the U.S. dollar when
comparing the foreign exchange rates at December 31, 2020 to the
rate at December 31, 2019.
Interest
Expense
Interest expense
relates primarily to the interest expense associated with our
finance leases and was relatively unchanged from the comparative
periods. Interest expense of $4,582 was incurred for the year ended
December 31, 2020, compared to $6,259 incurred for the year ended
December 31, 2019.
18
Provision for Income Taxes
In
2020, the Company recorded Canadian income tax expense of $2,237,
compared to a Canadian income tax expense of $3,014 in
2019.
Net Income (loss) for the Period
As a
result of the foregoing, net loss for the year ended December 31,
2020 was $646,324 compared to net income of $558,997 for the year
ended December 31, 2019. The loss in 2020 was a result of the
increased spending due to our expansion initiatives and the impact
of COVID-19 which slowed our revenue growth. Basic earnings (loss)
per share was $(0.01) and $0.01 for the years ended December 31,
2020 and 2019, respectively. Diluted earnings per share was $(0.01)
and $0.00 for the years ended December 31, 2020 and 2019,
respectively.
Liquidity and Capital Resources
Our
cash totaled $417,910 at December 31, 2020, as compared with
$815,487 at December 31, 2019, a decrease of $397,577. Net cash of
$1,327,979 was provided by operations for the year ended December
31, 2020, primarily due to the net loss during the period adjusted
for non-cash charges and an increase in accounts payable. Net cash
used in investing activities for the year ended December 31, 2020
was $1,825,009 resulting primarily from capitalized application
software costs. Cash provided by financing activities for the year
ended December 31, 2020 was $99,453 due to the Paycheck Protection
Program loan.
Our
current liabilities include $544,902 in deferred revenue. The
expected costs necessary to realize the deferred revenue in 2021
are minimal. Our long-term liabilities include our $133,257
Paycheck Protection Program loan which was forgiven on February 19,
2021. Also, if circumstances dictate, we have the flexibility to
reduce development spending to maintain a strong liquidity
position.
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.
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.
19
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, 2020. 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, 2020. 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, 2020, 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.
20
ITEM 9B.
OTHER INFORMATION.
Not
applicable.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE.
The
following table sets forth certain information regarding our
directors and executive officers.
|
Name
|
Age
|
Position
|
|
|
|
|
|
Robert
J. Thompson
|
78
|
Chairman of the
Board
|
|
|
|
|
|
Keith
J. Randall
|
54
|
Chief
Executive Officer and Chief Financial Officer, and
Director
|
|
|
|
|
|
David M. Shworan
|
53
|
President
and Chief Executive Officer of QuoteMedia, Ltd., and
Director
|
|
|
|
|
Our
listed directors will serve until the next annual meeting of
stockholders or until
their death, resignation, retirement, removal, disqualification, or
until their successors have been duly elected and qualified.
Vacancies in our existing Board of Directors are filled by majority
vote of the remaining directors. Our officers serve at the will of
our Board of Directors. There is no family relationship between any
executive officer and director.
Robert J. Thompson has served as our
Chairman of the Board since February 2000. Mr. Thompson is also a
director of several privately-owned corporations. Formerly, Mr.
Thompson was Chairman of the Board of C.M. Oliver Inc., a Canadian
regulated, publicly traded investment broker/dealer involved in
investment banking activities throughout North America and in
Europe. For almost 30 years prior, Mr. Thompson practiced as a
Chartered Professional Accountant and Certified Management
Consultant. He was a Partner of KPMG LLP (formerly Peat Marwick
Mitchell & Co.), Woods Gordon/Clarkson Gordon (Arthur Young
& Co.) and Ernst & Whinney. He withdrew from public
practice after serving as the National Partner in Charge of the
Senior Management Services Division of KPMG.
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 President, Chief
Executive Officer, and Director. Mr. Randall retained his role as
Treasurer and Chief Financial Officer.
David M. Shworan has served as
President and Chief Executive Officer of QuoteMedia, Ltd., a wholly
owned subsidiary of our company, since December 2004. Mr.
Shworan has served as a director of our company since November
2002. Mr. Shworan served as our President and Chief Executive
Officer from November 2002 to December 2004. Mr. Shworan is a
veteran of online marketing, technology and
business. Mr. Shworan is the founder of several
technology companies and has been a consultant to a number
of technology companies.
21
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, 2020, and written representations
that no other reports were required, we believe that each person
who at any time during the fiscal year was a director, officer, or
beneficial owner of more than 10% of our common stock complied with
all Section 16(a) filing requirements during such fiscal
year.
Code of Ethics
Our
Board of Directors has adopted Corporate Governance Guidelines; a
Code of Business Conduct/Ethics, Code of Ethics for the CEO and
Senior Financial Officers, and any amendments or waivers thereto;
an Audit Committee Charter; and any other corporate governance
materials contemplated by SEC or applicable regulations. We post
these corporate governance materials on our Web site at
www.quotemedia.com/qmci/investors.php. These documents are also
available in print to any stockholder by contacting our corporate
secretary at our executive offices.
Information Relating to Our Audit Committee of the Board of
Directors
The
purpose of the Audit Committee is to assist our Board of Directors
in the oversight of the integrity of the consolidated financial
statements of our company, our company’s compliance with
legal and regulatory matters, the independent auditor’s
qualifications and independence, and the performance of our
company’s independent auditors. The primary responsibilities
of the Audit Committee are set forth in its charter and include
various matters with respect to the oversight of our
company’s accounting and financial reporting process and
audits of the consolidated financial statements of our company on
behalf of our Board of Directors. The Audit Committee also selects
the independent certified public accountants to conduct the annual
audit of the consolidated financial statements of our company;
reviews the proposed scope of such audit; reviews accounting and
financial controls of our company with the independent public
accountants and our financial accounting staff; and reviews and
approves transactions between us and our directors, officers, and
their affiliates. The Audit Committee currently consists solely of
Robert J. Thompson. The Board of Directors has determined that Mr.
Thompson qualifies as an “audit committee financial
expert” in accordance with the applicable rules and
regulations of the SEC.
ITEM 11.
EXECUTIVE COMPENSATION.
Summary of Cash and Other Compensation
The
following table sets forth certain information concerning the
compensation for the fiscal years ended December 31, 2020 and 2019
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 $100,000 during fiscal 2020.
Summary Compensation Table
|
Name and
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Option Awards
($) (1),(4),(5)
|
All Other
Compensation ($) (2)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
Keith J. Randall
(3)
|
2020
|
$185,000
|
-
|
-
|
-
|
$185,000
|
|
Chief Executive
Officer & CFO,
|
2019
|
$162,000
|
-
|
-
|
-
|
$162,000
|
|
QuoteMedia,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David M. Shworan
(4)
|
2020
|
$350,000
|
$50,000
|
-
|
-
|
$400,000
|
|
Chief Executive
Officer,
|
2019
|
-
|
-
|
$360,000
|
-
|
$360,000
|
|
QuoteMedia,
Ltd.
|
|
|
|
|
|
|
22
(1)
Options Awards
represent the fair value of option awards granted, repriced, or
otherwise modified, computed in accordance with FASB ASC 718,
Stock
Compensation.
(2)
The executive
officers listed also received certain perquisites, the aggregate
value of which did not exceed $10,000 for any year
presented.
(3)
Mr. Randall is our
Chief Financial Officer, and effective March 31, 2018, was also
appointed Chief Executive Officer, and Director. Mr. Randall has
retained 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. On December 28, 2017, the
Company entered into a Compensation Agreement with Mr. Shworan,
pursuant to which, among other things, Mr. Shworan acknowledged and
agreed that he has received from the Company all compensation to
which he is entitled for services provided to the Company through
the December 28, 2017 transaction date. Also pursuant to the
Compensation Agreement, Mr. Shworan is granted 1,250 warrants per
month to purchase shares of Series A Preferred Stock at an exercise
price equal to $1.00 per share in lieu of a cash salary. A total of
$360,000 of stock-based compensation expense was recognized in
2019. See Financial Statement Note 9 (c). Effective January 1,
2020, Mr. Shworan was paid a base salary of $350,000 and was
awarded a bonus of $50,000 in December 2020 which was accrued but
unpaid as of December 31, 2020.
Outstanding Equity Awards at Fiscal Year End
|
|
Number of
Securities Underlying Unexercised Common Stock
Options/Warrants
|
|
|
|
|
Name
|
Exercisable
|
Unexercisable
|
Option/Warrant
Exercise Price ($)
|
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
|
|
|
1,250,000
|
2,750,000
|
$0.100
|
28-Dec-2037
|
|
|
|
|
|
|
|
Keith J.
Randall
|
100,000
|
-
|
$0.036
|
15-May-2025
|
|
|
50,000
|
-
|
$0.036
|
15-May-2025
|
|
|
50,000
|
-
|
$0.036
|
15-May-2025
|
|
|
100,000
|
-
|
$0.035
|
26-Oct-2027
|
|
|
Number of
Securities Underlying Unexercised Preferred Stock
Warrants
|
|
|
|
|
Name
|
Exercisable
|
Unexercisable
|
Option/Warrant
Exercise Price ($)
|
Option/Warrant
Exercise Date
|
|
|
|
|
|
|
|
David M.
Shworan
|
1,250
|
-
|
$1.00
|
28-Dec-2047
|
|
|
15,000
|
-
|
$1.00
|
01-Jan-2048
|
|
|
15,000
|
-
|
$1.00
|
01-Jan-2049
|
|
|
-
|
382,243
|
$1.00
|
28-Dec-2037
|
23
Employment Agreements
David
M. Shworan has served as President and Chief Executive Officer of
QuoteMedia, Ltd., a wholly owned subsidiary of QuoteMedia, Inc.,
since December 30, 2004. On December 28, 2017, the Company entered
into a Compensation Agreement with Mr. Shworan pursuant to which,
among other things, the Company will issue to Mr. Shworan the
following:
(a)
warrants to purchase up to 1,250 shares of Series A Redeemable
Convertible Preferred Stock at an exercise price equal to $1.00 per
share (the “Preferred Stock Warrant”)
(b)
warrants to purchase up to 382,243 shares of Series A Redeemable
Convertible Preferred Stock at an exercise price equal to $1.00 per
share (the “Liquidity Preferred Stock
Warrant”)
(c)
warrants to purchase up to 4,000,000 shares of common stock at an
exercise price equal to $0.10 per share (which warrant has specific
performance vesting thresholds) (the “Common Stock
Warrant”)
(d)
provided that Mr. Shworan is employed by or otherwise providing
services to the Company or its subsidiaries on each of January 1,
2018 and 2019, the Company will at that time issue to Mr. Shworan
warrants to purchase up to 15,000 shares of Series A Preferred
Stock at an exercise price equal to $1.00 per share in lieu of
paying Mr. Shworan a cash salary.
(e)
provided that Mr. Shworan is employed by or otherwise providing
services to the Company or its subsidiaries on January 1, 2020, the
Company shall pay Mr. Shworan a base salary at the annual rate of
$350,000 during the term of his employment or service with the
Company and its subsidiaries.
Other
than for certain provisions in Mr. Shworan’s Compensation
Agreement noted above, we have no compensatory plan or arrangement
with respect to any executive officer where such plan or
arrangement will result in payments to such officer upon or
following his resignation, retirement, or other termination of
employment with us and our subsidiaries, or as a result of a change
in control of our company or a change in the executive
officers’ responsibilities following a change in
control.
Director Compensation and Other Information
The
following table shows the amount of compensation earned by our
independent director in 2020. We compensate our independent
director with directors’ fees and stock options. Options
Awards represent the fair value of option awards granted in 2020,
computed in accordance with FASB ASC 718, Stock Compensation.
|
Name
|
Fees Earned or
Paid in Cash ($)
|
Option Awards
($)
|
All Other
Compensation ($)
|
Total
($)
|
|
Robert J.
Thompson
|
$120,000
|
-
|
-
|
$120,000
|
The
Chairman of the Board, Robert J. Thompson, currently receives a
monthly retainer of $10,000. 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.
24
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 8,
2021 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)
|
41,401,800
|
40.1%
|
|
Robert J. Thompson
(4)
|
1,610,286
|
1.8%
|
|
Keith J. Randall
(5)
|
793,976
|
0.9%
|
|
|
|
|
|
All
directors and executive officers as a group
|
43,806,062
|
41.9%
|
|
|
|
|
|
5%
Stockholders (6)
|
12,247,400
|
13.5%
|
(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 8, 2021. The numbers and percentages shown
include the shares of common stock actually owned as of March 8,
2021 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 8, 2021 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 the
following:
●
10,511,800
shares of common stock owned by Mr. Shworan and vested options and
warrants to acquire directly 8,850,000 shares of common
stock
●
17,002,500
shares owned by Mr. Shworan's wife
●
1,037,500
shares of common stock owned by Bravenet Web Services, Inc. and
vested options and warrants to acquire 1,480,000 shares of common
stock. Mr. Shworan is a control person of Bravenet Web Services,
Inc. and Mr. Shworan disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest therein
●
Vested
options and warrants to acquire 2,520,000 shares of common stock
owned by Harrison Avenue Holdings Ltd. Mr. Shworan is a control
person of Harrison Avenue Holdings Ltd. and Mr. Shworan disclaims
beneficial ownership of these shares except to the extent of his
pecuniary interest therein
●
See
also Item 11, “Executive Compensation – Employment
Agreements.”
(4)
Represents 807,483
shares of common stock and vested options and warrants to acquire
802,803 shares of common stock.
(5)
Represents 493,976
shares of common stock and vested options and warrants to acquire
200,000 shares of common stock.
(6)
Represents
5,959,373 shares of our common stock owned by CMG Family
Irrevocable Trust and 6,288,027 shares of our common stock owned by
Sue E. Guelpa Trust.
25
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, 2020.
|
|
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, 2020, 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.
26
In the
event of any change in the number of shares of our common stock,
the number of shares of common stock covered by outstanding options
and the price per share of such options will be adjusted
accordingly to reflect any such changes. Similar changes will also
be made if our company engages in any merger, consolidation, or
reclassification in which it is the surviving entity. In the event
that we are not the surviving entity, each option shall terminate
provided that each holder will have the right to exercise during a
ten-day period ending on the fifth day prior to such corporate
transaction. In the event of a change of control, our board or the
committee may terminate each option, provided that each holder
receives the amount of cash equal to the difference between the
exercise price of each option and the fair market value of each
share of stock subject to such option.
Our
board may suspend, terminate, modify, or amend the 1999 plan
provided that, in certain instances, the holders of a majority of
our common stock issued and outstanding approve the
amendment.
2003 Equity Incentive Compensation Plan
Our
Board of Directors has approved our 2003 Equity Incentive
Compensation Plan, or the 2003 plan, approved by our stockholders
at the annual meeting held on February 14, 2003. The purpose of the
2003 plan is to assist our company in attracting, motivating,
retaining, and rewarding high-quality executives and other
employees, directors, officers, and independent contractors by
enabling such persons to acquire or increase a proprietary interest
in our company in order to strengthen the mutuality of interests
between such persons and our stockholders, and providing such
persons with annual and long-term performance incentives to expend
their maximum efforts in the creation of stockholder
value.
At
December 31, 2020, there are 15,000,000 shares of common stock
authorized for issuance pursuant to the 2003 plan. As of December
31, 2020, 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.
27
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 met upon the occurrence of
any "change in control." Upon the occurrence of a change in
control, if so provided in the award agreement, stock options and
limited SARs (and other SARs which so provide) may be cashed out
based on a defined "change in control price," which will be the
higher of
●
The cash and fair
market value of property that is the highest price per share paid
(including extraordinary dividends) in any reorganization, merger,
consolidation, liquidation, dissolution, or sale of substantially
all assets of our company; or
●
The highest fair
market value per share (generally based on market prices) at any
time during the 60 days before and 60 days after a change in
control.
For
purposes of the 2003 plan, the term "change in control" generally
means
●
Approval by
stockholders of any reorganization, merger, or consolidation or
other transaction or series of transactions if persons who were
shareholders immediately prior to such reorganization, merger, or
consolidation or other transaction do not, immediately thereafter,
own more than 50% of the combined voting power of the reorganized,
merged, or consolidated company's then outstanding, voting
securities, or a liquidation or dissolution of our company or the
sale of all or substantially all of the assets of our company
(unless the reorganization, merger, consolidation or other
corporate transaction, liquidation, dissolution or sale is
subsequently abandoned),
●
A change in the
composition of our Board of Directors such that the persons
constituting the Board of Directors on the date the award is
granted, or the Incumbent Board, and subsequent directors approved
by the Incumbent Board (or approved by such subsequent directors),
cease to constitute at least a majority of our Board of Directors,
or
28
●
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.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain Relationships and Related Parties
The
Company entered into a five-year office lease with 410734 B.C. Ltd.
effective May 1, 2016 for approximately $7,365 per month. David M.
Shworan is a control person of 410734 B.C. Ltd. At December 31,
2020, there were no amounts due to 410734 B.C. Ltd.
The
Company entered into a marketing agreement with Bravenet Web
Services, Inc. (“Bravenet”) effective November 28,
2019. The Company agreed to pay Bravenet an upfront setup fee of
$7,000 upon signing the agreement and a monthly service fee of
$2,500 starting February 2020. At December 31, 2020, there was
$7,500 due to Bravenet related to this agreement. David M. Shworan
is a control person of Bravenet. As a matter of policy all
significant related party transactions are subject to review and
approval by the Company’s Board of Directors.
Director Independence
Our
Board of Directors has determined, after considering all the
relevant facts and circumstances, that Mr. Thompson is an
“independent” director as such term is defined by
Nasdaq.
29
ITEM
14.
PRINCIPAL ACCOUNTANT FEES AND
SERVICES.
Aggregate fees
billed to our company for the fiscal years ended December 31, 2020
and 2019 by Moss Adams LLP, our principal accountants, are as
follows:
|
|
2020
|
2019
|
|
|
|
|
|
Audit
Fees
|
$104,515
|
$106,550
|
|
Audit-Related
Fees
|
$-
|
$-
|
|
Tax
Fees
|
$-
|
$-
|
|
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 services
provided by Moss Adams LLP described above under the captions
“Audit Fees” were approved by our Audit
Committee.
30
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
|
|
Second
Amended and Restated Articles of Incorporation (1)
|
|
|
Amended
and Restated Bylaws (1)
|
|
|
Amended
1999 Equity Incentive Compensation Plan (2)
|
|
|
2003
Equity Incentive Compensation Plan (1)
|
|
|
List of
Subsidiaries
|
|
|
Consent
of Moss Adams LLP, Independent Registered Public Accounting
Firm
|
|
|
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.
|
|
|
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.
|
|
|
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.
|
|
|
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.
31
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
QUOTEMEDIA,
INC.
|
|
|
|
|
|
|
|
|
Date:
March 26, 2021
|
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
Robert
J. Thompson
|
Chairman
of the Board
|
March
26, 2021
|
|
|
|
|
|
/s/ David M.
Shworan
David
M. Shworan
|
Director
|
March
26, 2021
|
|
|
|
|
|
/s/ Keith J.
Randall
Keith
J. Randall
|
Chief
Executive Officer and Chief Financial Officer and Director
(Principal Executive and Financial and Accounting
Officer)
|
March
26, 2021
|
32
QuoteMedia, Inc.
Index to Consolidated Financial
Statements
|
F-1
– F-2
|
|
|
|
|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
|
|
|
|
F-6
|
|
|
|
|
|
F-7
– F-17
|
33
Report of Independent Registered Public
Accounting Firm
To the
Stockholders and the Board of Directors
Quotemedia,
Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Quotemedia,
Inc. (the “Company”) as of December 31, 2020 and
2019, the related consolidated statements of operations, changes in
series A redeemable convertible preferred stock and stockholders'
deficit, and cash flows for the years then ended, and the related
notes (collectively, referred to as the
“consolidated financial statements”). In
our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of December
31, 2020 and 2019, and the consolidated results of its operations
and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due
to error or fraud, and performing procedures to respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits
provide a reasonable basis for our opinion.
F-1
Critical Audit Matters
The
critical audit matter communicated below is a matter arising from
the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit
committee and that (i) relates to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved
our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Capitalized Software Development Costs
As
described in Note 6 to the consolidated financial statements, the
Company capitalizes certain development costs that relate to
internal-use software incurred during the application development
stage. These costs may be related to new products as well as
existing products when those costs will result in significant
additional functionality. The Company’s capitalized
internal-use software asset, net of accumulated amortization, was
$2.3 million as of December 31, 2020. The Company capitalized $1.7
million of internal-use software development costs during the year
ended December 31, 2020.
The
principal consideration for our determination that capitalized
internal-use software development costs is a critical audit matter
is the degree of subjectivity involved in management’s
assessment of which projects met the capitalization criteria, stage
of development and nature of costs that qualify for capitalization.
This in turn led to a high degree of auditor judgment,
subjectivity, and effort in performing procedures and evaluating
evidence relating to management’s process of identifying
projects and the stage of development and related development
activities within those projects that qualify for capitalization
in accordance with the applicable
accounting standards.
The
primary procedures we performed to address this critical audit
matter included:
●
Obtaining an
understanding of the Company’s process to identify
development projects and development costs qualifying for
capitalization
●
Evaluating
management’s listing of active development projects by
reviewing project reports and discussions with development
personnel
●
Sampling the
Company’s capitalized costs and validating the nature of the activities performed and time
devoted to capitalizable activities with individual software
developers and project managers
●
Inspecting
underlying payroll data to evaluate the hourly rates used for cost
capitalization
/s/
Moss Adams LLP
Phoenix,
Arizona
March
26, 2021
We have
served as the Company’s auditor since 2017.
F-2
QUOTEMEDIA, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
|
|
2020
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$417,910
|
$815,487
|
|
Accounts
receivable, net
|
698,334
|
680,759
|
|
Prepaid
expenses
|
108,477
|
103,093
|
|
Other
current assets
|
113,826
|
47,793
|
|
Total
current assets
|
1,338,547
|
1,647,132
|
|
|
|
|
|
Deposits
|
15,886
|
16,084
|
|
Property
and equipment, net
|
2,755,537
|
2,273,087
|
|
Goodwill
|
110,000
|
110,000
|
|
Intangible
assets
|
61,914
|
51,265
|
|
Operating
lease right-of-use assets
|
671,402
|
328,676
|
|
|
|
|
|
Total
assets
|
$4,953,286
|
$4,426,244
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable and accrued liabilities
|
$2,026,741
|
$1,286,340
|
|
Deferred
revenue
|
544,902
|
579,343
|
|
Current
portion of operating lease liabilities
|
164,843
|
172,049
|
|
Current
portion of finance lease liabilities
|
11,951
|
33,914
|
|
Total
current liabilities
|
2,748,437
|
2,071,646
|
|
|
|
|
|
Paycheck Protection
Program loan (Note 12)
|
133,257
|
-
|
|
Long-term portion
of operating lease liabilities
|
504,783
|
167,496
|
|
Long-term portion
of finance lease liabilities
|
2,108
|
13,949
|
|
|
|
|
|
Mezzanine
equity:
|
|
|
|
Series
A Redeemable Convertible Preferred stock, $0.001 par
value,
|
|
|
|
550,000
shares designated; Shares issued and outstanding:
|
|
|
|
123,685
at December 31, 2020 and December 31, 2019
|
2,983,857
|
2,983,857
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
Preferred
stock, 10,000,000 shares authorized, 550,000 shares
designated
|
-
|
-
|
|
Common
stock, $0.001 par value, 150,000,000 shares authorized, shares
issued and
|
|
|
|
outstanding:
90,477,798 at December 31, 2020 and December 31, 2019,
respectively
|
90,479
|
90,479
|
|
Additional
paid-in capital
|
19,605,883
|
19,568,011
|
|
Accumulated
deficit
|
(21,115,518)
|
(20,469,194)
|
|
Total
stockholders’ deficit
|
(1,419,156)
|
(810,704)
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
$4,953,286
|
$4,426,244
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
QUOTEMEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For each of the years ended December 31,
|
|
2020
|
2019
|
|
|
|
|
|
REVENUE
|
$12,402,224
|
$11,793,731
|
|
|
|
|
|
COST
OF REVENUE
|
6,702,321
|
5,781,756
|
|
|
|
|
|
GROSS
PROFIT
|
5,699,903
|
6,011,975
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
Sales and
marketing
|
2,214,815
|
1,879,404
|
|
General and
administrative
|
2,479,037
|
2,279,861
|
|
Software
development
|
1,649,765
|
1,253,055
|
|
|
6,343,617
|
5,412,320
|
|
|
|
|
|
OPERATING
PROFIT (LOSS)
|
(643,714)
|
599,655
|
|
|
|
|
|
OTHER
INCOME (EXPENSES), NET
|
|
|
|
|
|
|
|
Foreign exchange
loss
|
(3,791)
|
(31,385)
|
|
Interest
expense
|
(4,582)
|
(6,259)
|
|
Other
income
|
8,000
|
-
|
|
|
(373)
|
(37,644)
|
|
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
(644,087)
|
562,011
|
|
|
|
|
|
Income tax
expense
|
(2,237)
|
(3,014)
|
|
|
|
|
|
NET
INCOME (LOSS)
|
$(646,324)
|
$558,997
|
|
|
|
|
|
EARNINGS
(LOSS) PER SHARE
|
|
|
|
|
|
|
|
Basic earnings
(loss) per share
|
$(0.01)
|
$0.01
|
|
Diluted earnings
(loss) per share
|
$(0.01)
|
$0.00
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
|
|
|
|
|
|
|
Basic
|
90,477,798
|
90,477,798
|
|
Diluted
|
90,477,798
|
118,745,576
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
QUOTEMEDIA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE
CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
For the years ended December 31, 2020 and 2019
|
|
Series A Redeemable Convertible
Preferred
Stock
|
Common
Stock
|
|
|
|
||
|
|
Number of
Shares
|
Amount
|
Number
of
Shares
|
Amount
|
Additional
Paid-in Capital
|
Accumulated
Deficit
|
Total
Stockholders’ Equity (Deficit)
|
|
Balance, January 1,
2019
|
125,885
|
$3,037,952
|
90,477,798
|
$90,479
|
$19,157,202
|
$(21,028,191)
|
$(1,780,510)
|
|
|
|
|
|
|
|
|
|
|
Preferred shares
issued (redeemed)
|
(2,200)
|
(54,095)
|
|
|
(905)
|
|
(905)
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
411,714
|
|
411,714
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
558,997
|
558,997
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2019
|
123,685
|
2,983,857
|
90,477,798
|
90,479
|
19,568,011
|
(20,469,194)
|
(810,704)
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
37,872
|
|
37,872
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
(646,324)
|
(646,324)
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2020
|
123,685
|
$2,983,857
|
90,477,798
|
$90,479
|
$19,605,883
|
$(21,115,518)
|
$(1,419,156)
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
QUOTEMEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the years ended December 31,
|
|
2020
|
2019
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net income
(loss)
|
$(646,324)
|
$558,997
|
|
|
|
|
|
Adjustments to
reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
1,331,910
|
1,113,129
|
|
Stock-based
compensation expense
|
37,872
|
411,714
|
|
Changes in assets
and liabilities:
|
|
|
|
Accounts
receivable
|
(17,575)
|
(142,678)
|
|
Prepaid
expenses
|
(5,384)
|
29,263
|
|
Other
current assets
|
(66,033)
|
123,121
|
|
Deposits
|
198
|
(745)
|
|
Accounts
payable, accrued and other liabilities
|
727,756
|
(197,855)
|
|
Deferred
revenue
|
(34,441)
|
(128,537)
|
|
Net cash provided
by operating activities
|
1,327,979
|
1,766,409
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
(134,193)
|
(325,655)
|
|
Purchase
of intangible assets
|
(17,127)
|
-
|
|
Capitalized
application software
|
(1,673,689)
|
(1,351,922)
|
|
Net cash used in
investing activities
|
(1,825,009)
|
(1,677,577)
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from Paycheck Protection Program loan
|
133,257
|
-
|
|
Repayment
of finance lease obligations
|
(33,804)
|
(28,677)
|
|
Redemption
of preferred stock
|
-
|
(55,000)
|
|
Net cash provided
by (used in) financing activities
|
99,453
|
(83,677)
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
(397,577)
|
5,155
|
|
|
|
|
|
Cash and cash
equivalents, beginning of period
|
815,487
|
810,332
|
|
|
|
|
|
Cash and cash
equivalents, end of period
|
$417,910
|
$815,487
|
|
|
|
|
|
See supplementary
information (Note 11)
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
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 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 Canadian 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 and related
bad debt expense increased in the year ended December 31, 2020 due
to increased risk of the impact of COVID as some customers altered
their payment pattern during the pandemic. The allowance for
doubtful accounts was $175,000 and $80,000 at December 31, 2020 and
2019, respectively. Bad debt expense for the years ended December
31, 2020 and 2019 were $203,257 and $43,689,
respectively.
f) Property and equipment
Fixed
assets are recorded at cost less accumulated depreciation.
Furniture and equipment are depreciated using the straight-line
method over their estimated useful lives of five years. Leasehold
improvements are amortized using the straight-line method over the
terms of the respective leases or useful lives, whichever is
shorter. Retirements, sales, and disposals of assets are recorded
by removing the cost and accumulated depreciation from the asset
and accumulated depreciation accounts with the resulting gain or
loss reflected in income. There were no fixed assets retired during
the year ended December 31, 2020. We retired fixed assets with
original costs totaling $199,021 during the year ended December 31,
2019. The Company received no proceeds for the fixed assets retired
during the year ended December 31, 2019. The fixed assets retired
were fully depreciated therefore no gains or losses were
recognized.
Capitalized
software development 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,
2020 and 2019.
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 considers shares outstanding (computed under
basic earnings per share) and potentially dilutive common shares
(such as stock options and redeemable convertible preferred stock
outstanding). The effect of a stock split or reverse split is
applied retroactively to preceding periods.
F-7
QUOTEMEDIA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
h) Income taxes
Income
taxes are provided in accordance with Financial Accounting
Standards Board (“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. The
Company recorded Canadian income tax expense of $2,237 and $3,014
for the years ended December 31, 2020 and 2019, respectively (see
Note 8).
i) Use of estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets
and liabilities, disclosure of contingent assets and liabilities as
of the year end and the reported amount of revenue 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, (iv) income taxes,
and (v) stock-based compensation. Actual results and outcomes may
differ from management’s estimates and
assumptions.
j) Software development expenses
Software
development expenses consist primarily of costs associated with the
design, programming, and testing of our software applications
during the preliminary project stage. Software development expenses
also include costs incurred to maintain our software applications.
The Company expensed $1,649,765 and $1,253,055 in software
development costs during the years ended December 31, 2020 and
2019, respectively (see Note 6).
k) Revenue
We
license financial market data information on a monthly, quarterly,
or annual basis. Our products and services are divided into two
main categories: Interactive Content and Data Applications and
Portfolio Management and Real-Time Quote Systems.
Contract Balances
Timing of revenue recognition may differ from the timing of
invoicing to customers. We record a receivable when revenue is
recognized prior to invoicing, or deferred revenue when revenue is
recognized subsequent to invoicing. Upfront set-up or development
fees are deferred and recognized over the term of the
contract, as set-up and development fees are not distinct from the
market data service contracts to which they relate.
The
Company considers the following factors when determining if
collection of a fee is reasonably assured: customer
creditworthiness, past transaction history with the customer,
current economic industry trends, and changes in customer payment
terms. If these factors do not indicate collection is reasonably
assured, revenue is deferred until collection becomes reasonably
assured, which is generally upon receipt of cash.
l) Financial instruments
Financial
instruments consist principally of cash, accounts receivable,
accounts payable and notes payable. We believe that the fair value
of financial instruments approximates the recorded book value of
those instruments due to the short-term nature of the instruments,
or stated interest rates that approximate market interest
rates.
m) Stock-Based Compensation
Stock-based
compensation awards are measured at their fair value on the date of
grant with the expense recognized, net of estimated forfeitures,
over the related service or performance period. We used the
Black-Scholes valuation model to calculate the fair value of common
stock options and warrants.
F-8
QUOTEMEDIA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
n) Accounting Pronouncements
Recently Adopted
In
January 2017, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic
350): Simplifying the Test for Goodwill
Impairment. This ASU simplifies
the accounting for goodwill by eliminating step 2 from the goodwill
impairment test. Under the new ASU, if the carrying amount of a
reporting unit exceeds its fair value, an impairment loss will be
recognized for the amount by which the carrying amount exceeds its
fair value. The Company adopted the new standard on January 1,
2020. There was no impact upon adoption to our consolidated
financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic
820), which removes, modifies
and adds various disclosure requirements around the topic in order
to clarify and improve the cost-benefit nature of disclosures. For
example, disclosures around transfers between fair value hierarchy
Levels will be removed and further detail around changes in
unrealized gains and losses for the period and unobservable inputs
determining Level 3 fair value measurements will be added. The
Company adopted the new standard on January 1, 2020. There was no
impact upon adoption to our consolidated financial statements and
related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and
Other - Internal-Use Software (Subtopic 350-40): Customer's
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That is a Service Contract, which requires a customer in a cloud computing
arrangement that is a service contract to follow the internal-use
software guidance in Topic 350, "Intangibles - Goodwill and
Other" to determine which
implementation costs to capitalize as assets or expense as
incurred. The Company adopted the new standard on January 1, 2020.
There was no impact upon adoption to our consolidated financial
statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments-Credit Losses (Topic 326), which changes the impairment
model for most financial assets, including accounts receivable, and
replaces the existing incurred loss impairment model with an
expected loss methodology, which will result in more timely
recognition of credit losses. The guidance is effective for the
Company for interim and annual periods beginning after December 15,
2022. Early adoption is permitted. The Company is currently
assessing the timing and impact of adopting ASU 2016-13 on the
Company’s consolidated financial statements.
Not Yet Adopted
Other
accounting standards that have been issued by the FASB or other
standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the
Company’s consolidated financial statements upon
adoption.
2. LIQUIDITY
The
Company had a net loss of $646,324 for the year ended December 31,
2020 and net cash of $1,327,979 was provided by operating
activities, and although we have a working capital deficit of
$1,409,890 as of December 31, 2020, current liabilities include
$544,902 in deferred revenue and the expected costs necessary to
realize the deferred revenue in 2020 are minimal. Long-term
liabilities also include our Paycheck Protection Program loan (see
Notes 12) that was forgiven on February 19, 2021 (see Note
14).
Implementation
of our business plan may require additional financing. Additional
financings may come from future equity or debt offerings that could
result in dilution to our stockholders. Based on the factors
discussed above, management believes that our cash on hand and cash
generated from operations will be sufficient to fund operations for
a period of one year after issuance of these consolidated financial
statements.
3. REVENUE
Disaggregated Revenue
The
Company provides market data, financial web content solutions and
cloud-based applications. Our revenue by type of service consists
of the following for the years ended December 31,:
|
|
2020
|
2019
|
|
|
|
|
|
Portfolio
Management Systems
|
|
|
|
Corporate
Quotestream
|
$4,520,099
|
$3,841,722
|
|
Individual
Quotestream
|
1,871,728
|
1,829,149
|
|
Interactive Content
& Data Applications
|
6,010,397
|
6,122,860
|
|
Total
revenue
|
$12,402,224
|
$11,793,731
|
F-9
QUOTEMEDIA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Revenue
Changes
in deferred revenue for the period were as follows:
|
Balance at December
31, 2019
|
$579,343
|
|
Revenue recognized
in the current period from the amounts in the beginning
balance
|
(467,066)
|
|
New deferrals, net
of amounts recognized in the current period
|
423,561
|
|
Effects of foreign
currency translation
|
9,064
|
|
Balance at December
31, 2020
|
$544,902
|
4. RELATED
PARTIES
The Company entered into a five-year office lease with 410734 B.C.
Ltd. effective May 1, 2016 for approximately $7,365 per month.
David M. Shworan is a control person of 410734 B.C. Ltd. At
December 31, 2020, there were no amounts due to 410734 B.C.
Ltd.
The Company entered into a marketing agreement with Bravenet Web
Services, Inc. (“Bravenet”) effective November 28,
2019. The Company agreed to pay Bravenet an upfront setup fee of
$7,000 upon signing the agreement and a monthly service fee of
$2,500 starting February 2020. At December 31, 2020, there was
$7,500 due to Bravenet related to this agreement. David M. Shworan
is a control person of Bravenet. As a matter of policy all
significant related party transactions are subject to review and
approval by the Company’s Board of Directors.
5. LEASES
We have operating leases for corporate offices and finance leases
for certain equipment. Our leases have remaining lease terms of 1
year to 5 years. We determine if an arrangement is a lease at
inception. Operating lease assets and liabilities are included in
operating lease right-of-use assets and operating lease
liabilities, respectively, on our consolidated balance sheets.
Finance lease assets and liabilities are included in property and
equipment and finance lease liabilities, respectively, on our
consolidated balance sheets. The Company renewed its lease for
office space in Vancouver, Canada as of August 1, 2020 for an
additional 5 years resulting in a right of use asset and an
offsetting lease liability of $507,753.
Operating lease right-of-use assets and operating lease liabilities
are recognized based on the present value of the future minimum
lease payments over the lease term at commencement date. As most of
our leases do not provide an implicit rate, we use our incremental
borrowing rate based on the information available at commencement
date in determining the present value of future payments. We
elected the short-term lease exception and therefore only recognize
right-of-use assets and lease liabilities for leases with a term
greater than one year. When determining lease terms, we factor in
options to extend or terminate leases when it is reasonably certain
that we will exercise that option. We have lease agreements with
lease and non-lease components, which are generally accounted for
separately. For certain leases we account for the lease and
non-lease components as a single lease component.
Supplemental balance sheet information related to leases at
December 31, was as follows:
|
|
2020
|
2019
|
|
|
|
|
|
Operating
Leases
|
|
|
|
|
|
|
|
Operating lease
right-of-use assets
|
$671,402
|
$328,676
|
|
|
|
|
|
Current portion of
operating lease liability
|
$164,843
|
$172,049
|
|
Long-term portion
of operating lease liability
|
504,783
|
167,496
|
|
Total operating
lease liability
|
$669,626
|
$339,545
|
|
|
|
|
|
Finance
Leases
|
|
|
|
|
|
|
|
Computer equipment
on financing lease
|
$101,049
|
$101,049
|
|
Less: accumulated
depreciation
|
85,936
|
52,888
|
|
Computer equipment
on financing lease, net
|
$15,113
|
$48,161
|
|
|
|
|
|
Current portion of
finance lease liability
|
11,951
|
33,914
|
|
Long-term portion
of finance lease liability
|
2,108
|
13,949
|
|
Total finance lease
liability
|
$14,059
|
$47,863
|
F-10
QUOTEMEDIA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
2020
|
2019
|
|
|
|
|
|
Weighted
Average Remaining Lease Term
|
|
|
|
Operating
leases
|
4.1
years
|
2.9
years
|
|
Finance
leases
|
0.9
years
|
1.5
years
|
|
|
|
|
|
Weighted
Average Discount Rate
|
|
|
|
Operating
leases
|
9.7%
|
9.3%
|
|
Finance
leases
|
8.8%
|
8.9%
|
Maturities
of lease liabilities were as follows:
|
Year
ending December 31,
|
Operating
Leases
|
Finance
Leases
|
|
|
|
|
|
2021
|
$221,849
|
$12,387
|
|
2022
|
185,402
|
2,151
|
|
2023
|
171,075
|
-
|
|
2024
|
155,531
|
-
|
|
2025
|
83,139
|
-
|
|
Total lease
payments
|
816,996
|
14,538
|
|
Less imputed
interest
|
(147,370)
|
(479)
|
|
Total
|
$669,626
|
$14,059
|
The
components of lease expense for the years ended December 31,were as
follows:
|
|
2020
|
2019
|
|
Operating
lease costs:
|
|
|
|
Operating lease
costs
|
$241,421
|
$184,634
|
|
Short-term lease
costs
|
93,530
|
125,430
|
|
Total operating
lease costs
|
$334,951
|
$310,064
|
|
|
|
|
|
Finance
lease costs:
|
|
|
|
Amortization
|
$31,855
|
$35,053
|
|
Interest
|
2,926
|
5,795
|
|
Total finance lease
cost
|
$34,781
|
$40,848
|
Supplemental
cash flow information related to leases was as
follows:
|
|
2020
|
2019
|
|
Cash paid for amounts included in the measurement of lease
liabilities:
|
|
|
|
Operating
cash flows from operating leases
|
$241,858
|
$190,719
|
|
Operating
cash flows from finance leases
|
2,926
|
5,795
|
|
Financing
cash flows from finance leases
|
34,258
|
31,015
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease
obligations:
|
|
|
|
Operating
leases
|
507,753
|
207,034
|
F-11
QUOTEMEDIA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY
AND EQUIPMENT
At
December 31:
|
|
2020
|
2019
|
|
|
|
|
|
Computer
equipment
|
$1,237,396
|
$1,104,845
|
|
Office furniture
and equipment
|
25,387
|
25,387
|
|
Leasehold
improvements
|
13,651
|
12,009
|
|
Capitalized
application software
|
11,273,884
|
9,600,195
|
|
Total property and
equipment
|
12,550,318
|
10,742,436
|
|
Less: accumulated
depreciation and amortization
|
(9,794,781)
|
(8,469,349)
|
|
Property and
equipment, net
|
$2,755,537
|
$2,273,087
|
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
|
Shorter
of useful life or the term of lease
|
|
Capitalized
application software
|
3
years
|
For the
years ended December 31, 2020 and 2019, the Company capitalized
$1,673,689 and $1,351,922 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, 2020 and 2019, amortization expenses associated with
the internally developed application software was $1,125,918 and
$918,902, respectively. At December 31, 2020, the remaining book
value of the capitalized application software was
$2,262,893.
Depreciation
expense for equipment and leaseholds for the years ended December
31, 2020 and 2019 was $199,513 and $188,463,
respectively.
7. INTANGIBLE
ASSETS AND GOODWILL
|
At December
31:
|
2020
|
2019
|
|
|
|
|
|
Intangible
assets:
|
|
|
|
Software
licenses
|
$121,845
|
$104,718
|
|
Domain
names
|
10,570
|
10,570
|
|
|
132,415
|
115,288
|
|
Less: accumulated
amortization
|
(70,501)
|
(64,023)
|
|
Total intangible
assets, net
|
$61,914
|
$51,265
|
|
|
|
|
|
Goodwill:
|
|
|
|
Purchase of
business unit
|
$110,000
|
$110,000
|
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 $6,478 and $5,764 for the years ended
December 31, 2020 and 2019, respectively.
F-12
QUOTEMEDIA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
estimated amortization expense of definite-lived intangible assets
is as follows:
|
Year
ending December 31,
|
|
|
|
|
|
2021
|
$6,621
|
|
2022
|
6,621
|
|
2023
|
6,621
|
|
2024
|
6,621
|
|
2025
|
6,621
|
|
Thereafter
|
28,809
|
|
Total
|
$61,914
|
Goodwill
is reported as an indefinite life intangible asset. We evaluate
goodwill for impairment on an annual basis in accordance with FASB
ASC 350-20, Goodwill.
Through December 31, 2020 we have not had any goodwill
impairment.
8. INCOME
TAXES
We
account for income taxes according to the provisions of FASB ASC
740, Income Taxes, which
prescribes an asset and liability approach for computing deferred
income taxes.
Reconciliations
of income taxes computed at the statutory federal rate to income
tax expense (benefit) for the years ended December 31, 2020 and
2019 are as follows:
|
|
2020
|
2019
|
|
Tax provision
(benefit) at the statutory rate of 21%
|
$(136,209)
|
$116,746
|
|
State income taxes,
net of federal income tax
|
(25,108)
|
17,012
|
|
Stock-based
compensation
|
7,953
|
86,460
|
|
Change in federal
NOL
|
(2,846)
|
(1,090)
|
|
Change in valuation
allowance
|
165,505
|
(243,588)
|
|
Change in other
items
|
(9,296)
|
24,460
|
|
State income tax
expense (benefit)
|
51
|
50
|
|
Canadian income tax
expense (benefit)
|
2,237
|
3,014
|
|
Income tax
expense
|
$2,287
|
$3,064
|
In
2020, the Company recorded Arizona income tax expense of $51 and
Canadian income tax expense of $2,237. The Company does not have
any material Canadian deferred tax assets or deferred tax
liabilities.
As of
December 31, 2020, we had net operating loss carryforwards for
federal and state income tax reporting purposes amounting to
approximately $11,462,000 and $2,626,000 which expire in varying
amounts through the year 2040.
The
components of our deferred tax asset (liabilities) at December 31,
2020 and 2019 are as follows:
|
|
2020
|
2019
|
|
Tax effect of net
operating loss carryforward
|
$2,509,000
|
$2,235,000
|
|
Property &
equipment
|
5,000
|
4,000
|
|
Intangibles
|
(552,000)
|
(420,000)
|
|
Other
|
42,000
|
19,000
|
|
Less valuation
allowance
|
(2,004,000)
|
(1,838,000)
|
|
Net deferred tax
asset
|
$-
|
$-
|
A
valuation allowance has been recognized to offset the entire effect
of the Company’s net deferred tax asset as the realization of
this deferred tax benefit is uncertain. The valuation allowance
increased $166,000 for the year ended December 31, 2020. This is
primarily due to the increase of federal and state net operating
losses.
The
Company has analyzed filing positions in all of the federal and
state jurisdictions where it is required to file income tax
returns, as well as all open tax years (2017-2020) 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.
F-13
QUOTEMEDIA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCKHOLDERS’
DEFICIT
a) Preferred Shares
We are
authorized to issue up to 10,000,000 non-designated preferred
shares at the Board of Directors’ discretion.
On
December 28, 2017, a total of 550,000 shares of the Company’s
Preferred Stock were designated as “Series A Redeemable
Convertible Preferred Stock.” The Series A Redeemable
Convertible Preferred Stock has no dividend or voting
rights.
At
December 31, 2020, 123,685 shares of Series A Redeemable
Convertible Preferred Stock were outstanding. No shares of Series A
Redeemable Convertible Preferred Stock were issued, and no shares
were redeemed during the year ended December 31, 2020. No shares of
Series A Redeemable Convertible Preferred Stock were issued, and
2,200 shares were redeemed during the year ended December 31, 2019.
The shares were redeemed at their $25 per share liquidation
value.
Redemption Rights
Holders
of Series A Redeemable Convertible Preferred Stock shall have the
right to convert their shares into shares of common stock at the
rate of 83.33 shares of common stock for one share of Series A
Redeemable Convertible Preferred Stock, at any time following the
date the closing price of a share of common stock on a securities
exchange or actively traded over-the-counter market has exceeded
$0.30 for ninety (90) consecutive trading days. The conversion
rights are subject to the availability of authorized but unissued
shares of common stock.
In
addition, a limited amount of Series A Redeemable Convertible
Preferred Stock may be redeemed at the holder’s option if the
following criteria are met:
(i) If the cash balance
of the Company as reported at the end of each fiscal quarter in
2018 exceeds $350,000, up to an aggregate of 600 Series A
Redeemable Convertible Preferred Stock may be redeemed at the
liquidation value of $25 per share.
(ii) If
the cash balance of the Company as reported at the end of each
fiscal quarter in 2019 exceeds $375,000, up to an aggregate of 800
Series A Redeemable Convertible Preferred Stock may be redeemed at
the liquidation value of $25 per share.
(iii) If
the cash balance of the Company as reported at the end of each
fiscal quarter in 2020 and in subsequent years exceeds $400,000, up
to an aggregate of 1,000 Series A Redeemable Convertible Preferred
Stock may be redeemed at the liquidation value of $25 per
share.
In
accordance with ASC 480-10-S99, because a limited amount of Series
A Redeemable Convertible Preferred Stock may be redeemed at the
holder’s option if the above criteria are met, it was
classified as mezzanine equity and not permanent
equity.
In the
event of any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution
or payment is made to any holders of any shares of common stock,
the holders of shares of Series A Redeemable Convertible Preferred
Stock shall be entitled to be paid first out of the assets of the
Corporation available for distribution to holders of the
Company’s capital stock whether such assets are capital,
surplus, or earnings, an amount equal to $25.00 per share of Series
A Redeemable Convertible Preferred Stock.
b) Common Stock
No
shares of common stock were issued during the years ended December
31, 2020 and 2019.
c) Stock Options and Warrants
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, 2020, 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.
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.
F-14
QUOTEMEDIA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
At
December 31, 2020, there are 15,000,000 shares of common stock
authorized for issuance pursuant to the 2003 plan. As of December
31, 2020, 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.
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 the
Company’s stock-based awards was comprised as
follows:
|
|
2020
|
2019
|
|
|
|
|
|
Sales and
marketing
|
$27,072
|
$397,164
|
|
General and
administrative
|
10,800
|
10,800
|
|
Development
|
-
|
3,750
|
|
Stock based
compensation expense
|
$37,872
|
$411,714
|
Common Stock Options and Warrants
There
were 26,372,803 common stock warrants and options outstanding at
December 31, 2020. No stock options or warrants to purchase common
stock were granted or exercised for the years ended December 31,
2020 and 2019.
The
following table summarizes our non-vested common stock option and
warrant activity for the years ended December 31, 2020 and
2019:
|
|
Common Stock
Options
and
Warrants
|
Weighted-Average
Grant Date Exercise Price
|
|
|
|
|
|
Non-vested at
January 1, 2019
|
6,225,000
|
$0.08
|
|
Vested during the
period
|
(600,000)
|
$0.05
|
|
Non-vested at
December 31, 2019
|
5,625,000
|
$0.08
|
|
Vested during the
period
|
(1,925,000)
|
$0.08
|
|
Non-vested at
December 31, 2020
|
3,700,000
|
$0.08
|
The
following table summarizes the weighted average remaining
contractual life and exercise price of common stock options and
warrants outstanding at December 31, 2020:
|
|
|
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
|
|
|
|
2020
|
|
Life
(Years)
|
|
Price
|
|
2020
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.03-0.11
|
|
26,372,803
|
|
8.4
|
|
$0.06
|
|
22,672,803
|
|
$0.05
|
The
number of options and warrants that have vested and are expected to
vest at December 31, 2020 is 26,372,803.
At
December 31, 2020, there was $43,269 of unrecognized compensation
cost related to non-vested options granted to purchase common stock
which is expected to be recognized over a weighted-average period
of 1.7 years.
All
stock options and warrants to purchase common stock have been
granted with exercise prices equal to or greater than the market
value of the underlying common shares on the date of
grant. At December 31,
2020, the aggregate intrinsic value of options and warrants
outstanding was $4,025,522. The aggregate intrinsic value of
options and warrants exercisable was $3,556,772. 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.
F-15
QUOTEMEDIA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Preferred Stock Warrants
On
December 28, 2017, the Company entered into a Compensation
Agreement with David M. Shworan, the President and Chief Executive
Officer of QuoteMedia, Ltd., a wholly owned subsidiary of
Quotemedia, Inc., pursuant to which, in lieu of receiving a cash
salary the Company will issue to Mr. Shworan warrants to purchase
shares of Series A Redeemable Convertible Preferred Stock
(“Compensation Preferred Stock Warrants”). In
accordance with the Compensation Agreement, on January 1, 2019 the
Company issued Mr. Shworan warrants to purchase up to 15,000 shares
of Compensation Preferred Stock Warrants at an exercise price equal
to $1.00 per share. A total of $360,000 of stock-based compensation
expense was recognized related to the Compensation Preferred Stock
Warrants for the year ended December 31, 2019.
Also
pursuant to the Compensation Agreement with Mr. Shworan, on
December 28, 2017 the Company issued Mr. Shworan warrants to
purchase up to 382,243 shares of Series A Redeemable Convertible
Preferred Stock at an exercise price equal to $1.00 per share
(“Liquidity Preferred Stock Warrant”). The Liquidity
Preferred Stock Warrants only vest and become exercisable on the
consummation of a Liquidity Event as defined in the Company’s
Certificate of Designation of Series A Redeemable Convertible
Preferred Stock. The probability of the liquidity event performance
condition is not currently determinable or probable; therefore, no
compensation expense has been recognized as of December 31, 2020.
The probability is re-evaluated each reporting period. As of
December 31, 2020, there was $9,173,832 in unrecognized stock-based
compensation expense related to these Liquidity Preferred Stock
Warrants. Since the Liquidity Preferred Stock Warrants only vest
and become exercisable on the consummation of a Liquidity Event
which is currently determined not to be probable, we are also
unable to determine the weighted-average period over which the
unrecognized compensation cost will be recognized.
The
following table represents total preferred stock warrant activity
for the years ended December 31, 2020 and 2019:
|
|
Preferred Stock
Warrants
|
Weighted-Average
Exercise Price
|
|
|
|
|
|
Outstanding at
January 1, 2019
|
398,493
|
$1.00
|
|
Granted during the
period
|
15,000
|
$1.00
|
|
Outstanding at
December 31, 2019
|
413,493
|
$1.00
|
|
Granted during the
period
|
-
|
-
|
|
Outstanding at
December 31, 2020
|
413,493
|
$1.00
|
As of
December 31, 2020, there were a total of 413,493 preferred stock
warrants outstanding with a weighted average remaining contractual
life of 27 years. As of December 31, 2020, 31,250 preferred stock
warrants were exercisable. No preferred stock warrants were
exercised for the years ended December 31, 2020 and
2019.
10. EARNINGS
PER SHARE
Basic
net income per share is computed by dividing net income during the
period by
the weighted-average number of common shares outstanding, excluding
the dilutive effects of common stock equivalents. Common stock
equivalents include redeemable convertible preferred stock, stock
options and warrants. Diluted net income per share is computed by
dividing net income by the weighted-average number of dilutive
common shares outstanding during the period. Diluted shares
outstanding is calculated using the treasury stock method by adding
to the weighted shares outstanding any potential shares of common
stock from stock options and warrants that are in-the-money. For
outstanding redeemable convertible preferred stock, potential
common shares are determined using the if-converted method.
The calculations for basic and diluted net income per share for the
year ended December 31, 2020 and 2019 are as follows:
|
|
2020
|
2019
|
|
|
|
|
|
Net income
(loss)
|
$(646,324)
|
$558,997
|
|
|
|
|
|
Weighted average
common shares used to calculate net income (loss) per
share
|
90,477,798
|
90,477,798
|
|
Warrants to
purchase redeemable convertible preferred stock
|
-
|
2,499,900
|
|
Redeemable
convertible preferred stock
|
-
|
10,306,671
|
|
Stock options and
warrants to purchase common stock
|
-
|
15,461,207
|
|
Weighted average
common shares used to calculate diluted net income (loss) per
share
|
90,477,798
|
118,745,576
|
|
|
|
|
|
Net income (loss)
per share – basic
|
$(0.01)
|
$0.01
|
|
Net income (loss)
per share – diluted
|
$(0.01)
|
$0.00
|
F-16
QUOTEMEDIA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The number of shares of potentially dilutive common stock related
to options and warrants that were excluded from the calculation of
dilutive shares since the inclusion of such shares would be
anti-dilutive for the year ended December 31, 2020 and 2019
are shown
below:
|
|
2020
|
2019
|
|
|
|
|
|
Warrants to
purchase redeemable convertible preferred stock
|
2,499,900
|
-
|
|
Redeemable
convertible preferred stock
|
10,306,671
|
-
|
|
Stock options and
warrants to purchase common stock
|
12,696,569
|
-
|
|
Total potential
common shares excluded
|
25,503,140
|
-
|
11. SUPPLEMENTARY
CASH FLOW INFORMATION
|
|
2020
|
2019
|
|
Cash paid
for
|
|
|
|
Interest
|
$4,614
|
$6,314
|
|
|
|
|
|
SBA grant (see Note
12)
|
$8,000
|
-
|
The
non-cash amounts related to right-of-use assets obtained in
exchange for lease obligations are noted below for the years ended
December 31,2020 and 2019:
|
|
2020
|
2019
|
|
|
|
|
|
Right-of-use assets
obtained in exchange for lease obligations
|
$507,753
|
$207,034
|
There
were no non-cash amounts related to the purchase of fixed assets
under finance leases for the years ended December 31, 2020 and
2019.
12. PAYCHECK
PROTECTION PROGRAM
On
April 24, 2020, the Company received an $8,000 grant as part of the
Economic Injury Disaster Loan (“EIDL”) program through
the Small Business Administration (“SBA”). The SBA
grant was recorded as other income on our consolidated statements
of operations in 2020. On May 4, 2020, the Company received a
$133,257 loan under the Paycheck Protection Program
(“PPP”). The PPP, established as part of the
Coronavirus Aid, Relief and Economic Security Act (“CARES
Act”), provides qualifying businesses with these proceeds for
amounts up to 2.5 times of the average monthly payroll expenses of
the qualifying business. The proceeds and accrued interest are
forgivable after twenty-four weeks, known as the covered period, as
long as the borrower uses the proceeds for eligible purposes,
including payroll, benefits, rent and utilities, and maintains its
payroll levels. The amount of forgiveness will be reduced if the
borrower terminates employees or reduces salaries during the
twenty-four-week period. EIDL grants received are also deducted
from the forgivable portion of PPP loans. The unforgiven portion of
the PPP proceeds will be payable over two years at an interest rate
of 1%, with a deferral of payments for the first six-months after
the covered period. The Company is accounting for the PPP loan in
accordance with ASC 470, Debt. The PPP loan was forgiven on
February 19, 2021 (see Note 14).
13. REVENUE
CONCENTRATION
A
significant portion of the Company’s revenue has historically
been derived from customers outside of the United States, primarily
in Canada. For the years ended December 31, 2020 and 2019, revenue
from Canada accounted for approximately 30% and 31% of total
revenue, respectively.
14. SUBSEQUENT
EVENTS
On
February 19, 2021, the Company received notice of forgiveness from
the SBA for its PPP loan in its entirety. The Company will
recognize the forgiveness of the loan as other income on our
consolidated statements of operations in 2021.
The
Company has evaluated events up to the filing date of these
consolidated financial statements and determined there are no other
subsequent event activity required disclosure.
F-17