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EXCEL - IDEA: XBRL DOCUMENT - QUOTEMEDIA INCFinancial_Report.xls
EX-21 - LIST OF SUBSIDIARIES - QUOTEMEDIA INCex21.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A), PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED - QUOTEMEDIA INCex311.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - QUOTEMEDIA INCex322.htm
EX-23.1 - CONSENT OF HEIN & ASSOCIATES LLP, INDEPENDENT AUDITORS - QUOTEMEDIA INCex231.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - QUOTEMEDIA INCex321.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A), PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED - QUOTEMEDIA INCex312.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K

 (Mark one)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period _________ to _________                    
    
Commission File Number: 0-28599

QUOTEMEDIA, INC.
 (Exact name of registrant as specified in its charter)
 
Nevada
91-2008633
(State or Other Jurisdiction of Incorporation or Organization)
(IRS Employer Identification Number)

17100 East Shea Boulevard, Suite 230, Fountain Hills, AZ 85268
(Address of Principal Executive Offices)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Name of exchange on which registered
Common stock, par value $.001 per share
OTCQB tier of the OTC Markets
 
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):

Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company þ
 
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
 
     Page
 
PART I
 
ITEM 1.
BUSINESS
2
ITEM 1A.
RISK FACTORS
8
ITEM 1B.
UNRESOLVED STAFF COMMENTS
11
ITEM 2.
PROPERTIES
11
ITEM 3.
LEGAL PROCEEDINGS
11
ITEM 4.
MINE SAFETY DISCLOSURES
11
 
PART II
 
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
 
 
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
12
ITEM 6.
SELECTED FINANCIAL DATA
12
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 
 
RESULTS OF OPERATIONS
13
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
19
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
19
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
 
 
ACCOUNTING AND FINANCIAL DISCLOSURE
19
ITEM 9A.
CONTROLS AND PROCEDURES
19
ITEM 9B.
OTHER INFORMATION
20
 
PART III
 
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
21
ITEM 11.
EXECUTIVE COMPENSATION
23
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
 
 
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
25
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
 
 
INDEPENDENCE
29
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
30
 
PART IV
 
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
31
SIGNATURES
 
32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
 

________________________________________________________________

 
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.
 
 
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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.
 
 
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 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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
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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.
 
 
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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),
 
 
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·  
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
Amount

 

 

Net Asset (Liability)

 

 

Notional
Amount

 

 

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 f