QUOTEMEDIA INC - Annual Report: 2011 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
one)
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þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2011
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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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 o No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section15(d) of the Act. Yes o No þ
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 þ No o
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 o No o
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. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller
reporting company þ
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
þ
As of
March 14, 2012, there were outstanding 89,371,320 shares of the issuer's common
stock, par value $.001 per share. The aggregate market value of common stock
held by non-affiliates of the issuer (51,810,636 shares) based on the closing
price of the issuer's common stock as quoted on the OTCQB tier of the OTC
Markets on March 14, 2012, was $1,554,319. For purposes of this
computation, all executive officers, directors, and 10% beneficial owners of the
issuer are deemed to be affiliates. Such determination should not be
deemed an admission that such officers, directors, or 10% beneficial owners are,
in fact, affiliates of the issuer.
Documents incorporated by
reference: None
QUOTEMEDIA,
INC.
ANNUAL
REPORT ON FORM 10-K
FISCAL
YEAR ENDED DECEMBER 31, 2011
TABLE
OF CONTENTS
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PART
I
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ITEM
1.
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BUSINESS
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2
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ITEM
1A.
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RISK
FACTORS
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8
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ITEM
1B.
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UNRESOLVED
STAFF COMMENTS
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11
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ITEM
2.
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PROPERTIES
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11
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ITEM
3.
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LEGAL
PROCEEDINGS
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11
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ITEM
4.
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MINE
SAFETY DISCLOSURES
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11
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PART
II
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ITEM
5.
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MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
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MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
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12
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ITEM
6.
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SELECTED
FINANCIAL DATA
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12
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ITEM
7.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS
OF OPERATIONS
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13
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ITEM
7A.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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19
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ITEM
8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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19
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ITEM
9.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
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ACCOUNTING
AND FINANCIAL DISCLOSURE
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19
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ITEM
9A.
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CONTROLS
AND PROCEDURES
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19
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ITEM
9B.
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OTHER
INFORMATION
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20
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PART
III
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ITEM
10.
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DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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21
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ITEM
11.
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EXECUTIVE
COMPENSATION
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23
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ITEM
12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
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MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
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25
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ITEM
13.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
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INDEPENDENCE
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29
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ITEM
14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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30
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PART
IV
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ITEM
15.
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EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
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31
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SIGNATURES
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32
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INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
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F-1
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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
- Mobile/PDA Wireless Solutions
- News Feed Aggregation and Delivery
- Streaming, Dynamic Content
- Complete Portfolio Management
- Corporate Investor Relations Solutions
- Internet Data and Content Provisioning
- Custom Software Application Development
- Research Information Supply
Our array
of data-delivery solutions are fast, lightweight, reliable, and easy to
implement across all platforms. Our products are technologically advanced,
providing a framework for quick implementation, seamless client integration and
complete customization.
We are a
United States reporting public company which was incorporated in the State of
Nevada in 1999. Our shares are quoted on the OTCQB tier of the OTC Markets under
the trading symbol QMCI. Our corporate head office is located at 17100 East Shea
Boulevard, Suite 230, Fountain Hills, Arizona 85268, and our telephone number is
(480) 905-7311. All references to our business operations in this report include
the operations of QuoteMedia, Inc. and our operating divisions and
subsidiaries.
Our Web
site is located at www.quotemedia.com. Through our Web site we make available
free of charge the following company information: our annual reports on Form
10-K; our quarterly reports on Form 10-Q; our current reports on Form 8-K; our
proxy statements; and any amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These
reports are available as soon as reasonably practical after we electronically
file these reports with the SEC. We also post on our Web site the charter of our
Audit Committee; our Corporate Governance Guidelines; our Code of Business
Conduct/Ethics and Code of Ethics for the CEO and Senior Financial Officers, and
any amendments or waivers thereto; and any other corporate governance materials
contemplated by SEC or applicable regulations. These documents are also
available in print to any stockholder requesting a copy from our corporate
secretary at our principal executive offices.
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, as well as end of day format.
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 make up 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.
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.
3
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.
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.
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.
Portfolio
Management Systems
QuoteMedia
offers four leading edge portfolio managements systems: Quotestream™ Desktop;
Quotestream™ Wireless; 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 non professionals and
professionals.
Quotestream™
Desktop
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 non professional 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 non-professional 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, analysts 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.
4
Quotestream™
Wireless
QuoteMedia’s
Quotestream Wireless is a revolutionary wireless 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 PDA. Quotestream Wireless offers an extensive array of features and
advanced functionality, and supports a large selection of Web-based phone/PDA’s,
including RIM BlackBerry™, PalmOne™, Apple iPhone™, Sony Ericsson™, Motorola™,
Nokia™ and several other handheld devices and cellular telephones.
Quotestream
Wireless 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
Wireless 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 solution
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. QuoteMedia
Professional is accessed via the Internet, avoiding expensive server and circuit
infrastructure requirements.
Quotestream
Professional also features wireless access to the same portfolios and market
data entitlements through mobile devices. The desktop and wireless
applications work in a co-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 are reflected across the other systems, and
real-time data entitlements are consistent across the board.
5
Products
Competitive Advantage
Our
products attract a broad market base, targeting corporate clients worldwide and
providing comprehensive financial data services in a wide selection of custom
packages. Markets for our services include:
|
· Online
brokerages
· Full
service brokerage firms
· Banks
and other financial institutions
· Financial
Web sites
· Web
portals
· Public
companies
· Investor
relations firms
|
· Corporate
financial intranets and extranets
· Mutual
fund companies
· Internet
service providers
· Media
companies
· Publishers
· Wealth
management companies
· Individual
traders and investors
· Securities
exchanges
|
Our
financial data services provide a sensible solution to the high up-front cost of
in-house developed software. We leverage our technical talent and innovative
infrastructure across multiple client platforms, thus creating an economical,
efficient and scalable system that can manage and deliver information
application capabilities to an unlimited number of entities from data centers
and content feeds across the worldwide Web and over telecommunications lines.
Our data feeds have among the lowest latency of any available in the market and
are developed and delivered using technology that is more current than that used
by many major competitors in this market. Our marketing strategy is
based on the following key competitive advantages:
Superior Products – Our goal
has always been to create the best products on the market. We develop
all of our products in-house and take pride in creating quality
applications. Our products stand out for their superior design,
user-friendliness, and ease of implementation, customizability, reliability,
data speed, accuracy and comprehensiveness.
Custom Development –
QuoteMedia’s ability to provide complete custom design and development services
differentiates us from our competitors. We are able to create custom
market data applications and software architected 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. This allows 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 non professional end users to corporate
and institutional clients and their customer bases. We have a barter
agreement with Forbes Magazine whereby we provide portfolio management services
to Forbes.com users in exchange for advertising credits in Forbes
magazine.
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.
6
Competition
Many
companies provide financial market data and related information. Companies such
as Bloomberg, Thompson Reuters and Interactive Data Corporation (IDC) are some
of the data providers in this highly competitive marketplace.
While
there are many financial data providers, what mainly differentiates us from
others is that we offer clients a comprehensive solution for stock market
related information provisioning with more advanced technologies than employed
by most 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™” and “Quotestream™” and the domain names
www.quotemedia.com; www.quotestream.com; and www.quotestream.ca. We will
continue to own and protect these key assets into the future.
We
protect our other intellectual property by a combination of copyrights,
trademarks and confidentiality agreements with our employees, customers and
other agents.
Regulatory
Issues
We are
not subject to any special governmental regulation concerning our supplying of
products and services to the marketplace and we believe we are in compliance in
all material respects with all existing regulations governing other aspects of
our businesses.
Employees
We
currently have 54 full-time employees. Our employees are not members of any
union, nor have we entered into any collective bargaining agreements. We believe
that we have a good relationship with our employees. With the successful
implementation of our business plan, we may hire additional employees during
fiscal 2012 to handle anticipated growth in the areas of administration,
programming, sales, marketing, and customer care.
7
ITEM
1A. RISK
FACTORS.
You
should consider carefully the following factors, in addition to those discussed
elsewhere in this report, in evaluating our company and our
business.
Declining activity levels in the
securities markets, or the failure of market participants, could lower demand
for our services. Our business is dependent upon the health of the
financial markets as well as the financial health of the participants in those
markets. The current downturn 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 the
current 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 2011 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 2012. 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 current 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 event could have a material adverse
effect on our results of operations.
Adverse capital and credit market
conditions could limit our access to capital. The capital and credit
markets have been experiencing extreme volatility and disruption for the past
few years. Disruptions, uncertainty or volatility in the capital and
credit markets may limit our access to capital required to operate and grow our
business. As such, we may be unable to raise capital or bear an unattractive
cost of capital which could reduce our financial flexibility.
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, such as Nexa Technologies, Inc., could
disrupt our operations and lead to an adverse impact on our results of
operations.
8
A prolonged outage at one of our
data centers that we share could result in reduced revenue and the loss of
customers. Our customers rely on us for time-sensitive, up-to-date data
that is reliably delivered. Our business is dependent on our ability to rapidly
and efficiently process substantial quantities of data and transactions on our
computer-based networks and systems. Our computer operations and those of our
suppliers and customers are vulnerable to interruption by fire, natural
disaster, power loss, telecommunications failure, terrorist attacks, acts of
war, Internet failures, computer viruses and other events beyond our reasonable
control. We maintain a back-up facility for our major data center that we share
with Nexa Techologies, Inc. to seek to minimize the risk that any such event
will disrupt operations. In addition, we maintain insurance for such events.
However, the business interruption insurance we carry may not be sufficient to
compensate us fully for losses or damages that may occur as a result of such
events. Any such losses or damages incurred by us could have a material adverse
effect on our business. Although we seek to minimize these risks through
security measures, controls and a backup data center, there can be no assurance
that such efforts will be successful or effective.
We compete against companies with
greater financial resources. We operate in highly competitive markets in
which we compete with other distributors of financial and business information
and related services. We expect competition to continue to be rigorous. Some of
our competitors and potential competitors have significantly greater financial,
technical and marketing resources than we have. These competitors may be able to
expand product offerings and data content more effectively, and to respond more
rapidly than us to new or emerging technologies, changes in the industry or
changes in customer needs. They may also be in a position to devote greater
resources to the development, promotion and sale of their products. Increased
competition in the future could limit our ability to maintain or increase our
market share or maintain our margins, and could have a material adverse effect
on our business, financial condition or operating results.
New product offerings by competitors
or new technologies could cause our services to become obsolete. We
operate in an industry that is characterized by rapid and significant
technological change, frequent new services, data content and coverage
enhancements, and evolving industry standards. Without the timely introduction
of new services and data content and coverage enhancements, our services could
become technologically obsolete or inadequate over time, in which case our
revenue and operating results would suffer. We expect our competitors to
continue to improve the performance of their current services, to enhance data
content and coverage and to introduce new services and technologies. These
competitors may adapt more quickly to new technologies, changes in the industry
and changes in customers’ requirements than we can. If we fail to adequately
anticipate customers’ needs and technological trends accurately, we will be
unable to introduce new services into the market and our ability to compete
would be materially adversely impacted. Further, if we are unsuccessful at
developing and introducing new services that are appealing to customers, with
acceptable prices and terms, or if any such new services are not made available
in a timely manner, our ability to compete would be materially adversely
impacted. In both cases our ability to generate revenue could suffer and our
business and operating results could be materially adversely affected. We will
need to successfully enhance or add to current services in order to effectively
expand into new geographic areas. In addition, new services, data content and
coverage that we may develop and introduce may not achieve market acceptance and
would result in lower revenue.
We may need additional capital with
which to implement our business plan and there is no agreement with any third
party to provide such capital. Implementing our business plan may require
additional equity or debt financing. If we require additional funding or
determine it appropriate to raise additional funding in the future, there is no
assurance that adequate funding, whether through additional equity financing,
debt financing, or other sources, will be available when needed or on terms
acceptable to us. Further, any such funding may result in significant dilution
to existing stockholders. The inability to obtain sufficient funds from
operations and external sources when needed would have a material adverse affect
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 R. Keith Guelpa, our Chief Executive Officer and
President, and David M. Shworan, President and Chief Executive Officer of
QuoteMedia, Ltd., a wholly owned subsidiary of our company. The loss of Mr.
Guelpa or Mr. Shworan, or our other key employees, could have a material adverse
affect 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 affect on our business, results of
operations, and financial condition.
9
We may spend significant amounts of
money to protect against security breaches. A party who is able to
circumvent our security measures could misappropriate proprietary information or
cause interruptions in our Internet operations. We may be required to
expend significant capital and resources to protect against the threat of such
security breaches or to alleviate problems caused by such
breaches. Consumer concern over Internet security has been, and could
continue to be, a barrier to commercial activities requiring consumers to send
their credit card information over the Internet. Computer viruses,
break-ins, or other security problems could lead to misappropriation of
proprietary information and interruptions, delays, or cessation in service to
our customers. Moreover, until more comprehensive security
technologies are developed, the security and privacy concerns of existing and
potential customers may inhibit the growth of the Internet as a merchandising
medium. Were these risks to occur, our business, results of
operations, and financial condition could be materially adversely
affected.
The success of our anticipated
future growth depends upon our ability to manage successfully the growth of our
proposed operations. We expect to experience significant growth in our
number of employees and scope of operations. Our future success will
depend upon our ability to manage successfully the expansion of our operations.
Our ability to manage and support our growth effectively will depend on our
ability to implement adequate improvements to financial and management controls,
reporting, order entry systems, and other procedures and hire sufficient numbers
of financial, accounting, administrative, and management
personnel. Our expansion and the resulting growth in the number of
our employees will result in increased responsibility for both existing and new
management personnel. There can be no assurance that we will be able
to identify, attract, and retain experienced accounting and financial
personnel. Our future operating results will depend on the ability of
our management and other key employees to implement and improve our systems for
operations, financial control, and information management and to recruit, train,
and manage our employee base. There can be no assurance that we will
be able to achieve or manage any such growth successfully or to implement and
maintain adequate financial and management controls and
procedures. Any inability to do so would 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 will be adversely affected.
Penny stock rules may make buying or
selling our common stock difficult. Our common stock in the past has
been, and from time to time in the future may be, subject to the "penny stock"
rules as promulgated under the Securities Exchange Act of 1934. In
the event that no exclusion from the definition of a "penny stock" under the
Exchange Act is available, then any broker engaging in a transaction in our
common stock will be required to provide each customer with:
|
·
|
a
risk disclosure document;
|
|
·
|
disclosure
of market quotations, if any;
|
|
·
|
disclosure
of the compensation of the broker-dealer and its salesperson in the
transaction; and
|
|
·
|
monthly
account statements showing the market values of our securities held in the
customer's accounts.
|
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.
10
ITEM
1B. UNRESOLVED
STAFF COMMENTS.
None.
ITEM
2. PROPERTIES.
We lease
executive office space in Fountain Hills, Arizona. The term of this lease
expires in March 2014.
We lease
office space for technical staff in Vancouver, British Columbia, Canada. The
term of this lease expires in July 2015. We lease office space for
sales and customer support staff in Parksville, British Columbia,
Canada. The term of this lease expires April 2016.
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." The following table sets forth the high and low bid
information for our common stock for the calendar quarters
indicated.
|
High |
Low |
|||||||
|
Year
ended December 31, 2010:
|
||||||||
|
First
Quarter
|
$ | 0.15 | $ | 0.09 | ||||
|
Second
Quarter
|
0.15 | 0.09 | ||||||
|
Third
Quarter
|
0.14 | 0.08 | ||||||
|
Fourth
Quarter
|
0.13 | 0.07 | ||||||
|
Year
ended December 31, 2011:
|
||||||||
|
First
Quarter
|
$ | 0.09 | $ | 0.06 | ||||
|
Second
Quarter
|
0.11 | 0.04 | ||||||
|
Third
Quarter
|
0.10 | 0.04 | ||||||
|
Fourth
Quarter
|
0.05 | 0.03 | ||||||
|
Year
ended December 31, 2012:
|
||||||||
|
First
Quarter (through March 14, 2012)
|
$ | 0.07 | $ | 0.03 | ||||
As of
March 14, 2012, there were approximately 313 holders of record of our common
stock. As of March 14, 2012, the closing price for our common stock was
$0.03.
Dividend
Policy
We have
never paid any cash dividends to holders of our common stock, and for the
foreseeable future, we intend to retain any earnings to finance our operations
and do not anticipate paying cash dividends with respect to our common
stock. Subject to the preferences that may be applicable to any
then-outstanding preferred stock, the holders of our common stock will be
entitled to receive such dividends, if any, as may be declared by our board of
directors, from time to time, out of legally available funds. Payments of any
cash dividends in the future will depend on our financial condition, results of
operations, and capital requirements as well as other factors deemed relevant by
our board of directors.
Issuer Purchases of Equity
Securities
We did
not repurchase any of our equity securities during the fourth quarter of
2011.
|
ITEM
6.
|
SELECTED
FINANCIAL DATA.
|
Not
required.
12
|
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: Data Feed Services, Interactive Content
and Data Applications, and Portfolio Management Systems.
Our Data
Feed Services consist of raw streaming real-time market data delivered over the
Internet or via dedicated telecommunication lines, and supplemental fundamental,
historical, and analytical data, keyed to the same symbology, which provides a
complete market data solution to be offered to our
customers. Currently, QuoteMedia’s Data Feed services include
complete coverage of North American exchanges and over 70 exchanges
worldwide.
Our
Interactive Content and Data Applications consist of a suite of software
applications that provide publicly traded company and market information to
corporate clients via the Internet. Products include stock market quotes,
fundamentals, historical and interactive charts, company news, filings, option
chains, insider transactions, corporate financials, corporate profiles,
screeners, market research information, investor relations provisions, level II,
watch lists, and real-time quotes. All of our content solutions are completely
customizable and embed directly into client Web pages for seamless integration
with existing content.
Our
Portfolio Management Systems consist of Quotestream, Quotestream Professional,
Quotestream Wireless, 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 non-professional
users.
Quotestream
Professional is designed specifically for use by financial services
professionals and their support personnel, offering exceptional coverage and
functionality at extremely aggressive pricing. Quotestream
Professional features broad market coverage, reliability, complete flexibility,
ultra low-latency tick-by-tick data, as well as completely customizable screens,
advanced charting, comprehensive technical analysis, news and research
data.
Quotestream
Wireless is a true companion product to the Quotestream desktop products
(Quotestream and Quotestream Professional) – any changes made to portfolios in
either the desktop or wireless application are automatically reflected in the
other.
A key
feature of QuoteMedia’s business model is that all of our product lines generate
recurring monthly licensing revenue from each client. Contracts to license
Quotestream to our corporate clients, for example, typically have a term of one
to three years and are automatically renewed unless notice is given at least 90
days prior to the expiration of the current license term. We also
generate Quotestream revenue through individual end-user licenses on a monthly
or annual subscription fee basis. Interactive Content and Data
Applications and Market Data Feeds are licensed for a monthly, quarterly,
annual, or biannual subscription fee. Contracts to license our Financial Data
Products and Data Feeds typically have a term of one to three years and are
automatically renewed unless notice is given 90 days prior to the expiration of
the contract term.
13
Business
environment and trends
The
global financial markets have experienced extreme volatility and disruption in
recent years. As a result, financial institutions globally have acted to control
or reduce operational spending. Nevertheless, during this same period we have
maintained positive overall revenue growth. While in some areas the
anticipated impact of current market conditions may lead to a decision to reduce
demand for market data and related services, we expect overall spending on
financial information services will grow modestly over the next several
years.
Plan
of operation
Our plan
of operation for 2012 will focus on marketing Quotestream for deployments by
brokerage firms to their retail clients, and pursuing further expansion into the
investment professional market with Quotestream Professional. Licensing
Quotestream Wireless, both as a companion to the Quotestream desktop products,
and as a stand-alone solution, will also continue to be a focal point. We will
also look to continue the growth of our Data Feed Services client base, and to
increase the sales of its Interactive Content and Data Applications,
particularly in the context of large scale enterprise deployments encompassing
solutions ranging across several product lines. We have a plan in
place to manage costs to ensure that our ongoing expenditures are balanced with
our revenue growth rate. We anticipate that based on product
deployments that have been recently completed or are near completion, we will
continue to see strong revenue growth for 2012.
Opportunistically,
efforts will be made to evaluate and pursue the development of additional new
products that may eventually be commercialized by our
company. Although not currently anticipated, we may require
additional capital to execute our proposed plan of operation. There can be no
assurance that such additional capital will be available to our company, on
commercially reasonable terms or at all.
Our
future performance will be subject to a number of business factors, including
those beyond our control, such as a continuation of the economic downturn 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 policy affects our more significant
judgments and estimates used in the preparation of our financial
statements.
|
|
Revenue
recognition
|
Revenue
is recognized over contractual periods as services are performed and when
collection of the amount due is reasonably assured. Amounts recognized as
revenue are determined based upon contractually agreed upon fee schedules with
our customers. We account for subscription revenues received in advance of
services being performed by deferring such amounts until the related services
are performed. We consider the following factors when determining if collection
of a fee is reasonably assured: customer credit-worthiness, 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.
14
We
exercise judgment in assessing the credit worthiness of our customers and
therefore in our determination of whether collectability is reasonably assured.
Should changes in conditions cause us to determine these criteria are not met
for future transactions, revenue recognized for future reporting periods could
be adversely affected.
Commencing
in October 2005, the Company licensed one of its portfolio management
applications in exchange for advertising services of a customer, referred to as
“barter revenue”, whereby advertising credits are received in exchange for
subscription services. This revenue is recognized in the period in which the
applications are licensed based on the fair market value of the services
delivered. The Company determines the fair market value of the service delivered
based upon amounts charged for similar services in non-barter arrangements
within the previous six-month period. The Company also ensures that the value of
barter delivered does not exceed the value of cash based revenue in any period.
Unused advertising credits are reflected as prepaid expenses. As at
December 31, 2011, $180,000 in unused advertising credits was included in
prepaid expenses.
The
following table summarizes our barter revenue transactions for the years ended
December 31, 2011 and 2010:
|
2011 |
2010 |
|||||||
|
Barter
revenue earned
|
$ | 360,000 | $ | 360,000 | ||||
|
Advertising
credits expensed
|
$ | 360,000 | $ | 360,000 | ||||
|
|
Capitalized
Application Software
|
Capitalized
software costs include costs incurred in connection with the development of
software and purchased 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 350-985, Software. Software production
costs for computer software that is to be used as an integral part of a product
or process shall not be capitalized until both (a) technological feasibility has
been established for the software and (b) all research and development
activities for the other components of the product or process have been
completed.
For the
years ended December 31, 2011 and 2010, the Company capitalized $690,349 and
$692,114 of costs, respectively, related to the development of new software
applications 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, 2011 and 2010,
amortization expenses associated with the internally developed application
software was $613,894 and $566,841 respectively. At December 31, 2011, the
remaining book value of the application software was $1,047,973.
|
|
Recent
Accounting Pronouncements
|
In
May 2011, the FASB issued additional guidance on fair value measurements
that clarifies the application of existing guidance and disclosure requirements,
changes certain fair value measurement principles and requires additional
disclosures about fair value measurements. The updated guidance is effective on
a prospective basis for financial statements issued for fiscal years, and
interim periods within those fiscal years, beginning after December 15,
2011. The adoption of this guidance will not have a material impact on our
financial statements.
15
Other
accounting standards that have been issued by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s consolidated financial
statements upon adoption.
Results
of Operations
Revenue
|
Years
ended December 31,
|
||||||||||||||||
|
2011 |
|
|
2010 |
|
|
Change ($) |
|
|
Change (%) |
|||||||
|
Licensing
revenue
|
$ | 8,964,181 | $ | 7,804,805 | $ | 1,159,376 | 15 | % | ||||||||
Licensing
revenue has increased 15% when comparing the years ended December 31, 2011 and
2010. The increase is a result of sales growth from licensing both
our Interactive Content and Data Applications and Portfolio Management
Systems.
Interactive
Content and Data Application revenue increased $608,734 (15%) when comparing the
years ended December 31, 2011 and 2010. The increase is due to an
increase in the number and average value of Interactive Content and Data
Application client contracts, as we signed several large-scale clients since the
comparable periods – most notably the Toronto Stock Exchange.
Portfolio
Management System revenue increased by a total of $550,642 (14%) when comparing
the years ended December 31, 2011 and 2010. Corporate Quotestream
revenue increased $298,648 (11%) from the comparative period in
2010. The increase for the year is due to new contracts signed with
the Toronto Stock Exchange and other large-scale clients in 2011.
Individual
Quotestream revenue increased $251,993 (24%) from the comparative period in
2010, resulting from an increase in the number of subscribers and an increase in
the average revenue per subscriber. Included in Portfolio Management
System revenue is revenue earned from licensing of one of our portfolio
management applications in exchange for advertising services, referred to as
“barter revenue,” whereby advertising credits were received for subscription
services. This barter revenue amounted to $360,000 for the year ended December
31, 2011, compared to $360,000 earned in 2010.
Cost
of Revenue and Gross Profit Summary
|
Years
ended December 31,
|
||||||||||||||||
|
2011 |
|
|
2010 |
|
|
Change ($) |
|
|
Change (%) |
|
||||||
|
Cost
of revenue
|
$ | 4,148,609 | $ | 3,788,145 | $ | 360,464 | 10 | % | ||||||||
|
Gross
profit
|
$ | 4,815,572 | $ | 4,016,660 | $ | 798,912 | 20 | % | ||||||||
|
Gross
margin %
|
54 | % | 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
application software costs. We capitalize the costs associated with developing
new products once technological feasibility has been established.
Cost of
revenue increased 10% when comparing the years ended December 31, 2011 and 2010.
The increase is primarily due to an increase in variable stock exchange fees
associated with an increase in the number of Quotestream
subscribers. The increase is also due to an increase in the average
stock exchange fees per user as, on average, users subscribed to more stock
exchange data in 2011 than in the comparative period. This is
consistent with the increase in subscriber revenue discussed
above. The increase in variable stock exchange fees is also due
to new NASDAQ fees introduced in 2011 for Interactive Content and Data
Application clients displaying NASDAQ Mutual Funds and Indices
data.
16
Overall,
the cost of revenue decreased as a percentage of sales, as evidenced by our
gross margin percentage which increased to 54% in 2011 from 51% in
2010.
Operating
Expenses Summary
|
Years
ended December 31,
|
||||||||||||||||
|
2011 |
|
|
2010 |
|
|
Change ($) |
|
|
Change (%) |
|
||||||
|
Sales
and marketing
|
$ | 1,918,868 | $ | 2,163,030 | $ | (244,162 | ) | (11 | )% | |||||||
|
General
and administrative
|
1,960,756 | 2,154,669 | (193,913 | ) | (9 | )% | ||||||||||
|
Software
development
|
1,155,839 | 1,224,376 | (68,537 | ) | (6 | )% | ||||||||||
|
Total
operating expenses
|
$ | 5,035,463 | $ | 5,542,075 | $ | (506,612 | ) | (9 | )% | |||||||
Sales
and Marketing
Sales and
marketing consists primarily of sales and customer service salaries, investor
relations, travel, and advertising expenses. Sales and marketing expenses
decreased $244,162 (11%) for the year ended December 31, 2011 when compared to
fiscal 2010.
The
decrease from the comparative period is primarily due to $270,000 in stock-based
compensation expense recognized in May 2010 as a result of extending the terms
of stock options and warrants held by an executive of the Company.
Included
in sales and marketing expense is $360,000 in non-cash advertising costs
incurred in the year ended December 31, 2011. We receive advertising credits
with a large national magazine in exchange for subscription
services. The advertising credits are expensed as used, and unused
advertising credits are reflected as prepaid expenses. We used
$360,000 in advertising credits during the comparative period in
2010.
General
and Administrative
General
and administrative expenses consist primarily of salaries expense, office rent,
insurance premiums, and professional fees. General and administrative
expenses decreased $193,913 (9%) for year ended December 31, 2011 when compared
to fiscal 2010. The decrease is due to nonrecurring accruals for
potential tax penalties made in the comparative period in 2010, as well as a
decrease in bad debt expense in 2011 from the comparative period in
2010. The decrease is also due to a decrease in salary expense
resulting from a reduction in administrative personnel from the comparative
period in 2010.
Software
Development
Software
development expenses consist primarily of costs associated with the design,
programming, and testing of our software applications prior to the establishment
of technological feasibility. Software development expenses also include costs
incurred to maintain our software applications.
Software
development expenses decreased $68,537 (6%) for the year ended December 31, 2011
when compared to fiscal 2010, primarily due to decreases in stock-based
compensation expense associated with development personnel. The decrease is also
due to a decrease in salary expense for software development personnel due to a
reduction of development staff from the comparative period.
We
capitalized $690,349 of development costs for the year ended December 31, 2011,
compared to $692,114 in 2010. 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.
17
Other
Income and (Expense) Summary
|
Years
ended December 31,
|
||||||||
|
2011 |
|
|
2010 |
|||||
|
Foreign
exchange gain (loss)
|
$ | 16,476 | $ | (12,620 | ) | |||
|
Interest
expense
|
(546,439 | ) | (404,521 | ) | ||||
|
Total
other income and (expenses)
|
$ | (529,963 | ) | $ | (417,141 | ) | ||
Foreign
Exchange Loss
We
recognized a foreign exchange gain of $16,476 in 2011, compared to a foreign
exchange loss of $12,620 in 2010. Exchange gains and losses arise
from the re-measurement of Canadian dollar monetary assets and liabilities into
U.S. dollars. Gains and losses related to foreign exchange forward contracts are
also included in foreign exchanges gains and losses.
The
foreign exchange gain in 2011 is due primarily to the gain arising from the
re-measurement of Canadian dollar monetary assets and liabilities into U.S.
dollars, as we have a net Canadian dollar liability and the U.S. dollar
appreciated slightly versus the Canadian dollar from December 31, 2010 to
December 31, 2011.
Interest
Expense
Interest
expense in 2011 was $546,439, compared to $404,521 in 2010. Interest expense increased
for the year ended December 31, 2011 due to additional borrowings compared to
the same period in 2010. Interest is accrued at 10% per annum
on certain amounts owed to related parties. Interest income earned on
cash balances is netted against interest income.
Provision
for Income Taxes
In 2011,
the Company recorded Canadian income tax expense of $2,527, compared to a
Canadian income expense of $3,396 in 2010.
Net
Income (Loss) for the Period
As a
result of the foregoing, net loss for the year ended December 31, 2011 was
$(752,381) or $(0.01) per share compared to a net loss of $(1,945,952) or
$(0.02) per share for the year ended December 31, 2010.
Liquidity
and Capital Resources
Our cash
totaled $427,010 at December 31, 2011, as compared with $510,018 at December 31,
2010, a decrease of $83,008. Net cash of $484,019 was provided by
operations for the year ended December 31, 2011, primarily due to non cash
depreciation and stock-based compensation expenses and the increase in accounts
payable and amounts due to related parties. This was offset by the
net loss for the period. Net cash used in investing activities for the year
ended December 31, 2011 was $767,027 resulting from capitalized application
software costs and the purchase of new computer equipment and intangible assets.
Net cash provided by financing activities for the year ended December 31, 2011
was $200,000 resulting from additional loans from Company
management.
Our
current liabilities include $602,517 in deferred revenue. The
expected costs necessary to realize the deferred revenue in 2012 are
minimal.
As at
December 31, 2011, long-term liabilities consist of $5,976,859 due to related
parties as we do not expect to repay amounts owed to related parties during
2012. All repayments of amounts due to related parties must be approved by our
Board of Directors. Repayments are subject to our company having
sufficient cash on hand and are intended not to impair continuing business
operations.
18
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 which could reduce our financial flexibility.
Our
long-term liquidity requirements will depend on many factors, including the rate
at which we expand our business, and whether we do so internally or through
acquisitions. To the extent that the funds generated from operations are
insufficient to fund our activities in the long term, we may be required to
raise additional funds through public or private financing. No assurance can be
given that additional financing will be available or that, if it is available,
it will be on terms acceptable to us.
Off-Balance
Sheet Arrangements
Other
than office lease commitments discussed in Note 10 to our financial statements,
we do not have any off-balance sheet arrangements.
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
Not
required.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
Reference
is made to the Financial Statements, the Notes thereto, and the Report of
Independent Public Accountants thereon commencing at page F-1 of this Report,
which Financial Statements, Notes, and report are incorporated herein by
reference.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
None.
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, 2011. Based on this evaluation, our CEO and CFO
have each 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.
19
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.
Our
management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2011. In making this assessment, it
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on
our assessment, we believe that, as of December 31, 2011, the Company’s
internal control over financial reporting was effective based on those
criteria.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to Sarbanes-Oxley Rule 404 (c).
Changes
in Internal Control over Financial Reporting
During
the last quarter of the fiscal year covered by this report, there have not been
any changes in our internal controls over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Subsequent
to the date of their evaluation, there have not been any significant changes in
our internal controls or in other factors that could significantly affect these
controls, including any corrective action with regard to significant
deficiencies and material weaknesses.
ITEM
9B. OTHER
INFORMATION.
Not
applicable.
20
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
|
69
|
Chairman
of the Board
|
|
R.
Keith Guelpa
|
65
|
President,
Chief Executive Officer, and Director
|
|
David
M. Shworan
|
44
|
President
and Chief Executive Officer of QuoteMedia, Ltd., and
Director
|
|
Keith
J. Randall
|
45
|
Vice
President, Treasurer, Chief Financial
Officer, and Secretary
|
Our
listed directors will serve until the next annual meeting of stockholders or until their death,
resignation, retirement, removal, disqualification, or until their successors
have been duly elected and qualified. Vacancies in our existing Board
of Directors are filled by majority vote of the remaining
directors. Our officers serve at the will of our Board of
Directors. There is no family relationship between any executive
officer and director.
Robert J. Thompson has served
as our Chairman of the Board since February 2000. Mr. Thompson is also Chairman
of the Board of Algae Biosciences Corporation and American Standard Energy
Corporation; and 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 previously, Mr. Thompson practiced as a Chartered
Accountant and Certified Management Consultant. He was a Partner of KPMG LLP
(formerly Peat Marwick Mitchell & Co.), Woods Gordon/Clarkson Gordon (Arthur
Young & Co.) and Ernst & Whinney. In 1989, he withdrew from public
practice after serving for 5 years as the National Partner in Charge of the
Senior Management Services Division of Stevenson Kellogg Ernst &
Whinney.
R. Keith Guelpa is co-founder
of QuoteMedia and has served as our President and Director since 1999. Prior to
1999, Mr. Guelpa served as President and CEO of companies in the Consumer
Products, Technology and Financial areas. Mr. Guelpa graduated in 1970 with a
Bachelor of Commerce degree.
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 2000. Mr. Shworan
served as our President and Chief Executive Officer from November 2002 to
December 2004. Mr. Shworan is a veteran of online marketing and
Internet business. Mr. Shworan is the founder of Bravenet Web Services, Inc., a
Webmaster tools and services site for over 8 million Web developers, and has
served as the Chief Executive Officer of Bravenet since September
1997. Mr. Shworan is the founder of several Internet companies, and
has been a consultant to a number of other Internet companies.
21
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 Accountant in Canada and a
licensed Certified Public Accountant in the United States. He received a
Bachelor of Commerce degree with Honors from Queen's University in May
1991.
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, 2011, 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 who requests 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.
22
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, 2011 and 2010 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
$100,000 during fiscal 2011.
Summary
Compensation Table
|
Name
and Principal Position
|
Year |
|
Salary ($) |
|
|
Bonus ($) |
|
|
Option Awards ($) (1),(4),(5) |
|
|
All Other Compensation ($) (2) |
|
|
Total ($) |
||||||
|
R.
Keith Guelpa (3)
|
2011
|
$ | 192,000 | - | - | - | $ | 192,000 | |||||||||||||
|
Chief
Executive Officer,
|
2010
|
$ | 192,000 | - | - | - | $ | 192,000 | |||||||||||||
|
QuoteMedia,
Inc.
|
|||||||||||||||||||||
|
David
M. Shworan (4)
|
2011
|
$ | 350,000 | - | $ | 20,400 | - | $ | 370,400 | ||||||||||||
|
Chief
Executive Officer,
|
2010
|
$ | 350,000 | - | $ | 280,800 | - | $ | 630,800 | ||||||||||||
|
QuoteMedia,
Ltd.
|
|||||||||||||||||||||
|
Keith
J. Randall (5)
|
2011
|
$ | 144,000 | - | $ | 500 | - | $ | 144,500 | ||||||||||||
|
Chief
Executive Officer,
|
2010
|
$ | 132,000 | - | $ | 5,400 | - | $ | 137,400 | ||||||||||||
|
QuoteMedia,
Inc.
|
|||||||||||||||||||||
|
(1)
|
Options
Awards represent the fair value of option awards granted, repriced, or
otherwise modified, computed in accordance with FASB ASC 718, Stock
Compensation.
|
|
(2)
|
The
executive officers listed also received certain perquisites, the aggregate
value of which did not exceed $10,000 for any year
presented.
|
|
(3)
|
Mr.
Guelpa is our President and Chief Executive Officer, and serves as our
“Principal Executive Officer”.
|
|
(4)
|
Mr.
Shworan is President and Chief Executive Officer of QuoteMedia, Ltd., a
wholly owned subsidiary of QuoteMedia, Inc. Salary for
2011 and 2010 was accrued but not paid. In April 2011, we reduced the
exercise price of a total of 7,200,000 options and warrants held by Mr.
Shworan. The new exercise price for those options and warrants was fixed
at $0.036 per share, which was the market price of the Company's common
stock at the time of the repricings. The vesting period and the expiry
dates of the repriced options and warrants remained
unchanged. In May 2010, we extended the term of a total of
5,200,000 options and warrants held by Mr. Shworan. The expiry dates of
the options and warrants were extended by five years, and the exercise
prices of the options and warrants remained unchanged. The amount included
under the “Option Awards” column represents the incremental increase in
fair value of the repriced and extended options and
warrants.
|
|
(5)
|
Mr.
Randall is our Chief Financial Officer, and serves as our “Principal
Financial and Accounting Officer”. In April 2011, we reduced
the exercise price of a total of 250,000 options and warrants held by Mr.
Randall. The new exercise price for those options and warrants was fixed
at $0.036 per share, which was the market price of the Company's common
stock at the time of the repricings. The vesting period and the expiry
dates of the repriced options and warrants remained unchanged. In May
2010, we extended the term of 100,000 options held by Mr. Randall. The
expiry dates of the options were extended by five years, and the exercise
prices of the options remained unchanged. The amount included under the
“Option Awards” column represents the incremental increase in fair value
of the repriced and extended
options.
|
23
Outstanding
Equity Awards at Fiscal Year End
|
Number
of Securities Underlying Unexercised Options
|
||||||||||||||
|
Name
|
Exercisable |
|
|
Unexercisable |
|
|
Option Exercise Price ($) |
|
Option Exercise Date |
|||||
|
David
M. Shworan
|
200,000 | - | $ | 0.036 |
17-May-2015
|
|||||||||
| 2,000,000 | - | $ | 0.036 |
17-May-2015
|
||||||||||
| 3,000,000 | - | $ | 0.036 |
17-May-2015
|
||||||||||
| 2,400,000 | - | $ | 0.036 |
01-Aug-2015
|
||||||||||
|
Keith
J. Randall
|
100,000 | - | $ | 0.036 |
17-May-2015
|
|||||||||
| 50,000 | - | $ | 0.036 |
31-Jan-2015
|
||||||||||
| 50,000 | - | $ | 0.036 |
12-Apr-2017
|
||||||||||
| 50,000 | - | $ | 0.036 |
21-Dec-2017
|
||||||||||
Employment
Agreements
The employment agreement with Mr.
Guelpa, our President and Chief Executive Officer expired in July
2004. Mr. Shworan has served as President and Chief Executive Officer
of QuoteMedia Ltd., a wholly owned subsidiary of QuoteMedia, Inc., since
December 30, 2004. Mr. Shworan does not currently have an employment
agreement. We also 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 2011. We compensate our independent director with directors’ fees
and stock options. Options Awards represent the fair value of option awards
granted in 2011, 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
|
$ | 82,020 | - | - | $ | 82,020 | ||||||||||
The
Chairman of the Board, Robert J. Thompson, receives a monthly retainer of
$6,835. 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 14, 2012 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)
|
36,151,800 | 37.3 | % | |||||
|
R.
Keith Guelpa (4)
|
7,741,061 | 8.7 | % | |||||
|
Robert
J. Thompson (5)
|
1,610,286 | 1.8 | % | |||||
|
Keith
J. Randall (6)
|
710,340 | 0.8 | % | |||||
|
All
directors and executive officers as a group
|
46,213,487 | 47.1 | % | |||||
|
5%
Stockholders (7)
|
- | - | ||||||
|
(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 89,371,320 shares of common
stock outstanding on March 14, 2012. The numbers and
percentages shown include the shares of common stock actually owned as of
March 14, 2012 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 14, 2012 upon the exercise of options are deemed
to be outstanding for the purpose of computing the percentage of the
shares of common stock owned by such person or group, but are not deemed
to be outstanding for the purpose of computing the percentage of the
shares of common stock owned by any other
person.
|
|
(3)
|
Represents
10,511,800 shares of common stock owned by Mr. Shworan and 17,002,500
shares owned by Mr. Shworan's wife. Also includes
1,037,500 shares of common stock owed by Bravenet Web Services, Inc., of
which Mr. Shworan is a control person. Mr. Shworan disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest therein. Also includes vested options and warrants to
acquire directly 7,600,000 shares of common stock. See Item 10, “Executive
Compensation – Employment
Agreements.”
|
|
(4)
|
Represents
5,741,061 shares of our common stock owned by Mr. Guelpa and 2,000,000
shares of our common stock owned by Mr. Guelpa's wife. Mr.
Guelpa disclaims ownership of any shares of common stock or warrants held
by his wife.
|
|
(5)
|
Represents
807,483 shares of common stock and vested options and warrants to acquire
802,803 shares of common stock.
|
|
(6)
|
Represents
460,340 shares of common stock and vested options and warrants to acquire
250,000 shares of common stock.
|
|
(7)
|
We
are unaware of any stockholders who beneficially own or exercise voting or
dispositive control over more than 5% of our common
stock.
|
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, 2011.
|
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
|
5,155,000 | $ | 0.07 | 9,922,653 | ||||||||
|
Equity
Compensation Plans not approved by stockholders
|
8,552,803 | $ | 0.04 | N/A | ||||||||
|
Total
|
13,707,803 | 9,922,653 | ||||||||||
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,
2011, 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 non-incentive 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 is it 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 period ending on the fifth day prior to such corporate
transaction. In the event of a change of control, our board or the
committee may terminate each option, provided that each holder receive the
amount of cash equal to the difference between the exercise price of the 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, 2011, there are 15,000,000 shares of common stock authorized for
issuance pursuant to the 2003 plan. An amendment to the 2003 plan
increasing the number of shares of common stock authorized for issuance pursuant
to the plan from 10,000,000 to 15,000,000 was approved on November 18, 2011 at
our Annual Meeting of Stockholders.
As of
December 31, 2011, 1,277,530 shares of common stock had been issued upon
exercise of options granted under the 2003 plan and there were 5,155,000 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
"non-employee 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 an 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 to have been met upon the occurrence of
any "change in control." Upon the occurrence of a change in control, if so
provided in the award agreement, stock options and limited SARs (and other SARs
which so provide) may be cashed out based on a defined "change in control
price," which will be the higher of
|
·
|
the
cash and fair market value of property that is the highest price per share
paid (including extraordinary dividends) in any reorganization, merger,
consolidation, liquidation, dissolution, or sale of substantially all
assets of our company; or
|
|
·
|
the
highest fair market value per share (generally based on market prices) at
any time during the 60 days before and 60 days after a change in
control.
|
For
purposes of the 2003 plan, the term "change in control" generally
means
|
·
|
approval
by stockholders of any reorganization, merger, or consolidation or other
transaction or series of transactions if persons who were shareholders
immediately prior to such reorganization, merger, or consolidation or
other transaction do not, immediately thereafter, own more than 50% of the
combined voting power of the reorganized, merged, or consolidated
company's then outstanding, voting securities, or a liquidation or
dissolution of our company or the sale of all or substantially all of the
assets of our company (unless the reorganization, merger, consolidation or
other corporate transaction, liquidation, dissolution or sale is
subsequently abandoned),
|
28
|
·
|
a
change in the composition of our Board of Directors such that the persons
constituting the Board of Directors on the date the award is granted, or
the Incumbent Board, and subsequent directors approved by the Incumbent
Board (or approved by such subsequent directors), cease to constitute at
least a majority of our Board of Directors,
or
|
|
·
|
the
acquisition by any person, entity or "group", within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act, of more than
50% of either the then outstanding shares of our common stock or the
combined voting power of our company's then outstanding voting securities
entitled to vote generally in the election of directors excluding, for
this purpose, any acquisitions by (1) our company, (2) any person, entity,
or "group" that as of the date on which the award is granted owns
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Securities Exchange Act) of a controlling interest, or (3) any
employee benefit plan of our
company.
|
Amendment
and Termination
Our Board
of Directors may amend, alter, suspend, discontinue, or terminate the 2003 plan
or the committee's authority to grant awards without further stockholder
approval, except stockholder approval must be obtained for any amendment or
alteration if such approval is required by law or regulation or under the rules
of any stock exchange or quotation system on which shares of common stock are
then listed or quoted. Thus, stockholder approval may not necessarily
be required for every amendment to the 2003 plan which might increase the cost
of the 2003 plan or alter the eligibility of persons to receive
awards. Stockholder approval will not be deemed to be required under
laws or regulations, such as those relating to ISOs, that condition favorable
treatment of participants on such approval, although our Board of Directors may,
in its discretion, seek stockholder approval in any circumstance in which it
deems such approval advisable. Unless earlier terminated by our Board
of Directors, the 2003 plan will terminate at such time as no shares of common
stock remain available for issuance under the 2003 plan and we have no further
rights or obligations with respect to outstanding awards under the 2003
plan.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
Certain
Relationships and Related Parties
The
Company has a loan agreement with Bravenet Web Services, Inc. (“Bravenet”). The
President and Chief Executive Officer of Quotemedia, Ltd., a wholly owned
subsidiary, is a control person of Bravenet. At December 31, 2011,
the loan balance due to Bravenet including accrued interest at 10% is
$658,224.
On
September 29, 2006, Quotemedia, Ltd. purchased the Bravenet business unit that
was responsible for providing the Company customer promotion and lead generation
services. The $110,000 purchase price due to Bravenet has been accrued in
amounts due to related parties, and remains unpaid as at December 31, 2011. At
December 31, 2011, the balance due to Bravenet for the unpaid purchase price is
$202,372 which includes interest accrued at 10%.
Bravenet
provides computer hosting and maintenance services to the Company for
approximately $7,500 per month. At December 31, 2011, the balance due
to Bravenet for unpaid computer hosting and maintenance services is $456,734.
This amount includes interest accrued at 10%.
The
Company leases office space from Harrison Avenue Holdings Ltd. (“Harrison”) for
approximately $8,500 per month. The President and Chief Executive Officer of
Quotemedia, Ltd., a wholly owned subsidiary, is a control person of Harrison. At
December 31, 2011, all amounts due to Harrison related to the leased office
space have been accrued in amounts due to related parties. As at December 31,
2011, the balance due to Harrison for unpaid office rent is $865,601. This
amount includes interest accrued at 10%.
From
January 1, 2005 to November 30, 2006, Bravenet provided the Company customer
promotion and lead generation services. At December 31, 2011, all amounts due to
Bravenet for customer promotion and lead generation
services have been accrued in amounts due to related parties and total $860,977
including accrued interest at 10% per annum.
29
At
December 31, 2011, the Company owed $2,915,675 to officers of the Company for
accrued salary and other amounts advanced to the Company.
As a
matter of policy all related party transactions are subject to review and
approval by the Company’s Board of Directors. We do not expect to repay amounts
due to related parties within the next twelve months. All repayments of amounts
due to related parties must be approved by our Board of
Directors. Repayments are subject to our company having sufficient
cash on hand and are intended not to impair continuing business operations. Our
related party creditors have agreed to these repayment terms.
Director
Independence
Our Board
of Directors has determined, after considering all the relevant facts and
circumstances, that Mr. Thompson is an “independent” director as such term is
defined by NASDAQ.
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
Aggregate
fees billed to our company for the fiscal years ended December 31, 2011 and 2010
by Hein & Associates LLP, our principal accountants, are as
follows:
|
2011 |
|
|
2010 |
|||||
|
Audit
Fees
|
$ | 69,817 | $ | 65,771 | ||||
|
Audit-Related
Fees
|
- | - | ||||||
|
Tax
Fees
|
- | 1,420 | ||||||
|
All
Other Fees
|
- | - | ||||||
Audit Committee
Pre-Approval Policies
The duties and responsibilities of our
Audit Committee include the pre-approval of all audit, audit related, tax, and
other services permitted by law or applicable SEC regulations (including fee and
cost ranges) to be performed by our independent auditor. Any pre-approved
services that will involve fees or costs exceeding pre-approved levels will also
require specific pre-approval by the Audit Committee. Unless otherwise specified
by the Audit Committee in pre-approving a service, the pre-approval will be
effective for the 12-month period following pre-approval. The Audit Committee
will not approve any non-audit services prohibited by applicable SEC regulations
or any services in connection with a transaction initially recommended by the
independent auditor, the purpose of which may be tax avoidance and the tax
treatment of which will not be supported by the Internal Revenue Code and
related regulations.
To the extent deemed appropriate, the
Audit Committee may delegate pre-approval authority to the Chairman of the Board
or any one or more other members of the Audit Committee provided that any member
of the Audit Committee who has exercised any such delegation must report any
such pre-approval decision to the Audit Committee at its next scheduled meeting.
The Audit Committee will not delegate the pre-approval of services to be
performed by the independent auditor to management.
All of the services provided by Hein
& Associates LLP described above under the captions “Audit Fees,” and “Tax
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
|
|
3.1
|
Second
Amended and Restated Articles of Incorporation (1)
|
|
3.2
|
Amended
and Restated Bylaws (1)
|
|
10.4
|
Amended
1999 Equity Incentive Compensation Plan (2)
|
|
10.7
|
2003
Equity Incentive Compensation Plan (1)
|
|
21
|
|
|
23.1
|
|
|
31.1
|
|
|
31.2
|
|
|
32.1
|
|
|
32.2
|
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
__________________
|
(1)
|
Incorporated
by reference to the Annual Report on Form 10-KSB filed with the Commission
on March 10, 2003.
|
|
(2)
|
Incorporated
by reference to the Quarterly Report on Form 10-QSB filed with the
Commission on August 8, 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.
| Date: March 29, 2012 | QUOTEMEDIA, INC. | ||
| By: | /s/ R. Keith Guelpa | ||
| R. Keith Guelpa | |||
| President and Chief Executive Officer | |||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
/s/ Robert J. Thompson
|
Chairman
of the Board
|
March
29, 2012
|
|
| Robert J. Thompson | |||
|
/s/ David M. Shworan
|
Director
|
March
29, 2012
|
|
| David M. Shworan | |||
|
/s/ Keith J. Randall
|
Vice
President, Treasurer, Secretary, and Chief Financial Officer (Principal
Financial and Accounting Officer)
|
March
29, 2012
|
|
| Keith J. Randall | |||
|
/s/ R. Keith Guelpa
|
Chief
Executive Officer, President and Director (Principal Executive
Officer)
|
March
29, 2012
|
|
| R. Keith Guelpa |
32
Quotemedia,
Inc.
Index
to Consolidated Financial Statements
| Report of Independent Registered Public Accounting Firm | F-1 |
| Consolidated Balance Sheets | F-2 |
| Consolidated Statements of Operations | F-3 |
| Consolidated Statements of Stockholders' Deficit | F-4 |
| Consolidated Statements of Cash Flows | F-5 |
| Notes to Consolidated Financial Statements | F-6 - F-19 |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Quotemedia,
Inc.
We have
audited the accompanying consolidated balance sheets of Quotemedia, Inc.
and subsidiary as of December 31, 2011 and 2010 and the related
consolidated statements of operations, stockholders' deficit and cash
flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform an
audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Quotemedia,
Inc. and subsidiary as of December 31, 2011 and 2010, and the results of
their operations and their cash flows for the years then ended in
conformity with U.S. generally accepted accounting principles.
/s/ Hein
& Associates llp
Denver,
Colorado
March 29,
2012
F-1
QUOTEMEDIA,
INC.
CONSOLIDATED
BALANCE SHEETS
As
of December 31,
|
|
|
2011 |
|
|
2010 |
|||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
|
$ | 427,010 | $ | 510,018 | ||||
|
Accounts
receivable, net
|
654,449 | 376,426 | ||||||
|
Prepaid
expenses
|
247,165 | 202,931 | ||||||
|
Other
current assets
|
200,925 | 136,234 | ||||||
|
Total
current assets
|
1,529,549 | 1,225,609 | ||||||
|
Deposits
|
24,357 | 24,166 | ||||||
|
Property
and equipment, net
|
1,238,811 | 1,168,089 | ||||||
|
Goodwill
|
110,000 | 110,000 | ||||||
|
Intangible
assets
|
96,990 | 103,487 | ||||||
|
Total
assets
|
$ | 2,999,707 | $ | 2,631,351 | ||||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable and accrued liabilities
|
$ | 1,059,600 | $ | 1,290,693 | ||||
|
Deferred
revenue
|
602,517 | 441,446 | ||||||
|
Total
current liabilities
|
1,662,117 | 1,732,139 | ||||||
|
Long-term
portion of amounts due to related parties
|
5,976,859 | 4,825,767 | ||||||
|
Commitments
(Note 10)
|
||||||||
|
Stockholders'
deficit:
|
||||||||
|
Preferred
stock, nondesignated, 10,000,000 shares authorized, none issued
|
- | - | ||||||
|
Common
stock, $0.001 par value, 150,000,000 shares authorized, 89,371,320
and 89,371,320 shares issued and outstanding
|
89,372 | 89,372 | ||||||
|
Additional
paid-in capital
|
8,912,132 | 8,872,465 | ||||||
|
Accumulated
deficit
|
(13,640,773 | ) | (12,888,392 | ) | ||||
|
Total
stockholders' deficit
|
(4,639,269 | ) | (3,926,555 | ) | ||||
|
Total
liabilities and stockholders' deficit
|
$ | 2,999,707 | $ | 2,631,351 | ||||
See accompanying notes
F-2
QUOTEMEDIA,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
each of the years ended December 31,
|
2011 |
|
|
2010 |
|
||||
|
LICENSING
FEES
|
$ | 8,964,181 | $ | 7,804,805 | ||||
|
COST
OF REVENUE
|
4,148,609 | 3,788,145 | ||||||
|
GROSS
PROFIT
|
4,815,572 | 4,016,660 | ||||||
|
OPERATING
EXPENSES
|
||||||||
|
Sales
and marketing
|
1,918,868 | 2,163,030 | ||||||
|
General
and administrative
|
1,960,756 | 2,154,669 | ||||||
|
Software
development
|
1,155,839 | 1,224,376 | ||||||
| 5,035,463 | 5,542,075 | |||||||
|
OPERATING
LOSS
|
(219,891 | ) | (1,525,415 | ) | ||||
|
OTHER
INCOME AND (EXPENSE)
|
||||||||
|
Foreign
exchange gain (loss)
|
16,476 | (12,620 | ) | |||||
|
Interest
expense (related party)
|
(546,439 | ) | (404,521 | ) | ||||
| (529,963 | ) | (417,141 | ) | |||||
|
LOSS
BEFORE INCOME TAXES
|
(749,854 | ) | (1,942,556 | ) | ||||
|
Income
tax expense
|
(2,527 | ) | (3,396 | ) | ||||
|
NET
LOSS
|
$ | (752,381 | ) | $ | (1,945,952 | ) | ||
|
LOSS
PER SHARE
|
||||||||
|
Basic
and diluted loss per share
|
$ | (0.01 | ) | $ | (0.02 | ) | ||
|
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
||||||||
|
Basic
and diluted
|
89,371,320 | 89,371,320 | ||||||
See accompanying notes
F-3
QUOTEMEDIA,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
For
the years ended December 31, 2011 and 2010
|
Common
Stock
|
||||||||||||||||||||
|
Number of Shares |
|
|
Amount |
|
|
Additional Paid-in Capital |
|
|
Accumulated Deficit |
|
|
Total Stockholders' Deficit |
||||||||
|
Balance,
January 1, 2010
|
89,371,320 | $ | 89,372 | $ | 8,529,965 | $ | (10,942,440 | ) | $ | (2,323,103 | ) | |||||||||
|
Stock-based
compensation
|
- | - | 342,500 | - | 342,500 | |||||||||||||||
|
Net
loss
|
- | - | - | (1,945,952 | ) | (1,945,952 | ) | |||||||||||||
|
Balance,
December 31, 2010
|
89,371,320 | $ | 89,372 | $ | 8,872,465 | $ | (12,888,392 | ) | $ | (3,926,555 | ) | |||||||||
| Stock-based compensation | - | - | 39,667 | - | 39,667 | |||||||||||||||
| Net loss | - | - | - | (752,381 | ) | (752,381 | ) | |||||||||||||
| Balance, December 31, 2011 | 89,371,320 | $ | 89,372 | $ | 89,372 | $ | (13,640,773 | ) | $ | (4,639,269 | ) | |||||||||
See accompanying notes
F-4
QUOTEMEDIA,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
each of the years ended December 31,
|
2011 |
|
|
2010 |
|||||
|
OPERATING
ACTIVITIES
|
||||||||
|
Net
loss
|
$ | (752,381 | ) | $ | (1,945,952 | ) | ||
|
Adjustments
to reconcile net loss to net
|
||||||||
|
cash
provided by operating activities:
|
||||||||
|
Depreciation
and amortization
|
702,802 | 683,246 | ||||||
|
Bad
debt expense
|
68,495 | 127,221 | ||||||
|
Stock-based
compensation expense
|
39,667 | 342,500 | ||||||
|
Noncash
barter revenue
|
(360,000 | ) | (360,000 | ) | ||||
|
Noncash
barter advertising expense
|
360,000 | 360,000 | ||||||
|
Changes
in assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(346,518 | ) | (36,984 | ) | ||||
|
Prepaid
expenses
|
(44,234 | ) | 51,590 | |||||
|
Other
current assets
|
(64,691 | ) | 11,788 | |||||
|
Deposits
|
(191 | ) | 2,135 | |||||
|
Accounts
payable and amounts due to related parties
|
719,999 | 1,311,496 | ||||||
|
Deferred
revenue
|
161,071 | 12,869 | ||||||
|
Net
cash provided by operating activities
|
484,019 | 559,909 | ||||||
|
INVESTING
ACTIVITIES
|
||||||||
|
Purchase
of fixed assets
|
(76,678 | ) | (41,270 | ) | ||||
|
Purchase
of intangible assets
|
- | (34,729 | ) | |||||
|
Capitalized
application software
|
(690,349 | ) | (692,114 | ) | ||||
|
Forward
contract margin deposit
|
- | 15,000 | ||||||
|
Net
cash used in investing activities
|
(767,027 | ) | (753,113 | ) | ||||
|
FINANCING
ACTIVITIES
|
||||||||
|
Loans
from related parties
|
200,000 | 226,000 | ||||||
|
Net
cash provided by financing activities
|
200,000 | 226,000 | ||||||
|
Net
increase (decrease) in cash
|
(83,008 | ) | 32,796 | |||||
|
Cash,
beginning of year
|
510,018 | 477,222 | ||||||
|
Cash,
end of year
|
$ | 427,010 | $ | 510,018 | ||||
|
See
supplementary information (note 11)
|
||||||||
See accompanying notes
F-5
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT
ACCOUNTING POLICIES
a)
Nature of operations
We are a
software developer and distributor of financial market data and related
services to a global marketplace. We specialize in the collection,
aggregation, and delivery of both delayed and real-time financial data
content via the Internet. We develop and license software components that
deliver dynamic content to banks, brokerage firms, financial institutions,
mutual fund companies, online information and financial portals, media
outlets, public companies, and corporate intranets.
b) Basis
of consolidation
The
consolidated financial statements include the operations of Quotemedia,
Ltd., a wholly owned subsidiary of Quotemedia, Inc. All intercompany
transactions and balances have been eliminated.
c)
Foreign currency translation and transactions
The U.S.
dollar is the functional currency of all our company's operations. Foreign
currency asset and liability amounts are remeasured into U.S. dollars at
end-of-period exchange rates, except for equipment and intangible assets,
which are remeasured at historical rates. Foreign currency income and
expenses are remeasured at average exchange rates in effect during the
year, except for expenses related to balance sheet amounts remeasured at
historical exchange rates. Because the U.S. dollar is the functional
currency, exchange gains and losses arising from remeasurement of foreign
currency-denominated monetary assets and liabilities are included in
income in the period in which they occur.
d)
Cash and cash equivalents
Cash
equivalents include money market investments that have an original
maturity of three months or less and are redeemable on demand. We maintain
our accounts primarily at one financial institution. At times
throughout the year, our cash and cash equivalents balances may exceed
amounts insured by the Federal Deposit Insurance Corporation.
e)
Allowances for doubtful accounts
We maintain
an allowance for doubtful accounts for estimated losses resulting from the
inability of the Company's customers to make required payments. The
Company determines the allowance by reviewing the age of the receivables
and assessing the anticipated ability of customers to pay. No
collateral is required for any of the receivables. If the financial
condition of our customers were to deteriorate, adversely affecting their
ability to make payments, additional allowances would be required. The
allowance for doubtful accounts was $73,430 as at December 31, 2011 and
2010, 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.
F-6
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Capitalized
software costs include costs incurred in connection with the development
of software and purchased 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.
g)
Earnings per share
Basic
earnings per share are computed by dividing income by the weighted average
number of shares outstanding during the year. Diluted earnings per share
takes into account shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares (such as stock options
outstanding). The effect of a stock split or reverse split is applied
retroactively to preceding periods. For the years ended 2011 and 2010 all
common stock equivalents were anti-dilutive.
h)
Stock-based compensation
FASB ASC
718, Stock Compensation
requires all share-based payments to employees, including grants of
employee stock options, to be recognized as compensation expense over the
service period (generally the vesting period) in the consolidated
financial statements based on their fair values. The impact of forfeitures
that may occur prior to vesting is also estimated and considered in the
amount recognized.
Total
estimated stock-based compensation expense, related to all of the Company's
stock-based awards, recognized for the years ended December 31, 2011 and
2010 was comprised as follows:
|
2011 |
|
|
2010 |
|||||
|
Sales
and marketing
|
$ | 28,364 | $ | 288,180 | ||||
|
General
and administrative
|
5,553 | 7,591 | ||||||
|
Software
development
|
5,750 | 46,729 | ||||||
|
Total
stock-based compensation
|
$ | 39,667 | $ | 342,500 | ||||
At December
31, 2011 there was $39,333 of unrecognized compensation cost related to
non vested share-based payments which is expected to be recognized over a
weighted-average period of 0.85 years.
We
calculate the fair value of stock options granted under the provisions of
FASB ASC 718 using the Black-Scholes valuation model with the following
assumptions:
F-7
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
2011 |
|
|
2010 |
|||||
|
Expected
dividend yield
|
- | - | ||||||
|
Expected
stock price volatility
|
192 | % | 176 | % | ||||
|
Risk-free
interest rate
|
4 | % | 4 | % | ||||
|
Expected
life of options
|
2.4 | 2.5 | ||||||
|
Weighted
average fair value of options granted
|
$ | 0.03 | $ | 0.12 | ||||
Expected
volatility is based on the historical volatility of the Company's share
price in the period prior to option grant equivalent to the expected life
of the options. The expected term is determined under the "simplified"
method as allowed under the provisions of the Securities and Exchange
Commission's Staff Accounting Bulletins No. 107 and No. 110, and
represents the period of time that options granted are expected to be
outstanding. We believe that it is appropriate to use this simplified
method as there is not sufficient historical exercise data to provide a
reasonable basis upon which to estimate an expected term. The risk-free
interest rate for periods within the contractual life of the option is
based on the U.S. Treasury yield curve in effect at the time of grant.
i)
Income taxes
Income
taxes are provided in accordance with FASB ASC 740, Income
Taxes. A deferred tax asset or liability is recorded for
all temporary differences between income for financial statement purposes
and income for tax purposes as well as operating loss carryforwards.
Deferred tax expenses or recovery result from the net change during the
year of deferred tax assets and liabilities.
Deferred
tax assets are reduced by a valuation allowance, when, in the opinion of
management, it is likely that some portion of the deferred tax asset will
not be realized. Deferred taxes are adjusted for the effects of changes in
tax laws and rates. Interest and penalties, if applicable,
would be recorded in operations. In 2011, the Company recorded
Canadian income tax expense of $2,527. In 2010 the Company
recorded Canadian income tax expense of $3,396 (see note 7).
j)
Use of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities as at the year end and the
reported amount of revenues and expenses during the year. Actual results
may vary from the estimates.
k)
Software development expenses
Software
development costs incurred prior to establishing the technological
feasibility of our software application products, and costs incurred to
maintain existing products and services are expensed as incurred. The
Company expensed $1,155,839 and $1,224,376 in software development costs
during the years ended December 31, 2011 and 2010, respectively (see note
3).
F-8
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
l)
Revenue recognition
Revenue is
recognized over contractual periods as services are performed and when
collection of the amount due is reasonably assured. Amounts recognized as
revenue are determined based upon contractually agreed-upon fee schedules
with our customers. The Company accounts for subscription revenues
received in advance of service being performed by deferring such amounts
until the related services are performed. The Company considers the
following factors when determining if collection of a fee is reasonably
assured: customer credit-worthiness, 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 (also see description of barter
revenue below).
m)
Barter revenue
The Company
licenses one of its portfolio management applications in exchange for
advertising services of a customer, referred to as "barter revenue",
whereby advertising credits are received in exchange for subscription
services. This revenue is recognized in the period in which the
applications are licensed based on the fair market value of the services
delivered. The Company determines the fair market value of the service
delivered based upon amounts charged for similar services in non barter
arrangements within the previous six-month period. The Company also
ensures that the value of barter delivered does not exceed the value of
cash-based revenue in any period. Unused advertising credits are reflected
as prepaid expenses. As at December 31, 2011, $180,000 in
unused advertising credits was included in prepaid expenses.
The
following table summarizes our barter revenue transactions for the years
ended December 31, 2011 and 2010:
|
2011 |
|
|
2010 |
|||||
|
Barter
revenue earned
|
$ | 360,000 | $ | 360,000 | ||||
|
Advertising
credits expensed
|
360,000 | 360,000 | ||||||
n)
Financial instruments
Financial
instruments consist principally of cash, accounts receivables, foreign
exchange forward contracts, accounts payable and notes payable. We believe
that 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. Forward contract fair value is disclosed in Note 6 a).
F-9
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
o)
Accounting Pronouncements
Recent
Accounting Pronouncements
In
May 2011, the FASB issued additional guidance on fair value
measurements that clarifies the application of existing guidance and
disclosure requirements, changes certain fair value measurement principles
and requires additional disclosures about fair value measurements. The
updated guidance is effective on a prospective basis for financial
statements issued for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2011. The adoption of this
guidance will not have a material impact on our financial statements.
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.
p)
Reclassification
Certain
figures in the comparative period have been reclassified to conform to the
current year's presentation, with no effect on net loss.
2. LIQUIDITY
The Company
has an accumulated deficit of $13,640,773, and for the year ended December
31, 2011 had a net loss of $752,381. As a result, there are concerns about
the liquidity of our company at December 31, 2011. The
following discussion addresses those concerns.
Net cash of
$484,019 was provided by operating activities, and although we have a
working capital deficit of $132,568 as at December 31, 2011, current
liabilities include $602,517 in deferred revenue. The expected
costs necessary to realize the deferred revenue in 2012 are minimal.
As at
December 31, 2011, long-term liabilities consist of $5,976,859 due to
related parties as we do not expect to repay amounts owed to related
parties during 2012. All repayments of amounts due to related parties must
be approved by our Board of Directors. Repayments are subject
to our company having sufficient cash on hand and are intended not to
impair continuing business operations.
Implementation
of our business plan may require additional financing. Additional
financings may come from future equity or debt offerings that could result
in dilution to our stockholders. Although the Company must ultimately
achieve profitable operations, based on the factors discussed above,
management believes that our cash on hand and cash to be generated from
operations will be sufficient to fund operations through fiscal 2012.
F-10
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY
AND EQUIPMENT
| As at December 31, |
2011 |
|
|
|
2010 |
|||||||
|
|
|
|
|
|
||||||||
|
Computer
equipment
|
571,018 | 501,049 | ||||||||||
|
Office
furniture and equipment
|
65,898 | 65,583 | ||||||||||
|
Leasehold
improvements
|
46,456 | 40,062 | ||||||||||
|
Capitalized
application software
|
3,279,283 | 2,588,933 | ||||||||||
|
Total
property and equipment
|
3,962,655 | 3,195,627 | ||||||||||
|
Less:
accumulated depreciation
|
(2,723,844 | ) | (2,027,538 | ) | ||||||||
|
Property
and equipment, net
|
1,238,811 | 1,168,089 | ||||||||||
Property
and Equipment are recorded at cost less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the assets
estimated useful lives as follows:
|
Computer
equipment
|
5
years
|
|
Office
Furniture and equipment
|
5
years
|
|
Leasehold
improvements
|
Term
of lease
|
|
Capitalized
application software
|
3
years
|
For the
years ended December 31, 2011 and 2010, the Company capitalized $690,349
and $692,114 of costs, respectively, related to the development of new
software applications 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, 2011 and 2010, amortization expenses associated with the
internally developed application software was $613,894 and $566,841
respectively. At December 31, 2011, the remaining book value of the
capitalized application software was $1,047,973.
Depreciation
expense for equipment and leaseholds for the years ended December 31, 2011
and 2010 was $82,411 and $109,489 respectively.
F-11
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
4. INTANGIBLE
ASSETS
| As at December 31, |
2011 |
|
|
2010 |
|
||||
|
Amortized
intangible assets:
|
|||||||||
|
Purchase
option for office building
|
10,000 | 10,000 | |||||||
|
Software
licenses
|
104,985 | 104,985 | |||||||
|
Domain
names
|
10,652 | 10,652 | |||||||
| 125,637 | 125,637 | ||||||||
|
Unamortized
intangible assets:
|
|||||||||
|
Goodwill
associated with purchase of business unit
|
|||||||||
|
business
unit
|
110,000 | 110,000 | |||||||
|
Total
intangible assets
|
235,637 | 235,637 | |||||||
|
Less:
accumulated amortization
|
(28,647 | ) | (22,150 | ) | |||||
|
Intangible
assets, net
|
206,990 | 213,487 | |||||||
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 $6,496 and $6,917 for the years ended December 31, 2011 and
2010, respectively. We evaluate goodwill for impairment on an annual basis
in accordance with Financial Accounting Standards Board ("FASB") ASC
350-20, Goodwill. Through
December 31, 2011 we have not had any goodwill impairment.
5. RELATED
PARTIES
The
following table summarizes amounts due to related parties at December 31,
2011 and 2010:
|
December 31, 2011 |
|
|
December 31, 2010 |
|||||
|
Purchase
of business unit
|
$ | 202,372 | $ | 186,798 | ||||
|
Computer
hosting services
|
456,734 | 332,427 | ||||||
|
Office
rent
|
865,601 | 769,517 | ||||||
|
Other
|
17,276 | 38,217 | ||||||
|
Loan
|
658,224 | 406,225 | ||||||
|
Lead
generation services
|
860,977 | 779,367 | ||||||
|
Due
to Management
|
2,915,675 | 2,313,216 | ||||||
| 5,976,859 | $ | 4,825,767 | ||||||
F-12
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The Company
has a loan agreement with Bravenet Web Services, Inc. ("Bravenet").
The President and Chief Executive Officer of Quotemedia, Ltd., a wholly
owned subsidiary, is a control person of Bravenet. At December
31, 2011, the loan balance due to Bravenet including accrued interest at
10% is $658,224.
On
September 29, 2006, Quotemedia, Ltd. purchased the Bravenet business unit
that was responsible for providing the Company customer promotion and lead
generation services. The $110,000 purchase price due to Bravenet has been
accrued in amounts due to related parties, and remains unpaid as at
December 31, 2011. At December 31, 2011, the balance due to Bravenet for
the unpaid purchase price is $202,372 which includes interest accrued at
10%.
Bravenet
provides computer hosting and maintenance services to the Company for
approximately $7,500 per month. At December 31, 2011, the
balance due to Bravenet for unpaid computer hosting and maintenance
services is $456,734. This amount includes interest accrued at 10%.
The Company
leases office space from Harrison Avenue Holdings Ltd. ("Harrison")
for approximately $8,500 per month. The President and Chief Executive
Officer of Quotemedia, Ltd., a wholly owned subsidiary, is a control
person of Harrison. At December 31, 2011, all amounts due to Harrison
related to the leased office space have been accrued in amounts due to
related parties. As at December 31, 2011, the balance due to Harrison for
unpaid office rent is $865,601. This amount includes interest accrued at
10%.
From
January 1, 2005 to November 30, 2006, Bravenet provided the Company
customer promotion and lead generation services. At December 31, 2011, all
amounts due to Bravenet for customer promotion and lead generation
services have been accrued in amounts due to related parties and total
$860,977 including accrued interest at 10% per annum.
At December
31, 2011, the Company owed $2,915,675 to officers of the Company for
accrued salary and other amounts advanced to the Company.
As a matter
of policy all related party transactions are subject to review and
approval by the Company's Board of Directors. All amounts due to related
parties have been classified as non-current liabilities as we do not
expect to repay amounts due to related parties within a year of the
December 31, 2011 balance sheet date. All repayments of amounts due to
related parties must be approved by our Board of
Directors. Repayments are subject to our company having
sufficient cash on hand and are intended not to impair continuing business
operations. Our related party creditors have agreed to these repayment
terms.
F-13
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
6. FINANCIAL
INSTRUMENTS
a)
Fair value of financial instruments
FASB ASC
820, Fair Value
Measurements and Disclosures establishes three levels of inputs
that may be used to measure fair value: quoted prices in active markets
for identical assets or liabilities (referred to as Level 1), observable
inputs other than Level 1 that are observable for the asset or liability
either directly or indirectly (referred to as Level 2), and unobservable
inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities (referred to as Level
3).
From time
to time we utilize forward contracts that are measured at fair market
value on a recurring basis based on Level 2 inputs. At December
31, 2011, the fair market value for forward contracts was an asset of $745
that was included in other assets. We had no forward contracts
outstanding at December 31, 2010.
b)
Derivative instruments
A
significant portion of our expenses are paid in Canadian dollars,
therefore changes to the exchange rate between the U.S. and Canadian
dollar affect our operating results. To manage this exchange
rate risk, from time to time we utilize forward contracts to purchase
Canadian dollars. Our Company policy limits contracts to
maturities of one year or less from the date of issuance. We do not enter
into foreign exchange forward contracts for trading purposes.
We account
for derivatives and hedging activities in accordance with FASB ASC 815, Derivatives
and Hedging, which requires that all derivative instruments be
recorded on the balance sheet at their respective fair values. The
accounting for changes in the fair value of a derivative instrument is
dependent upon whether the derivative has been designated and qualifies as
part of a hedging relationship and further, on the type of hedging
relationship.
We have
chosen not to elect hedge accounting for these forward contracts;
therefore, changes in fair value for these instruments are immediately
recognized in earnings and included in our foreign exchange gain
(loss). The fluctuations in the value of these forward
contracts do, however, generally offset the impact of changes in the value
of the underlying risk that they are intended to economically hedge.
F-14
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table provides gross notional value of foreign currency
derivative financial instruments and the related net asset or liability.
The table presents the notional amount (at contract exchange rates) and
the fair value of the derivatives in U.S. dollars:
|
December
31, 2011
|
December
31, 2010
|
|||||||||||||||
|
Notional
|
|
|
Net Asset (Liability) |
|
|
Notional
|
|
|
Net Asset (Liability) |
|||||||
|
Forward
contracts
|
$ | 100,000 | $ | 745 | $ | - | $ | - | ||||||||
We are
required to maintain a margin deposit with a foreign exchange corporation
equal to 5% of the value of each forward contract
outstanding. Margin deposits totaling $5,000 are included in
other current assets on our December 31, 2011 balance sheet. We had no
margin deposits related to forward contracts at December 31, 2010.
7. 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, 2011 and 2010 are as
follows:
|
2011 |
|
|
2010 |
|||||
|
Tax
provision (benefit) at the statutory rate of 34%
|
$ | (254,950 | ) | $ | (660,469 | ) | ||
|
State
income taxes, net of federal income tax
|
(22,946 | ) | (59,361 | ) | ||||
|
Stock-based
compensation
|
13,487 | 116,450 | ||||||
|
Change
in NOL
|
-0- | 7,679 | ||||||
|
Change
in valuation allowance and other
|
264,409 | 595,701 | ||||||
|
Canadian
income tax expense (benefit)
|
2,527 | 3,396 | ||||||
|
Income
tax expense (benefit)
|
$ | 2,527 | $ | 3,396 | ||||
In 2011,
the Company recorded Canadian income tax expense of $2,527. The
Company does not have any material Canadian deferred tax assets or
deferred tax liabilities.
As of
December 31, 2011, we had net operating loss carryforwards for federal and
state income tax reporting purposes amounting to approximately $9,150,000
and $2,980,000 which expire in varying amounts through the year 2031.
The
components of our deferred tax asset (liabilities) at December 31, 2011
and 2010 are as follows:
F-15
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
2011 |
|
2010 |
||||||
|
Tax
effect of net operating loss carryforward
|
$ | 3,205,000 | $ | 3,117,000 | ||||
|
Accrued
liabilities
|
1,494,000 | 1,312,000 | ||||||
|
Property
& equipment
|
(20,000 | ) | (40,000 | ) | ||||
|
Capitalized
software
|
(389,000 | ) | (360,000 | ) | ||||
|
Other
|
27,000 | 27,000 | ||||||
|
Less
valuation allowance
|
(4,317,000 | ) | (4,056,000 | ) | ||||
|
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 $261,000 for the
year ended December 31, 2011.
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 (2005-2011) 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.
8. 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. As at December 31, 2011 no preferred
shares have been issued.
b)
Common stock
An
amendment to the Company's Articles of Incorporation increasing the
authorized number of shares of common stock from 100,000,000 to
150,000,000 was approved on November 18, 2011 at our Annual Meeting of
Stockholders.
No shares
of common stock were issued during the year ended December 31, 2011.
F-16
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
c)
Stock option plan
We have
stock option plans whereby shares of our common stock may be issued
pursuant to the exercise of stock options granted to employees, officers,
directors, advisors, and our independent contractors. The exercise price
of the common stock underlying an option will be determined by the Board
of Directors or compensation committee and may be equal to, greater than,
or less than the market value of our common stock at the date
of grant but in no event less than 50% of such market value.
The options generally vest in one to four years unless, at the discretion
of the Board of Directors, alternative vesting methods are allowed. The
term of each option is determined at the time of grant and may extend to a
maximum of ten years.
At December
31, 2011, there are a total of 17,500,000 options authorized for issuance
under our stock option plans. There are 15,000,000 and
2,500,000 shares of common stock authorized for issuance pursuant Company's
2003 and 1999 Equity Incentive Compensation Plans
respectively. An amendment to the Company's 2003 Equity
Incentive Compensation Plan increasing the number of shares of common
stock authorized for issuance pursuant to the plan from 10,000,000 to
15,000,000 was approved on November 18, 2011 at our Annual Meeting of
Stockholders.
Options may
also be granted outside our stock option plan. Options granted outside the
plan generally contain terms that are more restrictive in nature and have
a maximum expiration term of ten years. We may grant an unlimited number
of options outside our stock option plan at the discretion of the Board of
Directors.
The
following table represents stock option and warrant activity for the years
ended December 31, 2011 and 2010:
|
|
|
|
Weighted- |
|||||
|
Options and |
|
|
Average |
|||||
|
Warrants |
|
|
Exercise Price |
|||||
|
Outstanding
at December 31, 2009
|
12,707,803 | $ | 0.08 | |||||
|
Granted
under company stock option plan
|
300,000 | $ | 0.07 | |||||
|
Warrants
granted
|
5,000,000 | $ | 0.07 | |||||
|
Stock
options forfeited/expired
|
(300,000 | ) | $ | 0.07 | ||||
|
Warrants
forfeited/expired
|
(5,000,000 | ) | $ | 0.07 | ||||
|
Outstanding
at December 31, 2010
|
12,707,803 | $ | 0.08 | |||||
|
Granted
under company stock option plan
|
4,655,000 | $ | 0.04 | |||||
|
Warrants
granted
|
8,552,803 | $ | 0.04 | |||||
|
Stock
options forfeited/expired
|
(3,655,000 | ) | $ | 0.07 | ||||
|
Warrants
forfeited/expired
|
(8,552,803 | ) | $ | 0.07 | ||||
|
Outstanding
at December 31, 2011
|
13,707,803 | $ | 0.05 | |||||
F-17
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table summarizes our non-vested stock option and warrant
activity for the years ended December 31, 2011 and 2010:
|
|
|
|
Weighted- |
|||||
|
Options and |
|
|
Average Grant |
|||||
|
Warrants |
|
|
Date Fair Value |
|||||
|
Non-vested
stock options and warrants at
|
||||||||
|
December
31, 2009
|
345,417 | $ | 0.07 | |||||
|
Granted
during the period
|
- | n/a | ||||||
|
Vested
during the period
|
(305,000 | ) | $ | 0.07 | ||||
|
Forfeited
during the period
|
- | n/a | ||||||
|
Non-vested
stock options and warrants at
|
||||||||
|
December
31, 2010
|
40,417 | $ | 0.07 | |||||
|
Granted
during the period
|
1,019,792 | $ | 0.04 | |||||
|
Vested
during the period
|
(68,195 | ) | $ | 0.05 | ||||
|
Forfeited
during the period
|
(19,792 | ) | $ | 0.07 | ||||
|
Non-vested
stock options and warrants at
|
||||||||
|
December
31, 2011
|
972,222 | $ | 0.04 | |||||
|
Options
and Warrants
|
||||||||||||||||||||
|
Options
and Warrants Outstanding
|
Exercisable
|
|||||||||||||||||||
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
||||||||
|
Number |
|
|
Average |
|
|
Weighted |
|
|
Number |
|
|
Weighted |
||||||||
|
Outstanding at |
|
|
Remaining |
|
|
Average |
|
|
Exercisable at |
|
|
Average |
||||||||
|
December 31, |
|
|
Contractual |
|
|
Exercise |
|
|
December 31, |
|
|
Exercise |
||||||||
|
2011 |
|
|
Life |
|
|
Price |
|
|
2011 |
|
|
Price |
||||||||
|
$0.04-0.10
|
13,207,803 | 4.05 | $ | 0.04 | 12,235,581 | $ | 0.04 | |||||||||||||
|
$0.11-0.40
|
500,000 | 2.88 | $ | 0.40 | 500,000 | $ | 0.40 | |||||||||||||
In April
2011, the Company's Board of Directors and Compensation Committee
authorized a reduction of the exercise price of a total of 12,207,803
stock options and warrants granted to employees and
directors. The new exercise price for those options and
warrants was fixed at $0.036 per share, which was the market price of the
Company's common stock at the time of the repricings. The vesting period
and the expiry dates of the repriced options and warrants remained
unchanged. The repricing of the options and warrants was accounted for as
an exchange of the original awards for new awards. The incremental
increase in fair value of the new awards resulted in additional
stock-based compensation expenses totaling $31,475 that was recognized in
full in April 2011.
As at
December 31, 2011 all stock options and warrants have been granted with
exercise prices equal to or greater than the market value of the
underlying common shares on the date of grant.
At December
31, 2011, the options and warrants outstanding had no intrinsic
value. The intrinsic value of stock options and warrants are
calculated as the amount by which the market price of our common stock
exceeds the exercise price of the option or warrant.
F-18
QUOTEMEDIA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
9. LOSS
PER SHARE
Basic
earnings per share is calculated by dividing the net income applicable to
common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is calculated by
dividing net income applicable to common stockholders, adjusted to exclude
potentially dilutive securities, by the weighted average number of common
shares outstanding during the period, plus any additional common shares
that would have been outstanding if potentially dilutive common shares had
been exercised, using the treasury stock method. Due to the net loss
incurred for the years ended 2011 and 2010, the diluted loss per share is
the same as basic, because any potentially dilutive securities would
reduce the loss per share. The following tables summarize the components
of the loss per share:
|
2011 |
|
|
2010 |
|||||
|
Numerator:
|
||||||||
|
Net
loss
|
$ | (752,381 | ) | $ | (1,945,952 | ) | ||
|
Denominator:
|
||||||||
| Weighted average shares outstanding - basic and diluted | 89,371,320 | 89,371,320 | ||||||
|
Loss
per share - basic and diluted
|
$ | (0.01 | ) | $ | (0.02 | ) | ||
| Stock options and warrants excluded from the calculation of dilutive loss per share because they were anti-dilutive | 13,707,803 | 12,707,803 | ||||||
10. COMMITMENTS
Rent
expense for all operating leases was $361,180 and $372,248 for the years
ended December 31, 2011 and 2010, respectively. We have office
lease commitments totaling $1,405,733 over the next five
years. We have office lease commitments totaling $365,232 in
2012, $373,476 in 2013, $367,846 in 2014, $261,691 in 2015 and $37,528 in
2016.
11. SUPPLEMENTARY
CASH FLOW INFORMATION
|
2011 |
|
|
2010 |
|||||
|
Cash
paid for
|
||||||||
|
Interest
|
$ | 7,726 | $ | 1,069 | ||||
|
Cash
received for
|
||||||||
|
Interest
|
- | - | ||||||
|
Cash
paid for taxes
|
- | - | ||||||
F-19