QUOTEMEDIA INC - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

For the quarterly period ended September 30, 2015

OR

For the transition period _________ to _________

Commission File Number: 0-28599

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

(Address of Principal Executive Offices)

(480) 905-7311
(Registrant's Telephone Number, Including Area Code)

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

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

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

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

The Registrant has 90,477,798 shares of common stock outstanding as at October 30, 2015.

QUOTEMEDIA, INC.

FORM 10-Q for the Quarter Ended September 30, 2015

INDEX

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

QUOTEMEDIA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

See accompanying notes

QUOTEMEDIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying notes

QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) 

See accompanying notes

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 1. BASIS OF PRESENTATION AND LIQUIDITY

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the generally accepted accounting principles for interim financial statements and instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for a full year. In connection with the preparation of the condensed consolidated financial statements the Company evaluated subsequent events after the balance sheet date of September 30, 2015 through the filing of this report.

For the nine months ended September 30, 2015, the Company has a net loss of $1,334,403 and has a working capital deficit of $1,132,522. The Company has a plan in place for the next 12 months to ensure ongoing expenditures are balanced with the expected growth rate, and believes cash on hand and cash generated will be sufficient to fund operations for the next 12 months. See Liquidity and Capital Resources in Item 2 below. 

These financial statements should be read in conjunction with our financial statements and the notes thereto for the fiscal year ended December 31, 2014 contained in our Form 10-K filed with the Securities and Exchange Commission dated March 31, 2015.

2. SIGNIFICANT ACCOUNTING POLICIES

a) Nature of operations

We are a software developer and distributor of financial market data and related services to a global marketplace. We specialize in the collection, aggregation, and delivery of both delayed and real-time financial data content via the Internet. We develop and license software components that deliver dynamic content to banks, brokerage firms, financial institutions, mutual fund companies, online information and financial portals, media outlets, public companies, and corporate intranets.

b) Basis of consolidation

The consolidated financial statements include the operations of Quotemedia, Ltd., a wholly owned subsidiary of Quotemedia, Inc. All intercompany transactions and balances have been eliminated.

c) Foreign currency translation and transactions

The U.S. dollar is the functional currency of all our company's operations. Foreign currency asset and liability amounts are remeasured into U.S. dollars at end-of-period exchange rates, except for equipment and intangible assets, which are remeasured at historical rates. Foreign currency income and expenses are remeasured at average exchange rates in effect during the period, except for expenses related to balance sheet amounts remeasured at historical exchange rates. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which they occur.

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

d) Allowances for doubtful accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of the Company's customers to make required payments. The Company determines the allowance by reviewing the age of the receivables and assessing the anticipated ability of customers to pay. No collateral is required for any of the receivables and the Company does not usually apply financing charges to outstanding accounts receivable balances. If the financial condition of our customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. The allowance for doubtful accounts was $90,000 as at September 30, 2015 and December 31, 2014.

e) Accounting Pronouncements

New Accounting Standards

In April 2015, the FASB issued Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The amendment requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. The new standard is limited to the presentation of debt issuance costs and does not affect the recognition or measurement of debt issuance costs. This update will become effective for all annual periods and interim reporting periods beginning after December 15, 2015. The adoption of this standard is not expected to have a material impact on the Company's consolidated 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.

3. FINANCIAL INSTRUMENTS

a) Fair value of financial instruments

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

From time to time we utilize forward contracts that are measured at fair market value on a recurring basis based on Level 2 inputs. We had no forward contracts outstanding at September 30, 2015. At December 31, 2014, the fair market value for forward contracts was a liability of $5,297 and was included in accrued liabilities.

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

b) Derivative instruments

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

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

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

The following table provides gross notional value of foreign currency derivative financial instruments and the related net asset or liability. The table presents the notional amount (at contract exchange rates) and the fair value of the derivatives in U.S. dollars:

We are required to maintain a margin deposit with a foreign exchange corporation based on the value of the forward contracts outstanding. There were no margin deposits at September 30, 2015. Margin deposits totaling $11,500 are included in other current assets at December 31, 2014.

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) 

4. RELATED PARTIES

The following table summarizes amounts due to related parties at September 30, 2015 and December 31, 2014:

As a matter of policy, all related party transactions are subject to review and approval by the Company's Board of Directors. All repayments of amounts due to related parties must be approved by our Board of Directors. Repayments are subject to our company having sufficient cash on hand and are intended not to impair continuing business operations. All amounts due to related parties have been classified as non-current liabilities as we do not expect to make any repayments within a year of the September 30, 2015 balance sheet date. Our related party creditors have agreed to these repayment terms.

5. STOCK-BASED COMPENSATION

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

Total estimated stock-based compensation expense, related to all of the Company's stock-based awards, recognized for the three and nine months ended September 30, 2015 and 2014 was comprised as follows:

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

At September 30, 2015 there was $12,406 of unrecognized compensation cost related to non-vested share-based payments which is expected to be recognized over a weighted-average period of 0.42 years.

We calculate the fair value of stock options and warrants granted under the provisions of FASB ASC 718 using the Black-Scholes valuation model with the following assumptions:

The following table represents stock option and warrant activity for the nine months ended September 30, 2015:

The following table summarizes our non-vested stock option and warrant activity for the nine months ended September 30, 2015:

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

As at September 30, 2015 all new 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. Extended options and warrants that were accounted for as an exchange of the original awards for new awards were granted with the same exercise price as the original awards. There was no cash received from the exercise of stock options or warrants for the nine months ended September 30, 2015.

At September 30, 2015 the aggregate intrinsic value of options and warrants outstanding was $289,101. The aggregate intrinsic value of options and warrants exercisable was $281,601. The intrinsic value of stock options and warrants are calculated as the amount by which the market price of our common stock exceeds the exercise price of the option or warrant.

6. LOSS PER SHARE

The basic and diluted net loss per share was $(0.00) per share for the three months ended September 30, 2015 and 2014. The basic and diluted net loss per share was $(0.01) per share for the nine months ended September 30, 2015 and 2014. There were 11,772,803 stock options and warrants excluded from the calculation of dilutive loss per share for the three and nine months ended September 30, 2015, because they were anti-dilutive. There were 12,377,803 stock options and warrants excluded from the calculation of dilutive loss per share for the comparative three and nine months ended September 30, 2014, because they were anti-dilutive.

ITEM 2. Management's Discussion and Analysis

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report. We caution readers regarding certain forward looking statements in the following discussion, elsewhere in this report, and in any other statements, made by, or on behalf of our company, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on behalf of, our company. Uncertainties and contingencies that might cause such differences include those risk factors disclosed in our annual report on Form 10-K for the year ended December 31, 2014 and other reports filed from time to time with the SEC.

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

This report should be read in conjunction with our Form 10-K for the fiscal year ended December 31, 2014 filed with the Securities and Exchange Commission.

Overview

We are a developer of financial software and a distributor of market data and research information to online brokerages, clearing firms, banks, media properties, public companies and financial service corporations worldwide. Through the aggregation of information from many direct data, news, and research sources, we offer a comprehensive range of solutions for all market-related information provisioning requirements.

We have three general product lines: Data Feed Services, Interactive Content and Data Applications, and Portfolio Management Systems.

Our Data Feed Services consist of raw streaming real-time market data delivered over the Internet or via dedicated telecommunication lines, and supplemental fundamental, historical, and analytical data, keyed to the same symbology, which provides a complete market data solution to be offered to our customers. Currently, QuoteMedia's Data Feed services include complete coverage of North American exchanges and over 70 exchanges worldwide.

Our Interactive Content and Data Applications consist of a suite of software applications that provide publicly traded company and market information to corporate clients via the Internet. Products include stock market quotes, fundamentals, historical and interactive charts, company news, filings, option chains, insider transactions, corporate financials, corporate profiles, screeners, market research information, investor relations provisions, level II, watch lists, and real-time quotes. All of our content solutions are completely customizable and embed directly into client Web pages for seamless integration with existing content. We are also in the process of launching QMod, our new proprietary Web delivery system. QMod was created for secure market data provisioning as well as ease of integration and unlimited customization. Additionally, QMod delivers responsive content designed to adapt on the fly when rendered on mobile devices or standard Web pages – automatically resizing and reformatting to fit the device on which it is displayed.

Our Portfolio Management Systems consist of Quotestream, Quotestream Mobile, Quotestream Professional, and our Web Portfolio Management systems. Quotestream Desktop is an Internet-based streaming online portfolio management system that delivers real-time and delayed market data to both consumer and corporate markets. Quotestream has been designed for syndication and private branding by brokerage, banking, and Web portal companies. Quotestream's enhanced features and functionality – most notably tick-by-tick true streaming data, significantly enhanced charting features, and a broad range of additional research and analytical content and functionality – offer a professional-level experience to nonprofessional users.

Quotestream Professional is designed specifically for use by financial services professionals and their support personnel, offering exceptional coverage and functionality at extremely aggressive pricing. Quotestream Professional features broad market coverage, reliability, complete flexibility, ultra low-latency tick-by-tick data, as well as completely customizable screens, advanced charting, comprehensive technical analysis, news and research data.

Quotestream Mobile is a true companion product to the Quotestream desktop products (Quotestream and Quotestream Professional) – any changes made to portfolios in either the desktop or mobile application are automatically reflected in the other.

A key feature of QuoteMedia's business model is that all of our product lines generate recurring monthly licensing revenue from each client. Contracts to license Quotestream to our corporate clients, for example, typically have a term of one to three years and are automatically renewed unless notice is given at least 90 days prior to the expiration of the current license term. We also generate Quotestream revenue through individual end-user licenses on a monthly or annual subscription fee basis. Interactive Content and Data Applications and Market Data Feeds are licensed for a monthly, quarterly, annual, or biannual subscription fee. Contracts to license our Financial Data Products and Data Feeds typically have a term of one to three years and are automatically renewed unless notice is given 90 days prior to the expiration of the contract term.

Business environment and trends

The global financial markets have experienced extreme volatility and disruption in recent years. As a result, financial institutions globally have acted to control or reduce operational spending. While in some areas the anticipated impact of current market conditions may lead to a decision to reduce demand for market data and related services, we expect overall spending on financial information services will grow modestly over the next several years.

The Canadian dollar depreciated an average of 20.1% and 15.0% versus the U.S. dollar for the three and nine months ending September 30, 2015 compared to the same periods in 2014. This has resulted in lowering both our reported Canadian dollar revenues and expenses in 2015 compared to 2014 once translated into U.S. dollars. Approximately 27% of our revenues and 28% of our expenses are in Canadian dollars, so while the appreciation of the U.S. dollar will lower 2015 revenue figures compared to 2014, it will have little impact our bottom line in 2015.

Plan of operation

For the remainder of 2015 and for 2016 we will maintain our focus on marketing Quotestream for deployments by brokerage firms to their retail clients and continue our expansion into the investment professional market with Quotestream Professional. Our deployment of native applications for the iPhone, Android and Blackberry mobile devices is an important new development that we are planning to exploit this year. We also plan to continue the growth of our Data Feed Services client base and to increase the sales of its Interactive Content and Data Applications, particularly in the context of large-scale enterprise deployments encompassing solutions ranging across several product lines. Broad expansion of data and news coverage is also a priority for 2016.

Important new development projects for the remainder of 2015 and for 2016 include rollout of recently completed trade integration capabilities, allowing our Quotestream to interact with our brokerage clients' back-end trade execution and reporting platforms to enable on-the-fly trade execution and tracking of holdings. We are also rolling out QMod, our new Web content and data feed product line, using new dynamically updating data delivery mechanisms and proprietary content libraries, as well as advanced HTML5 solutions that offer dynamically updating real-time market data and next-generation interactivity.

Opportunistically, efforts will be made to evaluate and pursue the development of additional new products that may eventually be commercialized by our company. Although not currently anticipated, we may require additional capital to execute our proposed plan of operation. There can be no assurance that such additional capital will be available to our company on commercially reasonable terms or at all.

Our future performance will be subject to a number of business factors, including those beyond our control, such as a continuation of market uncertainty and evolving industry needs and preferences, as well as the level of competition and our ability to continue to successfully market our products and technology. There can be no assurance that we will be able to successfully implement our marketing strategy, continue our revenue growth, or achieve profitable operations.

Results of Operations

Revenue

Nine months ended September 30,

Total licensing revenue decreased 6% and 4% when comparing the three and nine months ended September 30, 2015 and 2014. Our revenue was negatively impacted by the change in average exchange rates from the comparatives periods in 2014. The Canadian dollar has depreciated an average of 20.1% and 15.0% versus the U.S. dollar for the three and nine months ending September 30, 2015 compared to the same periods in 2014. This resulted in lowering our reported Canadian dollar revenues by approximately $115,000 and $270,000 for the three and nine month periods ending September 30, 2015 once translated into U.S. dollars. Had exchange rates remained unchanged from the comparative periods, revenue would have decreased 1.0% and increased 0.3% when comparing the three and nine months ended September 30, 2015 and 2014.

Our Portfolio Management System revenue decreased by a total of $91,560 (8%) and $103,238 (3%) when comparing the three and nine month periods ended September 30, 2015 and 2014, respectively.

Corporate Quotestream revenue decreased $45,004 (6%) and increased $4,476 (0%) for the three and nine month periods ended September 30, 2015 from the comparative periods in 2014. Corporate Quotestream revenue increased from the comparative periods before translating Canadian dollar revenue into U.S. dollars due to new contracts signed during 2015. This revenue growth was offset by the depreciation of the Canadian dollar. The depreciation of the Canadian dollar resulted in a 6.7% and 5.5% decrease in Corporate Quotestream revenue for the three and nine months ended September 30, 2015 from the comparative periods in 2014 as approximately 36% of our Corporate Quotestream revenue is in Canadian dollars.

Individual Quotestream revenue decreased $46,556 (11%) and $107,714 (8%) from the three and nine month comparative periods in 2014. The decreases resulted from a decrease in the number of subscribers from the comparative periods and from the depreciation of the Canadian dollar. The depreciation of the Canadian dollar resulted in a 6.9% and 5.4% decrease in Individual Quotestream revenue for the three and nine months ended September 30, 2015 from the comparative periods in 2014 as approximately 39% of our individual Quotestream revenue is in Canadian dollars.

Interactive Content and Data Application revenue decreased $48,161 (4%) and $148,110 (4%) when comparing the three and nine month periods ended September 30, 2015 and 2014, respectively. The decreases from the comparative periods are primarily due to the depreciation of the Canadian dollar. The depreciation of the Canadian dollar resulted in a 3.4% and 2.6% decrease in Interactive Content and Data Application revenue for the three and nine months ended September 30, 2015 from the comparative periods in 2014 as 18% of our Interactive Content and Data Application revenue is in Canadian dollars.

Cost of Revenue and Gross Profit Summary

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

Cost of revenue increased 3% and 2% when comparing the three and nine month periods ended September 30, 2015 and 2014. We incurred increased financial content fees from the comparative periods due to new and increased fees levied by a number of content providers, offset by the cost savings from switching data line vendors.

Overall, the cost of revenue increased as a percentage of sales, as evidenced by our gross margin percentages of 39% and 41% for the three and nine month periods ended September 30, 2015 compared to 44% in the respective periods in 2014.

Operating Expenses Summary

Nine months ended September 30,

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 $33,335 (9%) and increased $164,438 (14%) when comparing the three and nine month periods ended September 30, 2015 and 2014.

The decrease for the three month period ending September 30, 2015 is due mainly to the depreciation of the Canadian dollar as our sales and marketing expenses are incurred mainly in Canadian dollars.

The increase for the nine month period ending September 30, 2015 was due to the extension of stock options and warrants in May 2015. On May 15, 2015, the Company extended the term of a total of 8,458,803 options and warrants. The extension 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 $278,828 that was recognized in full in May 2015. Of the $278,828 stock-based compensation expense recognized, $268,493 was classified as sales and marketing expense. The increase from the nine month comparative period was offset by the impact of the depreciation of the Canadian dollar on the translation of our Canadian dollar sales and marketing expenses.

General and Administrative

General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses decreased $30,750 (7%) and $92,841 (6%) for the three and nine month periods ended September 30, 2015 when compared to the same periods in 2014.

The decrease for the three month period ending September 30, 2015 is due mainly to the impact of the depreciation of the Canadian dollar on the translation of our Canadian dollar general and administrative expenses.

The decrease for the nine month period ending September 30, 2015 is due to the impact of the appreciation of the U.S. dollar on the translation of our Canadian dollar general and administrative expenses, as well as a decrease in customer service outsourcing expenses. Starting in July 2013, we outsourced our level 1 customer service functions. This outsourcing agreement was terminated effective May 31, 2014 and customer service functions were moved back in house and included in development expenses.

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 $18,961 (8%) for the three month period ended September 30, 2015 and $52,025 (7%) for the nine month period ended September 30, 2015 when compared to the same periods in 2014. The decreases from the comparative periods are due mainly to the depreciation of the Canadian dollar, as our development expenses are incurred mainly in Canadian dollars.

We capitalized $154,893 and $500,491 of development costs for the three and nine months ended September 30, 2015, compared to $222,454 and $625,700 for the same periods in 2014. These costs relate to the development of application software used by subscribers to access, manage, and analyze information in our databases. Capitalized costs associated with application software are amortized over their estimated economic life of three years.

Other Income and (Expense) Summary

Nine months ended September 30,

Foreign Exchange Gain (Loss)

Exchange gains and losses primarily arise from the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars. The change in fair value for outstanding foreign exchange forward contracts is also included in foreign exchanges gains and losses as well as gains and losses recognized from foreign exchange forward contracts exercised during the period.

We recognized a foreign exchange gain of $126,289 and $184,392 for the three and nine month periods ended September 30, 2015, compared to foreign exchange gains of $58,995 and $36,410 for the same periods in 2014. The foreign exchange gains for the three and nine month periods ended September 30, 2015 were due to the gains arising from the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars, as we have a net Canadian dollar liability. The U.S. dollar appreciated 8.5% versus the Canadian dollar when comparing the foreign exchange rate at June 30, 2015 versus the rate at September 30, 2015. The U.S. dollar appreciated 15.3% versus the Canadian dollar when comparing the foreign exchange rate at December 31, 2014 versus the rate at September 30, 2015. The foreign exchange gains were offset by losses related to foreign currency contracts exercised during 2015.

Interest Expense

Interest is accrued on certain amounts owed to related parties. Interest expense increased for the three and nine month periods ended September 30, 2015 due to additional borrowings compared to the same periods in 2014. Interest is accrued at 10% per annum. Interest income earned on cash balances is netted against interest expenses.

Provision for Income Taxes

For the three and nine month periods ended September 30, 2015, the Company recorded Canadian income tax expense of $764 and $2,384, compared to $919 and $2,743 in the comparative periods in 2014.

Net Loss for the Period

As a result of the foregoing, net loss for the three months ended September 30, 2015 was $(296,407) or $(0.00) per share compared to a net loss of $(240,571) or $(0.00) per share for the three months ended September 30, 2014. The net loss for the nine months ended September 30, 2015 was $(1,334,403) or $(0.01) per share compared to a net loss of $(1,073,972) or $(0.01) per share for the nine months ended September 30, 2014.

Liquidity and Capital Resources

Our cash totaled $165,719 at September 30, 2015, as compared with $423,053 at December 31, 2014, a decrease of $257,334. Net cash of $342,849 was provided by operations for the nine months ended September 30, 2015, primarily due to the increase in amounts due to related parties and deferred revenue, offset by the net loss for the period adjusted for non-cash charges. Net cash used in investing activities for the nine months ended September 30, 2015 was $600,183 resulting from capitalized application software costs and the purchase of new computer equipment. There were no financing activities for the nine month period ended September 30, 2015.

For the nine months ended September 30, 2015 we had a net loss of $1,334,403, and at September 30, 2015 we have a net working capital deficit of $1,132,522 that represented current assets minus current liabilities.

We have a plan in place for the next 12 months to ensure that our ongoing expenditures are balanced with our expected revenue growth rate. We anticipate that based on product deployments that have recently been completed and are near completion, we will see moderate revenue growth for the next 12 months. Our current liabilities include deferred revenue of $617,931. The costs expected to be incurred to realize the deferred revenue in the next 12 months are minimal. Our long-term liabilities include $9,132,018 due to related parties. All repayments of amounts due to related parties must be approved by our Board of Directors. Repayments are subject to our company having sufficient cash on hand and are intended not to impair continuing business operations.

Based on the factors discussed above, we believe that our cash on hand and cash generated from operations will be sufficient to fund our current operations for at least the next 12 months. However, 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.

Our long-term liquidity requirements will depend on many factors, including the rate at which we expand our business, and whether we do so internally or through acquisitions. To the extent that the funds generated from operations are insufficient to fund our activities in the long term, we may be required to raise additional funds through public or private financing. No assurance can be given that additional financing will be available or that, if it is available, it will be on terms acceptable to us.

ITEM 4. Controls and Procedures

Under the supervision and with the participation of our Chairman of the Board and Chairman of the Audit Committee, Chief Executive Officer and Chief Financial Officer, we completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on that evaluation, we and our management have concluded that our disclosure controls and procedures at September 30, 2015 were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and are designed to ensure that information required to be disclosed by us in these reports is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosures. In the three months ended September 30, 2015, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

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

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS

SIGNATURES

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

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