QUOTEMEDIA INC - Quarter Report: 2016 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, 2016

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 November 2, 2016.

QUOTEMEDIA, INC.

FORM 10-Q for the Quarter Ended September 30, 2016

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

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, 2016 through the filing of this report and determined no disclosures were required.

For the nine months ended September 30, 2016, the Company has a net loss of $1,383,587 and has a working capital deficit of $1,290,669. 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, 2015 contained in our Form 10-K filed with the Securities and Exchange Commission dated March 30, 2016.

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 earnings 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 $120,000 as of September 30, 2016 and $90,000 as of December 31, 2015.

e) Accounting Pronouncements

Accounting Pronouncements Adopted During the Current Year

In April 2015, the FASB issued ASU 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 became effective for all annual periods and interim reporting periods beginning after December 15, 2015. The adoption of this standard did not have a material impact on our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard describes how an entity’s management should assess whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management should consider both quantitative and qualitative factors in making its assessment. If after considering management’s plans, substantial doubt about an entity’s going concern is alleviated, an entity shall disclose information in the footnotes that enables the users of the financial statements to understand the events that raised the going concern and how management’s plan alleviated this concern. If after considering management’s plans, substantial doubt about an entity’s going concern is not alleviated, the entity shall disclose in the footnotes indicating that a substantial doubt about the entity’s going concern exists within one year of the date of the issued financial statements. Additionally, the entity shall disclose the events that led to this going concern and management’s plans to mitigate them. We adopted this standard on January 1, 2016. Our adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures.

Accounting Pronouncements Not Yet Adopted

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on our consolidated financial statements, from those disclosed in our Form 10-K for the year ending December 31, 2015, except for the following:

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) which amends lease accounting by lessors and lessees. This new standard will require, among other things, that lessees recognize a right-to-use asset and related lease liability for all significant financing and operating leases, and specifies where in the statement of cash flows the related lease payments are to be presented. The standard is effective for years beginning after December 15, 2018, including interim periods within those years (beginning in calendar year 2019 for the Company), and early adoption is permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2016-02 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718). This ASU changes how companies account for certain aspects of share-based payment awards to employees, including accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. We are currently evaluating the impact of adopting this ASU and expect this standard to not have a significant impact on our consolidated financial statements and related disclosures, which is effective for us in our fiscal year beginning January 1, 2017. Early adoption is permitted.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payment. The main purpose of this update is to address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU 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. RELATED PARTIES

The following table summarizes amounts due to related parties at September 30, 2016 and December 31, 2015:

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company entered into a five year office lease with 410734 B.C. Ltd. effective May 1, 2016 for approximately $7,500 per month. The President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary, is a control person of 410734 B.C. Ltd. The lease replaced the Company’s office lease with Harrison Avenue Holdings Ltd. (“Harrison”), which expired April 30, 2016. The President and Chief Executive Officer of QuoteMedia, Ltd. is also a control person of Harrison. At September 30, 2016, $7,500 was due to 410734 B.C. Ltd and included in accounts payable and accrued liabilities.

As a matter of policy all related party transactions are subject to review and approval by the Company’s Board of Directors. Substantially 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 September 30, 2016 balance sheet date. 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.

4. 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, 2016 and 2015 was comprised as follows:

At September 30, 2016 there was $153,990 of unrecognized compensation cost related to non-vested share-based payments which is expected to be recognized over a weighted-average period of 2.73 years.

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

The following table represents stock option and warrant activity for the nine months ended September 30, 2016:

The following table summarizes our non-vested stock option and warrant activity for the nine months ended September 30, 2016:

QUOTEMEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

As at September 30, 2016 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 September 30, 2016 the aggregate intrinsic value of options and warrants outstanding was $340,101. At September 30, 2016 the aggregate intrinsic value of options and warrants exercisable was $306,101. 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.

5. LOSS PER SHARE

The basic and diluted net loss per share was $(0.00) and $(0.00) per share for the three months ended September 30, 2016 and 2015, respectively. The basic and diluted net loss per share was $(0.02) and $(0.01) per share for the nine months ended September 30, 2016 and 2015, respectively. There were 16,372,803 stock options and warrants excluded from the calculation of dilutive loss per share for the three and nine months ended September 30, 2016, because they were anti-dilutive. There were 11,772,803 stock options and warrants excluded from the calculation of dilutive loss per share for the comparative three and nine months ended September 30, 2015, 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, 2015 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, 2015 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: Interactive Content and Data Applications, Data Feed Services, and Portfolio Management Systems. For financial reporting purposes, our product categories share similar economic characteristics therefore they are combined into one reporting segment.

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

Our Data Feed Services consist of raw streaming real-time market data delivered over the Internet or via dedicated telecommunication lines, and supplemental fundamental, historical, and analytical data, keyed to the same symbology, which provides a complete market data solution to be offered to our customers. Currently, QuoteMedia’s Data Feed services include complete coverage of North American exchanges and over 70 exchanges worldwide. For financial reporting purposes, Data Feed Services revenue is included in the Interactive Content and Data Applications revenue totals.

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

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

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

A key feature of QuoteMedia’s business model is that all of our product lines generate recurring monthly licensing revenue from each client. Contracts to license Quotestream to our corporate clients, for example, typically have a term of one to three years and are automatically renewed unless notice is given at least 90 days prior to the expiration of the current license term. We also generate Quotestream revenue through individual end-user licenses on a monthly or annual subscription fee basis. Interactive Content and Data Applications and Market Data Feeds are licensed for a monthly, quarterly, annual, or 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 5% versus the U.S. dollar for the nine months ending September 30, 2016 compared to the same period in 2015. This has resulted in lowering both our reported Canadian dollar revenues and expenses in the first three quarters of 2016 compared to 2015 once translated into U.S. dollars. Approximately 26% of our revenues and 31% of our expenses are in Canadian dollars, so while the appreciation of the U.S. dollar lowers our revenue figures, it has a positive impact on our bottom line.

Plan of operation

For the remainder of 2016 and for 2017 we will maintain our focus on marketing Quotestream for deployments by brokerage firms to their retail clients and continue our expansion into the investment professional market with Quotestream Professional. We also plan to continue the growth of our Data Feed Services client base, particularly through Quotestream Connect^TM, our new method of delivering realtime data feeds directly to individual users to power third party applications. Quotestream Connect^TM represents a huge opportunity for QuoteMedia in the coming year, as this allows QuoteMedia to retain Vendor of Record status with the exchanges in most cases – resulting in significant savings for our clients in resources and exchange fees.

QuoteMedia will continue to focus on increasing the sales of its Interactive Content and Data Applications, particularly in the context of large-scale enterprise deployments encompassing solutions ranging across several product lines. QMod is expected to be a major component of this strategy, given the broad demand for mobile-ready, SEO-friendly Web content.

Important new development projects for the remainder of 2016 and for 2017 include broad expansion of data and news coverage, including the addition of a wide array of international exchange data, real-time forex coverage, and several premium news services.

New deployments of our trade integration capabilities, which allow our Quotestream applications to interact with our brokerage clients’ back-end trade execution and reporting platforms (enabling on-the-fly trade execution and tracking of holdings) will also be a priority in the coming year.

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

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

Results of Operations

Revenue

Total licensing revenue increased 3% and 1% when comparing the three and nine months ended September 30, 2016 and 2015, mostly due to increases in Interactive Content and Data Application revenue.

Our Portfolio Management System revenue increased by a total of $39,903 (4%) when comparing the three month periods ended September 30, 2016 and 2015. Portfolio Management System revenue decreased by a total of $30,106 (1%) when comparing the nine month periods ended September 30, 2016 and 2015.

Corporate Quotestream revenue increased $47,278 (7%) for the three month period ended September 30, 2016 from the comparative period in 2015. Corporate Quotestream revenue increased $39,601 (2%) when comparing the nine month periods ended September 30, 2016 and 2015. The revenue increases were due to new Corporate Quotestream contracts signed since the comparative periods offset by the average depreciation of the Canadian dollar.

Individual Quotestream revenue decreased $7,375 (2%) and $69,707 (6%) from the three and nine month comparative periods in 2015. The decreases resulted from fewer subscribers than the comparative periods and from the average depreciation of the Canadian dollar.

Interactive Content and Data Application revenue, which includes Data Feed Services revenue, increased $31,810 (3%) when comparing the three month periods ended September 30, 2016 and 2015. Interactive Content and Data Application revenue increased $67,481 (2%) when comparing the nine month periods ended September 30, 2016 and 2015. The increases from the comparative periods were due to an increase in average revenue per Interactive Content and Data Application client contract.

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 decreased 7% and 1% when comparing the three and nine month periods ended September 30, 2016 and 2015. The decreases from the comparative periods were mainly due to cost savings from switching data line vendors and a credit received in September 2016 for the overbilling of stock exchange fees from June 2015 to September 2016.

Overall, the cost of revenue decreased as a percentage of sales, as evidenced by our gross margin percentages of 45% and 42% for the three and nine month periods ended September 30, 2016 compared to 39% and 41% in the respective periods in 2015.

Operating Expenses Summary

Sales and Marketing

Sales and marketing consists primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses increased $27,564 (8%) and decreased $244,867 (18%) when comparing the three and nine month periods ended September 30, 2016 and 2015.

The increase for the three months ended September 30, 2016 was mainly due to increase in marketing salaries due to additional personnel hired since the comparative period.

The decrease for the nine month period ended September 30, 2016 from the prior period was due mainly to the extension of stock options and warrants on May 15, 2015 which impacted stock-based compensation expense in the comparative periods. 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 decrease from the comparative nine month period was also due to the depreciation of the Canadian dollar versus the U.S. dollar from the comparative periods, as the majority of our sales and marketing expenses are incurred in Canadian dollars. The increase was offset by increase in marketing salaries due to additional personnel hired since the comparative period.

General and Administrative

General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses increased $39,725 (9%) and $39,469 (3%) when comparing the three and nine month periods ended September 30, 2016 and 2015. The increases from the comparative periods in 2015 was mainly due to the stock-based compensation expense recognized in the third quarter of 2016 associated with warrants granted in August 2016.

Software Development

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

Software development expenses increased $16,736 (7%) for the three month period ended September 30, 2016 and decreased $33,376 (4%) for the nine month period ended September 30, 2016 when compared to the same periods in 2015.

The increase for the three months ended September 30, 2016 was mainly due to increases in development salaries due to additional personnel hired since the comparative period.

The decrease for the nine month period ended September 30, 2016 was mainly due to the average depreciation of the Canadian dollar, as our development expenses are incurred mainly in Canadian dollars, offset by an increase in development salaries due to additional personnel hired since the comparative period.

We capitalized $168,177 and $517,383 of development costs for the three and nine months ended September 30, 2016, compared to $154,893 and $500,491 for the same periods in 2015. 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 foreign exchange gain of $23,402 and foreign exchange loss of $82,483 for the three and nine month periods ended September 30, 2016, compared to foreign exchange gains of $126,289 and $184,392 for the same periods in 2015. The foreign exchange gain and loss for the three and nine month periods ended September 30, 2016 arose primarily from the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars. We have a net Canadian dollar liability therefore we incur a foreign exchange gain when the Canadian dollar depreciates from the period beginning date, and a loss when the Canadian dollar appreciates.

The Canadian dollar depreciated 1.2% versus the U.S. dollar when comparing the foreign exchange rate at September 30, 2016 to the rate at June 30, 2016 resulting in a foreign exchange gain of $23,402 for the three months ended September 30, 2016.

The Canadian dollar appreciated 5.1% versus the U.S. dollar when comparing the foreign exchange rate at September 30, 2016 to the rate at December 31, 2015 resulting in a foreign exchange loss of $82,483 for the nine months ended September 30, 2016.

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, 2016 due to additional borrowings compared to the same periods in 2015. 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, 2016, the Company recorded Canadian income tax expense of $767 and $2,269, compared to $764 and $2,384 in the comparative periods in 2015.

Net Loss for the Period

As a result of the foregoing, net loss for the three months ended September 30, 2016 was $(362,765) or $(0.00) per share compared to a net loss of $(296,407) or $(0.00) per share for the three months ended September 30, 2015. The net loss for the nine months ended September 30, 2016 was $(1,383,587) or $(0.02) per share compared to a net loss of $(1,334,403) or $(0.01) per share for the nine months ended September 30, 2015.

Liquidity and Capital Resources

Our cash totaled $184,439 at September 30, 2016, as compared with $251,834 at December 31, 2015, a decrease of $67,395. Net cash of $565,990 was provided by operations for the nine months ended September 30, 2016, primarily due to the increase in accounts payable and amounts due to related parties, 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, 2016 was $633,385 resulting from capitalized application software costs and the purchase of new computer equipment. There were no financing activities for the three month period ended September 30, 2016.

Our current liabilities include deferred revenue of $617,636. The costs expected to be incurred to realize the deferred revenue in the next 12 months are minimal.

Our long term liabilities include $10,565,760 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, 2016 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, 2016, 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.